Final Results

Rexam delivers good performance in difficult conditions

19 February 2015

Rexam, a leading global beverage can maker, announces its unaudited results for the full year 2014.

Highlights

· Beverage can volumes up 4%

· Underlying organic operating profit up 2%

· Underlying earnings per share up 5%

· Return on capital employed 14.9% (2013: 15.5%)

· Strong free cash flow from continuing operations of £225m

· Final dividend of 11.9p, taking total to 17.7p (up 2%)

· Recommended offer by Ball Corporation announced today of 407p in cash and 0.04568 of a new Ball share, representing in aggregate 628p per Rexam ordinary share

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

"In a difficult year, we delivered a good performance. It has been a great team effort in the face of unprecedented rises in metal premiums, the impact of foreign currency translation and some pricing pressure. The annual dividend is up by 2% to 17.7p and we returned £450m to shareholders during 2014 following the sale of our Healthcare business.

"Significant steps have been taken to strengthen our strategic position to better serve our customers and we are now a 100% focused beverage can maker. The acquisition of a majority stake in UAC and our investment in Panama position us well in higher growth geographies.

"We expect 2015 to present a tough trading environment with headwinds from metal premium, foreign exchange volatility and pricing pressure. However, we are taking steps to address these through further improvements in productivity to make sure we are delivering cost leadership and continuing to invest in growth capacity to enhance our strong market positions."

1 Underlying business performance from continuing operations (excluding Healthcare) before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain operating and financing derivatives.

2 Statutory results include exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain operating and financing derivatives.

3 Continuing operations.

4 Includes discontinued operations.

5 Organic change is year on year change arising on continuing operations at constant foreign exchange rates. (More detailed analysis under Financial Review.)

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: 17347007#

A replay service will be available for 30 days:

UK Toll Free: +44 (0)20 3426 2807

US Toll Free: +1 866 535 8030

Password: 652556#

At 10:30 Eastern time on Thursday 19th (15:30 UK time) Graham Chipchase and David Robbie will host a conference call.

UK participant dial in number: 0800 404 7655

US participant dial in numbers: +1 719 457 2661 or +1 888 556 4997

Conference ID: 7830992

A replay service will be available until 21 March 2015:

UK replay numbers: +44 (0)207 984 7568 or 0808 101 1153

US replay numbers: +1 719 457 0820 or +1 888 203 1112

Replay passcode: 7830992

Enquiries

Investors

Marion Le Bot, Head of Investor Relations, Rexam +44 (0)20 7227 4100

Media

Mark Bunker, Head of Communications, Rexam +44 (0)20 7227 4100

Katharine Wynne, Tulchan Communications +44 (0)20 7353 4200

Martin Robinson, Tulchan Communications +44 (0)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.

Editors' notes:

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

We have 55 can making plants in more than 20 countries and employ around 8,000 people. In 2014, our sales were £3.8 billion.

Rexam's 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.

CHIEF EXECUTIVE'S OPERATIONAL REVIEW

I am pleased to report that in 2014 we delivered a good performance. It has been a great team effort in the face of unprecedented rises in metal premiums, the impact of foreign currency translation and some pricing pressure. The annual dividend is up by 2% to 17.7p and we returned £450m to shareholders during 2014 following the sale of our Healthcare business.

Dividend

Returns to shareholders are a key constituent of our investment proposition and, within this, the dividend is a core element. For 2014, we intend to pay a final dividend of 11.9p on 27 May 2015 to shareholders on the register on 1 May 2015. This takes the total dividend for 2014 to 17.7p, up 2% from last year. We expect to sustain the dividend in 2015 despite the fact that our free cash flow generation will be constrained by the plans we have for the business as well as by trading headwinds.

2014 overview

In 2014, our beverage can volumes grew 4%. Reported sales from continuing operations, however, were down 3% at £3,832m mainly as a result of the depreciation against sterling of all three of our major trading currencies - US dollar, euro and Russian rouble. Organic sales, which adjust for the impact of foreign currency translation, were up 4%, broadly in line with our volume growth.

The increase in volumes stemmed from good organic growth in all regions (except North America) at rates in line with or ahead of the respective markets. In Brazil we saw exceptional volume growth boosted by the 2014 FIFA World Cup. As expected we also increased market share in Brazil following the conversion of some of our plants to meet the growing demand for specialty cans.

