Final Results

20th Feb 2008 07:00

Rexam PLC20 February 2008 Focused on delivery in 2008 and beyond Rexam, the global consumer packaging company and the world's leading beveragecan maker, announces its audited results for the full year 2007.Underlying performance1 2006 2007 restated ___________ _________ Sales from ongoing operations2 £3,566m £3,199mUnderlying operating profit from ongoing operations2 £349m £369mUnderlying profit before tax1 £245m £264mUnderlying earnings per share1 28.0p 35.6pDividends per share 20.0p 19.0p Key points • Strong sales growth of 11% from ongoing operations • Profits impacted by aluminium and other input costs, currency and US strike • Efficiency savings of £32m • Group strategically focused towards higher growth and higher margins with acquisitions of OI Plastics and Rostar and disposal of Glass • OI Plastics integration on plan - expected synergies now raised by £5m to £25m pa by 2010 • Significant capital investment to support continuing growth • Dividend increase reflecting confidence in the strategy Commenting on the 2007 results, Rolf Borjesson, Rexam's Chairman, said: "In 2007 we delivered strong revenue growth from our continuing operations. Asanticipated, the pressure of continuing high aluminium and other input costs,along with the weaker US dollar, impacted our profit performance. A number ofone off events made the year even more testing than expected. This year,despite the economic outlook and the inflationary input cost environment, weexpect to see continued top line growth across our upgraded portfolio and as ourinvestment in organic growth begins to bear fruit. We will realise the synergiesfrom our recent acquisitions and continue to deliver savings through our focuson operational efficiency. As a result, we look forward to a return to profitsgrowth in 2008." 20 February 2008 Statutory results3 2006 2007 restated ___________ _________Continuing operations4Sales £3,611m £3,301mOperating profit £371m £374mProfit before tax £260m £268mTotal profit for the financial year £240m £223mTotal basic earnings per share 39.0p 39.7p Notes1 Underlying business performance is continuing operations before exceptional items2 Ongoing operations reflect underlying performance excluding businesses that have been disposed or are held for sale in either 2007 or 20063 Statutory results include exceptional items and discontinued operations4 Continuing operations include ongoing operations and businesses that have been disposed or are held for sale in either 2007 or 2006 but exclude discontinued operations EnquiriesRexam PLC 020 7227 4100Leslie Van de Walle, Chief Executive OfficerDavid Robbie, Finance DirectorSandra Moura, Head of Investor Relations Financial Dynamics 020 7269 7121Richard Mountain A copy of this release has been posted on the Rexam website, www.rexam.com. The2007 results presentation will be webcast live today at 09:00 UK time and can beviewed on www.rexam.com. A dial in conference call will be held today at 14:00 UK time. For callers inthe US please dial (480) 248 5081. CHAIRMAN'S STATEMENT 2007 was a challenging year for Rexam. We delivered strong revenue growth fromour continuing operations. As anticipated, the pressure of continuing highaluminium and other input costs and the weaker US dollar impacted our profitperformance. In addition, a number of one off events, such as a strike in NorthAmerica and a delay to the start up of a new Brazilian plant, as well as risingenergy costs and a further weakening of the US dollar in the second half, madethe year even more difficult than expected. Leslie Van de Walle was appointed CEO at the start of the year and he took upthe reins immediately. He and his leadership team, indeed the whole Company,focused on the areas they could influence - performance and delivery of thestrategy. We reduced our exposure to the volatility of aluminium prices andworked hard to mitigate the anticipated increase in costs. In addition, wedelivered cost and efficiency savings of £32m with Plastic Packagingcontributing to almost half of these savings. Although the profit figure maydisappoint, these results bear testimony to the strong 'can do' culture that wehave fostered in this Company. I would like to thank everyone for their enormouscontribution and effort during the year. 2007 was also a year in which Rexam continued to execute its strategy to focusthe business on higher growth, higher margin segments and emerging markets asdemonstrated by the acquisition of OI Plastics and the divestment of the Glassbusiness. In January this year, we completed the acquisition of Rostar, theRussian beverage can maker, consolidating our position in this high growthmarket. We continued to invest in our existing operations, mainly in Beverage Cans, withunprecedented levels of capital expenditure in growth segments or growthregions. In some cases, as in Europe, it is to meet existing and anticipateddemand; in others it is to realign our business to capture growth opportunities,such as in North America where we are converting standard can lines intospecialty can lines. In both cases, we are always conscious of maintaining agood balance between capacity and demand. You will find full details of the Group's 2007 performance, including thestatutory results, in the Business Review. In summary, we delivered organicsales growth of 11% from ongoing operations with sales continuing the momentumof the last two years while underlying operating profit, which excludesexceptional items and discontinued operations, declined 6%. In addition to thesale of the Glass business, we were impacted by the translation of a weakeningUS dollar as well as a significant change in the wider economic environment. Thecost of oil went up from US$65 to about US$90 per barrel, which had an impact onour freight, resin and energy costs. As mentioned, we also suffered anunexpected strike at nine of our US can making plants, and, in the second half,production delays to our new can end making plant in Brazil. Free cash flow generation of £24m was appreciably lower than last year (2006:£173m) largely owing to the number of capital investments we made to ensure thatwe have the capacity to capture future profitable growth opportunities. Prior to the deterioration of conditions in global credit markets, we hadalready substantially refinanced our balance sheet with the issue of a €750msubordinated bond at a reasonable cost. With interest cover of 3.7 times, we arecomfortable with our borrowings. Packaging and sustainability Packaging was again in the spotlight during 2007, especially in the UK, with thepress continuing to comment on excessive packaging. It was interesting to notethat a UK government report in 2007 revealed that consumer attitudes to'excessive' packaging have barely changed. According to this report only 12% ofpeople regularly decide not to buy something because it had too much packaging.This is exactly the same number as in 2001. As I said last year, packaging is what gets the beverage from the filler intoyour hand or the food from the farm to the fridge shelf as efficiently aspossible. It sustains the quality of life that many of us take for granted. Thesafe delivery of food, drink, medicine and other goods is intrinsically linkedto the quality of packaging. Studies consistently show that reduced packagingmay lead to more product damage or more spoilage and could prove a false economy- both financially and for the environment. As a leading global consumer packaging company, we take our environmentalresponsibilities very seriously. Long term stakeholder value is our primary aim,so sustainability must necessarily be at the very heart of what we do. Inmanufacturing, reduction of energy and other utilities and emissions are notonly good for the environment but they make us more efficient. We work closelywith our customers and suppliers to reduce the amount of material we use in ourvarious types of packaging all the while ensuring that we maintain the integrityof the contents. We are involved in many packaging recycling schemes togetherwith our customers, suppliers, retailers and local governments in the countriesin which we operate. We promote packaging and packaging recycling through ourtrade organisations and through the support of local initiatives. Changes to the Board On 17 January 2007, Leslie Van de Walle became a director of Rexam and took overas CEO on 1 February 2007 when Lars Emilson retired from the Board. Lesliejoined us from the Royal Dutch Shell Group where he was Executive Vice Presidentof Global Retail. He has made a significant contribution to Rexam in his firstyear through his decisive leadership and I am confident that he will delivershareholder value going forward. On 1 February of this year, Peter Ellwood joined the Board as non executivedirector and Chairman Designate and it is proposed that he succeed me followingour AGM on 1 May 2008. Until recently Peter was Chairman of ICI, the globalspecialty chemicals company, and prior to that he was Group Chief Executive ofLloyds TSB Group PLC, a leading UK based financial services group. He hasextensive experience in strategic business issues. His leadership and bankingexperience, along with his energy and determination, will complement our Boardskills and we are delighted that he is joining us at this exciting time inRexam's development. Dividends The Board has recommended a final dividend of 11.7p per ordinary share, which,including the interim dividend of 8.3p, represents an increase of 5% on lastyear. This is in line with Rexam's ongoing policy to increase the dividendpayout by about 5% per annum, provided that the financial resources areavailable and that underlying earnings growth continues as expected. Subject toapproval by the shareholders at the AGM on 1 May 2008, the dividend will be paidon 3 June 2008 to holders of ordinary shares registered on 9 May 2008. Outlook In 2008, despite the economic outlook and the inflationary input costenvironment, we expect to see continued top line growth across our upgradedportfolio and as our investment in organic growth begins to bear fruit. We willrealise the synergies from our recent acquisitions and continue to deliversavings through our focus on operational efficiency. As a result, we lookforward to a return to profits growth in 2008. In conclusion It is now 12 