20th Feb 2007 07:02
Rexam PLC20 February 2007 Resilient performance in challenging conditions Rexam, the global consumer packaging company and the world's leading beveragecan maker, announces its audited results for the year to 31 December 2006. Underlying performance1 2006 2005 Change Sales from ongoing operations2 £3,647m £3,111m +17%Underlying operating profit1 from ongoing operations2 £410m £406m +1%Underlying profit before tax1 £303m £307m -1%Underlying earnings per share1 40.6p 39.5p +3%Dividends proposed and paid per share 19.00p 18.12p +5% Highlights • Strong sales growth: 17% from ongoing operations including 10% from existing businesses • Organic sales growth in beverage cans led by market share gains in the US and strong market demand in Europe and South America • Profit growth offset by unprecedented rise in input costs • Efficiency savings of £32m • Strong cash flow performance • Increase of more than 20% in 2006 capex - significant further spend in 2007 to fuel future profit growth Commenting on the 2006 results, Rolf Borjesson, Rexam's Chairman, said: "After many years of sustained profit growth, external forces conspired tocreate a challenging 2006 for us, but swift and decisive management actionenabled us to deliver a resilient performance. In 2007 we will deliver price increases, a more favourable product mix inBeverage Cans and good organic profit growth in Plastic Packaging. However, thepressure of the continuing high aluminium and other input costs, together with aweaker US dollar, are likely to counteract any progress in 2007, with the impactof the input costs expected to be most severe in the earlier part of the year. 2007 will be a year of significant capital investment by the Group for themedium and long term in facilities, processes and talent to underpin theplatform for our next chapter of profitable growth, and we expect to seematerial benefits from these investments starting in 2008." Statutory results3 2006 2005Sales £3,738m £3,237mOperating profit £414m £420mProfit before tax £307m £331mBasic earnings per share 39.7p 40.4p 20 February 2007 Notes 1 Underlying performance is before exceptional items.2 Ongoing operations reflects underlying performance excluding businesses that have been disposed or are held for sale.3 Statutory results include exceptional items. Enquiries Rexam PLC 020 7227 4100Leslie Van de Walle, Chief Executive OfficerDavid Robbie, Finance Director Financial Dynamics 020 7269 7291Richard Mountain Editors' notes: Rexam is a leading global consumer packaging company and the largest beveragecan maker in the world. Our vision is to be the leading global consumerpackaging company. We are business partners to many of the world's most famousand successful consumer brands as well as young, entrepreneurial start ups. Weoffer a broad range of packaging services and solutions for differentindustries, using different materials and technologies. We have just over 24,000people in more than 20 countries. Three things characterise us - leadership inour industry, our commitment to innovation and our passion to deliverexceptional value. Rexam has an ongoing turnover of approximately £3.6 billionand is a member of the FTSE 100. Rexam's ordinary shares are listed with the UKListing Authority and trade on the market for listed securities on the LondonStock Exchange under the symbol REX. For further information, visit our websiteat www.rexam.com A copy of this release will be posted on the Rexam website, www.rexam.com. Therewill also be a synchronised video and slide presentation of the 2006 resultsavailable on demand for viewing late afternoon (UK) on the day of theannouncement. CHAIRMAN'S STATEMENT During 2006 we continued to deliver on our strategy, reporting strong top linegrowth; significant gains in beverage can market share; key acquisitions inemerging and growth markets; investment in growth projects as well as furtheroperational efficiencies. The top line growth was not matched by our profitswhich were held back by the unprecedented rise in aluminium and energy costs,reduced prices on some of our US beverage can volumes and the weaker performanceof one of our Plastic Packaging divisions. In overall terms, sales from ongoing operations were up by 17% and underlyingoperating profit, which excludes exceptional items, by 1%. We increasedunderlying earnings per share by 3% and free cash flow generation at £173m wasagain good although lower than last year mainly due to the increase in capitalexpenditure in projects which are expected to position the business to capturefuture growth. Full details of the Group's 2006 performance, including thestatutory results, can be found in the Business Review. Packaging in focus During the year packaging has come increasingly under the spotlight in terms ofenvironmental sustainability. The Stern Review on the economics of climatechange, released in the UK in October 2006, ignited the debate, with packagingand the role of packaging inevitably drawn in. Packaging is what gets the beverage from the filler into your glass or the druginto your bathroom cabinet as efficiently as possible and without any damage.Packaging, contrary to common perception, is actually decreasing in terms ofweight. For example, over the last 20 years or so, the beverage can industry,with Rexam in the forefront, has reduced the average weight of a can by 30%. Theweight of a typical glass container has fallen by a similar figure. In beveragecans, we have also seen the shift from steel to aluminium which is 100%recyclable. Aluminium is now used for some 85% of all beverage cans. Still,packaging remains a key environmental issue and as a leading global consumerpackaging company we do everything that we can to ensure that we aremanufacturing in a sustainable manner and that the environmental profile of ourproducts is as favourable as possible. As long term shareholder value is ourprimary aim, sustainability is necessarily at the heart of what we do. Weconsider not just our own impact but take into account the whole supply chain,including energy use, transport and product wastage, to encourage sustainabledevelopment and reduce fossil fuel use. Changes to the Board During the year there were a number of changes to the Board. In September, weannounced that Leslie Van de Walle was to succeed Lars Emilson as ChiefExecutive Officer. He became a director in January this year and took over asChief Executive Officer on 1 February when Lars retired from the Board. It has been my privilege to have worked closely with Lars for the last 20 years.His natural leadership qualities, strategic thinking and depth of industryknowledge have all been key to Rexam's success these recent years. On behalf ofthe Board I would like to thank him for the tremendous contribution he has madeto Rexam and wish him all the best for the future. Leslie joined us from the Royal Dutch Shell Group where he was Executive VicePresident of Global Retail. He joined Shell in 2000, prior to which he was theChief Executive of United Biscuits plc for whom he worked for six years. He isalso a non executive director of Aegis Group plc. We are naturally delighted tohave secured the services of Leslie, a truly globally minded leader. He hasexperience in beverage and food retail and this, along with his internationalbusiness to business background, will be of great value to us as we continue topursue our strategy for growth and leadership in our industry. At the start of the year, the senior independent director and deputy chairman ofthe Board, Christopher Clark, stepped down to pursue other commitments. CarlSymon, who has been on the Board since 2003, replaced him as senior independentdirector. We also strengthened the Board with three new independent non executivedirectors whose wide ranging experience and international outlook will be greatassets to the Board and our Group as we focus our efforts on being a marketdriven, innovative company and execute our strategy for growth. Noreen Doyle joined us in March. She sits on the boards of Credit Suisse Group,Newmont Mining Corporation and QinetiQ and is a member of the Advisory Panel forthe Macquaries European Infrastructure