Half Yearly Report

Strategy on track despite challenging first half conditions

2 August 2013

Rexam, the global consumer packaging company, announces its results for the first half of 2013.

Continuing operations underlying performance1

Highlights

·; Global beverage can volume growth 1% reflecting a challenging trading environment

·; Underlying profit before tax3 (including Healthcare) £192m in line with market consensus

·; Return on capital employed 13.7% (H1 2012: 13.8%4)

·; Process to divest Healthcare under way

·; Interim dividend up 14% to 5.7p

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

"It has been a challenging first half against a difficult macroeconomic backdrop. However, we have responded swiftly by accelerating our cost mitigation measures and maintaining our capital discipline. We continue to expect our full year performance to show improvement over 2012.

"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.

"We continue with our proven strategy of optimising cash, managing costs and driving return on capital employed. Our ROCE target remains 15%, and we are committed to maintaining returns around that level as we take advantage of the opportunities to grow the business and maximise shareholder value."

Statutory results5

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. 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.

The 09:00 UK conference can also be accessed via audio link by dialling:

UK: + 44 (0)20 3139 4830 

US: +1 718 873 9077

Access code: 23975974#

At 09:30 Eastern time on Friday August 2 (14:30 UK time) Graham Chipchase and David Robbie will host a conference call:

Dial-in numbers: +1-480-629-9692 or 1-877-941-8609

Replay number: +1-800-406-7325

Access code: 4621966#

A replay service will be available until 16 August 2013:

UK Toll Free: +44 (0)20 3426 2807 

US Toll Free: +1 866 535 8030

Password: 639537#

Enquiries

Investors

Sandra Moura, Head of Investor Relations, Rexam +44 20 7227 4100

Media

Jonathan Thornton, Head of Communications, Rexam +44 20 7227 4100

Katharine Wynne, Tulchan Communications +44 20 7353 4200

Martin Robinson, Tulchan Communications +44 20 7353 4200

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.

Editors' notes:

Rexam is a global consumer packaging company. We are one of the leading global beverage can makers and a major global player in rigid plastic packaging for healthcare applications. 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.

We have 67 manufacturing plants in 24 countries and employ around 11,000 people. Our reported sales from continuing operations in 2012 were in the region of £4.3 billion.

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. Visit www.rexam.com for further information.

BUSINESS REVIEW

Trading was challenging during the first half of the year. While the North American beverage can operation continued to experience strong growth as we recovered market share, a combination of subdued macroeconomic conditions and adverse weather in most of Europe depressed demand for beverage cans. Performance in South America was also softer than expected, particularly in Brazil, where economic growth slowed and capacity constraints in specialty cans restricted our volume growth.

As a Group, we are managing the business to overcome these challenges, focusing on cost mitigation actions over and above our commitment to lean manufacturing. These include supply chain savings as well as reductions in SG&A.

Underlying operating profit from continuing operations was £217m. Notwithstanding our cost mitigation activity, which will have a greater benefit in the second half of this year, profit was impacted by a number of cost headwinds as described in our 2012 full year results. These include aluminium and conversion premiums as well as labour costs. There was also an adverse mix impact reflecting lower sales in Europe, especially Russia.

Our underlying earnings per share grew by 7% due to the share consolidation following the return of cash earlier this year. The interim dividend has been increased by 14% to 5.7p per share; higher than the EPS growth, reflecting the board's confidence in the Group's future and our expectation that profits in 2013 will be more heavily weighted to the second half of the year.

Return on capital employed (ROCE) was 13.7 % compared with13.8% in the first half of 2012 (restated for IAS19 (Revised)). With a higher proportion of underlying profit expected to come in the second half of the year, we continue to target 15% ROCE and are committed to maintaining returns around that level as we take advantage of the opportunities to grow the business and maximise shareholder value.

Maintaining our focus

Our business model centres on creating shareholder value by focusing consistently on optimising cash, managing costs and driving return on capital employed. The model is based on sales growth slightly above the GDP of the countries in which we operate. Volume growth in the first half of the year (discussed more fully by region on pages 5 and 6) was volatile in a difficult macroeconomic environment. Against this backdrop of uncertainty, we will maintain our focus on the five levers we have constantly highlighted to ensure we are well placed strategically when the trading environment improves: asset utilisation, efficiencies, innovation, growth in emerging markets and management of our portfolio.

