Final Results

Rexam hits target 15% Return on Capital Employed 

20 February 2014

Rexam, the global consumer packaging company, announces its results for the full year 2013.

Highlights

· Underlying profit before tax up 4%

· Underlying earnings per share up 13%

· Return on capital employed 15.5% (2012: 14.5%3)

· Sale of the majority of Healthcare agreed for $805m with £450m of proceeds to be returned to shareholders

· Total dividend up 14% to 17.4p

Commenting, Graham Chipchase, Rexam's chief executive, said:

"We are pleased to have achieved our 15% ROCE target. We also grew 2013 profits by 4% and have proposed a 14% increase in the dividend to 17.4p. It has been a great team effort. 

"The acquisition of a majority stake in UAC expands our footprint in the Middle East, while our investment in Magnaparva Packaging demonstrates our intent to pursue transformational innovation opportunities.

"Rexam is now a focused beverage can maker, and our aim is to be the best in the industry. The work that we have done to restructure our company means that we are in good shape operationally. In 2014, despite an uncertain macroeconomic environment and some continued cost volatility, we expect to make further progress on a constant currency basis. We remain committed to managing what we can control and focusing on cash, cost and return on capital employed as we pursue our strategy of balancing growth and returns."

Statutory results4

A presentation for analysts and investors will be held today at 09:00 UK time at the Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ. Subject to certain restrictions, the presentation will be webcast live on www.rexam.com at the above time and subsequently will be available on demand.

The 09:00 UK conference can also be accessed via audio link by dialling:

UK: + 44 (0)20 3139 4830 

US: +1 718 873 9077

Access code: 46821571#

At 09:30 Eastern time on Thursday 20 February (14:30 UK time) Graham Chipchase and David Robbie will host a conference call:

Dial-in numbers: +1-480-629-9771 or 1-800-762-8779

Replay number: +1-800-406-7325

Access code: 4664916#

A replay service will be available until 6 March 2014:

UK Toll Free: +44 (0)20 3426 2807 

US Toll Free: + 1866 535 8030

Password: 645253#

Enquiries

Investors

Sandra Moura, Head of Investor Relations, Rexam +44 20 7227 4100

Media

Jonathan Thornton, Head of Communications, Rexam +44 20 7227 4100

Katharine Wynne, Tulchan Communications +44 20 7353 4200

Martin Robinson, Tulchan Communications +44 20 7353 4200

A copy of this press release has been posted on the Rexam website, www.rexam.com.

This press 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 press 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 press release, and other unknown future events and circumstances which can cause results and developments to differ materially from those anticipated. Nothing in this press release should be construed as a profit forecast.

Notes to editors:

Rexam is a leading global beverage can maker. We are business partners to some of the world's most famous and successful consumer brands. Our vision is to be the best beverage can maker in the world.

We have 55 can making plants in more than 20 countries and employ around 8,000 people. In 2013 our sales were £3.9 billion.

Rexam is a member of the FTSE 100 and its ordinary shares are listed with the UK Listing Authority and trade on the London Stock Exchange under the symbol REX. Visit www.rexam.com for further information.

INTRODUCTION

Four years ago, we set out a plan to strengthen the foundations of this company and create a solid platform for the future.

We highlighted three areas that were fundamental to achieving our aims: managing costs, optimising cash and improving our return on capital employed (ROCE). For the latter, we set ourselves a target of achieving a 15% ROCE by the end of 2013, and I am delighted to say that we have hit this target. During the period since 2010, we have also generated almost £940m in free cash flow and made restructuring and efficiency savings of c £195m. These notable achievements were due in no small measure to the application and initiative of our executive leadership team as well as the resilience and commitment of our people in what has been a challenging economic period. The proposed sale of the majority of the Healthcare business was further testament to the strength of the organisation.

We have demonstrated a disciplined approach to capital allocation and will continue to manage our business in the best interests of shareholders. Returns to shareholders are an established priority for Rexam and the dividend is a core element of total shareholder returns. This year we raised our dividend per share by 14%. This increase reflects the board's confidence in the Group's future and is in line with our dividend policy to have a cover in the range 2.0 to 2.5 times underlying earnings.