years since I began my association with Rexam, first as ChiefExecutive and latterly as Chairman. During that time the Company has gonethrough a complete transformation and today, as a focused global leader inconsumer packaging, it is a far cry from the conglomerate of 1996. A clearvision of what we wanted to achieve, and how we wanted to achieve it, helpedkeep us firmly focused and on track. It has been a stimulating and rewardingperiod in my life in which I have had the privilege to work with manyoutstanding people who have helped to make this transformation possible and tosustain it. These last three years have been particularly challenging in theface of dramatic increases in input costs and a weak US dollar but we haveworked hard to compensate for these and to prepare us for the future. I leavethe Company at the AGM confident that we have a robust machine for generatingsustainable and profitable growth. We have two sizeable global businesses andstrong market positions to take advantage of the considerable opportunities thatthe consumer packaging market has to offer. Our focus on operational excellenceacross the Group delivers substantial savings each year. Finally, in Peter andLeslie and his leadership colleagues you have an extremely capable team to takethe Company into the next chapter of its story. I wish Rexam, its employees andshareholders continued success in the future. Rolf BorjessonChairman20 February 2008 BUSINESS REVIEW 2007 was a difficult year for Rexam. The reported profit figures weredisappointing but they mask great progress in a number of areas, which ishelping Rexam to build a robust platform for future profitable growth. For the twelve months to 31 December 2007, Rexam delivered good top line growthof 11% reporting sales of £3,566m from ongoing operations and building on themomentum from last year. Organic sales growth contributed 11% and acquisitions5%, reduced 5% by currency translation, mainly relating to the US dollar. Underlying operating profit from ongoing operations was £349m compared with£369m last year as restated for the sale of the Glass business in 2007. Whilstwe achieved price improvements, cost reductions and better product mix, ourbusiness continued to be impacted by high aluminium costs (£65m (the £13m gainrealised in 2006 on the renegotiation of a metal supply contract could not berepeated in 2007)); further weakening of the US dollar and US dollar relatedcurrencies (£20m); start up issues at the new end making plant in Manaus, Brazil(£5m) as well as a strike at nine of our US can making facilities in April andMay 2007 (£13m). Underlying profit before tax was £245m and underlying earnings per share were28.0p compared with £264m and 35.6p respectively in 2006. The price of aluminium remained high during 2007, spot prices averaging $2,664per tonne (2006: $2,595), but going forward we have now practically eliminatedour exposure to aluminium volatility which has been a major factor influencingour financial performance in recent years. In the Americas we are largelyunaffected by the cost of aluminium since changes are passed through tocustomers. In Europe for 2008, we negotiated with a number of our largecustomers to adopt the pass through model such that some 50% of our Europeanmetal requirements are now on this basis. We renegotiated about a third of ourEuropean contracts for 2008 supply at prices reflecting the higher input costsand put hedges in place for this metal. The balance of the exposure is largelycovered by existing hedges. We remain confident that we will achieve furtherprice increases as contracts come up for negotiation in 2009. We continued to make good efficiency savings delivering £32m despite the sale ofthe Glass business. Plastic Packaging accounted for almost half of that figureas its operations adopt and benefit from the Lean Six Sigma culture and extractthe synergy opportunities afforded by recent acquisitions. During the year, we continued to execute our strategy to focus on higher growth,higher margin segments and emerging markets. In June the Glass business was soldand the proceeds reinvested in the acquisition of OI Plastics, a leading USmanufacturer of rigid plastic healthcare packaging and plastic closures. As aconsequence of the acquisition, we have enriched our overall profile, shiftingthe emphasis further towards higher growth segments. We invested in a beveragecan joint venture in Guatemala increasing our presence in the growing CentralAmerican market. At the start of 2008 we completed the acquisition of Rostar, aRussian beverage can maker. This transaction gives us the leading position inthe Russian beverage can market, which grew 12% in 2007 and is expected tocontinue to grow at a similar rate for the foreseeable future. We are in the middle of a significant capital investment cycle as we invest innew plants, additional lines and line conversions, mainly in Beverage Can, tomeet market growth, details of which can be found on page 20. Capitalexpenditure by continuing operations at £294m for the year was appreciablyhigher than historic levels and investment will continue in the coming year aswe look to crystallise the opportunities for organic growth. Owing to this increase in capital expenditure, free cash flow generation was£24m, compared with £173m in 2006. Net borrowings were £1.562bn with interestcover at 3.7 times. For continuing operations on a statutory basis, which includes the effect ofacquisitions, disposed businesses and currency translation, sales were £3,611m(2006: £3,301m) and profit before tax was £260m (2006: £268m). Total profit forthe period, including profit from discontinued operations of £66m (2006: £28m),was £240m (2006: £223m) and total basic earnings per share were 39.0p (2006:39.7p). Beverage Cans 2007 2006Sales £2,686m £2,490mUnderlying operating profit £244m £289mReturn on sales 9.1% 11.6% Beverage Cans is a global business that operates on a regional basis (NorthAmerica, South America and Europe & Asia). This structure enables us to remainflexible and responsive to customer and market needs. Within these regions,however, the business is highly centralised and managed on a lean basis for costcontrol. The regional businesses are also connected globally to ensure that weleverage effectively areas such as supply chain, engineering, innovation, R&Dactivities and marketing intelligence. Beverage Cans is a high speed, high precision business, built on a bedrock ofoperational excellence. Manufacturing and engineering expertise, cost reductionand best practice sharing, based on Lean Six Sigma activities and world classcustomer service all form part of this foundation. Overlaying this, there are two organic growth strategies. First is ensuring thatwe are positioned to capture growth in both developed and emerging markets (thelatter representing 22% of our global beverage can sales). This includes theconversion of lines, the installation of new lines and greenfield plants. Italso includes forming alliances with local partners, as was the case with thejoint ventures in India in 2006 and in Guatemala in 2007. The second element is the development of new and innovative beverage canproducts. In recent years we have focused on understanding consumer needs andmarket trends to see how different can sizes, shapes, closure options andgraphic finishes uniquely support brand owners' desire for differentiation andbrand appeal. We have initiated a shift from standard 33cl and 50cl products toa wider variety of specialty cans, where demand is growing more quickly. Thisenables us to capture growth (and at higher margin) in certain beveragecategories that might have been forfeited to other types of packaging in thepast. The successful introduction of the one litre beer can in Russia is atypical example of this. Today, specialty cans account for 17% of our overallbeverage can volumes (2006: 14%). During 2007, we stepped up the implementation of both these elements of ourgrowth strategy. Strong demand in Europe and South America was offset by aweaker market performance in standard size cans in North America. Margins werelower than last year, mainly owing to continuing high aluminium prices and thecosts associated with the US strike. They recovered in the second half of theyear and we remain confident that they will continue to progress in 2008 andbeyond as volumes grow and product mix and pricing improve. In Europe, volumes grew 9% compared with last year. We are the number onebeverage can maker in Europe with more than 40% market share. We benefited fromgrowth in a number of European countries and the sustained growth of the energydrinks market whose packages of choice are the 25cl can and, increasingly, theRexam SleekTM can. Capacity utilisation remained very high at all our Europeanbeverage can plants and we succeeded in gaining significant price increases onthe open contracts in Europe. In 2006, due to the high utilisation rates and prospects of further growth, weembarked on a growth capital expenditure programme to ensure that we wouldcontinue to provide customers with the level of service needed to meet marketdemand. In 2007, we inaugurated a greenfield can making plant in Austria. Thisplant is dedicated to specialty cans for Red Bull, the world's number one energydrinks brand, and was our first new can making facility in Europe for almost 10years. It was completed ahead of schedule and on budget which speaks volumes forthe engineering expertise within Rexam and the excellence of the project team asa whole. The continued growth of the energy drinks market has led to us adding athird line in the new plant in Austria, which will be fully operational by late2008. We are installing additional steel beverage can lines to meet local marketgrowth in Spain and in Egypt which are expected to come on stream in the secondquarter of 2008. Each will supply an additional 600m cans pa to their respectivemarkets. In October we announced the construction of a new aluminium beverage can plantin Denmark. The facility, the first beverage can plant in Denmark, willinitially have a capacity of just over 1bn 33cl (12oz) and 50cl (18oz) cans. Itis expected to be operational during the first half of 2009. The new plant willsupport market needs, and its location is expected to help optimise logisticscosts associated with the supply of beverage