Asset utilisation

Asset utilisation remained percentage-wise in the low nineties for the Group as a whole. In Europe, asset utilisation is in the low nineties reflecting the start-up of the new plant in Finland early in the year and including the fourth line in Ludesch, Austria, which comes on stream in the third quarter of this year.

In North America, utilisation has increased from the mid eighties to the low nineties as we complete the recovery of market share lost at the end of 2010.

In South America, utilisation has declined to the low eighties due to the market weakness in standard cans. In Brazil, we are evaluating options to convert standard can capacity to specialty cans so that we can participate more fully in the growth of this segment but will only do so if the returns are attractive.

Our aim is to invest carefully for future growth. In Egypt, we are planning to speed up a line so we can compete in a new can size which is currently being imported. We are investing in the Fusion Contour™ bottle in the Czech Republic as well as in a new beverage can plant in Widnau, Switzerland, to support the growth of energy drinks.

Efficiencies

A relentless focus on costs is key in the beverage can making industry. We delivered efficiencies of £13m in the first half from total operations, including £3m from Healthcare, mainly from raw material usage and lean manufacturing savings. In addition to these planned continued efficiency savings, we have delivered further cost mitigation actions during the first half to help offset the impact of lower volumes. These include reductions in SG&A as well as supply chain and procurement savings as we experienced better than expected benefit from our focus on global procurement.

The world class standards of our manufacturing operations was again acknowledged externally as our beverage can plants in Extrema, Manaus and Cuiabá in Brazil were recognised by The Shingo Institute - a global reviewer of operational excellence. They join two other Rexam plants recognised in 2012.

Innovation

Innovation adds value, helps to deliver stand out appeal and is an important driver of growth and improved returns for our customers.

During the first half we were the first in the market in Europe to offer thermochromic printed ends (in addition to cans) to customers. Thermochromic inks change colour to indicate when the can is perfectly chilled and ready for consumption.

Photochromic ink is another innovation. The transparent ink reacts and changes colour outdoors when exposed to natural daylight adding value and driving greater interaction between the brand and the end consumer. This finish is now available on Rexam's complete beverage can range.

Emerging markets

Around one third of our sales comes from emerging markets. We opened an office in Dubai earlier this year to focus on growth in Africa, the Middle East and Asia (AMEA) and we are making encouraging progress in pursuing greenfield or joint venture opportunities in beverage cans in the faster growing regions around the world such as Central America, Sub-Saharan Africa, the Middle East, India and South East Asia. In line with our disciplined approach, we will pursue opportunities with a strong focus on returns.

Portfolio management

At the end of June we announced that we had initiated the process to sell the Healthcare business. There has been considerable interest shown in the business, which represents 10% of total Group sales.

Whilst the process is under way, it is too early to discuss use of proceeds. We have already stated that there are a number of options including organic investment in new and existing geographies, bolt on acquisitions and, of course, returning cash to shareholders. However, we will be disciplined in terms of capital allocation and ensure we maximise shareholder value. 

There will be no depreciation charged on Healthcare assets held for sale and this will provide some benefit to ROCE in 2013.

Group performance

In the first half of 2013, overall Group performance was slightly below our expectations. Total sales were £2,195m and total underlying operating profit was £240m. Total underlying profit before tax was £192m while total underlying earnings per share was 17.3p.

For continuing operations (which excludes Healthcare and Personal Care), reported sales were up 1% to £1,971m (June 2012 restated: £1,946m) driven by 1% can volume growth and the benefits of foreign exchange translation from the stronger US dollar and euro. Organic sales, which adjust for the impact of foreign currency translation, were down 1% primarily due to the pass through of lower aluminium costs which were around 10% lower than the equivalent period in 2012. Reported underlying operating profit was down 2% to £217m (June 2012 restated: £222m) and organic profit declined 4% as higher costs offset the volume growth and foreign currency benefits. Underlying profit before tax was £169m (June 2012 restated: £173m), helped by £5m of foreign exchange translation benefit, and underlying earnings per share rose 7% to 15.6p reflecting the impact of the share consolidation in January 2013.

Net capital expenditure in continuing operations was £91m (June 2012 restated: £79m), some 1.3 times depreciation, as we maintained a close watch on capital discipline. Free cash flow from continuing operations at the half year was £1m (June 2012 restated: £29m).

As at 30 June 2013, net debt was £1.4bn. Our credit rating is investment grade with stable outlook with both Moody's and Standard & Poor's.

