31st Jul 2007 07:02
Rexam PLC31 July 2007 Challenging half year - now well positioned for future growth Rexam, the global consumer packaging company and the world's leading beveragecan maker, announces its results for the six months to 30 June 2007. Underlying business performance 1 6 months to 6 months to 30.6.07 30.6.06 restatedSales from ongoing operations 2 £1,666m £1,582mUnderlying operating profit from ongoing operations £146m £174mUnderlying profit before tax £98m £121mUnderlying earnings per share 11.7p 16.4pDividends, declared or paid, per share 8.3p 7.9p Highlights • Sales from ongoing operations up 5%, with strong organic 3 salesgrowth of 10% • Underlying operating profit from ongoing operations impacted by highaluminium cost, US strike and currency translation of weak US dollar • Portfolio restructured towards higher growth with announcedacquisition of O-I Plastics and Rostar and sale of Glass • Beverage Can continued strong demand in Europe and South Americaoffset by weaker North American volumes • Substantial price increases gained on open beverage can contracts inEurope • Plastic Packaging sales up 4% and underlying operating profit up 11%on an organic basis; underlying margins improved to 11.1% • Significant capital expenditure to support future growth Commenting on the 2007 half year results, Rolf Borjesson, Rexam's Chairman,said: "The first half was every bit as challenging as we had expected, with the lowerresults masking significant progress in a number of areas. We delivered goodsales growth; implemented substantial price rises on the open European beveragecan sales contracts; invested further in organic growth and continued to makegood efficiency savings. "Rexam has undergone significant change in the first half of 2007. We steppedup the execution of our strategy to focus the business on higher growth, highermargin segments and emerging markets. To that end we sold our Glass business andwill reinvest the proceeds in the Plastic Packaging and Beverage Can sectors. "Looking ahead, we are confident that we are well positioned for future growth.We will maintain our focus on results delivery, and especially marginimprovement, and we continue to anticipate that the year as a whole will be inline with our expectations". Statutory results 4 6 months to 6 months to 30.6.07 30.6.06 restatedContinuing operations: Sales £1,688m £1,637m Operating profit £146m £196m Profit before tax £97m £154mTotal profit for financial period £135m £125mTotal basic earnings per share 22.9p 22.5p 31 July 2007 1 Underlying business performance is continuing operations before exceptionalitems 2 Ongoing operations reflect underlying business performance excludingbusinesses that have been disposed or are held for sale in either 2007 or 2006 3 Underlying business performance adjusting for impact of disposals,acquisitions and currency translation 4 Statutory results include exceptional items and discontinued operations Enquiries Rexam PLC 020 7227 4100Leslie Van de Walle, Chief Executive OfficerDavid Robbie, Finance Director Financial Dynamics 020 7269 7291Richard Mountain Editors' notes: Rexam is a leading global consumer packaging company and the largest beveragecan maker in the world. Our vision is to be the leading global consumerpackaging company. We are business partners to some of the world's most famousand successful consumer brands as well as young, entrepreneurial start-ups. Weoffer a broad range of packaging services and solutions for differentindustries, using different materials and technologies. Three thingscharacterise us - leadership in our industry, our commitment to innovation andour passion to deliver exceptional value. Rexam's sales from continuingoperations for the year ended 31 December 2006 were approximately £3.3 billion.We employ some 21,000 people in more than 20 countries and are a member of theFTSE 100. Rexam's ordinary shares are listed with the UK Listing Authority andtrade on the London Stock Exchange under the symbol REX. For furtherinformation on Rexam, visit www.rexam.com A copy of this release will be posted on the Rexam website, www.rexam.com. Anon demand webcast of the 2007 interim results presentation with synchronisedslides will be available on the website from after 14:00 UK time on 31 July2007. A dial in conference call will be held at 14:30 UK time. For callers in the USplease dial (480) 629 9562. The dial in number in the UK is +44 20 7190 1596. Business review Rexam has undergone a number of portfolio and structural changes since the firsthalf of 2006, which makes direct comparison with the equivalent period last yearless straightforward than normal. During the first half of 2007, we stepped upthe execution of our strategy to focus the business on higher growth, highermargin segments and emerging markets, selling our Glass business and reinvestingthe proceeds in the Plastic Packaging and Beverage Can sectors. As anticipated,underlying operating profits were lower than the first six months last yearmasking significant progress in a number of areas which we will build on goingforward. We delivered good sales growth; implemented substantial price rises onthe open European beverage can sales contracts; invested further in organicgrowth and continued to make good efficiency savings. As a Group, Rexam delivered top line growth of 5% to £1,666m from ongoingoperations, continuing the momentum from last year. Organic sales growth was 10%with acquisitions contributing 1% offset by currency translation, mainly the USdollar, of 6%. Underlying operating profit from ongoing operations was £146m compared with£174m for the six months to June 2006 as restated for the sale of the Glassbusiness. The difference is attributable to a number of items including thecontinuing impact of high input costs (£43m, including the £13m realised in 2006on the renegotiation of a metal supply contract not repeated in 2007), theweakening US dollar (£11m) as well as the impact of the four week strike at nineof our US can making facilities in April and May 2007 (£10m). Underlying profitbefore tax was £98m (2006: £121m) and underlying earnings per share were 11.7p(2006: 16.4p). For continuing operations on a statutory basis, which includes the effect ofacquisitions, disposed businesses and currency translation, sales were £1,688m(2006: £1,637m) and profit before tax was £97m (2006: £154m). Total profit forthe period, including profit from discontinued operations of £67m (2006: £11m),was £135m (2006: £125m) and total basic earnings per share were 22.9p (2006:22.5p). Beverage Cans 6 months to 6 months to 30.6.07 30.6.06Sales £1,297m £1,224mUnderlying operating profit £105m £136mReturn on sales 8.1% 11.1% During the first half of 2007, Beverage Cans delivered good growth with volumesincreasing 3% across our global business led by continued strong demand inEurope and South America, offset by a weaker year on year performance in NorthAmerica. Capacity utilisation remains high at all our beverage can plants and wesucceeded in gaining substantial price increases in 2007 on the open one thirdof sales contracts which were renegotiated in Europe. Despite the increasedvolume and better pricing, margins across Beverage Cans were down on theequivalent period last year mainly owing to continuing high aluminium prices andthe costs associated with the strike in the US. We remain confident that marginswill improve in the second half and further still in 2008 as we see continuedvolume growth and improved pricing. In Europe, our beverage can volume growth continued its good performance in2006, increasing 14% on the same period last year as a result of