Half Yearly Report

Half year results in line with expectations, strategy on track

Rexam PLC announces its results for the first half of 2015.

Highlights

· Beverage can volumes including UAC up 3% (2% organic)

· Organic2 underlying operating profit down 9%, primarily due to higher metal premium

· Interim dividend unchanged at 5.8p

· Ball offer proceeding as planned, timetable unchanged

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

"Results for the half year were in line with our expectations. Trading in the first half was strong in Europe and the Rest of the World, but with some weakness in the Middle East. In the Americas, standard cans continued to decline whilst specialty cans continued to grow. Our operating profit was impacted by higher metal premium as well as the expected commoditisation of certain specialty cans in North America. Looking ahead, 2015 remains in line with our expectations with softer volumes in North and South America offsetting the benefit of the current lower metal premium."

"The business is in good shape operationally and the Ball offer does not change our strategic priorities. We continue to focus on the things we can control whilst striking the right balance between growth and returns."

Statutory results4

Details of the times of the presentations and conference calls for analysts and investors can be found at the end of this announcement.

MANAGEMENT REVIEW H1 2015

Our results for the first half of 2015 were in line with our expectations. In summary, overall global beverage can volumes were up 3% (2% organically). The benefit of good volume growth was offset by higher metal premium, commoditisation of certain specialty cans in North America and higher energy costs in Brazil. Organic underlying operating profit was down 9%.

Reported sales of £1,969m (June 2014: £1,881m) were 5% higher than the equivalent period last year. Around half of this was due to higher aluminium pass through. The rest was driven by good volume growth in Europe and the rest of the world and the UAC acquisition. This was partly offset by lower volumes in North America driven by lower carbonated soft drinks (CSD) volumes and in South America, which last year benefited from the FIFA World Cup. Encouragingly, specialty cans continue to grow in the Americas region. Looking ahead, we expect softer volumes in North America due to weakness in the CSD market, and in South America driven by a weak macroeconomic environment.

Reported underlying operating profit at £179m (June 2014: £197m) was 9% lower than the first six months of last year. Organic underlying operating profit was also 9% lower as higher aluminium premium costs, commoditisation of certain specialty cans in North America and higher energy costs in Brazil offset the good volume growth. Aluminium premiums have since come down sharply and, at current rates, we now expect a neutral impact for the full year, compared to the £30m headwind expected when we reported our 2014 results in February.

The net finance cost for the continuing business was £7m lower than last year. Continuing underlying profit before tax was £156m, 6% lower than last year, while underlying earnings per share (EPS) was up 4% at 16.8p reflecting the share consolidation in June 2014.

The interim dividend is 5.8p per share. For further details, see Financial Review.

Net capital expenditure for the continuing business was £107m (June 2014: £79m), 1.6 times depreciation. Total free cash flow in the first half was £14m outflow (June 2014: £1m outflow).

As at 30 June 2015, net debt was £1.3bn. Our credit rating is investment grade from both Moody's and Standard & Poor's.

Return on capital employed (ROCE) was 13.0% compared with 14.0% at the end of June 2014.

A full discussion of the statutory results can be found in the Financial Review.

Preparing for the future

In February the boards of Ball Corporation (Ball) and Rexam announced that they had reached agreement on the terms of a recommended offer for the entire issued and to be issued ordinary share capital of Rexam by Ball. In recent years Rexam has transformed its business, returning approximately £1.5bn of cash to shareholders since 2010 and created a focused beverage can maker with a promising future. Notwithstanding that, the Rexam board believes that consolidation in the beverage can industry will bring an enhanced ability to serve the demands of our increasingly global customers and the offer from Ball represents a compelling opportunity for our shareholders.

As we said in February, the transaction will require regulatory clearances. Since February, we have been working to support Ball's preparation of merger control filings for submission in all relevant jurisdictions. To date the regulatory processes have proceeded as expected. In addition, on 28 July 2015, Ball shareholders approved the future issuance of new Ball shares to Rexam shareholders in connection with Ball's offer. We still anticipate completion of the transaction in the first half of 2016.

Meanwhile, we have continued to pursue our own plans as an independent company. The first six months of 2015 saw sales growth in line with our expectations and overall global volume growth in low single digits. Our free cash flow generation was, as we outlined in February, lower than last year due to lower operating profit and higher capital expenditure.

