Final Results

19th Feb 2009 07:00



Resilient performance in tough environment

Rexam, the global consumer packaging company and the world's leading beverage can maker, announces its results for the full year 2008.

Underlying performance1	2008		2007	Change
Continuing operations2
Sales	£4,618m		£3,611m	28%
Underlying operating profit	£466m		£354m	32%
Underlying profit before tax	£328m		£245m	34%
Underlying earnings per share	35.3p		28.0p	26%
Dividends per share	21.0p		20.0p	5%

Key highlights

Record sales and underlying operating profit up 28% and 32% respectively

Organic3 sales up 7% driven by price increases and volume growth in beverage cans

Organic3 operating profit up 3%, with Group margin up to 10.1%

Tougher second half offset by favourable foreign exchange translation

Efficiency savings of £35m

Net debt at £2.6bn, increase in second half mainly due to foreign exchange translation: underlying interest cover 3.5 times

Dividend increase of 5% 

Actively managing cost base and focusing on cash generation in 2009

Commenting on the 2008 results, Leslie Van de Walle, Rexam's Chief Executive Officer, said:

"Rexam is a resilient business as proved by this set of results, but we are not immune to the global economic crisis, and trading in the second half of 2008 weakened as market conditions deteriorated. However, the company is flexible and able to adapt to new, more challenging circumstances without compromising our vision of being the world's leading consumer packaging company.  

"We recognise that times are uncertain and that it is difficult to predict how the economic downturn will affect our trading in 2009 but we remain focused on generating cash and managing costs to underpin the progress we made in 2008."

Statutory results4	2008		2007	Change
Continuing operations2
Sales	£4,618m		£3,611m	28%
Operating profit	£380m		£371m	2%
Profit before tax	£240m		£260m	(8)%
Total profit for year	£171m		£240m	(29)%
Total basic earnings per share	26.8p		39.0p	(31)%

19 February 2009

Notes

1	Underlying business performance is continuing operations before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.
2	Continuing operations include ongoing operations and businesses that have been disposed or are held for sale in either 2008 or 2007 ("disposed businesses") but exclude discontinued operations.
3	Organic change is the year on year change on continuing operations (excluding disposed businesses) and at constant currency.
4	Statutory results profits and earnings include exceptional items, the amortisation of certain acquired intangible assets, fair value changes on financing derivatives and discontinued operations.

Enquiries

Rexam PLC	020 7227 4100
Leslie Van de Walle, Chief Executive Officer
David Robbie, Finance Director
Sandra Moura, Head of Investor Relations

Financial Dynamics	020 7269 7121
Richard Mountain

A copy of this release has been posted on the Rexam website, www.rexam.com. The 2008 results presentation will be webcast live today at 09:00 UK time and can be viewed on www.rexam.com. 

A dial in conference call will be held today at 14:30 UK time. For callers in the US please dial (973) 200 3368 ID 82755742. The dial in number in the UK is 0800 032 3836 ID 82755742.

This release contains statements which are not based on current or historical fact and which are forward looking in nature. These forward looking statements reflect knowledge and information available at the date of preparation of this release and the Company undertakes no obligation to update these forward looking statements. Such forward looking statements are subject to known and unknown risks and uncertainties facing the Group including, without limitation, those risks described in this release, and other unknown future events and circumstances which can cause results and developments to differ materially from those anticipated. Nothing in this release should be construed as a profit forecast.

  CHAIRMAN'S STATEMENT

Last year we said that we were looking forward to returning to profitable growth in 2008 and I am delighted to report that we fulfilled that expectation, despite facing unprecedented global financial and economic volatility.

Overall Rexam delivered a good set of results as we continued to pursue our strategic objectives. In common with many companies, we experienced a year of two halves, where a strong start to the year was followed by a progressively weaker second half as market conditions grew tougher. However, given our global spread, we benefited from favourable exchange rate movements which resulted in the Group producing record sales and underlying profits.

The details of our performance can be found in the Business Review but, in brief, Group sales rose to £4.6bn including the benefit of recent acquisitions and foreign currency exchange, an increase of 28% on 2007. Underlying operating profit, which excludes exceptional items, the amortisation of certain acquired intangible assets and discontinued operations, increased 32% to £466m. At Group level, margins improved from 9.8% to 10.1%.

Free cash flow generation was negative at £128m. This is largely a result of the capital investments made to secure the foundations of our business going forward and capture profitable growth. The investment was made mostly in our European beverage can business. 

We have been planning for a significant reduction in 2009 capital expenditure for some time and in light of the current economic environment we have further reviewed our spending for the current year. Our intention remains to be free cash flow positive after the payment of dividends in 2009.

Net debt at year end was £2.6bn. The favourable foreign exchange rates benefit our profit lines but are detrimental to our net debt level when translated into sterling, given our currency debt profile where around 80% of our net debt is in US dollars. The level of debt also reflects the acquisition of Rostar, the Russian beverage can maker, which completed on 31 January 2008, as well as a number of one off working capital outflows in the second half of the year, some of which we expect to reverse in 2009.

Interest cover was 3.5 times which is slightly lower than last year, but Rexam remains a cash generative business.

In June 2008, we successfully completed the refinancing of the £370m sterling bond due in March 2009 with $775m of bonds issued in the US market. Our next major round of financing arises in the final quarter of 2010 although we are targeting to secure renewal of this funding during the first half of 2009. In all, we currently have £3.3bn of committed bond and bank facilities available to the Group, a headroom of £0.7bn versus year end net debt.

  Positioning our business

Consumer packaging is a relatively defensive industry and although it is certainly not immune to downturns, Rexam's position within it offers a degree of resilience as well as performance in times of economic weakness. Our results in 2008 reflect the organisation's pragmatism and its resolve to act swiftly and focus on the levers which it can influence to secure the profits and cash flow of the business going forward. Significant pricing initiatives, continued cost control, the closure of plants to ensure capacity and demand stay in balance, and the hedging of raw material costs are just some examples of where we took strong, positive and timely action.

The rapid and successful integration of the OI Plastics and Rostar acquisitions provides further evidence of the strength and skills of the leadership team. In both cases, synergies are on track.

Exceptional costs arising in 2008, mainly from the plant closures mentioned above, totalled £42m before tax.

Focusing on people

In times such as these, people and organisations come under huge pressure. Obviously we will do what is necessary to manage our cost base effectively and we have already taken a number of tough decisions with plant closures and redundancies. However, during these times it is critical that we do all we can to manage and retain our talent pool and protect the foundations of our business so that we are positioned for profitable growth.

During 2008 we revitalised a number of our people processes as we continue to strengthen the organisation and create an even more compelling working environment. The introduction of a more integrated approach to performance and talent management is just one example of the work undertaken.

We have also reviewed and re-engineered the key components of our executive reward package to ensure that it supports both our core values and our business strategy. The aim of the new reward policy, which we have discussed with our major shareholders, is to recompense both business and individual performance, to reinforce the need to focus on key company objectives and to align the management rewards with the interests of shareholders. Subject to approval at the Annual General Meeting (AGM) 2009, we are planning to adopt a new long term incentive plan arising out of the same review.

Changing the Board

At the AGM in May 2008, Rolf Börjesson, my predecessor as Chairman, retired. Rolf was the architect of the modern Rexam. His vision and determination guided Rexam to become what it is today - a leading global consumer packaging company. On behalf of the Board and, indeed, all of Rexam, I would like to thank him for the work he did first as Chief Executive and then as Chairman and to offer him our very best wishes for the future.

In December 2008, we announced that Mike Buzzacott would retire at the AGM on 7 May 2009 after three consecutive terms on the Board. His insight and specialist knowledge have been of great help to the Board and particularly the Audit Committee. I would like to thank Mike for his contribution over the last nine years and we also wish him every success. His place on the Board has been taken by John Langston, Finance Director of Smiths Group plc. John will take on the role of chairman of the Audit Committee when Mike retires. Given John's commercial and financial experience, the Board and I are confident he will make an excellent contribution, both as a non executive director and as the Audit Committee chairman. 

  At the start of 2009, Bill Barker, Executive Director and Group Director Beverage Cans, left the company following a restructuring of the Beverage Can leadership team. I would like to thank Bill for his drive and determination in making our global Beverage Can operation a truly world class manufacturing organisation. He leaves the legacy of a strong team and a strong platform on which to build further. We wish him well as he returns home to a new life in the United States.

Increasing dividends

After considerable thought in view of the current economic environment, the Board has recommended a final dividend of 12.3p per ordinary share, which, including the interim dividend of 8.7p, represents an increase of 5% on last year. Subject to approval by the shareholders at the AGM on 7 May 2009, the dividend will be paid on 2 July 2009 to holders of ordinary shares registered on 5 June 2009. Given the economic uncertainty and the emphasis on prudence, any further dividend increase in the short term will be kept under close review.

Looking ahead

This has been my first year with Rexam and it has certainly been an interesting one. I have seen at first hand the high calibre of our leadership team and I have witnessed the enthusiasm, professionalism and dedication of our people during my visits to Rexam's businesses around the world. I have also met with customers and shareholders to understand their thoughts about Rexam. I am delighted to report that, overall, the feedback I received was extremely positive.

Rexam is a resilient business as proved by this set of results, but we are not immune to the global economic crisis, and trading in the second half of 2008 weakened as market conditions deteriorated. However, the Company is flexible and able to adapt to new, more challenging circumstances without compromising our vision of being the world's leading consumer packaging company.

We recognise that times are uncertain and that it is difficult to predict how the economic downturn will affect our trading in 2009 but we remain focused on generating cash and managing costs to underpin the progress we made in 2008.

Peter Ellwood

Chairman

19 February 2009

  BUSINESS REVIEW

Consumer packaging has long been regarded as a relatively defensive industry. In Rexam's case, this defensiveness is further enhanced by our balanced product portfolio of Beverage Cans and Plastic Packaging as well as a broad geographic spread comprising a mix of well established and emerging markets. As a result we delivered a record underlying performance in 2008. It was essentially a tale of two halves with a strong first six months and a more difficult second half due to softer trading as global economic and financial conditions deteriorated, which was offset by the favourable effect of foreign currency exchange. 