buoyant marketconditions in a number of European countries and the sustained growth of theenergy drinks market whose packages of choice are the 25cl can and,increasingly, the Rexam SleekTM can. As a result, we are extending ourinvestment plans in the greenfield can making plant in Austria with anadditional line (making three in total) which will be fully operational by late2008. In Spain we are installing a further steel line to meet market growththere, and in Egypt we are adding a second steel line to the plant acquired in2006. The lines in Spain and Egypt are expected to come on stream in the secondquarter of 2008. As previously announced, this continued investment, especiallyin the growing European market, will mean that capital expenditure in 2007 and2008 will be higher than historic levels for Rexam. In North America, volumes declined 10% overall compared with the equivalentperiod last year owing to a drop in carbonated soft drinks volumes, the strikeat nine of our plants and reduced production as we continue to convert 12ozlines to higher growth specialty size capacity. We expect the total impact ofthe strike to be up to £15m in the full year. Encouragingly, specialty canvolumes (which now account for approximately 14% of volumes in the US) grew morethan 29% compared with the equivalent period last year. In addition to the lineconversions, we added a line for specialty sizes and initiated furtheroptimisation projects on our 24oz lines. Overall, trading in the US is back ontrack after the strike. In South America, volumes increased 16% compared with the equivalent period lastyear, fuelled by continued strong growth in Argentina and Chile and continuedgrowth in specialty cans in Brazil. However, profits were impacted by a highercost base owing to the strengthening of the Real against the US dollar. With thestart up of the Manaus plant and further investment in the Recife plant, wecontinue to implement our global end manufacturing strategy to create a SouthAmerican manufacturing hub for end needs across the Americas and to meet strongdemand in Europe. In Central America, we announced the formation of a 50-50 joint venture withEnvases Universales with regard to a greenfield plant in Guatemala, which willhave a capacity of one billion cans. We already have a beverage can making plantin Queretaro, Mexico, and this joint venture strengthens our presence in amarket growing at a rate of about 6% per annum. In July, we announced that we had reached agreement to acquire Rostar, the mainbeverage can maker in Russia, for US$297m. The transaction is subject toregulatory approval from the Russian antimonopoly commission and is expected tocomplete in the fourth quarter of 2007. Rostar has two manufacturing facilities,one near Moscow and one near St Petersburg with a combined annual capacity ofsome three billion beverage cans. The acquisition is in line with our emergingmarkets strategy and represents an excellent opportunity for Rexam. We have beenin Russia for over 10 years, and this, along with our greenfield plant inArgayash (near Chelyabinsk) and the investment in new lines at our existingplant, positions us well in a market that is expected to grow at around 8% perannum in the medium term. In India, our joint venture produced its first beverage cans and we expect theplant to be running at close to full capacity by the end of 2008 to meet thedemands of this rapidly growing market. The price of aluminium remained at an average of US$2,770 per tonne for thefirst six months of the year. For the remainder of 2007, we have exposure toaround 70,000 tonnes and are forecasting a price of between US$2,600 andUS$2,700 per tonne. However, we expect the aluminium exposure risk to reduceover time. As stated in the 2006 results announcement in February 2007, we arelargely unaffected by the changes in the cost of aluminium in the Americas asmajor customers agree the cost in advance with their suppliers, effectivelyresulting in a cost pass through. In Europe, we are negotiating with increasingnumbers of large customers to opt for the pass through model such that some 50%of metal requirements are expected to be on this basis in 2008. In addition, byyear end, we will renegotiate a further third of our open European beverage cansales contracts for 2008 supply and are confident that we will achieve furtherprice rises. Plastic Packaging 6 months to 6 months to 30.6.07 30.6.06Sales £369m £358mUnderlying operating profit £41m £38mReturn on sales 11.1% 10.6% Plastic Packaging sales were up 3% on the equivalent period last year benefitingfrom organic growth of 4% and acquisitions of 5%, offset by a 6% negative effectof currency translation. Underlying operating profit was up 8%, 11% of which wasorganic and 5% from acquisitions, offset by 8% on currency translation. Marginsimproved against last year to 11.1%. Sales and profits growth in Dispensing Systems was strong, as a result of a goodperformance from fragrance and lotion pumps, while the Pharma division benefitedfrom increased sales in certain of its main product areas. Progress in theClosures & Containers and the Home & Personal Care divisions was tempered as aresult of lower demand from some key customers. In Food, the US businessdelivered on a consistently strong track record. Following the strategy todevelop high barrier food packaging outside the US, we are exiting themanufacture of lower margin food container products in the UK and startingproduction of high barrier containers. This process is in its early stages and,as a result, overall sales declined in the Food division year on year, but weare confident that this strategic shift will deliver good returns over themedium term. Following the restructuring announced last November, Make Up improved itsprofitability and performance is expected to improve further in the second halfof 2007. This phase of restructuring, which included a headcount reduction of1,000 and plant rationalisations in China and Europe, is now almost complete.Going forward, we will pursue further restructuring plans and focus on thesustainable recovery of the Make Up division. Our strategy to capture growth in plastic packaging was reflected in theacquisition of O-I Plastics for US$1,825m (including tax benefits acquired),announced in June and expected to complete on 31 July. O-I Plastics is a leadingUS manufacturer of rigid plastic healthcare packaging and plastic closuresystems. It transforms our Plastic Packaging business, creating meaningful scaleand leading positions in two important rigid plastic packaging growth segments:healthcare packaging and closures. O-I Plastics is an excellent fit in terms of customers, technologies,innovation, end use applications and geography and offers significant valuecreation opportunities through cost and revenue synergies. It is anticipatedthat these will amount to approximately US$40m per annum by 2010. The acquisition also enables us to implement a new structure for PlasticPackaging, combining the six divisions into three larger units of broadlysimilar size in revenue terms; Healthcare, Closures and Personal Care. Thisstructure will provide further opportunities to streamline the business andleverage our international scale. 