Our aim is to balance growth and returns to create sustainable value for all our stakeholders. We remain committed to managing what we can control and focusing on cash, costs and return on capital employed.

In our Annual Report 2014, we laid out our strategic priorities, which are discussed below.

Investing with focus

Our aim is to ensure we capture opportunities and protect our core business, at the same time maintaining our strict capital discipline and a focus on returns.

In January we completed the acquisition of a 51% stake in the Saudi Arabian beverage can maker United Arab Can Manufacturing Limited (UAC). In May we completed and commissioned the third manufacturing line at the Rexam UAC plant in Dammam.

January also saw us announce that Rexam had, jointly with Envases Universales de Mexico, completed an investment in Envases Del Istmo SA (Endelis), a single line beverage can plant in Colón, Panama. Long term supply agreements have been secured with SABMiller and Florida Ice & Farm Company whose affiliates previously owned the Endelis business. This investment is fully in line with our emerging markets strategy and complements our existing Central America footprint. The transaction positions us well to serve both our local and global customers in an exciting growth region.

The building of our new plant in Widnau, Switzerland continues and is on plan. The plant will allow us to meet customer demand for energy drinks in Europe and will free up capacity in other plants. The first line is on schedule to begin production in Q4 this year. The second and third lines will come on stream in the first half of 2016. We have accelerated this investment as we look to replace the lost capacity which will result from the closure of the Berlin plant.

The other significant project that is nearing completion is the expansion of our Fusion® aluminium bottle capability in Ejpovice in the Czech Republic. This investment will help meet growing demand for the aluminium bottle by enabling us to increase our capacity at the plant with the new line due to begin production in Q3 this year.

In 2015 we announced the investment in a second can plant in southern India to meet the continued growth of the beverage can market. We have now secured land in Sri City to build the plant which is expected to be operational by the second half of 2016. As part of our broader India strategy we have also secured land in Jaipur in the north of the country where a third can plant will be located in due course. Having plants in different locations across India will ensure we have a better footprint and position to meet the needs of our customers in the region over the long term.

Strengthening customer relationships

Central to our strategy is strengthening customer relationships and working together in light of the challenges our customers face. These include changing consumer preferences, new regulation and muted economic growth in some of the markets in which they operate. Our approach is not simply about providing the best quality and customer service at the right cost, although these are important, but also to focus on working with customers strategically and proactively. They want a global partner who can offer a framework for collaboration: a packaging expert who speaks their language. This is what will help them stay ahead in their markets, and enable us to maintain our competitive edge.

As we have previously reported, customer consolidation continues in the beverage industry with customers moving to a more coordinated, global approach to procurement to help lower costs and innovate. They are also demanding a more complex product offering as they seek differentiation and product shelf appeal.

In responding to these industry shifts, we have, in the first half of the year, continued to strengthen our structures, processes and systems. Our key account leads, which manage our main global customers and act as a single point of contact for them, are now well established. A key aspect of their role is to develop global key account plans with specific objectives and KPIs, and to maintain regular communications with the customer around the delivery of those objectives. This change is helping to ensure we build relationships for the long term as the preferred can supplier. We have also continued to improve our processes and systems, especially around pricing, enabling the delivery of high quality information, robust decision making and effective negotiations.

Pursue continuous improvement in operational excellence

Our business is built on a strong culture of operational excellence. It lies at the heart of what we do and is therefore a strategic priority as we seek cost leadership and sustainable value creation. In the first half of 2015, we delivered £11m in savings and remain on track to deliver our target of £20m per year.

Reducing our cost base and increasing our productivity are central to attaining cost leadership. In February we announced the opening of consultations with the Berlin works council on the closure of our plant in Berlin. Berlin has three low speed lines and one of the highest fixed cost bases in our European network and has become uncompetitive in serving its core German, Benelux and Polish markets. The negotiations have been constructive and an agreement has now been signed with the plant due to close by the end of this year.

We plan to pursue further restructuring options but are not in a position to disclose any further details at this time.

In April the world class standard of our manufacturing operations was again recognised by The Shingo Institute - a global reviewer of operational excellence. Our joint venture with Envases Universales in Guatemala was awarded The Shingo Prize. The Prize is the Shingo Institute's top honour, and only one or two manufacturing plants globally are recognised with this level of award each year. Since following the Shingo Model, we have achieved unprecedented honours in the awards: three Bronze Medallions, six Silver Medallions and two Shingo Prizes. We have a number of sites currently preparing for Shingo assessment as we continue our pursuit of manufacturing excellence.

