Half Yearly Report

Profit growth driven by beverage cans in Europe

Rexam, the global consumer packaging company, announces its results for the first half of 2011.

Underlying business performance1

Highlights

• Underlying profit before tax £236m - up 19%

• Good free cash flow of £95m - net debt reduced to £1.6bn

• Return on capital employed (ROCE) improved to 13.2%

• Beverage Cans organic2 operating profit up 12%

• Plastic Packaging3 organic2 operating profit down 2% 

• Sale of Closures business agreed for $360m

• Interim dividend 4.7p - up 18%

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

"We are pleased with the continued progress of the business in the first half.

Beverage Cans traded better than expected driven primarily by our business in Europe. The mixed performance in Plastic Packaging continues to be a challenge in some areas and we are focused on improving the results in this business.

Looking ahead, we will concentrate on return on capital, costs and cash generation and expect continued good performance for the rest of the year."

Statutory results4

3 August 2011

Investors

Sandra Moura, Head of Investor Relations - 020 7227 4100

Media

Claire Jenkins, Group Director Corporate Affairs - 020 7227 4100

Richard Mountain, Financial Dynamics - 020 7269 7291

Andrew Lorenz, Financial Dynamics 

Live webcast

A presentation for analysts and investors will be held today at 09:00 UK time at the Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ.

A dial in conference call will be held today at 14.30 UK time. For callers in the US, please dial +1 480 629 9722 or +1 877 941 0844. The dial in number in the UK is +44 20 8515 2302 or 0800 358 5256. The access code to the replay: 4454329.

A copy of this press release has been posted on the Rexam website, www.rexam.com. Subject to certain restrictions, the presentation will be webcast live on www.rexam.com at the above time and subsequently will be available on demand.

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

Editor's notes:

Rexam is a leading global consumer packaging company. We are one of the leading global beverage can makers and a major global player in rigid plastic packaging. We are business partners to some of the world's most famous and successful consumer brands.

Our vision is to be the best global consumer packaging company. Rexam's sales from continuing operations in 2010 were in the region of £4.6 billion. In our continuing operations, we have close to 100 plants in more than 20 countries and employ around 19,000 people. Rexam is a member of the FTSE 100 and its ordinary shares are listed with the UK Listing Authority and trade on the London Stock Exchange under the symbol REX. For further information, visit www.rexam.com.

BUSINESS REVIEW

During the first half of this year we remained focused on our strategic priorities, concentrating on the fundamentals of return on capital, cash optimisation and cost control to deliver on our commitment to create shareholder value. Our overall growth is in line with our expectations, and our asset utilisation plans remain on track. We continued to drive operational excellence and achieved good cost savings. We also saw the successful launch of a number of innovative products in both Beverage Cans and Plastic Packaging. The announced sale of our Closures business for $360m further focuses our operations and is in line with our strategy to deliver steady profitable growth and improved returns. Our plans for expansion in beverage cans in Brazil, further investment in our beverage can plant in India announced today, as well as investment in Healthcare to make generic drug delivery devices for an Indian customer, are all indicative of our aim to increase the proportion of our sales in higher growth markets. Some 32% of our turnover from continuing operations now comes from higher growth and emerging markets.

Input cost inflation remains a challenge and we are seeking to mitigate those exposures. Over the last few years, we have increased the percentage of pass through contracts and are increasingly hedging our cost positions to match sales contracts, thereby reducing exposure to input cost volatility. Commercial and market risks are also being proactively managed by entering into longer term contracts and, when possible, using take-or-pay clauses.

Group performance

In the first half of 2011 the Group delivered an encouraging performance. Total sales were flat at £2,496m but total underlying operating profit rose 5% to £280m mainly owing to improved volumes in standard cans in Europe and in specialty cans in all our regions, supported by our continued focus on cost reduction and efficiencies. Total underlying profit before tax increased 19% to £236m (June 2010: £198m) chiefly due to the improvement in operating profit and also to a lower total underlying net finance cost. Total underlying earnings per share rose 19% to 18.9p (June 2010: 15.9p).

For continuing operations (excluding Closures), sales were £2,343m with organic sales growth of 4%, mainly due to the performance in Beverage Cans. Organic underlying operating profit increased 9%, higher than in total operations due to the impact of foreign exchange translation. We increased capital expenditure to £86m (June 2010: £53m), some 0.9 times depreciation, maintaining a tight watch on capital discipline and working capital management. Free cash flow from continuing operations in the half year was £97m (June 2010: £114m). We expect capital expenditure to be in the region of £220m for the full year.