We have consistently stated that if we cannot invest in projects with good returns then we are committed to returning excess cash to shareholders. In January 2013, following the sale of our Personal Care business, we completed a return of cash of 45p per existing ordinary share. The return of cash was accompanied by a consolidation of the existing ordinary shares in the ratio of nine new ordinary shares for every ten existing ordinary shares held. 

Taking into account ordinary dividends and the return of cash in 2013, total cash returns to shareholders have been c £0.9bn over the last four years. In 2014, we plan to return a further £450m following the sale of the major part of our Healthcare business, which we expect to complete in the second quarter of 2014.

Dividend

The board is proposing a final dividend of 11.7p per share, making a total dividend of 17.4p for the year. This 14% increase is in line with our dividend policy to have a dividend cover in the range 2.0 to 2.5 times underlying earnings, and reflects the board's continuing confidence in the Group. Subject to shareholder approval at the annual general meeting on 2 May 2014, the final dividend will be paid on 3 June 2014 to shareholders on the register at close of business on 9 May 2014.

CHIEF EXECUTIVE'S OPERATIONAL REVIEW

In 2013 the business delivered a good operational performance, and I am encouraged by the way we managed the challenge of a tough macroeconomic climate and higher aluminium premium and conversion costs.

The highlight of the year was the achievement of our target of 15% ROCE which we set in 2011. It was a great team effort. We also made good progress on our other strategic priorities as well. While maintaining strict capital discipline, we continued to invest for the future in markets where we are established and we strengthened our capabilities in emerging markets to support the sustainable growth of the business. We delivered another year of operational efficiency savings consistent with our target. We increased our focus on innovation in both products and processes, and now have a much stronger innovation capability. And at the start of 2014, in line with our strategy to create a company that maximises return on capital employed, we announced that we had signed an agreement to divest the majority of the Healthcare packaging business and intend to return £450m of the proceeds to shareholders. The fact that we could deliver all of this and keep our focus on our strategic priorities in such challenging times speaks volumes for the commitment and dedication of our people.

Operational review of the year

Beverage Cans global volumes increased 1% on 2012. North America continued to perform strongly as it recovered market share but volumes in Western Europe and South America proved disappointing, especially in the first half of the year. Organic sales were down 1% as volume growth was offset by the pass through of lower aluminium prices.

Organic operating profit was down 1% at £449m mainly due to higher metal conversion and premium costs in both Europe and South America. The effect was compounded by a weaker mix of products as the share recovery in lower margin standard cans in North America was offset by the negative mix impact of weaker volumes in Europe (especially Russia).

Beverage Can Europe

The beverage can market in Europe comprises about 58bn cans, making it the third largest in the world, after North America and Asia. Rexam is the leading can maker with some 40% market share. The market has been growing at 3% pa since 2008 in a period of very low or non existent macroeconomic growth across the region. Growth has been driven largely by beer and carbonated soft drinks (CSD). Despite a

c 2% pa decline in beer consumption and little growth in the amount of CSD consumed in the last five years, the beverage can market has continued to grow in both categories as the pack mix shifts towards cans. Energy drinks have grown at a rate of 13% pa in the same period and, as the can is the container of choice in this beverage category, it has been a major driver of can growth.

In 2013, the weak macroeconomic backdrop in Europe made for challenging trading. In Western Europe, after a particularly cold winter and spring we had a strong second half, with volume in standard cans growing 6%. There was particularly strong growth in the Nordic countries and the UK, partly offset by some weakness in Spain. As a result standard cans were up 4% for the full year.

Specialty cans were 3% lower due to some share loss in the Benelux region but overall growth in energy drinks remained good.

In Russia, regulatory changes banning the sale of beer in kiosks resulted in an 8% decline in the market for beer cans and although this was partially offset by strong growth in CSD in cans, the overall can market declined by 2%. Even though absolute volumes for beer cans were down, we estimate that they captured a greater proportion of the pack mix. In 2013, the expected new competitor capacity came on stream and as a result we lost market share. We now have around 70% of the Russian beverage can market and expect our share to stabilise. We remain confident about the prospects and potential of this market.