Shaping our future through innovation and sustainability

The ability to innovate in terms of products and processes, to support our customers' sustainability agendas and, at the same time promote the can as a compelling package, is crucial to the future of Rexam. Innovation adds value and is a key driver of growth and improved returns. Sustainability is an important area of customer focus as they face increasing consumer and legislative pressures. Our performance on innovation and sustainability position us as the can maker of choice for our customers and serve as a further means of reducing our cost base and earning our licence to operate.

Our Editions™ technology (patent pending), first developed in 2012 to help launch a customer campaign, has continued to grow strongly across the world with a number of customer collaborations coming to fruition. Our aim is to stay at the forefront of our industry and during the first half we have moved forward with the development of the next offer in the Editions™ portfolio Colour Editions™ which we expect to launch by the end of the year.

Consumers continue to want more from the products they buy. Being able to differentiate and stand out on the shelf is vital, and we consistently pursue such innovation for customers. A specific example of how we work with customers to create differentiation was launched in time for this year's summer period. We partnered with Heineken to launch a range of Strongbow Apple Ciders in the first ever 400ml Super Sleek® can. The Strongbow Apple Ciders cans use our matt-over-varnish finish to give a premium feel and reinforce the brand's position in the cider market. As the only manufacturer to produce this can size, this 400ml Super Sleek® provides an additional variation for customers and helps consolidate our position as a market leader for offering the widest range of beverage cans.

Many of our customers have advanced programmes that commit them to stretching targets with regard to the sustainability of their packaging. As a core supplier, we support them in this journey to drive sustainable transformation within their supply chains and to maintain the sustainability credentials of the can. In February Carlsberg received Cradle-to-Cradle® certification for cans supplied by Rexam into the UK market. The certification is part of Carlsberg's Circular Community initiative founded in 2013, of which Rexam is a founding partner. The community uses the Cradle-to-Cradle® design framework and sees Carlsberg working with its suppliers to encourage innovation and quality in the industry, in pursuit of zero waste. The Rexam cans are the first of any of Carlsberg's packaging to receive a certification and the award marks the first time a beverage package has been certified by the Cradle-to-Cradle® Products Innovation Institute.

In the first half of the year Rexam also completed the conversion of three production lines from steel to aluminium at our La Selva plant near Tarragona, Spain. Starting in 2011 with the conversion of the first line, this major engineering project was completed on plan. The successful conversion showed our commitment to meeting the requirements of our customers in Spain, the second largest beverage can market in Europe, and we are now actively supporting the waste management industry there to collect, separate and recycle aluminium beverage cans.

Build a winning organisation

An organisation that is engaged and performs is critical to our success. Central to that priority is a strong and improving safety culture across the Company. During the first half of the year, and as part of our world class safety action plan, we introduced safety as one of our core values. For everyone who comes into contact with Rexam, we introduced a new safety vision that we all get home safely to our family and friends every day. These actions, together with those to be implemented in our safety plan, are expected to enhance our performance as we continue to strive towards our objective of zero accidents.

We have continued to see our safety performance overall so far this year being maintained and 87% of our manufacturing locations were Lost Time Accident (LTA) free in the first half.

REVIEW of OPERATions

The following section reviews the Group's financial performance based on the Europe & Rest of World and the Americas segments which encompass our four main geographic regions.

Europe & Rest of World

In Europe, trading continued to be strong.

We had a good first half in Western Europe, with volumes up 6%, driven by energy drinks, and growth in Germany, Spain and Italy. In Germany, the market grew double digit as Lidl and Aldi relisted the can. Trading in Russia has been strong. Volumes were up 8% as cans continued to gain share in the pack mix with consumers transferring to modern retailers.

We have also benefited from a favourable country mix where most of our key markets grew stronger than the average European market, a favourable product mix with strong energy drinks volumes and favourable customer mix.

In AMEA, we saw continued strong growth in India and Egypt, and some softness in the Middle East due to unrest in the region.

Although softer than the first quarter, Europe has had good second quarter sales growth with volumes up 4% mainly driven by continued strong energy drink fillings. We do however expect our growth in Europe to slow down in the second half driven by first half weighted demand from certain customers combined with the full impact of global contracts, but to grow in line with the market. We therefore continue to expect low single digit growth for the full year.

