Half Yearly Report

Encouraging half year performance underpinned by Beverage Cans results

Rexam, the global consumer packaging company, announces its results for the first half of 2012.

Continuing operations underlying performance1

Highlights

·; Total beverage cans volumes up 6%

·; Underlying profit before tax2 (including Personal Care) £225m

·; Beverage Cans organic3 operating profit up 9%

·; Healthcare underlying1operating profit down from £36m to £27m

·; Proposed sale of Personal Care business for $709m (£452m)4 announced in early July withc £370m to be returned to shareholders

·; Return on capital employed (ROCE) on track for 15% by end of 2013

·; Interim dividend 5p up 6%

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

"We are encouraged by the progress of the continuing business in the first half and, in spite of a challenging trading environment, our overall performance was in line with our expectations.

Beverage Cans traded well with the global growth of specialty cans and the performance of the North American business overcoming cost headwinds. As indicated previously, we had some specific challenges in Healthcare.

We are pleased to have announced the proposed sale of the Personal Care business and our intention to return around £370m to shareholders once the transactions are completed.

In an increasingly uncertain macroeconomic environment, we will continue to focus on generating cash, managing costs and return on capital employed for the rest of 2012. Our progress to date gives us confidence of achieving our 15% return on capital employed target by the end of 2013."

Statutory results5

1 August 2012

Investors

Sandra Moura, Head of Investor Relations 020 7227 4100

Media

Claire Jenkins, Group Director Corporate Affairs 020 7227 4100

Richard Mountain/Andrew Lorenz, FTI Consulting 020 7269 7291

Live webcast

Please note that the usual half year presentation will be replaced by a webcast for analysts and investors at 9.00amUK time (4.00am Eastern time) hosted by Graham Chipchase and David Robbie. See details below:

Webcast: www.rexam.com 

Dial-in for Q&A: +44-20-3140-0668 or 0800-368-1950

+1-631-510-7490 or 1-866-928-6049

Participant PIN Code: 808655#

International Access Numbers: Click here 

Replay number: +44-20-3140-0698 or 0800-368-1890Access code: 385859#

At the end of the webcast the audience will be able to ask questions via phone using the dial in details above. We suggest participants dial in and register before the webcast presentation begins to avoid delays. 

Conference call

There will be a conference call hosted by Graham Chipchase and David Robbie at 9.30am Eastern time (2.30pm UK time). See details below:

Dial-in numbers: +1-480-629-9818 or 1-877-941-6009

Replay number: +1-800-406-7325Access code: 4551041#

A copy of this press release has been posted on the Rexam website, www.rexam.com.

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

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 total sales in 2011 (excluding Closures) were in the region of £4.7 billion. We have more than 80 plants in 25 countries and employ close to 19,000 people. Rexam is a member of the FTSE 100. 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 delivered an encouraging performance as we maintained our focus on cash, costs and return on capital employed. Underlying operating profit from continuing operations improved 2%, in spite of a number of headwinds including higher aluminium conversion and labour costs. The interim dividend has been increased by 6% to 5p per share. We successfully reached agreement on the disposal of Personal Care in early July. With return on capital employed (ROCE) at 14%, we remain on track to reach our target of 15% by the end of 2013.

We have consistently highlighted five areas which will help us attain this ROCE target: asset utilisation, efficiencies, innovation, growth in emerging markets and management of our portfolio.

Asset utilisation

Our asset utilisation is strong and progressing in all our regions. In Europe, utilisation improved as a result of higher volumes and in North America it increased as we started to recover volumes lost in 2011. There was also better utilisation in South America as market growth resumed and we started to recover some of the market share lost to additional competitor capacity in 2011. 

Efficiencies

We continued to drive operational excellence and delivered efficiencies of £11m from continuing operations in the first half. In the past we have targeted around £30m of savings per year from three key areas (raw material usage, lean manufacturing and supply chain savings) and have consistently delivered on this. Following the sale of Personal Care, which contributed some £8m of efficiencies in 2011, we are revising our efficiencies target for continuing operations to £25m per year.