cans to the Northern Europeanmarket. This year, 2008, marks the tenth anniversary of our arrival in the Russianbeverage can market. During this period we have been instrumental in developingthat market in tandem with our customers and suppliers. Beverage cans still onlyaccount for less than 20% of the Russian beverage pack mix for beer, carbonatedsoft drinks (CSD) and energy drinks, compared with 27% in Western Europe, andrepresent a clear growth opportunity. The beverage can market in Russia continued its growth in 2007 increasing by12%. The construction of the new plant in Argayash in the Urals is proceedingaccording to plan and is expected to come on stream in the first half of 2008.At the start of 2008 we acquired Rostar, the Russian beverage can maker for£149m. The transaction is expected to both cover Rexam's cost of capital and beearnings enhancing in 2008. We also announced that we had plans to build a newplant in Novosibirsk (south west Siberia) in due course to meet market growth inand around that region. Rostar has two manufacturing facilities: one near Moscow and one near StPetersburg with a combined capacity of around 3bn beverage cans. Clearance ofthe acquisition was conditional on certain undertakings given to the RussianFederal Antimonopoly Service including a 15% cap on annual price increases overthe next ten years (other than in exceptional circumstances) and continuedinvestment in Russia. The acquisition, along with the new plants and theinvestment in new lines at our existing plant, positions us well in a marketthat is expected to grow at around 8% pa in the medium term. In the Asia Pacific market, we increased our management focus to explore furtheropportunities for profitable growth in this key emerging region where the marketis growing at more than 15% pa. We already have a beverage can making plant inChina and a joint venture in South Korea. Our joint venture in India producedthe first ever two piece beverage cans in India and we are increasing thecapacity of the plant to meet the demands of this small but developing market,which grew by 50% in 2007 to 200m cans. Whereas in Europe we manage our beverage can business for growth, marketconditions in North America mean that we are repositioning the business formargin improvement. In 2007, the North American market volumes of 12oz beveragecans for soft drinks declined 4% compared with last year. The market declinereflects the maturity of the US market as well as a move towards revenue ratherthan volume management by the big brand owners who increased their prices toconsumers during the year. Our own 12oz volumes declined 9% largely owing to theimpact of a strike at nine of our can making plants and a drop in productioncapacity as we converted 12oz lines to specialty sizes. The 12oz market is mature and still represents a major part of our NorthAmerican volumes. While we remain dedicated to managing this part of thebusiness and serving our customers' needs, during 2007 we continued to realignour business to take advantage of the growth opportunities. We converted anumber of 12oz lines, added a new line for higher growth, higher marginspecialty sizes and initiated further optimisation projects on our 24oz lines.We also secured a strategically important long term supply contract with one ofthe main users of 24oz cans for non alcoholic beverages. Our specialty cans nowaccount for 14% of our volumes in the US and grew 19% compared with last year. Following the resolution of the strike, we signed a labour agreement with theUnited Steel Workers to the satisfaction of all parties, which puts us in a goodcompetitive position for the next five years. At the onset of the strike,contingency plans were quickly put into action to secure production and meet ourcustomer commitments. Working closely with our customers, we managed thesituation well in the circumstances and maintained our delivery promises, whichis testament to the strength of our customer relationships as well as thededication and attitude of the management team and employees in the US. The North American beverage can making operation continued to leverage itsoperational excellence. It reported another strong year in cost performance butthis was not enough to counteract the effect of lower volumes, the strike or theimpact of the foreign exchange translation of the US dollar. In Guatemala, we announced the formation of a 50/50 joint venture with EnvasesUniversales to invest in a greenfield plant, whose capacity is already beingexpanded to 1bn cans. We have a beverage can making plant in Queretaro, Mexico,and this new joint venture will strengthen our presence in the Central Americanmarket which is growing at a rate of about 6% pa. In South America, the Rexam beverage can business enjoyed another year of strongtop line growth. Volumes increased 15% compared with last year, driven byeconomic growth and stability, the suitability of the can to the marketconditions in South America, as well as further growth in specialty cans inBrazil. Like its counterparts in Europe and North America, the beverage can business inBrazil is operated from a solid base of manufacturing excellence. A number ofthe plants are considered world class in terms of operational efficiency andspoilage and many of the best practices that are shared across the beverage canglobal organisation originate in Brazil. During 2007, the previously mothballed plant in Jacarei, Brazil, wasrecommissioned to help meet market growth in specialty cans. A new can end plantin Manaus, in the Amazonas region, was completed and although there was a delayin the start up which affected production, the plant is now operating in linewith expectations. Underlying operating profit was impacted by £5m due to the shortage of supplyfrom the Manaus can end making plant. In addition, the strengthening of theBrazilian real put pressure on our cost structure relative to our pricingstructure in Brazil, which is US dollar based. Plastic Packaging 2007 2006 ___________ __________ Sales £880m £709mUnderlying operating profit £105m £80mReturn on sales 11.9% 11.3% Plastic Packaging in Rexam has undergone fundamental change in the past twoyears transforming itself from an essentially European business with sales of£0.5bn into a truly global one with an ongoing turnover in excess of £1.1bn. Thehigh point in this process of change was the acquisition in August of OIPlastics. It gives Plastic Packaging meaningful scale and critical mass turningRexam into a global leader in rigid plastic packaging. Following theacquisition, Plastic Packaging was restructured to create a portfolio of threeworld class customer facing divisions of broadly similar size in revenue terms:Healthcare, Closures and Personal Care. These three divisions have a broad rangeof products and served markets and our long term aim with this portfolio is todeliver overall annual organic sales growth of some 4 to 6% and to expandmargins consistently. The OI Plastics acquisition provides us with leading positions in growth marketsin the US. It also opened up further growth potential through cross selling dueto complementary customer bases and through the expansion of what is anessentially US focused business. An example of this is our plans for the Chinesemarket, where we originally set up to manufacture cost competitive products,mainly Make Up packaging, for export to the West, and now have five majormanufacturing sites. With our enhanced capability, we can now transform thisChinese business into one that can manufacture our whole portfolio of plasticpackaging products to serve global and local customers. At the time of the OI Plastics acquisition, we anticipated that we wouldgenerate significant value through synergies amounting to approximately £20m paby 2010. The synergies are expected to come from purchasing, manufacturing andother efficiencies as well as cross selling opportunities. The integrationprocess, led by a dedicated team comprising Rexam and former OI Plastics people,is moving ahead according to plan. Since completion, we have identified furthersynergy potential and now expect that figure to reach £25m pa by 2010. The newscale and structure enabled us to consolidate certain activities and functionsat the Plastic Packaging sector level in order to create further efficiencyacross the global operations. As in Beverage Cans, this includes traditionalfunctions such as human resources and finance, as well as global manufacturing,supply chain, technology and innovation. We now have greater flexibility tooptimise manufacturing capabilities and the way in which we utilise ouroperations. This manifested itself in North America with the announcement of ourintention to close two plants. We also divested a plant in Holland transferringproduction to our new plant in Poland. We see significant opportunities to create additional value from incrementalgrowth through OI Plastics' technology and innovation capability whichcomplement our own efforts in this area. For example, more than 75% of OIPlastics' closures are based on proprietary designs, and a third of closuressales are from products developed in the last three years. Plastic Packaging now has leading positions in three important growth segments.Our strategy is based on leadership, global capabilities, innovation, pricingand operational excellence. In 2007 sales were up 24% on last year with organicgrowth contributing 4% and acquisitions 25%. These were offset by a 5% negativeeffect of currency translation. Underlying operating profit was up 31%,benefiting 7% from organic growth and 30% from acquisitions, offset by 6% oncurrency translation. Margins continued to improve and were up on 2006. Theywill progress further as a result of top line growth, our focus on innovationand continuous efficiencies and as the synergies from OI Plastics start to comethrough. Organic growth, which excludes the impact of OI Plastics, was driven by goodoverall sales in Personal Care which grew 5% mainly as a result of a goodperformance by Dispensing Systems in fragrance and lotion pumps. Make Up turnedaround and improved its profitability following a restructuring programme thatincluded a head count reduction of 1,000 and plant rationalisation in China andEurope. These good performances were tempered by lower volumes from some keyHome & Personal Care