Statutory results

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

OPERATING REVIEW

Beverage Cans

Beverage Cans global volumes increased 1% compared with the equivalent period last year. North America continued to perform strongly as it benefited from volumes recovered but volumes in South America and Western Europe in the second quarter proved disappointing. Alongside weak macroeconomic conditions, the unseasonably cold weather reduced consumer demand in key European markets. In South America, in addition to inflationary pressures on discretionary consumer spending and some market share loss reflecting changing demand patterns, we faced capacity issues in meeting demand for specialty cans but this should ease as the new Belém plant ramps up production.

Organic sales were down 1% as the volume growth was offset by the pass through of lower aluminium prices.

Organic operating profit was down 4% at £217m. This was mainly due to the anticipated higher metal conversion and premium costs in both Europe and South America. The effect was compounded by a weaker mix as the share recovery in lower margin standard cans in North America was offset by the negative mix impact of weaker volumes in Europe (especially Russia).

In the second half, we expect the headwinds of aluminium premiums and conversion costs to have less of an effect and we will see a greater benefit from our cost mitigation actions.

Beverage Can Europe including AMEA

In Europe, the macroeconomic backdrop was challenging. Poor weather over much of the region and the late arrival of summer in many countries delayed the start of the traditionally busy summer season. Excluding Russia, the beverage can market grew 1%.

Our own volumes, excluding Russia, also grew 1%, with strong growth in Scandinavia offset by weaker performance in UK, Benelux and Spain. Standard can volumes, again excluding Russia, grew 2% despite the tough macroeconomic background and poor weather. Specialty cans were 1% lower compared with the equivalent period last year but there was good growth in energy drinks.

Countries and regions that were weak in the first six months, such as the UK, picked up strongly during the first half of July, posting double digit volume growth. The level of market uncertainty makes it difficult to predict if this will have an effect on full year growth expectations. Despite this, our price/volume arrangements with certain customers give us some comfort on volume progression.

In Russia our volumes were down 12% mainly due to new competitor capacity coming on stream as expected. The market was also affected by new legislation regarding the sale of beer and, although the change in regulations reduced beer volumes overall by mid single digits, the impact on beverage cans, as anticipated, was less dramatic with beverage cans for beer only down 2% in the half.

We saw volume growth across the AMEA region driven by specialty cans in particular. Social unrest in Egypt and Turkey may disrupt volumes in coming months and we remain watchful of trading conditions.

In the first quarter of 2013 we started production of standard cans at the new plant in Finland to serve the growing Scandinavian market. We also announced that we are to build a new beverage can plant in Widnau, Switzerland, as part of our focus to support global growth of a key customer. It will be the first beverage can plant in this country and represents an investment of some £115m over three years. The first line is expected to come on stream in 2015. In Italy, the conversion of one of our three lines to a 33/50cl swing line will improve our ability to serve the market.

In India, the successful conversion of the line from steel to aluminium cans has boosted volumes and we saw significant year on year growth in this market albeit from a low base.

Beverage Can North America

The North American beverage can market overall declined 4% during the first six months of the year led by a drop in carbonated soft drinks (CSDs) sales largely driven by cooler weather. Our North American can business, however, traded well and our own volumes grew 7% on the equivalent period last year. Standard cans were up 11% as we continued to regain share. Our specialty can volumes overall were down 6% mainly as a result of tough comparators in the prior year period although there was some good growth in certain specialty can sizes.

The North American business maintained its strong focus on cost reduction efforts, targeting continued improvement in asset utilisation, efficiencies and material usage.

Beverage Can South America

We have previously noted the weakening macroeconomic back drop in South America where GDP forecasts have been revised downwards. Inflationary pressures and consumers' reaction to declining disposable incomes have also been well documented in recent news coverage.

Trading in South America was volatile. In Brazil, the can market grew more than 4% driven by significant growth in specialty cans. Our own volumes overall were down 3%, with a 9% decline in standard cans partially offset by a strong 17% increase in specialty cans as customers prioritised variety in can sizes to differentiate their products and achieve attractive price points. Our standard can volumes were affected by our exposure to one of the major brewers. We also lost some market share as competitors invested in the north and south of Brazil where location is key to supply.

We recognise the inherent uncertainty in the Brazilian market but in June volumes began to improve in conjunction with the success of the Confederations Cup and this growth continued into July. The start-up of the Belém plant in the north of the country will enable us to participate in the growth in the region and regain market share. We are converting additional lines to specialty can production in locations close to our customers' filling operations. 

