24th Aug 2006 07:01
Rexam PLC24 August 2006 Rexam delivers solid performance in challenging cost climate Rexam, the global consumer packaging group and the world's No 1 beverage canmaker, announces its results for the six months to 30 June 2006. Underlying performance 1 6 months to 6 months to 30.06.06 30.06.05 ChangeSales from ongoing operations 2 £1,811m £1,504m +20%Underlying operating profit from ongoing £194m £192m +1%operations 2Underlying profit before tax £137m £141m -3%Underlying earnings per share 18.4p 17.8p +3%Dividends per share 7.9p 7.52p +5% Highlights • Strong sales growth - ahead by 20% ongoing, 9% organic• Beverage can market share gains help drive 11% volume increase• Plastics acquisitions integrating well• Further acquisitions in emerging markets• Stable profits: high input costs offset by growth from acquisitions• Free cash flow good at £30m• Significant investments in growth initiatives• £18m cost efficiencies achieved Rolf Borjesson, Rexam's Chairman, commented: "During the first half of 2006 Rexam delivered strong top line growth, good cashflow, significant market share gains and a solid profit performance. Ourongoing pricing, innovation and cost efficiency initiatives are proceedingaccording to plan. Despite the challenging cost climate our industry is facing,trading remains in line with our expectations and we expect to make progress inthe second half. Looking forward, we will focus on managing our margins throughpricing and cost efficiencies and strengthening our businesses through ourstrategy for organic and acquisitional growth." Statutory results 3 6 months to 6 months to 30.06.06 30.06.05 Sales £1,845m £1,564m Operating profit £212m £167m Profit before tax £170m £119m Basic earnings per share 22.5p 13.3p Notes1 Underlying performance is before exceptional items.2 Ongoing operations reflect underlying performance excluding businesses that have been disposed or that are held for sale in either 2006 or 2005.3 For statutory results, profits and earnings include exceptional items. Enquiries Rexam PLC 020 7227 4100Lars Emilson, Chief ExecutiveDavid Robbie, Finance DirectorAndrew Mills, Group Communications Director Financial Dynamics 020 7269 7121Richard Mountain/David Yates 24 August 2006 Rexam will hold a conference call today August 24 at 14:30 (UK time) forinternational investors on the company's first half 2006 results andperformance. The number for the call for those in the US is +1 718 354 1171 Other callers should dial +44(0)20 7138 0816 There will be a video interview with Lars Emilson, Chief Executive, available onwww.rexam.com at 07.00 (UK). A synchronised on demand video and slide show ofthe half year presentation will be available late afternoon (UK), on the day ofthe announcement. INTERIM STATEMENT Rexam had an encouraging first six months of 2006 reporting strong top linegrowth, significant gains in beverage can market share and the rapid integrationof acquisitions, all against the background of an unprecedented rise in inputcosts, especially aluminium. The Group delivered strong sales growth of 20% from ongoing operations. Organicsales growth was 9%, acquisitions contributed 8% and 3% of the growth came fromcurrency translation. Underlying operating profit from ongoing operations was up1% at £194m, reflecting volume growth and acquisitions offset by the impact ofhigher input costs and the reduced prices of the major new Beverage Can contractwon in North America. Underlying profit before tax was £137m and underlyingearnings per share rose 3% to 18.4p as the Group benefited from a lower taxcharge. Following 2005's notable performance, free cash flow generation was again goodeven allowing for higher capital expenditure to fund growth projects andinterest cost. Interest cover remains robust at just under 5 times. Rexam is ontrack to deliver the expected amount of annual cost efficiencies, havingachieved £18m in the first half of the year compared with £15m in the sameperiod last year. The net effect of currency movements was positive, increasing sales andunderlying operating profit by £46m and £5m respectively, owing mainly to themovement in the US dollar against sterling. On a statutory basis, including the effect of acquisitions, disposed businessesand currency, sales were £1,845m, up 18%. On this basis, profit before tax(including exceptional items) was up 43% at £170m. The principal exceptionalgain arose from a change in US retiree medical benefits. The resulting basicearnings per share was 22.5p compared with 13.3p for the equivalent period lastyear. Beverage Cans 6 months to 6 months to 30.6.06 30.6.05 Sales £1,224m £1,059mUnderlying operating profit £137m £143mReturn on sales 11.2% 13.5% On a global basis, our beverage can volumes grew 11%, benefiting fromsignificant market share gains as well as strong overall market growth. Capacityutilisation is extremely high in all our beverage can plants, and efficiencysavings remain similar to last year as we continue to identify furtheropportunities to ensure best practice manufacturing across our 42 can and endmaking plants around the world. In the Americas, which includes the US, Mexico and South America, we saw strongtop line growth with volumes moving ahead 12% including the effect of the newlong term contract with one of our main customers. We also saw good marketdevelopment in all three regions as well as further growth in non-standard cansizes. To capture this growth, we are investing further in converting fouradditional can lines to produce non standard can sizes in the US. The new beverage can plant in the Mato Grosso region of Brazil is nearingcompletion and we are pleased to announce that work is starting on an additionalcan end plant in Manaus, in the Amazon, which will help consolidate our endmanufacturing. In Europe, our beverage can volume gains were equally positive, increasing by 7%on the same period last year. We benefited from further growth in the energydrinks sector and the generally favourable market development, buoyed by thefine early summer weather in Europe and the FIFA World Cup. The can started itscomeback in Germany on 1 May 2006 and the early signs are encouraging. To meet increased demand in the global energy drinks market, we have announcedthe building of a new can making plant close to Red Bull's contract fillingpartner in Austria. Representing an investment of £45m over 2006 and 2007, thenew plant will have a capacity of some 1bn cans and is expected to come on lineby the end of 2007. In Russia, which continues to show good growth, we have decided to invest in asecond can plant. Located in the Urals, it is expected to come on stream in mid2008. We are also installing a new line at our Naro Fominsk facility to produceinnovative one litre cans to meet the market demand for larger container sizesfor beer. Our recently acquired Egyptian beverage can plant is bedding in well and theresults of our focus on efficiency and spoilage reduction are already having apositive effect in the shape of increased output to meet growing demand. We havealso moved into can making in the emerging Indian market following the formationof a joint venture with a local industrial company. Aluminium is by far the largest raw material cost for the Group with a totalannual spend of more than £1bn. Prices for this commodity, which are based in