While we began to see the impact of the economic slow down in those segments of our businesses more exposed to discretionary consumer spending, we continued to grow the top line. Group sales advanced 28% to £4,618m driven largely by the OI Plastics and Rostar acquisitions. Foreign exchange, primarily the strengthening of the dollar and euro against sterling, accounted for 10% of the increase. Organic sales, adjusted for currency and acquisitions, grew 7% as a result of continued beverage can volume growth, higher resin pass through and price increases in both Beverage Cans and Plastic Packaging. 

Underlying operating profit grew 32% to £466m of which organic growth was 3%. The OI Plastics and Rostar acquisitions contributed £57m while £46m derived from the benefit of currency translation. Underlying profit before tax rose to a record £328m with underlying earnings per share increasing 26% to 35.3p (2007: 28.0p), which is lower than the growth in profit before tax due to shares issued in mid 2007 to part finance the OI Plastics acquisition.

Despite pressure from the volatility in raw materials, energy and freight costs, operating margins improved owing to the synergies from the OI Plastics acquisition and some margin recovery in Beverage Cans.

As a Group we continued to achieve significant efficiency savings delivering £35m in line with previous years. Further lightweighting and scrap reduction as well as other efficiencies in Beverage Cans delivered £14m. Plastic Packaging delivered £21m of the efficiencies. Some £8m came from synergies from the successful integration of OI Plastics, while the remainder derived from energy saving, improved equipment utilisation and reduced scrap; the result of a more systematic adoption of Lean Manufacturing and Six Sigma practices across the Plastic Packaging operations. 

In recent years, Rexam has made significant investments in new plants and additional or modified production lines as we look to realise opportunities for organic growth especially in the European Beverage Can business. In 2008, we opened new plants in Russia and Denmark and added new lines in Spain, Egypt and Austria. As a result, net capital expenditure by continuing operations for the year at £383m remained higher than historic levels. The stronger US dollar and euro translation impact increased our earlier estimates by about £30m. Our investment programme is now past its peak and in 2009 capital expenditure is returning to more normal levels of between 1.1 and 1.2 times depreciation and amortisation. Further details can be found in the Cash flow section. 

Our traditionally very strong working capital management was affected during the second half of the year by a number of one offs as well as changes in trading terms which resulted in a disappointing outflow. (See under Cash flow for further details.) With our focus on cash, we remain confident that we will improve our working capital position in 2009 and we are committed to achieving positive free cash flow post dividends for the full year 2009.

  Free cash flow generation in 2008 was negative £128m, compared with £24m in 2007 owing to the increase in capital expenditure, as well as the aforementioned increase in working capital. This, along with the Rostar acquisition and a sizeable negative currency translation impact, increased net debt to £2.6bn and reduced interest cover from 3.7 to 3.5 times. Further details and commentary can be found under Balance sheet and borrowings.

Statutory results

On a statutory basis, the results include the effect of acquisitions, disposed businesses, currency translation and exceptional and other items. Sales for continuing operations were £4,618m (2007: £3,611m) and profit before tax was £240m (2007: £260m). Total profit for the financial period was £171m (2007: £240m, including £66m from discontinued operations) and total basic earnings per share was 26.8p (2007: 39.0p, including 10.7p from discontinued operations).

Being proactive and pragmatic 

Consumer packaging is generally regarded as a defensive industry because even in times of recession, people continue to eat, drink and take care of their health - three areas where we are a supplier of choice. We have two well positioned and well invested global businesses in Beverage Cans and Plastic Packaging. We have long, well established relationships with our customers and our suppliers are mostly large global companies. Beverage cans as an industry has proven to be relatively recession resistant on a global scale, although specialty cans are as yet untested. In Plastic Packaging, our focus is on higher growth and higher margin segments, but the business is less economically resilient than Beverage Cans.

In these uncertain times our overriding aim is to protect the foundations of the business. Flexibility is a key word as we manage our business pragmatically and focus on cash generation and cost reduction. In 2008, we acted swiftly in both Beverage Cans and Plastic Packaging to ensure capacity and demand remained in balance, closing plants and adapting assets to market conditions. Ensuring the optimal levels of utilisation is paramount in our business. If market conditions are such that we have to mothball or take out further capacity, we will do so. 

We are also managing our business proactively. We have largely removed the risk to us of volatile raw material input costs through the implementation of pass through contracts with most of our customers. During the year, we absorbed significant increases in energy and freight costs. We continue to focus on manufacturing costs and delivering operational efficiencies. These have always been a key priority for Rexam and are even more critical in an environment with an uncertain growth trajectory. 

Another key priority for 2009 is cash, and in Beverage Cans and Plastic Packaging we have two highly cash generative businesses. We are managing our capital expenditure very tightly, spending only on previously committed projects and on health, safety and maintenance requirements. There are no new major growth investment projects planned in 2009. 

While maintaining our relentless pursuit of efficiencies and manufacturing excellence, we continue to strengthen our marketing and product innovation as the organisation becomes even more commercially focused. 2008 was the second year in succession that we put through price increases in both Beverage Cans and Plastic Packaging.

While few can predict when the current financial and economic situation will turn around, we remain confident that Rexam will come through this downturn as a leaner, more effective organisation.

  Beverage Cans 

	2008	2007
Sales	£3,289m	£2,686m
Underlying operating profit	£306m	£244m
Return on sales	9.3%	9.1%

2008 was characterised by a significant difference in market volumes between the two halves of the year. During the first six months, volume growth remained largely in line with previous years, while in the second half it slowed appreciably, especially in Eastern Europe and North America. Against this backdrop, our Beverage Cans sales grew 22% compared with last year reflecting the effect of foreign currency translation as well as the additional sales from Rostar, the Russian beverage can maker which we acquired at the start of 2008. Sales also benefited from continued market growth in Europe and South America. Organic sales grew 8% driven largely by volume and mix. 

Underlying operating profit grew 25%, again including the effect of foreign currency. Organic underlying operating profit improved 4% as a result of increased pricing, continued efficiency savings as well as rigorous contract management to ensure appropriate cost recovery.

We benefited from a reduced exposure to aluminium volatility in Europe following the renegotiation in 2007 of a number of contracts to the pass through model that we use in our North and South American beverage can businesses. In the majority of contracts without pass through, we hedged the cost of aluminium. 

Margins for Beverage Cans improved from 9.1% last year to 9.3%, a little lower than we expected due mainly to higher freight and energy costs, as well as curtailment costs associated with temporary overcapacity in the latter part of the year in the US. In 2009, we expect to benefit from inflation escalators and adjustments as well as from the closures we announced in our North American manufacturing network during 2008, which are discussed below. Our aim remains to improve global can margins over time but that will depend on the future growth in the markets in which we operate.

Beverage Can Europe & Asia

In Europe, the year started well as the market continued to grow at a similar rate to recent years in both Western and Eastern Europe. This was driven principally by increased at home consumption particularly in the Nordic countries as well as in the UK, and increased beer and carbonated soft drinks consumption in Eastern Europe as cans substituted other forms of packaging and consumers increased their overall consumption of packaged beverages. 

In the second half there was a change in momentum as conditions deteriorated in a number of markets and growth slowed. Western Europe showed good resilience, especially in beer, while Eastern Europe displayed the volatility often associated with emerging markets. Market growth for Europe as a whole was 5%. 

Rexam's own beverage can volumes in Europe grew 7% with no significant difference between the two halves. New capacity in Spain, Egypt and Austria as well as the buoyant Nordic market helped maintain our leadership position. The new capacity also gives us the opportunity to further optimise our manufacturing base, reducing freight costs and improving mix.

  Russia, where we are the largest domestic manufacturer of beverage cans, was especially volatile. Volume growth was in line with previous years in the first half but disappeared almost entirely in the final months, reflecting the extremely challenging financial and economic conditions, to finish ahead for the year as a whole. However, we remain confident in the long term growth prospects in Russia. It is a large market and we are well placed to take advantage of the return to growth. The integration of Rostar has gone well, synergies are coming through according to plan and we are covering our cost of capital as expected. In May we started production at a new plant in Argayash, 1,500km east of Moscow, and trading in this region continued strongly throughout the year.

Our own volumes of standard cans in Europe grew 6%. Specialty cans, which are mainly used for energy drinks and new categories of beverage, showed good growth after a slow start to the year with volumes up 10% for the full year.

Good price increases on about a quarter of open sales contracts, along with good cost recovery and contractual cost inflation escalators, helped offset increases in oil related costs such as freight and energy.

The new plant in Fredericia, Denmark, produced its first commercial beverage cans at the start of 2009 and a second line is due to start up, as planned, by the end of the first quarter. Even though the overall European market growth rate has slowed, the Nordic market continues to expand. The strategic location of this new plant will enable us to better serve our customers in the region as well as optimise freight costs across Europe.

In the Asia Pacific market, there was good volume growth as we continued to develop our position in this key emerging region. Our joint venture in South Korea celebrated its 30th anniversary with sales of beverage cans growing as we increased the levels of cooperation with our partners and supported the growth of specialty cans in the region. In China we saw improved profitability through a better product mix. India remains a relatively small market but the steel beverage cans produced by our joint venture are regarded as a suitable pack for the market conditions by both multinational and local customers.

Beverage Can North America

North America is the largest beverage can market in the world with total annual volumes in the region of 100bn cans, of which Rexam makes some 22%. In recent years, market conditions in North America have been challenging and during 2008 there was little respite, especially in terms of demand for carbonated soft drinks (CSDs). Strong industry CSD pricing in the latter part of the year exacerbated the situation and CSD can volumes in North America declined 5% year on year overall, with the decline accelerating in the second half.

While the US beverage can market is declining, we continue to focus on our strategy of improving profitability and return on assets, and maximising cash generation. The Rexam operation traditionally generates strong cash flows and has a high return on net assets.

Our own 12oz volumes were down 4%, slightly better than the market. We acted swiftly to address this decline and protect our business. In July we announced the closure of the Forest Park plant in Georgia and shut down a 12oz line in Longview, Texas, which together represented some 1.9bn of our 12oz can capacity. In December we announced a further plant closure in Oklahoma City which will remove an additional 1.2bn 12oz cans from the market. These measures were accompanied by associated reductions in support staff in the North American organisation. The closures increase the overall utilisation of our asset base and do not impair our ability to meet customer requirements as we continue to supply cans from other plants in our system.