Fund II. Her experience as First VicePresident of the European Bank for Reconstruction & Development will beinvaluable as we grow our business in emerging markets organically and throughacquisition. Jean-Pierre Rodier was appointed non executive director in June. His backgroundas former Chairman and Chief Executive of Pechiney, the international aluminiumand packaging group, adds further knowledge of the packaging and aluminiumindustries. In December, we welcomed Wolfgang Meusburger. He has many years experience offast moving consumer goods industries, working in senior positions forinternational companies such as Mars Group, Unilever and Scholler Holding, andwas the CEO of Tchibo GmbH, the food and retail group, from 1996 to 2001. At the next AGM, David Tucker will retire from the Board after ten years as anon executive director. I would like to take this opportunity to thank him forhis contribution to the transformation of this Company. His expert knoweldge hasbeen a great support for all the Board and we wish him all the best for thefuture Dividends The Board has recommended a final dividend of 11.1p per ordinary share. Togetherwith the interim dividend of 7.9p this represents an increase of 5% on lastyear. Subject to approval by the shareholders at the Annual General Meeting on 3May 2007, the dividend will be paid on 6 June 2007 to holders of ordinary sharesregistered on 11 May 2007. Summary and outlook After many years of sustained profit growth, external forces conspired to createa challenging 2006 for us, but swift and decisive management action enabled usto deliver a resilient performance. In 2007 we will deliver price increases, a more favourable product mix inBeverage Cans and good organic profit growth in Plastic Packaging. However, thepressure of the continuing high aluminium and other input costs, together with aweaker US dollar, are likely to counteract any progress in 2007, with the impactof the input costs expected to be most severe in the earlier part of the year. 2007 will be a year of significant capital investment by the Group for themedium and long term in facilities, processes and talent to underpin theplatform for our next chapter of profitable growth, and we expect to seematerial benefits from these investments starting in 2008. Rolf BorjessonChairman20 February 2007 BUSINESS REVIEW Group performance in 2006 In 2006 Rexam delivered strong sales growth of 17% from ongoing operations, ofwhich 10% came from existing businesses and 8% from acquisitions, reduced by 1%due to currency translation. However, a number of external forces combined to act as a formidable headwind.Significantly higher input costs, especially aluminium and energy but alsohigher freight costs, lower beverage can pricing in the US as a result of a longterm contract with a major US beverage can customer, and a weak performance fromour Make Up division impacted on margins. The net effect of currency movementsreduced underlying operating profit by £3m primarily due to the weakening of theUS dollar against sterling. We acted swiftly to mitigate these effects with price increases in some of ourbusinesses, reduction of our cost base and product mix improvements. Continuedfocus on operational excellence, a key area for Rexam, resulted in £32m of costefficiencies. However, despite all these actions, we were unable to fully offsetthe effects of the increase in input costs. Underlying profit before tax was £303m but, with the benefit of a lower taxcharge, underlying earnings per share were 40.6p, a rise of 3%. Free cash flow generation was good at £173m, even allowing for higher interestcosts and an increase in capital expenditure to fund the large number of growthprojects. Net borrowings were £1.17bn with interest cover robust at 4.8 times,higher than our target of being above 4.0 times. On a statutory basis, including the effect of acquisitions, disposed businessesand currency, sales were £3,738m, up 15%. On this basis, profit before tax(including exceptional items) was down 7% at £307m. The principal exceptionalgain arose from a change in US retirement benefits offset by disposals andrestructuring costs within Plastic Packaging. The resulting basic earnings pershare were 39.7p compared with 40.4p for the equivalent period last year. Beverage Cans 2006 2005 Sales (£m) 2,490 2,235Underlying operating profit (£m) 292 313Return on sales (%) 11.7 14.0 2006 was a year of exceptional top line growth for our beverage can business.Volumes grew 10%, benefiting from significant market share gains in the US aswell as good market growth in our three main geographic regions. Capacityutilisation remained high in all plants. The systemised exchange of bestpractice manufacturing across our global operations enabled us to relentlesslypursue further cost saving opportunities. The overall profit margin of our beverage can business fell. This was due to anumber of factors: the rise in aluminium and other input costs such as energyand freight; the effect of the increased aluminium cost pass through tocustomers in the Americas at the same conversion cost, and the consequences of asignificant new sales contract in the US which secured greater long term volumesand value but at lower margins. As a result, underlying operating profit fellfrom £313m to £292m. As we renegotiate pricing and begin to see higher volumesbenefit our efficiency, we expect the margin to improve but this is more likelyin the medium rather than short term. Aluminium is by far the largest raw material cost for the Group with a totalannual spend currently in the order of £1.2bn. Whilst 35% of this amount is theconversion cost of the metal, the remainder arises from the aluminium materialcost. The average spot price for this commodity, which is based in US dollars,rose by around 40% in 2006. In the Americas, changes in aluminium cost arelargely passed through to our customers: Rexam is therefore only affected bythe changes in the cost of aluminium in terms of margin. In Europe, we purchaseapproximately 250k tonnes of aluminium. At the beginning of 2007, 50% was eitherhedged or based on a similar pass through agreement with the customers, leavingthe remaining 50% exposed to spot prices for the balance of the year. The aluminium price remains high as we go into 2007. We are less hedged than wehave been in the past, and in 2006 we renegotiated a metal supply contract inthe US which reduced our cost of metal for that year by £14m. We havesuccessfully renegotiated prices in Europe with those customers whose contractswere due for renewal to reflect the higher aluminium price in the pricingstructure. Currently, we are expecting a reduction in metal spot prices as weprogress through 2007. The North American market (which includes Mexico) grew for the first time inmany years finishing the year 2% ahead of 2005 as the main soft drinks customerslooked to cans to gain volume. Our own volumes advanced 7% primarily owing to along term contract with one of our main customers. The focus on 12oz cans tomaximise efficiencies afforded by the new contract meant that the growth of nonstandard, higher margin cans in our mix was less than last year. We remain theleader in 24oz cans and are committed to non standard sizes as witnessed by theconversion of four further lines to these types of can to take advantage ofpremium growth in the future. In Brazil, we also saw good market development with the market growing 11% andour volumes in line with this. There was also good growth in non standard cansizes. We have recommissioned our can making factory in Jacarei, mothballed in2004, converting it to specialty sizes to ensure that we lead that growth. Weinaugurated a new plant in Cuiaba to capture the growth in this vibrant regionof Brazil and started the building of an additional can end plant in Manaus, inthe Amazon region, which will help consolidate our end manufacturing. In Europe, market growth was very buoyant, fueled by continued growth in energydrinks, the FIFA World Cup and a prolonged period of summer weather stretchingwell into the autumn. Our beverage can volume grew around 10%, in line with themarket, benefiting from strong energy drinks