Innovation in Europe has focused largely on our award winning FUSIONTM bottle which our customers see as an important package for the future. During the year, we ramped up production at our plant in the Czech Republic and in 2014 we will continue to invest in line speed up as well as value adding contouring technologies. The specific technology we use will ultimately allow us to make the bottles with less material and, as the only manufacturer in Europe with access to this technology, we expect to gain competitive advantage. We also completed the conversion to new lighter weight ends ahead of budget.

We were vigorous in defending our market share in key markets in western Europe. In the first half we started production of standard cans at a new plant in Finland to serve the growing Nordic market. We opened a fourth line at our Ludesch plant in Austria to add an extra 0.7bn cans to the plant's capacity and also announced that we are to build a new can plant dedicated to energy drinks in Widnau, Switzerland. The latter will represent a total investment of some £115m over three years and will provide an extra 2.2bn cans when all three lines are completed. The first line is expected to come on stream in 2015.

Beverage Can North America

After peaking in 1994 at more than 100bn cans, the North American market has slowly reduced to its current c 94bn can market. Can consumption remains the highest in the world at more than 330 cans per capita per year. Rexam has more than 20% of the North American market. Following contract negotiations in 2010 we lost market share which we have now regained over the last three years. As a result we have a more diversified customer base and we do not expect significant changes in share in the next few years, except for normal marginal movements.

In 2013, the North American beverage can market overall declined 3% led by a drop in sales of CSD. Our North American can business, however, traded well and our own volumes grew 7% as we regained market share. Standard cans were up 11% but, although there was some good growth in certain specialty can sizes, overall our specialty can volumes were down 3% against a very strong 2012 performance following the successful launch of SleekTM cans.

We maintained a strong focus on operations and during the year all our plants in the US were Safe Quality Food (SQF) certified. Our cost reduction efforts continued apace with further improvement in efficiencies and material usage.

There was further progress in product innovation. We launched, for example, a new 25oz can to meet customer demand and to complement the already popular 24oz size, and we completed the creation of a new liner for the Rexam CapCan, a leading resealable package choice for many energy drink customers. This means that CapCan can now be used to package beer, dairy and spirits. The craft beer market, where the can is the packaging of choice, showed continued strong growth albeit from a small base. We have supported more than 40 new beer customers in recent years with a range of beverage can options from standard 12oz, through SleekTM to 24oz to help launch and differentiate their products.

Outside the US, we see significant potential for further growth in Mexico and Central America with their increasing populations and improving GDP. We are participating in this growth through our own plant in Queretaro, Mexico, where we have seen specialty can growth of 29% since 2010, and through a joint venture in Guatemala, which has doubled its volume since 2006. We continue to strengthen our relationships with regional customers and provide technical support to other local can manufacturers as we continue to explore additional opportunities.

Beverage Can South America

Brazil, Chile and Argentina are the three main markets we serve in South America. In total they consume c 23bn cans. Our largest market is Brazil where we are market leader with more than 50% market share. In Chile and Argentina we are the sole can makers.

In 2013, trading in South America was volatile. GDP growth in Brazil slowed to 2% and inflation was around 6%. In response to the weakening macroeconomic environment and declining disposable incomes, our customers prioritised specialty cans to differentiate their products and provide attractive price points with different can sizes.

The overall market in Brazil was up 4% driven by a 32% increase in specialty size volumes with standard cans volumes declining 5%.

Our volumes in South America were down 1%. The market weakness in standard cans drove most of the 8% decline in our standard can volumes. This was partly offset by a 22% increase in specialty cans. We were constrained in terms of specialty can capacity in the first half of the year but we converted our line in Belém to make specialty cans, and are in the process of converting another line in Brasilia. With our footprint adjusted to meet customer needs, we started to see a significant improvement in our performance and our volumes were up 5% in the seasonally strong final quarter. We continue to monitor the market closely and will convert more capacity if needed to ensure we can meet the market growth in 2014. 

There was growth in Argentina while in Chile volumes improved significantly, driven by the additional demand for energy drinks in specialty cans and by customers' strategies to promote single serve packages. We are adding a new specialty can line in Chile to satisfy the increasing demand for these types of cans.

Preparations in Brazil are well advanced for both the 2014 World Cup and the 2016 Olympics and the work on infrastructure and public transport in major cities is creating jobs and helping to stimulate the economy. Our customers are continuing to invest as planned, adding significant filling capacity in Brazil over the next three years.