There was sound growth in Chile while in Argentina volumes improved significantly, driven by the additional demand for energy drinks in specialty cans and by customers' strategies to stimulate single serve packages.

Discontinued operations - Healthcare

Healthcare is a good business with an attractive portfolio of products and a strong innovation pipeline. It has market leading positions for its products and strong global relationships. These were further strengthened through a recent multiyear collaboration and supply agreement with a major global healthcare company. It is, however, only 10% of our turnover and is regarded as non core. On 25 June 2013, we announced that, in line with our long term strategy to focus on beverage cans and maximise shareholder value, the Board had initiated a process to divest the Healthcare business. Healthcare is therefore being reported as a discontinued operation, and more details can be found in the Financial Review on page 14.

Although the business stabilised during the first half, organic sales were down slightly. In our Pharma operation, strong growth in insulin pens in Europe was somewhat offset by lower demand for asthma inhalers in North America. Good growth in the US based Prescription Packaging business following an aggressive flu season was largely offset by volume decline in the Primary Packaging business as a result of reduced market growth and stronger price competition.

In terms of organic operating profit, efficiencies from lean manufacturing and improved labour usage as well as good growth in the higher margin Pharma and Prescription packaging were offset by volume decline and pricing pressure in Primary Packaging. This is in addition to price reductions aligned to price/volume agreements which are helping to support volume growth in Pharma. We are taking action to mitigate costs further in Primary Packaging in the second half of the year.

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 27.

The Healthcare business was identified for disposal earlier this year and reclassified to discontinued operations and as an asset held for sale in June 2013. Discontinued operations in 2013 comprise the Healthcare business and in 2012 also include the Personal Care business which was sold in that year. Further details of the trading results of these businesses are set out in 'Discontinued operations' below.

The summary Group consolidated income statements for the six months to 30 June 2013 and six months to

30 June 2012 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 on pages 12 to 14. For continuing operations, sales were £1,971m (June 2012 restated: £1,946m) and profit before tax including exceptional and other items was £128m (June 2012 restated: £142m). Total profit after tax for the period, including the results of discontinued operations, was £106m (June 2012 restated: loss £57m) and total basic earnings per share was 13.3p (June 2012 restated: loss per share 6.6p).

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 Healthcare and Personal Care 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, decreased by £25m, or 1%. This was driven mainly by the negative pass through of lower aluminium costs (£28m). Excluding this and the 2012 sales from our divested Chinese beverage can business, sales were £8m higher than the prior year. Volumes improved significantly in North America due to the recovery of contracted standard can volumes, whilst in Russia and South America volumes were below last year, reflecting softening market demand and some loss of market share. Sales growth was marginally lower than volume growth due to the mix impact of lower priced North American volumes.

Analysis of underlying operating profit movement

Analysis of the organic change in Beverage Cans underlying operating profit:

Underlying operating profit, after adjusting for the impact of discontinued operations and currency, decreased by £10m. Sales price and cost changes were adverse in the first half, predominantly from higher aluminium premium and conversion costs, partly offset by cost mitigation plans. Volume growth in North America due to share recovery in standard cans was reduced by the negative mix impact of weaker volumes in South America and Europe (especially Russia). Efficiency savings totalled £10m and comprised metal savings and energy cost reductions.

Profit after tax from our joint venture in Guatemala and associate in South Korea was £4m (June 2012: £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 2013:

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 are largely hedged and therefore did not impact underlying profit in the first half of this year.

The current political situation in Egypt has led to the devaluation of the Egyptian Pound (EGP) by around 10% against the US dollar since the beginning of the year, resulting in a £1m foreign currency transaction loss in the half year. The exposure arises due to the current restrictions on obtaining foreign currency in Egypt which has meant we are unable to convert our EGP sales receipts into other currencies, which is our normal practice. Therefore our EGP cash balance is likely to increase and be exposed to any potential further currency devaluation.

Consolidated balance sheet

Most of the Group's net borrowings are denominated in US dollars and euros. Currency movements increased net borrowings by £75m and equity by £67m in the period.

Underlying total net finance cost

The underlying total net finance cost for continuing operations comprises:

The underlying total net interest cost remained broadly flat at £44m compared with £42m in the equivalent period last year. The overall average interest rate during the period was around 6% (June 2012: 6%). Based on continuing underlying operating profit, interest cover was 4.9 times compared with 5.3 times for the six months to June 2012. Interest cover is based on underlying operating profit from continuing operations divided by underlying net interest excluding charges in respect of retirement benefit obligations.