USdollars, rose steeply in the six months to 30 June 2006. In the Americas, Rexamis largely unaffected by the changes in the cost of aluminium as major customersagree the cost in advance with their suppliers, effectively resulting in a costpass through. In Europe, both the metal and the associated US dollar/eurocurrency requirements are hedged through a three year rolling programme, suchthat aluminium is fixed in euros, the principal transaction currency. This yearis now largely covered at prices well below recent peaks, while 2007 remainspartially hedged. As part of our ongoing management of aluminium input costs, we renegotiated a UScontract for the future supply of aluminium which gave rise to a profit of £14min the first half of 2006. This, together with price surcharges, has helped tomitigate the effect of the higher aluminium cost on the European beverage canoperation. We intend to continue to manage actively the effect of aluminiumcosts through contract renegotiation, hedging and surcharges as appropriate. Looking forward to 2007, we will be renegotiating contracts with our Europeancustomers later on this year and it is our intention to reflect the aluminiumprice prevailing at that time in our pricing structures. As we indicated in the 2005 results, the overall margin of our beverage canbusiness reduced due to the impact of the major new contract in the US, alongwith the effect of the pass through to customers for increased aluminium costsin the Americas and higher energy and freight costs. We expect the margin toincrease over the medium term. Plastic Packaging 6 months to 6 months to 30.6.06 30.6.05 Sales £379m £250mUnderlying operating profit £43m £32mReturn on sales 11.3% 12.8% Plastic Packaging in Rexam is focused on the more value added and faster growingsectors of the rigid plastic packaging sector. It includes beauty packagingoperations, pharmaceutical packaging, closures and food and beverage plastics,as well as recently acquired businesses serving the home and personal caremarkets. These businesses are united by their common technologies, their focuson innovation and shared customers. Plastic Packaging results were substantially up on the equivalent period lastyear benefiting from organic profit growth and acquisitions. Profit marginsimproved in the ongoing Plastic Packaging businesses compared with the secondhalf of 2005. The majority of our operation performed strongly, notablypharmaceutical packaging and our high barrier food business. While our beautypackaging operations continued to be affected by delays in the launch of newproducts, as previously indicated, we see a promising number of planned newproducts from our customers which we expect to be launched in the second half ofthis year. Organic sales and profit growth were 2% and 5% respectively. The acquisitions are being integrated rapidly and successfully into our existingoperations. We believe there is scope to improve margins in these businessesover time. We successfully managed to recover the majority of resin and energy priceincreases through price and cost efficiencies. The anticipated new productlaunches, along with the benefits from synergies arising from acquisitions andincreased operational efficiency, should enable us to make further progressduring the remainder of the year. We will continue to pursue our strategy to capture growth in Plastic Packaging,consolidating attractive niches with high barriers to entry, focusing oninnovation and adding complementary products and technologies. This will enhanceour capability to serve our customers as one of the major players in the globalrigid plastic packaging industry. This is evidenced by the acquisition of apharmaceutical packaging operation in India, the opening of a plant in Poland toserve the home and personal care packaging market, the introduction of highbarrier food container production in Europe and the construction of a purposebuilt dispensing systems manufacturing facility in Tournus, France, to replacethe existing plants there. Glass 6 months to 6 months to 30.6.06 30.6.05 Sales £208m £195mUnderlying operating profit £14m £17mReturn on sales 6.7% 8.7% Sales from our glass operations in the first six months rose by 7% through acombination of successful price increases, higher volumes and improvements tothe mix. The demand for glass remains good and the industry in Europe is now inbetter balance than for a number of years. These increased sales were, however,insufficient to offset the significant £11m increase in energy costs and, as aresult, operating profit was lower than the equivalent period in 2005. Most of our sales growth came from increased volumes for wine and spiritsbottles and better pricing in other beverage containers. Sales to food marketsare weighted towards the second half of the year in line with European harvests. We continue to focus keenly on cost efficiencies and further price increases tohelp mitigate the exceptional rise in energy costs. Acquisitions and disposals In line with our strategy to expand in emerging and faster growing markets, weadded to both the beverage can and plastic packaging businesses during the firstsix months of 2006. In January 2006 we acquired Ecanco, the sole beverage canmaker in Egypt, for £59m, including cash acquired. The acquisition gives us aleading position in beverage cans in Egypt and North Africa and provides a baseto develop these and other growing markets in the Middle East. Late in the second quarter of 2006 we completed the acquisition of two plasticpackaging companies: Airspray, the world leader in non-aerosol foam pumps, andFangXin, a Chinese cosmetics company, for £103m and £28m respectively, includingborrowings acquired. Taken together, these three acquisitions, along with Delta Plastics and PreciseTechnology which were acquired in late 2005, added £119m of sales and £12m ofoperating profit in the first half and are trading in line with our expectationswith integration plans on track. We announced in June 2006 that we had started the process to sell ournon-barrier thin wall plastics operations - one in the UK and two inScandinavia. There has been a good deal of interest in these businesses fromprospective buyers and the disposal process is proceeding to plan. Since the end of the half year, we have formed a joint venture with a quotedIndian industrial company, the Hindustan Tin Works, to manufacture beverage cansin India, primarily for the beer market. The plant, close to Mumbai, is thefirst of its kind in India. We have also announced the acquisition of a plasticpharmaceutical packaging company in Bangalore, India. Both of these acquisitionsgive us key footholds in the growing Indian packaging market. Cash flow Our free cash flow remained good at £30m with cash generated from operations at£202m, 16% ahead of the corresponding period last year reflecting a good workingcapital performance. Net borrowings were £1.4bn with interest cover at 4.7times; higher than our target to be above 4 times. Retirement benefit obligations As at 30 June 2006, net retirement benefit obligations were £379m (December2005: £548m). The reduction in net liabilities is principally due to theincrease in bond yields over the period which have reduced the value ofliabilities. In addition, the net liability for the US retiree medical hasreduced and additional cash