Beverage Can Africa, Middle East and Asia

Historically our emerging market growth has been largely confined to Russia and Brazil where we are the leading player in both countries. We are now looking to develop new markets in Africa, Middle East and Asia (AMEA) which account for 75% of the world's population and one third of total global beverage can volumes. They also represent significant proportions of our customers' sales, and as they are now investing more in these markets, there is an opportunity not only for us to grow our business in line with theirs but also to seek alliances with local beverage producers.

We established our own AMEA organisation at the start of 2013 in Dubai: it is a suitable hub from which to manage the existing footprint and explore new opportunities. Operations consist of plants in Turkey, Egypt and India, the latter which we successfully converted from steel to aluminium. There is also a long standing joint venture in South Korea which mostly supplies the local market. We also have technical licences in Iran, China and Australia.

In February 2014, we announced the acquisition of a majority holding in United Arab Can, Saudi Arabia, with an annual capacity of 1.8bn cans in both standard and specialty sizes. Upon completion of the deal later in 2014, the plant will provide another bridgehead into growing markets and we plan to work together with our partners in UAC to expand in the region.

In 2013, volumes declined slightly in the AMEA region. Although volumes almost doubled in India, albeit from a low base, sales were disrupted by social unrest in Egypt and Turkey in the latter part of the year and we remain watchful of trading conditions in those regions.

KEY GROUP RISKS

Effective management of risk is essential to the achievement of our business objectives and to the protection of our people, assets and reputation.

We have continued to develop and improve our approach to business risk management during the course of 2013 in response to changes in the business and operating environment. We ensure that all key risks are fully defined and mitigating actions are in place to manage these risks. We maintain close working relationships between Group functions and business units to understand and address risks. Further details will be available in the annual report 2013.

SUSTAINABILITY

We have an established sustainability framework which encompasses the lifecycle of our products, our operations and our employees as well as the communities in which we do business.

This framework helps to guide our business and is an assurance for our customers as they seek to reduce the environmental impacts of the products they market and to ensure an ethical supply chain.

We have 12 specific commitments and 20 measures. These enable us to monitor and report on our progress in our three main areas of focus: products, operations and people. Our range of targets and stretching goals ensure we improve continuously. In 2013 we achieved 16 out of 20 targets. Further details will be available in the annual report 2013.

2014 OUTLOOK

Rexam is now a focused beverage can maker. Our aim is to be the best in the industry and we have refined our strategy accordingly. Our intent, as ever, is to win, as we achieve a balance between growth and returns to create sustainable value for all our stakeholders.

We are committed to maintaining ROCE at around 15% as we grow the Company. It is a level of returns we deem appropriate given our asset base and geographic exposure. We have learnt valuable lessons over the last three years around managing costs, optimising cash and the disciplined employment of capital, and we will continue to keep these under close watch.

There are five main themes directing the strategy:

We will invest to capture growth opportunities and to protect our core business, all the while maintaining the strict capital discipline of recent years and a focus on returns.

We will strengthen our customer relationships, not simply by providing best in class quality and customer service at the right cost but also by working with them strategically and proactively. We will strengthen ties through commercial excellence and marketing capability and innovating to meet the challenge of profitable growth in a lower growth world.

We will pursue continuous improvement in operational excellence with special emphasis on delivering first class products at cost at or below those of our competitors.

We will shape our future by innovating and continuing to improve our sustainability performance to underpin our licence to operate and to support our customers as they face increasing consumer and legislative pressures.

Finally, we will continue to build a winning organisation with the right structure and talent to support delivery of our strategy.

Next year we will be reporting against these five areas.

The work that we have done to restructure our company means that we are in good shape operationally. In 2014, despite an uncertain macroeconomic environment and some continued cost volatility, we expect to make further progress on a constant currency basis. We remain committed to managing what we can control and focusing on cash, cost and return on capital employed as we pursue our strategy of balancing growth and returns.

FINANCIAL REVIEW

This financial review of our results is principally based on what we term the underlying business performance, as shown in the tables below. This excludes exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain operating and financing derivatives (together 'exceptional and other items'). We feel that the underlying figures aid comparison and understanding of the Group's financial performance.