Following repayment of bonds and the drawdown of new, lower cost debt, we expect our average interest rate to reduce from 6% in the first half to around 4% in the second half of 2013.

Tax

The tax charge on profit before exceptional and other items for the six months to 30 June 2013 on total operations was £54m (28%) (June 2012: £64m (29%)). The rate applicable to continuing operations is lower, at 27%, as the Healthcare operations which have been included in discontinued operations are generally in more highly taxed territories. The rates for the six months to 30 June 2013 are also expected to be the rates for the year to 31 December 2013, 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 £35m compared with £37m (restated) for the equivalent period last year with an additional £5m (June 2012 restated: £11m) being borne by discontinued operations. 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 2013 in respect of total operations are as follows:

Exceptional items

Restructuring of businesses

The charge of £3m arising on discontinued operations in the first half relates mainly to the closure of our remaining Personal Care site in Tianjin, China. 

Disposal of businesses

The credit of £6m relates to the finalisation of the disposal of Personal Care.

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 £9m before tax (June 2012: £12m) 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 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 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. Revised accounting standards are being drafted which will address this particular anomaly but they are not currently expected to be implemented before 2015.

In 2012, the effect of the movement in conversion costs against the movement in the aluminium price resulted in aluminium hedges failing the effectiveness test. Once a hedge has failed an effectiveness test, fair value movements will continue to be recorded in the income statement. The decrease in aluminium prices on these previously failed aluminium hedges has given rise to a charge of £41m (June 2012: £17m). The majority of this charge is expected to reverse within the next 12 months as the aluminium forward deals mature. There was also a gain of £2m (June 2012: charge £1m) relating to fair value changes on certain non-hedged accounted 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 a net loss of £1m (June 2012: net loss £12m).

Discontinued operations - Healthcare and Personal Care

In June 2013 the Group decided to initiate the process to market the Healthcare business for disposal. The business was therefore reclassified as a discontinued operation and consequently its results are disclosed separately from those of the continuing operations.

Healthcare organic sales were 2% lower than 2012. There was good growth in insulin pens and prescription containers in North America, but this was offset by weaker sales in Primary Packaging.

The decrease in underlying operating profit in Healthcare was mainly due to softness in the Primary Packaging business. This was partly mitigated by growth in the Prescription Packaging business as well as good growth in Pharma driven by insulin pen sales together with efficiency savings.

Earnings per share

1 The calculation of the average number of shares excludes 6.0m shares held by the Rexam Employee Share Trust (June 2012: 7.5m, December 2012: 7.5m).

Underlying earnings per share from continuing operations was 7% higher at 15.6p compared with 14.6p in the comparable period. The average number of shares in issue has reduced following the share consolidation in January 2013 that accompanied the return of cash. Basic earnings per share from total operations, which includes exceptional and other items and discontinued operations, was 13.3p (June 2012 restated: loss per share 6.6p).

Retirement benefits

Retirement benefit obligations (net of tax) on the balance sheet at 30 June 2013 were £297m compared with £355m at 31 December 2012. This reduction was principally due to actuarial gains of £67m arising from higher discount rates. These actuarial gains are included in the consolidated statement of comprehensive income.

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

In 2012, the trustees of 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 2013 £18m 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 £49m compared with £51m in 2012, excluding amounts paid into escrow.

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

IAS19 (Revised) 'Employee benefits' has been adopted by the Group from 1 January 2013 and the comparative figures have been restated accordingly. The retirement benefit obligations net interest cost reduced to £8m from £11m in June 2012 due mainly to a reduction in the discount rates and a lower net deficit at 31 December 2012 compared to 31 December 2011.

Cash flow

Free cash flow for the period was £nil compared with £31m for the six months to June 2012. Working capital outflow from continuing operations in the first half was £77m, lower than the £87m outflow in the equivalent prior period. Capital expenditure was £12m higher than 2012 due to the phasing of projects. Other movements include a £22m cash settlement of the 2010 long term incentive plan awards for which the income statement charge was recorded over the related three year period (2010-2013). In the first half £393m, arising from the sale of Personal Care in 2012, was returned to shareholders.