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 June2007 and six months to 30 June 2006 are set out below. Underlying Exceptional business items Total performance1 £m £m £m 6 months to 30 June 2007:Continuing operations:Sales 1,688 - 1,688Operating profit/(loss) 148 (2) 146Share of associates loss after tax (1) - (1)Total net finance cost 2 (49) 1 (48)Profit/(loss) before tax 98 (1) 97Profit/(loss) after tax - continuing operations 69 (1) 68Discontinued operations:Profit for financial period 67Total profit for financial period 135 Total basic earnings per share (p) 22.9Underlying earnings per share (p) 11.7Dividend per ordinary share (p) 3 8.3 6 months to 30 June 2006, restated:Continuing operations:Sales 1,637 - 1,637Operating profit 178 18 196Share of associates profit after tax - 8 8Total net finance cost 2 (57) 7 (50)Profit before tax 121 33 154 Profit after tax - continuing operations 91 23 114Discontinued operations:Profit for financial period 11Total profit for financial period 125 Total basic earnings per share (p) 22.5Underlying earnings per share (p) 16.4Dividend per ordinary share (p) 7.9 1 Underlying business performance is the primary performance measure used by management, who believe that exclusion of exceptional items aids comparison of underlying performance of continuing operations, which now excludes the discontinued Glass business. 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.2 Comprises net interest and retirement benefit obligations net finance cost.3 Declared on 31 July 2007 and payable on 6 November 2007. This dividend has not been accrued in these interim consolidated financial statements. A summary of underlying business performance from continuing operations is setout below. 6 months to 6 months to 30.6.07 30.6.06 £m restated £mOngoing operations 1,666 1,582Disposals 22 55Sales 1,688 1,637 Ongoing operations 146 174Disposals 2 4Underlying operating profit 148 178Share of associates loss after tax (1) -Underlying total net finance cost (49) (57)Underlying profit before tax 98 121Underlying profit after tax 69 91 Underlying earnings per share (p) 11.7 16.4 The following tables, showing sales and underlying operating profit, compare theongoing operations on a consistent basis. This basis excludes disposals andbusinesses held for sale (described as "Disposals") and discontinued operationsbut includes prior year acquisitions as if acquired on 1 January 2006, by addingtheir pre-acquisition results (described as "Acquisitions 2006"). It alsohighlights organic change and currency fluctuations arising on translation.Organic change is the year on year change on ongoing operations from businessesowned since the beginning of 2007. Analysis of sales movement Total Beverage Plastic Cans Packaging £m £m £m Sales reported 6 months to 30.6.06 1,637Disposals 2006 (55)Ongoing operations 6 months to 30.6.06 reported in 2007 1,582 1,224 358Acquisitions 2006 22 2 20Currency fluctuations (99) (77) (22)Ongoing operations 6 months to 30.6.06 pro forma basis 1,505 1,149 356Organic change in sales 161 148 13 Ongoing operations reported 6 months to 30.6.07 1,666 1,297 369Disposals 2007 22Sales reported 6 months to 30.6.07 1,688 Organic sales growth, which excludes the impact of acquisitions, disposals andthe effects of currency translation, was £161m, an increase of 10% of which £76mcame from pass through of raw material cost increases, principally aluminium inthe North and South American Beverage Can operations. Price increasescontributed £22m in total, primarily from European Beverage Cans renegotiationof its open sales contracts for 2007 supply, whilst volume and mix gains,predominantly in Beverage Cans, added a further £63m. Within Beverage Cans therewere strong performances from the European and South American businesses.Volumes in North America were down, due to reduced demand for 12oz cans forcarbonated soft drinks, the US strike and production downtime as we continuedthe conversions of 12oz lines into higher growth specialty can lines. ThePlastic Packaging improvement was driven by higher volumes across most of itsbusinesses, especially in Dispensing Systems and Pharma. Analysis of underlying operating profit movement Total Beverage Plastic Cans Packaging £m £m £m Underlying operating profit reported 6 months to 30.6.06 178Disposals 2006 (4)Ongoing operations 6 months to 30.6.06 reported in 2007 174 136 38Acquisitions 2006 2 - 2Currency fluctuations (12) (9) (3)Ongoing operations 6 months to 30.6.06 pro forma basis 164 127 37Organic change in operating profit (18) (22) 4Ongoing operations reported 6 months to 30.6.07 146 105 41Disposals 2007 2Underlying operating profit reported 6 months to 30.6.07 148 Analysis of the organic change in underlying operating profit. Total Beverage Plastic Cans Packaging £m £m £m Price changes 98 102 (4)Cost changes (156) (148) (8)Price and cost changes (58) (46) (12)Volume/mix changes 22 15 7Efficiency and other savings 18 9 9Organic change in underlying operating profit (18) (22) 4 The reduction in underlying operating profit, after adjusting for the impact ofacquisitions, disposals and currency, was £18m, which reflects the continuedhigh input costs together with the impact of the strike in the US Beverage Canbusiness. Within the European and North American Beverage Can operations, price increasesand pass through arrangements largely covered the effect of rising aluminiumprices. A gain of £13m realised in 2006 on the renegotiation of a metal supplycontract in the US was not repeated. A four week strike, which cost an estimated£10m, also hampered the North American business. Overall, growth in energydrinks and non standard can sizes along with efficiency savings combined tocounter higher metal conversion costs in the South American operations. Plastic Packaging reported an 11% organic improvement in underlying operatingprofit. Good volume growth in most businesses, together with efficiency savings,were more than sufficient to cover contractual price concessions to securevolume on some long term contracts as well as general cost increases. Changes inresin costs did not affect the profits significantly; negative price changesshown in the table above were a result mainly of the pass through to customersof cost reductions in certain grades of resin. 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 30.6.07 30.6.06 31.12.06Average:US dollar 1.97 1.79 1.84Euro 1.48 1.46 1.47Closing:US dollar 1.99 1.82 1.96Euro 1.49 1.45 1.49 Consolidated income statement The US dollar and the euro are the principal currencies that impact our results.The movement in exchange rates had the following impact on the translationinto sterling for sales and underlying operating profit in the first half of2007. Sales Underlying operating £m profit £mUS dollar (90) (11)Euro (5) (1)Other currencies (4) - (99) (12) In addition to the translation exposure, the Group is also exposed to movementsin exchange rates on certain of its transactions. These are principally the USdollar/euro movement and the US dollar/Brazilian Real movement on the Europeanand South American Beverage Can operations respectively. The exposure in Europeis largely hedged and therefore did not impact underlying profit in the firsthalf of this year. The exchange rate movements between the US dollar andBrazilian Real reduced underlying operating profit by about £2m in the currentperiod. 