In February we stated that, in the next three years, our aim is to achieve Group return on capital employed (ROCE) in a range of 12% to 15%, targeting the top end of this range by 2013. During the first half we continued to leverage our assets and made further progress towards this target, with ROCE at 13.2% (June 2010: 12.1%).

As at 30 June 2011, net debt was £1.6bn. Following the divestment of Closures, our pro forma net debt would be around £1.4bn. Our credit rating is investment grade with stable outlook with both Moody's and Standard & Poor's. We have no significant debt maturity until 2013.

Efficiency savings on plan

Over the last few years we have consistently delivered in the region of £30m of annual savings to offset input cost inflation. We are on track to maintain this level of savings in 2011 as we continue to focus on three key areas: raw material cost reduction; lean manufacturing, such as investing in new equipment, optimising processes and labour efficiency; and supply chain savings, leveraging our global footprint with our suppliers. In all, efficiency savings from continuing operations for the first half totalled £16m.

Statutory results

On a statutory basis, which includes the effect of currency translation and exceptional and other items, profit before tax was £210m (June 2010: £156m). Exceptional and other items totalled £16m before tax comprising restructuring, amortisation of certain acquired intangible assets and fair value changes on financing derivatives. Total profit for the financial period was £132m (June 2010: £102m) and total basic earnings per share was 15.1p (June 2010: 11.6p).

OPERATING REVIEW

Beverage Cans

Beverage Cans overall performed above our expectations with good volume growth in Europe. Organic sales, which adjusts for the impact of foreign currency exchange, were up 5%. Excluding the cost of aluminium passed through to customers, organic sales growth was 2%. Organic underlying operating profit improved 12% to £212m driven by good volume growth (predominantly in Europe), good pricing in all regions and continued delivery of efficiencies related to downgauging and lightweighting. Our underlying operating profit margin improved to 11.3%.

Beverage Can Europe & Asia

In Europe, market volumes grew 6% as cans continued to gain share of the beverage packaging mix on the back of general increased home consumption and the inherent advantages of the can as a means to package beverages. Our own volumes increased 7% led by good growth in standard cans as well as share gains in a number of key markets. We also benefited from the continued growth of specialty cans across Europe with our volumes increasing 7% driven largely by the strong growth in energy drinks in Europe and also those filled in Europe for export.

Trading in Russia was strong, and ahead of our expectations. Against weak comparators, our volumes grew 15% as the Russian economy recovered on the back of higher oil prices. Returns on our total Russian investment remain consistently well above the risk adjusted weighted average cost of capital.

With our can plants across Europe running at close to full utilisation, and given that we expect the market to continue to grow, we are currently considering options for capital expenditure opportunities in both Finland and Russia.

We are also investing further in India, installing a high speed beverage can manufacturing line at the current site in Taloja close to Mumbai. The new line represents a capital investment of c £30m over two years. It will initially produce 33cl and 50cl cans and increase capacity from under 400m cans to c 950m per year. Production startup is planned for the final quarter of 2012.

Beverage Can North America

In North America, our volumes were down 14% impacted by the contract losses announced last year. Specialty cans grew strongly, up 24%, driven mainly by increased consumption of bigger format cans for beer and iced teas. Standard cans were down 21%, of which 15% was related to the lost contracts and the remaining 6% in line with the overall decline in the US soft drinks market.

Despite the drop in standard can volumes, overall profits in the business were higher than the equivalent period last year thanks to the growth in specialty cans, improved pricing, further investment to reduce the weight of our can ends as well as a relentless focus on costs. As stated in February, we have signed contracts to recover most of this year's volume loss by 2013. Our good cash conversion continued and we have maintained the strong return on net assets for the business.

Beverage Can South America

The beverage can market in Brazil grew 2% in the first half according to official industry figures and our volumes fell by 1%. However, this market growth figure masks the significant number of cans imported directly by customers at the start of 2011. Adjusting for these imports, we estimate that the market grew by 6% and Rexam's own volumes would have been up by 5%. After a strong first quarter, growth did slow in the historically quieter second quarter, compounded by unusually cold and wet weather, customer price increases to consumers as well as customers' higher inventories of directly imported cans. Growth in Rexam's specialty cans remained strong at 21% driven primarily by beer producers seeking new formats for their products.

