Rexam PLC Annual Report 2011

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Rexam PLC Annual Report 2011

annual report 2011


Consumer packaging is an integral part of modern day living.

It protects, preserves and enables efficient distribution.

It also helps brand owners to inform end users and to

promote their goods.

And, it makes an essential contribution to a sustainable

society as it helps reduce waste from spoilage.

The lifestyle many of us take for granted is predicated, in part,

on the availability of a sustainable packaging supply chain.

find out more online

Our website www.rexam.com contains a full

interactive version of the 2011 annual report.

It also contains annual reports from previous

years (back to 1999) as well as investor

presentations, publications and other material

on Rexam, its markets and business.

The annual report 2011 contains statements which are not based on current or historical fact and which are forward looking in nature. These forward looking statements

reflect knowledge and information available at the date of preparation of this annual report 2011 and the Company undertakes no obligation to update these forward

looking statements. Such forward looking statements are subject to known and unknown risks and uncertainties facing the Group including, without limitation, those risks

described in this annual report 2011, and other unknown future events and circumstances which can cause results and developments to differ materially from those

anticipated. Nothing in this annual report 2011 should be construed as a profit forecast.

Rexam PLC is registered and domiciled in England and Wales: company number 191285.


1

overview

Our chairman introduces the 2011 annual report and we

explain who we are, what we make and where we operate.

You will also find a table of the headline figures for 2011 that

summarises our performance during the year.

business review

4 chairman’s statement

6 who we are

7 what we make

8 where we operate

9 how we performed in 2011

overview

directors’ report

Our chief executive outlines how we performed against

our strategy to deliver value. The operating and financial

reviews outline our performance in 2011. We also give

an overview of the markets in which we operate and of

the risks facing the business and what we are doing to

mitigate them.

sustainability

This section provides a review of our sustainability performance in

2011. It explains our approach to and progress in this area, and

details our commitments, measures and targets going forward.

governance

12 chief executive’s review (including KPIs)

16 market review

20 operating review

26 financial review

34 key risks

44 products

47 operations

49 people

sustainability

business review

We introduce our board and explain why a strong sense of

governance and compliance is imperative in every area of our

operations. We give details of the Company’s remuneration

principles and policy which complement the Group’s

strategic vision.

financial statements

54 directors and officers

56 corporate governance

69 remuneration report

81 other disclosures

governance

86 Rexam PLC consolidated financial statements 2011

134 five year financial summary

136 Rexam PLC Company financial statements 2011

financial statements

144 shareholder information

145 addresses


2

overview

Beverage cans are used for a wide range of products

including beer, carbonated soft drinks, sports, energy

and functional drinks, as well as iced tea and wine.


3

Our chairman introduces the 2011 annual

report and we explain who we are, what

we make and where we operate. You will

also find a table of the headline figures for

2011 that summarises our performance

during the year.

4 chairman’s statement

6 who we are

7 what we make

8 where we operate

9 how we performed in 2011

financial statements governance

sustainability

business review

overview


4 Rexam annual report 2011 overview

chairman’s statement

A major challenge as we move forward is the fragile global

economy in which we have to operate. That said, Rexam is well

positioned to anticipate and react swiftly to changing circumstances

and adverse conditions.

It is important that as a board we are fully cognisant of our

responsibilities to all our stakeholders: to our shareholders, who

have experienced good returns in 2011; to our customers and

suppliers with whom we have continued to build mutually beneficial

relationships; to our people, in whom we continue to invest; and to

the environment, where we have again reduced our carbon

footprint.

Rexam’s record results for 2011 extended the strong progress we

made in 2010. We continued to focus on our strategic priorities –

controlling costs, optimising cash and improving our return on

capital employed – to deliver another set of excellent results and

further strengthen our balance sheet. The board is proposing an

increased final dividend of 9.7p per share, making a total dividend

of 14.4p for the year. Against a background of increasingly tough

economic conditions, this performance bears witness to the

underlying strength of the business.

Under Graham’s leadership, the executive team and all our people

have continued to manage those levers over which we have

control. We are driving operational excellence, through relentless

cost control and improved asset utilisation. We are strengthening

our customer and supplier relationships, with our focus on quality,

service, value and innovation. We are building a winning

organisation, fostering a culture which enables our people to

achieve great results. We are expanding in emerging markets, with

disciplined investment plans announced in Brazil and India, which

will develop and extend our existing geographic footprint. And we

are managing our portfolio of businesses, ensuring all the

constituent parts add value to the whole. As part of our focus on

improving our returns across the Group, we sold our beverage and

specialty Closures businesses in 2011 and have recently started the

process to market the Personal Care business for divestment.

The way the Group manages risk is also vital for our future

prosperity. It was therefore encouraging that, in our review of board

effectiveness, the management of risk was acknowledged as an

area where we perform particularly effectively. Also coming out

of this review were indications that even more needs to be done

in the areas of strategy, people development and succession.

While more time is spent on these areas than ever before, we

rightly concluded that in such a turbulent and competitive world

these issues will continue to be given a strong focus.

We have seen a number of board changes.

Leo Oosterveer joined the board as a non executive director in

September. He leads the global food service division of Unilever

and has a proven track record in marketing, sales and strategy

development gained both in Europe and Asia. His global

management experience will be a great asset to the board

and to Rexam.

Carl Symon retired from the board in November, having played

an important part in Rexam’s success as senior independent director

and chairman of the remuneration committee. I thank him for his

hard work over the past eight years.

dividend

In 2009, the board agreed a policy to establish dividend cover in the

2–2.5 times underlying earnings range in the medium term, and we are

delivering on that policy for 2011. The board recommends a 2011 final

dividend of 9.7p per share (2010: 8p), amounting to a total dividend

for the year of 14.4p per share (2010: 12p). Subject to shareholder

approval at Rexam’s AGM on 3 May 2012, the final dividend will be

paid on 7 June 2012 to shareholders on the register at close of business

on 11 May 2012.

4.7p + 9.7p =

14.4p


5

During 2011, I announced my retirement and so this is my last

statement as chairman of Rexam. I am delighted that Stuart

Chambers is taking over from me as chairman. His extensive

business experience, including his senior executive business to

business experience and his broad global expertise, will be of

tremendous benefit to the board’s future deliberations and to the

success of the Company.

I am proud of what, together, we have achieved since I joined the

board. Rexam is in a strong position and well prepared to tackle the

challenges ahead. We have clear objectives, strong management

and talented people.

It just remains for me to express my appreciation to my fellow

board members for their contribution and support, not just during

this year but since I have been chairman, and to say how grateful

I am for the confidence of our shareholders, customers and

suppliers. But I should like to save my final words for our people.

In the challenging global economic climate of recent years

everyone within Rexam has shown resilience and dedication,

and there is so much enthusiasm and commitment for what we do

that it is impossible not to be inspired. I have enjoyed greatly my

time at Rexam, and wish the Company and all its people every

success in the future.

Sir Peter Ellwood

chairman

22 February 2012

Stuart Chambers

I am really pleased to be taking over from Sir Peter.

He leaves the Company in a strong position which is

a testament to his significant achievements. Rexam is

confident of its direction and is well placed to develop

further. I look forward very much to working with

Graham and his team to achieve our ambitions for

the Company.

Stuart Chambers

chairman designate

22 February 2012

financial statements governance

sustainability

business review

overview


6 Rexam annual report 2011 overview

who we are

Rexam is a leading global consumer packaging company

We make the packaging for many of the world’s favourite brands. We help to shape the experience

for all kinds of products that consumers choose, use and depend on every day. We make drinks cans

for some of the most famous names in the world. We also manufacture precision medical devices,

from bronchial inhalers to transdermal drug delivery systems, as well as products for personal

care applications.

Our job is to make high quality packaging as efficiently, profitably and sustainably as possible. This is

why, wherever you go in Rexam, you will see a common focus on operational excellence through lean

enterprise, innovation and safety to meet our customers’ expectations.

our vision

Our vision is to be the best global consumer packaging

company. This means balancing profitable revenue

growth, cash generation and the appropriate risk

profile for the Group to deliver a strong return on

capital employed and a steady increase in profits year

on year.

We use the framework below to focus on what is

important to drive our strategy, to align and mobilise

our organisation and to accelerate time to execution.

With a winning organisation, we will generate the

operational excellence in all our processes to deliver

on customer expectations which is vital to achieving

best performance.

our values

Our values underpin everything we do. They reflect

who we are and how we want to act and interact with

each other and everyone we deal with.

continuous improvement

recognition

teamwork

trust

Best performance

Customer expectations

blue chip

In 2011, we launched a Group

wide recognition scheme known

as the ‘Blue Chip’.

Invest for value

Drive operational

excellence

Ensure our future

This on the spot scheme, which has

a cash value equivalent to 50 Rexam

ordinary shares, recognises individuals

who visibly demonstrate our values

and/or leadership practices.

Build a winning organisation

To date we have awarded Blue Chips

to more than 220 employees.

case studies: icons aligned to vision


7

what we make

beverage cans

Rexam Beverage Cans is a leading global beverage can

maker comprising three regional businesses. We make around

57bn beverage cans each year mainly in aluminium, but also

in steel, in more than 20 countries around the world. Can size

is an important element of customer marketing efforts and we

offer the broadest range and a wide choice of innovative inks

and coatings to add further value. We also make the ends to

seal the cans and have a range of printed and coloured ends

as well as distinctive features such as cut out or laser coded tabs.

plastic packaging

Rexam Plastic Packaging is a major global player in rigid plastic

packaging. It has two divisions, Healthcare and Personal Care, that

make a wide range of products. These include dry powder inhalers,

pharmaceutical pumps and valves, eye droppers, nasal sprays,

medical devices, pill jars and closures for healthcare customers,

as well as a range of products for the toiletries, cosmetics, personal

care and food markets. We have recently started the process to

market Personal Care for sale.

customers

We make products for a wide selection of customers

across the globe, but our top 10 account for 60%

of sales.

AB InBev

Coca-Cola

Heineken

L’Oréal

Red Bull

60%

Carlsberg

Hansen Beverages

Hornell

PepsiCo

Schincariol

Europe & Asia

We are the largest beverage can and can end maker in Europe.

We also have beverage can plants in Egypt, China and India,

as well as an associate in South Korea.

North America

We are the second largest beverage can and can end maker

in the US. We also have a plant in Mexico and a joint venture

in Guatemala.

South America

We are the largest beverage can and can end maker in

South America with operations in Argentina, Brazil and Chile.

more information in the operating review

healthcare

We produce standard and custom packaging solutions for

pharmaceutical customers worldwide, as well as complete custom

packaging systems for healthcare and prescription packaging.

personal care

We are a leading supplier of advanced packaging solutions

for beauty, personal care and home product customers.

We also make high barrier containers for food.

more information in the operating review

carbon intensity

We are well on our way to achieving our target

of reducing our carbon intensity by 10% in 2013

vs 2010.

In 2011, we reduced our carbon intensity by

3.5% to 0.83kg carbon/kg of raw material

converted (2010: 0.86kg).

3.5%

financial statements governance

sustainability

business review

overview

more information in the sustainability section


8 Rexam annual report 2011 overview

where we operate

we have 83 manufacturing sites in 25 countries across the globe

Rexam’s operations are located in Europe, North, South and Central America,

North Africa and Asia.

In 2011, we employed on average 19,000 people in our continuing operations.

83

further details of our employees can be found in the sustainability section as well as note 4 to the consolidated financial statements

our locations

US

The US is our largest

market in terms of sales.

We have 14 beverage

can and end making

plants and 15 plastic

packaging operations.

The can plants are located

close to major customers

and large metropolitan

centres which positions

us well in terms of logistics

and freight.

South America

We are the number one

beverage can maker

in South America and

specifically Brazil, the

largest market in the region.

Our plants are strategically

located to capture growth

and optimise asset

utilisation.

Beverage Cans

Plastic Packaging

head office

regional offices

Europe

Europe is our second

largest market in terms

of sales. Our corporate

head office is in London

while the headquarters

for our European

Beverage Can and

Healthcare and Personal

Care businesses are in

Luton, UK, and Paris,

France, respectively.

China

We have had

operations in China

since 1998 where our

focus is on plastic

packaging. The business

was originally set up for

export, but is now

mainly focused on

local markets.

sales 1 by customer location (£m)

2011 2010 2011 2010

● US 1,576 1,586 ● UK 203 200

● Brazil 747 700 ● France 188 178

● Austria 327 288 ● Germany 136 131

● Russia 281 267 ● Other countries 1,050 1,051

● Spain 226 218

+8%

In 2011, Rexam’s emerging markets

sales grew by 8%. Over 30% of

Rexam’s sales come from these fast

growing markets, driven largely by

our Beverage Cans businesses in

Brazil and Russia.

1 Continuing operations.


9

how we performed in 2011

2011 results summary

2011 2010 change

Underlying business performance 1

Sales £m 4,734 4,619 2%

Underlying operating profit £m 549 513 7%

Underlying profit before tax £m 450 390 15%

Underlying earnings per share p 36.1 31.4 15%

Total dividend per share p 14.4 12.0 20%

Statutory results

Sales 2 £m 4,734 4,619

Operating profit 2,3 £m 507 473

Profit before tax 3 £m 431 338

Total profit for the financial year 3,4 £m 376 124

Total basic earnings per share 3,4 p 43.1 14.2

sales (£m) 2011 2010

● Beverage Cans 3,786 3,677

● Plastic Packaging 948 942

Continuing operations 4,734 4,619

underlying operating profit 1 (£m) 2011 2010

● Beverage Cans 447 394

● Plastic Packaging 102 119

Continuing operations 549 513

sales 2 (£m)

2011 4,734

2010 4,619

2009 4,533

2008 4,254

2007 3,423

underlying operating profit 1 (£m)

2011 549

2010 513

2009 418

2008 423

2007 326

financial statements governance

sustainability

business review

overview

1 Underlying business performance from continuing operations before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on

financing derivatives.

2 Continuing operations.

3 Includes exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.

4 Includes discontinued operations.

more information in the operating and financial reviews


10

directors’ report

business review

Can making is a high speed, high precision manufacturing

process with line speeds of up to 2,200 cans per minute.


11

Our chief executive outlines how we

performed against our strategy to deliver

value. The operating and financial reviews

outline our performance in 2011. We also

give an overview of the markets in which we

operate and of the risks facing the business

and what we are doing to mitigate them.

12 chief executive’s review (including KPIs)

16 market review

20 operating review

26 financial review

34 key risks

financial statements governance

sustainability

business review

overview


12 Rexam annual report 2011 directors’ report

chief executive’s review

progress on all fronts

In 2010, we set out our plans for creating

value and improving returns going forward.

At the same time, we established the metrics

we would use to measure our progress.

In short, we said that while laying the

foundations for the future, we would

continue to focus on the management of

three main areas of our business – cash, cost

and return on capital. We also said that we

would continue to focus on reducing debt.

During 2011, we made considerable

progress on all of these fronts.

Graham Chipchase

chief executive

In 2011, against a tough economic backdrop, I am proud to report

that we have delivered on our commitments for the year. As you will

see from the detail in the operating and financial results on pages

20 to 33, we delivered strong profit growth. It was particularly

pleasing to see that, despite a deteriorating economic climate and

a disappointing performance from a number of businesses within

Plastic Packaging, the Group managed to maintain its momentum

throughout the year.

In terms of cash, we continued to focus on tight management of

working capital and a disciplined approach to investing capital.

We increased capital expenditure in continuing operations to

£227m (2010: £189m), 1.2 times depreciation. Projects included

the reopening of the plant in Pouso Alegre, Brazil, a new specialty

can line in Mexico, the investment to lightweight can ends in North

America and the conversion from steel to aluminium of can making

lines in Egypt and Spain. While we have seen no signs of weakness

in can volumes, we are monitoring the situation closely to allow

us to defer spend should market conditions deteriorate. Free cash

flow from continuing operations was £277m before dividends

(2010: £298m).