Innovation

Innovation for our customers is an important driver of growth and improved returns. During the first half we invested in 24oz can capacity in Brazil to break into a market that is currently dominated by large returnable glass bottles that cater for the popular drink-sharing culture in bars. Other new products included the Fusion™ aluminium bottle for the Pepsi Twist as well as the introduction of Sleek™ cans to the Brazilian market.

Emerging markets

More than 30% of our revenues come from emerging markets and we are the leading beverage can manufacturer in three out of the four BRIC countries. While we remain watchful of trading conditions and committed to achieving our returns target in 2013, we continue to evaluate new opportunities across Central America through our operations in North and South America. In order to strengthen our focus on growth opportunities for beverage cans in Africa, the Middle East and Asia (AMEA), we are creating a new dedicated sector specifically for these markets.

Portfolio management

We announced the proposed sale of Personal Care in July for a total of $709m (£452m at the prevailing exchange rates on 3 July 2012). The business is being sold in two parts: the Cosmetics, Toiletries and Household Care products business (CTH) and the High Barrier Food packaging business (HBF). An affiliate of Sun Capital Partners Inc, a private equity firm, has made a binding offer for CTH for a total of $459m in cash, subject to consultation with various European works councils. A subsidiary of Silgan Holdings Inc, a leading US based supplier of packaging for consumer goods products, has agreed to acquire HBF for $250m in cash. The transactions are subject to the completion of certain legal formalities and regulatory approval.

As already announced, we intend to return around £370m of the proceeds to shareholders following completion of the disposals by way of a redeemable B share scheme, together with a share consolidation, a structure that gives shareholders flexibility in terms of tax treatment. At our current share price, the transaction together with the share consolidation, would be marginally accretive to earnings.

Group performance

In the first half of 2012, overall Group performance was in line with expectations. Total sales were £2,416m and total underlying operating profit was £271m. Underlying profit before tax was £225m and total underlying earnings per share was 18.2p.

For continuing operations (excluding Personal Care and Closures), sales were £2,165m (June 2011: £2,095m) with organic sales growth of 4% coming exclusively from Beverage Cans. Underlying operating profit increased to £253m (June 2011: £248m). Underlying profit before tax rose to £207m (June 2011: £204m) and underlying earnings per share rose 2% to 17.1p.

We continue to invest in the business, all the while maintaining a close watch on capital discipline and working capital management. Capital expenditure by continuing operations was £93m (June 2011: £78m), some 1.2 times depreciation and we expect this spend rate to increase in the second half of the year and to be in the region of £250m for the full year, excluding Personal Care. Free cash flow from continuing operations at the half year was down on last year at £31m (June 2011: £83m) mainly due to the higher investment.

As at 30 June 2012, net debt was £1.35bn. Our credit rating is investment grade with stable outlook with both Moody's and Standard & Poor's. Our next significant bond maturities are in the first half of 2013. Given the significant strengthening of our balance sheet we will only be looking to refinance a proportion of the maturing bonds. We are currently reviewing our refinancing options with a view to completing this refinancing during the second half of the current year.

Statutory results

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

OPERATING REVIEW

Beverage Cans

Beverage Cans overall performed above expectations with our global volumes increasing 6% on the equivalent period last year. There was growth in all three regions although growth in Brazil and in standard cans in Europe was slightly softer than anticipated.

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 6%. Organic underlying operating profit improved 9% to £226m driven by good volume growth in specialty cans, better than predicted volume recovery in North America, and continued delivery of efficiencies related to downgauging and lightweighting. The underlying operating profit margin improved to 11.6% due to good pricing, our continued focus on returns and in spite of the increased aluminium conversion costs (although these will be more heavily weighted to the second half of the year).