Americas

In North America, overall volumes were down 3%.

Standard cans were down 6%, reflecting our exposure to the CSD market which was softer as a result of lower promotions. Specialty cans were up 10%, as we saw good volume growth in 16oz and 24/25oz cans driven by customers in a wide range of beverage categories. The specialty can market in North America is maturing and as we have previously explained this has impacted our returns.

Looking to the second half of the year, we expect continued softness in the CSD market with overall volumes declining by around 3%.

Trading in South America has slowed down as expected due to the challenging comparison with the first half of 2014 which saw the FIFA World Cup in Brazil. In Chile volumes grew by 10% benefiting from the new line we opened there in 2014. Despite a difficult macroeconomic environment, we gained share in South America. The market was down 4.5% and Rexam's own volumes were down 4%.

Encouragingly, specialty cans grew strongly in the first half as our customers differentiated their products and provided attractive price points with different can sizes.

The trading environment, however, remains challenging. As we look ahead to the second half, we expect the market to be soft particularly 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 operating and financing derivatives (together 'exceptional and other items'). We believe that the underlying figures aid comparison and understanding of the Group's financial performance. The basis of preparation of the half year condensed set of financial statements is set out in note 1.

The Healthcare business was sold in the first half of 2014 and its results for that period are set out in 'Discontinued operations' below.

The summary Group consolidated income statements for the six months to 30 June 2015 and six months to

30 June 2014 are set out below.

A summary of the statutory performance is set out below.

Results on a statutory basis include the effects of currency translation, exceptional and other items, and discontinued operations. The exceptional and other items, and the results of discontinued operations, are described in more detail below. For continuing operations, sales were £1,969m (June 2014: £1,881m) and profit before tax including exceptional and other items was £82m (June 2014: £164m). Total profit after tax for the period attributable to the shareholders of Rexam PLC was £55m (June 2014: £214m) and total basic earnings per share was 7.8p (June 2014: 27.7p).

The following tables, showing sales and underlying operating profit, compare the continuing operations at constant exchange rates. This basis excludes Healthcare which was sold in 2014.

Analysis of sales movement

Sales, excluding the impact of discontinued operations and currency, increased by £88m, or 5%. This included the pass through of higher aluminium costs (£48m). Excluding this impact, sales were £40m higher than the prior year. Volumes grew 6% in Europe driven by good growth in energy drinks and growth in Russia, Germany, Spain and Italy. Volumes also increased in India, Egypt and Turkey. In North America, standard volumes declined due to softness in the carbonated soft drinks (CSD) market, while specialty volumes continued to grow, driven by energy drinks. Volumes in South America were 4% lower than last year as 2014 benefited from the FIFA World Cup.

Analysis of underlying operating profit movement

Analysis of the change in underlying operating profit:

Underlying operating profit, after adjusting for the impact of discontinued operations and currency, was £12m below last year at £179m. Sales price and cost changes were adverse in aggregate in the first half, predominantly from higher aluminium premium costs, the non repeat of a 2014 indirect tax benefit in Brazil and the mix impact of commoditising specialty cans in North America, partly offset by supply chain and other cost savings. Volume growth in Europe and AMEA was partly offset by lower volumes in North and South America. Efficiency savings totalled £11m and comprised metal savings and energy cost reductions.

Profit after tax from our joint ventures in Guatemala and Panama, and our associate in South Korea, was £5m (June 2014: £4m).

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 2015:

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 operations. These exposures, in aggregate, did not materially 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 decreased net borrowings by £53m and equity by £42m in the period.

Underlying total net finance cost

The underlying total net finance cost for continuing operations comprises:

The underlying total net interest cost for continuing operations decreased by £5m to £22m (June 2014: £27m). The overall average interest rate during the period was around 3% (June 2014: 4%), due to a change in hedging strategy in Brazil and favourable foreign exchange movements. Based on continuing underlying operating profit, interest cover was 8.1 times compared with 7.3 times for the six months to June 2014. Interest cover is based on underlying operating profit from continuing operations divided by underlying net interest.