  In total, the capacity reductions will result in a total exceptional restructuring charge of around £36m (US$67m), of which some £15m (US$27m) will be cash costs (net of asset disposal proceeds). In aggregate, these measures are expected to generate annualised savings of more than US$20m. We will continue to monitor the situation in North America to ensure optimal utilisation of our facilities.

Closures and adjustments announced by the whole of North America's beverage can making industry in 2008 reduced can making capacity by 6.5bn - the equivalent of the volume decline the industry has experienced in the market since the beginning of 2007. 

The US specialty can market also saw a decrease in volumes as a result of the economic downturn. Our own specialty volumes declined following our strategic exit from the 8oz and a large portion of the 16oz can market, both of which had experienced significant margin erosion during the year. However, volumes of our 24oz can and the Rexam CapCan™ both grew over 15% compared with the prior year as we intensified our focus on these core, higher margin products along with our range of Sleek™ cans.

Beverage Can South America

In South America, the market continued to grow well and Rexam's own volumes were up 9%. Volumes of standard cans grew 5%, with especially strong performances across the region in Brazil, Argentina and Chile.

Specialty can volumes were up 59%, albeit from a low base, as customers continued to favour these alternative sizes as an effective means of differentiation. Specialty cans now account for 11% of our South American volume compared with 7% this time last year.

Beverage cans remained competitive despite the weakening of the Brazilian Real as the effect of the depreciation of the currency was broadly offset by the decline in aluminium prices. The successful development of our portfolio across the region improved the product mix and enabled us to boost margins and recover profitability. We also hedged some of our foreign exchange transaction exposure which will reduce volatility going forward.

Plastic Packaging

	2008	2007
Sales	£1,273m	£880m
Underlying operating profit	£157m	£105m
Return on sales	12.3%	11.9%

Plastic Packaging is a portfolio of high quality rigid plastic businesses comprising three divisions: Healthcare, Personal Care and Closures, each with three business units. Plastic Packaging accounts for 34% of Rexam's underlying operating profit.

The diversified nature of our portfolio protected overall performance during 2008 with the business as a whole progressing reasonably well. Reduced customer demand, particularly in the last two months of the year, affected our Personal Care and Closures businesses, while the Healthcare business remained resilient.

Towards the end of the year, results came under pressure as customers reduced their inventory levels and destocking became a greater issue throughout the supply chain. We continue to monitor demand levels closely and will take action to address the situation on capacity if this becomes necessary.

  Sales grew from £880m to £1,273m, mainly owing to the acquisition of OI Plastics in mid 2007. Organic sales growth was 4% with most businesses ahead of prior year save for Home & Personal Care, part of the Personal Care division. Resin costs rose considerably compared with last year. These were largely passed through to our customers and accounted for the vast majority of the organic sales growth, with other net price increases being offset by the impact of volume and mix changes.

Underlying operating profit grew from £105m to £157m. Organic profit was flat as price, efficiencies and synergies from the OI Plastics acquisition offset a drop in volumes, mix change and higher labour costs. Operating margins improved on last year owing to the impact of higher margins in acquired businesses and good progress on efficiency savings and acquisition synergies.

The integration of the OI Plastics business, which we acquired to bring scale, growth and added value to our own Plastic Packaging operations, progressed broadly according to plan during the year. Approximately £8m of synergies were generated during 2008 and we remain on track to meet our target of £25m in total savings by 2010. During the year, we leveraged our scale to improve procurement of raw materials, especially resin, along with energy and freight. 

We continued to optimise our manufacturing footprint shutting three plants in the US with other Rexam manufacturing facilities absorbing the production from these plants. These measures were in keeping with the original restructuring programme following the OI Plastics acquisition and the cost is expected to be around £21m as previously indicated.

We put in place a new structure to manage the business globally instead of regionally which better positions us to meet the needs of increasingly global customers at reduced overhead costs. Our objective is to build further on existing customer relationships to facilitate the cross selling of our products and to pursue opportunities to internationalise the business in emerging markets. We have already started using the in house expertise of our Closures team to manufacture closures in India and we are now using our footprint in Make Up in China to manufacture Dispensing Systems products for global customers. We are looking at further opportunities which include growing the Personal Care and Healthcare businesses in Mexico and China, and establishing the high barrier food container business in Asia.

Investment in a range of growth projects continued in the year. A number of Pharma packaging plants were extended to increase capacity for next generation products that are due to come into full production in the near future. For example, a new clean room area was added to the plant in Bangalore, India, to support the growing pharmaceutical market in that region for products such as eye droppers, nasal sprays and child resistant closures. A new Dispensing Systems plant at Lacrost, France, was completed in September. It will provide a platform for further expansion in the growing lotion pump market. 

Investment also continued in the development of new products such as XD11, a new fragrance pump, and Oxygen, a lipstick mechanism that is being developed as the new standard. It will streamline the range and simplify choice for customers by replacing a variety of different mechanisms. 

Healthcare

Sales in Healthcare increased 7% due to volume growth and price increases across all of its businesses. Margins increased and remain well above the average for the Plastic Packaging portfolio.

The Pharma packaging business delivered strong sales growth driven largely by the ramp up of the manufacture of new drug delivery systems. Sales remained robust in both the first and second half of the year. The overall Pharma packaging market grew 6% relative to last year, and Rexam maintained its market share.

 

The Prescription business maintained its number one position in its segment in the US. Volumes were flat and pricing was established to recover increasing resin costs.

Primary packaging operates in a market which experienced strong pricing pressure from competitors. As a result some volume was conceded. It continued to recover higher resin costs on existing business.

Personal Care

Sales in Personal Care were flat year on year with growth in Dispensing Systems and Make Up offset by continued softness in the Home & Personal Care business. Margins held up but remain below the average of the Plastic Packaging portfolio.

In Dispensing Systems, sales grew in line with the market driven by strong demand in Brazil and higher demand for lotion pumps and foam pumps. Demand for fragrance pumps and samplers was lower as key customers focused resources on refining their existing product lines rather than on new launches.

Make Up sales grew slightly on last year as it maintained its market share position on increased volume demand from key European customers. 

In mid July, a warehouse fire at one of our Make Up plants in Shanghai resulted in the tragic loss of three firefighters' lives. The fire destroyed inventory and interrupted production for a number of days. As a result of the fire, safety procedures have been reviewed at all Make Up plants in China with the aim of preventing a recurrence of such an incident. The £5m cost of the fire was charged to the profit and loss account.

Home & Personal Care is a mainly US business. It experienced difficult trading with demand from key customers lower than last year in light of the general economic conditions in the US. Products such as specialty closures for sports drinks were particularly affected. Volumes in Europe doubled from a low base, with the increase being driven largely by increased demand for a major branded men's care product following its launch in Russia.

Closures

Sales in Closures grew 7% with the benefit of passing through higher resin costs to customers and price increases partially offset by reduction in volumes as a result of lower consumer demand for CSDs and packaged water, especially in the last quarter. Operating margins remain in line with the average for our Plastic Packaging portfolio.

Despite the volume shortfalls in beverage closures, Rexam Closures made a small gain in market share following roll out of the innovative short height closure for a major soft drinks manufacturer. This product enables our customers to lower their input costs as it uses only 75% of the resin used in a standard closure. There is also an environmental benefit as the closures use less resin and are lighter in weight. Rexam Closures remains the market leader for Closures in the US and number three on a worldwide basis. 

The High Barrier Food business, where we are market leader in the US, continued to show good underlying growth (9%), owing to increased volumes and the pass through of resin costs, with the second half stronger than the first. 

  Market and industry characteristics

Primary consumer packaging is regarded as a relatively resilient industry and although the breadth and depth of the current global financial and economic crisis is unprecedented in recent times, industry experts PIRA (Packaging Industry Research Association) estimated that the world market for consumer packaging grew 5% in US dollar terms in 2008 and is now worth US$480bn. Growth was stronger in South America and Asia, reflecting the rapid development and increasing importance of emerging economies. 

Beverage and food packaging accounted for more than two thirds of the total market. Other Rexam markets, such as packaging for pharmaceuticals and beauty and personal care products, accounted for more than 10%. All Rexam's end use markets saw further growth in 2008, with healthcare the fastest growing category globally, a result of a greater focus on well being combined with the increase in ageing populations allied to their enhanced purchasing power. 

Mature markets showed moderate year on year increases, while developing countries, with their increasingly affluent consumers, demonstrated above average growth in all end use markets.

On a global basis, consumer packaging market growth is expected to be between 2% and 4% pa in the foreseeable future, with higher growth in certain market segments and regions.

In terms of packaging materials, plastic represents close to 40% of world packaging and is growing faster than any other packaging material. Its growth is mainly attributable to advances in material properties which is leading to substitution of other materials (predominantly glass) and the development of new applications. Metal as a packaging material is performing strongly in food and beverage applications, the latter in line with increased consumption of packaged soft drinks and the preference in many markets for packaged rather than draught beer.

A number of key social trends are impacting packaging development, one of the most prominent being increased consumer interest in environmental concerns. As a result, packaging materials and their recyclability are becoming a priority in the consumers' choice of product. The packaging industry wants to keep materials to a minimum - not least to reduce costs - and it continues to examine ways of producing innovative packaging that will address these concerns. Examples are the use of plastic resins that are easier to recycle and packs with clearer communication on how to recycle them. Aluminium and steel beverage cans are strongly placed to benefit from this trend, since they can be recycled again and again without any loss of material performance. In the case of aluminium cans, the energy used to make cans from recycled aluminium is only 5% of that used to make a can from virgin raw material.

Other key trends among end users include rising health awareness, ageing populations, and the increasing need for convenience. The issue of convenience will possibly have the greatest impact upon the industry, encouraging innovation in packaging as consumers seek out efficient alternatives to traditional packaging to address the needs of modern day living such as on the go consumption, or the increasing number of single households in the western world. It is also believed that more and more products will have to cater to two or more consumer trends, reflecting packaging innovation across many product groups and markets. 