growth. However, the return of thecan in Germany has not been as quick as predicted by independent bodies and,whilst we remain optimistic for the longer term, we believe that growth islikely to be hampered by structural factors such as a lack of machines thataccept containers for recycling. We started the construction of a new can making plant close to Red Bull'scontract filling partner in Austria which will come on line towards the end of2007. We have been partners with Red Bull since its inception and this projectwill further cement our relationship with the world's No. 1 energy drinkproducer. In Russia, which continues to show good growth, we are adding slim cancapability as well as installing a new line at our Naro Fominsk facility. Theline will be used to make a new one litre can which will help one of our maincustomers meet the growing market demand for larger container sizes for beerwith a package that is appropriate to its brand positioning. We also announcedthat we are investing in a second can plant located in the Urals, which isexpected to come on stream in mid 2008. Our Egyptian beverage can plant, acquired in early 2006, has settled in well andthe results of our focus on efficiency and spoilage reduction are already havinga positive effect in the shape of increased output. We are now in the processof building a second line to meet demand in this growing market. We also gaineda foothold as the first beverage can maker in the emerging Indian marketfollowing the formation of a joint venture with Hindustan Tin Works, a quotedIndian industrial company. Plastic Packaging 2006 2005Sales (£m) 720 471Underlying operating profit (£m) 82 57Return on sales (%) 11.4 12.1 Plastic Packaging sales were 53% up on last year, with existing businessescontributing 5%, acquisitions 50% and reduced 2% by currency. Underlying profitgrew through a combination of organic profit growth of 14% and acquisitions,which contributed 30%. Although the majority of the Plastic Packaging businesses performed well, withpharmaceutical packaging, the recently acquired dispensing systems business andhigh barrier food containers recording a good year, the overall performance washeld back by weakness in our Make Up division owing to a combination ofcancelled product launches and market overcapacity. Action has been taken toreduce the Make Up cost structure in line with expected volumes and has includedplant closures, streamlining of resources and downsizing, predominantly in SouthEast Asia but also in Europe. The overall profit margin fell in the ongoing business primarily as a result ofthe weakness in the Make Up division but we believe there is scope to improvemargins further over time. We continue to pursue our strategy for growth in Plastic Packaging,consolidating attractive segments with technically advanced products andsignificant intellectual property barriers, focusing on innovation and addingcomplementary products and technologies. In 2006, we delivered on this strategyacquiring Airspray, the world leader in non aerosol foam pumps, and the Chineseplastic beauty packaging business of FangXin Ltd, thereby enhancing ourcapability to serve our customers as one of the major players in the globalrigid plastic packaging industry. Operational excellence is a key focus and thebusiness is adopting proven methodologies for best practice sharing frombeverage can colleagues and applying them to its own technologies and processes.With 45 sites around the world and an approach increasingly taking advantage ofwell embedded Lean Enterprise methodologies, there is significant potential togenerate improved profit margins within Plastic Packaging. We successfully managed to recover the majority of resin and energy priceincreases through price and cost efficiencies. The benefits from synergiesarising from acquisitions and increased operational efficiency should enable usto make further progress. Glass 2006 2005Sales (£m) 437 405Underlying operating profit (£m) 36 36Return on sales (%) 8.2 8.9 After several years of decline and uncertainty, the European market for glasscontainers stabilised in 2006. Sales increased by almost 8% through acombination of price increases, higher volumes and mix improvements. All sitescontributed to the upswing: Poland continued its long term positive trend;Scandinavia and the Netherlands both grew after a number of years of stagnationand Germany reversed a period of decline with the strongest growth figures ofall. The unprecedented rise in energy costs, however, proved a formidable obstacle toprogress. The increase in sales and management's decisive action to increaseefficiency and reduce costs fully offset the effect of the rise in costs andunderlying operating profit was maintained at £36m. With capacity in the glass market more in line with demand than at any time inrecent history, we continue to focus keenly on further price increases and costefficiencies exploiting valuable synergies through the exchange of operationalexcellence across our sites in Europe. Acquiring for growth Acquisitions are one of the linch pins of our strategy for growth. We maintain adisciplined approach and our track record in recent years is reflected in astrong return on invested capital (15%). Recent acquisitions have been funded byour cash flow. We employ strict acquisition criteria, including stringent hurdlerates, return on capital and other financial measures, to ensure that we aresecuring the best returns for our shareholders. Our focus is on emerging markets such as South America, Russia, India, theMiddle East and China, and on faster growing segments of the consumer packagingindustry such as rigid plastic packaging. During 2006 we added to both BeverageCans and Plastic Packaging. In Beverage Cans, we acquired the Egyptian Can Making Company (Ecanco), the solebeverage can maker in Egypt, for £58m. The acquisition gives us a leadingposition in beverage cans in Egypt and North Africa and provides a base todevelop these and other growing markets in the Middle East. We also formed ajoint venture with the Hindustan Tin Works, a quoted Indian company, to makebeverage cans in India. The plant, close to Mumbai, is the first of its kind inIndia. In Plastic Packaging, as mentioned above, we acquired Airspray and FangXin for£106m and £35m respectively. We also took the first steps to establish ourselvesin the Indian plastic packaging market with the acquisition of a plasticpharmaceutical packaging company, True Pack, in Bangalore. Investing for growth During the year, we initiated an unprecedented amount of growth capitalexpenditure which we expect to deliver significant returns in 2008 and beyond. In Beverage Cans we continued to invest in new lines for the growing productsegment of non standard beverage cans in all our three main markets, US, Europeand South America. In North America, for example, non standard sizes now accountfor 12% of our volumes. During the year we opened a new greenfield beverage can plant in Brazil andannounced the building of a new can end plant. We also announced that we wouldbe building two new plants in Europe - one in Austria to satisfy the continueddemand for energy drinks, and the other in the Urals, Russia, to serve growinglocal requirements. We are adding a new line to our current plant in Russia fornew one litre cans to meet the demand for larger beer containers and extendingour capability into slim cans. We are also adding a further line in Egypt. We have invested in plastic packaging plants in Poland and the UK and haveapproved a new purpose built Dispensing Systems facility in France which willreplace two of our existing plants. Whilst these and other projects entail capital expenditure in 2006 and 2007 thatis above our historic levels, we expect to see significant benefits comingthrough in 2008. Upgrading our portfolio Part of our strategy is also to ensure that we are in the markets that offer ourshareholders the best returns. Accordingly during 2006, we divested our nonbarrier thin wall plastics operations in the UK and Scandinavia for £23m. Bothwere relatively low margin businesses where we had little chance of building asizeable regional or global