This good volume growth along with a non recurring indirect tax benefit in Brazil of £18m were offset by £39m of foreign exchange translation headwinds and £34m of higher aluminium premium costs. As a result reported underlying operating profit from continuing operations was down at £418m (2013: £449m) while organic operating profit increased, as anticipated, by 2%.

While the year was challenging in terms of both sales and profit growth we generated good free cash flow (one of the characteristics of our business) through tight management of working capital and disciplined capital spend. Free cash flow from continuing operations was strong at £225m (2013: £180m).

Divisional performance

This year, we have adopted a new segmental disclosure for financial performance comprising Europe & Rest of World and the Americas to help transparency and understanding of our business. The following section reviews the trading performance of the two segments which encompass our four main geographic regions.

Europe & Rest of World: overview

In the Europe & Rest of World segment organic sales grew 5%, with growth in all regions with the exception of Russia and organic operating profit growth was 5%. Return on sales were down slightly, and lower profits and recent investments made in growing the business (including the new plant in Switzerland) combined to reduce return on net assets for the segment.

Europe

After a quiet start to the year in both standard and specialty cans, trading in Europe (excluding Russia) improved significantly and volume growth for the year was 3%, driven by the UK, Benelux and Germany. Standard cans, as anticipated, were up 2% while specialty cans were up 4% as good growth continued within energy drinks.

Our business in Russia is self contained in terms of supply of aluminium and other raw materials, the can manufacturing process and customers. Trading, however, was subdued primarily due to the weak macroeconomic backdrop. Market performance in beer impacted the brewers while flavoured alcoholic drinks were delisted from the popular kiosks channel. As a consequence, our volumes declined 2%. The regulatory environment regarding alcohol appears now to be steadying and tax on beer has been frozen.

A positive development is that beverage cans' share of the pack mix in Russia grew by 0.9% compared with 2013 to 21.7%.

Africa, Middle East & Asia

Our AMEA business saw continued growth with overall volumes growing 18% to just over 3bn driven by good growth in specialty cans. Our volumes in India, boosted by the introduction of domestically manufactured 250ml cans, grew robustly (72%). Egypt had a quiet start to the year but with our conversion to specialty cans now fully ramped up, we were able to benefit from a buoyant market and 16% growth as we supplied to both global and local drinks manufacturers. In Turkey, the market picked up throughout the year and volumes ended up ahead of last year.

In line with our emerging markets strategy to complement our existing footprint, we strengthened our capabilities in a number of faster growth markets during the year. In January 2015, we acquired a 51% stake in beverage can maker United Arab Can Manufacturing Limited (UAC) for US$122m. The two line plant has an annual capacity of 1.8bn cans in both standard and specialty sizes. We are investing in a third production line to meet the market growth, and this is planned to come on line in the first half of 2015.

During the year we also secured a site in Sri City (55km from Chennai), Southern India, to build another beverage can plant to complement the current one in Mumbai. The location of the new plant improves our footprint and will enable us to better support our customers and to take advantage of the continued exciting growth of the beverage can in this market. The plant represents an initial investment of c £50m and is expected to be operational in the second half of 2016. It will provide capacity for an additional 0.8bn cans in this growing market.

We also announced that we had secured land in Jaipur in northern India with a view to building another plant there in due course.

Americas: overview

Performance in the Americas was good. Organic sales were up 3% as strong volume growth in South America was partially offset by a volume decline in North America. Organic operating profit was flat as the benefit of strong sales in South America and a good product mix was offset by the commoditisation of some specialty can sizes in North America. Return on sales and return on net assets were lower than last year, reflecting the adverse impact of foreign exchange translation on profits and the investment in line conversions in South America. At c 40% North America still has the highest return on net assets in the Group.

North and Central America

In North America, can consumption remains the highest in the world at more than 315 cans per capita per year. Rexam has more than 20% of the North American market. During the year we have continued to focus on diversifying the portfolio and establishing strong positions with growth customers in growth categories. Our strategy is bearing fruit: we are the largest can supplier across both the tea and energy drink categories with both categories continuing to show year on year growth.

In 2014, our volumes tracked the industry. Our standard can volumes were down 3% in line with the CSD market. Specialty can volumes were up 1% as good volume growth in Sleek and 16oz sizes offset maturing, larger specialty can sizes. Encouragingly, growth in Sleek and 16oz was driven by customers in a variety of beverage categories including beer, CSD and energy drinks as well as flavoured alcoholic beverages, so called 'malternatives'.