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 £2m and reducing equity by £13m. Exceptional items The exceptional items arising in the first half of 2007 are as follows. £m Retiree medical gain (net of legal costs) 4 Amortisation of acquired intangible assets (6) Total included in operating profit (2) Financing derivative market value changes 1 Total exceptional items before and after tax (1) As a consequence of the settlement of the strike in the US Beverage Canbusiness, retiree medical liabilities were reduced. This change resulted in anexceptional gain (net of legal costs) of £4m. We anticipate further significantreductions in retiree medical liabilities in the second half of 2007 if courtapproval is received for mediation proposals agreed with unions concerningcertain retired employees. Intangible assets, such as patents and customer contracts, are recognised on theacquisition of businesses and amortised over their useful life. Separatedisclosure of the amortisation of such acquired intangibles aids comparison oforganic growth in underlying profit. Therefore this cost, which may become moresignificant as the impact of recent and future acquisitions is reflected, shouldbe separately disclosed within exceptional items. The fair value of derivatives arising on financing activities directly relatesto changes in interest rates and foreign exchange rates. The fair value gain onfinancing derivatives for the period was £1m (June 2006: £7m, December 2006:£7m). The impact of embedded derivatives and derivatives arising on tradingitems such as commodities and forward foreign exchange contracts is includedwithin underlying operating profit. The gain arising on the sale of the Glass business is discussed in "Discontinuedoperations" below. Underlying total net finance cost The underlying total net finance cost comprises. 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m £m restated £mNet interest (43) (44) (90) Retirement benefit obligations net (6) (13) (22)finance cost Underlying total net finance cost (49) (57) (112) The underlying total net finance cost reduced by £8m compared with the prioryear, primarily due to the reduction in retirement benefit obligations netfinance cost following the significant decrease in liabilities as discussed in'Retirement benefits' below. The average market interest rates for US dollar andeuro borrowings were up by 37 and 119 basis points respectively compared withthe prior period. However, the higher interest rates were offset by loweraverage net borrowings; the overall average interest rate during the period was6.3%, compared with 6% for the equivalent period last year. Based on reported underlying operating profit, interest cover was just over 3.4times compared with 4.7 times for the six months to June 2006. This reduction isdue to lower underlying operating profit and the transfer of the Glass businessto discontinued operations. The impact of the latter is to exclude underlyingoperating profit attributable to the Glass business but not to recognise theexpected reduction in interest cost arising on the disposal proceeds. Includingnotional interest attributable to the Glass disposal proceeds, interest cover in2007 would have improved to around 5 times. Interest cover is based onunderlying operating profit divided by underlying net interest excluding chargesin respect of retirement benefit obligations and, in 2006, preference dividends. Tax The tax charge on profit before exceptional items for the six months to 30 June2007 was £29m (30%) (June 2006 restated: £30m (25%)). Last year's tax ratebenefited from provision releases following progress on certain European taxaudits. The charge for the six months to 30 June 2007 is based on the forecastrate for the year to 31 December 2007. This reflects the mix of territories inwhich Rexam operated at 30 June 2007, offset in part by the availability of taxincentives in some jurisdictions. The acquisition of O-I Plastics will changethe geographic mix of the Group's profits and will therefore impact itsunderlying tax rate going forward. We anticipate a modest increase in the rate,as most of the O-I Plastics profits are generated in the United States. Tax payments in the first half of the year were £22m compared with £29m for theequivalent period last year, principally reflecting changes in the timing andamount of instalment payments in the US and France. Earnings per share 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 restated restated Underlying earnings per share from continuing operations (pence) 11.7 16.4 35.6Total basic earnings per share (pence) 22.9 22.5 39.7 Average number of shares (millions) 588.4 555.1 561.3 Underlying earnings per share from continuing operations fell from 16.4p to11.7p. This is due to the decrease in underlying profit before tax, the increasein the tax rate compared with the prior year as well as the higher averagenumber of shares in issue following the conversion of the convertible preferenceshares in October 2006 and the placement of 58 million ordinary shares in June2007. Total basic earnings per share, which includes exceptional items anddiscontinued operations, were 22.9p (June 2006: 22.5p). Overall, the impact ofexceptional items and discontinued operations in 2007 was greater than thosereported in the equivalent period last year and was sufficient to offset thefactors that reduced underlying earnings per share. Discontinued operations On 12 March 2007 we announced that we had reached agreement to sell the Glassbusiness to Ardagh Glass Group PLC; the disposal was completed on 21 June 2007.Following that announcement, the Glass business was classified as a discontinuedoperation and consequently its results are disclosed separately from thecontinuing operations. A summary of the performance of discontinued operationsis set out below. Period from 6 months to Year to 1.1.07 to 30.6.06 31.12.06 21.6.07 restated restated £m £m £m Sales 213 208 437 Underlying operating profit: Before depreciation and amortisation 15 16 40adjustment 1 Depreciation and amortisation 11 - -adjustment 2 After depreciation and amortisation 26 16 40adjustment Underlying profit before tax 26 16 39 Underlying profit after tax 18 11 28 Exceptional gain on disposal (net of 49 - -tax) Total profit after tax 67 11 28 1 Central overheads, excluded from the above table, previously allocated to the Glass business have been reallocated to the Beverage Cans and Plastic Packaging operations. Had these overheads been allocated for the six months to June 2007 they would have amounted to £2m (June 2006: £2m, December 2006: £4m).2 The Glass business was classified as a disposal group on 12 March 2007 and accounting standard IFRS5 requires that depreciation and amortisation is not charged following such classification. Retirement benefits Retirement benefit obligations (net of tax) on the balance sheet at 30 June 2007were £184m, a significant reduction from £365m at 31 December 2006, principallydue to higher discount rates which are used to value the liabilities in thedefined benefit pension plans. 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 £143m in the six months to30 June 2007, as detailed below. £m Defined benefit pension plans: Plan assets - returns higher than expected 24 Plan liabilities - higher discount rates 179 Actuarial gains before tax 203 Tax (60) Actuarial gains after tax 143 The total cash payments in respect of retirement benefit obligations are asfollows. 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m £m £mDefined benefit pension plans 18 16 44 Other pension plans 4 2 4 Retiree medical 6 7 12 Total cash payments 28 25 60 It is expected that the total cash payments for the full year will beapproximately £66m as a result of higher contributions to the UK plan, to reducethe deficit, and further contributions to the US plan. The analysis of the retirement benefit obligations net finance cost fromcontinuing operations is as follows. 