The Healthcare business was identified for disposal in 2013 and reclassified to discontinued operations. Discontinued operations in 2013 comprise the Healthcare business and in 2012 also include the Personal Care business which was sold in that year. Further details of the trading results of these businesses, together with the background and accounting impact of the disposal of Healthcare, are set out in 'Discontinued operations' below.

Summary of the statutory performance

Results on a statutory basis include disposed businesses, currency translation, exceptional and other items and discontinued operations. The exceptional and other items and the results of discontinued operations are described in more detail below. For continuing operations, sales were £3,943m (2012 restated: £3,885m) and profit before tax including exceptional and other items was £339m (2012 restated: £319m). Total profit after tax, including the results of discontinued operations, was £95m (2012 restated: £206m) and basic earnings per share was 12.0p (2012 restated: 23.7p).

Reconciliation of underlying to statutory performance

The following tables, showing sales and underlying operating profit, compare the continuing operations on a consistent basis to demonstrate 'like for like' trading performance. This basis excludes discontinued operations. Organic change is the year on year change arising on continuing operations at constant exchange rates. 

Analysis of sales movement

Organic sales, which exclude the impact of discontinued operations and currency, decreased by £20m. This was driven mainly by the negative pass through of lower aluminium costs (£63m). Excluding this and the 2012 sales from our divested Chinese beverage can business, sales were £50m higher than prior year reflecting overall volume growth of 1%. Volumes improved significantly in North America due to the recovery of contracted standard can volumes. In Western Europe volumes were 1% ahead of last year driven by growth in the Nordic region. In Russia volumes were below last year, reflecting softening market demand and some expected loss of market share. Volumes in South America improved in the second half as specialty can volumes increased with additional capacity coming online.

Analysis of underlying operating profit movement

A further analysis of the organic change in Beverage Cans underlying operating profit is set out below.

Underlying operating profit, after adjusting for the impact of discontinued operations, disposals and currency, decreased by £7m or 1%. Sales price and cost changes were adverse in aggregate, predominantly from higher aluminium premium and conversion costs, partly offset by cost mitigation plans. Volume growth in North America due to share recovery in standard cans was offset by the negative mix impact of weaker volumes in Russia. Efficiency savings totalled £21m and comprised predominantly metal savings and energy cost reductions.

Exchange rates

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

Analysis of currency in the consolidated income statement

The principal currencies that impact our results are the US dollar, the euro and the Russian rouble. The euro and the US dollar strengthened against sterling in the year while the Russian rouble weakened. The net effect of currency translation caused sales and underlying operating profit from ongoing operations to increase by £78m and £8m respectively compared with 2012 as shown below.

If we retranslated the 2013 underlying operating profit at closing exchange rates, it would be c £25m lower.

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

The current political situation in Egypt has led to the devaluation of the Egyptian Pound (EGP) by circa 10% against the US dollar since the beginning of 2013, although the foreign exchange rate stabilised during the second half. This resulted in a £2m foreign currency transaction loss in the year. The exposure arises as it is not currently possible to hedge our EGP sales receipts.

Analysis of currency on the consolidated balance sheet

Most of the Group's borrowings and net assets are denominated in US dollars and euros. Currency movements had no impact on net borrowings and reduced net equity by £38m.

Underlying total net finance cost

The underlying total net finance cost for continuing operations was £13m lower than 2012. The £10m reduction in net interest is primarily due to lower interest rates. The change in retirement benefits net interest cost is explained in 'Retirement benefits' below. The overall average interest rate for the year was around 5%, down from 6% in 2012. Based on underlying operating profit from continuing operations, interest cover was 6.4 times (2012 restated: 5.6 times). Interest cover is based on underlying operating profit from continuing operations and underlying net interest expense excluding charges in respect of retirement benefit obligations.

Tax

The tax charge on profit before exceptional and other items for the year on total operations was £113m (26%) (2012: £119m, 27%).