customers. The Pharma business delivered 8% sales growthowing to good market growth and improved product mix. Results were held back bysome price reductions on some long term contracts as well as the one off impactof a manufacturing issue with one of our pharmaceutical products. Sales inRexam's Closures were down 2% reflecting lower demand from key customers inparticular and from closures users in North America in general but profit andmargins increased. In High Barrier Food overall sales dropped 2% as continuedstrong growth in the US was offset by a decline in the UK where high barrierfood containers have not yet compensated for the strategic exit of thin wallcontainers. Profits and margins for Food held up well, however, and were aheadof last year buoyed by another good performance in Food, the mainly US basedbusiness, which delivered on a consistently strong track record. Overall, Plastic Packaging delivered organic sales growth of 4%. During the five months of ownership, sales, profits and cash generation of theformer OI businesses were all in line with our expectation at the time of theacquisition. Resin is a major input cost in Plastic Packaging. We use two main types ofresin: polypropylene and HDPE. More than 80% of sales contracts are on a passthrough basis but with resin costs now representing an ever increasing part ofour cost base owing to the growth of Plastic Packaging, we are examining ways tomanage the remaining 20% more effectively either by further consolidating resinsuppliers, renegotiating outstanding contracts to a pass through basis or usingforward contracts or other such mechanisms. The following section describes the characteristics of the three new divisions. Personal Care comprises Make Up, Dispensing Systems and Home & Personal Care,each accounting for approximately one third of divisional sales and, as a whole,currently delivering margins slightly below the average level of the portfolio.Personal Care is a global business with manufacturing bases in Europe, the US,China and Brazil. It also has the added advantage of having its own mould makingfacility. It makes a range of largely custom manufactured products includinglipstick cases, compacts, samplers, fragrance and lotion pumps, non aerosol foamdispensing systems, deodorant sticks and shaving trays. Customers include suchglobal players as Avon, Colgate, Estee Lauder, L'Oreal, LVMH, Mary Kay, P&G andUnilever, attracted by our strong innovation record, global footprint andcapability to provide complete packaging solutions. The Personal Care market iscurrently growing at around 2 to 3% pa. Healthcare now has three sub divisions: Rexam's Pharma, together with PrimaryPackaging and Prescription Products acquired with OI Plastics. Each contributesabout one third to total Healthcare sales and, overall, margins aresubstantially above average for our portfolio. The business is split mainlybetween Europe and the US but it also has plants in Mexico, Puerto Rico andIndia. It manufactures mainly drug delivery devices and various types of primaryand prescription containers. In the US, it is market leader in packaging forprescription products. Customers include top pharmaceutical companies such asAbbott, Eli Lilly, GSK, Hospira, McNeil, Pfizer and Schering Plough as well aspharmacies and retailers. Its main attributes include engineering andmanufacturing expertise, strong technology and patent protection as well as acomplete solutions offering. The Healthcare market is growing currently at 6 to8 % pa driven by an ageing population, an increased focus on well being andeconomic growth in emerging markets. Closures is made up of Rexam's Closures and Containers and High Barrier Food,and the Closures business acquired with OI Plastics. The two Closures businessesaccount for 80% of the sales, with margins for the division as a whole in linewith the average for the portfolio. Products include closures for home, health,food and beverage applications, tamper evident and child resistant closures, aswell as high barrier food containers and lids. It is a predominantly US basedbusiness whose customers include Campbell's, Clorox, Coca-Cola, Nestle,Novartis, PepsiCo and P&G. Its strengths lie in its proprietary mouldingtechnologies and a consistent track record of innovation. The closures market iscurrently growing at 3 to 4% pa while the high barrier food container market isgrowing at more than 20% pa. Although the focus is very firmly fixed on the integration of the predominantlyUS based OI Plastics business, we continue our strategy to expand our emergingmarkets position. The OI Plastics acquisition increased our presence in Brazil,where we already have a plant, and opened up new opportunities in Mexico. Italso gave us a foothold in Singapore and Malaysia. Several of our Personal Carecustomers are now looking at relocating their own production from Asia back toCentral and Eastern Europe, which is expected to open up opportunities for us toutilise our existing Plastic Packaging plant in Poland, as well as our Groupfootprint in that part of the world. Group financial performance Underlying business Exceptional performance1 items Total £m £m £m ______________________________________________2007:Continuing operations:Sales 3,611 - 3,611 ______________________________________________ Operating profit 354 17 371Total net finance cost2 (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 240 _____________ Total basic earnings per share (p) 39.0Underlying earnings per share (p) 28.0Interim dividend per share (p) 8.3Proposed final dividend per share (p)3 11.7 2006 - restated:Continuing operations:Sales 3,301 - 3,301 ______________________________________________ Operating profit/(loss) 375 (1) 374Share of associates profit after tax 1 8 9Total net finance cost2 (112) (3) (115) ______________________________________________ Profit before tax 264 4 268 ______________________________________________ Profit/(loss) after tax - continuing operations 200 (5) 195 _______________________________Discontinued operations:Profit for the year 28 ______________ Total profit for the year 223 ______________ Total basic earnings per share (p) 39.7Underlying earnings per share (p) 35.6Interim and final dividends per share (p) 19.0 1 Underlying business performance is the primary performance measure used by management, who believe that the exclusion of exceptional 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, the subsequent recognition of acquired deferred tax assets, the amortisation of certain acquired intangible assets, non hedge accounted fair value movements on financing derivatives and significant gains arising on reduction of retiree medical and pension liabilities.2 Comprises underlying net interest expense of £95m (2006: £90m) and retirement benefit obligations net finance cost of £14m (2006: £22m).3 Subject to approval at AGM 2008 and payable on 3 June 2008. A summary of underlying business performance from continuing operations is setout below. 2006 2007 restated £m £m ______________________ Ongoing operations 3,566 3,199Disposals 45 102 ______________________ Sales 3,611 3,301 Ongoing operations 349 369Disposals 5 6 ______________________ Underlying operating profit 354 375Share of associates profit after tax - 1Underlying total net finance cost (109) (112) ______________________ Underlying profit before tax 245 264 ______________________ Underlying profit after tax 172 200 ______________________ Underlying earnings per share (p) 28.0 35.6 ______________________ The following tables, showing sales and underlying operating profit, compare theongoing operations on a consistent basis to demonstrate "like for like" tradingperformance. This excludes disposals and businesses held for sale (described as"Disposals") but includes prior year acquisitions as if acquired on 1 January2006, by adding their pre acquisition results (described as "Acquisitions 2006")and OI Plastics is included from the date of acquisition. The table alsohighlights organic change and currency fluctuations arising on translation.Organic change is the year on year change on ongoing operations from businessesowned since the beginning of 2007. Analysis of sales movement Beverage Plastic Total Cans Packaging £m £m £m ______________________________________ Sales 2006 - restated 3,301 ________ Disposals (102)Ongoing operations 2006 -reported 2007 3,199 2,490 709Acquisitions 2006 22 2 20Currency fluctuations (156) (123) (33) ______________________________________ Ongoing operations 2006 pro forma basis 3,065 2,369 696Acquisition of OI Plastics 155 - 155Organic change in sales 346 317 29 ______________________________________ Ongoing operations reported 2007 3,566 2,686 880 __________________________Disposals 45 _________ Sales reported 2007 3,611 _________ Organic sales growth, which excludes the impact of acquisitions, disposals andcurrency, was £346m, an increase of 11% of which £157m came from pass through ofraw material cost increases (principally aluminium in the Beverage Canoperations). Price increases contributed £60m in total, primarily from BeverageCan Europe & Asia on renegotiation of its open sales contracts, and Beverage CanNorth America. Volume gains, predominantly from the European and South AmericanBeverage Can operations, added a further £129m. Volumes in Beverage Can NorthAmerica were down due to reduced demand for12oz carbonated soft drinks cans, astrike at a number of its plants in the first half of the year and productiondowntime due to conversion of 12oz can lines to higher growth specialty canlines. Plastic Packaging benefited from stronger volumes across its DispensingSystems and Pharma businesses. Analysis of underlying operating profit movement Beverage Plastic Total Cans Packaging £m £m £m _____________________________________ Underlying operating profit 2006 - restated 375 Disposals (6) ______ Ongoing operations 2006 reported 2007 369 289 80Acquisitions 2006 2 - 2Currency fluctuations (19) (14) (5) _____________________________________ Ongoing operations 2006 pro forma basis 352 275 77Acquisition of OI Plastics 22 - 22Organic change in underlying operating profit (25) (31) 6 _____________________________________ Ongoing operations reported 2007 349 244 105 ________________________ Disposals1 5 ______ Underlying operating profit reported 2007 354 ______ 1 Includes the