The process of commoditisation in the specialty can segment in North America is accelerating as contracts are renewed and, as previously stated, this will have an effect on volumes and margins during 2015.

Outside the US, there is significant potential for further growth in Mexico and Central America with the region's increasing population and improving GDP per capita. We are participating in this growth through our own plant in Queretaro, Mexico, where we saw specialty can growth continue particularly in Sleek and 16oz cans. We have a joint venture in Guatemala to help us broaden and strengthen our customer relationships, and at the start of 2015 we announced a new can making joint venture in Panama.

South America

Trading was very strong in South America in the first half as a result of better than normal weather, the timing of Carnival (which extended the normally busy summer season) and the build up to the FIFA World Cup. As expected volumes softened in the latter part of the second half but overall volumes grew 12%, ahead of the market as we regained market share and shipped a record 14bn cans. Specialty cans continued to grow faster than the total market ratifying the decision of converting four lines in Brazil to meet these needs. We also expanded the specialty capacity of our plant in Chile.

The macroeconomic environment continues to be weak in Brazil with GDP growth expected to be 0.5% in 2015. We expect the beverage can market growth to slow significantly compared with 2014 in the absence of any major stimulus such as the FIFA World Cup. A new tax on drinks is expected to come into force during 2015. Additionally, we expect fillers to revert to prioritising specialty cans to provide attractive price points with different can sizes.

Key Group risks

We have a well established approach to risk management that is responsive to changes in the business and operating environment. We ensure that key risks are fully defined and mitigating actions are in place to monitor and 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 2014.

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 guides our business and acts as assurance to our customers as they seek to reduce their impacts. We are one of only five packaging companies listed in the Dow Jones Sustainability Indices. In 2014 we carried out a new materiality assessment involving a broad base of internal stakeholders, to realign our priorities to match their expectations as closely as possible and to update our own targets and measures. Further details will be available in the Annual Report 2014.

Acting resolutely to meet challenges ahead

2015 is expected to remain challenging. Aluminium premiums, despite new proposed load out rules, are expected to remain high and there is limited opportunity to pass on these costs in Europe and South America under current contracts. Customer pressure and competitor actions are reducing market prices, and competition is strong for new growth opportunities. On top of this, our customers still want and expect us to invest in new growth markets and new differentiated products. We are taking resolute steps to address these challenges in Europe, reducing our cost base and increasing our productivity to attain cost leadership. We will be carrying through these plans irrespective of the outcome of the Ball offer.

As a first step, we will be opening consultations with the German works council in March 2015 with a view to closing our plant in Berlin. Berlin has three low speed lines and one of the highest fixed cost bases in our European network and has become uncompetitive in serving its core German, Benelux and Polish markets. Whilst we conducted a thorough review of our options, including investing in higher speed lines, reductions in SG&A and incremental investment in capacity to reduce the cost per thousand cans, it was clear that the plant's location meant that even if those steps were taken, it could still not provide a competitive cost base to support those markets in the future.

Total P&L costs of the plan over the next three years are expected to be £140m of which £80m are cash costs. Most of the cash costs will occur in 2016 and 2017. Capital expenditure is expected to be an additional £70m in 2015 and 2016, which relates mainly to investment in the current footprint to support our customers during this restructuring.

Once the restructuring is complete annual savings are expected to be £50m from 2017.

We plan to pursue further restructuring actions, included in the costs set out above, but we are not in a position to disclose anything further at this juncture. I am confident that the actions we are taking and those that we are planning will help us achieve the cost leadership that we need. Rexam has the pragmatic mind set required and has proven over the years that, when set a target, it will deliver.

In closing, I am also confident that the fundamentals of our industry are sound. The global beverage can market is expected to continue to grow at around 3% for the foreseeable future. We can capture that growth: we have leading positions in our main markets and are increasing our exposure in emerging markets. We are building strong partnerships with our customers and have also strengthened our technological capabilities to meet increasingly demanding customer needs.

The Group's balance sheet remains strong and we maintain our investment grade rating with all rating agencies.

We still see opportunities for further development in all our regions. We funded the two latest acquisitions out of debt and would envisage adopting a similar approach in the future for smaller bolt ons.

Significant steps have been taken to strengthen our strategic position to better serve our customers and we are now a 100% focused beverage can maker. The acquisition of a majority stake in UAC and our investment in Panama position us well in higher growth geographies.