presence. We also announced that we had started theprocess to sell our plastic bottle business, Rexam Petainer, which is based inScandinavia and the Czech Republic, and this disposal process is still ongoing. Group financial performance Underlying Exceptional Total business items statutory performance* £m £m £m2006:Sales 3,738 - 3,738 Operating profit 415 (1) 414Share of associates profit after tax 1 8 9Total net finance cost** (113) (3) (116) Profit before tax 303 4 307 Profit after tax 228 (5) 223 Basic earnings per share (p) 39.7Underlying earnings per share (p) 40.6Interim dividend per share (p) 7.9Proposed final dividend per share (p)*** 11.1 2005 - restated:Sales 3,237 - 3,237 Operating profit 409 11 420Share of associates profit after tax 3 4 7Total net finance cost** (105) 9 (96) Profit before tax 307 24 331 Profit after tax 218 5 223 Basic earnings per share (p) 40.4Underlying earnings per share (p) 39.5Interim and final dividends per share (p) 18.12 * Underlying business performance is the primary performance measure used by management who believe that the exclusion of exceptional items aids comparison of underlying performance. Exceptional items include the gains and losses on disposal of businesses, the restructuring and integration of businesses, major asset impairments and disposals, significant litigation 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. ** Comprises net interest expense and retirement benefit obligations net finance cost. *** Subject to approval at AGM 2007 and payable on 6 June 2007. The discussion of the results set out in sections "Group financial performance","Underlying total net finance cost" and "Tax" is based on the first column ofthe above table, "Underlying business performance". A summary of underlying business performance is set out below. 2006 2005 Change restated £m £m % Ongoing operations 3,647 3,111 +17Disposals 91 126 Sales 3,738 3,237 Ongoing operations 410 406 +1Disposals 5 3 Underlying operating profit 415 409 +1 Share of associates profit after 1 3taxUnderlying total net finance cost (113) (105) Underlying profit before tax 303 307 -1 Underlying profit after tax 228 218 +5 Underlying earnings per share (p) 40.6 39.5 +3 Sales and underlying operating profit benefited from acquisitions completed in2005 and 2006, predominantly in Plastic Packaging, offset by currencyfluctuations. The challenges set by ongoing high raw material and energy costshave been mitigated by the continued focus on cost and efficiency savingstogether with significant organic sales growth. Pursuant to the Group's strategy of focusing on higher margin and faster growingmarkets, a number of businesses have either been sold or made available for saleand these are shown as "Disposals". The completed transactions include the nonbarrier thin wall plastic packaging business in 2006 and the UK glass businessin 2005. The Petainer refillable bottle business is currently being marketed fordisposal and discussions are being held with potential acquirers. The following tables, showing sales and underlying operating profit, compare ona consistent basis the ongoing operations. This basis excludes disposals butincludes 2005 acquisitions as if acquired on 1 January 2005, by adding theirpre-acquisition results (shown as Acquisitions 2005). It also highlightscurrency fluctuations arising on translation. Analysis of sales movement Total Beverage Plastic Glass £m Cans Packaging £m £m £mSales reported 2005 3,237Disposals 2005 (126) Ongoing operations 2005 -reported 2006 3,111 2,235 471 405Acquisitions 2005 203 - 203 -Currency fluctuations (30) (18) (11) (1) Ongoing operations 2005 pro forma basis 3,284 2,217 663 404Acquisitions 2006 59 25 34 -Organic sales growth 304 248 23 33 Ongoing operations reported 2006 3,647 2,490 720 437 Disposals 2006 91 Sales reported 2006 3,738 The reported increase in sales from ongoing operations was £536m or 17%, whichincludes the impact of acquisitions made in 2005 and 2006 offset by currencymovements. Organic sales growth, which excludes the impact of acquisitions, disposals andcurrency, was £304m, an increase of 9%. A significant portion of this growtharose in Beverage Cans, £248m (8%), of which £69m can be attributed to therecovery of aluminium cost increases and £179m to other price changes, volumeand mix gains. Plastic Packaging benefited from stronger volumes across most ofits divisions albeit against a competitive sales price background. Glass,operating in a market where capacity was in balance with demand, was able toachieve good price increases and volume gains. Analysis of underlying operating profit movement Total Beverage Plastic Glass £m Cans Packaging £m £m £m Underlying operating profit 409reported 2005Disposals 2005 (3) Ongoing operations 2005 reported 406 313 57 362006Acquisitions 2005 11 - 11 -Currency fluctuations (3) (3) - - Ongoing operations 2005 pro 414 310 68 36forma basisAcquisitions 2006 13 7 6 -Change in operating profit (17) (25) 8 - Ongoing operations reported 2006 410 292 82 36Disposals 2006 5 Underlying operating profit 415reported 2006 Analysis of the change inoperating profit: Price changes 52 40 2 10Cost changes (165) (128) (11) (26) Price and cost changes (113) (88) (9) (16)Volume/mix changes 64 49 3 12Efficiency and other savings 32 14 14 4 Change in operating profit (17) (25) 8 - The reduction in underlying operating profit, after allowing for the impact ofacquisitions, disposals and currency, was £17m (4%) which reflects thechallenging environment for the recovery of increased input costs. Within Beverage Cans, price surcharges and a profit of £14m realised onrenegotiation of a metal supply contract in the US were unable to offset therapid escalation in aluminium prices, particularly in the second half of 2006.The US Beverage Can business secured additional significant volumes through acontract announced in October 2006. However, as expected, this contract ishaving an impact on margins. The continuing demand for energy drinks and nonstandard can sizes provides encouragement for future growth reinforced by a firmcommitment to realise cost savings across the business. The Plastic Packaging operation reported a 12% improvement in underlying profitbased on a strong performance from the high barrier food plastics business andthe successful integration of the 2005 acquisitions. The Make Up business isoperating in a difficult market and it has undertaken a number of initiatives toaddress the cost base, discussed under "Exceptional items". Cost and synergysavings together with volume improvements covered the rise in resin, energy andother input costs. Although the Glass operation reported flat year on year underlying profit, thismasks a considerable achievement as the business was faced with a substantialincrease in energy related costs amounting to £19m. These were fully offset by acombination of price increases, volume gains and efficiency savings. Exchange rates The exchange rates used to translate the profit and loss account and balancesheet are set out in Note 9. Income statement The US dollar and the euro are the principal currencies that impact our results.During the year both currencies weakened against sterling. The net effect ofcurrency translation caused sales and underlying operating profit to be reducedby £30m and £3m respectively. The effect on aluminium purchasing, which ispriced in US dollars, for products sold in Europe, was more pronounced in thesecond half of 2006. The movement in exchange rates had the following impact on the translation intosterling for reported sales, underlying operating profit and underlying profitbefore tax in 2006: Sales Underlying Underlying £m operating profit profit before tax £m £m US dollar (26) (3) (2)Euro (7) (1) (1)Other currencies 3 1 1 Total (30) (3) (2) 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 £82m, due principallyto the US dollar where the exchange rate moved from £1:1.74 at December 2005 to£1:1.96 at December 2006. Similarly, net equity was reduced by £95m due to thechanges in exchange rates. Retirement benefits A detailed analysis of retirement benefits is set out in Note 4. The analysis of the retirement benefit obligations