The tax charge applicable to underlying profit from continuing operations before exceptional and other items is £93m (25%) (2012 restated: £87m, 24%) which is at a lower rate than total operations as the Healthcare operations included in discontinued operations are generally in more highly taxed territories. We anticipate the sustainable rate on continuing operations going forward will be around 26%, reflecting the mix of territories in which we operate, offset in part by the availability of tax incentives in some jurisdictions. The charge in 2013 has benefited from credits arising from the recognition of additional deferred tax assets, though at a lower level than similar items in last year's charge.

Tax cash payments in the year for continuing operations were £70m compared with £60m last year with an additional £7m (2012 restated: £34m) being borne by discontinued operations. Cash taxes can vary from the charge in the income statement for a number of reasons, including the utilisation of deferred tax assets such as tax losses, local laws governing the timing of certain tax deductions, and payments of taxes sometimes falling outside of the year to which they relate. We anticipate cash tax to continue to be lower than the charge to the income statement for the foreseeable future.

Exceptional and other items

The exceptional and other items arising in 2013 in respect of total operations were as follows:

Disposal of businesses and goodwill impairment

The gain of £8m relates to the completion of the disposal of Personal Care. The impairment of Healthcare of £233m, recorded in the second half, is described in 'Discontinued operations' below.

Restructuring of businesses

The restructuring charge of £6m includes £4m related to asset impairments, including the restructuring of IM post the Healthcare disposal.

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 board consider that separate disclosure, within exceptional and other items, of the amortisation of such acquired intangibles relating to total operations amounting to £10m (2012: £21m) aids comparison of organic change in underlying profit.

Operating derivatives fair value changes

Fair value changes on operating derivatives relate to changes in the value of commodity hedges for the forward purchase of aluminium and the fair value movements on non hedge accounted forward exchange contracts. Accounting rules require that the effectiveness of our commodity hedges is tested at each reporting date. Where a hedge is deemed to be effective the fair value change is recorded in the relevant hedge reserve and where it is ineffective or there is over hedging, the relevant proportion of the fair value is charged or credited to the consolidated income statement.

Effectiveness on our aluminium forward deals is calculated by comparing the value of the forward deals to the value of our underlying hedged item; for Rexam this is principally aluminium coil. Current accounting rules require that the ingot conversion cost and metal premium of our aluminium coil is included when calculating the effectiveness of our underlying hedged item, despite the fact that we only hedge the underlying LME portion of the aluminium coils. Revised accounting standards are being drafted which will address this particular anomaly but they are not currently expected to be implemented before 2017.

In 2013, the effect of the movement in conversion costs against the movement in the aluminium price resulted in aluminium hedges failing the effectiveness test. Once a hedge has failed an effectiveness test, accounting standards do not allow for it to be retrospectively re-designated and therefore fair value movements continue to be recorded in the income statement. The decrease in aluminium prices on these failed aluminium hedges has given rise to a charge of £23m (2012: gain of £11m). There was also a charge of £1m (2012: charge of £4m) relating to fair value changes on certain non hedged accounted foreign exchange contracts.

This accounting treatment can give rise to income statement volatility up to the date the hedge matures and management believe that it is more appropriate to exclude any such movements from underlying profit. As the hedge matures, at which point the cost will be substantially passed onto our customers, any realised gain or loss on the hedge is reversed in full from fair value changes on operating derivatives and recognised within 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 £1m (2012: net loss £20m). 

Discontinued operations - Healthcare and Personal Care

During the year the Group decided to market the Healthcare business for disposal. The business was therefore reclassified as a discontinued operation and consequently its results are disclosed separately from those of the continuing operations. The 2012 comparisons also include Personal Care which was sold in that year.

Healthcare underlying operating profit in 2013 benefited from the cessation of depreciation since June 2013 when the business was classified as an asset held for sale. The remaining improvement in underlying operating profit resulted from sales growth in insulin pens and prescription containers, partly offset by a weaker performance in Primary Packaging.

The decision to market the Healthcare business for disposal required its carrying value to be subject to an impairment review. This review gave rise to an impairment charge before tax of £233m.

Earnings per share

Underlying earnings per share from continuing operations was 13% higher at 35.3p compared with 31.2p in 2012. Basic earnings per share from total operations, which includes exceptional and other items, was 12.0p (2012 restated: 23.7p).