Petainer refillable plastic bottle operations which is classified as assets available for sale. Consequently, no depreciation has been charged in 2007, which has increased reported underlying operating profit by £2m. Analysis of the organic change in underlying operating profit is set out below. Beverage Plastic Total Cans Packaging £m £m £m _____________________________________ Price changes 217 218 (1)Cost changes (317) (298) (19) _____________________________________ Price and cost changes (100) (80) (20)Volume and mix changes 43 32 11Efficiency and other savings 32 17 15 _____________________________________ Organic change in underlying operating profit (25) (31) 6 _____________________________________ The reduction in underlying operating profit, after allowing for the impact ofacquisitions, disposals and currency, was £25m (7%) which reflects continuedhigh input costs and the impact of the strike in the Beverage Can North Americabusiness. Within our Beverage Can operations, price increases and pass througharrangements recouped the effect of rising aluminium prices. A gain of £13mrealised in 2006 on the renegotiation of a metal supply contract in the US wasnot repeated. The strike in the Beverage Can North America operation cost £13m,hampering progress in that business. Overall, the growth in non standard cansizes and energy drinks together with efficiency savings helped to counter theeffect of higher conversion costs, US dollar/Brazilian real exchange rates aswell as production start up issues in the new can end manufacturing facility inthe Beverage Can South America operation, which cost around £5m. Plastic Packaging reported an 8% organic improvement in underlying profit.Efficiency savings and good volume growth across most businesses were more thansufficient to cover the rise in resin, energy and other input costs. Althoughthe impact of price increases was negative for the year, it showed a positivetrend in the second half of 2007; the negative price change noted in the abovetable relates mainly to pass through to customers of cost reductions in certaintypes of resin. OI Plastics, acquired in August 2007, contributed £155m in sales and £22m inunderlying operating profit for the five month period following acquisition. Thenet impact of fair value adjustments reduced underlying operating profit for theperiod by £2m including a charge relating to finished goods inventory of £4m.The integration of the OI Plastics business is progressing well and we are ontrack to achieve the synergy benefits. When we announced the acquisition, theintegration costs were estimated to be £23m, comprising £10m for restructuringand plant closures and £13m for new IT systems. The synergy benefits arisingwere expected to rise to £20m pa by 2010. Following completion of theacquisition, a detailed review revealed further opportunities for integrationand synergy benefits. Consequently, the total integration cost is now estimatedto be £35m, comprising £20m for restructuring and £15m for capital expenditureto support the business infrastructure. Synergy benefits are now anticipated toreach £25m pa by 2010. Exchange rates The exchange rates used to translate the consolidated income statement andbalance sheet are set out in note 9. Income statement The US dollar and the euro are the principal currencies that impact our results.During 2007 the US dollar continued to weaken against sterling whilst the eurostrengthened, particularly in the second half of the year. The net effect ofcurrency translation caused sales and underlying operating profit compared with2006 to be reduced by £156m and £19m respectively. The movement in exchange rates had the following impact on the translation intosterling for reported sales, underlying operating profit and underlying profitbefore tax in 2007: Underlying Underlying operating profit Sales profit before tax £m £m £m _______________________________________ US dollar (158) (20) (15)Euro 5 1 1Other currencies (3) - - _______________________________________ (156) (19) (14) _______________________________________ In addition to translation exposure, the Group is also exposed to movements inexchange rates on certain of its transactions. These are principally the USdollar/euro and the US dollar/Brazilian real movement on the European and SouthAmerican Beverage Can operations respectively. The exposure in Europe is largelyhedged and therefore did not impact underlying operating profit in 2007. In2007, exchange rate movements between the US dollar and Brazilian real reducedunderlying operating profit by around £7m. Balance sheet Most of the Group's borrowings are denominated in US dollars and euros. Year onyear movements in exchange rates reduced net borrowings by £44m, due principallyto the US dollar, and increased net equity by £86m. Underlying total net finance cost 2006 2007 restated £m £m _______________________ Net interest (95) (90)Retirement benefit obligations net finance cost (14) (22) _______________________ Underlying total net finance cost (109) (112) _______________________ The underlying total net finance cost reduced by £3m compared with the prioryear primarily due to the reduction in retirement benefit obligations netfinance cost of £8m following the significant decrease in liabilities asdiscussed in "Retirement benefits" below. The increase in net interest of £5m isattributed to higher average interest rates (the US dollar and euro rates wereup by 10 and 120 basis points respectively) and higher average net borrowings.The latter is a consequence of the acquisition of OI Plastics and increasedcapital expenditure, partially offset by proceeds from the disposal of the Glassoperations and the share placement, both in June 2007. Overall, the averageinterest rate during the year was 6.5% compared with 6.2% in the prior year. Based on reported underlying operating profit, interest cover was 3.7 timescompared with 4.8 times for 2006. The reduction is due to lower underlyingoperating profit. The impact of the latter is to exclude the underlyingoperating profit of the Glass business but not to recognise the expectedreduction in interest cost on the disposal proceeds. Including notional interestattributable to the Glass proceeds, interest cover would have been around 4.3times. Interest cover is based on underlying operating profit and underlyingtotal net interest expense excluding charges in respect of retirement benefitobligations and, in 2006, preference dividends. Retirement benefits Retirement benefit obligations (net of tax) as at 31 December 2007 were £128m, asignificant reduction from £365m at 31 December 2006, principally due to areduction in retiree medical liabilities and higher discount rates which areused to value the liabilities in the defined benefit pension plans. Changes to the actuarial value of retirement benefits at the balance sheet dateare shown in the statement of recognised income and expense, these changesincreased shareholders' funds by £152m in 2007 as follows: £m _________Defined benefit pension plans:Plan assets - returns higher than expected 81Plan liabilities - principally higher discount rates 136 _________ Actuarial gains before tax 217Tax (65) _________ Actuarial gains after tax 152 During the year the Group agreed revisions to its obligations in respect ofretiree medical benefits for certain current and retired employees in the USwhich reduced liabilities by £61m (net of legal costs). The net gain is recordedwithin exceptional items. There were further reductions of £29m in definedbenefit and other pension liabilities arising on the disposal of Glass whichhave been reflected within discontinued operations. The retirement benefit obligations net finance cost for continuing operations isanalysed as follows: 2006 2007 restated £m £m _______________________ Defined benefit pension plans:Expected return on plan assets 127 123Interest on plan liabilities (131) (133) _______________________ (4) (10)Retiree medical - interest on liabilities (10) (12) _______________________ Net finance cost (14) (22) _______________________ The total cash payments in respect of retirement benefits are as follows: 2007 2006 £m £m _______________________ Defined benefit pension plans 47 44Other pension plans 8 4Retiree medical 11 12 _______________________ Total cash payments 66 60 _______________________ Cash payments to defined benefit pension plans increased as a result of a higherrate of contribution to the UK plan, which includes £21m (2006: £20m) to reduceits deficit, and further contributions to the US plan. Based on currentactuarial projections, it is expected that cash contributions to defined benefitpension plans and retiree medical payments in 2008 will remain at similar levelsto those in 2007. Tax The underlying tax charge for the year was £73m (30%) on profit beforeexceptional items (2006 restated: £64m (24%)). Last year's tax rate benefitedfrom provision releases following progress on certain European tax audits. Thecurrent rate reflects the mix of territories in which Rexam operates, partiallyoffset by the availability of tax incentives in certain jurisdictions. Theacquisition of OI Plastics has changed the geographic mix of the Group's profitsand will therefore impact its underlying tax rate going forward. In 2008 andbeyond we anticipate a modest increase in the rate, as most of the OI Plasticsprofits are generated in the US. Cash tax payments in the year were £42m compared with £58m last year. Paymentsin 2007 were reduced by repayments received, the utilisation of tax losses andtax benefits attributable to the OI Plastics acquisition. It is expected thatthe cash tax paid in future years will be between 65% and 75% of the underlyingincome statement tax charge. Exceptional items The exceptional items arising in 2007 in respect of continuing operations are asfollows: £m _______ Retiree medical gain (net of legal costs) 61Disposal of subsidiaries 1Integration of businesses (6)Legacy and other tax based exposures (17)Amortisation of acquired intangible assets (22) _______ Total included in operating profit 17Financing derivative market value changes (2) _______ Total exceptional items before tax 15Tax (13) _______ Total exceptional items after tax 2 _______ In the second half of 2007 court approval was obtained for a mediated settlementof a class action litigation