net finance cost is asfollows: 2006 2005 £m £mDefined benefit pension plans:Expected return on plan assets 126 125Interest on plan liabilities (137) (138) (11) (13)Retiree medical interest on liabilities (12) (16) Net finance cost (23) (29) 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 £107m in 2006 as follows: £m £mDefined benefit plans:Plan liabilities - principally higher discount 101ratesPlan assets - returns higher than expected 32Experience gains 2 135Retiree medical:Experience gains 15Plan liabilities - higher discount rates 5 20 Actuarial changes before tax 155Tax (48) Actuarial changes after tax 107 During the year the Group introduced revisions to its obligations in respect ofretiree medical benefits and defined benefit pensions for certain employees inthe US which reduced liabilities by £39m and £15m respectively. The Group isseeking to extend these revisions to other employees, which, if successful,would generate a further significant reduction in liabilities. There was afurther reduction of £3m in UK defined benefit pensions liabilities arising onthe disposal of businesses. The total reduction in liabilities attributable tothese changes, after tax, was £37m, which has been recorded within exceptionalitems. The total cash payments in respect of retirement benefits are as follows: 2006 2005 £m £m Defined benefit pension plans 44 26Other pension plans 4 4Retiree medical 12 18Total cash payments 60 48 Cash payments to defined benefit pension plans increased as a result of a higherrate of contribution to the UK scheme, which in 2006 included £20m to reduce itsdeficit. Based on current actuarial projections, it is expected that cashcontributions to defined benefit pension plans and retiree medical payments in2007 will remain at similar levels to those in 2006. Underlying total net finance cost 2006 2005 £m £m Net interest 90 76Retirement benefit obligations net finance cost 23 29 Underlying total net finance cost 113 105 The underlying total net finance cost increased by £8m compared with prior year,primarily as a result of higher average borrowings to fund acquisitions made inlate 2005 and in the early part of 2006. In addition, interest rates were higherdue in part to cancellation of fixed to floating interest rate swaps in March2005 and the fact that average market interest rates for US dollar and euroborrowings were up by 160 basis points and 90 basis points respectively comparedwith the prior year. The issue of a seven year €700m Medium Term Note (MTN) inMarch 2006 enabled the Group to refinance, in an exchange offer, a substantialportion of the €550m MTN, due to mature in March 2007, and raised additionalfinance at interest rates that were lower than the existing MTN. In October2006, shareholders approved the early conversion of the convertible preferenceshares; on an ongoing basis this will reduce interest cost by £5m per annum.Overall, the average interest rate during the year was 6.2%, the same as in theprior year. Interest cover was slightly below 5 times underlying operating profit, which isin keeping with the Group's long term parameter to maintain its interest coverabove 4 times. Interest cover is based on underlying operating profit andunderlying total net interest expense excluding convertible preferencedividends. Tax The tax charge for the year was £75m (25%) on profit before exceptional items(2005: £89m (29%)). This incorporates the release of provisions held forspecific tax exposures following satisfactory progress of tax audits in Europeand the reassessment of the recoverability of certain deferred tax assets. Therate would have been around 31% excluding these adjustments, reflecting the mixof territories in which Rexam operates, partially offset by the availability oftax incentives in certain jurisdictions. In 2007 and beyond the tax charge isexpected more closely to reflect the underlying position. Cash tax payments in the year were £58m compared with £47m last year. Paymentsin 2005 had been reduced by repayments received, following settlement of prioryear tax assessments, and by the utilisation of tax losses. It is expected thatthe cash tax paid in future years will continue to be between 70% and 80% of theunderlying income statement tax charge. Exceptional items The exceptional items arising in 2006 are as follows: £m US retiree medical and pension gains 53Restructuring and integration of businesses (29)Amortisation of acquired intangible assets (11)Litigation claim (8)Recognition of deferred tax assets on prior year acquisitions (3)Disposal of businesses (3) Total included in operating profit (1)Sale of land and property by an associate 8Early redemption of convertible preference shares (10)Financing derivative market value changes 7 Total exceptional items before tax 4Tax on exceptional items (9) Total exceptional items (5) In June 2006, a change to the US retiree medical plan was made to coordinateprescription drug benefits payable to certain retirees with cover available fromthe US government through the Medicare part D programme. This change resulted ina gain of £38m, net of associated legal fees of £1m. In December 2006, changeswere made to the US defined benefit pension plans, giving rise to a gain of£15m. The principal restructuring cost arose in the Plastic Packaging sector. Thedecision to exit from the non barrier thin wall plastic packaging businessresulted in the rationalisation of one plant and the sale of three furtherplants, as discussed below. In response to slower demand within part of theMake Up division, especially in the second half of 2006, action was taken toreduce its cost base: in South East Asia, to integrate the existing businesswith the newly acquired FangXin operations; and in France, to centralise theproduction of more complex beauty products. The integration programme initiatedfollowing the acquisition of Precise Technology, in December 2005, resulted inthe closure of four facilities in the US. In addition, a major restructuring ofthe administration support function within the European beverage can operationwas completed. Intangible assets, such as technology patents and customer contracts, arerequired to be recognised on the acquisition of businesses and amortised overtheir useful life. The directors consider that separate disclosure of theamortisation of such acquired intangibles amounting to £11m (2005: £nil) aidscomparison of organic growth in underlying profit. Therefore this cost, whichmay become more significant as the impact of recent and future acquisitions isreflected, should be separately disclosed within exceptional items. Following a recent appeal ruling, a provision of £8m has been made in respect ofa legacy litigation claim relating to an acquired business. The claim had beeninitiated before the Group assumed control of that business. Consistent with the disclosure adopted in the 2005 consolidated financialstatements, the recognition of deferred tax assets on prior year acquisitions of£3m (2005: £7m) has been included in exceptional items owing to their size andbecause they arise out of the transition to IFRS. They relate to the utilisationof tax losses not recorded at the date of acquisition, which result in areduction in goodwill and a charge to the income statement. In keeping with the strategy to concentrate the food plastics operations on highmargin and faster growing markets, three non barrier thin wall plastic packagingbusinesses were sold, realising a loss of £3m. In addition, the Petainerrefillable bottle business was made available for sale. The profit of £8m on the sale of land and property, following the relocation ofa manufacturing facility by an associate in Korea, has been included inexceptional items in view of its size and one off nature. In October 2006, shareholders approved the early conversion into ordinary sharesof the convertible preference shares. Following the adoption of IFRS, theconvertible preference shares had become financially inefficient; the "debt"element was reclassified from equity to borrowings, the dividend thereonincluded within interest and no tax deduction was available on that dividend.The enhanced conversion premium of £10m, including associated costs, has beenincluded in exceptional items due to its size and one off nature. 