Retirement benefits

Retirement benefit obligations (net of tax) as at 31 December 2013 were £288m, a decrease of £67m compared with £355m reported at 31 December 2012. This change was principally due to cash contributions and actuarial gains arising from higher discount rates. These actuarial gains are included in the consolidated statement of comprehensive income. 

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

The accounting standard, IAS19 (Revised) 'Employee benefits', was adopted by the Group from 1 January 2013 and the comparative figures have been restated accordingly.

The overall retirement benefit obligations net interest cost, which is a non cash accounting charge, reduced to £16m from £19m in 2012, due mainly to a reduction in the discount rates and a lower net deficit at 31 December 2012 compared to 31 December 2011.

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

As part of the 31 March 2011 UK valuation, Rexam PLC and the trustees to the UK defined benefit plan agreed a six year escrow investment with contributions of £10m in 2012 and £15m for each of the following five years. At each subsequent valuation date, the assets in escrow will either be allocated to the plan, to Rexam PLC or remain in escrow subject to the funding position of the plan. As at 31 December 2013 £25m had been paid into the escrow investment account.

Based on current actuarial projections, it is expected that total cash payments in 2014 will be broadly in line with 2013. 

Cash flow

Total free cash flow for the year from continuing operations resulted in an inflow of £180m compared with £207m for 2012. This lower inflow primarily reflects an outflow in working capital, partly offset by lower capital expenditure. Net cash flow was £37m (2012: £474m), including free cash flow from discontinued businesses and is after paying dividends. The return of cash to shareholders (£393m) resulting from the sale of Personal Care is reported separately.

Capital expenditure - continuing operations

Gross capital expenditure by continuing operations was £187m, around 1.3 times depreciation and amortisation, of which approximately 60% was attributable to strategic and growth projects. The principal projects in Beverage Cans were to support market growth in Europe, India and South America, lightweighting projects in North America and the development of specialty can products globally.

It is expected that capital expenditure from continuing operations in 2014 will be around £200m, 1.3 times depreciation and amortisation.

Balance sheet and borrowings

The level of net borrowings at 31 December 2013, increased by £390m compared with the previous year, primarily reflecting £393m returned to shareholders.

Net borrowings, which include interest accruals and certain financing derivatives, are set out below:

Our 2013 net borrowings/EBITDA based on total operations was 1.8 times; consistent with 2012 if the £393m return of capital, following the sale of Personal Care, is taken into account. Interest cover is over 6 times and we remain comfortably within our debt covenants. Our liquidity is strong with committed debt facilities of £2.1bn at the year end.

The Group's current principal committed loan and bank facilities are detailed below:

For the management of foreign currency asset matching and interest rate risk, the profile of gross borrowings is approximately 68% (2012: 64%) in US dollars and 32% (2012: 36%) in euros.

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

The decrease in the value of cross currency swaps can be mainly attributed to fair value losses resulting from an increase in the longer term forward interest rates, which were partially offset by gains resulting from the weakening of the US dollar against sterling. The reduction in the value of interest rate swaps is attributable to interest rate swaps in asset positions maturing in the year. The decrease in the value of other derivatives was due mainly to the decrease in aluminium prices combined with the weakening of the US dollar against the euro.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December

Consolidated statement of comprehensive income

For the year ended 31 December

Consolidated balance sheet

As at 31 December

Approved by the board of directors on 20 February 2014.

Graham Chipchase, Chief Executive David Robbie, Finance Director

Consolidated cash flow statement

For the year ended 31 December

Consolidated statement of changes in equity

NOTES

1 Basis of preparation

This condensed set of financial statements do not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012 but are derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies, and those for 2013 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

In preparing the condensed set of financial statements, comparative amounts have been restated to reflect Healthcare within discontinued operations, and for the adoption of IAS19 (Revised) 'Employee Benefits'. See note 4 for further information on IAS19 (Revised).

The Group presents underlying operating profit, underlying profit before tax and underlying earnings per share information as it believes these measures provide a helpful indication of its performance and underlying trends. The term underlying refers to the relevant measure being reported before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain operating derivatives which are not hedge accounted and on financing derivatives. These measures are used by the Group for internal performance analysis and as a basis for incentive compensation arrangements for employees. The terms underlying and exceptional items are not defined terms under IFRS and may, therefore, not be comparable to similarly titled measures reported by other companies. They are not intended to be a substitute for, or be superior to, GAAP measurements of performance.