Our relentless focus on operational excellence helped to achieve

good cost savings, improve returns and offset input cost inflation.

Three main areas have generated the £35m of savings and

efficiencies delivered this year: reduction in material usage,

especially downgauging and lightweighting of our aluminium cans

and can ends; lean manufacturing, which includes investing in new

equipment and optimising processes to improve productivity and

reduce scrap; and strengthening the organisation and practices of

our Group supply chain which has enabled us to capitalise better

on our global footprint and manage our metal, resin and other

direct material costs more efficiently. Early in 2012, we were

delighted when our Águas Claras beverage can plant in Brazil was

awarded The Shingo Prize, generally considered the pinnacle of

achievement in operational excellence (see case study on page 23).

Return on capital employed (ROCE) improved to 13.7%

(2010: 12.3%) thanks to good profit growth and disciplined

capital management. We are on track to reach the top end of the

12% to 15% ROCE target range by the end of 2013. We expect

the most significant uplift towards that target to occur in 2013 as

the contracts signed in North America to recover the beverage

can volume lost in 2011 come into force. In addition, we continue

to manage actively the portfolio to improve returns.

Our net debt reduced to £1.3bn and our balance sheet is stronger.

Reported net debt/EBITDA was 1.8 times compared with 2.4 times

at the end of 2010. Our credit rating is investment grade with

stable outlook with both Moody’s and Standard & Poor’s.

We have no significant debt maturities until 2013.

In the annual report 2010 we highlighted a number of priorities,

in addition to efficiencies, to improve our returns going forward.

These were maximising asset utilisation, focusing on product

innovation, managing our business portfolio and capitalising on

organic growth opportunities in emerging markets, all the while

maintaining strict capital discipline.


‘In 2011, against a tough economic backdrop, I am proud

to report that we have delivered strong profit growth

...improved our return on capital employed ...reduced

net debt ...and strengthened our balance sheet.’

Graham Chipchase chief executive

13

good progress on asset utilisation

For the year, the Group’s overall growth was in line with

our expectations, and asset utilisation plans remain on track.

In Beverage Cans in Europe, capacity utilisation was good as

a result of strong market growth. In Western Europe, capacity

utilisation was around 95%.

In North America, the wider market slowdown meant that demand

for standard can volumes was lower than expected but we saw

stronger growth in specialty cans. Capacity utilisation was around

80% but we expect to see an improvement going forward as most

of the volume loss in 2011 will have been recovered by 2013

through signed contracts.

In South America, our specialty can capacity was fully utilised

as volumes continued to grow. The newly installed lines in South

America have come on stream and are making cans that last year

were imported. Our overall capacity utilisation rate in the region

was about 90%.

innovation strengthens customer ties

Innovation helps to strengthen ties with our customers and stimulate

demand. During the year we saw the successful launch of a

number of new products in both Beverage Cans and Plastic

Packaging. Our award winning Fusion bottle is starting to gain

commercial traction and in Russia we introduced Europe’s first

75cl beverage can to fill a gap in that market. In Brazil, our use of

innovative technologies such as high definition printing, UV and

fluorescent inks has helped customers strengthen their brands,

increase their sales and win awards.

In Beverage Cans, we established a Global Innovation Council

during the year to support further our customers’ brand objectives

as well as to help us align and refine cross regional opportunities,

processes and product development.

In Plastic Packaging, we launched new pumps and airless

dispensing tubes to protect fragile formulations as well as a new

spray technology, Panache, designed to deliver an improved

consumer experience through the improved spray pattern and thus

help our customers build their business. In Healthcare,

Advancia, a new generation of nasal spray pumps specially

designed to enhance protection of preservative free drugs, is

expected to help consolidate our position as a leader in this field.

In 2011, we piloted in our European beverage can operations

a new process for measuring customer satisfaction with scores

encompassing all areas of interaction from key account

management through to fulfilment and including our performance

on innovation and, where applicable, sustainability. This process

will be rolled out across the Group in 2012.

total efficiency gains 2007–2011

2011

2010

2009

2008

2007

£35m

£39m

£42m

£35m

£32m

Beverage Cans

Plastic Packaging

£22m

£20m

£19m

£14m

£17m

£13m

£19m

£23m

£21m

£15m

balancing the portfolio for growth and returns

On 1 September, we completed successfully the sale of the

beverage and specialty Closures businesses to Berry Inc.

The underlying fundamentals of the business had changed

and it was clear that the return profile going forward was not

adequate for the goals we have set ourselves. The sale helped

focus our operations and was fully in line with our strategy to

deliver profitable growth and to improve returns.

Following a strategic review of our Personal Care business, which

includes the High Barrier food container operation, the board

recently decided that, given our focus on returns, it should be

marketed actively for divestment in its entirety. We also believe

that this will improve the range of projects in which we can invest

in both Beverage Cans and Healthcare. So, while Personal Care

is an attractive, well run business and given that we can generate

better returns elsewhere in the Group, it is likely to be of greater

value to another owner.

Healthcare will remain a key component of the Group. It is a

business with good growth prospects, well established customer

relationships and long term contracts, as well as high barriers to

entry and a strong return profile.

financial statements governance

sustainability

business review

overview


14 Rexam annual report 2011 directors’ report

chief executive’s review

growth in emerging markets

In 2011, our sales in emerging markets grew 8% as we continued

to support our customers, and we see further potential for both our

Beverage Cans and Healthcare businesses.

In Beverage Cans, we are seeking further opportunities for

investment as well as bolt on acquisitions or joint venture

partnerships. We announced in August that we were expanding

our existing plant outside Mumbai to increase our manufacturing

capacity in India. We were the first to manufacture two piece

beverage cans in India and this latest investment will help secure

our foothold and develop the market further. India offers significant

growth potential as a result of increasing GDP per capita as well

as the presence of major global and regional customers, especially

from the brewing industry.

There are a number of regions where we see good opportunities

to develop new positions or expand the operations that

we currently have. In the Middle East and Africa, for example,

strong GDP growth and the relatively low penetration of beverage

cans make these attractive growth markets. There is also a

favourable movement in the pack mix towards cans supported by

a youthful population more disposed towards this type of beverage

container. In addition, the resilience of the can is well suited to the

often tough conditions that exist in the supply chain. The Middle

East market is fragmented with a high degree of vertical integration

and we are confident that opportunities for consolidation will

emerge as markets mature and customers seek credible

independent supply sources.

Asia also has attractive beverage can growth rates. Beverage

can suppliers are already investing to meet that increased demand.

We do not directly own any can making facilities in South East Asia

but we are exploring opportunities in the region continually. The

increased internationalisation of our global customers is an

advantage and we are pursuing opportunities arising from existing

relationships and are in regular talks about their expansion plans

into these regions. We have decided that China, which is currently

a highly fragmented market, is not a priority at this time. Having

said that, we shall monitor the market to ensure that we are in a

position to act on any favourable opportunities should they arise.

We continue to invest in South and Central American markets

but, as demonstrated by the deferral of the opening of our Belém

beverage can plant in Brazil until the second half of 2012, we will

ensure we match capacity with market demand. We have one

plant in Mexico where we make both standard and specialty cans

and where the demand for specialty cans is growing strongly.

Mexico has a high per capita consumption of drinks sold in cans.

Around half of the can making market is vertically integrated with

the beverage producers and we believe that there is potential for

consolidation over time. In Guatemala we have a successful 50/50

joint venture with a well established and respected regional

packaging company in this high growth region. We have

increased production in recent years and we see further potential

for consolidation in the market and for bolt on acquisitions.

In Healthcare, we are in the process of doubling the capacity of our

plant in Bangalore to meet continued growth in the region. At the

same time we are finalising a contract to manufacture generic drug

delivery devices for a customer in India which will, in time, require

us to build a plant in Western India.

sustainable thinking

Last year we highlighted the importance of securing Rexam’s long

term future around a sustainability framework based on the three

main areas of products, operations and people. We have made

good progress in developing this model during the year, further

refining and adding specific measures and targets to the

commitments we set out last year. You can read more about

this on pages 44 to 51.

Building a winning organisation is critical to our success.

Making sure that our people work in a safe, fair and enjoyable

environment is core to our values. Our safety statistics remain

strong, as you will see below, but, although there were a number

of outstanding performances by some of our businesses and

individual plants, I am concerned that, as a Group, we did not hit

our 10% year on year improvement goal. We are determined to

deliver a better performance. We will be learning from the

experiences of our best performing plants and redoubling our

efforts to ensure that in 2012 we make further progress towards

our ‘zero accidents’ target.

During the year, we also implemented a number of action plans

to address the feedback of our 2010 employee survey. Areas

such as training and development, as well as communication and

recognition, were recurrent themes across the Group in the focus

groups that we held and many of the plans have been targeted

at these areas. In response, we have made a concerted and

successful effort to prioritise the visibility of our leadership teams.

On training and development, one of our objectives is to enable

performance that will differentiate our business. We saw the

successful deployment of the Rexam Business School and a good

uptake of the courses and training on offer, which range from half

hour online courses delivered via the company intranet in a range

of languages, to comprehensive, residential courses focusing on

specific skills and areas of leadership. On recognition, we

introduced the ‘Blue Chip’ programme, a cash award equivalent

to the value of 50 Rexam ordinary shares, which helps deliver

immediate recognition and reward to people who show

outstanding performance and excellence. To date, more than

220 Blue Chips have been awarded and the programme has

proved to be a great success.


15

key performance indicators

These key performance indicators (KPIs) are used by management to measure and track performance. Each KPI relates directly to our long

term strategy and additional information on each of them is contained in the various sections of this annual report.

As discussed last year, 2011 was a year for collecting base data for a number of the KPIs. There are therefore some KPIs where there is no

comparable data.

overview

targets 2011 2010 2009 2008 2007

best performance

Organic sales growth 1 % GDP+ 4 3 (7) 7 11

Underlying operating profit growth 1 % GDP++ 8 22 (17) 3 (7)

Free cash flow £m Note 2 245 316 290 (128) 24

Return on capital employed 3 % 15% by 2013 13.7 12.3 9.5 11.0 11.9

customer expectations

Customer satisfaction score 4 1–10 To be set 7.8 n/a n/a n/a n/a

Emerging market sales as percentage of sales % Continuous improvement 32 31 27 27 23

Research and new product development 5 £m Note 2 17 19 20 19 14

operational excellence

Annual cost savings and efficiencies 6 £m c £30m 35 34 42 35 32

Lost time accident rate 7 LTAR Zero accidents pa 0.28 0.30 0.63 0.76 1.13

Carbon intensity 8 ratio –10% by 2013 vs 2010 0.83 0.86 0.91 n/a n/a

winning organisation

Employee engagement index favourable score 9 % Continuous improvement n/a 62 n/a n/a n/a

Values and leadership practices favourable score 9 % Continuous improvement n/a 53 n/a n/a n/a

1 Underlying business performance is continuing and discontinued operations (excluding Glass which was sold in 2007 and Closures in 2010 and 2011) before exceptional items,

the amortisation of certain acquired intangibles and fair value changes in financing derivations. Organic sales growth and underlying operating profit growth are as reported in

the financial review for the relevant years and represent the organic change after adjusting for acquisitions, disposals and currency fluctuations.

2 Will depend on investment plans (including capital) going forward.

3 Underlying operating profit plus share of associates profit after tax from total operations divided by the average of opening and closing shareholders’ equity after adding back

retirement benefit obligations (net of tax) and net borrowings.

4 Customer referral score out of 10 from externally conducted survey. This survey was piloted in Europe in 2011 and, from 2012, will be rolled out across the Group’s operations.

The Group target will be set once we have the Group wide data.

5 R&D spend on a statutory accounting basis, which includes design, construction and testing of preproduction prototypes, models and processes. Our operations also invest in new

product and process initiatives which are not captured in the statutory figure. Includes spend by discontinued operations prior to 2011.

6 Assuming current Group structure.

7 LTAR is the number of lost time accidents times 200,000/total hours worked. Our long term target is zero accidents pa with a near term target of 10% reduction pa.

8 Kilogram of carbon per kilogram of raw materials converted (continuing operations).

9 Scores from the Group global employee engagement survey conducted around every 18 months (first one conducted in 2010). The next survey is scheduled for the first quarter of 2012.

financial statements governance

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16

Rexam annual report 2011

directors’ report

market review

This summary review is based on a number

of external packaging industry sources

such as PIRA International, Canadean

and The Freedonia Group, as well as our

own in-house market intelligence team.

It highlights the state of the global consumer

packaging market with a brief summary

of trends for the two packaging types that

Rexam manufactures, beverage cans and

rigid plastic packaging. For the first time,

we also include a summary of statistics for

some of our key markets which provides

a comprehensive overview of their main

characteristics and drivers.

In 2011 the packaging industry faced rising input costs, inflation and

softer trading conditions in many of the larger developed markets.

According to the latest economic data, the global economy grew by

3.8% in 2011 (2010: 5.2%). The global consumer packaging industry

grew 4.2% and was valued at US$409bn. This compares with a 9%

increase in 2009/10, when the market played catch up following the

global economic downturn.

The outlook for 2012 is cautious and there is still uncertainty as to how

markets will evolve over the next few years. Emerging economies are

expected to represent the driving force of global growth with strong

domestic demand (see table on pages 18 and 19 for individual

country real GDP growth). In 2011, for example, the Asia and Rest of

World (ROW) region increased its value share of the total packaging

market to 35%, overtaking Europe. PIRA forecasts that the value of

consumer packaging industry global sales will continue to grow in the

next five years at an average annual rate of 3.1% to reach US$477bn

by 2016.

Packaging for food was the largest end use market in 2011 accounting

for just over half the market. Packaging for beverages accounted for

18% and packaging for healthcare and personal care for 11% of

sales. The industry saw increased demand for packaging in all end

use markets, led by healthcare.

Over the period 2011 to 2016, healthcare packaging is forecast

to register the highest value growth (4.5% pa). Food and beverage

packaging is expected to grow by around 3% pa to 2016 in line

with overall packaging.

materials

consumer packaging market value

by pack material 2011 1

● Paper and board 35%

● Rigid plastics 27%

● Glass 12%

● Flexible plastics 10%

● Other metal 9%

● Beverage cans 5%

● Others 2%

1 Excludes secondary/bulk and industrial packaging.

source: PIRA International 2011 2011

beverage cans

On a global basis, beverage cans accounted for 5% of the

consumer packaging market value in 2011 with North America

being the largest regional market. Overall, the value of global

beverage can packaging sales showed positive growth of just

over 2% driven largely by emerging markets.

Beverage can consumption remained healthy in Europe in 2011

growing 3% while fillings grew 5%. Consumption of carbonated soft

drinks (CSDs) and energy drinks in cans in Europe increased by 3%.

The table on pages 18 and 19 shows the beverage can share for beer

and soft drinks and where there are opportunities for beverage cans

to grow share.

In the US, beer and energy drinks performed better than CSDs in cans.

Beer in cans was helped by some brewers of craft beers switching to

cans from the traditional glass bottle.

The emerging economies offer the greatest potential for beverage

can growth. The strongest growth in value terms is expected in

South America at 3.5%, followed closely by Asia and ROW at 3.1%.

Overall global beverage can sales are expected to grow by around

3% pa until 2016 driven by general GDP growth, gains in market

share over other container types (mainly refillable glass) and, in

the more mature markets, the increase in innovative applications.


17

Cans are expanding into new segments like wine, creating new

occasions for drinking from cans. The environmental credentials of

the can are now better understood (see pages 44 and 45) and the

fact that cans are infinitely recyclable should support an increase

in demand.

plastic packaging

Plastic accounted for 37% of all global packaging sales on

a material basis in 2011. Within this category, rigid plastic

packaging accounted for 27% of the consumer packaging market

value and dominated healthcare and cosmetics packaging.

The total healthcare packaging market grew 6.6% in value in 2011

(2010: 10.6%). Rigid plastics accounted for 52% of the total value

and is expected to grow annually by 4.4%. The healthcare industry

has been impacted by a combination of external factors such as

products coming off patent and tighter healthcare cost control.