contributions are being made to reduce the deficitin defined benefit pension plans. Dividends The Board has approved an interim dividend of 7.9p per ordinary share, anincrease of 5% on last year. The dividend will be paid on 2 November 2006 toholders of ordinary shares registered on 13 October 2006. Changes to the Board In March 2006, Noreen Doyle joined the Board as an independent non executivedirector. Noreen sits on the boards of Credit Suisse Group, Newmont Mining(NYSE) and QinetiQ. Up until 2005, she was the First Vice President at theEuropean Bank for Reconstruction & Development (EBRD). She was responsible forbanking operations and, chairing the Operations Committee, helped shape theEBRD's overall strategy and management. In June 2006, Jean-Pierre Rodier was appointed to the Board as an independentnon executive director. Jean-Pierre was Chairman and Chief Executive ofPechiney, the international aluminium and packaging group, from 1994 to 2003when Pechiney merged with Alcan. Prior to that he was Chief Executive of UnionMiniere, a Belgian subsidiary of the Groupe Suez, and Chairman and ChiefExecutive of MetalEurop France. Outlook During the first half of 2006 Rexam delivered strong top line growth, good cashflow, significant market share gains and a solid profit performance. Ourongoing pricing, innovation and cost efficiency initiatives are proceedingaccording to plan. Despite the challenging cost climate our industry is facing,trading remains in line with our expectations and we expect to make progress inthe second half. Looking forward, we will focus on managing our margins throughpricing and cost efficiencies and strengthening our businesses through ourstrategy for organic and acquisitional growth. FINANCIAL REVIEW Group financial performance The basis of preparation of the interim consolidated financial statements is setout in note 1 to the interim consolidated financial statements. The summary Group consolidated income statements for the six months to 30 June2006 and six months to 30 June 2005 are set out below. 6 months to 30 June 2006: Underlying business Exceptional performance* items Total £m £m £m Sales 1,845 - 1,845 Operating profit 194 18 212Share of associates profit after tax - 8 8Total net finance cost** (57) 7 (50)Profit before tax 137 33 170 Profit after tax 102 23 125 Basic earnings per share (p) 22.5Underlying earnings per share (p) 18.4Dividend per ordinary share (p)*** 7.9 6 months to 30 June 2005, restated: Sales 1,564 - 1,564 Operating profit/(loss) 191 (24) 167Share of associates profit after tax 1 - 1Total net finance cost** (51) 2 (49)Profit/(loss) before tax 141 (22) 119 Profit/(loss) after tax 98 (25) 73 Basic earnings per share (p) 13.3Underlying earnings per share (p) 17.8Dividend per ordinary share (p) 7.52 * Underlying business performance is the primary performance measure used by management, who believe that exclusion of exceptional items aids comparison of underlying performance. Exceptional items include the gains and losses on disposal of businesses, the restructuring and integration of businesses, major asset impairments and disposals, the subsequent recognition of acquired deferred tax assets, the amortisation of certain acquired intangible assets and non hedge accounted fair value movements on financing derivatives.** Comprises interest and retirement benefit obligations net finance cost.*** Declared on 23 August 2006 and payable on 2 November 2006. This dividend has not been accrued in these interim consolidated financial statements. A summary of underlying business performance is set out below. 6 months to 6 months to 30.6.06 30.6.05 restated £m £m Ongoing operations 1,811 1,504Disposals 34 60Sales 1,845 1,564 Ongoing operations 194 192Disposals - (1)Underlying operating profit 194 191Share of associates profit after tax - 1Underlying total net finance cost (57) (51)Underlying profit before tax 137 141Underlying profit after tax 102 98Underlying earnings per share (p) 18.4 17.8 The following tables, showing sales and underlying operating profit, compare ona consistent basis the ongoing Consumer Packaging segments. This basis excludesdisposals and businesses held for sale (described as "Disposals") but includesprior year acquisitions as if acquired on 1 January 2005, by adding theirpre-acquisition results (described as "Acquisitions 2005"). It also highlightscurrency fluctuations arising on translation. Organic change is the year on yearchange arising on businesses owned since the beginning of 2006. Analysis of sales movement Total Beverage Plastics Glass Cans £m £m £m £m Sales reported 6 months to 30.6.05 1,564Disposals 2005 and 2006 (60)Ongoing operations 6 months to 30.6.05 reported in 2006 1,504 1,059 250 195Acquisitions 2005 103 - 103 -Currency fluctuations 46 33 13 -Ongoing operations 6 months to 30.6.05 pro forma basis 1,653 1,092 366 195Acquisitions 2006 16 12 4 -Organic change in sales 142 120 9 13 Ongoing operations reported 6 months to 30.6.06 1,811 1,224 379 208Disposals 2006 34Sales reported 6 months to 30.6.06 1,845 Organic sales growth, which excludes the impact of acquisitions, disposals andthe effects of currency translation, was £142m, an increase of 9%. The principalimprovement, £127m, came from volume and mix gains, predominantly in BeverageCans. The recovery of raw material cost increases, mainly aluminium, added afurther £35m, both by pass through to customers and price surcharges in Europe.This was partly offset by pricing on the recently secured major long termcustomer contract. Analysis of underlying operating profit movement Total Beverage Plastics Glass Cans £m £m £m £m Underlying operating profit reported 6 months to 30.6.05 191Disposals 2005 and 2006 1Ongoing operations 6 months to 30.6.05 reported in 2006 192 143 32 17Acquisitions 2005 7 - 7 -Currency fluctuations 5 4 1 -Ongoing operations 6 months to 30.6.05 pro forma basis 204 147 40 17Acquisitions 2006 5 4 1 -Organic change in operating profit (15) (14) 2 (3)Ongoing operations reported 6 months to 30.6.06 194 137 43 14Disposals 2006 -Underlying operating profit reported 6 months to 30.6.06 194 Analysis of the organic change in operating profit: Total Beverage Plastics Glass Cans £m £m £m £m Price changes 15 10 1 4Cost changes (71) (50) (8) (13)Price and cost changes (56) (40) (7) (9)Volume/mix changes 23 18 1 4Efficiency and other savings 18 8 8 2Organic change in operating profit (15) (14) 2 (3) The reduction in underlying operating profit, after adjusting for the impact ofacquisitions, disposals and currency, was £15m, which reflects the challengingenvironment for recovery of increases in input costs. Within Beverage Cans, the effect of rising aluminium prices in the Europeanoperations was mitigated by price surcharges and a profit of £14m realised onrenegotiation of a metal supply contract in the US. The impact of rising costswas offset by additional volumes secured in the US and as a result of growth inenergy drinks and non standard can sizes in buoyant markets, and by goodefficiency savings. The Plastics operation reported a 5% improvement in underlying operating profitfounded on a strong performance from the pharmaceutical and high barrier foodplastics businesses and the successful integration to date of the 2005acquisitions. The beauty packaging businesses continue to be faced with productlaunch