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m £m restated £mDefined benefit pension plans:Expected return on plan assets 65 63 126Interest on plan liabilities (66) (69) (136) (1) (6) (10)Retiree medical - interest on (5) (7) (12)liabilitiesNet finance cost (6) (13) (22) The reduction in net finance cost compared with the six months to 30 June 2006is due to higher asset returns and lower pension and retiree medical liabilitieswhich offset the impact of higher discount rates. Cash flow Free cash flow for the period was an outflow of £26m compared with an inflow of£30m for the six months to June 2006. This largely reflects the reduction inunderlying operating profit and the substantial increase in capital expenditureto support growth in strategic and emerging markets, which was partly offset byan improvement in working capital. 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 restated restated £m £m £m Continuing operations: Underlying operating profit 148 178 375 Depreciation and amortisation 1 65 67 132 Retirement benefit obligations (15) (12) (31) Change in working capital (35) (42) (8) Other movements 2 (6) (25) Cash generated from continuing operations 165 185 443 Cash generated from discontinued operations 24 17 74 Capital expenditure (net) (134) (88) (200) Net interest and tax paid (81) (84) (147) All other movements - - 3 Free cash flow (26) 30 173 Equity dividends (65) (59) (103) Business cash flow (91) (29) 70 Acquisitions 2 (17) (195) (215) Disposals 3 407 1 25 Cash flow including borrowings acquired and disposed 299 (223) (120)acquired and disposed Conversion of convertible preference shares - - 69 Other non cash movements 11 43 90 Share capital changes 281 6 9 Net borrowings at the beginning of the year (1,172) (1,220) (1,220) Net borrowings at the end of the period (581) (1,394) (1,172) 1 Excludes amortisation of certain acquired intangibles amounting to £6m (June 2006: £4m, December 2006: £11m).2 Includes net borrowings acquired of £nil (June 2006: £9m, December 2006: £13m).3 Includes net borrowings disposed of £142m (June 2006: £nil, December 2006: £4m). Capital expenditure - continuing operations 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06Capital expenditure (gross) (£m) 117 74 168 Depreciation and amortisation (£m) 65 67 132 Ratio (times) 1.80 1.10 1.27 Capital expenditure includes computer software that has been capitalised.Amortisation excludes £6m (June 2006: £4m, December 2006: £11m) amortised onpatents, customer contracts and intangibles other than computer software. Gross capital expenditure by continuing operations in the first six months was£117m, about 1.8x depreciation and amortisation. This level of expenditurereflects a substantial commitment to investments in strategic and growthprojects. The principal projects in the first half of 2007 were in the BeverageCans business and in the European operations in particular, including thewall-to-wall facility in Austria (for Red Bull) and the new can plant andadditional can line in Russia. The Beverage Cans businesses in North and SouthAmerica are converting lines to produce specialty cans and investing in newplants to meet market and regional demand. For the full year, it is anticipatedthat the level of capital expenditure will be around £300m. This will includeadditional lines in Austria and Spain, a second line in Egypt and furtherconversion projects. The Plastics operation will also continue to invest tosupport a range of cosmetic and, especially, pharmaceutical markets. Capital expenditure - discontinued operations Gross capital expenditure by the Glass business in 2007 was £17m (June 2006:£15m, December 2006: £46m) and depreciation and amortisation charged was £7m(June 2006: £20m, December 2006: £38m). Acquisitions Expenditure on acquisitions in the first six months totalled £17m as set outbelow. £mBeverage Cans: joint venture in Guatemala 11 Payments in respect of prior year and other acquisitions 6 17 In June 2007, we announced the acquisition of O-I Plastics, for a considerationof US$1,825m, which will transform the scale and reach of the Plastic Packagingoperation. The structuring of the acquisition is expected to give rise to taxbenefits with an estimated net present value of US$260m and, therefore, theeffective cost for O-I Plastics is US$1,565m. This acquisition is expected tocomplete, following regulatory clearances, on 31 July 2007. In addition, weannounced the proposed acquisition of the Russian can manufacturer, Rostar, forUS$297m and this transaction is expected to complete in the final quarter of2007. These acquisitions, together with the joint venture in Guatemala, areconsistent with our strategy to expand our positions in growth markets. Disposals In June we completed the sale of our Glass business to the Ardagh Group. Theprofit on the sale after tax, reported as an exceptional item withindiscontinued operations, was £49m. The sale followed a review of the position ofthe Glass business within our consumer packaging portfolio and was consistentwith our strategy to focus investment on organic growth and acquisitions inhigher growth and emerging markets. Proceeds from the disposal of the Glass business, net of costs and includingborrowings and retirement benefit liabilities disposed, totalled £407m. The process to sell our plastic bottle operations in Sweden and the CzechRepublic continues. Balance sheet and borrowings As at As at As at 30.6.07 30.6.06 31.12.06 £m restated restated £m £mGoodwill and other intangible assets 1,437 1,601 1,532Property, plant and equipment 1,015 1,206 1,190Retirement benefits net of tax (184) (379) (365)Other net assets 38 166 64 2,306 2,594 2,421 Shareholders equity, including minority interests 1,725 1,200 1,249Net borrowings 1 581 1,394 1,172 2,306 2,594 2,421 Return on invested capital (%) 2 11.1 13.54 15.04Interest cover (times) 3 3.4 4.74 4.84Gearing (%) 5 34 116 94 1 Net borrowings comprise borrowings, the liability element of convertible preference shares, cash and cash equivalents and certain derivative financial instruments.2 Underlying operating profit plus share of associates profit after tax divided by the average of opening and closing balances of each of net borrowings and equity, after adding back retirement benefit obligations (net of deferred tax). Underlying operating profit and share of associates profit/(loss) after tax are annualised by doubling the results for the six month periods.3 Based on underlying operating profit divided by underlying net interest expense excluding preference dividends.4 The return on invested capital and interest cover for 2006 have not been restated for the reclassification of the Glass business to discontinued operations.5 Based on net borrowings divided by equity including minority interests. The level of net borrowings at 30 June 2007 reflects the proceeds from the saleof the Glass business (£407m) and from the equity share placing (£280m), both inJune 2007. These proceeds, together with €750m raised under a subordinated bondissue (subsequently swapped into US dollars) will be used to fund theacquisitions of O-I Plastics and Rostar when they are completed. Had theseacquisitions been completed at 30 June 2007 the net borrowings would haveincreased from £0.6bn to just over £1.6bn. Net borrowings include interest accruals, certain financial derivatives and, at30 June 2006, the liability element of convertible preference shares. Theelement related to derivative financial instruments is set out below. As at As at As at 30.6.07 30.6.06 31.12.06 £m £m £mNet borrowings excluding derivative 661 1,398 1,277financial instrumentsand convertible preference sharesLiability element of convertible - 70 -preference sharesDerivative financial instruments (80) (74) (105)Net borrowings 581 1,394 1,172 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 30.6.07 30.6.06 31.12.06 £m £m £mCross currency swaps 84 73 102Interest rate swaps (4) 1 3Derivative financial instruments included in net 80 74 