involving retiree medical coverage for retirees whowere formerly unionised employees. The changes in the provision of retireemedical benefits resulted in an exceptional gain of £61m, net of legal costs. The Group completed the disposal of a Personal Care plastic packaging businessbased in the Netherlands and a business engaged in reinsurance activities basedin Luxembourg for a combined net gain of £1m. As discussed above, the restructuring and plant closure cost associated with theintegration of OI Plastics is now estimated to be £20m. A £6m charge wasrecorded in 2007 relating to the intended closure of two plants in North Americaand other integration costs. The remainder of the restructuring cost will becharged to exceptional items in 2008. Intangible assets, such as technology, patents and customer contracts, arerequired to be recognised on the acquisition of businesses and amortised overtheir useful economic life. The directors consider that separate disclosure ofthe amortisation of such acquired intangibles amounting to £22m (2006: £11m)aids comparison of organic growth in underlying profit. Therefore this cost,which will become more significant as the impact of recent and futureacquisitions is reflected, should be separately disclosed within exceptionalitems. Rexam operates in a global tax environment, which can give rise to uncertaintyover the quantification of some of its tax liabilities in certain territories.The tax environment in Brazil is complex: interpretation and application of taxlaw continues to change and claims are usually subject to long judicialprocesses. In this territory, Rexam has certain indirect tax exposures, some ofwhich relate to periods prior to Rexam's acquisition of ANC in 2000 and Latasain 2003. In view of the uncertainty surrounding these Brazilian tax risks,management has concluded it would be appropriate to record an exceptionalprovision of £17m in 2007. Notwithstanding the provision, the Group considersthat it has defensible positions in most instances and will continue robustly todefend its position on any assessments and claims. Should the risks crystallise,the cash outflows related to this provision are likely to arise over a number ofyears, although a payment of approximately £4m is anticipated to be made duringthe first half of 2008. The fair value of the derivatives arising on financing activities directlyrelates to changes in interest rates and foreign exchange rates. The fair valuewill change as the transactions to which they relate mature, as new derivativesare transacted and due to the passage of time. The fair value change onfinancing derivatives for the year was a net loss of £2m (2006: net gain £7m).The impact of embedded derivatives and derivatives arising on trading items suchas commodities and forward foreign exchange contracts is included withinunderlying operating profit. Earnings per share 2006 2007 restated _____________________ Underlying earnings per share (p) 28.0 35.6Basic earnings per share (p) 39.0 39.7 Average number of shares in issue (millions) 615 561Year end number of shares in issue (millions) 643 583 Underlying earnings per share fell from 35.6p to 28.0p. This is due to lowerunderlying profit before tax, the increase in tax rate compared with the prioryear and a higher number of shares in issue following the placement of 58mordinary shares in June 2007 as well as the conversion of the convertiblepreference shares in October 2006. The basic earnings per share, which include exceptional items, and profit fromdiscontinued operations were 39.0p per share (2006: 39.7p). Overall, the levelof exceptional items and the results from discontinued operations were greaterthan those reported in 2006. However, they were not sufficient to offset thefactors that reduced underlying earnings per share. Discontinued operations On 12 March 2007 we announced that we had reached agreement to sell the Glassbusiness to Ardagh Glass Group PLC. Following that announcement, the Glassbusiness was classified as a discontinued operation and consequently its resultsare disclosed separately from the continuing operations. The disposal wascompleted on 21 June 2007. A summary of the performance of discontinuedoperations is set out below. 2007 2006 £m £m _____________________ Sales 213 437 _____________________ Underlying operating profit:Before depreciation and amortisation adjustment1 15 40Depreciation and amortisation adjustment2 11 - _____________________ After depreciation and amortisation adjustment 26 40 _____________________ Underlying profit before tax 26 39 _____________________ Underlying profit after tax 18 28Exceptional gain on disposal (net of tax) 48 - _____________________ Total profit after tax 66 28 _____________________ 1 Central overheads, excluded from the above table, previously allocated to the Glass business, have been reallocated to the Beverage Can and Plastic Packaging operations. Had these overheads been allocated for 2007 they would have amounted to £2m (2006: £4m).2 The Glass business was classified as a disposal group on 12 March 2007 and accounting standard IFRS5 requires that depreciation and amortisation is not charged following such classification. Cash flow Free cash flow was £24m compared with £173m in 2006. This reduction is largelydue to an increase in capital expenditure to support organic growth in strategicand emerging markets together with a lower contribution from the Glass businesssold during the year. 2006 2007 restated £m £m _____________________ Continuing operations:Underlying operating profit 354 375Depreciation and amortisation1 136 131Retirement benefit obligations (42) (31)Change in working capital (11) (7)Other movements (5) (25) _____________________ Cash generated 432 443Capital expenditure (net) (288) (154)Net interest and tax paid (128) (144)All other movements - 3 _____________________ Free cash flow from continuing operations 16 148Discontinued operations: _____________________Cash generated | 26 74 |Capital expenditure (net) | (17) (46) |Net interest and tax paid | (1) (3) | |_____________________| Free cash flow from discontinued operations 8 25 _____________________ Free cash flow 24 173Equity dividends (118) (103) _____________________ Business cash flow (94) 70Acquisitions2 (921) (215)Disposals3 402 25 _____________________ Cash flow including borrowings acquired and disposed (613) (120)Share capital changes 281 9Conversion of convertible preference shares - 69Other non cash movements (58) 90Net borrowings at the beginning of the year (1,172) (1,220) _____________________ Net borrowings at the end of the year (1,562) (1,172) _____________________ 1 Excludes amortisation of certain acquired intangibles amounting to £22m (2006: £11m).2 Includes net cash acquired of £1m (2006: net borrowings £13m)3 Includes net borrowings disposed of £130m (2006: £4m). Capital expenditure - continuing operations 2007 2006 _____________________ Capital expenditure (gross) (£m) 294 168Depreciation and amortisation (£m) 136 131Ratio (times) 2.16 1.28 Capital expenditure includes computer software that has been capitalised.Amortisation in 2007 excludes £22m (2006: £11m) amortised on patents, customercontracts and intangibles other than computer software. Gross capital expenditure by continuing operations was £294m, representing 216%of depreciation and amortisation. This increase in expenditure reflects asubstantial commitment to investments in strategic and growth projects which in2007 amounted to £224m (2006: £102m). The principal projects were in theBeverage Can business and in the European operations in particular, includingnew can plants in Austria and Russia and additional can lines to support marketgrowth. The North and South American Beverage Can businesses are convertinglines to produce specialty cans to meet market and regional demand. Going into 2008 there will be further investment in growth and strategicprojects within the Beverage Can operations in particular, including: completionof the new plants in Austria, Russia and Denmark; additional lines, conversionsand can end capacity within the European operations and further line conversionsin North and South America. These projects and a range of smaller projectswithin Plastic Packaging, generally targeted at new product development, areexpected to support profit growth in 2008 and beyond. Therefore, it isanticipated that capital expenditure in 2008 will be around £330m depending onthe timing of projects. Capital expenditure - discontinued operations Gross capital expenditure by the Glass business in 2007 was £17m (2006: £46m)and depreciation and amortisation charged was £8m (2006: £39m). Acquisitions Expenditure on acquisitions in 2007, including net cash assumed, totalled £921m,as set out below. £m ________ Plastic Packaging: OI Plastics 904Beverage Cans: joint venture in Guatemala 14Payments in respect of prior year and other acquisitions 3 ________ 921 ________ The principal transaction was the acquisition of OI Plastics in August 2007 foran initial consideration of £905m (including net cash assumed and accruedcosts), which transformed the scale and reach of the Plastic Packagingoperations. The structuring of the acquisition is still expected to give rise totax benefits with an estimated net present value of around £130m and, therefore,the effective cost for OI Plastics is £775m. Following receipt of regulatoryapproval, we completed the acquisition of Rostar for a consideration of £149m inJanuary 2008 to extend our scale in the rapidly growing Russian beverage canmarket. These acquisitions, together with the investment in a joint venture inGuatemala, are consistent with our strategy to expand our positions in growthmarkets. Disposals In June 2007 we completed the sale of our Glass business to Ardagh. The profiton sale after tax, reported as an exceptional item within discontinuedoperations, was £48m. The sale followed a review of the position of the Glassbusiness within our consumer packaging portfolio and was in keeping with ourstrategy to focus investment on organic growth and acquisitions in highergrowth, higher margin and emerging markets. Proceeds from the disposal of the Glass business, net of costs and includingborrowings and retirement benefit liabilities disposed, totalled £401m. Theprocess to sell our Petainer refillable plastic bottle operations