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 gain of £7m (2005: £9m). The impactof embedded derivatives and derivatives arising on trading items such ascommodities and forward foreign exchange contracts is included within underlyingoperating profit. Earnings per share 2006 2005 Underlying earnings per share (p) 40.6 39.5Basic earnings per share (p) 39.7 40.4 Average number of shares (millions) 561 552Year end number of shares (millions) 583 554 Underlying earnings per share, before exceptional items, increased from 39.5p to40.6p, an increase of 3%. This increase was achieved principally due to thereduction in tax rate discussed above and despite a higher average number ofshares in issue. The full year effect of the early redemption of the convertiblepreference shares, due to the higher number of ordinary shares in issue offsetby a lower interest charge, would have reduced the reported underlying earningsper share for 2006 from 40.6p to 39.9p per share. The basic earnings per share, which includes exceptional items, for the yearwere 39.7p per share (2005: 40.4p). Cash flow Free cash flow was £173m compared with £248m in 2005. This 30% reduction islargely due to an increase in growth capital expenditure (discussed below),interest and tax payments together with a higher level of retirement benefitcash contributions offset by an improvement in underlying operating profit and alower outflow on working capital. The increase in interest paid is principallyattributable to the cancellation in March 2005 of certain fixed to floatinginterest rate swaps, which altered the timing of payments, and a higher interestcost related to acquisition funding. Retirement benefit cash contributions andtax payments are discussed above. 2006 2005 £m £m Underlying operating profit 415 409Depreciation and amortisation* 170 172Retirement benefit obligations (32) (20)Change in working capital (6) (36)Capital expenditure (net) (200) (161)Net interest and tax paid (147) (104)All other movements (27) (12) Free cash flow 173 248Equity dividends (103) (97) Business cash flow 70 151Acquisitions** (215) (235)Disposals*** 25 58 Cash flow including borrowings acquired and disposed (120) (26)Conversion of convertible preference shares 69 -Other non cash movements 90 (35)Share capital changes 9 6Net borrowings at the beginning of the year (1,220) (1,165) Net borrowings at the end of the year (1,172) (1,220) * Excludes amortisation of certain acquired intangibles amounting to £11m (2005: £nil).** Includes net borrowings acquired of £13m (2005: £129m).*** Includes borrowings disposed of £4m (2005: £43m) Capital expenditure Gross capital expenditure (which excludes disposal proceeds) was £214m,representing 126% of depreciation and amortisation. This is above the historicrate, of between 100% and 110%, due to the increase in expenditure on strategicand growth projects. This reflects the response to a number of growthinitiatives that arose during the year and fits the strategy of expanding intonew territories or products to maximise profit potential. 2006 2005 Capital expenditure (gross) (£m) 214 176Depreciation and amortisation (£m) 170 172 Ratio (times) 1.26 1.02 Capital expenditure includes computer software that has been capitalised.Amortisation in 2006 excludes £11m amortised on patents, customer contracts andintangibles other than computer software. Going into 2007 there will be more substantial investment in growth andstrategic projects, including: a wall to wall facility in Austria to supply RedBull; a new can plant and a one litre can line in Russia; a second steel canline in Egypt; an end making plant in Brazil; and a number of line conversionsin North America. These projects, together with those initiated in 2006 and arange of smaller projects within Plastic Packaging, are expected to fuel profitgrowth in 2008 and beyond. Therefore, it is anticipated that capital expenditurein 2007 will be within the range of 150% to 160% of depreciation andamortisation, dependant on the timing of projects. The total profit realised on sale of property, plant and equipment during theyear was £3m (2005: £7m). Acquisitions and disposals Expenditure on acquisitions in 2006, including borrowings assumed, totalled£215m, as set out below. £m Airspray NV 106Egyptian Can Making Company (Ecanco) 58World Glory Limited (FangXin) 31India - Beverage Can and Plastic Packaging businesses 13Payments in respect of prior year acquisitions 7 215 The principal transactions were in Plastic Packaging with the acquisition ofAirspray in the Netherlands, FangXin in China, and True Pack Private Limited inIndia. It is anticipated that a further £4m will be paid in 2007 to finalise theFangXin acquisition. These acquisitions are consistent with the strategy to growthe Plastic Packaging business, to enhance its product offering and toparticipate in emerging market growth areas such as South East Asia and India.Within Beverage Cans, the acquisitions of Ecanco in Egypt and the joint venturewith Hindustan Tin Works Limited in India both serve to extend the geographicreach of the sector. The principal disposal was the sale of three non barrier thin wall plasticpackaging businesses for £23m, including borrowings disposed and costs, as theywere not expected to generate either high growth or achieve satisfactory marginimprovement. Balance sheet and borrowings As at As at 31.12.06 31.12.05 restated £m £m Goodwill and other intangible assets 1,532 1,510Property, plant and equipment 1,191 1,186Retirement benefits (net of tax) (365) (548)Other net assets 63 81 2,421 2,229 Shareholders' equity, including minority interests 1,249 1,009Net borrowings 1,172 1,220 2,421 2,229 Return on invested capital (%) * 15.0 15.5Interest cover (times) ** 4.8 5.8Gearing (%)*** 94 121 * Underlying operating profit plus share of associates profit after tax divided by the average of opening and closing of each of net borrowings and shareholders' equity after adding back retirement benefit obligations (net of deferred tax). The definition has been changed to exclude the adjustment for goodwill previously written off against equity under UK GAAP as this information is not now reported in the consolidated financial statements.** Based on underlying operating profit divided by underlying total net interest expense excluding convertible preference dividends.*** Based on net borrowings divided by shareholders' equity including minority interests. The early conversion of the convertible preference shares in October 2006reduced net borrowings and increased shareholders' equity by £70m, which byitself would have reduced gearing at December 2005 from 121% to 107%. Net borrowings include interest accruals, certain financial derivatives and, in2005, the liability element of convertible preference shares as analysed below. As at As at 31.12.06 31.12.05 £m £m Net borrowings excluding convertible preference 1,277 1,224shares and derivativesLiability element of convertible preference - 70sharesDerivative financial instruments (105) (74) Net borrowings 1,172 1,220 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 31.12.06 31.12.05 £m £m Cross currency swaps 102 74Interest rate swaps 3 - Derivative financial instruments included in net 105 74borrowingsOther derivative financial instruments 29 41 Total derivative financial instruments 134 115 The increase in the value of cross currency swaps can be mainly attributed tothe weakening of the US dollar. The reduction in other derivatives was dueprincipally to the increase in aluminium prices during 2006. Dividend and dividend policy This year the Board is recommending a final dividend of 11.1p per share bringingthe total dividend for the year to 19.0p per ordinary share, an improvement of5%. This is in line with Rexam's ongoing policy to increase the dividend payoutby about 5% per annum, provided that the financial resources are available andthat underlying earnings growth continues as expected. CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER Notes 2006 2005 £m restated £m Sales 2 3,738 3,237Operating expenses (3,324) (2,817) Underlying operating profit 2 415 409Retirement benefits exceptional items 3 53 45Restructuring and integration of businesses 3 (29) (7)Other exceptional items 3 (25) (27) Operating profit 2 414 420 Share of underlying post tax profits of associates and joint ventures 1 3Share of exceptional post tax profits of associates and joint ventures 3 8 4 Share of post tax profits of associates and joint ventures 9 7Retirement benefit obligations net finance cost 4 (23) (29) Underlying interest expense (103) (88)Early redemption of convertible preference shares 3 (10) -Financing derivative market value changes 3 7 9 Interest expense (106) (79)Interest income 13 12 Underlying profit before tax 303 307Retirement benefits exceptional items 53 45Restructuring and integration of businesses (29) (7)All other exceptional items (20) (14) Profit before tax 307 331 Tax on underlying profit (75) (89)Tax on exceptional items (9) (19) Tax (84) (108) Profit for the financial year attributable to Rexam PLC 223 223 Earnings per share (pence) 5Basic 39.7 40.4Diluted 39.7 39.4 For details of equity dividends paid and proposed see Note 6. Of the total tax charge, £15m relates to the UK and £69m relates to overseas.