delays although the pipeline is healthier for the second half of 2006.The cost challenges, resin and energy, were met by cost and synergy relatedsavings and an overall improvement in volumes. The Glass operation, whilst reporting a fall in underlying operating profit, hasbeen able to achieve price increases, volume improvements and some efficiencysavings. These benefits were not sufficient to cover the substantial rise inenergy costs, some £11m in the first half of the year. Exchange rates The principal exchange rates used in the preparation of the interim consolidatedfinancial statements are as follows: 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 Average:US dollar 1.79 1.88 1.82Euro 1.46 1.46 1.46Closing:US dollar 1.82 1.82 1.74Euro 1.45 1.50 1.46 Consolidated income statement The US dollar and the euro are the principal currencies that impact Rexam'sresults. The movement in exchange rates had the following impact on thetranslation into sterling for sales and underlying operating profit in the firsthalf of 2006: Sales Underlying operating £m profit £mUS dollar 44 5Euro - -Other currencies 2 - 46 5 Consolidated balance sheet Most of the Group's net borrowings are denominated in US dollars and euros.Currency movements, mainly related to the US dollar, did not have a significanteffect, reducing net borrowings by £23m and reducing equity by £18m. Underlying total net finance cost The underlying total net finance cost comprises: 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £m £m £mNet interest (44) (37) (76)Retirement benefit obligations net finance cost (13) (14) (29)Underlying total net finance cost (57) (51) (105) The underlying total net finance cost increased by £6m compared with the prioryear, primarily as a result of higher average borrowings arising on acquisitionsmade in late 2005 and in the first half of 2006. In addition, interest rateswere higher due in part to the cancellation of fixed to floating interest rateswaps in March 2005 and the fact that average market interest rates for USdollar and euro borrowings were up by 190 and 60 basis points respectivelycompared with the prior period. The issue of a seven year €700m Medium Term Note(MTN) in March 2006 enabled the Group to refinance, in an exchange offer, asubstantial portion of the €550m MTN, due to mature in 2007, and raisedadditional finance at interest rates that were lower than the existing MTN.However, the overall average interest rate during the period rose from 5.7% to6%. Interest cover was 4.7 times underlying operating profit, down somewhat on lastyear reflecting the impact of acquisitions. This is still better than theGroup's long term parameter to be above 4 times. Interest cover is based onunderlying operating profit divided by underlying net interest excluding chargesin respect of retirement benefit obligations and preference dividends. Tax The tax charge on profit before exceptional items for the six months to 30 June2006 was £35m (26%) (June 2005: £43m (30%)). The charge for the six month periodis based on the forecast rate for the year to 31 December 2006. This takes intoaccount the release of provisions held for specific tax exposures followingsatisfactory progress of tax audits in Europe. The rate for the full yearexcluding these adjustments would be approximately 31%, which reflects the mixof territories in which Rexam operates, offset in part by the availability oftax incentives in some jurisdictions. Tax payments in the first half of the year were £29m compared with £27m for theequivalent period last year. Exceptional items The exceptional items arising in the first half of 2006 are as follows: £mRetiree medical gain 40Restructuring and integration of businesses (15)Amortisation of acquired intangible assets (4)Recognition of deferred tax assets on prior year acquisitions (3)Total included in operating profit 18Sale of property by an associate 8Financing derivative market value changes 7Total exceptional items before tax 33Tax on exceptional items (10)Total exceptional items 23 On 30 June 2006, a change to the US retiree medical plan was made to coordinateprescription drug benefits payable to certain retirees with cover available fromthe US government through the Medicare Part D programme. This change resulted inan exceptional gain of £40m net of associated legal fees of £1m. The principal restructuring cost arises in the Plastics operation. The decisionto exit from the non-barrier thin wall plastics business has resulted in therationalisation of one plant and the availability for sale of three furtherplants. The integration programme initiated following the acquisition of PreciseTechnology, in December 2005, will give rise to the closure of four facilitiesin the US. In addition, a major restructuring of the administration supportfunction within the European beverage can operation has been implemented. Intangible assets, such as patents and customer contracts, are required to berecognised on the acquisition of businesses and amortised over their usefullife. The directors consider that separate disclosure of the amortisation ofsuch acquired intangibles allows for a better comparison of organic growth inunderlying profit and therefore this cost, which may become more significant asthe impact of recent and future acquisitions is reflected, should be separatelydisclosed within exceptional items. Consistent with the disclosure adopted in the 2005 financial statements, therecognition of deferred tax assets on prior year acquisitions relating to theutilisation of tax losses not recorded at the date of acquisition and theresultant reduction in goodwill and charge to the income statement has beenincluded in exceptional items. This is due to their size and largely transitorynature. The disposal of property, pursuant to a relocation of a manufacturing facility,by the associate in Korea has been included in exceptional items in view of itssize and one off nature. The fair value of the derivatives arising on financing activities directlyrelates to changes in interest rates and foreign exchange rates. Their fairvalue will change as the transactions to which they relate mature, as newderivatives are transacted and due to the passage of time. The fair value changeon financing derivatives for the period was a net gain of £7m (June 2005: £2m,December 2005: £9m). The impact of embedded derivatives and derivatives arisingon trading items such as commodities and forward foreign exchange contracts isincluded within underlying operating profit. Earnings per share 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 restated Pence Pence Pence Underlying earnings per share (p) 18.4 17.8 39.5Basic earnings per share (p) 22.5 13.3 40.4 Average number of shares (millions) 555.1 550.9 551.8 Underlying earnings per share improved from 17.8p to 18.4p, an increase of 3%.This increase was achieved, despite a higher average number of shares in issue,principally due to the reduction in tax rate discussed above. The basic earnings per share, which includes exceptional items, was 22.5p (June2005:13.3p). The exceptional items are detailed above with the main reason forthe improvement being the retiree medical gain realised in the first half of2006. Retirement benefits As discussed in the Interim statement, retirement benefit obligations (net oftax) on the balance sheet at 