in Sweden andthe Czech Republic is continuing. Balance sheet and borrowings As at As at 31.12.06 31.12.07 restated £m £m ___________________________ Goodwill and other intangible assets 2,204 1,532Property, plant and equipment 1,322 1,190Retirement benefits (net of tax) (128) (365)Other net (liabilities)/assets (3) 64 ___________________________ 3,395 2,421 ___________________________ Total equity, including minority interests 1,833 1,249Net borrowings1 1,562 1,172 ___________________________ 3,395 2,421 ___________________________ Return on invested capital (%)2 11.9 15.04Interest cover (times)3 3.7 4.84Gearing (%)5 85 94 1 Net borrowings comprise borrowings, cash and cash equivalents 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 total equity after adding back retirement benefit obligations (net of deferred tax). For 2007, the opening assets and liabilities attributable to the Glass sector have been excluded.3 Based on underlying operating profit divided by underlying total net interest expense, excluding convertible preference share dividends in 2006.4 The return on invested capital and interest cover for 2006 have not been restated for the reclassification of the Glass business to discontinued operations.5 Based on net borrowings divided by total equity including minority interests. The return on invested capital was 11.9% (2006: 15.0%), it has reduced mainly asa consequence of the fall in underlying operating profit and the impact of theacquisition of OI Plastics; excluding OI Plastics, the return would have been13.2%. Net borrowings include interest accruals and certain financial derivatives asset out below. As at As at 31.12.07 31.12.06 £m £m ___________________________ Net borrowings excluding derivative financial instruments 1,730 1,277Derivative financial instruments (168) (105) ___________________________ Net borrowings 1,562 1,172 ___________________________ Derivative financial instruments comprise instruments relating to net borrowings(eg cross currency and interest rate swaps) and those related to other businesstransactions (eg forward commodity and forward foreign exchange deals). Totalderivative financial instruments are set out below. As at As at 31.12.07 31.12.06 £m £m ___________________________ Cross currency swaps 166 102Interest rate swaps 2 3 ___________________________ Derivative financial instruments included in net borrowings 168 105 Other derivative financial instruments (12) 29 ___________________________ Total derivative financial instruments 156 134 ___________________________ The increase in the value of cross currency swaps can be mainly attributed tothe strengthening of the euro on the swaps related to the €750m subordinatedbond, which was issued in June 2007 to part fund the OI Plastics acquisition.The reduction in other derivatives was due principally to the aluminium price atthe end of 2007, which was close to the low point for the year. CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 Notes 2007 restated £m £m _______ ____________________________Continuing operationsSales 2 3,611 3,301Operating expenses (3,240) (2,927) ___________________________Underlying operating profit 2 | 354 375 |Retirement benefit obligations exceptional items 3 | 61 53 |Amortisation of acquired intangible assets 3 | (22) (11) |Other exceptional items 3 | (22) (43) | |___________________________| Operating profit 2 371 374 ___________________________Share of underlying post tax profits of associates and joint ventures | - 1 |Share of exceptional post tax profits of associates and joint ventures 3 | - 8 | |___________________________| Share of post tax profits of associates and joint ventures - 9 Retirement benefit obligations net finance cost 4 (14) (22) ___________________________Underlying interest expense | (109) (103) |Exceptional interest expense 3 | (2) (3) | |___________________________|Interest expense (111) (106) Interest income 14 13 ___________________________Underlying profit before tax | 245 264 |Retirement benefit obligations exceptional items | 61 53 |Amortisation of acquired intangible assets | (22) (11) |All other exceptional items | (24) (38) | |___________________________| Profit before tax 260 268 ___________________________Tax on underlying profit | (73) (64) |Tax on exceptional items 3 | (13) (9) | |___________________________| Tax (86) (73) ____________________________ Profit for the financial year 174 195Discontinued operationsProfit for the financial year 66 28 ____________________________ Total profit for the financial year 240 223 ____________________________ Basic earnings per share (pence) 5Continuing operations 28.3 34.7Discontinued operations 10.7 5.0 ____________________________ Total 39.0 39.7 ____________________________ Diluted earnings per share (pence) 5Continuing operations 28.3 34.7Discontinued operations 10.7 5.0 ____________________________ Total 39.0 39.7 ____________________________ For details of equity dividends paid and proposed see note 6. CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2006 2007 restated £m £m _________________________ASSETS Non current assetsGoodwill 1,680 1,399Other intangible assets 524 133Property, plant and equipment 1,322 1,190Investments in associates and joint ventures 53 32Pension asset (note 4) 68 -Deferred tax assets 142 234Trade and other receivables 57 45Available for sale financial assets 21 22Derivative financial instruments 173 116 _________________________ 4,040 3,171 _________________________ Current assetsInventories 392 354Trade and other receivables 563 504Available for sale financial assets 1 1Derivative financial instruments 20 32Cash and cash equivalents 113 138Assets classified as held for sale 30 22 _________________________ 1,119 1,051 _________________________ Total assets 5,159 4,222 _________________________ LIABILITIESCurrent liabilitiesBorrowings (164) (275)Derivative financial instruments (32) (13)Current tax (13) (8)Trade and other payables (849) (678)Provisions (13) (18)Liabilities classified as held for sale (12) (9) _________________________ (1,083) (1,001) _________________________ Non current liabilitiesBorrowings (1,679) (1,140)Derivative financial instruments (5) (1)Retirement benefit obligations (note 4) (249) (514)Deferred tax liabilities (162) (168)Non current tax (84) (82)Other payables (26) (36)Provisions (38) (31) _________________________ (2,243) (1,972) _________________________ Total liabilities (3,326) (2,973) _________________________ Net assets 1,833 1,249 _________________________ EQUITYOrdinary share capital 413 375Share premium account 1,004 759Capital redemption reserve 351 351Retained earnings 60 (216)Fair value and other reserves 3 (22) _________________________ Shareholders' equity 1,831 1,247Minority interests 2 2 _________________________ Total equity (note 7) 1,833 1,249 _________________________ CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 2006 £m £m _________________________ Cash flows from operating activitiesCash generated from operations 458 517Interest paid (99) (101)Tax paid (42) (58) _________________________ Net cash flows from operating activities 317 358 _________________________ Cash flows from investing activitiesCapital expenditure (311) (214)Proceeds from sale of property, plant and equipment 6 9Acquisition of subsidiaries (906) (202)Acquisition of joint venture (14) -Proceeds from sale of discontinued operations 259 -Proceeds from sale of other subsidiaries 1 19Proceeds from sale of associates - 2Repayment of loan by a joint venture - 3Sale of properties surplus to requirements - 5Interest received 12 12 _________________________ Net cash flows from investing activities (953) (366) _________________________Cash flows from financing activitiesMovement in borrowings and financing derivatives 503 116Proceeds from share placing (net of £6m costs) 280 -Proceeds from issue of share capital on options 3 13Purchase of Rexam shares by Employee Share Trust (2) (4)Dividends paid to equity shareholders (118) (103) _________________________ Net cash flows from financing activities 666 22 _________________________ _________________________ Net increase in cash and cash equivalents 30 14 _________________________ Cash and cash equivalents at the beginning of the year 14 (4)Exchange differences (7) 3Transfer to assets and liabilities classified as held for sale (1) 1Net increase in cash and cash equivalents 30 14 _________________________ Cash and cash equivalents at the end of the year 36 14 _________________________ Cash and cash equivalents comprise:Cash at bank and in hand 73 63Short term bank deposits 40 75Bank overdrafts (77) (124) _________________________ 36 14 _________________________ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 DECEMBER 2007 2006 £m £m _________________________ Exchange differences 86 (95)Actuarial gains on retirement benefit obligations 217 155Tax on actuarial gains on retirement benefit obligations (65) (48)Net investment hedges (31) 28Net investment hedges transferred to the income statement (3) -Cash flow hedges recognised (34) 32Tax on cash flow hedges 13 4Cash flow hedges transferred to inventory (8) (44)Cash flow hedges transferred to the income statement - (1)Sale of available for sale financial assets - (2) _________________________ Net profit recognised directly in equity 175 29Profit for the financial year 240 223 _________________________ Total recognised income and expense for the year attributable to Rexam PLC 415 252 _________________________ NOTES 1 Basis of preparation In preparing the consolidated financial statements, the following restatementshave been made to the comparative amounts: (i) The consolidated financial statements have been restated for the discontinuance of the Glass segment.(ii) The segment analysis and average number of employees have been restated for the disposal of a Dutch Plastic Packaging business which has been moved from "Plastic Packaging" to "Disposals and businesses for sale".