Beverage Can Europe & Asia

In Europe, our volumes grew 3% in line with the market. Standard can volumes, excluding Russia, were up by 1%, slowing down in the second quarter due to generally adverse weather, increased economic uncertainty and our focus on returns rather than volume in a region where utilisation levels are high. Specialty cans grew 10% on the equivalent period last year due to continued good growth in energy drinks, especially for export to North America and the rest of the world, and buoyed by new flavours and event specific cans.

In Russia, volumes were down 2% against a strong performance in the equivalent period in 2011, although the second quarter saw significant improvement on the first. We are considering adding a new plant further east of our current network once the impact of pending legislation on the sale of beer from kiosks becomes clearer.

The fitting out of the plant in Finland is going according to plan. We are well advanced and on track to start production as previously indicated in the first quarter of 2013. The plant will increase capacity by about 1.4bn standard cans. Capacity will come on stream through 2013 and 2014 as we optimise output, with volumes covered by signed contracts up to and including 2015.

We are also investing in a new specialty can line at the plant in Ludesch, Austria, which will increase our capacity by 700m cans and enable us to support the continued growth in specialty cans for export.

The installation of the high speed beverage can manufacturing line outside Mumbai, India, is also on schedule and production startup is set for the final quarter of 2012.

Beverage Can North America

Our North America can business traded well in the first half. While the market was flat, our own volumes grew 13%. Our specialty can volumes performed strongly, growing 25% mainly driven by increased sales of Sleek™ 8oz and 12oz cans for beer where the package differentiation is proving very popular with consumers. Standard cans were up 9% as we recovered around one third of the net can volume lost in 2011. As stated in the full year results announcement in February, we will recover most of the remaining standard can volumes next year as new contracts come into effect.

During the first half, we completed conversion to a lighter weight can end across our North America business, and announced an increase in specialty capacity with the conversion to Sleek and 16oz lines at our Chicago plant which are planned to start production in the fourth quarter.

Beverage Can South America

In South America, our overall can volume was up 3% in line with the market's can consumption growth (adjusting for cans imported in 2011 and the migration from steel to aluminium cans). In standard cans, we are starting to recover some of the share loss we saw last year when competitor capacity additions came on stream. Volumes have improved sequentially throughout the first half but the Brazilian economic backdrop is challenging. In addition, proposed increases on beverage taxes in the third quarter may have an adverse effect on consumption.

Consistent with our disciplined approach to capital expenditure, we continue to evaluate the timing of the opening of our new 1.2bn capacity can plant in Belém (announced in April 2011) and have deferred the opening of the plant until the first quarter of 2013.

Healthcare

Plastic Packaging (restated to exclude Personal Care) now only comprises Healthcare and will be reported as Healthcare going forward. Personal Care is reported as a discontinued operation, more details of which can be found in the Financial Review on page 13.

During the first half, organic sales in Healthcare were down 1%. Excluding resin pass through, sales were down 2%. There was good growth in a new range of insulin pens and multi layer containers but this was more than offset by a weak flu season in North America and the impact on the pricing of one of our key devices as the drug it delivers comes off patent next year.

Operating profit, as anticipated at the full year results announcement in February, was down due to the pricing impact of a drug patent expiration and further impacted by the lower prescription and primary packaging volumes. The drop in return on sales and return on net assets is a direct result of the lower pricing. For the second half, Healthcare profitability is expected to be at a similar level to that of the first.

Looking ahead, we continue to pursue opportunities to develop or co-develop solutions with pharmaceutical companies as they focus increasingly on their core business. We have a range of new products including insulin pens and the next generation of sophisticated drug delivery devices as well as innovative platforms for pumps and valves.

The extension of our plant in La Verpillière in France to accommodate increased volumes of insulin pens for global customers is progressing according to plan and is expected to be ready for production by the end of 2012. In India, we have also extended the plant to meet increased demand from local customers.

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 on page 26.

The Personal Care business was identified for disposal earlier this year and reclassified to discontinued operations. Discontinued operations in 2012 comprise the Personal Care business and in 2011 also include the Closures business which was sold last year.

Further details of the trading results of these businesses together with the background and accounting impact of the proposed disposal of Personal Care are set out in 'Discontinued operations' below.