Capital expenditure - continuing operations

Capital expenditure includes computer software that has been capitalised. Amortisation excludes £1m (June 2012 restated: £1m, December 2012 restated: £1m) 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 £91m, 1.3 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.

It is anticipated that capital expenditure for the year by continuing operations, excluding Healthcare, will be around 1.5 times depreciation and amortisation, arising mainly on the projects outlined above.

Balance sheet and borrowings

As at 31 December 2012 the net asset value of the Healthcare business was £725m. The increase in the net asset value to £778m at 30 June 2013, reported as net assets classified as held for sale, is primarily the result of the US dollar and euro strengthening against sterling in the current period.

Return on capital employed (ROCE) has decreased from 14.5% in December 2012 (restated) to 13.7% based on the annualised first half profit. We are still targeting 15% ROCE despite a difficult trading environment. ROCE will be aided by our expectation that trading performance will improve in the second half and no depreciation will be charged on our Healthcare fixed assets following classification as net assets classified as held for sale. Net borrowings have increased from £781m at December 2012 to £1,366m at June 2013 reflecting £393m returned to shareholders, a net cash outflow in the period and adverse currency movements. Equity has reduced due to the return of cash to shareholders, the dividend payment, the impact of changes on net investment and cash flow hedges, offset by profit for the period and actuarial gains on retirement benefits. Consequently, gearing has increased from 34% at December 2012 to 67%.  The Group remains comfortably within its debt covenants and has committed debt facility headroom of around £0.7bn.

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 decrease in value of operating derivatives during the first half of 2013 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 2012 on pages 40 to 47 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, together with actions and processes to mitigate these risks, is monitored by the executive leadership team, the Audit and Risk Committee and the Board on a regular basis.

Detailed below is a summary of the key risks for the Group as a whole, as set out in the Annual Report 2012. 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 in certain markets

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

o Changes in packaging legislation and regulatory environment

o Insufficient talent or knowledge capital

·; 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

o Cyber attack and data security

·; Financial risks

o Funding, currency exposures, credit and tax risks

o Retirement benefits

o Fraud, bribery and internal control failure

The principal risks identified above will continue to affect the Group in the second half of the year, although uncertainties surrounding some of 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 around £2.2bn of debt facilities with the next significant maturities due in November 2017 (£0.8bn). 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

The Board increased the interim dividend by 14% to 5.7p per share. The interim dividend will be paid on

11 September 2013 to holders of shares registered on 16 August 2013. The increase reflects the Board's confidence in the Group's future and is in line with our dividend policy to have a dividend cover in the range 2.0 to 2.5 times underlying earnings.

Summary and outlook

It has been a challenging first half against a difficult macroeconomic backdrop. However, we have responded swiftly by accelerating our cost mitigation measures and maintaining our capital discipline. We continue to expect our full year performance to show improvement over 2012.

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.

We continue with our proven strategy of optimising cash, managing costs and driving return on capital employed. Our ROCE target remains 15%, and we are committed to maintaining returns around that level as we take advantage of the opportunities to grow the business and maximise shareholder value.

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

Approved by the Board on 2 August 2013

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 2013 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 2012 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.

In preparing this condensed set of financial statements, comparative amounts have been restated toreflect the following:

In all other respects, 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 2012.

IFRS9 'Financial Instruments', issued in November 2009, is not yet effective and has not been early adopted by the Group. This standard is the first step in the process to replace IAS39 'Financial Instruments: Recognition and Measurement'. The standard introduces new requirements for classifying and measuring financial assets. The Group intends to adopt IFRS9 no later than the accounting period beginning on 1 January 2015, subject to endorsement by the European Union. The Group has yet to assess the full impact of this accounting standard. There are no other IFRS or IFRIC interpretations not yet effective that would be expected to have a material impact on the Group.

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 2012 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 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 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 one reportable segment. Beverage Cans comprise aluminium and steel cans for a wide variety of beverages including carbonated soft drinks, beer and energy drinks. Healthcare is currently being marketed for sale and has been reported within discontinued operations in the segment analysis set out below. Healthcare was previously a separate reportable segment. Healthcare comprises rigid plastic devices and packaging for customers in the Healthcare markets.

3 Exceptional items - continuing operations

There were no exceptional items from continuing operations for the six months to 30 June 2013 or 30 June 2012 (restated). Exceptional items before tax for 2012 (restated) comprised £25m for restructuring costs, including £16m for onerous leases and £7m of environmental provisions.

4 Retirement benefit obligations