(iii) The consolidated balance sheet as at 31 December 2006 has been restated for final fair value adjustments applied to prior year acquisitions. The consolidated income statement, consolidated cash flow statement andconsolidated statement of recognised income and expense for the year ended 31December 2007 and the consolidated balance sheet as at 31 December 2007 do notconstitute statutory accounts as defined by section 240 of the Companies Act1985. They are extracted from the full statutory accounts for the year ended 31December 2007 which have been approved by a duly constituted Committee of theBoard of Directors on 19 February 2008, but which have not been delivered to theRegistrar of Companies. The report of the auditors on those accounts isunqualified and does not contain a statement under either section 237(2) orsection 237(3) of the Companies Act 1985. 2 Segment analysis (i) Analysis by business segment 2007 Underlying Underlying operating return Operating Sales profit on sales profit £m £m % £m ______________________________________________________ Continuing operationsBeverage Cans 2,686 244 9.1 285Plastic Packaging 880 105 11.9 80Disposals 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 260Tax (86) _____________ Profit for the financial year 174Discontinued operationsProfit for the financial year 66 _____________ Total profit for the financial year 240 _____________ Underlying operating profit comprises operating profit before exceptional items.Underlying return on sales comprises underlying operating profit divided bysales. (ii) Analysis by business segment 2006 - restated Underlying Underlying operating return Operating Sales profit on sales profit £m £m % £m _____________________________________________________ Continuing operationsBeverage Cans 2,490 289 11.6 325Plastic Packaging 709 80 11.3 46Disposals and businesses for sale 102 6 5.9 3 _____________________________________________________ 3,301 375 11.4 374 ______________________________________Share of post tax profits of associates and joint ventures 9Retirement benefit obligations net finance cost (22)Net interest expense (93) ___________ Profit before tax 268 Tax (73) ___________ Profit for the financial year 195Discontinued operationsProfit for the financial year 28 ___________ Total profit for the financial year 223 ___________ Share of post tax profits of associates and joint ventures are whollyattributable to Beverage Cans. 3 Exceptional items - continuing operations 2006 2007 restated £m £m ________________________ Retirement benefit obligations (net of legal costs) 61 53Amortisation of acquired intangible assets (22) (11)Other exceptional itemsRestructuring and integration of businesses (6) (29)Legacy and other tax based exposures (17) -Disposal of subsidiaries 1 (3)Litigation claim - (8)Recognition of deferred tax assets on prior year acquisitions - (3) ________________________ Exceptional items included in operating profit 17 (1) ________________________ ________________________Exceptional items included in share of post tax profits of associates - sale of land and property of associate - 8 ________________________ Financing derivative market value changes (2) 7Early redemption of convertible preference shares - (10) ________________________ Exceptional items included in interest expense (2) (3) ________________________ ________________________ ________________________ Exceptional items included in profit before tax 15 4Tax on exceptional items (13) (9) ________________________ Total exceptional items - continuing operations 2 (5) ________________________ For a discussion of the exceptional items in 2007 see the Business Review. 4 Retirement benefit obligations Gross Defined retirement benefit Other Total Retiree benefit pensions pensions pensions medical obligations £m £m £m £m £m __________________________________________________________ At 1 January 2007 (326) (22) (348) (163) (511)Exchange differences - (1) (1) 3 2Acquisition of subsidiaries (7) - (7) (1) (8) _______________________________________________________Current service cost | (15) (6) (21) (1) (22) |Exceptional items | - - - 63 63 | |_______________________________________________________|Total included in operating profit - continuing operations (15) (6) (21) 62 41Net finance cost - continuing operations (4) - (4) (10) (14) _______________________________________________________Current service cost | (1) (1) (2) - (2) |Adjustment on sale | 24 5 29 - 29 | |_______________________________________________________|Total - discontinued operations 23 4 27 - 27Actuarial changes 217 - 217 - 217Cash contributions and benefits paid 47 8 55 11 66Transfers 2 - 2 - 2 __________________________________________________________At 31 December 2007 (63) (17) (80) (98) (178) __________________________________________________________ Deferred tax on gross retirement benefit obligations is a net asset of £50m at31 December 2007 (2006: asset of £146m). The gross retirement benefit obligations are shown in the balance sheet asfollows: pension assets £68m, other receivables receivable in more than one year£3m and retirement benefit obligations £249m (2006: £nil, £3m and £514m). Principal actuarial assumptions UK USA Other UK USA Other 2007 2007 2007 2006 2006 2006 % % % % % % _____________________________________________________________ Future salary increases 4.80 4.00 3.05 4.40 4.50 2.89Future pension increases 3.30 - 2.00 3.00 - 1.95Discount rate 5.60 6.00 5.08 5.00 5.75 4.46Inflation rate 3.30 2.50 2.00 3.00 2.50 1.95Expected return on plan assets (net ofadministration expenses):Equities 7.87 7.34 7.15 7.37 7.24 6.88Bonds 4.62 4.70 3.65 4.62 4.37 4.08Cash 5.37 3.16 3.35 4.87 2.96 4.05 The mortality assumptions used in valuing the liabilities of the UK pension planin 2007 and 2006 are based on the standard tables PA92 as published by theInstitute and Faculty of Actuaries. These tables are adjusted to reflect thecircumstances of the plan membership. The life expectancy assumed for malepensioners aged 65 is 19.6 years (2006: 19.6 years) and for female pensionersaged 65 is 22.4 years (2006: 22.4 years). The mortality assumptions used invaluing the liabilities of the US pension plans in 2007 are based on the RP2000combined active and retiree mortality table projected to 2007 (2006: RP2000combined active and mortality table projected to 2006) weighted 70% blue collarand 30% white collar. The life expectancy assumed for male pensioners aged 65 is17.8 years (2006: 17.8 years) and for female pensioners aged 65 is 20.2 years(2006: 20.2 years). The mortality assumptions used in valuing the liabilities of retiree medical arebased on the RP2000 combined active and retiree blue collar table projected to2007. The life expectancy assumed for male pensioners aged 65 is 16.8 years(2006: 16.8 years) and for female pensioners aged 65 is 19.6 years (2006: 19.6years). 5 Earnings per share (i) Basic and diluted earnings per share Basic Diluted Basic Diluted 2006 2006 2007 2007 restated restated Pence Pence Pence Pence ___________________________________________________________ From continuing operations 28.3 28.3 34.7 34.7From discontinued operations 10.7 10.7 5.0 5.0 ___________________________________________________________Total 39.0 39.0 39.7 39.7 ___________________________________________________________ 2007 2006 £m £m ________________________ Profit for the financial year from continuing operations 174 195Profit for the financial year from discontinued operations 66 28 ________________________ Total profit for the financial year 240 223 ________________________ 2007 2006 Millions Millions ________________________ Weighted average number of shares in issue 615.3 561.3Dilution on conversion on outstanding share options 0.5 0.8 ________________________ Weighted average number of shares in issue on a diluted basis 615.8 562.1 ________________________ Number of shares in issue at 31 December 642.6 583.3 ________________________ (ii) Underlying earnings per share 2006 2007 restated Pence Pence ________________________ Underlying earnings per share 28.0 35.6 ________________________ 2006 2007 restated £m £m ________________________ Underlying profit before tax 245 264Tax on underlying profit (73) (64) ________________________ Underlying profit for the financial year 172 200 ________________________ Underlying earnings per share is based on underlying profit for the financialyear divided by the weighted average number of shares in issue. Underlyingprofit for the financial year is continuing operations before exceptional items.Underlying earnings per share is included as it is felt that by adjusting basicearnings per share for exceptional items, underlying earnings per share providesa better indication of the Group's performance. 6 Equity dividends 2007 2006 £m £m ________________________ 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 -Interim dividend for 2006 of 7.9p paid on 2 November 2006 - 44Final dividend for 2005 of 10.6p paid on 5 June 2006 - 59 ________________________ 118 103 ________________________ A final dividend per equity share of 11.7p has been proposed for 2007 and,subject to shareholder approval, is payable on 3 June 2008. In accordance with IFRS accounting requirements this dividend hasnot been accrued in these consolidated financial statements. 7 Total equity 2007 2006 £m £m ________________________ At 1 January 1,249 1,009Net profit recognised directly in equity 175 29Profit for the financial year 240 223Placing of Rexam PLC shares 280 -Share options value of services provided 4 1Share options proceeds from shares issued 3 13Purchase of Rexam PLC shares by ESOP Trust (2) (4)Redemption of convertible preference shares - 79Transfer on disposal of subsidiaries 2 -Increase in minority interests - 2Dividends paid (118) (103) ________________________ At 31 December 1,833 1,249 ________________________ 8 Movement in net borrowings 2007 2006 £m £m ________________________ At 1 January (1,172) (1,220)Acquisition of subsidiaries (1) (13)Disposal of subsidiaries 142 4Cash flow movements (389) (23)Non cash movements (142) 80 ________________________ At 31 December (1,562) (1,172) ________________________ 9 Exchange rates The principal exchange rates against sterling were: 2007 2006 ________________________Average:US dollar 2.00 1.84Euro 1.46 1.47Closing:US dollar 1.99 1.96Euro 1.37 1.49 10 A copy of the information to be provided to financial analysts is available on request from the Company Secretary, Rexam PLC, 4 Millbank, London SW1P 3XR and is also on Rexam's website, www.rexam.com. This information is provided by RNS The company news service from the London Stock Exchange

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