We remain positive on the full year outlook. We have already seen customers increasing their discounting and promotional activities, and the long term contract with our largest customer underpins our returns.

Rexam has around 60% of the Brazilian beverage can market and we are conscious that growth will not always follow a straight line in an emerging market such as South America. We remain confident of the medium and long term prospects for the Brazilian market.

Consistent with our disciplined approach to capital expenditure, our planned investment in the new 1.2bn capacity can plant in Belém (announced in April this year) will be timed to match the volume predictions of our customer, and is now expected to open in the second half of 2012.

Plastic Packaging

In Plastic Packaging (restated to exclude Closures) organic sales were down 1%. Resin costs increased by around 10% and, as around one third of our contracts are on a non pass through basis, this equated to a non recoverable cost of £3m in the first half. Underlying operating profit was £58m, 2% down on an organic basis on the equivalent period last year.

In Healthcare, sales were down slightly. Good pricing and volumes in Prescription packaging were offset by weak volumes in Primary packaging due to continued pricing pressure, while in the pharmaceutical business good pricing offset lower inhaler volumes. We have a strong product pipeline for future growth in Healthcare and we are investing to capture growth in India.

In Personal Care, sales were broadly flat and there was significant variation in the performance of the various businesses and regions. In Europe, where new product launches have been strong, there was good growth in dispensing systems for fragrance and in make up, particularly lipsticks. In North America, we saw lower volumes overall and particularly in Home and Personal Care as US consumers remained cautious, opting for cheaper products with simpler packaging rather than added value solutions offered by us. In emerging markets, good growth in Brazil was offset by weakness in our make up operations in Asia due to high input and operating costs. High Barrier Food volumes grew 13% due to share gains and further growth in international orders for what traditionally has been a range of products for the US market. We plan to invest in additional production lines in the US to meet increased demand for these types of containers.

We are taking action to address the underperformance of Plastic Packaging as a whole and negotiating price increases with customers to compensate for higher resin costs. For the short term, we have initiated cost reduction measures. These include the elimination of "stranded" costs following the sale of Closures, cutting discretionary costs and also reducing working hours in some plants to align production capacity with demand.

We are also taking a series of medium term actions to address the strategic challenges faced by our Chinese based business where c 65% of sales are now to domestic customers, and the trading environment is increasingly competitive. Measures include the relocation, scaling down and substantial automation of our make up business in China to reduce the cost base, enabling us to focus on higher return businesses.

In addition to Healthcare and High Barrier Food, we are planning to invest in other growth areas of the business, such as make up and dispensing systems in Europe and our Personal Care operations in Brazil.

FINANCIAL REVIEW

Financial performance

The financial review of our business is based on what we term the underlying business performance, as shown in the tables below. This excludes exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives (together "exceptional and other items"). We believe that the underlying figures aid comparison and understanding of the Group's financial performance. The basis of preparation of the half year condensed set of financial statements is set out in note 1 on page 25.

The summary Group consolidated income statements for the six months to 30 June 2011 and six months to

30 June 2010 are set out below.

A summary of the statutory performance is set out below.

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

Analysis of sales movement

Organic sales, which exclude the impact of discontinued operations and currency, increased by £87m, or 4%. In Beverage Cans, the increase was driven by the pass through of higher aluminium costs together with good pricing across all regions. Overall, volumes were broadly flat with good gains in Europe together with increases in specialty cans in all regions which compensated for reduced standard can volumes, as previously announced, in North America. For Plastic Packaging, the reduction was primarily due to lower volumes in Personal Care and the primary packaging business within Healthcare partly offset by passing through higher resin costs. Excluding the effect of cost changes of aluminium (£59m) in Beverage Cans and resin (£6m) in Plastic Packaging which were passed through to customers, organic sales grew by 2% in Beverage Cans and fell by 2% in Plastic Packaging.

Analysis of underlying operating profit movement

Analysis of the organic change in underlying operating profit:

Underlying operating profit, after adjusting for the impact of discontinued operations and currency, increased by £22m reflecting pricing benefits, an improvement in specialty can volumes across the Beverage business and continued efficiency savings offset in part by increases in costs and lower volumes in Plastic Packaging.