  The following section looks more closely at the two markets in which Rexam operates.

Beverage cans

Beverage cans, which are made of both aluminium and steel, are a popular form of beverage packaging. Consumers appreciate the fact that cans are lightweight, easy to chill and that they keep the contents carbonated. Beverage producers like them because they are quick and efficient to fill, maintain product integrity and are easy and efficient to transport. They are effective in moving volume (especially in multi pack formats) and their flat metallic surfaces also provide optimum exposure for a brand. For retailers, cans are easy to handle and, as they are easily stackable, make effective use of space on supermarket shelves. Added to all this, they are the most recycled type of beverage packaging. Today the can's share of the CSD pack mix is 22% by volume and 43% by unit. In beer, the shares are 22% and 30% respectively.

The beverage can industry is a well consolidated global industry, where Rexam is the leading player. We operate predominantly in Europe and the Americas. There are four players in the US and three significant ones in South America and Europe. Our market shares in these regions are 22%, 66% and 47% respectively. The overall global beverage can market, which is made up of largely standard 12oz (33cl) cans, is growing at a rate of around 3% pa. This growth varies between different regions. North America is the biggest can market in the world. It is declining but its inhabitants still have an average annual per capita consumption of around 350 cans. Europe and South America have annual per capita can consumption of only 75 and 69 respectively, and within these regions there is generally good growth. Growth in non standard sizes, such as those for energy drinks or larger cans for beers or iced teas, is significantly faster but from a lower base. Beverage cans are increasingly being used to package premium beer, cider, spirits and mixers as well as still and sparkling wines. Resealable cans have also been growing in popularity, much appreciated by brand owners for their novelty and by consumers for their functionality. 

Plastic packaging

Plastic is the most widely used material in consumer packaging. It is also the fastest growing, having grown in the region of 6% pa in recent years. New plastics, new applications and a mixture of standard and highly customised products add up to a high degree of both product and process innovation, a trend expected to continue into the future. Customers appreciate the material's formability, lightness and ease of handling, as do end consumers.

There are a variety of plastic grades with a range of properties such as high barrier, microwaveability and good impact strength, among others. Plastics are also recyclable, where facilities exist, and biodegradable plastics are becoming more common, although limited availability, high prices and performance limitations are currently inhibiting growth. Rexam is predominantly focused on rigid plastic packaging, which accounts for about US$115bn of the total market. Within rigid plastics we mainly focus on packaging for beauty and personal care products, pharmaceuticals, food and beverages, and household products. The segments in which we operate are technologically advanced and significant intellectual property is associated with many of the products.

The rigid plastic packaging market remains fragmented with the top 10 manufacturers accounting for just 16% of the market. Within rigid plastics, there are various subsegments, all displaying different growth rates. Overall, PIRA estimate that the market grew around 6% pa in US dollar terms in 2008, and remains the fastest growing segment within plastic packaging. 

  Relationships and risks 

Relationships

Rexam is the number two global consumer packaging company in terms of sales. The critical external relationships are with our major customers and our suppliers of raw materials, mainly aluminium, steel and resin.

The vast majority of our sales are made to large consumer products companies which are typically large multinational or regional brand owners. Our customers are invariably world class organisations. They are well consolidated and continue to rationalise their supplier base. They look to align themselves with global partners who understand the scale and nature of their business, and who can also supply their needs at a local level. They require us to support their growth plans in established and emerging markets, with investment in plants or capacity or through acquisition, and to deliver consistency in terms of technological capability, service and quality. They expect us to be proactive in contributing to innovative solutions to their changing packaging needs and in driving costs out of the supply chain. They expect us to act in a responsible manner. Therefore everyone in the Rexam organisation shares the responsibility to maintain relationships with our customers. The global account managers, sales force, technical and engineering staff and quality controllers and those involved in the day to day manufacture of our products all have a vital role to play.

Our customer base is concentrated. As a Group, our top ten customers account for 58% of our annual sales. In Beverage Cans, the concentration is even higher with the top ten customers accounting for 76% of sales. The equivalent figure for Plastic Packaging is 32%. Of the remaining customers, none accounts for more than 1.4% of our sales. 

Rexam has a vast supply network across the globe involving more than 25,000 companies. Over the years, we have established strong strategic relationships with the major aluminium producers and resin companies. These raw materials are considered to be in adequate supply globally. The procurement of these primary raw materials, as well as energy, is coordinated by a central function across the businesses for efficiency and economies of scale. For example, following the acquisition of OI Plastics, Rexam Supply Chain teams focused efforts on the integration of the new businesses and on delivering maximum value by optimising resin purchasing synergies.

In our relationship with our suppliers, we drive performance improvement and value within the supply chain applying both strategic procurement and Lean Enterprise tools. As part of our continuous improvement, we use Supplier Relationship Management programmes to set targets for quality, supply, cost and innovation, define improvement plans and work with our strategic suppliers to deliver those targets.

In 2007, Rexam implemented a programme to ensure compliance with the Registration, Evaluation and Authorisation of Chemicals (REACH). Phase 1 of the implementation programme was completed in 2008. Our programme involved contacting suppliers and customers to obtain assurance that all of the materials we use that are covered by REACH are registered for our particular use. Our programme has been successful and Rexam has not identified any requirements to pre-register materials in our supply chain. Phase 2 of our programme began in 2009 to provide continuing assurance of compliance.

Risks

There are many risks facing a global company such as Rexam: market, operational, environmental, social, governance and financial. With the current global financial and economic crisis, these risks have been further accentuated. Our challenge is to identify those risks that are most relevant and develop appropriate methods to avoid or mitigate them. An overview of Rexam's process for managing and reporting risks is covered under Internal Control in the Corporate Governance Report in its Annual Report.

 

Consumer packaging is regarded as a defensive industry from a shareholder point of view. Consumers will always need to eat, drink and look after their well being and health even in times of economic downturn. In recent years, we have invested heavily in growth projects and made a number of acquisitions to upgrade the portfolio to higher growth segments and expanded the regions in which we operate. In addition to the well established markets of Western Europe and North America, we now have operations in countries such as Brazil, Egypt, Guatemala, India, Malaysia, Mexico, Russia and Singapore.

A diversified product portfolio and a global spread can help mitigate risk, but we are conscious that the higher growth potential in emerging markets is associated with greater risks in terms of political and economic stability compared with more established and mature economies. As with all the risks facing us, the risks associated with emerging markets are assessed in detail by directors and senior management when considering investment opportunities and setting financial policies and procedures. They are managed through our normal risk management processes.

The following section gives more details on the principal risk factors and the way we aim to manage them.

Dependency on key customers

Loss of sales volumes from key customers would adversely impact our business. Many of our largest customers have traded with us for a long period of time, during which we have built up a strong interdependency and sense of partnership, especially where our growth has been closely associated with theirs. Our relationships extend deep into the supply chain. This not only helps drive out costs to the benefit of both Rexam and customers, it also increases the likelihood of retaining customers, provided that we continue to supply the quality of product required at a competitive price. The wall to wall facilities we have with a number of our beverage can customers, and proprietary online ordering systems for beverage cans are just two examples of how we are cementing and deepening our relationships with customers.

National political and economic stability 

Rexam is a global company operating in countries and regions with diverse economic and political conditions and sensitivities. Our strategy to expand in emerging markets means that this degree of sensitivity is increasing. Our operations and earnings may be adversely affected by political or economic instability and unrest, including civil unrest, wars, international conflicts, financial crisis (especially regarding currency or taxation), tighter government regulation on cross border trading, production, pricing and environmental regulation. We remain vigilant to these risks. We take external advice on such matters and consider the risks when determining whether or not to do business in countries or regions which are recognised as unstable. 

Changes in packaging legislation 

Changes in laws and regulations relating to packaging could adversely affect the business if arbitrarily implemented on a large scale in the major markets in which we operate. These primarily relate to deposits, recycling quotas for certain types of packaging and the use of recycled content. Our own experience indicates that deposits and recycling systems pose limited risk to our business. The stipulation that certain types of packaging must contain a given percentage of recycled material also poses little risk at present. Raw material producers, especially in the beverage can industry, already have a high content of recycled material in their products. Many of the markets in which we operate employ mandatory deposit systems. The risk to the business, in our view, is the way in which these systems are implemented and managed. We actively make available our considerable packaging know how and our experience of setting up deposit and recycling systems to ensure that any recycling system is optimised from the very outset. To monitor the regulatory environment and to minimise the risk of arbitrary implementation of any measures that may affect consumer packaging, we have a Director of External Environmental Affairs reporting to the Chief Executive Officer. We engage with governmental and non governmental organisations directly or through trade associations to ensure that our views are represented.

Changes in the regulatory environment 

Changes to health and food safety regulations could increase costs and also might have a material adverse effect on sales if, as a result, public opinion of end products for which we provide packaging changes substantially. When it comes to such risks, we remain vigilant to change and work with others in the supply chain including raw material suppliers, consumer goods manufacturers and retailers as well as the regulatory authorities.

Competition may reduce market share and margins 

Rexam operates in competitive markets. In most of these markets Rexam is either the leader or one of the top three players. In Beverage Cans, for example, we are the world's number one manufacturer, and in Plastic Packaging we hold leading global or regional positions in the majority of our markets. Aggressive pricing from our competitors may cause a reduction in our sales and margins. To minimise this risk, we aim to build long term relationships with our customers with the aim of becoming an integral part of their supply chain and helping to drive out costs. We also ensure that we are the supplier of choice by focusing on innovation for our customers and maintaining the highest standard of operational excellence to achieve lowest cost manufacturer status. 

Changes in consumer lifestyle, nutritional preferences and health related concerns 

The majority of our sales are generated by packaging for products such as carbonated soft drinks and alcoholic beverages. Any far reaching consumer shift away from these product types as a result 

of lifestyle, nutrition and health considerations, or even legislation, could have a significant impact on our customers and hence our business. Whilst it is difficult to fully plan for this change, we monitor market and consumer trends as well as political developments through our own and external business intelligence services and through our involvement in national and international packaging associations in the countries and regions where we operate. In the case of carbonated soft drinks, our customers are naturally aware of these risks. They are focused on developing new types and categories of products to fill the void should the need arise. Beverage cans are inherently an important part of a customer's pack mix. The rise of the energy drink segment and, more recently, nutritional drinks and iced teas are examples of new categories that have quickly found consumer favour and which are both expanding at high growth rates.