(2005: £13m and £95m respectively). CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2006 2005 £m restated £mASSETSNon current assetsGoodwill 1,399 1,397Other intangible assets 133 113Property, plant and equipment 1,191 1,186Investments in associates and joint ventures 32 29Deferred tax assets 233 333Trade and other receivables 45 35Available for sale financial assets 22 26 Derivative financial instruments 116 92 3,171 3,211Current assetsInventories 354 364Trade and other receivables 505 449Available for sale financial assets 1 4Derivative financial instruments 32 43Cash and cash equivalents 138 87Assets classified as held for sale 22 - 1,052 947 Total assets 4,223 4,158 LIABILITIESCurrent liabilitiesBorrowings (275) (164)Derivative financial instruments (13) (20)Current tax (8) (22)Trade and other payables (679) (607)Provisions (18) (18)Liabilities classified as held for sale (9) - (1,002) (831) Non current liabilitiesBorrowings (1,140) (1,217)Derivative financial instruments (1) -Retirement benefit obligations (Note 4) (514) (783)Deferred tax liabilities (168) (158)Non current tax (82) (90)Other payables (36) (36)Provisions (31) (34) (1,972) (2,318) Total liabilities (2,974) (3,149) Net assets 1,249 1,009 EQUITYOrdinary share capital 375 356Convertible preference share capital - 1Share premium account 759 748Capital redemption reserve 351 279Retained earnings (216) (431)Fair value and other reserves (22) 56 Shareholders' equity (Note 7) 1,247 1,009Minority interests 2 - Total equity 1,249 1,009 CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 2005 £m £mCash flows from operating activitiesProfit before tax 307 331Adjustments for:Net interest expense 93 67Share of post tax profits of associates and joint ventures (9) (7)Depreciation of property, plant and equipment 159 162Amortisation of intangible assets 22 10Impairment 17 5Disposal of subsidiaries 3 25Movement in provisions 10 1Movement in grants (18) (9)Equity settled share options 1 6Changes in working capital (6) (36)Recognition of deferred tax assets on prior year acquisitions 3 7Profit on disposal of property, plant and equipment (3) (7)Movement in retirement benefit obligations (63) (37)Other adjustments 1 (6) Cash generated from operations 517 512Interest paid (101) (70)Tax paid (58) (47) Net cash flows from operating activities 358 395 Cash flows from investing activitiesCapital expenditure (214) (176)Proceeds from sale of property, plant and equipment 9 14Acquisition of subsidiaries, net of cash and cash equivalents acquired (202) (106)Proceeds from sale of subsidiaries, net of cash and cash equivalents disposed 19 5Proceeds from sale of associates 2 10Repayment of loan by a joint venture 3 -Sale of properties surplus to requirements 5 1Dividends received from associates - 1Interest received 12 13 Net cash flows from investing activities (366) (238) Cash flows from financing activitiesProceeds from borrowings and derivatives 179 47Repayment of borrowings (63) (124)Proceeds from issue of share capital 13 9Purchase of Rexam shares by ESOP Trust (4) (3)Dividends paid to equity shareholders (103) (97) Net cash flows from financing activities 22 (168) Net increase/(decrease) in cash and cash equivalents 14 (11) Cash and cash equivalents at the beginning of the year (4) (2)Non cash movements 4 9Net increase/(decrease) in cash and cash equivalents 14 (11) Cash and cash equivalents at the end of the year 14 (4) Cash and cash equivalents comprise:Cash at bank and in hand 63 37Short term bank deposits 75 50Bank overdrafts (124) (91) 14 (4) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 DECEMBER 2006 2005 £m £m Exchange differences (95) 26Actuarial gains/(losses) on retirement benefits 155 (12)Tax on actuarial (gains)/losses on retirement benefits (48) 4Net investment hedges 28 7Cash flow hedges recognised 32 60Tax on cash flow hedges 4 (9)Cash flow hedges transferred to inventory (44) (31)Cash flow hedges transferred to the income statement (1) -Sale of available for sale financial assets (2) - Net profit recognised directly in equity 29 45Profit for the financial year 223 223 Total recognised income and expense for the year attributable to Rexam PLC 252 268 NOTES 1 Basis of preparation In preparing the consolidated financial statements, the following restatementshave been made to the comparative amounts: (i) The consolidated income statement presentation and exceptional items have been restated to comply with the revised accounting policy on exceptional items set out below.(ii) The consolidated balance sheet has been restated for the final fair value adjustments applied to the Precise Technology acquisition.(iii) The segment analysis has been restated for the disposal of the non barrier thin wall plastic packaging business and the proposed disposal of the Petainer refillable bottle business which have been moved from "Plastic Packaging" to "Disposals and businesses for sale". Rexam's accounting policy on exceptional items was changed in 2006 as set outbelow. "Items which are exceptional, being material in terms of size and/or nature arepresented separately from underlying business performance in the consolidatedincome statement. The separate reporting of exceptional items helps provide anindication of the Group's underlying business performance. The principal eventswhich may give rise to exceptional items include significant changes toretirement benefits liabilities, gains or losses on the disposal of businesses,the restructuring and integration of businesses, major asset impairments, thesubsequent recognition of acquired deferred tax assets, significant litigationclaims, the amortisation of certain acquired intangible assets and non hedgeaccounted fair value movements and hedge ineffectiveness on financing derivativefinancial instruments." This change in accounting policy has resulted in a change to the presentation ofthe consolidated income statement, from a columnar format to a single columnformat using boxes, and from a reassessment of which transactions compriseexceptional items. The directors consider these changes provide relevantinformation by more closely reflecting current accounting practice. This changein accounting policy had no impact on profit for the 2005 financial year or onnet assets at 31 December 2005. The consolidated income statement, consolidated cash flow statement andconsolidated statement of recognised income and expense for the year ended 31December 2006 and the consolidated balance sheet as at 31 December 2006 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 2006 which have been approved by a duly constituted Committee of theBoard of Directors on 20 February 2007, 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 2006 Sales Underlying Underlying Operating £m operating return profit profit on sales £m £m % Beverage Cans 2,490 292 11.7 328Plastic Packaging 720 82 11.4 48Glass 437 36 8.2 36Disposals and businesses for sale 91 5 5.5 2 3,738 415 11.1 414 Share of