Beverage Cans was driven by price improvements, volume benefits in Europe and in specialty cans globally partly offset by lower standard can volumes in North America and some cost increases, principally aluminium premium/conversion costs and freight.

The environment was more challenging for Plastic Packaging. A focus on cost control and efficiency gains from operational improvements helped to mitigate pricing pressures, volume shortfalls and inflationary cost increases.

Profit after tax from our joint venture in Guatemala and associate in Korea was £5m (June 2010: £2m), the key driver of this improvement being volume growth.

Exchange rates

The principal exchange rates used in the preparation of the half year condensed set of financial statements are as follows:

Consolidated income statement

The US dollar, the euro and the Russian rouble are the principal currencies that normally impact our results. The movement in exchange rates had the following impact on the translation into sterling for sales and underlying operating profit in the first half of 2011:

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

Consolidated balance sheet

Most of the Group's net borrowings are denominated in US dollars and euros. Currency movements did not have a significant effect on the balance sheet; net borrowings reduced by £33m and equity increased by £32m.

Underlying total net finance cost

The underlying total net finance cost comprises:

The underlying total net finance cost reduced by £21m compared with the equivalent period last year, of which £2m was attributable to retirement benefit obligations net finance cost. The reduction in net interest of £19m is primarily due to lower interest rates and average net borrowings together with a benefit from FX rates and the non recurrence of accelerated amortisation of bank facility arrangement fees of around £9m following the refinancing undertaken in May 2010. The overall average interest rate, excluding the accelerated amortisation, during the period was just over 5% compared with 5.5% in the equivalent period last year.

Based on reported underlying operating profit from total operations, interest cover was 6.7 times compared with 4.4 times for the six months to June 2010. Interest cover is based on underlying operating profit divided by underlying net interest excluding charges in respect of retirement benefit obligations.

Tax

The tax charge on profit before exceptional and other items for the six months to 30 June 2011 on total operations was £71m (30%) (June 2010: £59m (30%)). The rate for the six months to 30 June 2011 is also expected to be the rate for the year to 31 December 2011. This reflects the mix of territories in which we operate, offset in part by the availability of tax incentives in some jurisdictions. Tax cash payments in the first half of the year were £36m compared with £29m for the equivalent period last year, lower than the charge in the income statement due to the utilisation of tax assets and the phasing of tax payments.

Exceptional and other items

The exceptional and other items arising in 2011 in respect of total operations are as follows:

Exceptional items

Impairment of intangible assets and property, plant and equipment

The impairment charge of £34m comprises £28m on discontinued operations relating to the revision to the impairment arising on the disposal of the Closures division (see 'discontinued operations') together with £6m with respect to consequent restructuring as discussed below, of which £2m arises in continuing operations.

Restructuring of businesses

When we announced the sale of the Closures division in June, we stated that we would right size the remaining business at a total cost of around £25m. The total restructuring charge of £8m includes £6m for this initiative, which together with related asset impairments of £6m results in a total charge in the first half of £12m. It is therefore expected that a further £13m will be charged (including £8m in the second half of 2011) to complete this reorganisation. The remaining £2m of restructuring relates to the previously announced plant closures.

Other items

Amortisation of certain acquired intangible assets

Intangible assets, such as technology patents and customer contracts, are required to be recognised on the acquisition of businesses and amortised over their useful life. The directors consider that separate disclosure, within exceptional and other items, of the amortisation of such acquired intangibles amounting to £14m before tax (June 2010: £16m) aids comparison of organic change in underlying profit.

Financing derivatives fair value changes

The fair value of the derivatives arising on financing activities directly relates to changes in interest rates and foreign exchange rates. The fair value will change as the transactions to which they relate mature, as new derivatives are transacted and due to the passage of time. The fair value change on financing derivatives for the half year was a net gain of £5m (June 2010: net loss £11m). The impact of derivatives arising on trading items such as commodities and forward foreign exchange contracts is included within underlying operating profit.

Discontinued operations - Closures

The underlying performance reflects the benefit of efficiency and other cost savings partly offset by the continued decline in beverage closures.