Changes in the cost and availability of direct materials 

Aluminium is our most significant raw material cost but resin costs are increasingly important as our Plastic Packaging business grows. We also purchase quantities of steel for our European beverage can operation. Steep and prolonged rises in input prices may have a material impact on our results. One consequence of a substantial rise in material costs could be a change in demand for our products as customers adjust their packaging mix and the materials they use, although we did not notice this in particular in the recent period of aluminium price volatility. In the North and South American beverage can businesses, we charge our customers on a pass through basis. In Europe, we have moved largely to a pass through model with our main customers such that 70% of our supply needs are now on this basis. To mitigate the risk on the remaining aluminium exposure, we hedge the aluminium cost and associated currency requirements. In Plastic Packaging, some 80% of the resin costs are on pass through contracts which include resin escalator/de-escalator clauses that allow change in our selling price as resin prices change. While these commercial arrangements are agreed with customers and suppliers and are intended to protect us from price risk, changes could occur in the commercial arrangements which expose Rexam to risk.

Supply of faulty or contaminated products

Rexam's reputation as a business partner relies heavily on its ability to supply quality products on time and in full. The consequences of not being able to do so, owing to accidental or malicious raw material contamination or due to supply chain contamination caused by human error or equipment failure, could be severe. Such consequences might include adverse effects on consumer health, loss of market share, financial costs and loss of turnover. As part of our Environment, Health and Safety policy and our Lean Enterprise framework we have strict control measures and systems in place to ensure the safety and quality of our products are maintained.

Financial risk

Rexam's financial risk management is based upon sound economic objectives and good corporate practice. Our main financial risks are related to the availability of funds to meet our business needs and movements in interest rates and currency exchange rates as well as commodity costs. Derivative and other financial instruments are used to manage exposures under conditions laid down by the Board and monitored by its Finance Committee. 

Tax risk

As a Group, we seek to plan and manage our tax affairs efficiently in the jurisdictions in which we operate. In doing so, we aim to act in compliance with relevant laws and disclosure requirements. Tax planning will complement and be based around the needs of our operating businesses. In an increasingly complex international tax environment, uncertainty is inevitable in estimating our tax liabilities. We exercise our judgement in assessing the required level of provision for tax risk and allocate resources appropriately to protect our position.   Group financial performance

The financial review of our results is based on what we term the underlying business performance, as shown in the first column of the table below, which excludes exceptional and other items. We feel that the underlying figures aid comparison of the Group's financial performance.

	Underlying Businessperformance 1 £m	Exceptional  and other items 1 £m		Total £m
2008:
Continuing operations:
Sales	4,618	-		4,618
Operating profit	466	(86)		380
Share of associates profit after tax	1	-		1
Total net finance cost 2	(139)	(2)		(141)
Profit before tax	328	(88)		240
Profit after tax - continuing operations	226	(55)		171
Attributable to:
Rexam PLC				172
Minority interests				(1)
				171
Total basic earnings per share (p)				26.8
Underlying earnings per share (p)	35.3
Interim dividend per share (p)				8.7
Proposed final dividend per share (p) 3				12.3
2007:
Continuing operations:
Sales	3,611	-		3,611
Operating profit	354	17		371
Total net finance cost 2	(109)	(2)		(111)
Profit before tax	245	15		260
Profit after tax - continuing operations	172	2		174
Discontinued operations:
Profit for the year				66
Total profit for the year attributable to Rexam PLC			240
Total basic earnings per share (p)				39.0
Underlying earnings per share (p)	28.0
Interim and final dividends per share (p)				20.0

1	Underlying business performance is the primary performance measure used by management who believe that the exclusion of exceptional and other items aids comparison of underlying performance of continuing operations, which exclude the discontinued Glass business. Exceptional items include the gains and losses on disposal of businesses, the restructuring and integration of businesses, major asset impairments and disposals, significant litigation and tax related claims and significant gains arising on reduction of retiree medical and pension liabilities. Other items comprise the amortisation of certain acquired intangible assets (customer contracts and relationships and technology and patents) and fair value changes on certain financing derivative financial instruments.
2	Underlying total net finance cost comprises net interest expense of £132m (2007: £95m) and retirement benefit obligations net finance cost of £7m (2007: £14m).
3	Subject to approval at AGM 2009 and payable on 2 July 2009.

 

A summary of underlying business performance from continuing operations is set out below.

	2008 £m	2007 £m
Ongoing operations	4,562	3,566
Disposals	56	45
Sales	4,618	3,611
Ongoing operations	463	349
Disposals	3	5
Underlying operating profit	466	354
Share of associates profit after tax	1	-
Underlying total net finance cost	(139)	(109)
Underlying profit before tax	328	245
Underlying profit after tax	226	172
Underlying earnings per share (p)	35.3	28.0

The following tables, showing sales and underlying operating profit, compare the ongoing operations on a consistent basis to demonstrate "like for like" trading performance. This basis excludes disposals and businesses held for sale (described as "Disposals") and discontinued operations but includes the prior year acquisition of OI Plastics as if acquired on 1 January 2007 (by adding its pre-acquisition results) and Rostar, the Russian beverage can maker, from the date of its acquisition in January 2008. The disposal group comprises the Petainer plastic bottle business based in Sweden and the Czech Republic. The tables also highlight organic change and currency fluctuations arising on translation. Organic change is the year on year change on ongoing operations from businesses owned since the beginning of 2008.

Analysis of sales movement

	Total £m	Beverage Cans £m	Plastic Packaging £m
Sales reported 2007	3,611
Disposals	(45)
Ongoing operations 2007 ­reported 2008	3,566	2,686	880
Acquisition 2007 - OI Plastics	222	-	222
Currency fluctuations	375	257	118
Ongoing operations 2007 pro forma basis	4,163	2,943	1,220
Acquisition 2008 - Rostar	121	121	-
Organic change in sales	278	225	53
Ongoing operations reported 2008	4,562	3,289	1,273
Disposals	56
Sales reported 2008	4,618

Organic sales growth, which excludes the impact of acquisitions, disposals and currency, was £278m, an increase of 7% of which £56m came from pass through of raw material cost increases (principally resin in the Plastic Packaging operations). Price increases contributed £70m and volume and mix gains added a further £152m, primarily from the European and South American Beverage Can operations, although there was some softness late in the year in the Russian market. Volumes in North America were down due to reduced demand for 12oz cans for carbonated soft drinks and the discontinuance of certain specialty can products, although growth in 24oz cans and the Rexam CapCan™ was strong. The Plastic Packaging improvement was principally due to resin pass through and a good performance in Healthcare.

Analysis of underlying operating profit movement

	Total £m	Beverage Cans £m	Plastic Packaging £m
Underlying operating profit reported 2007	354
Disposals	(5)
Ongoing operations 2007 reported 2008	349	244	105
Acquisition 2007 - OI Plastics	36	-	36
Currency fluctuations	46	30	16
Ongoing operations 2007 pro forma basis	431	274	157
Acquisition 2008 - Rostar	21	21	-
Organic change in underlying operating profit	11	11	-
Ongoing operations reported 2008	463	306	157
Disposals	3
Underlying operating profit reported 2008	466

Analysis of the organic change in underlying operating profit is set out below.

	Total £m	Beverage Cans £m	Plastic Packaging £m
Price changes	126	61	65
Cost changes	(155)	(84)	(71)
Price and cost changes	(29)	(23)	(6)
Volume and mix changes	5	20	(15)
Efficiency and other savings	35	14	21
Organic change in underlying operating profit	11	11	-

The improvement in underlying operating profit, after allowing for the impact of acquisitions, disposals and currency, was £11m (3%) which reflects volume growth, the recovery of cost increases through pricing, the non recurrence of the strike in the US Beverage Cans business in 2007 and synergy benefits arising on recent higher margin acquisitions.

Within the European and South American Beverage Cans operations, price increases and pass through arrangements largely addressed the effect of aluminium prices and other input cost increases. Volume growth in these regions, both in standard and specialty cans, was sufficient to offset the softness in North American volumes. The closure of two 12oz beverage can plants, decommisioning a 12oz can manufacturing line, a number of non core specialty lines and a reduction in administrative support functions were announced during the year to address the demand/supply imbalance in the North American market, as described in "Exceptional items" below.

The underlying operating profit for Plastic Packaging was flat overall due mainly to a slowdown in businesses affected by the macroeconomic environment and lower soft drink consumption in North America which affected our Closures business. Efficiency and synergy savings were not sufficient to offset the volume decline and increase in non resin related costs. Changes in resin costs did not affect profit significantly as around 80% of contracts are now covered by pass through arrangements together with some hedging of the remaining exposed resin costs. The integration of the OI Plastics business is progressing well and we are on track to achieve the synergy benefits; the total integration cost is still estimated to be £35m, comprising £20m for restructuring and £15m for capital expenditure to support the business infrastructure which includes the installation of SAP. Synergy benefits are anticipated to reach £25m in total by 2010. 

In July 2008, a warehouse fire at one of our Plastic Packaging Shanghai plants resulted in the tragic loss of three firefighters' lives. The financial cost of the fire was in the region of £5m.

 

Exchange rates

The exchange rates used to translate the consolidated income statement and balance sheet are set out below.

	2008	2007
Average:
Euro	1.26	1.46
US dollar	1.86	2.00
Closing:
Euro	1.04	1.37
US dollar	1.48	1.99

Consolidated income statement

The US dollar and the euro, the principal currencies that impacted our results during 2008, both strengthened significantly against sterling, particularly in the second half of the year. The net effect of currency translation caused sales, underlying operating profit and underlying profit before tax compared with 2007 to increase by £375m, £46m and £34m respectively as set out below.