In summary, we expect 2015 to present a tough trading environment, with headwinds from metal premium, foreign exchange volatility and pricing pressure. However, we are taking steps to address these through further improvements in productivity to make sure we are delivering cost leadership and continuing to invest in growth capacity to enhance our strong market positions.

FINANCIAL REVIEW

This financial review of our results is 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 operating and financing derivatives (together 'exceptional and other items'). We believe that the underlying figures aid comparison and understanding of the Group's financial performance.

For the tables included in this financial review, the 2014 results are unaudited and the 2013 results have been taken from the Annual Report 2013 and audited financial statements.

The Healthcare business was sold in the first half of 2014. Further details of the trading results of the Healthcare business, together with the accounting impact of the disposal, are set out in 'Discontinued operations' below.

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. Exceptional items include the restructuring and integration of businesses, significant changes to retirement benefit obligations, gains or losses on the disposal of businesses, goodwill impairments, major asset impairments and disposals and significant litigation and tax claims. Other items comprise the amortisation of certain acquired intangible assets (customer contracts and relationships and technology and patents) and fair value changes on certain operating and financing derivatives.

2. Underlying total net finance cost for total operations of £68m (2013: £88m) comprises net interest of £52m (2013: £72m) and retirement benefit obligations net interest cost of £16m (2013: £16m).

3. Subject to approval at the AGM 2015 and payable on 27 May 2015.

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 £3,832m (2013: £3,943m) and profit before tax including exceptional and other items was £343m (2013: £339m). Total profit after tax, including the results of discontinued operations, was £357m (2013: £95m) and basic earnings per share was 48.4p (2013: 12.0p).

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 Healthcare which was sold in the year. Organic change is the year on year change arising on continuing operations at constant exchange rates.

In order to provide additional transparency of the underlying business performance, two segments are now presented following the disposal of Healthcare; Beverage Cans Europe & Rest of World ("ROW") and Beverage Cans Americas.

Analysis of sales movement

Organic sales, which exclude the impact of discontinued operations and currency, increased by £143m. This included the negative pass through of lower aluminium costs (£19m). Excluding this impact, sales were £162m higher than prior year reflecting overall volume growth of 4%. Volumes improved significantly in South America in both standard and specialty cans due principally to the FIFA World Cup. Volumes in Western Europe grew 3% and volumes in our AMEA region grew significantly due to strong market growth and increased volumes from our specialty can investment. Volumes in North America and Russia were below last year, reflecting softening market demand. 

Analysis of underlying operating profit movement

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

Underlying operating profit, after adjusting for the impact of discontinued operations, disposals and currency, increased by £8m or 2%. Sales price and cost changes were adverse in aggregate, predominantly from higher aluminium premium costs, partially offset by a one off indirect tax benefit in Brazil. Volume growth in South America, Europe and AMEA was partly offset by the negative mix impact of weaker volumes in Russia and the maturing of the specialty cans market in North America. Efficiency savings totalled £20m 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. All these currencies weakened against sterling in the year. The net effect of currency translation caused sales and underlying operating profit from ongoing operations to decrease by £254m and £39m respectively compared with 2013 as shown below.

If we retranslated the 2014 underlying operating profit at closing exchange rates, it would be c £8m 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.

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 increased net borrowings by £47m and reduced net equity by £104m.

Underlying total net finance cost

The underlying total net finance cost for continuing operations was £18m lower than 2013. The £18m reduction in net interest is primarily due to lower interest rates as higher cost bonds were repaid in 2013, and lower average debt. The retirement benefits net interest cost is explained in 'Retirement benefits' below. The overall average interest rate for the year was around 4%, down from 5% in 2013. Based on underlying operating profit from continuing operations, interest cover was 8.0 times (2013: 6.4 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 £96m (25%) (2013: £113m, 26%).

The tax charge applicable to underlying profit from continuing operations before exceptional and other items is £86m (24%) (2013: £93m, 25%) which is at a lower rate than total operations as the Healthcare businesses included in discontinued operations were generally in more highly taxed territories. Our rate varies to some extent in line with our profit mix across our businesses. We anticipate the sustainable rate on continuing operations going forward will be in a range of 24% to 26%, reflecting the territories in which we operate, as well as the availability of tax incentives in some jurisdictions. A number of factors can cause the final tax charge to vary from the weighted average tax rate of the countries of the Group's operations. In 2014 the charge has additionally been impacted by reassessment of deferred tax balances, movements in provisions for uncertain tax positions, and tax incentives, offset to some extent by withholding taxes and other charges on the repatriation of profits.