The agreement to sell the Closures division to Berry Plastics was announced on 20 June 2011 and is expected to be completed in the third quarter. As the disposal had not been concluded at 30 June 2011, the impairment calculated as at December 2010 had to be reviewed. This review gave rise to a further impairment charge due to changes in the estimated disposal proceeds, the structure of the final agreement (including the achievement of certain asset targets) and the level of anticipated costs. As previously advised, the positive foreign exchange translation movement reflected in reserves to the date of disposal will be recycled back to the income statement upon completion. This movement relates to foreign exchange translation differences arising on net assets since the date of their acquisition. Accounting standards require that this recycling is only recognised when the disposal has been completed. Based on the cumulative foreign exchange translation movements as at June 2011, had the disposal been completed in the first half, the credit to the income statement for this would have been around £90m.

Earnings per share

Underlying earnings per share from total operations was 18.9p compared with 15.9p in the comparable period, an increase of 19%. Basic earnings per share from total operations, which includes exceptional and other items, was 15.1p (June 2010: 11.6p). The improvement reflects the increase in underlying profit.

Retirement benefits

Retirement benefit obligations (net of tax) on the balance sheet at 30 June 2011 were £293m, a reduction of £24m compared with £317m at 31 December 2010. This was principally due to additional cash contributions in respect of deficit funding as discussed below. The changes to the actuarial value of retirement benefits at the balance sheet date, a gain of £9m net of tax, are shown in the consolidated statement of comprehensive income.

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

It is expected that the total cash payments for the full year to defined benefit pension plans will be approximately £46m compared with £27m in 2010 reflecting increased UK and US deficit funding.

Pension legislation in the US requires defined benefit plans to meet a 100% minimum funding standard which is tested annually. If a plan does not meet that standard, the plan sponsor must make contributions sufficient to amortise any deficits. From 2012, pension funding relief legislation will require plans to amortise funding deficits over 7 years. Based on current legislation and actuarial projections, it is now estimated that annual cash contributions to the US defined benefit plan will be around $50m for the foreseeable future. A triennial valuation of the UK defined benefit plan is being conducted this year which will help to determine ongoing contribution levels and the amount and timing of any deficit funding payments. At this stage no significant change is anticipated.

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

The reduction in retirement benefit obligations net finance cost, which is a non cash accounting charge, is primarily attributable to lower discount rates.

Cash flow

Free cash flow for the period was an inflow of £95m compared with £130m for the six months to June 2010. This principally reflects higher capital expenditure, which is discussed more fully in 'Capital expenditure' below, offset by the improvement in underlying operating profit, lower cash restructuring costs and a reduction in interest payments. Working capital outflow from continuing operations in the first half was £82m, consistent with the outflow reported in the equivalent prior period of £79m.

Capital expenditure - continuing operations

Capital expenditure includes computer software that has been capitalised. Amortisation excludes £14m (June 2010: £16m, December 2010: £32m) on patents, customer contracts and intangibles other than computer software, which is included in exceptional and other items.

Capital expenditure in the first six months was £86m, around 0.9 times underlying depreciation and amortisation. The principal projects in Beverage Cans are to support market growth in South America, the development of specialty can products and a lightweight can end in North America and the conversion of two lines from steel to aluminium in Europe. Plastic Packaging investment continues to be focussed on new products.

It is anticipated that capital expenditure for the year for continuing operations will be around 1.1 times depreciation and amortisation, or about £220m, arising mainly on the projects outlined above.

Balance sheet and borrowings

Return on capital employed (ROCE) has increased to 13.2%, in line with our commitment to deliver a ROCE of between 12% and 15% by 2013. Net borrowings have reduced since December 2010 due to cash inflow in the period and favourable currency movements, consequently gearing has fallen from 72% to 67%. The Group remains comfortably within its debt covenants and has committed debt facility headroom of around £1.1bn.

Net borrowings, which include interest accruals and certain financial derivatives, are set out below.

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

The increase in the value of cross currency swaps since December 2010 is mainly attributable to the strengthening of the euro and the weakening of the US dollar. The decrease in value of other derivatives during the first half of 2011 was due mainly to the fall in aluminium prices combined with the impact of the changes in the euro and US dollar outlined above.

Risks

The principal risks and key mitigation actions taken to manage those risks are described in more detail in the Annual Report 2010 on pages 36 to 39 and in Note 25 to the consolidated financial statements therein; they have not changed materially in the period.