Although drug consumption is increasing globally due to greater

prevalence of chronic diseases, an ageing population and higher

incomes in emerging countries, there is pricing pressure on the

industry, and regulatory standards are also becoming stricter.

A new era is opening up for the pharmaceutical industry, however,

with a new mix of growth drivers, such as the rise of generics and

biotech medicines, the over the counter (OTC) segment and growth

in emerging markets. Expenditure per capita on OTC medicine

varies widely with Ireland topping the list in Europe at US$116 per

capita vs US$21 in Brazil and US$8 in China.

Growth in the healthcare packaging market will be supported

by continued improvements in packaging materials leading

to pharmaceutical containers with better aesthetics, barrier

protection, security, ease of use and compliance features. Trends

in the level and mix of worldwide drug consumption will also

create favourable growth opportunities. The introduction of new,

advanced biotechnology and nanotechnology based medicines

will boost demand for high value added packaging systems.

High value added healthcare packaging will also be employed

increasingly to differentiate brand products from generic drugs.

The cosmetics packaging market grew by 4.5% in value in 2011

compared with 11% in 2010. Difficult trading conditions continue in

many of the more developed markets. Growth is being driven by

emerging markets and the need for basic/medium range products,

particularly in skin and hair care. The overall cosmetics packaging

market is forecast to grow in value by 4.2% a year.

Given global recessionary pressures, mass and so called

‘masstige’ cosmetics are growing faster than premium cosmetics.

Premium make up brands are now competing in an ‘era of

consequences,’ characterised by more careful consideration

of the risks associated with consumption. However, it seems

that consumers are still willing to pay a premium for cosmetic

packaging that provides practical and functional benefits. In the

developing markets, where the premium share for personal care

and cosmetics products is very low, creating packaging that can

give mass/masstige a more premium look and feel can be used

to differentiate a product and create growth opportunities.

consumer packaging market value

by geographical region 2011 1

● Asia and Rest of World 35%

● Europe 33%

● North America 28%

● South America 4%

1 Excludes secondary/bulk and industrial packaging.

source: PIRA International 2011 2011

consumer packaging market value

by end use 2011 1

● Food 51%

● Beverages 18%

● Healthcare 6%

● Cosmetics 5%

● Other 20%

1 Excludes secondary/bulk and industrial packaging.

source:

source:

PIRA

PIRA

International

International

2011

2011

beverage cans only market value

by geographic region 2011

● North America 43%

● Europe 26%

● Asia and Rest of World 25%

● South America 6%

source: PIRA International 2011

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business review

overview


18 Rexam annual report 2011 directors’ report

market review

market characteristics by numbers

This section looks at some of the important market characteristics

and factors that are acknowledged growth drivers for the

consumer packaging market across a number of our end markets.

These drivers include GDP per capita and age demographics,

as well as specific ones such as off trade or at home consumption,

which is pertinent to our beverage cans business, and average

life expectancy which has an impact on the healthcare product

market. A fuller description of global market trends and influences

can be found in ‘packaging unwrapped’, a detailed report

on global trends in consumer packaging which we published

in mid 2011.

Europe

Rexam on the map Austria Czech R Denmark France Germany Ireland Italy Netherlands Poland Russia

Our plants – beverage cans 2 1 1 1 3 1 2 – – 3

Our plants – plastic packaging – – – 6 1 – – 1 1 –

macro facts in our markets

Population (millions) 8.4 10.5 5.5 63.2 81.4 4.6 60.6 16.7 38.1 142.4

Population over the age of 65 (%) 18 16 17 17 21 12 20 16 14 13

GDP per capita (US$’000) 41.8 25.9 37.7 35.0 37.9 39.5 30.2 42.3 20.1 16.7

Real GDP growth 2011/12E (%) 0.9 0.7 1.4 0.2 0.3 1.1 -2.2 0.5 2.5 3.3

beverages

Can consumption per capita (cans) 97 19 221** 62 13 91 39 104 102 32

Can share (unit volume) – soft drinks (%) 16 4 25 18 2 19 9 22 8 6

Can share (unit volume) – beer (%) 26 7 61 22 2 49 22 25 48 25

Off trade beer consumption 2010 (%) 63 52 78 78 78 34 61 71 72 91

Beverage can recycling share 2009 (%) 50 47 87 40 91 50 53 85 67 75

healthcare

Average life expectancy (years) 80 77 79 81 80 80 82 81 76 66

Total exp. on health per capita 2008/9 (US$’000) 4.3 2.1 4.3 4.0 4.2 3.8 3.1 4.9 1.4 1.0

OTC medicine expenditure per capita (US$) 106 98 63 81 110 116 71 67 80 n/a

personal care and household care

Total exp. on colour cosmetics per capita (US$) 36.9 17.7 34.1 30.1 23.7 28.2 24.2 28.0 10.6 11.3

Beauty and personal care – premium share (%) 14 6 35 41 22 25 33 29 10 14

Rigid plastic share – PC/HC packaging (%) 63 52 63 63 63 64 72 66 59 50

All figures based on 2011, except where indicated.

Financial data uses average currency exchange rates, except for GDP per capita which uses purchasing power parities sourced from the IMF Economic Indicators in September 2011.

* Associate or joint venture. ** Includes cross border trade.


19

packaging unwrapped

Under the title ‘packaging unwrapped’, this Rexam report

published in 2011 looks at the global trends in consumer

packaging and the key growth drivers in mature and

developing markets around the world. The report can be

viewed and downloaded on www.rexam.com or ordered

from our corporate affairs department.

overview

Americas

Asia/Middle East &Africa

Spain Sweden Turkey UK Argentina Brazil Chile Guatemala Mexico US China India Indonesia S. Korea Egypt

2 1 1 2 1 9 1 1* 1 15 1 1 – 1* 1

– – – – – 1 – – 2 13 4 1 1 – –

46.1 9.4 72.2 62.6 40.9 194.9 17.4 14.7 109.7 312.9 1,348.1 1,206.9 240.5 49.0 79.4

17 20 6 17 11 7 10 4 7 13 9 6 6 11 5

30.6 40.6 14.6 36.0 17.4 11.8 16.2 5.0 15.1 48.1 8.4 3.7 4.7 31.8 6.5

-1.7 1.4 3.0 0.6 4.6 3.0 4.7 3.0 3.5 1.8 8.2 7.0 6.3 4.4 1.8

153 119 23 124 13 109 55 40 86 337 19 1 4 119 10

26 23 11 25 1 20 5 20 9 43 18 1 2 44 7

40 80 31 53 20 52 58 15 38 57 8 17 25 43 50

52 81 71 48 85 47 74 n/a 79 79 79 69 44 53 40

57 91 75 52 91 97 65 n/a 50 54 99 n/a n/a n/a n/a

81 81 73 80 77 73 78 71 77 78 75 67 72 79 73

3.1 3.7 0.9 3.5 1.1 0.9 1.2 0.3 0.9 8.0 0.3 0.1 0.1 1.9 0.3

53 53 22 78 9 21 14 n/a 18 94 8 2 7 56 9

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business review

18.8 49.8 4.4 31.9 4.0 10.9 8.1 n/a 7.4 20.1 1.0 0.2 0.4 16.5 1.3

30 25 7 31 10 2 9 7 8 33 18 5 n/a n/a n/a

72 70 63 59 40 46 51 n/a 45 67 40 16 n/a n/a n/a


20

Rexam annual report 2011 directors’ report

operating review

group results

In 2011, Rexam as a Group delivered a

strong performance. Sales overall increased

2% to £4,734m in line with our GDP+ goal

as volume growth in Beverage Cans offset

a mixed performance in Plastic Packaging.

Group underlying operating profit rose 7%

to £549m mainly due to improved volumes

in standard cans in Europe and in specialty

cans in all our regions, supported by our

continued focus on cost reduction and

efficiencies. Underlying profit before tax

increased 15% to £450m chiefly due to

the improvement in operating profit and

also to a lower total underlying net finance

cost. Underlying earnings per share rose

15% to 36.1p.

André Balbi Cerviño group director,

beverage can Americas

Tomas Sjölin group director,

beverage can Europe & Asia

Malcolm Harrison group director,

plastic packaging

On an organic basis, which excludes the impact of disposals and

currency translation, sales grew 4%, mainly due to the strong

performance in Beverage Cans. Organic underlying operating

profit increased 8%.

statutory results

On a statutory basis, which includes the effect of currency

translation and exceptional and other items, profit before tax from

continuing operations was £431m (2010: £338m). Exceptional

and other items totalled £19m before tax comprising restructuring,

amortisation of certain acquired intangible assets and fair value

changes on financing derivatives. Total profit for the financial

period, which includes discontinued operations, was £376m

(2010: £124m) and total basic earnings per share was 43.1p

(2010: 14.2p). The financial review on pages 26 and 27 contains

a reconciliation between statutory and underlying results.

beverage cans

2011 2010

Sales £3,786m £3,677m

Underlying operating profit £447m £394m

Return on sales 11.8% 10.7%

Return on net assets 31.6% 27.6%

Beverage Cans is a high speed, high precision manufacturing

business. Excellence in manufacturing and engineering,

along with innovation, quality and customer service, are key

to delivering value to our customers. Rexam Beverage Cans is

a global business centred on three main regions: Europe, North

America and South America. It also has operations in Russia,

the Middle East, India, China and Central America. This mix gives

us a healthy exposure to both developed and emerging markets.

Our businesses collaborate on a global basis in areas such as

supply chain, innovation, engineering, research and development

and marketing intelligence. In all, Beverage Cans accounted for

81% of Rexam’s underlying operating profit from continuing

operations (2010: 77%).

In 2011, Beverage Cans outperformed our expectations. Organic

sales, which adjusts for the impact of currency translation, were up 4%

including the expected market share loss in North America. Excluding

standard cans in North America, our beverage cans volumes grew

close to 5% bolstered by good volume growth in Europe and in

specialty cans across all regions. Excluding the cost of aluminium

passed through to customers, organic sales growth was 1%. Organic

underlying operating profit was better than expected, improving by

15% to £447m driven predominantly by volume growth but also good

pricing and an excellent performance on cost savings and efficiencies

mainly related to downgauging and lightweighting. Our underlying

operating profit margin improved to 11.8% (2010: 10.7%).

In 2012, our cost saving efforts will be very much in focus as we

face the specific challenge of absorbing an additional £20m of

metal conversion costs in our European beverage can business,

increases in energy and freight charges as well as start up costs.


21

beverage can Europe & Asia

The European can market currently comprises some 57bn cans.

It is our largest beverage can market and we are the leading can

maker with a more than 40% share. In 2011, the market grew 5%

as cans continued to gain share of the beverage packaging mix

supported by a continued shift towards home consumption where

beverage cans are the single serve package of choice. Our own

volumes increased 6% following good growth in standard and

specialty cans and growth in Russia. Specialty cans continued

to grow across Europe in general and now represent almost 30%

of all cans sold. Our own specialty volumes increased 10% driven

by the continued success of energy drinks in Europe and those filled

in Europe for export.

A strong first half in Russia was followed, as expected, by a slower

second half but, for the year as a whole, our volumes were up

6% in line with our expectations. Returns on our Russian business

(including the acquisition of Rostar in 2008) remain consistently

well above our regional weighted average cost of capital.

The introduction of Europe’s first 75cl can was another milestone

for Rexam in the Russian market. Can size is often a key element

in our customers’ marketing strategies and they now have an even

broader range from which to select. Whilst we will be disciplined

in terms of capital expenditure given the focus on returns, we

are currently evaluating options to invest in Eastern Russia to meet

growing demand and the need to reduce the cost of shipping

products such as SLEEK cans which are growing in popularity.

Our can plant network across Western Europe ran at 95%

utilisation during the year and given that we expect the market to

continue to grow, we announced the construction of a new two line

can making plant in Finland for £68m to open at the start of 2013.

We are making further investments in India, installing a high speed

aluminium beverage can manufacturing line at the current site in

Taloja close to Mumbai. The new line will represent a capital

investment of c £30m over two years. It will initially produce 33cl,

50cl and SLEEK TM cans and increase capacity from under 400m

cans to c 950m per year. Production start up is planned for the

fourth quarter of 2012.

At the start of 2012, a decision was taken to invest in a fourth

production line at our can making plant in Ludesch, Austria to

support the growth of the energy drinks market. The investment

of some £20m will increase our specialty can capacity by around

0.7bn cans per year. Start up is planned for the third quarter

of 2013.

investing in growth

Finland has enjoyed a steady transition from refillable

glass bottles to cans in recent years, as has the

Scandinavian and Baltic region in general. The cans

share of the beer pack mix in Finland has risen to more

than 60%, assisted by favourable legislation, but still

lags behind Sweden at 82%. We currently serve this

1.2bn can market from our plants in Sweden

and Denmark.

With our can making network close to full utilisation,

additional capacity is required in order to manage

plant efficiency across Europe so that we can capture

future growth in the market. Long distance imports are

not viable in the long run.

During 2011 we announced that we would be investing

in a new two line can making plant in Finland for £68m.

It is planned to open at the start of 2013. The majority

of our customers in Finland and the Baltic countries

are contracted to 2015.

financial statements governance

sustainability

business review

overview


22 Rexam annual report 2011 directors’ report

operating review

metal efficiency matters

Improving resource efficiency in our operations is at the core

of our manufacturing processes, not least because of the

cost benefit it brings to us and the packaging supply chain.

In beverage can production, approximately 90% of our raw

material cost is metal. Metal efficiency is therefore a key area

of priority throughout our can business and we are focused on

the twin processes of lightweighting and downgauging.

The gauge of the metal determines the thickness of the dome at

the base of the can. Downgauging – reducing the thickness of

the metal used – means that more cans can be produced from

the same amount of metal, whether it is aluminium or steel.

Reducing the thickness of the can wall is called lightweighting.

Using finite element analysis we can evaluate any proposed

refinements to can design before we set up a line. This has

reduced the risk and the associated cost of tooling development.

Another significant advance resulting from the metal efficiency

programme in Europe is the adoption of the 'non round cut

edge'. A complex modification to the shape of the blanks

pressed from the coil means less metal is wasted and less

excess is trimmed from the top of the can body.

beverage can North America

North America remains the largest single can market in the world

at around 95bn cans and we are the second largest can maker

with a c 20% share. In 2011, our overall volumes declined 14%

impacted by the contract losses announced last year. As previously

stated, we have signed contracts to recover most of the volume

loss by 2013, which will help improve asset utilisation.

Encouragingly, specialty cans, which now account for some 23%

of our overall volume, grew 16% driven mainly by increased

consumption of energy drinks, beer and iced teas as well as new

innovative beverage categories. Standard cans were down 20% of

which 15% related to the loss of contracts and the remaining 5% to

weakness in the US soft drinks market.

Overall profit in the business, which at the start of the year we

expected to be comparable to that in 2010, was significantly

higher. The faster than expected growth in specialty cans and the

relentless pursuit of efficiencies and cost reduction across our

entire product and manufacturing platform, combined with the

improvement in margins on retained as well as newly secured

volumes, helped drive this strong performance.

Our good cash conversion continued and we maintained the strong

return on net assets that characterises this part of the business.

beverage can South America

South America is a c 25bn beverage can market dominated by

Brazil. Rexam is the leading can maker in the region. Following a

very strong performance in 2010 when the main market, Brazil,

grew 18%, our volumes in 2011 were flat as the beverage can

market in Brazil faced a number of challenges. These included a

slowdown in Brazilian GDP growth (from 7% to 3% pa), price

increases by our customers and particularly unfavourable winter

weather conditions. Volumes were also affected by the direct

import of cans by our customers. In addition, we lost some volume

share as customers reallocated their volume requirements closer to

their filling locations to optimise freight costs as new capacity came

on line.

Growth in Rexam’s specialty cans remained strong at 16%

driven primarily by beer producers seeking new formats for their

products. Specialty cans now account for 21% of our sales.