Tax cash payments in the year for continuing operations were £63m compared with £70m last year with £nil (2013: £7m) being borne by discontinued operations. Cash taxes can vary from the charge in the income statement for a number of reasons. The most material of these has been the utilisation of deferred tax assets such as tax losses, but in addition our cash payments can be affected by local laws governing the timing of certain tax deductions, and payments of taxes sometimes falling outside of the year to which they relate or settlement of provisions. 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 2014 in respect of total operations were as follows:

Disposal of businesses

The gain of £73m relates to the completion of the disposal of Healthcare as described in 'Discontinued operations' below.

Restructuring of businesses and other exceptional items

In 2014, the restructuring charge of £15m relates to reorganisation costs for the European beverage can business and costs incurred with respect to conversion of steel beverage can lines to aluminium.

Other exceptional items of £5m include legal and environmental provisions.

As detailed in the chief executive's review, we are commencing a restructuring programme to reduce our cost base and increase our productivity and competitiveness in Europe.

The table below presents the total costs (both cash and non cash) associated with this programme, the capital expenditure required to execute and the savings expected to be realised.

1. Annualised saving.

 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 £1m (2013: £10m) 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 hedge only 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.

During 2014 some of the aluminium hedges failed the effectiveness test. Once a hedge has failed an effectiveness test, accounting standards do not allow for it to be retrospectively redesignated and therefore fair value movements will continue to be recorded in the income statement. The change in aluminium prices on these failed aluminium hedges has given rise to a gain of £3m (2013: charge of £23m). There was also a gain of £2m (2013: charge of £1m) relating to fair value changes on certain non hedged accounted commodity and 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 (2013: net loss £1m).

Discontinued operations - Healthcare

The Healthcare businesses were disposed of in the year. The Pharma and Prescription businesses were sold on 2 May 2014 and the Healthcare Closures business sold on 2 June 2014.

Healthcare underlying operating profit was £25m, £39m lower than 2013 reflecting the timing of the disposal.

An impairment review on the carrying value of Healthcare was carried out in the second half of 2013, giving rise to an impairment charge before tax of £233m. The disposal of Healthcare in 2014 resulted in a gain of £73m, principally due to a positive foreign exchange translation movement in reserves which has been recycled back to the income statement on disposal, partly offset by a movement in deferred tax assets relating to the disposal.

Earnings per share

Underlying earnings per share from continuing operations was 5% higher at 37.2p compared with 35.3p in 2013. The average number of shares in issue has reduced following the share consolidation in June 2014 which accompanied the return of cash. Basic earnings per share from total operations, which includes exceptional and other items, was 48.4p (2013: 12.0p).

Retirement benefits

Retirement benefit obligations (net of tax) as at 31 December 2014 were £258m, a decrease of £30m compared with £288m reported at 31 December 2013. This change was principally due to cash contributions and actuarial gains. These actuarial gains are included in the consolidated statement of comprehensive income.

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

The overall retirement benefit obligations net interest cost, which is a non cash accounting charge, remained at £16m.

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 2014 £40m had been paid into the escrow investment account.

Based on current actuarial projections, it is expected that total cash payments in 2015 will be broadly in line with 2014.

Cash flow

Total free cash flow for the year from continuing operations resulted in an inflow of £225m compared with £180m for 2013. This higher inflow primarily reflects an inflow in working capital, partly offset by higher capital expenditure. Net cash flow was £594m (2013: £37m), including free cash flow from discontinued businesses and is after paying dividends. The return of cash to shareholders (c£450m) resulting from the sale of Healthcare is reported separately.

1. Excludes amortisation of certain acquired intangibles amounting to £1m (2013: £2m).

2. Disposal proceeds include £80m in respect of borrowings disposed (2013: £nil).

Capital expenditure - continuing operations

1. Capital expenditure is on a cash basis and includes computer software that has been capitalised.

2. Amortisation excludes £1m amortised on customer contracts and intangibles other than computer software (2013: £2m).

Gross capital expenditure by continuing operations was £196m, around 1.4 times depreciation and amortisation, of which approximately 60% was attributable to strategic and growth projects. The principal projects were to support market growth in Europe, India and South America, further investment in our Fusion® bottle manufacturing capability and the development of specialty can products globally.