Risk management is part of our focus on operational excellence, a key strategic priority for the Group. Rexam faces a wide range of risks, the main ones being market, operational, environmental, social, governance as well as financial. The Group risk register is monitored by the executive team, the Audit & Risk Committee and the Board on a regular basis.

Set out below is a summary of the key risks for the Group as a whole. It does not provide an exhaustive analysis of all risks affecting the Group. Not all of the factors listed are within the control of the Group and other factors besides those listed may affect the performance of its businesses. Some risks may be unknown at present and other risks, currently regarded as immaterial, could turn out to be material in the future.

·; Strategic risks

o Global economic downturn and political instability

o Changes in consumer tastes, nutritional preferences, health related concerns and environment related concerns

o Changes in packaging legislation and regulatory environment

·; Business operations risks

o Competitive environment trends and counterparty failure

o Aluminium and other input costs

o Environmental, fire, health and safety, including business interruption

o Supply of faulty or contaminated products

·; Financial Risks

o Funding, tax and retirement benefits

The principal risks identified above will continue to affect the Group in the second half of the year, although some of the uncertainties surrounding them have been addressed through hedging policies and through contractual arrangements with customers and suppliers.

Going concern

The Group has considerable financial resources, which include £2.8bn of debt facilities together with established contracts with a number of customers and suppliers across different geographic areas and markets. As a consequence, the directors believe that the Group is well placed to manage its business despite the economic environment which increases risks and uncertainties.

The directors, having made appropriate enquiries, are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing this half year condensed set of financial statements.

Dividends

Reflecting the continued good cash flow and the strong improvement to profits, the Board is proposing to increase the interim dividend by 18% to 4.7p per share. For the full year the Board expects dividend cover to be 2.5 times underlying earnings.

The interim dividend will be paid on 4 October 2011 to holders of shares registered on 9 September 2011.

Summary and outlook

We are pleased with the continued progress of the business in the first half.

Beverage Cans traded better than expected driven primarily by our business in Europe. The mixed performance in Plastic Packaging continues to be a challenge in some areas and we are focused on improving the results in this business.

Looking ahead, we will concentrate on return on capital, costs and cash generation and expect continued good performance for the rest of the year.

3 August 2011

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

Approved by the Board on 3 August 2011

Graham Chipchase, Chief Executive

David Robbie, Finance Director

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continued

NOTES

1 Basis of preparation

This condensed set of financial statements in the half year report for the six months to 30 June 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and with IAS34 "Interim Financial Reporting" as adopted by the European Union. This report should be read in conjunction with the annual financial statements for the year to 31 December 2010 which were prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements has been reviewed by PricewaterhouseCoopers LLP, not audited.

In preparing the condensed set of financial statements, comparative amounts for the six months to

30 June 2010 have been restated to reflect the Plastic Packaging Closures division as a discontinued operation. The accounting policies adopted in this condensed set of financial statements are consistent with those set out in the annual financial statements for the year to 31 December 2010.

The following accounting standards and amendments to existing standards are not yet effective and have not been early adopted by the Group.

There are no other IFRS or IFRIC interpretations not yet effective that would be expected to have a material impact on the Group.

The condensed set of financial statements does not constitute statutory accounts as defined by section 434 of the Companies Act 2006. The Group's statutory accounts for the year to 31 December 2010 have been filed with the Registrar of Companies. The auditors, PricewaterhouseCoopers LLP, reported on those accounts and their report was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

Rexam presents underlying operating profit, underlying profit before tax and underlying earnings per share information as it believes these measures provide a helpful indication of its performance and underlying trends. The term underlying refers to the relevant measure being reported before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives. These measures are used by Rexam for internal performance analysis and as a basis for incentive compensation

arrangements for employees. The terms underlying and exceptional items are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or be superior to, GAAP measurements of profit.

2 Segment analysis

For internal reporting, Rexam is organised into three operating segments for Beverage Cans based on the geographical locations of Europe and Asia, North America and South America, and into one operating segment for Plastic Packaging. For external reporting, the three operating segments for Beverage Cans are combined into one reportable segment. Beverage Cans comprise aluminium and steel cans for a wide variety of beverages including carbonated soft drinks, energy drinks and beer. Plastic Packaging comprises rigid plastic products for customers in the Healthcare and Personal Care markets. The Closures division has been reported as discontinued operations in the segment information set out below. 

(i) Segment results