30 June 2006 were £379m, a significant reduction from £548m at 31 December 2005. The analysis of the retirement benefit obligations net finance cost is asfollows: 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £m £m £mDefined benefit pension plans:Expected return on plan assets 63 62 125Interest on plan liabilities (69) (68) (138) (6) (6) (13)Retiree medical - interest on liabilities (7) (8) (16)Net finance cost (13) (14) (29) Changes to the actuarial value of retirement benefits at the balance sheet dateare shown in the consolidated statement of recognised income and expense. Thesechanges reduced the retirement benefit obligations by £132m in the six months to30 June 2006, as follows: £mDefined benefit pension plans:Plan assets - returns lower than expected (54)Plan liabilities - higher discount rates 228 174Retiree medical:Plan liabilities - higher discount rate 20Actuarial gains before tax 194Tax (62)Actuarial gains after tax 132 The total cash payments in respect of retirement benefits are as follows: 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £m £m £m Defined benefit pension plans 16 11 26Other pension plans 2 1 4Retiree medical 7 9 18Total cash payments 25 21 48 It is expected that the cash payments for the full year will be approximately£65m as a result of higher rates of contribution to the UK plan, aimed primarilyat reducing the deficit, and to the US plan. Cash flow Free cash flow for the period was good at £30m compared with £37m for the sixmonths to June 2005. This performance reflects an improvement in working capitalwhich largely covered additional retirement benefit cash contributions, highercapital expenditure and interest payments. The increase in interest payments isprincipally attributable to the cancellation in March 2005 of the fixed tofloating interest rate swaps, due to the timing of payments, and the interestcost related to acquisitions. 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 restated £m £m £m Underlying operating profit 194 191 409Depreciation and amortisation* 87 87 171Retirement benefit obligations (12) (7) (20)Change in working capital (58) (90) (36)Capital expenditure (net) (88) (78) (161)Net interest and tax paid (84) (59) (104)All other movements (9) (7) (11)Free cash flow 30 37 248Equity dividends (59) (56) (97)Business cash flow (29) (19) 151Acquisitions** (195) (1) (235)Disposals*** 1 49 58Cash flow including borrowings acquired and disposed (223) 29 (26)Non cash movements 43 10 (35)Share capital changes 6 1 6Net borrowings at the beginning of the year (1,220) (1,165) (1,165)Net borrowings at the end of the period (1,394) (1,125) (1,220) * Excludes amortisation of certain acquired intangibles amounting to £4m (June 2005: £nil, December 2005: £1m).** Includes net borrowings acquired of £9m (June 2005: £nil, December 2005: £129m).*** Includes net borrowings disposed of £nil (June 2005 and December 2005: £43m). Capital expenditure 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05Capital expenditure (gross) (£m) 89 82 176Depreciation and amortisation (£m) 87 87 171Ratio (times) 1.02 0.94 1.03 Capital expenditure includes computer software that has been capitalised.Amortisation excludes £4m (June 2005: £nil, December 2005: £1m) amortised onpatents, customer contracts and intangibles other than computer software. Gross capital expenditure in the first six months was £89m, in line withdepreciation and amortisation. The expenditure is, broadly, evenly split betweenthat required to maintain the business and that which supports strategic andgrowth projects. The principal growth projects were the steel to aluminiumconversions in Germany and Turkey, the new can plant in Cuiaba, Brazil and anumber of projects to develop new can sizes and markets. In the second half of2006, it is anticipated that the proportion of total expenditure on suchprojects will increase. This is due to expenditure on: a new can plant inAustria to supply Red Bull; new can end capacity in Brazil; further capacityexpansion for non standard can sizes and ends; and a range of projects withinthe Plastics operation to support growth in a number of pharmaceutical, cosmeticand food markets. Acquisitions Expenditure on acquisitions, including borrowings assumed, totalled £195m as setout below. £mPlastics: Airspray 103Plastics: FangXin 28Beverage Cans: Ecanco 59Payments in respect of prior year acquisitions 5 195 As previously announced the acquisitions completed in 2006 strengthened thepresence in higher growth and emerging markets. It is anticipated that furtherpayments of £15m will be made on finalisation of these transactions. Dividend and dividend policy The Board has declared an interim dividend of 7.9p per ordinary share, animprovement of 5% over the 7.52p per ordinary share for the equivalent periodlast year. This is in line with Rexam's ongoing policy to increase the dividendpayout by about 5% per annum, on the assumption that the financial resources areavailable and that earnings growth continues as expected. Balance sheet and borrowings As at As at As at 30.6.06 30.6.05 31.12.05 £m £m £m Goodwill and other intangible assets 1,604 1,285 1,514Property, plant and equipment 1,196 1,081 1,174Retirement benefits net of tax (379) (611) (548)Other net assets 173 144 89 2,594 1,899 2,229 Equity 1,200 774 1,009Net borrowings* 1,394 1,125 1,220 2,594 1,899 2,229 Return on invested capital (%) ** 12.9 14.2 14.8Interest cover (times) *** 4.7 5.6 5.8Gearing (%) **** 116 145 121 * Net borrowings comprise borrowings, the liability element of convertible preference shares, cash and cash equivalents and certain derivative financial instruments.** Underlying operating profit plus share of associates profit after tax divided by the average of opening and closing balances of each of net borrowings, equity after adding back retirement benefit obligations (net of tax) and goodwill previously written off against equity under UK GAAP. Underlying operating profit and share of associates profit after tax are annualised by doubling the results for the six month periods.*** Based on underlying operating profit divided by underlying interest expense excluding preference dividends, and interest income.**** Based on net borrowings divided by equity. Net borrowings include the liability element of convertible preference shares,interest accruals and certain financial derivatives, as set out in note 9 to theinterim consolidated financial statements. The element related to derivativefinancial instruments is set out below: As at As at As at 30.6.06 30.6.05 31.12.05 £m £m £m Net borrowings excluding derivative financial instruments 1,468 1,202 1,294Derivative financial instruments (74) (77) (74)Net borrowings 1,394 1,125 1,220 Derivative financial instruments comprise instruments relating to net borrowings(eg cross currency and interest rate swaps) and those related to other businesstransactions (eg forward commodity and forward foreign exchange deals). Totalderivative financial instruments are set out below. As at As at As at 30.6.06 30.6.05 31.12.05 £m £m £m Cross currency swaps 73 87 74Interest rate swaps 1 (10) -Derivative financial instruments included in net borrowings 74 77 74Other derivative financial instruments 43 2 41Total derivative financial instruments 117 79 115 Financial risk management Rexam's financial risk management is based upon sound economic objectives andgood corporate practice. Derivative and other financial instruments are used to manage trading exposures,liabilities and assets under parameters laid down by the Board, which aremonitored by its Finance Committee. The Group's major hedging activities are tomitigate the following risks: (i) Commodity price and currency transaction risks for aluminium purchases made by its European beverage can operation.