The summary Group consolidated income statements for the six months to 30 June 2012 and six months to

30 June 2011 are set out below.

A summary of the statutory performance is set out below.

Results on a statutory basis include disposed businesses, currency translation and exceptional and other items and discontinued operations. The exceptional and other items and the results of discontinued operations are described in more detail on pages 11 to 13. For continuing operations, sales were £2,165m (June 2011: £2,095m) and profit before tax including exceptional and other items was £166m (June 2011: £192m). Total loss after tax for the period, including the results of discontinued operations, was £52m (June 2011: profit £132m) and total basic loss per share was 6.0p (2011: earnings per share15.1p).

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 Personal Care and Closures which are classified as 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 £93m, or 4%. In Beverage Cans, the increase was driven mainly by higher volumes across all regions together with good pricing offset by negative pass through of lower aluminium costs. In Europe, the volume improvement was focused on specialty can volumes in all markets and in North America by the recovery of contracted standard can volumes. For Healthcare, the reduction was primarily due to lower pricing on products coming off patent partly offset by passing through higher resin costs. Excluding the effect of cost changes of aluminium (-£25m) in Beverage Cans and resin (+£2m) in Healthcare which were passed through to customers, organic sales grew by £120m (6%) in Beverage Cans and fell by £4m (2%) in Healthcare.

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 £10m reflecting an improvement in specialty can volumes across the Beverage Cans business and continued efficiency savings offset in part by higher conversion costs in Beverage Cans and in Healthcare, by lower pricing and increases in costs.

Beverage Cans performance was driven by volume benefits in specialty cans globally and higher contracted standard can volumes in North America together with pricing in Europe and North America and efficiency benefits offset by some cost increases, principally aluminium conversion costs in Europe.

The environment continued to be challenging for Healthcare exacerbated by some products coming off patent which lowered pricing and volumes together with a weak flu season in North America. A continued focus on cost control and efficiency gains from operational improvements helped to mitigate pricing pressures and volume shortfalls.

Total efficiency savings in the first half, including £3m from the Personal Care business, were £14m. Taking into account recent disposals, the annual target for efficiency savings for continuing operations going forward is expected to be around £25m.

Profit after tax from our joint venture in Guatemala and associate in Korea was £4m (June 2011: £5m).

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 2012 is set out below:

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 and reduced net borrowings by £32m and equity by £52m.

Underlying total net finance cost

The underlying total net finance cost for continuing operations comprises:

The underlying total net finance cost increased marginally by £1m to £50m compared with the equivalent period last year. The increase in net interest of £1m is primarily due to changes in exchange rates. The overall average interest rate during the period was around 6% compared with 5% in the equivalent period last year principally due to the impact of low interest rates on cash deposits.

Based on reported underlying operating profit, interest cover was 6.3 times compared with 6.7 times for the six months to June 2011. Interest cover is based on underlying operating profit from total operations 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 2012 on total operations was £67m (30%) (June 2011: £71m (30%)). The rate applicable to continuing operations is lower, at 28%, as the Personal Care business principally operates in territories which have higher rates. The rates for the six months to 30 June 2012 are also expected to be the rates for the year to 31 December 2012, reflecting 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 for continuing operations were £41m compared with £29m for the equivalent period last year with an additional £7m (June 2011: £7m) being borne by discontinued operations. Whilst in the current period cash tax payments benefited less than in 2011 from the utilisation of deferred tax assets and the phasing of tax payments, we anticipate cash tax to continue to be lower than the charge to the income statement.

Exceptional and other items

The exceptional and other items arising in 2012 in respect of total operations are as follows:

Exceptional items

Impairment of intangible assets and property, plant and equipment

The impairment charge of £181m on discontinued operations relates to the impairment of goodwill arising on the reclassification of the Personal Care business to discontinued operations (see 'Discontinued operations') in 2012.

Restructuring of businesses

The charge of £2m arising in the first half relates to the final stages of the restructuring programme initiated following the disposal of the Closures business in 2011.