Tax

The tax charge on profit before exceptional and other items for continuing operations for the six months to 30 June 2015 was £36m (23%) (June 2014: £41m (25%)). The rate has benefited in the period from the recognition of additional deferred tax assets which are now expected to be recoverable. The rate for the year to 31 December 2015 is expected to be in a range of 23% to 25%, reflecting the mix of territories in which we operate, offset in part by the availability of tax incentives in some jurisdictions. The tax charge on profit before exceptional and other items for the six months to 30 June 2015 on total operations was also £36m (23%) (June 2014: £51m (27%)). This rate is lower than last year as the Healthcare operations which were included in discontinued operations were generally in more highly taxed territories.

Tax cash payments in the first half of the year for continuing operations were £36m compared with £28m for the equivalent period last year. Payments in 2014 were lower than in previous years as they were affected by refunds and the phasing of payments on account. We anticipate cash tax on continuing operations to be lower than the charge to the income statement for the year to 31 December 2015, as in previous years.

Exceptional and other items

The exceptional and other items arising in the first half of 2015 are as follows:

Exceptional items

Restructuring

The charge of £24m principally relates to reorganisation costs for the European beverage cans business and costs incurred on conversion of steel lines to aluminium.

Transaction related costs

Transaction related costs of £20m have been incurred as a consequence of the proposed acquisition of Rexam by Ball Corporation.

Employee incentive related costs

Employee incentive related costs are expected to be incurred as a consequence of the proposed acquisition of Rexam by Ball Corporation.

Other items

Amortisation of certain acquired intangible assets

Intangible assets, such as customer contracts and relationships and trade names, are required to be recognised on the acquisition of businesses and amortised over their useful lives. The directors consider that separate disclosure, within exceptional and other items, of the amortisation of such acquired intangibles amounting to £2m before tax (June 2014: £1m) for continuing operations aids comparison of organic change in underlying profit.

Operating derivatives fair value changes

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

Effectiveness on our aluminium forward deals is calculated by comparing the value of the forward deals to the value of our underlying hedged item; for Rexam this is principally aluminium coil. Current accounting rules require that the ingot conversion cost of our aluminium coil is included when calculating the effectiveness of our underlying hedged item, despite the fact that we only hedge the underlying LME portion of the aluminium coils. Revised accounting standards are being drafted which will address this particular anomaly but they are not currently expected to be implemented before 2018.

In both 2015 and 2014, some of the aluminium hedges failed the effectiveness test. Once a hedge has failed an effectiveness test, accounting standards do not allow for it to be retrospectively redesignated and therefore fair value movements will continue to be recorded in the income statement. The decrease in aluminium prices on these failed aluminium hedges has given rise to a charge of £16m (June 2014: gain of £8m). There was also a charge of £1m (June 2014: gain of £1m) relating to fair value changes on certain non hedged accounted commodity and foreign exchange contracts.

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

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 £nil (June 2014: net charge £1m). 

Discontinued operations - Healthcare

The Healthcare businesses were disposed of in the first half of 2014. There have been no transactions in the first half of 2015.

Earnings per share

1 The calculation of the average number of shares excludes 1.7m shares held by the Rexam Employee Share Trust (June 2014: 3.4m, December 2014: 3.3m).

Underlying earnings per share is based on underlying profit for the period attributable to equity shareholders divided by the weighted average number of shares in issue. Underlying earnings per share from continuing operations was 4% higher at 16.8p compared with 16.2p in the comparable period. The average number of shares in issue reduced following the share consolidation in June 2014 that accompanied the 2014 return of cash. Basic earnings per share from total operations, which includes exceptional and other items and discontinued operations, was 7.8p (June 2014: 27.7p).

Retirement benefits

Retirement benefit obligations (net of tax) on the balance sheet at 30 June 2015 were £274m compared with £258m at 31 December 2014. This increase was principally due to actuarial losses, included in the consolidated statement of comprehensive income.

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

In July 2015, the trustees of the UK defined benefit plan and the Company agreed the March 2014 actuarial valuation and an extension to the escrow arrangement until 2020. Annual contributions of £15m will be made and at each subsequent valuation date, the assets in escrow will either be allocated to the plan, to Rexam PLC or remain in escrow subject to the funding position of the plan. As at 30 June 2015, £48m had been paid into the escrow investment.

It is expected that the total cash payments for the full year to defined benefit pension plans will be approximately £44m compared with £43m in 2014, excluding amounts paid into escrow.

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

The retirement benefit obligations net interest cost reduced to £6m (June 2014: £8m) due to the UK defined benefit plan being in surplus.