	Sales £m	Underlying operating profit £m	Underlying profit before tax £m
Euro	148	23	18
US dollar	174	18	12
Other currencies	53	5	4
	375	46	34

In addition to the translation exposure, the Group is also exposed to movements in exchange rates on certain of its transactions. These are principally the US dollar/euro and the US dollar/Brazilian real movement on the European and South American Beverage Can operations respectively. These exposures are largely hedged and therefore did not impact underlying operating profit in 2008. 

Consolidated balance sheet

Most of the Group's borrowings are denominated in US dollars and euros. Year on year movements in exchange rates increased net borrowings by £627m, of which around £500m related to the US dollar, and net equity by £467m.

Underlying total net finance cost

	2008 £m	2007 £m
Net interest	(132)	(95)
Retirement benefit obligations net finance cost	(7)	(14)
Underlying total net finance cost	(139)	(109)

The underlying total net finance cost increased by £30m compared with the prior year, primarily due to the net impact of financing acquisitions, which increased average net borrowings, and changes in interest and foreign exchange rates, offset by a reduction in retirement benefit obligations net finance cost of £7m as discussed in "Retirement benefits" below. 

  The average market interest rates for US dollar borrowings were down around 250 basis points and for euro borrowings were up by about 50 basis points compared with the prior year. However, the overall average interest rate charge during the period was around 6%, which is similar to last year. This average rate is likely to increase going forward for the full year effect of the US private placement and US bond issues made in June 2008, which together raised US$775m, to refinance facilities maturing in March 2009. 

Based on reported underlying operating profit, interest cover was 3.5 times compared with 3.7 times for 2007. The reduction is due in part to the higher cost of refinancing in the current economic environment. Interest cover is based on underlying operating profit and underlying total net interest expense excluding charges in respect of retirement benefit obligations.

Tax

The tax charge for the year was £102m (31%) on underlying profit (2007: £73m (30%)). Following the acquisition of OI Plastics in 2007, the geographic mix of the Group's business has changed and the tax charge reflects the mix of territories in which Rexam now operates, partially offset by the availability of tax incentives in certain jurisdictions. In 2009 and beyond we anticipate a modest increase in the overall rate.

Cash tax payments in the year were £62m compared with £42m last year, a rate of 19% (2007: 17%) of the underlying profit before tax. Payments in 2008 reflect higher profitability and changes in the timing and amount of instalment payments in Russia and France. It is expected that the cash tax paid in future years will remain lower than the underlying tax charge, at a rate of between 65% and 75% of the underlying tax charge. Cash taxes benefit from structural efficiencies which do not wholly extend to the tax charged in the consolidated income statement.

Exceptional and other items

The exceptional and other items arising in 2008 in respect of continuing operations are as follows:

	Before  tax £m	Tax £m	After  tax £m
Exceptional items:
Integration and reorganisation of businesses	(46)	15	(31)
Retiree medical gain (including legal costs)	4	(1)	3
Prior year tax adjustment on exceptional items	-	4	4
Total exceptional items included in operating profit	(42)	18	(24)
Amortisation of certain acquired intangible assets	(44)	14	(30)
Total exceptional and other items included in operating profit	(86)	32	(54)
Fair value changes on financing derivatives	(2)	1	(1)
Total exceptional and other items	(88)	33	(55)

Exceptional items

The total restructuring and plant closure cost in respect of the integration of OI Plastics is estimated to be £21m; a £6m charge was recorded in 2007 and a further £15m was charged to exceptional items in 2008 reflecting the closure of three plants.

During 2008 the Group announced its intention to reduce capacity in its North American Beverage Can business by closing two facilities, decommissioning a 12oz can line and repositioning its specialty can and other product offering. The business realignment will cost approximately £36m (US$67m) in total, the net cash cost of which will be £15m (US$27m). The charge to exceptional items in 2008 is £31m (US$58m). 

Changes in the provision of retiree medical benefits, consequential to those effected in 2007, resulted in an exceptional gain of £4m, including legal costs.

 

Other items

Amortisation of certain acquired intangible assets

Intangible assets, such as technology 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, within exceptional and other items, of the amortisation of such acquired intangibles amounting to £44m before tax (2007: £22m) aids comparison of organic growth in underlying profit.

Fair value changes on financing derivatives

The fair value of the derivatives arising on financing activities directly relates to changes in interest rates and foreign exchange rates. The 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 year was a net loss of £2m (2007: £2m). 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

	2008	2007
Underlying earnings per share (p)	35.3	28.0
Basic earnings per share (p)	26.8	39.0
Average number of shares in issue (millions)	642	615
Year end number of shares in issue (millions)	643	643

Underlying earnings per share improved 26% from 28.0p to 35.3p. This is due to organic growth together with the contribution from the OI Plastics and Rostar acquisitions partly offset by the higher average number of shares in issue following the 58 million share placement in June 2007. 

The basic earnings per share, which includes exceptional and other items and discontinued operations, were 26.8p per share (2007: 39.0p). The reduction reflects the impact of exceptional and other items in 2008 and the results, including the profit on disposal, of the discontinued Glass operations in 2007.

Retirement benefits

Retirement benefit obligations (net of tax) on the balance sheet as at 31 December 2008 were £170m, an increase compared with £128m reported at 31 December 2007, principally due to exchange rate movements, lower equity asset values and returns, higher mortality assumptions in the UK, offset by higher discount rates which are used to value the liabilities in the defined benefit pension plans.

  Changes to the actuarial value of retirement benefits at the balance sheet date are shown in the statement of recognised income and expense. These changes increased the retirement benefit obligations before tax by £30m in 2008 as follows:

	£m
Defined benefit pension plans:
Plan assets - lower than expected equity returns	(221)
Plan liabilities - principally higher discount rates and valuation experience gains offset by higher mortality	192
Retiree medical liabilities	(1)
Actuarial losses before tax	(30)
Tax	4
Actuarial losses after tax	(26)

The retirement benefit obligations net finance cost is analysed as follows:

	2008 £m	2007 £m
Defined benefit pension plans:
Expected return on plan assets	140	127
Interest on plan liabilities	(140)	(131)
Pension plans net finance cost	-	(4)
Retiree medical - interest on liabilities	(7)	(10)
Total net finance cost	(7)	(14)

The reduction in retirement benefit net finance cost in 2008 compared with 2007 can mainly be attributed to a higher expected return on pension plan assets and lower interest on the reduction in retiree medical liabilities offset by higher interest on pension plan liabilities. It is expected that the net finance cost in 2009 will increase substantially to around £35m. This will be due mainly to lower asset values at 31 December 2008 and lower expected weighted average returns on equities.

The total cash payments in respect of retirement benefits are as follows:

	2008 £m	2007 £m
Defined benefit pension plans	53	47
Other pension plans	9	8
Retiree medical	9	11
Total cash payments	71	66

Cash payments to defined benefit pension plans increased as a result of a higher rate of contribution to the UK plan, which include £22m (2007: £21m) to reduce its deficit, and further contributions to the US plan. Based on current actuarial projections, it is expected that cash contributions to defined benefit pension plans in 2009 will be lower than those in 2008, at around £20m.

A detailed analysis of retirement benefits is set out in note 4.

  Cash flow

Free cash flow from continuing operations for the year resulted in an outflow of £128m compared with an inflow of £16m for 2007. This largely reflects the ongoing investment in capital expenditure to fuel growth in strategic and emerging markets and an increase in working capital offset by the improvement in underlying operating profit. The increase in working capital is mainly attributable to higher inventories and receivables, and lower payables. The increase in inventories is due in part to the dip in demand in the last quarter of the year, particularly in Russia where the supply chain is more complex. These situations are expected to unwind in 2009. Payables were impacted as suppliers increasingly require shorter contractual payment terms in response to the current credit situation and were also affected by some hedging arrangements which required settlement in 2008.

	2008 £m	2007 £m
Continuing operations:
Underlying operating profit	466	354
Depreciation and amortisation 1	178	136
Retirement benefit obligations	(46)	(42)
Change in working capital	(155)	(11)
Restructuring costs	(19)	(8)
Other movements	14	3
Cash generated	438	432
Capital expenditure (net)	(383)	(288)
Net interest and tax paid	(183)	(128)
Free cash flow from continuing operations	(128)	16
Free cash flow from discontinued operations	-	8
Free cash flow	(128)	24
Equity dividends	(131)	(118)
Business cash flow	(259)	(94)
Acquisitions 2	(136)	(921)
Disposals 3	-	402
Cash flow including borrowings acquired and disposed	(395)	(613)
Share capital changes	1	281
Currency fluctuations	(627)	(44)
Other non cash movements	(18)	(14)
Net borrowings4 at the beginning of the year	(1,562)	(1,172)
Net borrowings4 at the end of the year	(2,601)	(1,562)

1	Excludes amortisation of certain acquired intangible assets amounting to £44m (2007: £22m).
2	Includes net borrowings acquired of £12m (2007: net cash £1m).
3	Includes net borrowings disposed of £nil (2007: £130m).
4	Net borrowings comprises borrowings £2,859m (2007: £1,843m) less cash and cash equivalents £75m (2007: £113m), collateral deposits included in other receivables £42m (2007: £nil) and certain financial derivative instruments £141m (2007: £168m). Collateral deposits, which are interest bearing, relate to margin calls on aluminium commodity contracts.

Capital expenditure - continuing operations

	2008	2007
Capital expenditure (gross) (£m) 1	389	294
Depreciation and amortisation (£m) 2	178	136
Ratio (times)	2.2	2.2

1	Capital expenditure includes computer software that has been capitalised.
2	Amortisation excludes £44m (2007: £22m) amortised on certain acquired intangible assets.

  Gross capital expenditure by continuing operations was £389m, 2.2 times depreciation and amortisation. This level of expenditure reflects a substantial commitment to investments in strategic and growth projects, some £263m (2007: £224m). The principal projects were in the Beverage Can business and in the European operations in particular, including new can plants in Denmark and Russia, a third line in the wall to wall facility in Austria (for Red Bull) and additional can lines in Spain and Egypt to support local market growth. The North and South American Beverage Can businesses continue to convert or recommission lines to produce specialty cans to meet market and regional demand. The Plastic Packaging operation has also continued to invest to support a range of products in the dispensing systems and pharmaceutical markets. The most significant investment was for a new facility in France to support the lotion pump business.