When we announced the sale of Personal Care in July 2012, we stated that we would need to carry out a restructuring programme to remove residual overheads which, together with certain separation costs, will give rise to an exceptional charge of some £40m in the second half of 2012. It is expected that the cash costs in 2012 and 2013 will be in the region of £25m, the precise timing will be determined following completion of the disposals.

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 £12m before tax (June 2011: £14m) for total 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 resin and the fair value movements on non hedge accounted forward exchange contracts. Accounting rules require that the effectiveness of our commodity hedges is tested at each reporting 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 and metal premium 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. The decrease in aluminium prices combined with an overall increase in conversion cost has resulted in some of our aluminium hedges failing the effectiveness test or being deemed over hedged, giving rise to a charge of £17m (June 2011: £nil). Revised accounting standards are being drafted which will address this particular anomaly but they are not currently expected to be implemented before 2015. There was a further charge of £1m (June 2011: £nil) relating to fair value changes on certain non hedge accounted forward 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 a net loss of £12m (June 2011: net gain £5m). 

Discontinued operations - Personal Care and Closures

In the first half of 2012 the Group decided to market the Personal Care business, including the High Barrier Food packaging business, for disposal. The Personal Care business was therefore reclassified as a discontinued operation and consequently its results are disclosed separately from those of the continuing operations. In July 2012 the Group announced the proposed sale of the Personal Care business subject to the completion of certain legal and regulatory processes as described in more detail in the Business Review.

The decline in underlying performance of Personal Care reflects the impact of lower volumes and a less favourable mix partly offset by benefit of efficiency and other cost savings.

The decision to market the Personal Care business for disposal required its carrying value to be subject to an impairment review. This review gave rise to an impairment charge before tax of £181m on the Cosmetics, Toiletries and Household Care products business. However, it is anticipated that this impairment will be substantially offset in the second half of 2012 by the expected profit arising on the sale of the High Barrier Food packaging business and related tax credits together with a positive foreign exchange translation movement reflected in reserves to the date of disposal which will be recycled back to the income statement. This latter 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.

In the event that the disposals are completed as expected in the second half, additional restructuring will be required to address the level of shared service administration support and to rationalise those retained facilities which share production sites with the Healthcare division as discussed under 'Exceptional and other items' above.

Earnings per share

1 The calculation of the average number of shares excludes 7.5m shares held by the Rexam Employee Share Trust (June 2011: 2.5m, December 2011: 7.5m).

Underlying earnings per share from continuing operations was 2% higher at 17.1p compared with 16.7p in the comparable period. Basic loss per share from total operations, which includes exceptional and other items, was 6.0p (June 2011: earnings per share15.1p) principally reflecting the impairment charge arising on Personal Care goodwill partly offset by the improvement in underlying profit.

Retirement benefits

Retirement benefit obligations (net of tax) on the balance sheet at 30 June 2012 were £370m compared with £371m at 31 December 2011. This small reduction was principally due to additional cash contributions in respect of deficit funding for the US defined benefit plan, as discussed below, being offset by higher service cost and actuarial losses. The changes to the actuarial value of retirement benefits at the balance sheet date, a loss of £17m net of tax principally due to lower discount rates, are included in the consolidated statement of comprehensive income.

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

As part of the 31 March 2011 UK valuation, Rexam PLC and the trustees to the UK defined benefit plan agreed a six year escrow investment with contributions of £10m in 2012 and £15m for each of the following five years. At each subsequent valuation date, the assets in escrow will either be allocated to the plan, to Rexam PLC or remain in escrow subject to the funding position of the plan. As at June 2012 £3m 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 £53m compared with £46m in 2011, excluding amounts paid into escrow.

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

IAS19 (Revised) 'Employee Benefits', issued in June 2011, requires the immediate recognition of all changes to the funded position of retirement benefit plans and changes the basis upon which income and expense is calculated for recognition in the income statement and the statement of comprehensive income. The Group intends to adopt IAS19 (Revised) for the accounting period beginning on 1 January 2013. On restatement in 2013 of the 2012 half year results, it is expected that underlying operating profit would be reduced by £4m and the retirement benefit net finance cost would be increased by £4m.