105borrowingsOther derivative financial instruments 21 43 29Total derivative financial instruments 101 117 134 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; and(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, either through the MTNprogramme or through a subordinated bond, is a key element of the Group's debtand financial risk management process. Fixed rate MTNs, in sterling and euros,were issued in 2002 and, simultaneous to issue, were swapped into floating rateeuros and US dollars. A €700m MTN, to mature in March 2013, was issued in March2006; largely in an exchange offer for €425m of the €550m MTN due to mature inMarch 2007. The €750m subordinated bond issued in June 2007 was swapped into USdollars, at floating rates, to enable it to partly fund the acquisition of O-IPlastics. Although the subordinated bond matures in 2067, Rexam has the optionto redeem after 10 years or on any interest payment date thereafter. Dividends The Board has approved an interim dividend of 8.3p per ordinary share, anincrease of 5% on last year. The dividend will be paid on 6 November 2007 toholders of ordinary shares registered on 12 October 2007. Changes to the board Leslie Van de Walle became a director in January and took over as ChiefExecutive Officer on 1 February when Lars Emilson retired from the Board. At the AGM in May, David Tucker retired from the Board after ten years as a nonexecutive director. He will retain his contact with the Company as chairman ofthe Rexam PLC Retirement Benefits Committee. Outlook Rexam, with its leading positions in Beverage Cans and in Plastic Packaging,following the O-I Plastics acquisition, now has two significant andstrategically well positioned global businesses with good growth prospects. Wehave also stated that 2007 will be a year of significant capital investment ingrowth projects. The first half of 2007 was every bit as challenging as we expected. In thesecond half, we will maintain our focus on results delivery, especially marginimprovement, and we continue to anticipate that the year as a whole will be inline with our expectations. Consolidated income statement Note Unaudited Unaudited Audited 6 months to 6 months to year to 30.6.07 30.6.06 31.12.06 £m restated restated £m £mContinuing operations: Sales 2 1,688 1,637 3,301 Operating expenses (1,542) (1,441) (2,927) Underlying operating profit 2 148 178 375 Retirement benefit obligations exceptional items 3 4 40 53 Restructuring and integration of businesses 3 - (15) (29) Other exceptional items 3 (6) (7) (25) Operating profit 2 146 196 374 Share of underlying post tax (losses)/profits of associates (1) - 1 and joint ventures Share of exceptional post tax profits of associates and 3 - 8 8 joint venturesShare of post tax (losses)/profits of associates and joint (1) 8 9ventures Retirement benefit obligations net finance cost 4 (6) (13) (22) Underlying interest expense (48) (48) (103) Financing derivative market value changes 3 1 7 7 Early redemption of convertible preference shares 3 - - (10) Interest expense (47) (41) (106) Interest income 5 4 13 Underlying profit before tax 98 121 264 Retirement benefit obligations exceptional items 4 40 53 Restructuring and integration of businesses - (15) (29) All other exceptional items (5) 8 (20) Profit before tax 97 154 268 Tax on underlying profit (29) (30) (64) Tax on exceptional items - (10) (9) Tax 5 (29) (40) (73) Profit for the financial period from continuing operations 68 114 195 Discontinued operations: Profit for the financial period from discontinued operations 11 67 11 28 Total profit for the financial period 135 125 223 Basic earnings per share (pence) Continuing operations 11.5 20.5 34.7 Discontinued operations 11.4 2.0 5.0 Total 6 22.9 22.5 39.7 Diluted earnings per share (pence) Continuing operations 11.5 20.1 34.7 Discontinued operations 11.4 1.9 5.0 Total 6 22.9 22.0 39.7 An interim dividend for 2007 of 8.3p per ordinary share has been declared and ispayable on 6 November 2007. The interim dividend for 2006 of 7.9p per share waspaid on 2 November 2006. The final dividend for 2006 of 11.1p per share was paidon 6 June 2007. For further details of equity dividends declared and paid seenote 7. Consolidated balance sheet Unaudited Unaudited Audited as at as at as at 30.6.07 30.6.06 31.12.06 £m restated restated £m £mASSETSNon current assets Goodwill 1,319 1,459 1,399 Other intangible assets 118 142 133 Property, plant and equipment 1,015 1,206 1,190 Investments in associates and joint ventures 42 37 32 Deferred tax assets 181 241 234 Retirement benefit obligations surplus (Note 4) 74 - - Trade and other receivables 43 36 45 Available for sale financial assets 21 24 22 Derivative financial instruments 98 77 116 2,911 3,222 3,171 Current assets Inventories 301 389 354 Trade and other receivables 510 546 504 Available for sale financial assets 1 4 1 Derivative financial instruments 35 62 32 Cash and cash equivalents 879 108 138 Assets classified as held for sale 25 41 22 1,751 1,150 1,051 Total assets 4,662 4,372 4,222 LIABILITIES Current liabilities Borrowings (191) (258) (275) Derivative financial instruments (17) (22) (13) Current tax (10) (2) (8) Trade and other payables (687) (677) (678) Provisions (11) (18) (18) Liabilities classified as held for sale (12) (17) (9) (928) (994) (1,001)Non current liabilities Borrowings (1,349) (1,318) (1,140) Derivative financial instruments (15) - (1) Retirement benefit obligations (Note 4) (340) (532) (514) Deferred tax liabilities (173) (166) (168) Non current tax (80) (98) (82) Other payables (25) (36) (36) Provisions (27) (28) (31) (2,009) (2,178) (1,972) Total liabilities (2,937) (3,172) (2,973) Net assets 1,725 1,200 1,249 EQUITY Ordinary share capital 413 358 375 Convertible preference share capital - 1 - Share premium account 1,002 756 759 Capital redemption reserve 351 279 351 Retained earnings (1) (234) (216) Fair value and other reserves (42) 40 (22) Shareholders' equity 1,723 1,200 1,247 Minority interests 2 - 2 Total equity (Note 8) 1,725 1,200 1,249 Consolidated cash flow statement Unaudited Unaudited Audited 6 months to 6 months to year to 30.6.07 30.6.06 31.12.06 £m £m £mCash flows from operating activities Cash generated from operations (Note 10) 189 202 517 Interest paid (62) (61) (101) Tax paid (22) (29) (58) Net cash flows from operating activities 105 112 358 Cash flows from investing activities Capital expenditure (134) (89) (214) Proceeds from sale of property, plant and equipment - 1 9 Acquisition of subsidiaries net of cash and cash equivalents acquired (6) (186) (202) Proceeds from sale of subsidiaries net of cash and cash equivalents 265 - 19disposedAcquisition of joint venture (11) - - Proceeds from sale of associates - 1 2 Repayment of loan by a joint venture - - 3 Sale of properties surplus to requirements - - 5 Interest received 3 6 12 Net cash flows from investing activities 117 (267) (366) Cash flows from financing activities Movement in borrowings and financing derivatives 291 203 116 Proceeds from issue of share capital 281 10 13 Purchase of Rexam shares by Employee Share Trust - (4) (4) Dividends paid to equity shareholders (65) (59) (103) Net cash flows from financing activities 507 150 22 Net increase/(decrease) in cash and cash equivalents 729 (5) 14 Cash and cash equivalents at the beginning of the year 14 (4) (4) Exchange differences 2 - 3 Transfer to assets and liabilities classified as held for sale (3) - 1 Net increase/(decrease) in cash and cash equivalents 729 (5) 14 Cash and cash equivalents at the end of the period 742 (9) 14 Cash and cash equivalents comprise: Cash at bank and in hand 184 59 63 Short term bank deposits 695 49 75 Bank overdrafts (137) (117) (124) 742 (9) 14 Consolidated statement of recognised income and expense Unaudited Unaudited Audited 6 months to 6 months to year to 30.6.07 30.6.06 31.12.06 £m £m £m Exchange differences (13) (18) (95)Actuarial gains on retirement benefit obligations 203 194 155Tax on actuarial gains on retirement benefit obligations (60) (62) (48)Net investment hedges - 1 28Cash flow hedges recognised 4 29 32Tax on cash flow hedges 3 (1) 4Cash flow hedges transferred to inventory (14) (26) (44)Cash flow hedges transferred to the income statement 2 - (1)Fair value losses on available for sale financial assets (1) (1) -Sale of available for sale financial assets - - (2)Net profit recognised directly in equity 124 116 29Profit for the financial period 135 125 223Total recognised income and expense for the period attributable to 259 241 252Rexam PLC 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 2007 are set out on pages 18 to 29. 