Going into 2009 there will be some further investment to finalise commitments on growth and strategic projects within the Beverage Can operations. This will include completion of the new plant in Denmark; additional lines, conversions and can end capacity within the European operations; and line conversions in North and South America. These projects and a range of smaller projects within Plastic Packaging, generally targeted at new product development (particularly in pharmaceutical markets), are expected to support profit growth opportunities in 2009 and beyond. Therefore, it is anticipated that capital expenditure in 2009 will be within the range of 1.1 to 1.2 times depreciation and amortisation, dependant on the timing of projects. At year end exchange rates, the 2008 depreciation and amortisation charge would have been around £220m.

Acquisitions

Net expenditure on acquisitions, including net borrowings assumed, totalled £136m, as set out below.

	£m
Beverage Cans: Rostar	142
Plastic Packaging: OI Plastics - repayment	(8)
Payments in respect of prior year and other acquisitions	2
	136

Rostar, the Russian beverage can maker, was acquired for £142m (including net borrowings acquired) in January 2008, following the receipt of regulatory approval. The acquisition is consistent with our strategy to expand in emerging markets. A net asset adjustment in respect of the OI Plastics acquisition generated an £8m repayment to Rexam. 

Disposals

The process to sell our Petainer refillable plastic bottle operations in Sweden and the Czech Republic, which has been protracted by the global economic downturn, is continuing.

  Balance sheet and borrowings

	As at 31.12.08 £m	As at 31.12.07 restated £m
Goodwill and other intangible assets	2,949	2,216
Property, plant and equipment	1,982	1,310
Retirement benefits (net of tax)	(170)	(128)
Other net assets/(liabilities)	16	(3)
	4,777	3,395
Total equity, including minority interests	2,176	1,833
Net borrowings 1	2,601	1,562
	4,777	3,395
Return on invested capital (%) 2	11.0	11.9
Interest cover (times) 3	3.5	3.7
Gearing (%) 4	120	85

1	Net borrowings comprise borrowings, cash and cash equivalents, collateral deposits and certain derivative financial instruments.
2	Underlying operating profit plus share of associates profit after tax divided by the average of opening and closing of each of net borrowings and shareholders' equity after adding back retirement benefit obligations (net of tax). For 2007, the opening assets and liabilities attributable to the discontinued Glass sector have been excluded.
3	Based on underlying operating profit divided by underlying total net interest expense.
4	Based on net borrowings divided by total equity including minority interests.

The level of net borrowings at 31 December 2008 reflects the increase in working capital, continuing investment in capital projects and acquisitions and the significant impact of currency translation. The currency denomination of our net borrowings is as follows:

	As at 31.12.08 £m	As at 31.12.07 £m
US dollar	2,063	1,293
Euro	373	232
Sterling and other	165	37
Net borrowings	2,601	1,562

The principal committed borrowing facilities available to the Group at 31 December 2008 were £3.3bn, of which £2.3bn were denominated in US dollars and euros.

Net borrowings include interest accruals and certain financial derivatives as set out below.

	As at 31.12.08 £m	As at 31.12.07 £m
Net borrowings excluding derivative financial instruments	2,742	1,730
Derivative financial instruments	(141)	(168)
Net borrowings	2,601	1,562

  Derivative financial instruments comprise instruments relating to net borrowings (cross currency and interest rate swaps) and those related to other business transactions (forward commodity and forward foreign exchange deals). Total derivative financial instruments are set out below.

	As at 31.12.08 £m	As at 31.12.07 £m
Cross currency swaps	126	166
Interest rate swaps	12	2
Foreign exchange forward contracts	3	-
Derivative financial instruments included in net borrowings	141	168
Other derivative financial instruments	(239)	(12)
Total derivative financial instruments	(98)	156

The reduction in the value of cross currency swaps can be mainly attributed to the impact of the strengthening of the US dollar offset by the effect of the stronger euro on the swaps related to the €750m subordinated bond. The increase in interest rate swaps is due to a fall in euro interest rates. The increased liability in respect of other derivatives was due principally to the reduction, mainly in the second half of 2008, in aluminium, resin and energy prices.

At 31 December 2008, the Group's principal committed loan and bank facilities totalled £3.3bn, including £370m relating to a medium term note which matures in March 2009. Since the year end, we have secured £480m in two year bilateral bank facilities to support the Group's liquidity going forward.

We have seen a significant increase in our reported debt arising from the mathematical effect of the significant weakening of sterling impacting the translated value of our euro and US dollar borrowings. Sterling weakness has also had a small adverse impact on debt facility headroom on our sterling denominated bank facilities, although our liquidity remains strong with committed debt headroom at £0.7bn at the year end.

Our gearing has increased, due partly to the translational impact of currency debt referred to above, and our interest cover has fallen to levels that are outside our preferred target ranges, although still manageable, and we were well within our debt covenants in 2008.

  CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER

	Notes		2008 £m	2007  restated £m
Continuing operations
Sales	2		4,618	3,611
Operating expenses			(4,238)	(3,240)
Underlying operating profit	2		466	354
Amortisation of certain acquired intangible assets			(44)	(22)
Exceptional items	3		(42)	39
Operating profit	2		380	371
Share of post tax profits of associates and joint ventures			1	-
Retirement benefit obligations net finance cost	4		(7)	(14)
Underlying interest expense			(144)	(109)
Fair value changes on financing derivative financial instruments			(2)	(2)
Interest expense			(146)	(111)
Interest income			12	14
Underlying profit before tax			328	245
Amortisation of certain acquired intangible assets			(44)	(22)
Fair value changes on financing derivative financial instruments			(2)	(2)
Exceptional items	3		(42)	39
Profit before tax			240	260
Tax on underlying profit			(102)	(73)
Tax on amortisation of certain acquired intangible assets			14	5
Tax on fair value changes on financing derivative financial instruments			1	1
Tax on exceptional items	3		18	(19)
Tax			(69)	(86)
Profit for the financial year from continuing operations			171	174
Discontinued operations
Profit for the financial year from discontinued operations			-	66
Total profit for the financial year	7		171	240
Attributable to:
Equity shareholders of Rexam PLC			172	240
Minority interests			(1)	-
Total profit for the financial year			171	240
Basic earnings per share (pence)	5
Continuing operations			26.8	28.3
Discontinued operations			-	10.7
Total			26.8	39.0
Diluted earnings per share (pence)	5
Continuing operations			26.8	28.3
Discontinued operations			-	10.7
Total			26.8	39.0

For details of equity dividends paid and proposed see note 6.

  CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER

			2008 £m	2007 restated £m
Assets
Non current assets
Goodwill			2,246	1,692
Other intangible assets			703	524
Property, plant and equipment			1,982	1,310
Investments in associates and joint ventures			63	55
Pension asset			16	68
Deferred tax assets			137	142
Trade and other receivables			63	57
Available for sale financial assets			30	21
Derivative financial instruments			342	173
			5,582	4,042
Current assets
Inventories			614	391
Trade and other receivables			833	563
Available for sale financial assets			1	1
Derivative financial instruments			54	20
Cash and cash equivalents			75	113
Assets classified as held for sale			39	30
			1,616	1,118
Total assets			7,198	5,160
Liabilities
Current liabilities
Borrowings			(587)	(164)
Derivative financial instruments			(265)	(32)
Current tax			(4)	(13)
Trade and other payables			(1,053)	(850)
Provisions			(21)	(13)
Liabilities classified as held for sale			(15)	(12)
			(1,945)	(1,084)
Non current liabilities
Borrowings			(2,272)	(1,679)
Derivative financial instruments			(229)	(5)
Retirement benefit obligations			(244)	(249)
Deferred tax liabilities			(151)	(162)
Non current tax			(91)	(84)
Other payables			(33)	(26)
Provisions			(57)	(38)
			(3,077)	(2,243)
Total liabilities			(5,022)	(3,327)
Net assets			2,176	1,833
Equity
Ordinary share capital			413	413
Share premium account			1,005	1,004
Capital redemption reserve			351	351
Retained earnings			77	60
Fair value and other reserves			328	3
Shareholders' equity			2,174	1,831
Minority interests			2	2
Total equity (Note 7)			2,176	1,833

  CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER

		2008 £m	2007 £m
Cash flows from operating activities
Cash generated from operations		396	458
Interest paid		(133)	(99)
Tax paid		(62)	(42)
Net cash flows from operating activities		201	317
Cash flows from investing activities
Capital expenditure		(389)	(311)
Proceeds from sale of property, plant and equipment		6	6
Acquisition of subsidiaries		(112)	(906)
Acquisition of joint venture		(2)	(14)
Proceeds from sale of discontinued operations		-	259
Proceeds from sale of other subsidiaries		-	1
Interest received		12	12
Net cash flows from investing activities		(485)	(953)
Cash flows from financing activities
Proceeds from borrowings		477	660
Repayment of borrowings		(115)	(157)
Proceeds from issue of share capital on options		1	3
Proceeds from share placing (net of £6m costs)		-	280
Purchase of Rexam shares by Employee Share Trust		-	(2)
Dividends paid to equity shareholders		(131)	(118)
Net cash flows from financing activities		232	666
Net (decrease)/increase in cash and cash equivalents		(52)	30
Cash and cash equivalents at the beginning of the year		36	14
Exchange differences and other adjustments		(9)	(8)
Net (decrease)/increase in cash and cash equivalents		(52)	30
Cash and cash equivalents at the end of the year		(25)	36
Cash and cash equivalents comprise:
Cash at bank and in hand		62	73
Short term bank deposits		13	40
Bank overdrafts		(100)	(77)
		(25)	36

  CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

FOR THE YEAR ENDED 31 DECEMBER

	2008 £m	2007 £m
Exchange differences before recognition of net investment hedges	651	86
Net investment hedges recognised	(184)	(31)
Net investment hedges transferred to the income statement	-	(3)
Cash flow hedges recognised	(189)	(34)
Tax on cash flow hedges	35	13
Cash flow hedges transferred to inventory	9	(8)
Actuarial (losses)/gains on retirement benefit obligations	(30)	217
Tax on actuarial losses/(gains) on retirement benefit obligations	4	(65)
Changes in market value of available for sale financial assets	3	-
Net profit recognised directly in equity	299	175
Total profit for the financial year	171	240
Total recognised income and expense for the year	470	415
Attributable to:
Equity shareholders of Rexam PLC	471	415
Minority interests	(1)	-
	470	415

  NOTES 

1 Basis of preparation

In preparing the consolidated financial statements, the following restatements have been made to the comparative amounts:

(i)

The consolidated balance sheet as at 31 December 2007 has been restated for final fair value adjustments applied to the 2007 acquisition of OI Plastics.