23

Rexam has around 60% of the Brazilian beverage can market and

we are conscious that growth will not always be linear in emerging

markets. Consistent with our disciplined approach to capital

expenditure, our planned investment in the new can making plant

in Belém (initially announced in April 2011) will be timed to match

customer volume expectations, and is now planned to open in the

second half of 2012. As stated last year, we have a long term

contract with our largest customer in Brazil which underpins the

returns on existing and future investments in the region.

We remain confident of the medium and long term prospects for

the Brazilian market. In the short term, disposable incomes are set

to rise in 2012 following legislation on increasing minimum wage

levels and, with customers already preparing for events such

as the FIFA Confederations Cup in 2013, the FIFA World Cup in

2014 and the Olympic Games in 2016, we expect to see further

economic growth.

global recognition of excellence

At the start of 2012, our beverage can plant in Águas Claras,

Brazil, was awarded The Shingo Prize – acknowledged as the

highest global recognition for operational excellence. Two other

Rexam plants in Brazil, Recife (beverage can ends) and Jundiaí

(personal care products) were awarded the Shingo Silver medal

and Bronze medal respectively.

Improving operational efficiency is at the core of

our manufacturing processes. Plants are regularly assessed

under Rexam’s own audit programme but, in the quest for

continuous improvement, Rexam wanted to benchmark its

performance against the best in the world.

plastic packaging

2011 2010

Sales £948m £942m

Underlying operating profit £102m £119m

Return on sales 10.8% 12.6%

Return on net assets 23.3% 29.1%

Our Plastic Packaging business consists of Healthcare and Personal

Care (which includes High Barrier food containers). It produces

standard and customised rigid plastic packaging solutions for

a variety of end markets including pharmaceutical and healthcare

applications, cosmetics, toiletries, household care and food.

Many of our products are the leading choice in their markets for

customers worldwide. In 2011, Plastic Packaging accounted for

19% of Rexam’s underlying operating profit from continuing

operations (2010: 23%).

Plastic Packaging has a wide variety of products at varying stages

of maturity. Our priority is to improve consistently the returns from

this portfolio of businesses. The keys to success are innovation in

markets where there are relatively short life cycles, for example,

cosmetics, and the ability to remain entrepreneurial while

leveraging a global network of production and technical

capabilities. Operational excellence, including the use of leading

edge technology, and the understanding of end market trends

are also essential to maintain stature in these markets.

In 2011, trading in Plastic Packaging was mixed. Organic sales

grew 2% but, excluding resin pass through, sales were flat.

Underlying operating profit was 13% down on an organic basis.

There were good efficiencies from increased process automation

and lower resin usage from lightweighting and savings from

reduced working hours and the elimination of shared costs

following the sale of Closures. These were, however, not sufficient

to offset the effects of reduced pricing and increased costs and

the impact of lower volumes in Personal Care in North America,

particularly in Home and Personal Care, and overall weaker sales

in the Healthcare business.

financial statements governance

sustainability

business review

overview

Águas Claras was recognised as outstanding in all areas

of operation, demonstrating a culture where principles of

operational excellence are deeply embedded into the thinking

and behaviour of all leaders, managers and employees.

With only a small number of organisations awarded

The Shingo Prize each year, Rexam now joins an elite group.


24 Rexam annual report 2011 directors’ report

operating review

healthcare

With over 3,000 employees and 14 factories across three continents,

Rexam Healthcare is the global leader in rigid plastic packaging

and devices for healthcare applications. It is a well invested

business with an experienced management team. It designs,

develops and manufactures innovative packaging, including

containers and healthcare closures, drug delivery devices,

metering pumps and valves and medical components. Its core

expertise lies in injection moulding and blow moulding

technologies and high speed automated assembly in compliance

with Good Manufacturing Practice to meet the quality, safety and

consistency demanded by customers. It also has broad regulatory

knowledge to provide value added support to customers.

In 2011, Healthcare volumes (sales excluding pass through of resin

cost) were flat. There was weak demand in North America and our

overall performance reflects our strategy to focus on price and

increase returns.

In Pharmaceutical Packaging, strong growth in insulin pens

was offset by weakness in inhalers following a quiet flu season.

In Prescription, there were some pricing benefits, despite increased

competitiveness, but these were offset by lower volumes, again

due to the absence of major flu outbreaks. Primary Packaging

had lower volumes due to pricing pressures.

One of the main devices we manufacture for drug delivery is in

the process of coming off patent and this will impact the results of

the Healthcare business in 2012. This is part of the normal cycle

within the pharmaceutical industry which is why we continue to

develop a strong product pipeline to fuel future growth.

Looking ahead, we expect that there will be more opportunities to

develop or codevelop solutions with pharmaceutical companies as

they focus increasingly on their core business. We have a range of

new products including insulin pens and the next generation

of sophisticated drug delivery devices to replace those coming

off patent.

personal care

In Personal Care, overall trading was disappointing despite

pockets of good performance. High Barrier Food volumes were

up strongly due to share gains but results in the rest of Personal

Care varied significantly by region. In Europe volumes were flat.

We saw some growth in dispensing systems for fragrances and

make up and some weakness in foam pumps. In North America,

the consumer remained cautious which led to lower volumes,

particularly in Home and Personal Care. In emerging markets,

good growth in Brazil was more than offset by weakness of make

up in Asia due to high input costs and competitive pricing.

As stated on page 13 we have started the process to actively

market the Personal Care business for divestment.

going forward

We are targeting revenue growth slightly above GDP, by which

we mean the aggregate GDP of the major markets in which we

operate, primarily in North and South America and Europe. In

Europe, pack mix changes and increased at home consumption

are driving faster than GDP growth. In North America, standard

cans are flat to marginally declining but specialty cans continue

to grow; overall, however, the US is a gently declining market

regardless of GDP. Finally in South America and other emerging

markets, we consistently see faster than GDP growth in beverage

cans due to increased can penetration as the pack mix changes

away from returnable glass.

We expect operating profit to grow faster than sales as increased

volumes and better utilisation provide good drop through and,

over time, efficiencies and pricing offset cost inflation.

Rexam is a highly cash generative company. Over the last two

years, we have succeeded in strengthening the balance sheet

and protecting our credit rating. We will maintain an appropriate

financial position but will shift our focus to a combination of

reinvestment in the business and cash returns to shareholders.

safe’n’sound ®

In 2011, Rexam Healthcare received 510(k) approval from the Food and Drug Administration (FDA) for Safe’n’Sound ® , a passive safety device for

prefilled syringes.

The approval is the crowning achievement of significant investment and efforts in terms of design by the Rexam teams. The aim of the project was to

design a safety device that meets the current regulations in North America and in Europe. These regulations are aimed at protecting workers in the

health sector from needle injuries and contamination from blood borne pathogens.

The fully passive Safe’n’Sound ® device provides effective protection against the risks of being pricked by a soiled needle, thanks to the protective

sheath which activates automatically once the medicine has been administered.

This FDA approval shows Rexam’s commitment to innovation, safety and quality.


25

balancing returns and growth

Sales growth GDP +

Pack mix changes in Europe

Growth in specialty cans in

North America

Growth in emerging markets

overview

Surplus cash

Returned to shareholders

Investment

Organic investment

c 1.0–1.5 times

depreciation

underpins

GDP + growth

Bolt on acquisitions

It is important to reinvest in the business so as to deliver our growth

target on a sustainable basis. We recognise the need for discipline

and will invest only in projects with good growth and return

profiles. We aim to keep investment in the range of 1.0–1.5 times

depreciation. In 2012 there are several large projects happening

at the same time and we will be at the high end of the range this

year. We will be similarly disciplined with regard to any bolt

on acquisitions to strengthen our market positions or increase

our capabilities.

In terms of cash returns to shareholders, our dividend policy is to

have a dividend cover in the range of 2.0–2.5 times underlying

earnings. With a strengthened balance sheet and the good 2011

trading performance, we are now in the range. Surplus cash

which is not reinvested in the business over time will be returned

to shareholders.

Since 2009 we have generated close to £550m of free cash

flow, reduced costs by more than £120m and improved return

on capital employed from 9.5% to 13.7%.

Maximise long

term shareholder

value aiming to

reach 15% ROCE

by 2013

Cash generation

Strong balance sheet

Investment grade

credit rating

Dividend

Dividend cover 2.0–2.5 times

Operating profit

growth GDP ++

Efficiencies and

pricing offset cost

inflation over time

Good drop through

from increased

volume and

utilisation

Net debt has reduced from £1.8bn at the end of 2009 to £1.3bn

at the end of 2011 aided by good profits and the proceeds from

Closures, but also largely through our own management

of working capital and capital discipline.

2012 outlook

In closing, we are delighted with the continued progress of the

business in 2011. Our strong profit growth was achieved by a

better than expected performance in our Beverage Cans business,

primarily in Europe, and continued focus on cost management.

Looking ahead, we remain cautious about the global economy

and, as indicated, we face certain cost challenges in 2012 together

with the impact of a key Healthcare product coming off patent. The

volume environment for Beverage Cans remains robust, although

we do not anticipate any turnaround in the performance of Plastic

Packaging in the near term. Overall, we expect 2012 to be another

year of progress as we continue to focus on cash, costs and return

on capital employed.

financial statements governance

sustainability

business review


26 Rexam annual report 2011 directors’ report

financial review

group overview

In 2011 we delivered record profits,

reported a robust cash flow and further

strengthened our balance sheet. With good

profit growth and our continued discipline

regarding investment and use of capital,

we have made significant progress towards

our ROCE target for 2013.

David Robbie

finance director

This financial review of our results is principally based on what we

term the underlying business performance, as shown in the tables

below. This excludes exceptional items, the amortisation of certain

acquired intangible assets and fair value changes on financing

derivatives (together ‘exceptional and other items’). We feel that

the underlying figures aid comparison and understanding of the

Group’s financial performance.

Discontinued operations comprise the Closures business which

manufactured beverage and specialty closures. Further details

of the trading results of Closures and the accounting impact of

its disposal are set out on page 30.

Underlying

business

performance¹

£m

Exceptional

and other

items

£m

Total

£m

2011

Continuing operations:

Sales 4,734 – 4,734

Operating profit/(loss) 549 (42) 507

Share of associates and joint

ventures profit after tax 9 – 9

Total net finance cost 2 (108) 23 (85)

Profit/(loss) before tax 450 (19) 431

Profit/(loss) after tax 315 (12) 303

Discontinued operations:

Profit for the year 73

Total profit for the year 376

Total basic earnings per share (p) 43.1

Underlying earnings per share (p) 36.1

Interim dividend per share (p) 4.7

Proposed 3 final dividend

per share (p) 9.7


27

Underlying

business

performance¹

£m

Exceptional

and other

items

£m

Total

£m

2010

Continuing operations:

Sales 4,619 – 4,619

Operating profit/(loss) 513 (40) 473

Share of associates and joint

ventures profit after tax 5 – 5

Total net finance cost 2 (128) (12) (140)

Profit/(loss) before tax 390 (52) 338

Profit/(loss) after tax 274 (38) 236

Discontinued operations:

Loss for the year (112)

Total profit for the year 124

Total basic earnings per share (p) 14.2

Underlying earnings per share (p) 31.4

Interim dividend per share (p) 4.0

Final dividend per share (p) 8.0

1 Underlying business performance is the primary performance measure used

by management, who believe that the exclusion of exceptional and other items aid

comparison of underlying performance of continuing operations. Exceptional items include

the gains and losses on disposal of businesses, the restructuring and integration of

businesses, major asset impairments and disposals, significant litigation and tax related

claims and significant gains arising on reduction of retiree medical and pension liabilities.

Other items include the amortisation of certain acquired intangible assets (customer

contracts and relationships and technology and patents) and fair value changes on

financing derivative financial instruments.

2 Total underlying net finance cost comprises net interest of £92m (2010: £113m) and

retirement benefit obligations net finance cost of £16m (2010: £15m).

3 Subject to approval at the AGM 2012 and payable on 7 June 2012.

Results on a statutory basis include disposed businesses, currency

translation and exceptional and other items and discontinued

operations. The exceptional and other items and the results of

discontinued operations are described in more detail on pages

102 and 106. Sales for continuing operations were £4,734m

(2010: £4,619m) and profit before tax including exceptional and

other items was £431m (2010: £338m). Total profit after tax for the

year, including the results of discontinued operations, was £376m

(2010: £124m) and total basic earnings per share was 43.1p

(2010: 14.2p).

The following tables, showing sales and underlying operating

profit, compare the continuing operations on a consistent basis

to demonstrate ‘like for like’ trading performance. This basis

excludes discontinued operations. Organic change is the year

on year change arising on continuing operations at constant

exchange rates.

analysis of sales movement

Total

£m

Beverage

Cans

£m

Plastic

Packaging

£m

Sales reported 2010 4,619 3,677 942

Currency fluctuations (53) (43) (10)

Sales 2010 pro forma basis 4,566 3,634 932

Organic change in sales 168 152 16

Sales reported 2011 4,734 3,786 948

Organic sales, which exclude the impact of discontinued

operations, disposals and currency, increased by £168m

or 4%. The increase in Beverage Cans includes £113m relating to

the increase in aluminium cost pass through together with volume

gains in Europe and in specialty cans globally and good pricing in

Europe and South America partly offset by previously announced

reductions in standard can volume in North America. For Plastic

Packaging, the growth was attributable to the pass through of

higher resin costs and some volume recovery in High Barrier

Food containers offset by volume reductions in Personal Care

and Healthcare.

analysis of underlying operating profit movement

Total

£m

Beverage

Cans

£m

Plastic

Packaging

£m

Underlying operating profit

reported 2010 513 394 119

Currency fluctuations (6) (4) (2)

Underlying operating profit 2010

pro forma basis 507 390 117

Organic change in underlying

operating profit 42 57 (15)

Underlying operating profit

reported 2011 549 447 102

financial statements governance

sustainability

business review

overview


28 Rexam annual report 2011 directors’ report

financial review

A further analysis of the organic change in underlying operating

profit from continuing operations is set out below.

Total

£m

Beverage

Cans

£m

Plastic

Packaging

£m

Sales price and cost changes 7 18 (11)

Volume and mix changes – 17 (17)

Efficiency and other savings 35 22 13

Organic change in underlying

operating profit 42 57 (15)

Underlying operating profit, after adjusting for the impact

of discontinued operations, disposals and currency, rose by

£42m or 8% reflecting an improvement in pricing and efficiency

savings across the Group partly offset by lower volumes and

less favourable mix in Plastic Packaging. Efficiency savings of

£35m came from the application of six sigma and lean enterprise

methodologies across the Group. In Beverage Cans, major savings

arose from lightweighting, spoilage reduction, downgauging and

reduced utility usage. In Plastic Packaging, the major contributors

were lower material usage and improved operating efficiency.

exchange rates

The main exchange rates used to translate the consolidated income

statement and balance sheet are set out below:

2011 2010

Average:

Euro 1.15 1.17

US dollar 1.60 1.55

Russian rouble 47.12 46.96

Closing:

Euro 1.19 1.17

US dollar 1.54 1.54

Russian rouble 49.59 46.77

consolidated income statement

The principal currencies that impact our results are the US dollar,

the euro and the Russian rouble. The US dollar and the Russian

rouble weakened against sterling in the year while the euro

strengthened. The net effect of currency translation caused sales

and underlying operating profit from ongoing operations to

reduce by £53m and £6m respectively compared with 2010

as shown below.

Sales

£m

Underlying

operating

profit

£m

US dollar (81) (9)

Russian rouble (1) –

Euro 20 3

Other currencies 9 –

(53) (6)

In addition to the translation exposure, the Group is also exposed

to movements in exchange rates on certain of its transactions.