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 financialstatements, management has used the principal accounting policies set out in theRexam Annual Report 2006. In preparing the interim consolidated financial statements, the followingrestatements have been made to the comparative amounts. (i) The interim consolidated financial statements have been restated for the discontinuance of the Glass segment.(ii) The consolidated balance sheets as at 30 June 2006 and as at 31 December 2006 have been restated for fair value adjustments applied to prior year acquisitions.(iii) The segment analysis for the six months to 30 June 2006 has been restated for the proposed disposal of the Petainer refillable bottle business which has been moved from "Plastic Packaging" to "Disposals and businesses 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 2006 and theconsolidated balance sheet as at 31 December 2006 are an abridged statement of the full consolidated financialstatements for that year which have been delivered to the Registrar ofCompanies. The independent auditors' report on the consolidated financialstatements for the year to 31 December 2006 was unqualified and did not containa statement under either section 237(2) or section 237(3) of the Companies Act1985. 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 Sales Underlying Underlying Operating £m operating return on profit profit sales £m £m %(i) 6 months to 30.6.07 Continuing operations:Beverage Cans 1,297 105 8.1 108 Plastic Packaging 369 41 11.1 36 Disposals and businesses for sale 22 2 9.1 2 1,688 148 8.8 146 Share of post tax losses of associates and joint ventures (1) Retirement benefit obligations net finance cost (6) Net interest expense (42) Profit before tax 97 Tax (29) Profit for the financial period 68 Discontinued operations: Profit for the financial period 67 Total profit for the financial period 135 (ii) 6 months to 30.6.06 - restated Continuing operations: Beverage Cans 1,224 136 11.1 169 Plastic Packaging 358 38 10.6 23 Disposals and businesses for sale 55 4 7.3 4 1,637 178 10.9 196 Share of post tax profits of associates and joint 8ventures Retirement benefit obligations net finance cost (13) Net interest expense (37) Profit before tax 154 Tax (40) Profit for the financial period 114 Discontinued operations: Profit for the financial period 11 Total profit for the financial period 125 (iii) Year to 31.12.06 - restated Continuing operations: Beverage Cans 2,490 289 11.6 325 Plastic Packaging 720 81 11.3 47 Disposals and businesses for sale 91 5 5.5 2 3,301 375 11.4 374 Share of post tax profits of associates and joint 9ventures Retirement benefit obligations net finance cost (22) Net interest expense (93) Profit before tax 268 Tax (73) Profit for the financial year 195 Discontinued operations: Profit for the financial year 28 Total profit for the financial year 223 3 Exceptional items - continuing operations 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m £m £mExceptional items included in operating profit: Retirement benefit obligations (net of legal costs) 4 40 53 Restructuring and integration of businesses: Restructuring of existing businesses - (10) (21) Integration of new businesses - (5) (8) - (15) (29) Other exceptional items: Amortisation of acquired intangible assets (6) (4) (11) Litigation claim - - (8) Disposal of businesses - - (3) Recognition of deferred tax assets on prior year acquisitions - (3) (3) (6) (7) (25)Exceptional items included in share of post tax profits ofassociates: Sale of land and property of associate - 8 8 Exceptional items included in interest expense: Financing derivative market value changes 1 7 7 Early redemption of convertible preference shares - - (10) 1 7 (3) Total exceptional items included in profit before tax (1) 33 4Tax on exceptional items - (10) (9)Total exceptional items - continuing operations (1) 23 (5) 4 Retirement benefit obligations Defined Other Total Retiree Gross Deferred Net benefit pensions pensions medical retirement tax retirement pensions benefit benefit £m £m £m obligations £m obligations £m £m £mAt 1 January 2007 (326) (22) (348) (163) (511) 146 (365)Exchange differences 3 - 3 2 5 (1) 4Current service cost - continuing (7) (3) (10) (1) (11) 2 (9)operationsExceptional items - continuing - - - 5 5 (2) 3operationsTotal included in operating profit - (7) (3) (10) 4 (6) - (6)continuing operationsNet finance cost - continuing (1) - (1) (5) (6) 2 (4)operationsCurrent service cost - discontinued (1) (1) (2) - (2) - (2)operationsAdjustment on disposal - discontinued 20 5 25 - 25 (1) 24operationsTotal - discontinued operations 19 4 23 - 23 (1) 22Actuarial changes 203 - 203 - 203 (60) 143Cash contributions and benefits aid 18 4 22 6 28 (7) 21Transfers 1 - 1 - 1 - 1At 30 June 2007 (90) (17) (107) (156) (263) 79 (184) The balance for net retirement benefit obligations at 30 June 2007 of £184m isincluded in the consolidated balance sheet as retirement benefit obligationssurplus of £74m, retirement benefit obligations of £340m, other receivables of£3m, deferred tax assets of £101m and deferred tax liabilities of £22m.Theprincipal assumptions as at 30 June 2007 compared with those as at 31 December2006 are set out below. UK USA Other UK USA Other 30.6.07 30.6.07 30.6.07 31.12.06 31.12.06 31.12.06 % % % % % % Future salary increases 4.80 4.50 3.04 4.40 4.50 2.89Future pension increases 3.30 - 2.03 3.00 - 1.95Discount rate 5.70 6.00 4.23 5.00 5.75 4.46Inflation rate 3.30 2.50 2.03 3.00 2.50 1.95Expected return on plan assets (net ofadministration expenses):Equities 7.37 7.24 7.15 7.37 7.24 6.88Bonds 4.62 4.37 3.65 4.62 4.37 4.08Cash 4.87 2.96 3.35 4.87 2.96 4.05Annual increase in healthcare costs 9 to 5 13 to 5 The mortality assumptions used in valuing the liabilities of the UK pension planare based on the standard tables PA92 as published by the Institute and Facultyof Actuaries. These tables are adjusted to reflect the circumstances of the planmembership. The life expectancy assumed for male pensioners aged 65 is 19.6years and for female pensioners aged 65 is 22.4 years. The mortality assumptionsused in valuing the liabilities of the US pension plans are based on the RP2000combined active and retiree mortality table projected to 2007 weighted 70 % bluecollar and 30 % white collar. The life expectancy assumed for male pensionersaged 65 is 17.8 years and for female pensioners aged 65 is 20.2 years. 