25th Aug 2005 07:02
Rexam PLC25 August 2005 Part 2 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 Segment analysis Six months to 30 June 2005 Analysis by business segment Beverage Glass Beauty Disposals Group Cans £m and Plastic and £m £m Pharma Containers businesses £m £m for sale £mSales 1,059 195 207 77 26 1,564Underlying operating profit 143 17 29 5 (3) 191/(loss)Underlying return on sales 13.5 8.7 14.0 6.5 (11.5) 12.2(%) Operating profit/(loss) 143 17 29 5 (27) 167Share of post tax profits 1 - - - - 1of associates andjoint venturesNet interest expense (40)Retirement benefit (14)obligations net financecostProfit before tax 114Tax (46)Profit after tax 68 Segment assets 2,219 462 461 89 - 3,231Less inter segment assets (7) (1) (1) - - (9)Assets of associates and 27 - - - 6 33joint venturesUnallocated assets 594Total assets 3,849 Segment liabilities (419) (91) (105) (32) - (647)Less inter segment 5 4 - - - 9liabilitiesUnallocated liabilities (2,437)Total liabilities (3,075) Analysis by geographical segment UK Germany France Rest of USA Brazil Rest of Group £m £m £m Europe £m £m world £m £m £m 121 128 82 498 544 117 74 1,564Sales bydestination Segment assets 383 315 193 1,174 811 333 183 3,392Less inter (86) (10) (6) (19) (5) (8) (3) (137)segment assetsUnallocated 594assetsTotal assets 3,849 If the disposal of the UK Glass business had been included as part of the Glassbusiness segment rather than in disposals and businesses for sale, sales,underlying operating profit and operating loss of that segment would have been£221m, £14m and £10m respectively. Underlying operating profit comprises operating profit before disposals andother exceptional items. Underlying return on sales comprises underlyingoperating profit divided by sales. Unallocated assets comprise derivative financial instrument assets, deferred taxassets and cash and cash equivalents which are used as part of the Group'sfinancing offset arrangements. Unallocated liabilities comprise borrowings,derivative financial instrument liabilities, current and non current tax,deferred tax liabilities and retirement benefit obligations. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 Segment analysis continued Six months to 30 June 2004* Analysis by business segment Beverage Glass Beauty Plastic Disposals Discontinued Group Cans £m and Containers and operations £m £m Pharma £m businesses £m £m for sale £mSales 1,022 187 196 75 52 - 1,532Underlying 133 15 27 9 - - 184operating profitUnderlying return 13.0 8.0 13.8 12.0 - - 12.0on sales (%) Operating profit/ 135 14 25 20 (12) (2) 180(loss)Share of post tax 1 - - - 1 - 2profits ofassociates andjoint venturesNet interest (33)expenseRetirement benefit (16)obligations netfinance costProfit before tax 133Tax (40)Profit for the 93financial period Segment assets 2,176 462 441 92 98 - 3,269Less inter segment (10) (2) (2) - (1) - (15)assetsAssets of 32 - - - 3 - 35associates andjoint venturesUnallocated assets 454Total assets 3,743 Segment liabilities (397) (90) (108) (31) (26) - (652)Less inter segment 8 - 1 1 5 - 15liabilitiesUnallocated (2,205)liabilitiesTotal liabilities (2,842) Analysis by geographical segment UK Germany France Rest of USA Brazil Rest of Group £m £m £m Europe £m £m world £m £m £m Sales by destination 148 137 78 489 525 111 44 1,532 Segment assets 486 310 192 1,172 787 327 159 3,433Less inter segment (78) (15) (15) (18) (4) (9) (5) (144)assetsUnallocated assets 454Total assets 3,743 * Restated to reflect the movement from "Glass" to "Disposals and businesses for sale" of the UK Glass business sold in May 2005. The reconciliation of business segments set out in Note 11 does not reflect this change. If the disposal of the UK Glass business had been included as part of the Glassbusiness segment rather than in disposals and businesses for sale, sales,underlying operating profit and operating profit of that segment would have been£234m, £15m and £14m respectively. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1 Segment analysis continued Year to 31 December 2004* Analysis by business segment Beverage Glass Beauty Plastic Disposals Discontinued Group Cans £m and Containers and operations £m £m Pharma £m businesses £m £m for sale £m Sales 2,069 380 385 142 105 - 3,081Underlying operating 278 34 58 16 3 - 389profitUnderlying return on 13.4 8.9 15.1 11.3 2.9 - 12.6sales (%) Operating profit/ 275 29 53 25 (9) (2) 371(loss)Share of post tax - - - - 1 - 1profits of associatesand joint venturesNet interest expense (62)Retirement benefit (32)obligations netfinance costProfit before tax 278Tax (71)Profit for the 207financial year Segment assets 2,164 472 453 92 94 - 3,275Less inter segment (6) (1) (1) (1) - - (9)assetsAssets of associates 25 - - - 4 - 29and joint venturesUnallocated assets 535Total assets 3,830 Segment liabilities (433) (102) (111) (33) (28) - (707)Less inter segment 4 1 1 - 3 - 9liabilitiesUnallocated (2,238)liabilitiesTotal liabilities (2,936) Analysis by geographical segment UK Germany Rest of Europe USA Brazil Rest of Group £m £m France £m £m £m world £m £m £m Sales by destination 308 255 152 956 1,042 263 105 3,081 Segment assets 473 320 201 1,161 751 328 168 3,402Less inter segment (54) (11) (8) (21) (4) (8) (1) (107)assetsUnallocated assets 535Total assets 3,830 * Restated to reflect the movement from "Glass" to "Disposals and businesses for sale" of the UK Glass business sold in May 2005. The reconciliation of business segments set out in Note 11 does not reflect this change. If the disposal of the UK Glass business had been included as part of the Glassbusiness segment rather than in disposals and businesses for sale, sales,underlying operating profit and operating profit of that segment would have been£480m, £37m and £32m respectively. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 2 Disposals and other exceptional items 6 months 6 months Year to to to 31.12.04 30.6.05 30.6.04 £m £m £mIncluded in operating profit:Disposal of businesses (24) (3) (3)Recognition of deferred tax assets on prior year (3) (5) (9)acquisitionsProfit on disposal of land 3 - -Retiree medical past service credit - 12 11Restructuring costs - (9) (18)Impairment and other - 1 1 (24) (4) (18)Included in interest expense:Exchange (loss)/gain on inter-company funding (5) (1) 3 Included in tax:Disposal of businesses (2) - 9Restructuring and other items (1) 3 6Retiree medical past service credit - (4) (4) (3) (1) 11 (32) (6) (4) 3 Retirement benefit obligations Defined Other Total Retiree Gross Deferred Net benefit pensions pensions medical retirement tax retirement pensions £m £m £m benefit £m benefit £m obligations obligations £m £mAt 1 January 2005 (477) (20) (497) (269) (766) 228 (538)Exchange (6) - (6) (17) (23) 10 (13)differencesCurrent service (12) (1) (13) (1) (14) 4 (10)costCurtailments and 6 - 6 - 6 (2) 4settlementsTotal included in (6) (1) (7) (1) (8) 2 (6)operating profitNet finance cost (6) - (6) (8) (14) 4 (10)Actuarial changes (79) - (79) (9) (88) 28 (60)Cash contributions 11 1 12 9 21 (6) 15Transfers 2 (1) 1 - 1 - 1At 30 June 2005 (561) (21) (582) (295) (877) 266 (611) The balance for net retirement benefit obligations at 30 June 2005 of £611m isincluded in the consolidated balance sheet as retirement benefit obligations of£886m, less trade and other receivables of £9m and deferred tax assets of £266m.(1 January 2005, £774m, £8m and £228m respectively). The principal assumptionsat 30 June 2005 compared with those at 31 December 2004 are set out below. UK USA Other UK USA Other 30.6.05 30.6.05 30.6.05 31.12.04 31.12.04 31.12.04 % % % % % %Rate of increase in 4.25 4.50 2.83 4.30 4.50 2.83salariesRate of increase in 2.75 - 1.62 2.80 - 1.62pensionsDiscount rate 5.00 5.10 3.92 5.30 5.50 4.59Inflation rate 2.75 2.50 1.79 2.80 2.50 1.79Long term expected rate 7.50 8.69 7.03 7.50 8.69 7.03of return on equityLong term expected rate 4.75 5.00 4.43 4.75 5.00 4.43of return on bondsLong term expected rate 4.00 3.10 2.45 4.00 3.10 2.45of return on cashMedical inflation - 13 to 5 - - 13 to 5 - NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 4 Earnings per share 6 months 6 months Year to to to 31.12.04 30.6.05 30.6.04 Pence Pence PenceBasic earnings per share 12.3 16.3 36.8Diluted earnings per share 12.3 16.0 35.8Underlying earnings per share 18.2 17.4 37.5 £m £m £mProfit attributable to equity shareholders of Rexam PLC 100 95 205before disposals and other exceptional itemsDisposals and other exceptional items (32) (6) (4)Profit attributable to equity shareholders of Rexam PLC 68 89 201Dilution on conversion of preference shares 3 3 5Profit attributable on a diluted basis 71 92 206 Number Number Number millions millions millionsWeighted average number of shares in issue for the 550.9 545.1 546.8periodDilution on conversion of preference shares 24.4 24.4 24.4Dilution on exercise of outstanding share options 3.4 4.3 5.0On a diluted basis 578.7 573.8 576.2 5 Equity dividends 6 months 6 months Year to to to 31.12.04 30.6.05 30.6.04 £m £m £mFinal dividend for 2004 of 10.09p paid on 1 June 2005 56 - -Interim dividend for 2004 of 7.16p paid on 3 November - - 402004Final dividend for 2003 of 9.58p paid on 1 June 2004 - 52 52 56 52 92An interim dividend per equity share of 7.52p has been declared for 2005,payable on 1 November 2005. In accordance with IFRS accounting requirements thisdividend has not been accrued in the interim consolidated financial statements. 