These exposures are largely hedged and principally include the

US dollar/euro/Russian rouble and the US dollar/Brazilian real

movement for the European and South American beverage can

operations respectively.

consolidated balance sheet

Most of the Group’s borrowings and net assets are denominated

in US dollars and euros. Currency movements reduced net

borrowings by £29m and net equity by £16m.

total underlying net finance cost

2011

£m

2010

£m

Net interest (92) (113)

Retirement benefit obligations net finance cost (16) (15)

Total underlying net finance cost (108) (128)

The total underlying net finance cost fell by £20m compared with

the prior year. The reduction in total net interest is primarily due

to lower average net borrowings following strong cash inflows

together with lower bank facility fees offset by foreign exchange

transaction losses on financing items. The overall average interest

rate for the year was around 5.8% compared with 5.7% in 2010.

Based on underlying operating profit, interest cover was 6.0 times

(2010: 4.5 times). Interest cover is based on underlying operating

profit from continuing operations and underlying net interest expense

excluding charges in respect of retirement benefit obligations.


29

tax

The tax charge for the year on continuing operations was

£135m (30%) on profit before exceptional and other items

(2010: £116m (30%)). The rate reflects the mix of territories

in which we operate offset in part by the availability of tax

incentives in certain jurisdictions and the management of tax

risks. We anticipate the rate to remain around the same level

in 2012.

Cash tax payments by continuing operations in the year were

£81m (2010: £67m) with an additional £5m (2010: £8m) being

borne by discontinued operations. Cash tax is lower than the

charge to the income statement due to the utilisation of deferred

tax assets and the timing of tax payments. It is expected that the

cash tax paid in future years will remain below the underlying tax

charge in the consolidated income statement, in the range of 65%

to 75% of that charge.

exceptional and other items

The exceptional and other items arising in 2011 in respect of

continuing operations were as follows:

£m

Restructuring of businesses, including impairments (16)

Amortisation of certain acquired intangible assets (26)

Total exceptional and other items included

in operating profit (42)

Financing derivative market value changes 23

Total exceptional and other items before tax (19)

Tax on:

Restructuring of businesses, including impairments 4

Amortisation of certain acquired intangible assets 9

Financing derivative market value changes (6)

Total tax on exceptional and other items 7

Total exceptional and other items after tax (12)

exceptional items

restructuring of businesses

The restructuring charge of £16m on continuing operations

comprises £11m in Plastic Packaging (including £2m related

to asset impairments) and £5m in Beverage Cans. We have

previously stated that following the disposal of Closures it would be

necessary to reorganise the remaining Plastic Packaging business

to address the level of shared service administration support and

to rationalise those retained plants which were co production sites

with the Closures businesses. Overall, this restructuring is expected

to cost £24m: in 2011, £11m was charged in respect of continuing

operations and a further £11m reported under discontinued

operations. The remainder will be charged in future periods.

The Beverage Cans cost was in respect of the previously

announced plant closures. The total cash cost of restructuring

in continuing operations in the year was £19m.

other items

amortisation of certain acquired intangible assets

Intangible assets, such as technology patents and customer

contracts, are required to be recognised on the acquisition of

businesses and amortised over their useful life. The directors

consider that separate disclosure, within exceptional and other

items, of the amortisation of such acquired intangibles relating

to total operations amounting to £26m (2010: £32m) aids

comparison of organic change in underlying profit.

fair value changes on financing derivatives

The fair value of the derivatives arising on financing activities

directly relates to changes in interest rates and foreign exchange

rates. The fair value will change as the transactions to which they

relate mature, as new derivatives are transacted and due to the

passage of time. The fair value change on financing derivatives

for the year was a net gain of £23m (2010: net loss £12m). The

impact of derivatives arising on trading items such as commodities

and forward foreign exchange contracts is included within

underlying operating profit.

financial statements governance

sustainability

business review

overview


30 Rexam annual report 2011 directors’ report

financial review

discontinued operations – closures

A summary of the performance of discontinued operations is set

out below.

2011

£m

2010

£m

Sales 205 343

Underlying operating profit 13 22

Underlying profit before tax 13 22

Underlying profit after tax before exceptional

and other items 8 13

Exceptional and other items included

in operating profit:

Profit on disposal 91 –

Impairment of goodwill and other assets (34) (179)

Restructuring (5) (6)

Amortisation of certain acquired

intangible assets – (14)

Tax on exceptional and other items 13 74

Exceptional and other items after tax 65 (125)

Profit/(loss) for financial year after tax 73 (112)

The underlying performance reflected the decline in beverage

closures, with sales down by some 10% for the period to disposal,

offset partly by efficiency and other savings.

The disposal of the Closures business was completed on

1 September 2011 giving rise to an overall profit in 2011 of £91m.

This profit included foreign exchange translation differences

arising on Closures net assets since the date of their acquisition,

some £89m, which have been recognised in the income statement.

In 2011, the assets of Closures were impaired by £28m and further

impairments of £6m, together with £5m of related costs, were

incurred under the restructuring programme initiated following

its disposal as described under ‘exceptional items’ above.

earnings per share

2011 2010

Underlying earnings per share – continuing

operations (p) 36.1 31.4

Basic earnings per share – total operations (p) 43.1 14.2

Average number of shares in issue (millions) 872.6 875.6

Year end number of shares in issue (millions) 877.0 876.9

Underlying earnings per share from continuing operations

increased by 15% to 36.1p (2010: 31.4p). This is due to the

improvement in underlying operating profit together with the

reduction in total underlying net finance cost.

The basic earnings per share, which includes exceptional and

other items and discontinued operations, was 43.1p per share

(2010: 14.2p). The increase reflects the improvement in underlying

profit, the reduced impact of exceptional items and the gain

realised on completion of the disposal of Closures.

retirement benefits

Retirement benefit obligations (net of tax) as at 31 December 2011

were £371m, an increase of £54m compared with £317m reported

at 31 December 2010. This was principally due to changes in

actuarial values amounting to £76m (after tax) as set out below.

£m

Defined benefit pension plans:

Plan liabilities – lower discount rates (280)

Plan assets – higher than expected returns,

principally on bonds 139

Demographic changes 35

Actuarial losses before tax (106)

Tax 30

Actuarial losses after tax (76)

Changes to the actuarial value of retirement benefits at the

balance sheet date are reported in the consolidated statement

of comprehensive income.

A detailed analysis of retirement benefits is set out in note 27 to the

consolidated financial statements.


31

The retirement benefit obligations net finance cost is analysed

as follows:

2011

£m

2010

£m

Defined benefit pension plans:

Expected return on plan assets 142 144

Interest on plan liabilities (148) (152)

(6) (8)

Retiree medical – interest on liabilities (6) (7)

(12) (15)

Cost recognised in the income statement on

annuitisation of certain US retirement obligations (4) –

Retirement benefit obligations net finance cost (16) (15)

The retirement benefit obligations net finance cost, which is a

non cash accounting charge, increased marginally to £16m from

£15m in the prior year. A charge in respect of historic fair value

movements recognised in the income statement following the

annuitisation of certain US pension obligations was offset by a

lower net finance cost. It is estimated that the overall net finance

cost in 2012 will remain at a similar level.

The total cash payments in respect of retirement benefits are

as follows:

2011

£m

2010

£m

Defined benefit pension plans 46 27

Other pension plans 10 12

Retiree medical 9 12

Total cash payments 65 51

Cash payments to defined benefit pension plans were higher than

in 2010 mainly as a result of increases in the deficit funding to the

UK and US plans. Based on current actuarial projections, it is

expected that cash contributions to defined benefit pension plans

in 2012 will be at a similar level to 2011. A triennial valuation

of the UK defined benefit plan was undertaken as at 31 March

2011. It is expected, when the valuation is complete, that the plan

will be fully funded at that date. Future funding arrangements are

currently being discussed with the plan trustees.

cash flow

Total free cash flow for the year from continuing operations resulted

in an inflow of £277m compared with £298m for 2010. This lower

inflow primarily reflects an increase in capital expenditure, higher

retirement benefit cash contributions offset by a significant

improvement in underlying operating profit and lower restructuring

charges. Net cash flow was £337m (2010: £212m), including free

cash flow from discontinued businesses, net proceeds from the

disposal of Closures and after paying dividends.

2011

£m

2010

£m

Continuing operations:

Underlying operating profit 549 513

Depreciation and amortisation 1 191 197

Retirement benefit obligations (41) (27)

Change in working capital (19) (20)

Restructuring costs (19) (41)

Other movements 3 25

Cash generated 664 647

Capital expenditure (net) (226) (181)

Net interest and tax paid (165) (173)

Loan from joint venture 4 5

Free cash flow from continuing operations 277 298

Free cash flow from discontinued operations (32) 18

Free cash flow 245 316

Dividends paid to non controlling interests (1) –

Equity dividends (111) (105)

Business cash flow 133 211

Disposals 2 204 1

Cash flow including borrowings acquired

and disposed 337 212

Share capital changes (18) (6)

Exchange differences 29 (38)

Other non cash movements 24 (24)

Net borrowings at the beginning of the year (1,684) (1,828)

Net borrowings at the end of the year 3 (1,312) (1,684)

1 Excludes amortisation of certain acquired intangibles amounting to £26m (2010: £32m).

2 Disposal proceeds offset by £1m (2010: £nil) in respect of a capital injection in a

joint venture.

3 Net borrowings comprises borrowings £1,838m (2010: £1,881m) less cash and cash

equivalents £412m (2010: £114m) and financing derivatives £114m (2010: £83m).

financial statements governance

sustainability

business review

overview


32 Rexam annual report 2011 directors’ report

financial review

capital expenditure – continuing operations

2011 2010

Capital expenditure (gross) 1 (£m) 227 189

Depreciation and amortisation 2 (£m) 191 197

Ratio (times) 1.19 0.96

1 Capital expenditure is on a cash basis and includes computer software that has been

capitalised.

2 Amortisation excludes £26m (2010: £32m) amortised on patents, customer contracts and

intangibles other than computer software.

Gross capital expenditure by continuing operations was £227m,

c 1.2 times depreciation and amortisation, of which approximately

70% was attributable to strategic and growth projects. The

principal projects in Beverage Cans were to support growth

in South America, the development of specialty can products,

a new plant in Finland, the conversion of three lines from steel

to aluminium in Spain, Egypt and India and the introduction of

a lightweight end in response to market developments and

customer requirements. Plastic Packaging investment continued

to be focused on new product development.

It is expected that capital expenditure from continuing operations

in 2012 will be around £300m, 1.5 times depreciation and

amortisation.

balance sheet and borrowings

As at

31.12.11

£m

As at

31.12.10

£m

Goodwill and other intangible assets 2,177 2,231

Property, plant and equipment 1,590 1,571

Retirement benefits (net of tax) (371) (317)

Net assets classified as held for sale 2 232

Other net assets 233 292

3,631 4,009

Total equity, including non controlling interests 2,319 2,325

Net borrowings 1 1,312 1,684

3,631 4,009

Return on capital employed 2 (%) 13.7 12.3

Net borrowings/EBITDA 3 (times) 1.8 2.4

Interest cover 4 (times) 6.0 4.5

Gearing 5 (%) 57 72

1 Net borrowings comprise borrowings, cash and cash equivalents and certain derivative

financial instruments.

2 Underlying operating profit plus share of associates and joint ventures profit after tax of

continuing and discontinued operations divided by the average of opening and closing

of shareholders’ equity after adding back retirement benefit obligations (net of tax) and

net borrowings.

3 Based on net borrowings divided by underlying operating profit plus depreciation and

amortisation from continuing operations, excluding amortisation of certain acquired

intangible assets.

4 Based on underlying operating profit of continuing operations divided by underlying net

interest expense.

5 Based on net borrowings divided by total equity including non controlling interests.

The level of net borrowings at 31 December 2011, down by £372m

compared with the previous year, primarily reflects strong cash

flow and favourable impact of currency translation and other

non cash movements. The currency denomination of our net

borrowings, including financing derivatives, is as follows:

As at

31.12.11

£m

As at

31.12.10

£m

US dollar 1,051 1,424

Euro 439 299

Sterling and other (178) (39)

Net borrowings 1,312 1,684

For the management of foreign currency asset matching and

interest rate risk, the profile of gross borrowings is 68%

(2010: 75%) in US dollars, 32% (2010: 22%) in euros and nil%

(2010: 3%) in other currencies.

Our net borrowings/EBITDA based on continuing operations

has strengthened from 2.4 times in 2010 to 1.8 times following

the reduction in net borrowings and improvement in underlying

operating profit. Interest cover is at 6 times and we remain

comfortably within our debt covenants. Our liquidity is strong

with committed debt headroom of over £1.2bn at the year end.

At 31 December 2011, the Group’s principal committed loan and

bank facilities totalled some £2.6bn in varying currencies and

maturities, as detailed below:

Currency Maturity

Facility

£m

Subordinated bond Euro swapped to US$ 2067 654

Revolving credit facility Multi currency 2016 602

Bilateral credit facilities Multi currency 2016 207

US private placement

and bond US$ 2013 503

Medium term note Euro 2013 536

Bilateral credit facilities Multi currency 2012 50

Total committed loan

and bank facilities 2,552

Following the disposal of Closures, and to take advantage of

prevailing market conditions, the revolving credit facility and

certain bilateral credit facilities were amended during the year.

Their maturity was extended to November 2016 with options to

extend by a further two years, the level of facilities was reduced

by £219m and ongoing commitment fees were lowered.


33

Net borrowings include interest accruals and certain financial

derivatives as set out below:

As at

31.12.11

£m

As at

31.12.10

£m

Net borrowings excluding derivative

financial instruments 1,426 1,767

Derivative financial instruments (114) (83)

Net borrowings 1,312 1,684

Derivative financial instruments comprise instruments relating to

net borrowings (cross currency and interest rate swaps) and those

related to other business transactions (forward commodity and

forward foreign exchange deals). Total derivative financial

instruments are set out below:

As at

31.12.11

£m

As at

31.12.10

£m

Cross currency swaps 110 82

Interest rate swaps 4 3

Foreign exchange forward contracts – (2)

Derivative financial instruments included

in net borrowings 114 83

Other derivative financial instruments (55) 47

Total derivative financial instruments 59 130

The increase in the value of cross currency swaps can be mainly

attributed to a decrease in the longer term forward interest rates

and to a decline in the liquidity of the euro. The reduction in value

of other derivatives was due mainly to the fall in aluminium prices.

financial statements governance

sustainability

business review

overview


34 Rexam annual report 2011 directors’ report

key risks

enterprise risk management

Effective management of risk is essential to

the achievement of our business objectives

and to the protection of our people, assets

and reputation. Identifying, assessing

and managing risks is integral to the way

we run our business. It is part of our focus

on operational excellence and best

performance which are key priorities for

the Group. The various risks attached to our

activities are consistently assessed, recorded

and reported in a visible, structured and

continuous manner to ensure necessary

controls are in place.

Rexam risk management process

Rexam objectives

Rexam risk management process

The enterprise risk management function reports directly to

the chief executive. The function serves to further improve the

integration and efficiency of our risk management framework and,

in doing so, to address the increased demands and requirements

from external and internal stakeholders. It draws together our risk

based responsibilities and enhances the good risk management

process and practices already in place across the Group.

This section describes our well established risk management

process including the enhancements made during 2011,

and outlines the main factors that may affect the implementation

and execution of our strategy.

Rexam objectives

The purpose of the Rexam risk management process (known

internally as the ARC process) is to support achievement of Rexam’s

overall objective to deliver shareholder value. Although risk can

never be eliminated, the process aims to identify and set

appropriate mitigation responses for the key risks faced by Rexam.

The approach is based around the ISO 31000 risk management

process and on both the bottom up and top down assessments

of strategic, financial and operational risks.

risk identification

The first stage of our risk management process is to identify the

risks faced by Rexam. This is initially a bottom up process with

business units and functions undertaking a biannual process of

risk identification. Risk workshop sessions, current risk registers,

intelligence on risks identified by other companies and a risk

categorisation check list are used to structure and support the

process. The enterprise risk management function leads and

supports the process but is also there to challenge the findings.