(ii) Fair value and cash flow interest rate risks associated with the MTNs.(iii) Currency translation risks of net assets in overseas subsidiaries. The Group has not used derivative financial instruments for purposes other thanfor hedging its exposures. To avoid income statement volatility, and where such benefits outweigh the costsof compliance, the Group has designated many of its economic hedges as hedginginstruments under IAS39. However, for certain effective economic hedgingrelationships such hedge accounting treatment is not permitted under IFRS. Wherehedge accounting is not achieved, fair value movements on derivatives arerecorded in the consolidated income statement which could give rise to earningsvolatility. It is the Group's policy to maintain a range of maturity dates for itsborrowings, and to refinance them at the appropriate time so as to reducerefinancing risk. The issue of longer term borrowings through the MTN programmeis a key element of the Group's debt and financial risk management process.Fixed rate MTNs, in sterling and euros, were issued in 2002 and, simultaneous toissue, were swapped into floating rate euros and US dollars. A €700m MTN, tomature in March 2013, was issued in March 2006; largely in an exchange offer for€425m of the €550m MTN due to mature in March 2007. CONSOLIDATED INCOME STATEMENT Unaudited Unaudited Audited 6 months to 6 months to year to 30.6.06 30.6.05 31.12.05 £m restated restated £m £m NoteSales 2 1,845 1,564 3,237Operating expenses (1,633) (1,397) (2,817) Underlying operating profit 2 194 191 409 Retiree medical gain 3 40 - 45 Restructuring and integration of businesses 3 (15) - (7) Other exceptional items 3 (7) (24) (27)Operating profit 2 212 167 420 Share of underlying post tax profits of - 1 3 associates and joint ventures Share of exceptional post tax profits of 3 8 - 4 associates and joint venturesShare of post tax profits of associates and joint ventures 8 1 7Retirement benefit obligations net finance cost 4 (13) (14) (29) Underlying interest expense (48) (45) (88) Financing derivative market value changes 3 7 2 9Interest expense (41) (43) (79)Interest income 4 8 12 Underlying profit before tax 137 141 307 Retiree medical gain 40 - 45 Restructuring and integration of businesses (15) - (7) Financing derivative market value changes 7 2 9 Other exceptional items 1 (24) (23)Profit before tax 170 119 331Tax 5 (45) (46) (108)Profit for the financial period 125 73 223 Earnings per share (pence) 6Basic 22.5 13.3 40.4Diluted 22.0 13.1 39.4 An interim dividend for 2006 of 7.9p per share has been declared and is payableon 2 November 2006. The interim dividend for 2005 of 7.52p per share was paid on1 November 2005. The final dividend for 2005 of 10.6p per share was paid on 5June 2006. For further details of equity dividends declared and paid see note 7. CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited as at 30.6.06 as at 30.6.05 as at 31.12.05 £m restated £m £mASSETSNon current assetsGoodwill 1,466 1,246 1,405Other intangible assets 138 39 109Property, plant and equipment 1,196 1,081 1,174Investments in associates and joint ventures 37 33 29Deferred tax assets 239 371 332Trade and other receivables 36 31 35Available for sale financial assets 24 25 26Derivative financial instruments 77 84 92 3,213 2,910 3,202Current assetsInventories 390 340 365Trade and other receivables 546 455 448Available for sale financial assets 4 5 4Derivative financial instruments 62 27 43Cash and cash equivalents 108 112 87Assets classified as held for sale 41 - - 1,151 939 947Total assets 4,364 3,849 4,149 LIABILITIESCurrent liabilitiesBorrowings (258) (158) (164)Derivative financial instruments (22) (29) (20)Current tax (2) (4) (22)Trade and other payables (675) (559) (604)Provisions (18) (8) (18)Liabilities classified as held for sale (17) - - (992) (758) (828)Non current liabilitiesBorrowings (1,318) (1,156) (1,217)Derivative financial instruments - (3) -Retirement benefit obligations (Note 4) (532) (886) (783)Deferred tax liabilities (160) (103) (152)Non current tax (98) (98) (90)Other payables (36) (38) (36)Provisions (28) (33) (34) (2,172) (2,317) (2,312)Total liabilities (3,164) (3,075) (3,140) Net assets 1,200 774 1,009 EQUITYOrdinary share capital 358 355 356Convertible preference share capital 1 1 1Share premium account 756 744 748Capital redemption reserve 279 279 279Retained earnings (234) (595) (431)Fair value and other reserves 40 (10) 56Total equity (Note 8) 1,200 774 1,009 Approved by the Board on 24 August 2006 Rolf Borjesson, Chairman David Robbie, Finance Director CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited 6 months to 6 months to year to 30.6.06 30.6.05 31.12.05 £m restated £m £mCash flows from operating activitiesProfit before tax 170 119 331Adjustments for: Net interest expense 37 35 67 Share of post tax profits of associates and joint ventures (8) (1) (7) Depreciation of property, plant and equipment 81 83 162 Amortisation of intangible assets 10 4 10 Impairment 10 - 5 Disposal of subsidiaries - 24 25 Movement in provisions 3 (6) 1 Movement in grants (8) - (9) Equity settled share options 2 3 6 Changes in working capital (58) (90) (36) Recognition of deferred tax assets on prior year acquisitions 3 3 7 Profit on disposal of property, plant and equipment - (3) (7) Movement in retirement benefit obligations (40) 7 (37) Other adjustments - (4) (6)Cash generated from operations 202 174 512Interest paid (61) (40) (70)Tax paid (29) (27) (47)Net cash flows from operating activities 112 107 395 Cash flows from investing activitiesCapital expenditure (89) (82) (176)Proceeds from sale of property, plant and equipment 1 4 14Acquisition of subsidiaries net of cash and cash equivalents (186) (1) (106)acquiredProceeds from sale of subsidiaries net of cash and cash equivalents - 6 5disposedProceeds from sale of associates 1 - 10Sale of properties surplus to requirements - - 1Dividends received from associates - - 1Interest received 6 8 13Net cash flows from investing activities (267) (65) (238) Cash flows from financing activitiesMovement in borrowings and financing derivatives 203 16 (77)Proceeds from issue of share capital 10 4 9Purchase of Rexam shares by ESOP Trust (4) (3) (3)Dividends paid to equity shareholders (59) (56) (97)Net cash flows from financing activities 150 (39) (168) Net (decrease)/increase in cash and cash equivalents (5) 3 (11) Cash and cash equivalents at the beginning of the year (4) (2) (2)Non cash movements - 8 9Net (decrease)/increase in cash and cash equivalents (5) 3 (11)Cash and cash equivalents at the end of the period (9) 9 (4) Cash and cash equivalents comprise:Cash at bank and in hand 59 45 37Short term bank deposits 49 67 50Bank overdrafts (117) (103) (91) (9) 9 (4) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Unaudited Audited 6 months to 6 months to year to 30.6.06 30.6.05 31.12.05 £m restated £m £m Exchange