2 Segment analysis

For internal reporting, Rexam is organised into four operating segments for Beverage Cans based on the geographical locations of Europe, AMEA (Africa, Middle East and Asia), North America and South America. For external reporting, the four operating segments for Beverage Cans are combined into one reportable segment. Beverage Cans comprise aluminium and steel cans for a wide variety of beverages including carbonated soft drinks, beer and energy drinks. Healthcare is currently in the process of being sold and has been reported within discontinued operations in the segment analysis set out below. Healthcare was previously a separate reportable segment. Healthcare comprises rigid plastic devices and packaging for customers in the Healthcare markets.

(i) Results

(ii) Assets and liabilities

3 Exceptional items from continuing operations

The £6m of exceptional items before tax relate to ongoing restructuring and impairment of assets that arise as a consequence of the proposed disposal of Healthcare and the disposal of Personal Care (2012: Personal Care £25m).

4 Retirement benefit obligations

Principal actuarial assumptions

The mortality assumptions used in valuing the liabilities of the UK pension plan are based on the standard tables S1NA as published by the Institute and Faculty of Actuaries, projected using the CMI 2009 model with a 1.25% per annum long term rate of improvement. These tables are adjusted to reflect the circumstances of the plan membership. The life expectancy assumed for a 65 year old pensioner is 87.1 years (2012: 87.0 years) for a male and 89.3 years (2012: 89.2 years) for a female. The life expectancy for a non pensioner currently aged 45 is 88.9 years (2012: 88.8 years) for a male and 91.1 years (2012: 91.0 years) for a female.

The mortality assumptions used in valuing the liabilities of the US pension plans are based on the RP2000 combined active and retiree mortality table projected to 2023 (2012: 2017), weighted 70% blue collar and 30% white collar. The life expectancy assumed for a 65 year old pensioner is 84.1 years (2012: 83.6 years) for a male and 86.0 years (2012: 85.7 years) for a female.

The mortality assumptions used in valuing the liabilities for retiree medical are based on the RP2000 combined active and retiree mortality table projected to 2023 (2012: 2017), weighted 85% blue collar and 15% white collar. The life expectancy assumed for a 65 year old pensioner is 83.9 years (2012: 83.4 years) for a male and 85.8 years (2012: 85.5 years) for a female.

With effect from 1 January 2013, the Group adopted IAS19 (Revised) 'Employee Benefits'. Under this accounting standard, plan administration expenses are included in service cost and investment management fees are included in other comprehensive income. Previously, all administration costs were included in net finance cost. In addition, net interest cost (based on interest on total retirement benefit obligations) has replaced net finance cost (based on expected return on plan assets less interest on present benefit obligations). The interest rate is based on the yield on high quality corporate bonds.

The impact of adopting IAS19 (Revised) on 2012 previously reported amounts is set out below.

5 Discontinued operations

Healthcare is currently in the process of being sold, in line with the Group's long term strategy to focus on beverage cans and maximise shareholder value. In accordance with IFRS5 'Non Current Assets Held for Sale and Discontinued Operations', Healthcare has been classified in the consolidated balance sheet within assets and liabilities classified as held for sale and reported in discontinued operations. The sale of Personal Care was completed in 2012. A summary of the consolidated income statement and exceptional items are set out in the tables below. The 2013 column comprises Healthcare and the 2012 column comprises Healthcare and Personal Care.

(i) Consolidated income statement

Sales and underlying operating profit for 2012 includes £448m and £33m respectively, relating to Personal Care.

(ii) Exceptional items

At 31 December 2013, the value of the Healthcare business was impaired by £233m, based on its fair value less costs to sell.

6 Earnings/(loss) per share

(i) Basic and diluted earnings/(loss) per share

(ii) Underlying earnings per share

Underlying earnings per share is based on underlying profit for the financial year attributable to shareholders of Rexam PLC divided by the weighted average number of shares in issue. Underlying profit for the financial year is profit before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain derivatives.

7 Net borrowings

Net borrowings at 31 December by instrument.

Movement in net borrowings.