Executive directors and other senior leaders are closely involved

at critical stages in the process. They review, challenge and debate

the risks identified from a top down perspective. The resultant

output is a list of risks faced by Rexam for each business unit and

function – the risk register.

risk identification

risk assessment

risk mitigation

risk reporting

risk monitoring

development


35

risk assessment

The next stage involves the assessment of each identified risk on

the register in terms of its likelihood of occurring, and the impact

on Rexam if the risk does occur. Performing an assessment of

likelihood and impact at both a gross and net level (before and

after the effect of mitigation) enables us to identify the key material

risks for each business and function and consider the effect of current

mitigations on reducing risk. To aid assessment we use specific tools,

such as the Heat Map Matrix and Radar, to illustrate the impact

and likelihood of different risks, and to show their trend over time.

Images of these tools are shown below for illustrative purposes

Rexam risk management tool – heat map matrix

impact

of risk

Major

Significant

overview

Rexam risk management tool – radar

Risk 1

Risk 10

Risk 9

Risk 8

Risk 7

Risk 6

■ Year 1 ■ Year 0

Risk 2

Risk 5

Risk 3

Risk 4

Moderate

Minor

Insignificant

Rare Unlikely Moderate Likely Almost

certain

likelihood of risk occurring

■ Very high

■ High

■ Medium ■ Low

risk mitigation response

Once risks have been assessed an appropriate mitigation response

is determined for each risk identified. The mitigation response will

depend upon the impact and likelihood assessment and, for

example, may consist of a control action or insurance. The risk

mitigation response reduces either the likelihood of the risk

occurring or the impact on Rexam if the risk does occur or both.

risk reporting

When we have assessed the risks and the responses have been

determined, each business unit and function provides a risk report

to the enterprise risk management function. These reports are

considered together and a Group level risk register is produced

showing the key risks to Rexam and key mitigation responses.

Ownership of each key Group risk is allocated to a member of

the executive leadership team.

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36 Rexam annual report 2011 directors’ report

key risks

risk monitoring

The Group level risk register is monitored by the board through

a monthly report which updates on the trend of the key risk and

mitigations. During 2011 this monthly report was enhanced by

the addition of ‘key risk indicators’ to support the monitoring of risk

trends. The executive leadership team, the audit and risk committee

and the board all review the output from the risk management

process on a periodic basis. The audit and risk committee also

reviews the overall risk management process itself. The main

mitigation activities for key identified risks are used as an input

to determine coverage under the annual internal audit plan.

development

We are looking continually to improve our risk management

process. During 2011, a project to determine future development

opportunities considered external best practices and the following

were implemented:

heat map matrix

This tool was developed along best practice lines into a 5 by 5

impact and likelihood matrix. The risk assessment process groups

risks into four areas of ‘very high’, ‘high’, ‘medium’ and ‘low’ and

the matrix uses a colour coding to illustrate this at both a gross and

net assessment level. The new matrix also considers risks with non

financial impact, such as reputational and health and safety,

to avoid solely focusing on the financial impact of risks.

risk descriptions

The way risks are described within the process was made

consistent and a requirement to describe risk drivers and

consequences was added. This aids analysis and also the creation

of mitigation plans by considering the factors driving risks.

risk mitigations actions form

The risk mitigation section of the process was developed to

support improved tracking and follow up of mitigations by

business units and functions to ensure they are in place and

having the required effect.

behaviour based safety programme

The behaviour based safety programme (BBS) was devised to

encourage Rexam’s plant employees to focus on safety during

their daily activities. During 2011 we enhanced the ‘safety

bingo’ initiative which was designed to recognise employees

and plants that were actively participating in the ‘good

behaviour’ programme. Its main objective was to reinforce

Rexam’s commitment to its employees’ safety, and highlight

how important each person’s behaviour is in preventing

accidents. 2011 was the year when the plants that use it really

got to see the results of a well implemented BBS programme.

The employees’ level of engagement and safety awareness

was higher than ever, which enabled some plants to achieve

outstanding performance. In total more than 70% of our sites

did not have a lost time accident in 2011.

“In the Jacareí beverage can plant in South America, BBS is a

tool that promotes a change in culture and motivates employees

to protect themselves and their peers. Pointing out unsafe

behaviour is important, but recognising safe behaviour

strengthens our vision of safety,” said Rui Cesar Silva,

Production Manager, Jacareí.

The overall BBS programme has ambitious targets and

innovations for 2012 and will be strengthened across Rexam.

legislative risk monitoring tool

The legislative framework of the countries in which we operate

and sell products is evolving constantly as new governments

are elected and the profiles of different issues are raised.

From experience, we know that a small percentage of any

new legislation could have an impact on our business, through

increased costs or changes to markets. The main risk to the

business is legislation that is primarily focused on our products

(ie packaging), but legislation that is designed to address other

issues can have an indirect effect on our markets (eg taxes on

certain food and drink products).

In 2011 our Beverage Can Europe & Asia sector established

a team from across our European operations which monitors

proposed changes to existing legislation and proposed new

legislation to assess its impact on our business. This enables

us to understand and reduce the risks associated with any

proposed changes to legislation and focus resources to mitigate

these potential risks where appropriate. In 2012 this approach

will be rolled out across Rexam.


37

summary of key Group risks

Set out in the tables below (in no particular order) is a summary

of the key risks for the Group as a whole. Although the global

financial and economic situation has heightened many risks and

exposed new ones, the challenge remains the same in terms of

identifying the most relevant risks, assessing their impact and

importance and developing appropriate methods to eliminate

or mitigate them.

The tables provide brief descriptions of the key types of risk to

which the Group is exposed and identifies, in each case, their

potential impact on the Group and the principal processes in place

risk description key mitigation

Economic downturn

Aluminium and other

input cost increases

The risk of economic downturn in Rexam’s

key markets and its impact upon demand

for consumer packaging. This risk has

trended higher through 2011 following

concerns over growth and debt levels in

Western economies leading to reduced

GDP growth forecasts.

Aluminium is our most significant raw material

cost. Resin is also important to us and we

purchase steel for our European beverage

can operation. High volatility in input prices

may have a material impact on our results.

One consequence of a substantial rise could

be a change in demand for our products as

customers adjust their packaging mix and the

materials they use. This risk has trended higher

through 2011 as, despite easing somewhat in

the final quarter, commodity prices have been

higher overall in 2011, thus flowing through

into inflationary pressure.

to manage and mitigate the risk. Each risk is specifically owned

by a member of the executive leadership team. The tables do not

provide an exhaustive analysis of all risks affecting the Group.

Not all of the factors listed are within the control of the Group and

other factors besides those listed may affect the performance of

its businesses. Some risks may be unknown at present and other

risks, currently regarded as immaterial, could turn out to be

material in the future. Further information on the process by which

risk is managed and reported is covered in the risk management

and internal control section in the corporate governance report

(pages 64 and 65).

In line with the strategic priority of best performance,

Rexam closely manages capital investment and

is focused on maximising utilisation of its assets.

Furthermore, in response to the increasing trend

of this risk, we use scenario planning within our

budgeting and planning processes to help identify

mitigation actions which would be implemented should

this risk increase further.

In beverage cans, almost all of our aluminium ingot

needs are on a pass through basis or hedged. In the

Americas businesses, we charge the majority of our

customers on a pass through basis while in Europe 75%

of our supply costs are on this basis. To mitigate the risk

on the remaining aluminium ingot exposure, we hedge

the aluminium cost and associated currency

requirements. The pass through and hedge risk

management applies to metal ingot but not the can sheet

which is covered by long term supply contracts.

We purchase aluminium and steel from a small number

of regional and global suppliers with whom we have

long term relationships and contracts.

In plastic packaging, over 80% of the resin costs are

on a pass through basis which includes resin escalator/

de‐escalator provisions that allow change in our selling

price as resin prices change. Where possible, we also

hedge some of our resin exposure.

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38 Rexam annual report 2011 directors’ report

key risks

risk description key mitigation

National political and

economic stability

Competitive

environment trends

Changes in packaging

legislation and regulatory

environment

The risk of political or economic instability

within a region that Rexam operates in and

its impact on performance. Rexam operates

in countries and regions with diverse

economic and political conditions and

sensitivities. Our expansion in emerging

markets, as well as the regional political

instability and civil unrest seen through

2011, means that the trend of this risk

is increasing.

The risk of adverse commercial impact upon

Rexam from customer and competitor activities.

This risk can be driven by dependency on key

customers, competitor activity, price pressure

or contract negotiations.

The risk of changing legislation impacting

the markets in which Rexam operates.

Packaging will continue to be a focus for

government legislators working within

the sustainability agenda. Changes in

packaging legislation and regulation

affecting producer responsibility for

recycling, recycled content, carbon

footprint and landfill taxation represent

an increasing trend risk.

Emerging market risks are assessed in detail

by management when considering investment

opportunities and setting financial policies and

procedures. These risks are then regularly reviewed

as part of the ongoing management of our business.

We also take external advice on specific matters and

use local external advisors. We will continue to carry

out reviews of key risk areas both internally and with

external expert support.

Many of our largest customers have traded with us for

many years, during which time we have built up a strong

interdependency and sense of partnership and added

production capacity to strengthen our footprint. These

relationships and investments increase the likelihood of

retaining customers. We continue to focus on providing

value adding service and innovation as well as competitive

performance which are key parts of our strategic focus

of strengthening our customer relationships.

Rexam continually monitors changes or proposed

changes in laws or regulations that may adversely

affect our business if implemented arbitrarily. This is

done through established and effective membership of

relevant trade associations, by direct collaboration with

governmental and non governmental organisations and

through our own efforts which include a new legislative

risk monitoring tool that was introduced in 2011 as

described on page 36. This ensures the best possible

chance of shaping a constructive outcome which

is not detrimental to Rexam or our stakeholders.

the risk council

A key development action in 2011 was the creation of the Risk Council. The team meets quarterly and consists of a senior management

representative from each of Rexam’s business units along with key people from the enterprise risk management and internal audit functions.

The team is responsible for supporting the development and implementation across the Group of agreed enhancements in enterprise risk

management and to facilitate best practice sharing and implementation of processes, tools, mitigation plans and controls. The team also oversees

and supports the Rexam risk management process with the representative from each of the business units leading the risk management work in their

respective area. This enhanced governance structure has helped us to integrate and develop risk management across the business, for example

by supporting and implementing the developments in the risk management process and sharing best practice mitigations such as the legislative risk

monitoring tool (see page 36).


39

risk description key mitigation

Counterparty failure

Changes in consumer

tastes, nutritional

preferences, health

related concerns and

environment related

concerns

Pension deficit

Risk of counterparty failure (for example

bank, insurer, customer or supplier) resulting

in financial exposure for Rexam. The current

more challenging macroeconomic

environment increases the risk of

counterparty failure.

The risk of changing consumer trends resulting

in a shift in demand away from products

for which Rexam manufactures packaging.

Drivers of this risk can include lifestyle

and taste change, nutrition and health

considerations or environmental concerns.

Risks relate to cash contributions, charges

to the income statement and balance

sheet volatility.

A range of financial counterparties are used and

we have strict limits on our exposure to each of them.

These limits are determined by a range of qualitative

and quantitative measures that are embedded into our

treasury system such that any breaches are automatically

reported. The limits are automatically updated by factors

such as credit rating change and also reviewed regularly

for any qualitative changes. The risk of insurer failure

is monitored by our insurance broker and reported

regularly. Customer credit limits are imposed and

their credit risk, as well as that of suppliers, is reviewed

and monitored. In addition, we have procedures across

the business to manage working capital tightly.

We continue to monitor market and consumer trends

as well as political developments through our own and

external business intelligence services and through our

involvement in national and international packaging

associations in the countries and regions where

we operate.

Rexam’s retirement benefit risk management is overseen

by the retirement benefits committee (RBC) which

is chaired by the finance director. The RBC reviews

all proposed new promises for and improvements to

retirement benefits. Managing pension deficit volatility

on the balance sheet and general de‐risking of funded

plans, which includes equity, interest rate and inflation

risk are undertaken by pension plan fiduciaries in

consultation with the RBC. Cash contributions are paid

having regard for regulatory requirements in the

countries in which the respective plans operate.

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40 Rexam annual report 2011 directors’ report

key risks

risk description key mitigation

Business interruption

Environmental, fire,

health and safety

Every business faces the potential risk of

its operations being impacted by disruption

due to loss of supply, industrial disputes,

failures with technology, physical damage

as a result of fire, flood or other such event.

The risk of a significant environmental

contamination, fire or health and safety

issue at one of our locations which can

have an impact on the safety of our

employees, or on our financial situation or

our reputation.

As part of our strategic focus on operational excellence,

Rexam has established protocols and procedures across

the Group as a whole such that plans are in place to

ensure business continuity in our operations. Strong

relationships with customers and suppliers mean that,

where possible, there are arrangements in place to

ensure alternative sources of supply or production for

critical product lines. Rexam also has insurance in place

to cover losses associated with interruption to business

for a limited period as a result of property damage

or supply failure.

We carry out regular environment, health and safety

(EHS) audits in cooperation with internal and external

specialists to drive the plants to best practice. The audit

approach was developed through 2011 to provide the

basis for delivering a more sustainable and robust

improvement of EHS management systems and

performance at all sites.

In addition we introduced a high standard fire safety

and property protection audit supported and performed

by AXA Matrix, an independent provider of such

services.


41

risk description key mitigation

Supply of faulty or

contaminated products

Rexam’s reputation as a business partner relies

heavily on its ability to supply quality products

on time and in full. The consequences of not

being able to do so could be severe. Such

consequences might include adverse effects

on consumer health, loss of market share,

financial costs and loss of turnover.

Within our strategic focus on operational excellence we

have strict control measures and externally accredited

systems in place to ensure that the safety and quality of

our products are maintained. Rexam also has insurance

in place to cover legal liabilities to third parties

associated with product liability.

overview

Tax risks

Fraud, bribery, internal

control failure

Funding

In an increasingly complex international tax

environment, some uncertainty is inevitable

in estimating our tax liabilities.

The risk of an internal control failure such

as a Rexam employee committing fraud

or bribery.

Risks related to the cost and availability of funds

to meet our business needs, movements in

interest rates, foreign currency exchange rates

as well as commodity prices. Improvement in

balance sheet metrics through 2011 means this

risk has a reducing trend, but it remains a key

risk for Rexam.

We seek to plan and manage our tax affairs efficiently

in the jurisdictions in which we operate. Tax planning

will complement and be based around the needs of our

operating businesses. We exercise our judgement in

assessing the required level of provision for tax risk and

allocate resources appropriately to protect our position.

The Rexam Code of Conduct provides a framework

for all of our policies at Group, sector and individual

business level. Training is also carried out in key areas

such as the antibribery policy, to ensure that employees

are aware of their responsibilities. A Group control

framework, setting out key financial controls to be

applied across the Group, is being developed for

implementation in 2012 in order to ensure consistency

and further enhance the control environment.

Rexam’s Raise Your Concern helpline also allows

employees to raise anonymously any concerns

regarding behaviour that does not conform with

Rexam policies.

Rexam’s financial risk management is based upon sound

economic objectives and good corporate practice. Rexam

negotiates funding requirements in a timely manner ensuring

appropriate headroom is secured to mitigate availability risk.

Derivative and other financial instruments are used to

manage exposures under conditions identified by the board

and monitored by its finance committee. In response to the

current instability in Europe a ‘euro crisis committee’ has been

established to monitor risks, create contingency plans and

take actions as appropriate. Further details of our financial

risks and the way in which we mitigate them are set out in

note 26 to the consolidated financial statements.

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business review


42 Rexam annual report 2010

directors’ report

sustainability

Rexam Healthcare’s core expertise lies in injection

moulding and high speed automated assembly

in compliance with Good Manufacturing Practice.


43

This section provides a review of our

sustainability performance in 2011.

It explains our approach to and progress

in this area, and details our commitments,

measures and targets going forward.