Cash flow

Free cash flow from continuing operations for the period was an outflow of £14m in the period, compared to an inflow of £30m for the six months to 30 June 2014. Working capital outflow from continuing operations in the first half was £70m, in line with the £73m outflow in the equivalent prior period. Capital expenditure from continuing operations was £28m higher than the six months to 30 June 2014 but in line with expectations. The increase in net interest and tax paid is primarily due to higher tax cash costs as a result of low payments in 2014 due to refunds and phasing of payments on account. In the first half, there was a £125m outflow on acquisitions (including borrowings acquired), principally a 51% stake in United Arab Can Manufacturing Limited, a Saudi Arabian beverage can maker, and a 50% joint venture interest in Endelis, a Panamanian beverage can maker.

Capital expenditure - continuing operations

Capital expenditure includes computer software that has been capitalised. Depreciation and amortisation excludes £2m amortisation (June 2014: £1m, December 2014: £1m) on customer contracts and relationships and intangibles other than computer software, and £4m depreciation (June 2014: £nil, December 2014: £nil), which are included in exceptional and other items.

Capital expenditure in the first six months was £107m, 1.6 times underlying depreciation and amortisation. The principal projects are the construction of a new plant in Widnau, Switzerland, to support customer demand for energy drinks in Europe, construction of a new plant in India to support market growth and the development of specialty can products globally.

It is anticipated that capital expenditure for the year for continuing operations will be around 1.8 times underlying depreciation and amortisation, arising mainly on the projects outlined above, including capital expenditure associated with the European restructuring.

Balance sheet and borrowings

Return on capital employed (ROCE) has decreased from 14.0% in June 2014 to 13.0% based on the annualised first half profit. ROCE may drop slightly in a year of high investment or if we make an acquisition and in a low investment year it may go up. Through the cycle, however, our aim is to maintain ROCE around 15%. 

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

Net borrowings/EBITDA based on continuing operations was 2.4 times (June 2014: 2.0 times, December 2014: 2.0 times). The Group remains comfortably within its debt covenants and has committed debt facility headroom of around £0.5bn.

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 movement in value of the cross currency swaps during the first half of 2015 was due mainly to the depreciation of the euro in the first half.

Risks

The Group is exposed to a number of risks that can impact our financials, operations and/or reputation. Effective management of risk is therefore critical to deliver our business objectives, achieve sustainable growth and protect our people, assets and reputation, particularly in the constantly changing environment in which we operate.

As set out in the Strategic Report within the Annual Report 2014, our business model is underpinned by clear and consistently applied frameworks for enterprise risk management, including governance and sustainable development. The importance of effective risk management is clear given that the principal risks and uncertainties facing our business are relevant to key strategic priorities.

The Group has formal risk management processes in place, which we continue to refine and evolve to ensure they remain effective and reflect changes in the business and operating environment. We strive to embed risk management into our day to day processes and operations to ensure that risks are properly identified, assessed, managed, monitored and reported. Risks, together with their mitigating actions, are monitored and reviewed by the executive leadership team, the Audit and Risk Committee and the Board on a regular basis.

The principal risks and key mitigating actions are described in more detail in the Annual Report 2014 on pages 32 to 39 and in Note 24 to the consolidated financial statements therein; they have not changed materially in the period.

Set out below is a summary of the key risks and uncertainties facing the business at the date of this announcement. These do not comprise all of the risks that may affect the Group as some risks may be unknown at present or those currently regarded as immaterial may turn out to be material in the future. These risks are not listed in any order of priority and some of them are beyond the control of the Group.

· Strategic risks

- Continued economic slowdown, sluggish economic recovery and political and financial impact from country based instability

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

- Changes in packaging legislation and regulatory environment

- Insufficient talent and knowledge capital

· Business operations risks

- Competitive environment trends

- Environmental, fire, health and safety

- Business interruption

- Cyber-attack and data security

· Financial risks

- Aluminium and other input costs increase

- Funding, tax and other financial risks

- Counterparty default

- Pension deficit

- Fraud, bribery and internal control failure

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

Ball acquisition

Following the announcement of the proposed acquisition of Rexam by Ball Corporation in February, an additional risk in relation to the Ball transaction was included on page 39 of the Annual Report 2014. In addition, potential implications of the proposed acquisition have been reflected in our risk reviews where new or heightened risks have been considered and are being actively monitored across the business.