(ii)

The definition of exceptional items was changed in 2008 to exclude the amortisation of certain acquired intangible assets, comprising acquired customer contracts and relationships and acquired technology and patents, and to exclude fair value changes on non hedge accounted financing derivative financial instruments and hedge ineffectiveness on financing derivative financial instruments. These items have been excluded from exceptional items as they are recurring in nature and they are now presented separately on the face of the consolidated income statement.

The financial information in this release does not constitute statutory accounts within the meaning of section 240 of the Companies Act (as amended).

The figures contained herein have been extracted from the Group's Annual Report 2008, including the audited consolidated and Company financial statements for the year ended 31 December 2008, which will be delivered to the Registrar of Companies. The Annual Report 2007 for the year ended 31 December 2007 has been delivered to the Registrar of Companies. The auditors' reports on both these sets of financial statements were unqualified and did not contain a statement under section 237(2) or section 237(3) of the Companies Act.

2 Segment analysis

(i) Analysis by business segment 2008 ­- continuing operations

	Sales £m	Underlying  operating profit  £m	Underlying  return on sales %	Profit  £m
Beverage Cans	3,289	306	9.3	270
Plastic Packaging	1,273	157	12.3	107
Disposals and businesses for sale	56	3	5.4	3
	4,618	466	10.1	380
Share of post tax profits of associates and joint ventures				1
Retirement benefit obligations net finance cost				(7)
Net interest expense				(134)
Profit before tax				240
Tax				(69)
Total profit for the financial year				171

Underlying operating profit comprises operating profit from continuing operations before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivative financial instruments. Underlying operating profit is included as it is felt that adjusting operating profit for exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivative financial instruments provides a better indication of the Group's performance. Underlying return on sales comprises underlying operating profit divided by sales. 

  (ii) Analysis by business segment 2007 

	Sales £m	Underlying  operating profit £m	Underlying  return on sales %	Profit £m
Continuing operations
Beverage Cans	2,686	244	9.1	285
Plastic Packaging	880	105	11.9	80
Disposals and businesses for sale	45	5	11.1	6
	3,611	354	9.8	371
Retirement benefit obligations net finance cost				(14)
Net interest expense				(97)
Profit before tax				260
Tax				(86)
Profit for the financial year				174
Discontinued operations
Profit for the financial year				66
Total profit for the financial year				240

3 Exceptional items

	2008 £m	2007  restated £m
Restructuring and integration of businesses	(46)	(6)
Retirement benefit obligations	4	61
Legacy and other tax based exposures	-	(17)
Disposal of subsidiaries	-	1
Exceptional items included in profit before tax	(42)	39
Tax on exceptional items	18	(19)
Total exceptional items	(24)	20

The total restructuring and plant closure cost in respect of the integration of OI Plastics is estimated to be £21m; a £6m exceptional charge was recorded in 2007 and a further £15m has been charged in 2008 reflecting the closure of three plants. During 2008 the Group announced its intention to reduce capacity in its North American Beverage Can business by closing two facilities, decommissioning a 12oz can line and repositioning its specialty can and other product offering. The business realignment will cost approximately £36m in total and the exceptional charge in 2008 is £31m.  Changes in the provision of retiree medical benefits, substantially effected in 2007, resulted in a further exceptional gain of £4m, including legal costs.

  4 Retirement benefit obligations

(i) Summary

	Defined benefit pensions £m	Other pensions £m	Total pensions £m	Retiree medical £m	Gross retirement benefit obligations £m
At 1 January 2008	(63)	(17)	(80)	(98)	(178)
Exchange differences	(25)	(4)	(29)	(33)	(62)
Current service cost	(15)	(9)	(24)	(1)	(25)
Exceptional items	(3)	-	(3)	4	1
Net finance cost	-	-	-	(7)	(7)
Actuarial changes	(30)	1	(29)	(1)	(30)
Cash contributions and benefits paid	53	9	62	9	71
Transfers	2	-	2	-	2
At 31 December 2008	(81)	(20)	(101)	(127)	(228)

Deferred tax on gross retirement benefit obligations at 31 December 2008 is a £58m asset (2007: £50m) resulting in net retirement benefit obligations of £170m (2007: £128m).

(ii) Defined benefit pension plans

Principal actuarial assumptions 

	UK 2008 %	USA 2008 %	Other 2008 %	UK 2007 %	USA 2007 %	Other 2007 %
Future salary increases	4.30	4.00	3.07	4.80	4.00	3.05
Future pension increases	2.80	-	2.00	3.30	-	2.00
Discount rate	6.00	6.25	5.05	5.60	6.00	5.08
Inflation rate	2.80	2.50	2.00	3.30	2.50	2.00
Expected return on plan assets (net of administration expenses):
Equities	7.47	7.49	8.70	7.87	7.34	7.15
Bonds	4.47	4.50	3.20	4.62	4.70	3.65
Cash	1.82	3.01	4.00	5.37	3.16	3.35

To develop the expected return on plan assets assumptions, the Group considered the current level of expected returns on risk free investments, primarily government bonds, the historical level of the risk premium associated with the asset class concerned and the expectations for future returns of the asset class. The resulting returns for equities, bonds and cash were then reduced to allow for administration expenses.

The mortality assumptions used in valuing the liabilities of the UK pension plan in 2008 and 2007 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. The life expectancy assumed for male pensioners aged 65 is 21.2 years (2007: 19.6 years) and for female pensioners aged 65 is 24.3 years (2007: 22.4 years). The life expectancy at age 65 assumed for male non pensioners currently aged 45 is 23.4 years (2007: 21.8 years) and for female non pensioners currently aged 45 is 26.7 years (2007: 24.5 years). 

The mortality assumptions used in valuing the liabilities of the US pension plans in 2008 are based on the RP2000 combined active and retiree mortality table projected to 2006 (2007: RP2000 combined active and mortality table projected to 2006) weighted 70% blue collar and 30% white collar. The life expectancy assumed for male pensioners aged 65 is 17.8 years (2007: 17.8 years) and for female pensioners aged 65 is 20.2 years (2007: 20.2 years).

  5 Earnings per share

(i) Basic and diluted earnings per share

	Basic 2008 Pence	Diluted 2008 Pence	Basic 2007  Pence	Diluted 2007  Pence
From continuing operations	26.8	26.8	28.3	28.3
From discontinued operations	-	-	10.7	10.7
Total	26.8	26.8	39.0	39.0

	2008 £m	2007 £m
Profit for the financial year from continuing operations	171	174
Profit for the financial year from discontinued operations	-	66
Total profit for the financial year	171	240
Attributable to:
Equity shareholders of Rexam PLC	172	240
Minority interests	(1)	-
Total profit for the financial year	171	240

	2008 Millions	2007 Millions
Weighted average number of shares in issue	642.3	615.3
Dilution on conversion of outstanding share options	0.2	0.5
Weighted average number of shares in issue on a diluted basis	642.5	615.8

(ii) Underlying earnings per share

	2008  Pence	2007  Pence
Underlying earnings per share	35.3	28.0

	2008 £m	2007 £m
Underlying profit before tax	328	245
Tax on underlying profit	(102)	(73)
Underlying profit for the financial year	226	172
Attributable to:
Equity shareholders of Rexam PLC	227	172
Minority interests	(1)	-
Underlying profit for the financial year	226	172

Underlying earnings per share is based on underlying profit for the financial year attributable to equity shareholders of Rexam PLC divided by the weighted average number of shares in issue. Underlying profit for the financial year is profit from continuing operations before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivative financial instruments. Underlying earnings per share is included as it is felt that adjusting basic earnings per share for exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivative financial instruments provides a better indication of the Group's performance.

  6 Equity dividends

	2008 £m	2007 £m
Interim dividend for 2008 of 8.7p paid on 4 November 2008	56	-
Final dividend for 2007 of 11.7p paid on 3 June 2008	75	-
Interim dividend for 2007 of 8.3p paid on 6 November 2007	-	53
Final dividend for 2006 of 11.1p paid on 6 June 2007	-	65
	131	118

A final dividend per equity share of 12.3p has been proposed for 2008 and, subject to shareholder approval, is payable on 2 July 2009. The proposed final dividend has not been accrued in these consolidated financial statements.

7 Total equity

	2008 £m	2007 £m
At 1 January	1,833	1,249
Net profit recognised directly in equity	299	175
Profit for the financial year	171	240
Dividends paid	(131)	(118)
Share options value of services provided	2	4
Share options proceeds from shares issued	1	3
Increase in minority interests	1	-
Placing of Rexam PLC shares	-	280
Purchase of Rexam PLC shares by Rexam Employee Share Trust	-	(2)
Transfer on disposal of subsidiaries	-	2
At 31 December	2,176	1,833

8 Movement in net borrowings

	2008 £m	2007 £m
1 January	(1,562)	(1,172)
Exchange differences	(627)	(44)
Acquisition of subsidiaries	(22)	(1)
Disposal of subsidiaries	-	142
Change in cash and cash equivalents	(52)	30
Proceeds from borrowings	(477)	(660)
Repayment of borrowings	115	157
Movement in collateral deposits	42	-
Fair value and other changes	(18)	(14)
31 December	(2,601)	(1,562)

9	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 and is also on Rexam's website, www.rexam.com.

10

The Annual Report 2008 will be published on www.rexam.com at the beginning of April 2008. At that time the Annual Report 2008 will be mailed to those shareholders who have elected to receive it. Otherwise, shareholders will be notified that the Annual Report 2008 is available online and will, at the time of that notification, receive a Proxy Form together with the Notice of Annual General Meeting 2009.

ENDFR CKFKBBBKBDBD

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