44 products

47 operations

49 people

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44 Rexam annual report 2011 directors’ report

sustainability

We believe that running our business

sustainably is essential to near term success

and long term prosperity. Our Group vision

is to be the best global consumer packaging

company and this includes our actions in

and around sustainability, encompassing

products, operations and people.

Our customers look for partners who take

their corporate responsibilities seriously.

Our approach has been to identify realistic

goals that our customers can depend upon

as they seek to reduce the environmental

impacts of the products they commercialise

and to assure an ethical supply chain.

products: enhanced value

operations: efficient use of resources

Rexam remains an established member of the London Stock Exchange

FTSE4Good index, an international responsibility performance

benchmark. The index’s expectations mirror the way we believe

business should be conducted to deliver sustainable success

through environmental management, upholding human and labour

rights, ethical business practices and supply chain labour standards.

Line management responsibility for sustainability sits in the

Group’s executive leadership team, and at the start of 2012 we

appointed a director of group sustainability within the corporate

affairs function.

Following earlier work to determine the main issues relevant to us

and our stakeholders, in 2011 we further developed our

sustainability framework, built around our 12 specific commitments

on products, operations and people, identifying the most

appropriate quantifiable measures and objectives for these

commitments and agreeing stretching targets for each measure.

products: enhanced value

Primary packaging is designed to prevent waste and to get

customers’ products efficiently and safely into consumers’ hands.

It is an essential component of a modern and sustainable society,

where consumers place a high priority on convenience.

By its very nature, however, packaging is highly visible and in a

world of scarce resources it is something that can attract negative

attention from some consumers, media and environmentalists.

Rexam is aware of the need to review and optimise the

environmental performance of its packaging with respect to all

relevant life cycle stages. But this analysis of environmental impacts

must include the effects of product losses that might result from the

use of too little packaging as well as that of using too much.

Working across the complete supply chain, finding the balance

between under‐packaging and over‐packaging, is at the heart of

our approach and is the key to ensuring packaging continues to

make a positive contribution to a sustainable society.

The availability of raw materials is vital to Rexam’s future and we

are taking more ownership for their sustainability. The strategy for

our different raw materials is similar in terms of conservation and

efficiency but is different in terms of end of life recycling/recovery

or substitution.

Beverage cans are made entirely from metal, principally aluminium

and some steel. Both materials are permanent, ie the metal is both

fully recoverable and recyclable as an infinitely reusable material.

Independent life cycle studies confirm that promoting and supporting

an increase in recycling rates is the most valuable contribution to

sustainability that beverage can manufacturers can make.

people: engaged employees


‘In 2011, we reduced our total carbon intensity per

kilogramme of raw material converted by 3.5% to

0.83 CO2 equivalent (2010: 0.86 CO2 equivalent)

underpinned by further reductions in our electricity

and gas consumption.’

Graham Chipchase chief executive

45

For plastics, we recognise that fossil fuels are a finite resource and

we design for recycling and use recycled products as raw materials

wherever feasible. As plastic has a high energy content, and its

CO2 emissions are some 25% less than coal, we also support

the use of energy recovery from waste as a means to providing

an environmentally beneficial solution to managing plastic

packaging waste.

we will promote and support the most relevant recycling

and value recovery system for our products

Across our beverage can sectors our vision is to keep the metal

in a closed material loop: our aim is for zero cans ending up in

landfill following consumers’ use of the product. This makes good

economic sense due to the high value of the materials, more than

covering the cost of their collection, as well as environmental sense

with up to 95% of the energy needed for primary production

saved. As metal can be continually reused, every tonne of recycled

material offsets the need to use a tonne of virgin raw material.

Many countries in which we operate have well established

recycling infrastructures that function efficiently. In those markets

that require long term support to establish and enhance collection

mechanisms and build a recycling culture with consumers we are

committed to providing this support.

the consumer goods forum

In 2011 the Consumer Goods Forum released the Global

Protocol on Packaging Sustainability to enable the consumer

goods industry to better assess the relative sustainability of

packaging. This endorsed the Innventia AB model which shows

that the environmental consequences of product losses caused

by excessive packaging reduction are far greater than

guaranteeing adequate protection through an incremental

excess of packaging.

Negative

environmental

impact

Under-packaging

Over-packaging

Optimum pack design

Minimum

environmental

impact

The Every Can Counts (ECC) programme, which Rexam funds and

helps manage, has continued to expand in Europe. Its goal is to

encourage the recycling of beverage cans used outside the home,

in the workplace and on the go. For example, in 2011, 10 UK music

festivals actively supported ECC with over 1,000,000 cans

recycled after c 500,000 young people participated. ECC now

operates in four countries with low recycling rates and further

expansion is planned for 2012.

As detailed on page 51, our businesses in Europe, North and

South America cooperated with local organisations and charities

to promote recycling within their sites’ local communities.

In Plastic Packaging we have initiated a taskforce to create

an eco design scorecard that recognises the importance of

recyclability and the use of recycled materials. Any new product

that we introduce in the future will be measured against this

scorecard in order to determine its sustainability credentials.

key measures and targets

The key measures for this commitment are the average can

recycling rates in our major markets and, going forward, how

our new plastic packaging products measure up against our

eco design scorecard.

Recycling rates for beverage cans vary across countries, due to

different operating environments, culture and lifestyles. We report

these together with the targets set by industry associations of which

we are a member.

Beverage

can average

recycling

rates (%)

2015 targets 2010 2009 2008 2007

Europe 75 n/a 1 68 68 66

USA 63 58 57 54 54

Brazil 98 98 98 91 96

1 European 2010 recycling rates will be published mid 2012.

We intend to incorporate the eco design scorecard into the

new product development process within Healthcare and to

have 100% of potential new products being evaluated by the

end of 2012.

overview

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Minimum

material

Increasing packaging

material weight or volume

1 Derived from ‘Environmental Impact of Packaging: Performance in the

Household’ report by Dr Jan Kooijman, Food Technology Consulting.

source: source: The The Consumer Consumer Goods Goods Forum Forum


46 Rexam annual report 2011 directors’ report

sustainability

we will work with policymakers to ensure packaging

makes a positive contribution to sustainability

Rexam is an active member of various national and international

industry and research associations as well as trade bodies,

encompassing our beverage cans and plastic packaging

operations, who engage with policymakers on our behalf.

These often draw their membership from the whole supply

chain so that they have a cohesive constructive approach

to policy issues at national, regional and local levels.

2011 saw the launch of Metal Packaging Europe (MPE),

established by senior executives from the major aluminium, steel

and packaging converter companies. MPE brings together metal

packaging manufacturers, metal producers and their existing trade

associations to promote the unique strengths of metal packaging

to help address the social, environmental and policy challenges

faced by the industry.

In our beverage can business in Europe, we piloted a legislative

and environmental risk assessment and mitigation management

system. This ensures that policy issues impacting our business are

identified, their potential impact assessed and appropriate risk

mitigation strategies put into place. This highlighted a number of

policy risks which together with mitigation strategies were shared

with senior executives in the business as part of the overall risk

management process. We aim to expand this system across the

whole Group in 2012.

key measure and target

Our key measure is the percentage of mitigation plans in place

against identified risks with regard to legislative, regulatory and

environmental issues across all of our regions. Our target is 100%.

metal is forever

Metal offers infinite recycling

possibilities while preserving

virgin metal qualities and

providing unlimited availability

for future generations.

we will engage with our customers and the supply chain

to minimise the environmental impact of packaging and

packaged goods

Packaging cannot be taken in isolation. The best way to achieve

lasting improvements in environmental performance is to engage

constructively with our customers and suppliers, seeking solutions

in a partnership approach although priorities may differ. This

provides opportunities for Rexam to take a leadership position

through the promotion and application of best practice across the

Group, whether in employee health and safety, lightweighting,

logistics efficiency or packaging optimisation.

Priorities for customers vary from how we treat our employees to

the delivery of lower carbon products where step changes in

materials and closed loop material cycles are sought. Many of our

customers work in partnership with us to progress their corporate

responsibility and sustainability objectives.

Part of our commitment to being a responsible and sustainable

organisation is our membership of the Carbon Disclosure Project

(CDP) as detailed on page 48. A large proportion of the

greenhouse gas emissions related to our packaging comes from

the raw materials we convert. In 2011, we asked our key suppliers

to participate in the CDP to give us an understanding of our

combined carbon footprint and also to understand where,

together, we can make improvements and drive out cost.

During the second half of 2011 Rexam engaged with a third party

to audit our European businesses required to comply with REACH.

A subsequent best practice road map was developed for review

and implementation through 2012.

key measures and targets

From 2012, we will report the customer feedback survey results

from sustainability professionals within our client base. We aim

to achieve a consistently ‘good’ score (ie above 7/10).

In 2011, 50% of our major suppliers signed up to the CDP, and our

target is to increase our supplier response rate to 80% by 2015.

source: Metal Packaging Europe


47

we will meet long term environmental and regulatory

trends with innovative new products

Innovation is critical to our success both commercially and in

terms of underpinning our long term prosperity.

In 2011 we introduced a Global Innovation Council to promote

innovation ideas relating to our products and processes across the

Group’s beverage cans operations. This increased focus and firm

process for sharing ideas will drive future product and process

development. In Plastic Packaging, we launched various new

products, including the Panache TM spray mechanism, the R shaped

lipstick case and the Advancia TM nasal spray.

We continue to research and evaluate the viability of non fossil resins.

key measure

During 2011, on a statutory accounting basis, we invested £17m in

R&D in continuing operations. This includes design, construction

and testing of preproduction protoypes, models and processes.

Our operations also invested in related new product and process

initiatives which are not reported in this statutory figure. In 2010 we

invested £19m (including £3m in discontinued operations). Going

forward, we shall continue to ensure that our total investment in

R&D remains appropriate to ensure our long term future.

operations: efficient use of resources

Rexam has a good record of increasing material efficiency and

reducing energy consumption. In 2011, we demonstrated our high

standards of operational excellence by nominating several

exemplar plants to be externally verified against the Shingo

assessment, an internationally recognised evaluation of world

class operational excellence. One plant was awarded the

renowned Shingo Prize (see page 23). Underpinning this external

verification, we have an established internal process measuring

lean enterprise progress, with an internal award system of Bronze,

Silver, Gold and Beyond Gold. Ongoing training in lean tools is

well established and integrated into all levels of our plant operating

structure. In 2011, 70% of our plants (2010: 50%) achieved Gold

or Beyond Gold.

we will improve our material efficiency

We believe that by continuing to share operational best practice,

and applying six sigma and other continuous improvement

methods across the Group, we will be able to achieve Rexam’s

vision of best performance both in terms of our financial results

and our environmental record.

This year we have continued to improve on our raw material

efficiency by cutting the tonnes of raw material per tonne of

production to 1.14 (2010: 1.15).

The beverage can is infinitely recyclable and our raw material

includes metal that has been reprocessed many times over.

We have been committed to driving further reductions in terms

of the amount of metal used per can this year, and our persistence

has paid off. We pride ourselves on bringing innovative products

to market, and this year we began to adopt a new lightweight

innovation in Healthcare

Novelia TM is the unique preservative free multidose eye drop

system designed by Rexam. Compared with traditional unit

dose solutions, it also significantly reduces the amount of plastic

required, reduces drug wastage by over 90% and also reduces

volume by nearly 90% due to its space efficient design.

90%

supporting beverage customers

in Brazil

We enhanced a customer’s range of 11 juice drinks by printing

fruit images with high quality definition inks which dramatically

increase consumer attractiveness of the brand.

We used tactile inks to help relaunch a major beer brand with

a unique touch effect. This can was recently highlighted in

a case study by a packaging magazine in Brazil.

can end technology which uses 10% less metal compared with

the standard beverage can ends. Across our can making business

our global lightweighting programmes in 2011 resulted in a metal

saving of 10,000 tonnes vs 2010.

Our plastic packaging operations maintained their strong

performance on material efficiency. We also promote actively

the recycling of plastic waste.

key measures

The key measures to monitor our improved material efficiency

are the conversion efficiencies across the Group and the total

annual lightweighting savings for beverage cans. In line with

one of our four core values, we target continuous improvement

in material efficiency.

Tonnes of raw

material per

tonne of

production

2011 2010 2009

Group 1.14 1.15 1.24

Beverage Cans 1.16 1.17 1.30

Plastic Packaging 1.07 1.07 1.08

Lightweighting

savings (‘000 tonnes) Beverage Cans 10.0 11.7 12.0

overview

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48 Rexam annual report 2011 directors’ report

sustainability

road to rail

Our North American beverage can business is spearheading

a new intermodal freight system that prioritises trains over trucks.

In 2011, nearly 1,500 truck loads were moved to rail, representing

a 1,700 tonnes saving of CO2.

1,700 tonnes

we will improve our carbon efficiency and reduce the

energy and water we use

We use resources every day, whether it is electricity, natural gas

or water to make our products or fuel to transport them to customers

(sea, road, rail). With this frequent consumption Rexam is extremely

conscious of, and committed to, reducing usage.

By focusing on energy consumption reduction and more efficient

supply chain management, we reduced our total CO2 footprint

to 1.00m equivalent tonnes (2010: 1.06m equivalent tonnes).

We are members of the CDP, an international reference

organisation dedicated to reducing industry’s carbon impact

on the environment, and we provided energy consumption and

management data for the 2011 survey (which is the full year

information for 2010).

In 2011, we set up a project to establish a comprehensive carbon

management system, including emissions which cover indirect

emissions from sources not directly controlled by the organisation.

In the UK, we are registered with two energy/CO2 schemes: the

Climate Change Agreement (CCA) to ensure our compliance with

the Climate Change Levy; and the CRC Energy Efficiency Scheme

which will seek to capture energy usage from non CCA sites. The

majority of our energy usage in the UK is covered by the

longstanding CCA at our UK manufacturing sites and we continue

to comply with the requirements of this scheme.

Although we do not use a large amount of water in our operations,

we recognise the value of this increasingly scarce resource which is

becoming more central to the sustainability strategies of many of

our beverage customers. In our beverage can plants, we reuse the

water needed for washing the cans during the manufacturing

process via closed loop recovery systems. In our plastic packaging

businesses, the water needed for the manufacturing process is

almost negligible.

In 2011 we provided water consumption and management data for

the CDP (Water) survey.

key measures and targets

The key measures we use to monitor our performance in reducing

our use of energy and water, and in improving our carbon

efficiency, are our consumption of resources and carbon intensity

normalised against production.

For Beverage Cans, we measure the reduction in energy used per

tonne of production. In 2011, we achieved a 3% reduction versus

2010. Our target is to achieve a total reduction of 10% in the

period between 2010 and 2013.

In Plastic Packaging, the amount of energy used per tonne of

production increased by 2% in 2011 driven by lower overall

production volumes. Our target is to achieve a total reduction of

8% in the period between 2010 and 2013.

With regard to our carbon efficiency, we are targeting a reduction

in carbon intensity per kilogramme of raw material converted of

10% between 2010 and 2013.

MWh of gas/electricity

used per tonne of can

production

2013 targets 2011 2010 2009

–10%

(vs 2010) 2.72 2.80 3.30

MWh of gas/electricity

used per tonne of plastic

production 1 –8%

(vs 2010) 2.92 2.85 3.12

Total Group carbon

intensity (kg carbon per

kg of raw material

converted) 1 –10%

(vs 2010) 0.83 0.86 0.91

1 Excludes discontinued operations

In 2012, we will establish the baseline for our water consumption

and then develop targets going forward.

reducing waste in Austria

Our two beverage can plants in Austria have installed a new

filtration system that avoids the creation of filter cake, our

largest waste stream by weight, and which normally goes to

landfill. In 2011 this innovative process avoided approximately

500 tonnes of filter cake waste and prevented the use of

48 tonnes of waste water chemicals.

500 tonnes


49

we will reduce our waste to landfill

We use lean six sigma tools to drive out waste from our

manufacturing processes. A specific KPI based on the reduction

of waste to landfill is being implemented across the Group to

ensure we are sharing strategies to reduce this towards zero.