Cash flow

Free cash flow for the period was an inflow of £31m compared with £96m for the six months to June 2011. This principally reflects higher capital expenditure, which is discussed more fully in 'Capital expenditure' below, and working capital outflows. Working capital outflow from continuing operations in the first half was £106m, higher than the outflow reported in the equivalent prior period of £69m due principally to higher sales and building inventory for the summer season.

Capital expenditure - continuing operations

Capital expenditure includes computer software that has been capitalised. Amortisation excludes £9m (June 2011: £10m, December 2011: £19m) 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 £93m, close to 1.2 times underlying depreciation and amortisation. The principal projects in Beverage Cans are to support market growth in Europe, India and South America, lightweighting projects in North America and the development of specialty can products globally. Healthcare investment continues to be focussed on new products for customers.

It is anticipated that capital expenditure for the year by continuing operations, which exclude Personal Care, will be around 1.5 times depreciation and amortisation, or about £250m, arising mainly on the projects outlined above.

Balance sheet and borrowings

Return on capital employed (ROCE) has increased to 14.0%, in line with our commitment to deliver a ROCE of 15% by 2013. Net borrowings have increased marginally since December 2011 due to net cash outflow in the period offset by favourable currency movements. Equity has reduced due to the reported loss for the period, the dividend payment, impact of changes on net investment and cash flow hedges and actuarial losses on retirement benefits. Consequently, gearing has increased from 57% to 64%. The Group remains comfortably within its debt covenants and has committed debt facility headroom of around £1.2bn.

Net borrowings, which include interest accruals and certain financing 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 reduction in the value of cross currency swaps since December 2011 is mainly attributable to the weakening of the euro. The decrease in value of operating derivatives during the first half of 2012 was due mainly to the fall in aluminium prices.

Risks

The principal risks and key mitigation actions taken to manage those risks are described in more detail in the Annual Report 2011 on pages 34 to 41 and in Note 26 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 and 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

o Fraud, bribery and internal control

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 together with established agreements with a number of key customers and suppliers across different geographic areas and markets. The financial resources include £2.8bn of debt facilities with the next significant maturities due in March 2013 (£0.5bn) and June 2013 (£0.5bn). 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.

Interim dividend

Reflecting the strong balance sheet, continued good cash flow, the improvement in profits and our progress since 2010, the Board is increasing the interim dividend by 6% to 5p per share. The interim dividend will be paid on 4 September 2012 to holders of shares registered on 10 August 2012.

Summary and outlook

We are encouraged by the progress of the continuing business in the first half and, in spite of a challenging trading environment, our overall performance was in line with our expectations.

Beverage Cans traded well with the global growth of specialty cans and the performance of the North American business overcoming cost headwinds. As indicated previously, we had some specific challenges in Healthcare.

We are pleased to have announced the proposed sale of the Personal Care business and our intention to return around £370m to shareholders once the transactions are completed.

In an increasingly uncertain macroeconomic environment, we will continue to focus on generating cash, managing costs and return on capital employed for the rest of 2012. Our progress to date gives us confidence of achieving our 15% return on capital employed target by the end of 2013.

1 August 2012

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

Approved by the Board on 1 August 2012

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 2012 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 2011 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 have been restated to reflect Personal Care within discontinued operations. 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 2011.

The following accounting 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 2011 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 operating and 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 performance.

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 Healthcare. 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. Healthcare comprises rigid plastic products for customers in the Healthcare markets. During the six months to 30 June 2012, Personal Care (comprising the Cosmetics, Toiletries and Household Care products business and the High Barrier Food packaging business) was marketed for sale and consequently reported within discontinued operations in the segment information set out below. Previously, Personal Care and Healthcare comprised the Plastic Packaging segment.

(i) Segment results