differences (18) (32) 26Actuarial gains/(losses) on retirement benefit obligations 194 (88) (12)Tax on actuarial (gains)/losses on retirement benefit obligations (62) 28 4Net investment hedges 1 24 7Cash flow hedges recognised 29 (9) 60Tax on cash flow hedges (1) 3 (9)Cash flow hedges transferred to inventory (26) - (31)Fair value (losses)/gains on available for sale financial assets (1) 1 -Net profit/(loss) recognised directly in equity 116 (73) 45Profit for the financial period 125 73 223Total recognised income and expense for the period 241 - 268 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparation and accounting policies The unaudited interim consolidated financial statements of Rexam PLC for the sixmonths to 30 June 2006 are set out on pages 17 to 26. They have been prepared inaccordance with the Listing Rules of the Financial Services Authority. Rexam haschosen not to adopt IAS34 "Interim Financial Statements" in preparing theinterim consolidated financial statements and therefore they are not in fullcompliance with IFRS. In preparing the interim consolidated financial statements, management has usedthe principal accounting policies as set out in the Rexam Annual Report 2005,except for the accounting policy "Disposals and other exceptional items" whichhas been replaced with accounting policy "Exceptional items", as set out below. Exceptional items Items which are exceptional, being material in terms of size and/or nature arepresented separately from underlying business performance in the consolidatedincome statement. The separate reporting of exceptional items helps provide anindication of the Group's underlying business performance. The principal eventswhich may give rise to exceptional items include gains or losses on the disposalof businesses, the restructuring and integration of businesses, major assetimpairments, the subsequent recognition of acquired deferred tax assets, theamortisation of certain acquired intangible assets and non hedge accounted fairvalue movements and hedge ineffectiveness on financing derivative financialinstruments. This change in accounting policy has resulted from a change to the presentationof the consolidated income statement from a columnar format to a single columnformat using boxes, and from a reassessment of which transactions compriseexceptional items. The directors consider the changes more closely reflectcurrent accounting practice. In preparing the interim consolidated financial statements, the followingrestatements have been made to the comparative amounts: (i) The consolidated income statement presentation and exceptional items have been restated to comply with the revised accounting policy as described above.(ii) The segment analysis has been restated for the proposed disposal of the non-barrier thin wall plastics business which has been moved from "Plastics" to "Disposals and businesses for sale".(iii) In December 2005, the IASB published an amendment to IAS21 clarifying that a loan between group subsidiaries may form part of the group's net investment in the subsidiary receiving the loan. As a result, a foreign exchange loss of £5m for the six months to 30 June 2005 is now recognised in equity and not in the consolidated income statement. In accordance with IFRS5 "Non-Current Assets Held For Sale and DiscontinuedOperations", the related assets and liabilities of the non-barrier thin wallplastics business are separately classified in the consolidated balance sheet asheld for sale. The interim consolidated financial statements do not comprise statutory accountswithin the meaning of Section 240 of the Companies Act 1985. The consolidatedincome statement, consolidated cash flow statement and consolidated statement ofrecognised income and expense for the year to 31 December 2005 and theconsolidated balance sheet as at 31 December 2005 are an abridged statement ofthe full consolidated financial statements for that year which have beendelivered to the Registrar of Companies. The independent auditors' report on theconsolidated financial statements for the year to 31 December 2005 wasunqualified and did not contain a statement under either section 237(2) orsection 237(3) of the Companies Act 1985. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the directors to make judgements and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingencies at the date of the financial statements and the reported incomeand expense during the reporting periods. Although these judgements andassumptions are based on the directors' best knowledge of the amount, events oractions, actual results may differ from those estimates. 2 Segment analysis Disposals and Beverage businesses Cans Plastics Glass for sale Group £m £m £m £m £m(i) 6 months to 30.6.06 Sales 1,224 379 208 34 1,845Underlying operating profit 137 43 14 - 194Underlying return on sales 11.2% 11.3% 6.7% 0.0% 10.5% Operating profit 170 28 14 - 212Share of post tax profits of associates and 8 - - - 8joint venturesRetirement benefit obligations net finance cost (13)Net interest expense (37)Profit before tax 170Tax (45)Profit after tax 125 (ii) 6 months to 30.6.05 - restated Sales 1,059 250 195 60 1,564Underlying operating profit/(loss) 143 32 17 (1) 191Underlying return on sales 13.5% 12.8% 8.7% (1.7)% 12.2% Operating profit/(loss) 143 32 17 (25) 167Share of post tax profits of associates and 1 - - - 1joint venturesRetirement benefit obligations net finance cost (14)Net interest expense (35)Profit before tax 119Tax (46)Profit after tax 73 (iii) Year to 31.12.05 - restated Sales 2,235 504 405 93 3,237Underlying operating profit 313 60 36 - 409Underlying return on sales 14.0% 11.9% 8.9% 0.0% 12.6% Operating profit/(loss) 345 59 36 (20) 420Share of post tax profits of associates and 3 - - 4 7joint venturesRetirement benefit obligations net finance cost (29)Net interest expense (67)Profit before tax 331Tax (108)Profit after tax 223 If the proposed disposal of the non-barrier thin wall plastics business had beenincluded as part of the Plastics segment rather than in Disposals and businessesfor sale, sales, underlying operating profit and operating profit of thatsegment would have been £413m, £43m and £28m respectively (6 months to30 June 2005: £284m, £34m and £34m, year to 31 December 2005: £571m, £63m and£62m). If the disposal of the UK Glass business in 2005 had been included as part ofthe Glass segment rather than in Disposals and businesses for sale, sales,underlying operating profit and operating loss of that segment for6 months to 30 June 2005 would have been £221m, £14m and £10m respectively andsales, underlying operating profit and operating profit for the year to 31December 2005 would have been £431m, £33m and £8m respectively. 