6 Net borrowings 6 months 6 months Year to to to 31.12.04 30.6.05 30.6.04 * £m £m £mBalance at the beginning of the year (1,068) (1,177) (1,177)Adoption of IAS32 and IAS39 (97) - -Exchange differences 35 60 48Acquisition of businesses - (40) (45)Disposal of businesses 43 3 3Cash flow movements 18 (71) 105Other non cash movements (56) (1) (2)Balance at the end of the period (1,125) (1,226) (1,068) Balance at the end of the period:Cash and cash equivalents 112 67 94Derivative financial instruments* 77 79 101Borrowings** (1,314) (1,372) (1,263) (1,125) (1,226) (1,068) * Derivative financial instruments are included in net borrowings to the extent that they relate to underlying items of a financial nature. Net borrowings have been restated from that previously reported under IFRS, to exclude derivative financial instruments of a non financial nature, which reduced net borrowings as at 31 December 2004 by £2m.** Borrowings as at 30 June 2005 comprise medium term notes, bank loans, bank overdrafts, capitalised financing fees, the capital element of finance leases and the liability element of convertible preference shares. As at 30 June 2004 and 31 December 2004 the definition excluded the liability element of convertible preference shares. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 Reconciliation of consolidated income statements from UK GAAP to IFRS (a) Six months to 30 June 2004 Impact of transition to IFRS Under Goodwill Goodwill Share Retirement Share of Functional Deferred Business Other Under UK amortisation in based benefit profits of currencies tax combin- £m IFRS GAAP £m reserves payments obligations associates £m £m ations £m £m £m £m £m £m £mSales 1,532 - - - - - - - - - 1,532Operating (1,397) 35 8 (1) 3 - - (5) 4 1 (1,352)expensesOperating 135 35 8 (1) 3 - - (5) 4 1 180profitDisposal of (14) - 11 - - - - - - 3 -businessesShare of 4 - - - - (2) - - - - 2post taxprofits ofassociatesInterest (37) - - - - 1 (1) - - (1) (38)expenseInterest 5 - - - - - - - - - 5incomeRetirement (13) - - - (3) - - - - - (16)benefitobligationsnet financecostProfit 80 35 19 (1) - (1) (1) (5) 4 3 133before taxTax (39) - - - - 1 - (2) - - (40)Profit after 41 35 19 (1) - - (1) (7) 4 3 93taxPreference (3) - - - - - - - - - (3)dividendsProfit for 38 35 19 (1) - - (1) (7) 4 3 90thefinancialperiodMinority (1) - - - - - - - - - (1)interestsProfit 37 35 19 (1) - - (1) (7) 4 3 89attributableto equityshareholders OperatingprofitUnderlying 178 - - (1) 3 - - - 4 - 184Goodwill (35) 35 - - - - - - - - -amortisationDisposals (8) - 8 - - - - (5) - 1 (4)and otherexceptionalitemsStatutory 135 35 8 (1) 3 - - (5) 4 1 180 Profitbefore taxUnderlying 137 - - (1) - (1) - - 4 (1) 138Goodwill (35) 35 - - - - - - - - -amortisationDisposals (22) - 19 - - - (1) (5) - 4 (5)and otherexceptionalitemsStatutory 80 35 19 (1) - (1) (1) (5) 4 3 133 Profitattributableto equityshareholdersUnderlying 94 - - (1) - - - (1) 4 (1) 95Goodwill (35) 35 - - - - - - - - -amortisationDisposals (22) - 19 - - - (1) (6) - 4 (6)and otherexceptionalitemsStatutory 37 35 19 (1) - - (1) (7) 4 3 89 Earnings pershare(pence)Underlying 17.2 - - (0.2) - - - (0.2) 0.7 (0.1) 17.4Goodwill (6.4) 6.4 - - - - - - - - -amortisationDisposals (4.0) - 3.5 - - - (0.2) (1.1) - 0.7 (1.1)and otherexceptionalitemsBasic 6.8 6.4 3.5 (0.2) - - (0.2) (1.3) 0.7 0.6 16.3 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 Reconciliation of consolidated income statements from UK GAAP to IFRScontinued (b) Year to 31 December 2004 Impact of transition to IFRS Under Goodwill Goodwill Share Retirement Share of Functional Deferred Business Other Under UK amortisation in based benefit profits of currencies tax combin- £m IFRS GAAP £m reserves payments obligations associates £m £m ations £m £m £m £m £m £m £mSales 3,081 - - - - - - - - - 3,081Operating (2,787) 75 8 (2) 6 1 - (9) (1) (1) (2,710)expensesOperating 294 75 8 (2) 6 1 - (9) (1) (1) 371profitDisposal of (14) - 11 - - - - - - 3 -businessesShare of 6 - - - - (5) - - - - 1post taxprofits ofassociatesInterest (78) - - - - 1 3 - - (1) (75)expenseInterest 13 - - - - - - - - - 13incomeRetirement (26) - - - (6) - - - - - (32)benefitobligationsnet financecostProfit 195 75 19 (2) - (3) 3 (9) (1) 1 278before taxTax (74) - - - - 3 - - - - (71)Profit after 121 75 19 (2) - - 3 (9) (1) 1 207taxPreference (5) - - - - - - - - - (5)dividendsProfit for 116 75 19 (2) - - 3 (9) (1) 1 202thefinancialyearMinority (1) - - - - - - - - - (1)interestsProfit 115 75 19 (2) - - 3 (9) (1) 1 201attributableto equityshareholders OperatingprofitUnderlying 385 - - (2) 6 1 - - (1) - 389Goodwill (75) 75 - - - - - - - - -amortisationDisposals (16) - 8 - - - - (9) - (1) (18)and otherexceptionalitemsStatutory 294 75 8 (2) 6 1 - (9) (1) (1) 371 Profitbefore taxUnderlying 300 - - (2) - (3) - - (1) (1) 293Goodwill (75) 75 - - - - - - - - -amortisationDisposals (30) - 19 - - - 3 (9) - 2 (15)and otherexceptionalitemsStatutory 195 75 19 (2) - (3) 3 (9) (1) 1 278 Profitattributableto equityshareholdersUnderlying 209 - - (2) - - - - (1) (1) 205Goodwill (75) 75 - - - - - - - - -amortisationDisposals (19) - 19 - - - 3 (9) - 2 (4)and otherexceptionalitemsStatutory 115 75 19 (2) - - 3 (9) (1) 1 201 Earnings pershare(pence)Underlying 38.2 - - (0.4) - - - - (0.2) (0.1) 37.5Goodwill (13.7) 13.7 - - - - - - - - -amortisationDisposals (3.5) - 3.5 - - - 0.5 (1.5) - 0.3 (0.7)and otherexceptionalitemsBasic 21.0 13.7 3.5 (0.4) - - 0.5 (1.5) (0.2) 0.2 36.8 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 Reconciliation of consolidated income statements from UK GAAP to IFRScontinued An explanation of the impact of the principal differences and resultingadjustments between UK GAAP and IFRS as they apply to Rexam's consolidatedincome statements for the six months to 30 June 2004 and year to 31 December2004 is set out below. (i) Goodwill amortisationUnder UK GAAP, goodwill was amortised over its useful economic life, notexceeding 20 years. Under IFRS, goodwill is not amortised but tested annuallyfor impairment. For the six months to 30 June 2004 and year to 31 December 2004 under IFRS,goodwill amortisation of £35m and £75m respectively expensed under UK GAAP hasbeen reversed. (ii) Goodwill in reservesUnder UK GAAP, goodwill previously written off directly to reserves was recycledto the consolidated income statement on disposal or impairment of the relatedbusiness. Under IFRS, goodwill previously written off directly to reserves isnot recycled. For the six months to 30 June 2004 and year to 31 December 2004 under IFRS,goodwill previously written off directly to reserves and recycled to theconsolidated income statement under UK GAAP of £11m on disposal and £8m onimpairment have been reversed. (iii) Share based paymentsUnder UK GAAP, an expense was recognised in the consolidated income statementfor share options, excluding save as you earn options which were exempt, basedon intrinsic value. Under IFRS, an expense is recognised for all equity settledshare options granted after 7 November 2002 and for all cash settled shareoptions, based on the fair value of the options calculated using appropriatepricing models. For the six months to 30 June 2004 and year to 31 December 2004 under IFRS,operating expenses increase by £1m and £2m respectively. (iv) Retirement benefit obligationsUnder UK GAAP, pension plan and retiree medical administration expenses wereincluded as part of the current service cost of providing employee benefits andincluded in operating expenses in the consolidated income statement. Under IFRS,pension plan and retiree medical administration expenses reduce the expectedreturn on plan assets and are included in net finance costs in the consolidatedincome statement. For the six months to 30 June 2004 and year to 31 December 2004 under IFRS,operating expenses reduce and net finance costs increase by £3m and £6mrespectively for pension plan and retiree medical administration expenses. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 Reconciliation of consolidated income statements from UK GAAP to IFRScontinued (v) Share of profits of associatesUnder UK GAAP, the group share of operating profits of associates was presentedon the face of the consolidated income statement after group operating profit.The group share of interest and tax of associates was included within therelevant group totals. Under IFRS, the group share of profit after tax ofassociates is presented on the face of the consolidated income statement aftergroup operating profit. Under UK GAAP, an investment in an entity other than asubsidiary was treated as an associate if the group had a participating interestand exercised significant influence over its operating and financial policies.Under IFRS, an investment in an entity is treated as an associate if the grouphas