post tax profits of associates and joint ventures 9Retirement benefit obligations net finance cost (23)Net interest expense (93) Profit before tax 307Tax (84) Profit for the financial year 223 2 Segment analysis continued Share of post tax profits of associates and joint ventures are whollyattributable to Beverage Cans. Segment assets are disclosed after deductinginter segment assets of £10m for Beverage Cans, £4m for Plastic Packaging, £2mfor Glass and £1m for Disposals and businesses for sale. Segment liabilities aredisclosed after deducting inter segment liabilities of £12m for Beverage Cans,£1m for Plastic Packaging and £4m for Glass. Assets of associates and jointventures are wholly attributable to Beverage Cans. If the disposal of the non barrier thin wall plastic packaging business and theproposed disposal of the Petainer refillable bottle business had been includedas part of the Plastic Packaging segment rather than in Disposals and businessesfor sale, sales, underlying operating profit and operating profit of thatsegment would have been £811m, £87m and £50m respectively(2005: £571m, £63m and £62m). (ii) Analysis by business segment 2005 - restated Sales Underlying Underlying Operating operating return profit £m profit on sales £m £m % Beverage Cans 2,235 313 14.0% 345Plastic Packaging 471 57 12.1% 56Glass 405 36 8.9% 36Disposals and businesses for sale 126 3 2.4% (17) 3,237 409 12.6% 420Share of post tax profits of associates and joint ventures 7Retirement benefit obligations net finance cost (29)Net interest expense (67) Profit before tax 331Tax (108) Profit for the financial year 223 Share of post tax profits of associates and joint ventures are attributable toBeverage Cans £3m and Disposals and businesses for sale £4m. Segment assets aredisclosed after deducting inter segment assets of £7m for Beverage Cans, £1m forPlastic Packaging, £1m for Glass and £1m for Disposals and businesses for sale.Segment liabilities are -disclosed after deducting inter segment liabilities of£5m for Beverage Cans, £1m for Plastic Packaging, £3m for Glass and £1m forDisposals and businesses for sale. Assets of associates and joint ventures arewholly attributable to Beverage Cans. If the disposal of the UK Glass business had been included as part of the Glasssegment rather than in Disposals and businesses for sale, sales, underlyingoperating profit and operating profit of that segment in 2005 would have been£431m, £33m and £8m respectively. 3 Exceptional items 2006 2005 restated £m £mExceptional items included in operating profit:Retirement benefits 53 45 Restructuring and integration of businesses:Restructuring of existing businesses (21) (7)Integration of new businesses (8) - (29) (7)Other exceptional items:Amortisation of acquired intangible assets (11) -Litigation claim (8) -Disposal of businesses (3) (25)Recognition of deferred tax assets on prior year acquisitions (3) (7)Profit on disposal of land - 5 (25) (27) Exceptional items included in share of post tax profits of associates:Sale of land and property of associate 8 -Disposal of associate - 4 8 4Exceptional items included in interest expense:Early redemption of convertible preference shares (10) -Financing derivative market value changes 7 9 (3) 9 Total exceptional items included in profit before tax 4 24Tax on exceptional items (9) (19) Total exceptional items (5) 5 For a discussion of the exceptional items in 2006 see the Business Review. 4 Retirement benefit obligations Defined Other Total Retiree Gross Deferred Net benefit pensions pensions medical retirement tax retirement pensions £m £m £m benefit £m benefit £m obligations obligations £m £m At 1 January 2006 (514) (23) (537) (244) (781) 233 (548)Exchange differences 21 1 22 24 46 (15) 31 Current service cost (22) (4) (26) (2) (28) 6 (22) Exceptional items (see below) 18 - 18 39 57 (20) 37 Total included in operating profit (4) (4) (8) 37 29 (14) 15 Net finance cost (11) - (11) (12) (23) 8 (15) Actuarial changes 135 - 135 20 155 (48) 107 Cash contributions and benefits paid 44 4 48 12 60 (18) 42 Transfers 3 - 3 - 3 - 3 At 31 December 2006 (326) (22) (348) (163) (511) 146 (365) The balance for net retirement benefit obligations at 31 December 2006 of £365m(2005: £548m) is included in the consolidated balance sheet as retirementbenefit obligations of £514m (2005: £783m), other receivables of £3m (2005: £2m)and deferred tax assets of £146m (2005: £233m). Principal actuarial assumptions: UK USA Other UK USA Other 2006 2006 2006 2005 2005 2005 % % % % % % Future salary increases 4.40 4.50 2.89 4.25 4.50 2.89Future pension increases 3.00 - 1.95 2.75 - 1.72Discount rate 5.00 5.75 4.46 4.75 5.40 3.92Inflation rate 3.00 2.50 1.95 2.75 2.50 1.91Expected return on plan assets (net ofadministration expenses):Equities 7.37 7.24 6.88 6.95 7.23 6.83Bonds 4.62 4.37 4.08 4.10 4.26 3.57Cash 4.87 2.96 4.05 4.35 2.82 2.02 The mortality assumptions used in valuing the liabilities of the UK pension planin 2006 and 2005 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 (2005: 19.6 years) and for female pensionersaged 65 is 22.4 years (2005: 22.4 years). The mortality assumptions used invaluing the liabilities of the US pension plans are based on the RP2000 combinedactive and retiree mortality table projected to 2006 weighted 70% blue collarand 30% white collar (2005: UP1994 mortality table). The life expectancy assumedfor male pensioners aged 65 is 17.8 years (2005: 17.3 years) and for femalepensioners aged 65 is 20.2 years (2005: 20.7 years). The mortality assumptions used in valuing the liabilities of retiree medical arebased on the RP2000 combined active and retiree blue collar table projected to2006 (2005: UP1994 mortality table). The life expectancy assumed for malepensioners aged 65 is 16.8 years (2005: 17.3 years) and for female pensionersaged 65 is 19.6 years (2005: 20.7 years). 5 Earnings per share 2006 2005 restated pence pence Basic earnings per share 39.7 40.4Diluted earnings per share 39.7 39.4Underlying earnings per share 40.6 39.5 £m £m Underlying profit before tax 303 307Tax on underlying profit (75) (89)Profit attributable to equity shareholders before exceptional items 228 218Exceptional items (5) 5Profit attributable to equity shareholders 223 223Dilution on conversion of convertible preference shares - 5Profit attributable to equity shareholders on a diluted basis 223 228 2006 2005 Number Number millions millions Weighted average number of shares in issue for the year 561.3 551.8Dilution on exercise of outstanding share options 0.8 3.1Dilution on conversion of preference shares - 24.4Weighted number of shares on a diluted basis 562.1 579.3 Number of shares in issue at 31 December 583.3 553.6 6 Equity dividends 2006 2005 £m £m Interim dividend for 2006 of 7.9p paid on 2 November 2006 44 -Final dividend for 2005 of 10.6p paid on 5 June 2006 59 -Interim dividend for 2005 of 7.52p paid on 1 November 2005 - 41Final dividend for 2004 of 10.09p paid on 1 June 2005 - 56 103 97 A final dividend per equity share of 11.1p has been proposed for 2006 and,subject to shareholder approval, payable on 6 June 2007. In accordance with IFRS accounting requirements this dividend hasnot been accrued in these consolidated financial statements. 7 Shareholders' equity 2006 2005 £m £m At 1 January 1,009 826Net profit recognised directly in equity 29 45Profit for the financial year 223 223Share options value of services provided 1 6Share options proceeds from shares issued 13 9Purchase of Rexam PLC shares by ESOP Trust (4) (3)Redemption of convertible preference shares 79 -Dividends paid (103) (97)At 31 December 1,247 1,009 8 Movement in net borrowings 2006 2005 £m £m At 1 January (1,220) (1,165)Acquisition of subsidiaries (13) (129)Disposal of subsidiaries 4 43Cash flow movements (23) 123Redemption of convertible preference shares 69 -Non cash movements 11 (92)At 31 December (1,172) (1,220) 9 Exchange rates The principal exchange rates against sterling were: 2006 2005Average:US dollar 1.84 1.82Euro 1.47 1.46Closing:US dollar 1.96 1.74Euro 1.49 1.46 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 ExchangeRelated Shares:
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