3 Exceptional items 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £m restated £m £mExceptional items included in operating profit: Retiree medical gain: Curtailment (net of associated legal fees of £1m) 40 - - Past service credit (net of associated legal fees of £1m) - - 45 40 - 45 Restructuring and integration of businesses: Restructuring of existing businesses (10) - (7) Integration of new businesses (5) - - (15) - (7) Other exceptional items: Amortisation of acquired intangible assets* (4) - - Recognition of deferred tax assets on prior year (3) (3) (7)acquisitions Disposal of subsidiaries - (24) (25) Profit on disposal of land - 3 5 (7) (24) (27)Exceptional items included in share of post tax profits ofassociates: Sale of property by an associate (net of tax) 8 - - Disposal of associate (net of tax) - - 4 8 - 4Exceptional items included in interest expense: Financing derivative market value changes 7 2 9Total exceptional items included in profit before tax 33 (22) 24Tax on exceptional items (10) (3) (19)Total exceptional items 23 (25) 5 * Acquired intangible assets comprise patents and customer relationships arising on acquisitions. Total other exceptional items are £1m (6 months to 30 June 2005: loss £24m, yearto 31 December 2005: loss £23m) and comprise 'Other exceptional items' and'Exceptional items included in share of post tax profits of associates'. 4 Retirement benefit obligations Gross Net Defined retirement retirement benefit Other Total Retiree benefit Deferred benefit pensions pensions pensions medical obligations tax obligations £m £m £m £m £m £m £m At 1 January 2006 (514) (23) (537) (244) (781) 233 (548)Exchange differences 6 1 7 9 16 (6) 10Current service cost (10) (2) (12) (1) (13) 3 (10)Curtailment - exceptional item - - - 41 41 (14) 27Total included in operating profit (10) (2) (12) 40 28 (11) 17Net finance cost (6) - (6) (7) (13) 4 (9)Actuarial changes 174 - 174 20 194 (62) 132Cash contributions and benefits 16 2 18 7 25 (7) 18paidTransfers 1 - 1 - 1 - 1At 30 June 2006 (333) (22) (355) (175) (530) 151 (379) The balance for net retirement benefit obligations at 30 June 2006 of £379m isincluded in the consolidated balance sheet as retirement benefit obligations of£532m, other receivables of £2m and deferred tax assets of £151m. The principal assumptions at 30 June 2006 compared with those at 31 December2005 are set out below. UK USA Other UK USA Other 30.6.06 30.6.06 30.6.06 31.12.05 31.12.05 31.12.05 % % % % % % Future salary increases 4.40 4.50 2.89 4.25 4.50 2.89Future pension increases 2.90 - 1.72 2.75 - 1.72Discount rate 5.25 6.20 4.62 4.75 5.40 3.92Inflation rate 2.90 2.50 1.91 2.75 2.50 1.91Expected return on plan assets (net ofadministration expenses):Equities 6.95 7.23 6.83 6.95 7.23 6.83Bonds 4.10 4.26 3.57 4.10 4.26 3.57Cash 4.35 2.82 2.02 4.35 2.82 2.02Annual increase in healthcare costs 13 to 5 13 to 5 The post retirement mortality assumptions used in valuing the liabilities of theUK plan are based on the standard tables PA92 as published by the Institute andFaculty of Actuaries. These tables are adjusted to reflect the circumstances ofthe plan membership. On this basis, the life expectancy assumed for a malepensioner aged 65 is 19.6 years and for a female pensioner aged 65 is 22.4years. The post retirement mortality assumptions in the US are based on the 1994Uninsured Pensioners Mortality table. The life expectancy assumed for a malepensioner aged 65 is 17.3 years and for a female pensioner aged 65 is 20.7years. 5 Tax 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £m £m £m UK (5) (8) (13)Overseas (40) (38) (95)Total tax charge (45) (46) (108) Tax on underlying profit (35) (43) (89)Tax on exceptional items (10) (3) (19)Total tax charge (45) (46) (108) The tax charge on underlying profit is calculated by reference to the estimatedeffective tax rate for the full year. Tax on exceptional items is based on theexpected tax impact of each item. 6 Earnings per share 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 Pence restated Pence Pence Basic earnings per share 22.5 13.3 40.4Diluted earnings per share 22.0 13.1 39.4Underlying earnings per share 18.4 17.8 39.5 £m £m £mUnderlying profit for the financial period 102 98 218Exceptional items 23 (25) 5Profit for the financial period 125 73 223Dilution on conversion of preference shares 3 3 5Profit for the financial period on a diluted basis 128 76 228 Number Number Number millions millions millions Weighted average number of shares in issue for the period 555.1 550.9 551.8Dilution on conversion of preference shares 24.3 24.4 24.4Dilution on exercise of outstanding share options 1.4 3.4 3.1On a diluted basis 580.8 578.7 579.3 7 Equity dividends 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £m £m £m Final dividend for 2005 of 10.6p paid on 5 June 2006 59 - -Interim dividend for 2005 of 7.52p paid on 1 November 2005 - - 41Final dividend for 2004 of 10.09p paid on 1 June 2005 - 56 56 59 56 97 An interim dividend per equity share of 7.9p has been declared for 2006 and ispayable on 2 November 2006. This dividend has not been accrued in these interimconsolidated financial statements. The dividend will absorb £44m of retainedearnings reserves. 8 Movements in equity Convertible Ordinary preference Share Capital Fair value share share premium redemption Retained and other Total capital capital account reserve earnings reserves equity £m £m £m £m £m £m £m At 1 January 2006 356 1 748 279 (431) 56 1,009Exchange differences - - - - - (18) (18)Actuarial gains on retirement - - - - 194 - 194benefit obligationsTax on actuarial gains on - - - - (62) - (62)retirement benefit obligationsNet investment hedges - - - - - 1 1Cash flow hedges recognised - - - - - 29 29Tax on cash flow hedges - - - - - (1) (1)Cash flow hedges transferred to - - - - - (26) (26)inventoryFair value losses on available - - - - - (1) (1)for sale financial assetsNet profit/(loss) recognised - - - - 132 (16) 116directly in equityProfit for the financial period - - - - 125 - 125Total recognised profit/(loss) - - - - 257 (16) 241for the periodShare option schemes value of - - - - 3 - 3services providedShare option schemes proceeds 2 - 8 - - - 10from shares issuedPurchase of Rexam shares by - - - - (4) - (4) ESOP TrustPayment of final dividend for - - - - (59) - (59)2005At 30 June 2006 358 1 756 279 (234) 40 1,200 9 Movements in net borrowings Cash and cash Convertible Financing equivalents Medium preference derivative and bank Bank term Finance share financial Total net overdrafts loans notes leases capital instruments borrowings £m £m £m £m £m £m £m At 1 January 2006 (4) (369) (815) (36) (70) 74 (1,220)Acquisitions of businesses - (9) - - - - (9)Cash flow movements (5) (21) (123) 9 3 (19) (156)Non cash movements - (2) (22) (1) (3) 19 (9)At 30 June 2006 (9) (401) (960) (28) (70) 74 (1,394) Financing derivative financial instruments are those that relate to underlyingitems of a financial nature. At 30 June 2006 these comprised interest rate swaps and cross currency swaps. 10 A copy of the information to be provided to financial analysts isavailable on request from the Company Secretary, Rexam PLC, 4 Millbank, LondonSW1P 3XR. It is also on Rexam's website, www.rexam.com. INDEPENDENT AUDITORS' REVIEW REPORT TO REXAM PLC Introduction We have been instructed by the company to review the financial information forthe six months to 30 June 2006 which comprises the consolidated balance sheet,the consolidated income statement, the consolidated cash flow statement, theconsolidated statement of recognised income and expense and the related notes.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six months to30 June 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon24 August 2006 Notes:a) The maintenance and integrity of the Rexam PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website.b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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