It is expected that capital expenditure from continuing operations in 2015 will be around £240m, 1.6 times depreciation and amortisation (excluding capital expenditure associated with the European restructuring detailed earlier).

Balance sheet and borrowings

1. Net borrowings comprise borrowings, cash and cash equivalents and financing derivatives.

2. Underlying operating profit plus share of associates and joint ventures profit after tax from total operations divided by the average of opening and closing shareholders' equity after adding back retirement benefit obligations (net of tax) and net borrowings.

3. Based on net borrowings divided by underlying operating profit plus depreciation and amortisation, excluding amortisation of certain acquired intangible assets, from continuing operations (2013: total operations).

4. Based on underlying operating profit of continuing operations divided by underlying total net interest expense from continuing operations.

5. Based on net borrowings divided by total equity.

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

Net borrowings/EBITDA based on continuing operations was 2.0 times (2013 total operations: 1.8 times). Interest cover is over 8 times and we remain comfortably within our debt covenants. Our liquidity is strong with committed debt facilities of £2.2bn at the year end.

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

1. Subsequent to the year end, the maturity was extended to December 2019 with an option to extend to December 2021.

For the management of foreign currency asset matching and interest rate risk, the profile of gross borrowings is approximately 58% (2013: 68%) in US dollars and 42% (2013: 32%) 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, along with the weakening of the euro against sterling. The decrease in the value of other derivatives was due mainly to the increase in aluminium prices.

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 19 February 2015

Graham Chipchase, chief executive David Robbie, finance director

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED

NOTES

1 Basis of preparation

This unaudited preliminary consolidated financial information does not constitute statutory consolidated financial statements for the years ended 31 December 2014 or 2013 as defined in section 434 of the Companies Act 2006. The Annual Report 2013 was approved by the Board of Directors on 20 February 2014 and have been filed with the Registrar of Companies. The report of the auditors on those consolidated financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The Annual Report 2014 will be filed with the Registrar in due course.

This unaudited preliminary consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority, the principles of International Financial Reporting Standards ('IFRS') and the IFRS Interpretation Committee ('IFRIC') interpretations as adopted by the European Union. The accounting policies applied are consistent with those described in the Annual Report 2013, apart from those arising from the adoption of IFRS10 'Consolidated Financial Statements' which was adopted by the Group for the first time for the financial year beginning on 1 January 2014. This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included in the consolidated financial statements. IFRS10 had no impact on the Group. There are no other effective IFRS or amendments to IFRS that are significant for the Group.

The consolidated financial information has been prepared on a going concern basis. The auditors have confirmed that they are not aware of any matter that may give rise to a modification to their audit report.

In preparing the consolidated set of financial statements, the segment analysis has been restated to reflect the disclosure of two reportable segments for the Beverage Cans business, Americas and Europe & Rest of World. Previously only one reportable segment, Beverage Cans, was disclosed. The change was made to better reflect the markets in which the Group operates.

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 & Asia), North America and South America. For external reporting, the four operating segments for Beverage Cans are combined into two reportable segments, Americas and Europe & Rest of World. Previously the four operating segments were 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.

1. Comprises operating profit before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain operating derivatives.

2. Comprises underlying operating profit divided by sales.

3. Comprises underlying operating profit plus share of associates and joint ventures profit after tax divided by the average of opening and closing net assets after adding back retirement benefit obligations (net of tax) and net borrowings and excluding goodwill and certain acquired intangible assets.

4. Other items comprise the amortisation of certain acquired intangible assets and fair value changes on certain operating derivatives.

3 Exceptional items from continuing operations

Restructuring relates to reorganisation costs for the European beverage cans business and costs incurred with respect to conversion of steel beverage can lines to aluminium. Other exceptional items comprise a legal provision relating to an historic dispute in a business that originated prior to Rexam ownership of £2m, an increase in legacy environmental provisions of £2m and acquisition transaction costs relating to United Arab Can Manufacturing Limited of £1m. Exceptional tax of £7m relates to a release of legacy tax provisions no longer required. The £6m of exceptional items before tax in 2013 related to restructuring and impairment of assets that arose as a consequence of the disposal of Healthcare and Personal Care.

4 Earnings/(loss) per share