5 Tax 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m restated restated £m £mContinuing operations:UK (6) (5) (15)Overseas (23) (35) (58) (29) (40) (73)Discontinued operations:UK (3) - -Overseas (12) (5) (11) (15) (5) (11) The tax charge on underlying profit for the six month periods is calculated byreference to the estimated effective tax rate for the full year. Tax onexceptional items is based on the expected tax impact of each item. 6 Earnings per share (i) Basic earnings per share 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 Pence restated restated Pence Pence Continuing operations 11.5 20.5 34.7 Discontinued operations 11.4 2.0 5.0 Total 22.9 22.5 39.7 £m £m £mProfit for the financial period from continuing operations 68 114 195 Profit for the financial period from discontinued operations 67 11 28 Total profit for the financial period 135 125 223 Millions Millions MillionsWeighted average number of shares in issue 588.4 555.1 561.3 (ii) Diluted earnings per share 6 months to 6 months to Year to 31.12.06 30.6.07 30.6.06 restated Pence restated Pence PenceContinuing operations 11.5 20.1 34.7 Discontinued operations 11.4 1.9 5.0 Total 22.9 22.0 39.7 £m £m £m Profit for the financial period from continuing operations 68 114 195 Dilution on conversion of convertible preference shares - 3 - Diluted profit for the financial period from continuing operations 68 117 195 Profit for the financial period from discontinued operations 67 11 28 Total diluted profit for the financial period 135 128 223 Millions Millions MillionsWeighted average number of shares in issue 588.4 555.1 561.3 Dilution on conversion of outstanding share options 0.8 1.4 0.8 Dilution on conversion of convertible preference shares - 24.3 - Weighted average number of shares in issue on a diluted basis 589.2 580.8 562.1 (iii) Underlying earnings per share - based on continuing operations 6 months to 6 months to Year to 31.12.06 30.6.07 30.6.06 restated Pence restated Pence PenceUnderlying earnings per share 11.7 16.4 35.6 £m £m £m Underlying profit before tax 98 121 264 Tax on underlying profit (29) (30) (64) Underlying profit for the financial period 69 91 200 Millions Millions MillionsWeighted average number of shares in issue 588.4 555.1 561.3 7 Equity dividends 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m £m £mFinal dividend for 2006 of 11.1p paid on 6 June 2007 65 - -Interim dividend for 2006 of 7.9p paid on 2 November 2006 - - 44Final dividend for 2005 of 10.6p paid on 5 June 2006 - 59 59 65 59 103 An interim dividend per ordinary share of 8.3p has been declared for 2007 and ispayable on 6 November 2007. This dividend has not been accrued in these interimconsolidated financial statements. The dividend will absorb £53m of retainedearnings. 8 Movements in equity Ordinary Share Capital Retained Fair value Minority share premium redemption earnings and other interests capital account reserve reserves £m Total £m equity £m £m £m £m £mAt 1 January 2007 375 759 351 (216) (22) 2 1,249Exchange differences - - - - (13) - (13)Actuarial gains on retirement - - - 203 - - 203benefit obligationsTax on actuarial gains on - - - (60) - - (60)retirement benefit obligationsCash flow hedges recognised - - - - 4 - 4Tax on cash flow hedges - - - - 3 - 3Cash flow hedges transferred to - - - - (14) - (14)inventoryCash flow hedges transferred to - - - - 2 - 2the income statementFair value losses on available - - - - (1) - (1)for sale financial assetsNet profit/(loss) recognised - - - 143 (19) - 124directly in equityProfit for the financial period - - - 135 - - 135Total recognised profit/(loss) - - - 278 (19) - 259for the periodPlacing of Rexam PLC shares 38 242 - - - - 280Share option schemes value of - - - 2 - - 2services providedShare option schemes proceeds - 1 - - - - 1from shares issuedTransfer on disposal of Glass - - - - (1) - (1)businessPayment of final dividend for - - - (65) - - (65)2006At 30 June 2007 413 1,002 351 (1) (42) 2 1,725 9 Movements in net borrowing Cash Bank Subordinated Medium Finance Financing Net and cash loans bond term notes leases derivative borrowings equivalents financial and bank £m instruments overdrafts £m £m £m £m £m £m At 1 January 2007 14 (313) - (958) (20) 105 (1,172)Disposal of Glass - 142 - - - - 142businessCash flow movements 729 136 (499) 138 4 (12) 496Non cash movements (1) (16) 3 (19) (1) (13) (47)At 30 June 2007 742 (51) (496) (839) (17) 80 (581) Financing derivative financial instruments are those that relate to underlyingitems of a financial nature. At 30 June 2007 these comprised interest rate swapsand cross currency swaps. 10 Reconciliation of profit before tax to cash generated from operations 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m restated restated £m £mContinuing operations: Profit before tax 97 154 268 Adjustments for: Net interest expense 42 37 93 Share of post tax losses/(profits) of associates and joint ventures 1 (8) (9) Depreciation of property, plant and equipment 60 62 122 Amortisation of intangible assets 11 9 21 Impairment - 5 7 Movement in provisions (5) 3 10 Changes in working capital (35) (42) (8) Movement in retirement benefit obligations (14) (40) (63) Other adjustments 8 5 2 Cash generated from continuing operations 165 185 443 Discontinued operations: Profit before tax 26 16 39 Adjustments for: Depreciation of property, plant and equipment 7 19 37 Amortisation of intangible assets - 1 1 Impairment 1 5 10 Disposal of intangible assets - - 3 Movement in grants (1) (8) (18) Changes in working capital (9) (16) 2 Cash generated from discontinued operations 24 17 74 Cash generated from operations 189 202 517 11 Discontinued operations On 21 June 2007 Rexam sold its Glass business to Ardagh Glass Group PLC. Thedisposal has been classified as a discontinued operation in these interimconsolidated financial statements. A summary of the Glass results and cash flowsis set out below. 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 £m £m £mSales 213 208 437 Operating expenses (187) (192) (397) Operating profit 26 16 40 Retirement benefit obligations net finance cost - - (1) Profit before tax 26 16 39 Tax (8) (5) (11) Profit after tax 18 11 28 Profit on disposal (net of tax of £7m) 49 - - Profit for the financial period from discontinued operations 67 11 28 Net cash inflow from operating activities 23 15 71 Net cash outflow from investing activities (17) (15) (46) Net cash (outflow)/inflow from financing activities (5) 6 (15) Net cash flow 1 6 10 Glass has been classified as a disposal group held for sale from 12 March 2007(the date of announcement of agreement to sell to Ardagh) up to 21 June 2007(the date of actual sale). Accounting rules state that depreciation andamortisation should not be charged on a disposal group held for sale.Accordingly, depreciation and amortisation of £11m have not been charged withrespect to Glass for the period 12 March 2007 to 21 June 2007. Had depreciationand amortisation been charged, operating profit and profit before tax for thesix months to 30 June 2007 would have been £15m. 12 A copy of the information to be provided to financial analysts is available on request from the Company Secretary, Rexam PLC, 4 Millbank, London SW1P 3XR and 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 ended 30 June 2007 which comprises the consolidated balancesheet, the consolidated income statement, the consolidated cash flow statement,the consolidated statement of recognised income and expense and the relatednotes. 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 monthsended 30 June 2007. PricewaterhouseCoopers LLP Chartered Accountants London 31 July 2007 Notes:(a) The maintenance and integrity of the Rexam PLC web site 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 web site.(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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