Going concern

The Group has considerable financial resources together with established agreements with a number of key customers and suppliers across different geographic areas and markets. The financial resources include £1.9bn of debt facilities, of which £0.5bn are undrawn, with the next significant maturity due in December 2019 (£0.8bn).

Having reassessed the principal risks, the directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

Interim dividend

The Board has approved an interim dividend of 5.8p (2014: 5.8p) per share in accordance with the undertaking given to Ball Corporation in February 2015 that future dividends would not exceed the corresponding interim or final dividend paid in respect of 2014. The interim dividend will be paid on24 September 2015 to holders of shares registered on 28 August 2015.

Summary and outlook

Results for the half year were in line with our expectations. Volumes were up 3% including UAC (2% organically) with good volume growth in Europe, volume decline in North America driven by carbonated soft drinks softness and lower volumes in South America due to challenging comparison with the FIFA World Cup in Brazil in 2014. Specialty cans continue to grow in the Americas. The benefit of good volume growth was offset by higher metal premium, commoditisation of certain specialty cans in North America and higher energy costs in Brazil.

Our aim is to balance growth and returns to create sustainable value for all our stakeholders. We remain committed to managing what we can control and focusing on cash, costs and return on capital employed.

Operationally the business is performing well and the consistent delivery of our efficiency targets demonstrates our commitment to operational excellence. We are continuing to invest for the future and, in addition to a strong innovation pipeline, are seeking to expand our existing footprint in emerging markets to support the sustainable growth of the business.  Looking ahead, 2015 remains in line with our expectations, with softer volumes in North and South America offsetting the benefit of lower metal premium.

consolidated income statement

Consolidated statement of comprehensive income

Consolidated BALANCE SHEET

Approved by the Board on 30 July 2015

Graham Chipchase, Chief Executive

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES

1 Basis of preparation

This condensed set of financial statements in the half year report for the six months to 30 June 2015 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct 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 2014 which were prepared in accordance with IFRS as adopted by the European Union. This condensed set of financial statements has been reviewed by PricewaterhouseCoopers LLP, not audited.

The accounting policies adopted in this condensed set of financial statements are consistent with those set out in the Group's audited financial statements for the year ended 31 December 2014 and are updated for IFRS reporting developments applicable to the periods presented.

The following accounting standards are effective for accounting periods beginning after 1 January 2015 and have not yet been adopted by the Group.

(i) IFRS9 'Financial Instruments'. The standard addresses the classification, measurement and recognition of financial assets and liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018 and earlier adoption is permitted subject to EU endorsement. The Group has yet to assess the full impact of IFRS9.

(ii) IFRS15 'Revenue from Contracts with Customers'. The standard addresses revenue recognition and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for accounting periods beginning on or after 1 January 2017 and earlier adoption is permitted subject to EU endorsement. The Group is currently assessing the impact of IFRS15.

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

The consolidated cash flow statement for the six months ended 30 June 2014 and year ended 31 December 2014 includes a revision relating to the classification of a settlement of a government incentive in Brazil for indirect taxes. A £18m and £22m outflow, respectively, has been reclassified to "Cash generated from operations" from "Repayment of borrowings". The Group believes that this revision is not material to the condensed set of financial statements taken as a whole.

Having reassessed the principal risks, the directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

This 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 2014 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.

The Group presents underlying operating profit, underlying profit before tax and underlying earnings per share information as it believes these measures provide a helpful indication of its performance and underlying trends. The term underlying refers to the relevant measure being reported before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on certain operating derivatives which are not hedge accounted and on financing derivatives. These measures are used by 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 not, therefore, 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 performance.

2 Segment analysis

For internal reporting, Rexam is organised into four operating segments for Beverage Cans based on the geographical locations of Europe, AMEA (Africa, Middle East and Asia), North America and South America. For external reporting, the four operating segments for Beverage Cans are combined into two reportable segments, Americas and Europe & Rest of World. Management determined that the Europe and AMEA operating segments, and the North America and South America operating segments, respectively met the criteria for aggregation because they are similar in each of the following areas: (i) the nature of the products and services; (ii) the nature of production processes; (iii) the methods of distribution; and (iv) the types or classes of customers for the products and services. Management also determined that the operating segments aggregated have similar economic characteristics. Beverage Cans comprise aluminium and steel cans for a wide variety of beverages including carbonated soft drinks, beer and energy drinks.