the power to exercise significant influence over its operating and financialpolicies. For the six months to 30 June 2004 under IFRS, an interest charge of £1m and atax charge of £1m have been reclassified to group share of profit after tax ofassociates. For the year to 31 December 2004 under IFRS, an interest charge of£1m and a tax charge of £3m have been reclassified to group share of profitafter tax of associates. In addition for the year to 31 December 2004, a groupinvestment was impaired by £1m and under IFRS this investment qualifies as anassociate and consequently the impairment has been included as part of share ofprofit after tax of associates. (vi) Functional currenciesUnder UK GAAP, the local currency was used by foreign intermediate holdingcompanies for currency translation. Under IFRS, the functional currency is used. For the six months to 30 June 2004 under IFRS, exchange losses resulting fromdifferences between the local currency and functional currency for certainforeign intermediate holding companies increase the interest charge by £1m andreduce exchange losses in shareholders' equity by £1m. For the year to 31December 2004 under IFRS, exchange gains resulting from differences between thelocal currency and functional currency for certain foreign intermediate holdingcompanies reduce the interest charge by £3m and increase exchange losses inshareholders' equity by £3m. (vii) Deferred taxUnder UK GAAP, the subsequent recognition of deferred tax assets not originallyrecognised at the time of a business combination was recorded as a deferred taxasset and a tax credit in the consolidated income statement. Under IFRS,subsequent recognition also gives rise to a reduction in goodwill and acorresponding operating profit expense in the consolidated income statement.Under UK GAAP, deferred tax was only recognised on fair value adjustmentsresulting from business combinations where they resulted in timing differencesin the acquired entity's own financial statements. Under IFRS, deferred tax isrecognised on the difference between the fair value and the tax base of allassets and liabilities acquired in a business combination. Under UK GAAP,movements in deferred tax assets relating to equity settled share options wererecognised in the consolidated income statement. Under IFRS, movements indeferred tax assets relating to equity settled share options are recogniseddirectly in shareholders' equity. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7 Reconciliation of consolidated income statements from UK GAAP to IFRScontinued For the six months to 30 June 2004 under IFRS, due to the subsequent recognitionof deferred tax assets not originally recognised at the time of a businesscombination operating expenses increase by £5m. The net impact of all otheradjustments under IFRS increases the tax charge by £2m. For the year to 31December 2004 under IFRS, due to the subsequent recognition of deferred taxassets not originally recognised at the time of a business combination operatingexpenses increase by £9m. In addition, the tax charge reduces by £1m resultingfrom a revaluation of property, plant and equipment on a 2004 businesscombination and increases by £1m in respect of share options. (viii) Business combinationsUnder UK GAAP, fair value adjustments to assets and liabilities were permittedup to the end of the year following the year of the business combination andrecognised in the year when the adjustments were made. Under IFRS, fair valueadjustments to assets and liabilities are permitted up to one year following thebusiness combination and are recognised retrospectively in the financialstatements. For the six months to 30 June 2004 under IFRS, operating expenses reduce by £4marising from the retrospective recognition of fair value adjustments arising on2003 business combinations. For the year to 31 December 2004 under IFRS,operating expenses increase by £1m arising from the retrospective recognition offair value adjustments arising on 2003 business combinations. (ix) OtherFor the six months to 30 June 2004 under IFRS, other adjustments principallycomprise a £4m increase in exceptional profit before tax and exceptional profitattributable to equity shareholders arising from the reclassification of certainemployee benefit costs to the 1 January 2004 transition balance sheet. For theyear to 31 December 2004 under IFRS, other adjustments principally comprise a£2m increase in exceptional profit before tax and exceptional profitattributable to equity shareholders arising from the reclassification of certainemployee benefit costs to the 1 January 2004 transition balance sheet of £4m,less £2m relating to the reclassification to the consolidated income statementof a downward impairment of assets following the transfer of an operation fromassociate to subsidiary status. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 Reconciliation of consolidated balance sheets from UK GAAP to IFRS (a) At 1 January 2004 Impact of transition to IFRS Under Intangible Share Retirement Equity Cross Deferred Business Other Under UK assets based benefit dividends currency tax combin- £m IFRS GAAP £m payments obligations £m swaps £m ations £m £m £m £m £m £mASSETSNon currentassetsGoodwill 1,195 (1) - - - - 1 75 - 1,270Other - 31 - - - - - - - 31intangibleassetsProperty, 1,262 (29) - - - - - (68) 7 1,172plant andequipmentInvestments 31 - - - - - - - 2 33in associatesand jointventuresDeferred tax 278 - - - - - 58 4 - 340assetsOther 28 - - - - - - - 1 29receivablesOther 33 - - - - - - - (2) 31investmentsDerivative - - - - - 63 - - - 63financialinstruments 2,827 1 - - - 63 59 11 8 2,969CurrentassetsInventories 339 - - - - - - (7) (1) 331Deferred tax 22 - - - - - (22) - - -assetsTrade and 419 - - - - - - (3) - 416otherreceivablesCash and cash 70 - - - - - - - - 70equivalents 850 - - - - - (22) (10) (1) 817 Total assets 3,677 1 - - - 63 37 1 7 3,786 LIABILITIESCurrentliabilitiesBorrowings (218) - - - - - - - - (218)Current tax (34) - - - - - - (4) - (38)Trade and (660) - - - 52 - - 2 - (606)otherpayablesProvisions (16) - - - - - - - - (16) (928) - - - 52 - - (2) - (878)Non currentliabilitiesBorrowings (1,021) - - - - (63) - - (8) (1,092)Retirement (703) - - (17) - - - - - (720)benefitobligationsDeferred tax (56) - - - - - (30) (3) - (89)liabilitiesNon current (70) - - - - - - - - (70)taxTrade and (38) - - - - - - (6) (4) (48)otherpayablesProvisions (38) - (1) - - - - - - (39) (1,926) - (1) (17) - (63) (30) (9) (12) (2,058) Total (2,854) - (1) (17) 52 (63) (30) (11) (12) (2,936)liabilities Net assets 823 1 (1) (17) 52 - 7 (10) (5) 850 EQUITYShare capital 441 - - - - - - - - 441Share premium 735 - - - - - - - - 735accountCapital 279 - - - - - - - - 279redemptionreserveRetained (651) 1 (1) (17) 52 - 7 1 (5) (613)earningsShareholders' 804 1 (1) (17) 52 - 7 1 (5) 842equityMinority 19 - - - - - - (11) - 8interestsTotal equity 823 1 (1) (17) 52 - 7 (10) (5) 850 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 Reconciliation of consolidated balance sheets from UK GAAP to IFRS continued (b) At 30 June 2004 Impact of transition to IFRS Under Goodwill Intangible Share Retirement Equity Cross Deferred Business Other Under UK amortisation assets based benefit dividends currency tax combin- £m IFRS GAAP £m £m payments obligations £m swaps £m ations £m £m £m £m £m £mASSETSNon currentassetsGoodwill 1,131 35 (1) - - - - (3) 83 - 1,245Other - - 32 - - - - - - - 32intangibleassetsProperty, 1,229 - (30) - - - - - (62) 6 1,143plant andequipmentInvestments 33 - - - - - - - - 2 35in associatesand jointventuresDeferred tax 245 - - - - - - 59 4 - 308assetsOther 26 - - - - - - - - - 26receivablesOther 31 - - - - - - - - (2) 29investmentsDerivative - - - - - - 76 - - - 76financialinstruments 2,695 35 1 - - - 76 56 25 6 2,894CurrentassetsInventories 348 - - - - - - - (6) (1) 341Deferred tax 25 - - - - - - (25) - - -assetsTrade and 440 - - - - - - - (2) - 438otherreceivablesDerivative - - - - - - 3 - - - 3financialinstrumentsCash and cash 67 - - - - - - - - - 67equivalents 880 - - - - - 3 (25) (8) (1) 849 Total assets 3,575 35 1 - - - 79 31 17 5 3,743 LIABILITIESCurrentliabilitiesBorrowings (160) - - - - - - - - - (160)Current tax (33) - - - - - - - (4) - (37)Trade and (589) - - - - 40 - - 2 - (547)otherpayablesProvisions (10) - - - - - - - - - (10) (792) - - - - 40 - - (2) - (754)Non currentliabilitiesBorrowings (1,125) - - - - - (79) - - (8) (1,212)Retirement (622) - - - (17) - - - - - (639)benefitobligationsDeferred tax (56) - - - - - - (31) (4) - (91)liabilitiesNon current (66) - - - - - - - - - (66)taxTrade and (37) - - - - - - - (6) - (43)otherpayablesProvisions (35) - - (2) - - - - - - (37) (1,941) - - (2) (17) - (79) (31) (10) (8) (2,088) Total (2,733) - - (2) (17) 40 (79) (31) (12) (8) (2,842)liabilities Net assets 842 35 1 (2) (17) 40 - - 5 (3) 901 EQUITYShare capital 442 - - - - - - - - - 442Share premium 740 - - - - - - - - - 740accountCapital 279 - - - - - - - - - 279redemptionreserveRetained (620) 35 1 (2) (17) 40 - - 5 22 (536)earningsOther - - - - - - - - - (25) (25)reservesShareholders' 841 35 1 (2) (17) 40 - - 5 (3) 900equityMinority 1 - - - - - - - - - 1interestsTotal equity 842 35 1 (2) (17) 40 - - 5 (3) 901 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 Reconciliation of consolidated balance sheets from UK GAAP to IFRS continued (c) At 31 December 2004 Impact of transition to IFRS Under Goodwill Intangible Share Retirement Equity Cross Deferred Under UK amortisation assets based benefit dividends currency tax Other IFRS GAAP £m £m payments obligations £m swaps £m £m £m £m £m £m £mASSETSNon currentassetsGoodwill 1,185 75 (1) - - - - (7) - 1,252Other - - 40 - - - - - - 40intangibleassetsProperty, 1,196 - (38) - - - - - (1) 1,157plant andequipmentInvestments 28 - - - - - - - 1 29in associatesand jointventuresDeferred tax 265 - - - - - - 75 - 340assetsOther 23 - - - - - - - - 23receivablesOther 30 - - - - - - - (1) 29investmentsDerivative - - - - - - 90 - - 90financialinstruments 2,727 75 1 - - - 90 68 (1) 2,960CurrentassetsInventories 353 - - - - - - - (1) 352Deferred tax 36 - - - - - - (36) - -assetsTrade and 412 - - - - - - - 1 413otherreceivablesDerivative - - - - - - 11 - - 11financialinstrumentsCash and cash 94 - - - - - - - - 94equivalents 895 - - - - - 11 (36) - 870 Total assets 3,622 75 1 - - - 101 32 (1) 3,830 LIABILITIESCurrentliabilitiesBorrowings (136) - - - - - - - - (136)Derivative - - - - - - - - (2) (2)financialinstrumentsCurrent tax (4) - - - - - - - - (4)Trade and (664) - - - - 55 - - - (609)otherpayablesProvisions (9) - - - - - - - - (9) (813) - - - - 55 - - (2) (760)Non currentliabilitiesBorrowings (1,027) - - - - - (101) - 1 (1,127)Retirement (755) - - - (19) - - - - (774)benefitobligationsDeferred tax (65) - - - - - - (32) - (97)liabilitiesNon current (98) - - - - - - - - (98)taxTrade and (42) - - - - - - - - (42)otherpayablesProvisions (36) - - (2) - - - - - (38) (2,023) - - (2) (19) - (101) (32) 1 (2,176) Total (2,836) - - (2) (19) 55 (101) (32) (1) (2,936)liabilities Net assets 786 75 1 (2) (19) 55 - - (2) 894 EQUITYShare capital 443 - - - - - - - - 443Share premium 741 - - - - - - - - 741accountCapital 279 - - - - - - - - 279redemptionreserveRetained (677) 75 1 (2) (19) 55 - - 9 (558)earningsOther - - - - - - - - (11) (11)reservesShareholders' 786 75 1 (2) (19) 55 - - (2) 894equity NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 Reconciliation of consolidated balance sheets from UK GAAP to IFRS continued An explanation of the impact of the principal differences and resultingadjustments between UK GAAP and IFRS as they apply to Rexam's consolidatedbalance sheets at 1 January 2004, 30 June 2004 and 31 December 2004 is set outbelow. (i) Goodwill amortisationUnder UK GAAP, goodwill was amortised over its useful economic life, notexceeding 20 years. Under IFRS, goodwill is not amortised but tested annuallyfor impairment. At 1 January 2004 and at 31 December 2004 under IFRS, all goodwill has beentested for impairment and no impairment was identified. At 30 June 2004 and at31 December 2004 under IFRS, goodwill amortisation of £35m and £75m respectivelyexpensed under UK GAAP has been reversed. (ii) Intangible assetsUnder UK GAAP, computer software costs attributable to major business systemsimplementations were capitalised as property, plant and equipment. Under IFRS,computer software costs attributable to major business systems implementationsare capitalised as intangible assets. Under UK GAAP, intangible assets acquiredas part of a business combination were subsumed within goodwill. Under IFRS,intangible assets acquired as part of a business combination are recognisedseparately when their fair values can be measured reliably. Under UK GAAP, allexpenditure on development activities was written off. Under IFRS, expenditureon development activities that meet the criteria for capitalisation isrecognised in intangible assets. At 1 January 2004 under IFRS, computer software of £29m has been reclassifiedfrom property, plant and equipment to intangible assets, goodwill of £1m hasbeen reclassified to intangible assets and intangible assets of £1m have beenrecognised as a result of development activities. At 30 June 2004 under IFRS,computer software of £30m has been reclassified from property, plant andequipment to intangible assets, goodwill of £1m has been reclassified tointangible assets and intangible assets of £1m have been recognised as a resultof development activities. At 31 December 2004 under IFRS, computer software of£38m has been reclassified from property, plant and equipment to intangibleassets, goodwill of £1m has been reclassified to intangible assets andintangible assets of £1m have been recognised as a result of developmentactivities. (iii) Share based paymentsUnder UK GAAP, a provision was recognised for cash settled options based onintrinsic value at the balance sheet date. Under IFRS, a provision is recognisedfor cash settled options based on the fair value of cash settled options at thebalance sheet date calculated using appropriate pricing models. At 1 January 2004 under IFRS, the provision for cash settled options increasesby £1m. At 30 June 2004 and at 31 December 2004 under IFRS, the provision forcash settled options increases by £2m. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 Reconciliation of consolidated balance sheets from UK GAAP to IFRS continued (iv) Retirement benefit obligationsUnder UK GAAP, insured liabilities for lump sum death in service benefits werebased on premiums payable. Under IFRS, insured liabilities for lump sum death inservice benefits are recognised on the balance sheet to the extent that theyrelate to past service. Under UK GAAP, the fair value of pension plan assets wascalculated using mid prices. Under IFRS, the fair value of pension plan assetsis calculated using bid prices. At 1 January 2004 and at 30 June 2004 under IFRS, retirement benefit obligationsincrease by £12m relating to death in service benefits, by £1m relating to thevaluation of assets at bid prices and by £4m for other adjustments. At 31December 2004 under IFRS, retirement benefit obligations increase by £14mrelating to death in service benefits, by £2m relating to the valuation ofassets at bid prices and by £3m for other adjustments. (v) Equity dividendsUnder UK GAAP, equity dividends were recognised in the period to which theyrelated. Under IFRS, final equity dividends are recognised only when approved bythe shareholders and interim dividends are recognised in the period they arepaid. At 1 January 2004 under IFRS, the final dividend proposed in respect of 2003 of£52m is not recognised. At 30 June 2004, under IFRS, the interim dividendproposed in respect of 2004 of £40m is not recognised. At 31 December 2004 underIFRS, the final dividend proposed in respect of 2004 of £55m is not recognised. (vi) Cross currency swapsUnder UK GAAP, borrowings hedged by cross currency swaps are recorded net of thespot value of the swaps and therefore effectively measured at the rates ofexchange of the swap contracts. Under IFRS, the spot value of the cross currencyswaps is presented separately. In order to be consistent with the presentationof derivative financial instruments in 2005 on adoption of IAS39, when the fairvalue of the cross currency swaps is recognised, the cross currency swaps arepresented as derivative financial instruments. At 1 January 2004 under IFRS, borrowings increase by £63m and a derivativefinancial instrument asset is recognised of £63m. At 30 June 2004 under IFRS,borrowings increase by £79m and a derivative financial instrument asset isrecognised of £79m. At 31 December 2004 under IFRS, borrowings increase by £101mand a derivative financial instrument asset is recognised of £101m. (vii) Deferred taxUnder UK GAAP, the subsequent recognition of deferred tax assets not originallyrecognised at the time of a business combination were recorded as a deferred taxasset and a tax credit in the income statement. Under IFRS, subsequentrecognition also gives rise to a reduction in goodwill and a NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8 Reconciliation of consolidated balance sheets from UK GAAP to IFRS continued corresponding operating profit expense in the income statement. Under UK GAAP,deferred tax assets are classified as debtors and deferred tax liabilities areclassified as provisions in the balance sheet (excluding retirement benefits). Under IFRS, deferred tax assets and deferredtax liabilities are presented separately as non current assets and non currentliabilities on the balance sheet. At 1 January 2004 under IFRS, deferred tax assets of £22m are reclassified fromcurrent assets to non current assets. The impact of retirement benefitobligation adjustments increases deferred tax assets by £5m and the impact ofall other adjustments increases goodwill by £1m and net deferred tax assets by£1m. At 30 June 2004 under IFRS, due to the subsequent recognition of deferredtax assets not originally recognised at the time of a business combination,goodwill reduces by £5m. Deferred tax assets of £25m are reclassified fromRelated Shares:
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