In Beverage Cans, the single largest component of our waste to

landfill is a side product from the manufacturing process called

filter cake. There are a number of different approaches depending

on local conditions. In some locations we are able to eliminate filter

cake (see page 48) whereas in others we are diverting this waste

from landfill to an alternative use. An internal project team is

working to roll out the appropriate solutions across the business.

key measure and target

In the short term, we aim to establish a consistent measure of waste

to landfill at all our sites with the immediate objective of reducing

further waste to landfill. Our long term objective is to achieve zero

waste to landfill.

we will improve the environmental performance

of our sites

All our sites have robust Environmental Management Systems (EMS)

in place, and we encourage external verification where appropriate.

Even when external verification is not sought, we adopt EMS, which

are internally verified, that include key elements of ISO 14001.

In 2011, 100% of our 83 plants were verified against ISO 14001

or equivalent standard (2010: 58%/48 plants).

We target zero significant uncontrolled or abnormal releases,

and delivered this again in 2011.

In addition to our focus on improving the environmental

performance of our manufacturing plants, we are also acting

to reduce the environmental impact of our office sites. In 2011,

our North American beverage can headquarters moved into

new offices which we designed and refurbished to exacting

environmental standards. This office has received Leadership in

Energy and Environmental Design (LEED) status, which certifies

that the construction of the new space was completed within

a recommended framework of leading environmental‐friendly

design, construction, operations and maintenance solutions.

key measures and targets

Our measures for Rexam sites’ environmental performance are

the amount of uncontrolled or abnormal releases we have, what

percentage of our plants are ISO 14001 certified (or equivalent),

as well how many of our regional/Group offices are

environmentally accredited.

Our long term targets are to continue having zero uncontrolled or

abnormal releases, to continue to have 100% of our plants ISO

14001 certified (or equivalent) and for 100% of our regional/Group

offices to be environmentally accredited.

people: engaged employees

We realise that we can only achieve our vision to be the best global

consumer packaging company with committed, engaged and well

supported employees. We base our approach to, and expectation

of, our employees around our four Rexam values of continuous

improvement, recognition, teamwork and trust.

We are committed to ensuring our employees work in a safe, fair

and enjoyable environment. We also encourage our people to be

active members of their local communities. Furthermore, we believe

investing in our people: providing the resources, environment and

opportunity for them to develop their skills and capabilities is

integral to our vision.

we will make sure our people work in a safe and

healthy environment

Rexam is dedicated to implementing world-class environmental,

health and safety processes and culture across the Company.

In 2011, our health and safety performance showed continued

improvement with a 7% reduction in Lost Time Accident Rates

(LTAR) 1 compared with 2010. In excess of 70% of our sites did not

have a lost time accident in 2011. We believe in the importance of

continually engaging with our employees and for this reason our

Behaviour Based Safety (BBS) initiative continued into 2011.

We record all incidents relating to health and safety. Metrics such

as LTAR and Days Away Restricted Time allow us to investigate and

share best practice across the Group. We use the number of work

days and/or restricted time incidents to track the severity of injuries.

In 2011, we had 14 significant injuries (which exceed 30 lost or

restricted days), consisting of fractures, strains and cut injuries. We

also introduced a new environmental health and safety audit,

which over 40% of our sites have completed to date.

During the year, we established a central operational technical

standard to ensure a consistent approach to safe working

practices. We also created a global operational risk management

policy which will be launched in 2012. The policy covers fire safety

and property protection, site and travel security, business continuity

management and environmental health and safety. Each of these

is measured through proactive input and KPIs. We believe these

approaches to health and safety will drive benchmarking and best

practice sharing across the Group to achieve world class

operational risk status.

In 2011 we had no significant property loss incidents (2010: nil).

We support employees’ wellbeing by offering employee wellness

programmes (eg subsidised gym memberships, health checks or

exercise regimes).

overview

financial statements governance

sustainability

business review

1 LTAR is the number of lost time accidents times 200,000/total hours worked.


50 Rexam annual report 2011 directors’ report

sustainability

key measures and targets

The key quantitative measures for this commitment are LTAR

and the percentage of sites offering some form of employee

wellness programme.

We target a 10% reduction per annum in LTAR with an ultimate

LTAR of zero and we aim to have 100% of our sites offering

employee wellness programmes by the end of 2012.

long term

targets

2012

targets 2011 2010 2009

LTAR Zero 0.25 0.28 0.30 0.63

Sites offering an

employee wellness

programme (%) 100 85 75 n/a n/a

we will continue to build a winning organisation

Our employees are crucial to the delivery of Rexam’s goals. During

the year, we used the feedback from 2010’s global employee

engagement survey to implement a range of improvement actions.

With an 87% response rate and in depth focus groups conducted

subsequently, we were able to identify key areas of opportunity at

local, sector and global levels. Both our executive leadership team

and all sector leadership teams are committed to improving their

visibility, fostering trust in leadership, through personally visiting as

many plants as possible, and holding face to face meetings to build

on the dialogue with our employees.

Training and development was another key theme. The Rexam

Business School was launched globally in 2011, offering a range

of learning opportunities for our employees. Our course offering

is diverse, from half hour online courses (in a range of languages)

through to comprehensive residential courses which focus on

leadership and specific skill building. In 2011, we had around

620 employees participate in classroom courses and 592 learners

logged into CrossKnowledge, our online option. We also had over

110 registrations to our ‘Improve your English’ online programme.

Rexam recognises that communication is key to employee

understanding and engagement and we use a variety of tools and

channels. From newsletters and team briefings to intranet updates

and news bulletins, communication is thought of as a two way

process between management and employees.

12 months without a lost time accident

After a huge amount of commitment to engage and shape safe

behaviour, our entire South American beverage can operation

reached an unprecedented milestone during 2011– one year

without a lost time accident. This exceptional accomplishment

in safety was achieved through the introduction of various

innovative safety programmes and embedment of them with

the aid of various communication channels.

Our South American beverage can business explored new methods

of communication and invited employees to share comments,

praise or suggestions through an online ‘Open Channel’.

To strengthen everybody’s understanding of our leadership

practices and core values we have introduced a 360 degree

feedback tool for leaders across Rexam. The tool helps provide

a detailed overview of leaders’ strengths and areas of opportunity,

as well as self assessment and reflection. The 360 degree

feedback is now available in a range of different languages and

has been well received by the nearly 900 leaders who have

participated to date.

In 2010, with the implementation of a global SAP HR platform,

Rexam started a worldwide programme aimed at achieving

excellence in HR service delivery, based on improved people

processes and on an integrated HR information system platform.

The expected business benefits are providing consistent and timely

HR transactional services and generating greater employee

satisfaction with basic HR processes.

During 2011, a new global Manager Self Service Portal (MSSP) was

rolled out across the North America and Europe regions. This tool

provides line managers with direct access to information about his/

her team and enables them to carry out basic people management

activities directly via the web based portal.

The first activity facilitated through the MSSP was the 2011 salary/

merit review process, and Rexam line managers now receive

real‐time access to online organisation charts and employee

directory listings.

The Rexam European Forum is a joint employee representative and

management body created for the exchange of information and

dialogue concerning issues which may impact Rexam’s employees

within the European Economic Area.

Communication with employees is considered a key responsibility

for all managers, and employees are encouraged to participate

and give their views on any aspect of the Group’s business

including the annual and half year financial results and the

economic factors affecting the Group’s performance.

Rexam also has a well established employee share scheme to

promote share ownership.

key measures

The key measures for this commitment are sourced from the Group

employee engagement survey, which will be conducted around

every 18 months. The next survey is scheduled for early 2012.

We aim to continually improve these scores over time.

2011 2010

Employee engagement index favourable

score (%) n/a 62

Values and leadership practices

favourable score (%) n/a 53


51

sources: Associação Brasileira dos Fabricantes de Latas de Alta

Reciclabilidade, Association of European Producers of Steel for Packaging,

Beverage Can Makers Europe, Can Manufacturers Institute, Consumer Goods

Forum, European Aluminium Association and Metal Packaging Europe.

we will ensure our actions/interactions are guided

by fairness, respect, integrity and honesty

To achieve our vision it is critical that our employees behave with

integrity, fairness and honesty at all times.

We are committed to providing a work environment which is free

of discrimination and/or harassment on any level, whether based

on race, sex, disability or any other basis.

Rexam has equal opportunity policies ranging from selection and

recruitment to training and development to meet the needs of its

operations around the world. Disabled people are given full

consideration for employment and subsequent training (including,

if needed, retraining for alternative work where employees have

become disabled), career development and promotion on the basis

of their aptitudes and abilities.

Our Raise Your Concern (RYC) programme offers the opportunity

for employees to report anonymously any behaviour or activity

they believe is in contravention of the Code of Conduct (CoC)

and/or of any of our policies (see pages 66 and 67 for more

information on CoC and RYC).

key measures and targets

The key measures for this commitment are the percentage

of successfully completed CoC training modules and the

response rate to allegations made via RYC.

For CoC training, we target achievement of 100% completion

of training modules.

Regarding RYC response rates, historically we have consistently

achieved an initial response to the concern raised within five days,

however, going forward we are targeting an initial response within

four days.

we will encourage all teams to be constructive members

of our local communities

Rexam is a committed partner in the communities in which we

operate, and as part of this commitment many of our plants

and sites work closely with local charities and groups to make

a positive impact.

In January 2011, Rio de Janeiro suffered from a series of destructive

floods and mudslides. Our employees raised almost US$60,000

within 15 days, and we provided a lorry to help clear up and

reconstruct the area.

We also pride ourselves on being an ambassador for recycling,

dedicating a large amount of effort in promoting and encouraging

it. Our North American beverage can operations’ involvement in

the annual ‘America Recycles Day’ included a six week recycling

contest. They collected a total of 1,836 metric tonnes of aluminium

cans; this great result saw Rexam win first place for the fifth year in

a row. Our ‘Community Can Challenge’ was launched in 2011 and

involved 12 plants across nine European countries. It raised over

£15,000 for the plants’ chosen charities and helped promote

recycling and can collection. Over the 10 weeks, employees

collected nearly 400,000 cans (over 6.5 tonnes of metal), equating

to 58 tonnes of CO2. In Brazil, through Abralatas, we sponsored

and supported can collection activities during the Carnival season.

The Rexam Academy is a leadership training programme that is

run by the Rexam Business School. Each year around 25 of our

employees are selected from across our global operations to

participate in this investment in our people. As part of the

programme, participants are involved in a leadership challenge,

and this year the group hosted a charity dinner for UNICEF’s East

Africa Children’s Crisis Appeal. Our employees also donated

money to the fund and our South American beverage can

operations carried out local fundraising. In total, the event raised

over £41,000 for UNICEF.

Rexam’s total charitable cash donations and community activities

(including in kind community and charitable support in the form

of time, facilities and products but excluding employees’ dedicated

fundraising such as the Academy dinner) during 2011 amounted to

some £497,000 (2010: £480,000).

cash donations

We increased charitable cash donations by the Group in 2011

to £458,000 as shown in the table (2010: £442,000):

2011 2010

UK £55,000 £52,000

Rest of World (excluding UK) £403,000 £390,000

The Group has not made any EU political donations during the

year and does not intend to do so in the future in respect of which

shareholder authority is required, or for which disclosure is

required under the Companies Act 2006.

key measure and target

We monitor how many of our sites are involved in some form of

community programme, and in the long term we are targeting that

100% of our sites will be involved in at least one local community

programme (2011: 59%).

community investment in

North America

Since 2010 our plastic packaging facility in Perrysburg,

Ohio has raised and donated more than US$5,000 and

volunteered over 150 hours in area classrooms for Junior

Achievement (JA). JA is an organisation that teaches the

economics of life through entrepreneurship, financial

literacy and work readiness education programmes to

more than 24,000 students annually.

150 hours

overview

financial statements governance

sustainability

business review


52

directors’ report

governance

Cans are made from coils of aluminium or steel.

Over the past three years Rexam has saved

34,000 tonnes of metal through lightweighting.


53

We introduce our board and explain why a

strong sense of governance and compliance

is imperative in every area of our operations.

We give details of the Company’s

remuneration principles and policy which

complement the Group’s strategic vision.

54 directors and officers

56 corporate governance

69 remuneration report

81 other disclosures

financial statements governance

sustainability

business review

overview


54 Rexam annual report 2011 directors’ report

directors and officers

chairman

chairman designate

Sir Peter Ellwood (68)

appointed Chairman on 1 May 2008

(non executive director on 1 February

2008) and retiring on 22 February 2012.

committees Nomination (chairman).

strengths An experienced chairman

with an international business and

leadership focus.

previous business experience Chairman

of ICI PLC until its acquisition by Akzo

Nobel NV in 2008. Group chief

executive of Lloyds TSB Group plc.

other directorships Member of the

supervisory board of Akzo Nobel NV.

executive directors

Graham Chipchase (49)

chief executive

appointed 1 January 2010 as chief

executive. Joined the board as finance

director on 10 February 2003 and

was group director plastic packaging

from 2005.

committees Finance.

strengths Extensive financial and

operational knowledge, proven leadership

skills and a comprehensive understanding

of Rexam’s businesses and markets.

previous business experience Finance

director of GKN plc’s aerospace services

business and held various positions within

the European and US subsidiaries of

BOC Group plc. Operational experience

as group director of Rexam’s plastic

packaging business.

Stuart Chambers (55)

appointed 1 February 2012 as a

non executive director and chairman

designate to succeed Sir Peter Ellwood

on 23 February 2012.

committees Nomination.

strengths Extensive breadth of business

experience, including experience of

global business to business markets.

previous business experience Group

chief executive of NSG Group, the Tokyo

based global glass company, until 2009.

Chief executive of Pilkington PLC until its

acquisition by NSG Group in 2006.

Senior positions at Mars Inc. and a variety

of European roles at Royal Dutch Shell plc.

other directorships Non executive

director of Smiths Group plc, Tesco PLC

and The Manchester Airport Group PLC.

David Robbie (48)

finance director

appointed 3 October 2005.

committees Finance.

strengths Strong financial, accounting,

strategic and corporate finance

experience and skills.

previous business experience Chief

financial officer of Royal P&O Nedlloyd

NV and finance director of CMG plc.

other directorships Trustee of Aldeburgh

Music.

executive leadership team

Jon Atchue

human resources

André Balbi Cerviño

beverage can Americas

Graham Chipchase

chief executive

David Gibson

legal

Malcolm Harrison

plastic packaging

Claire Jenkins

corporate affairs

Iain Percival

enterprise risk

David Robbie

finance director

Tomas Sjölin

beverage can Europe & Asia


55

non executive directors

overview

Noreen Doyle (62)

John Langston (62)

Wolfgang Meusburger (58)

appointed 22 March 2006.

committees Finance (chairman), audit

and risk, nomination.

strengths A diverse business background

with experience and knowledge of

financial markets.

previous business experience Senior

operational positions at Bankers Trust

Company and at the European Bank for

Reconstruction & Development.

other directorships Non executive

director of Credit Suisse, Newmont

Mining Corporation and QinetiQ Group

PLC, and a member of the advisory

panels for the Macquarie European

Infrastructure Fund and the Macquarie

Renaissance Infrastructure Fund.

Leo Oosterveer (52)

appointed 1 September 2011.

committees Nomination.

strengths Strong operational leader with

global management experience and a

track record in marketing, sales and

strategy development gained both

in Europe and Asia.

business experience Leads the global

food service division of Unilever. From

2002 to 2006 chairman/CEO of

Unilever in Thailand and Indochina whose

operations are mainly focused on home

and personal care products.

appointed 30 October 2008. Became

the acting senior independent director on

24 November 2011.

committees Audit and risk (chairman),

finance, nomination, remuneration.

strengths A chartered accountant with

international, commercial and corporate

finance experience.

previous business experience Joined the

board of Smiths Group plc in 2000

holding operational roles until

appointment as finance director from

2006 to his retirement in May 2010.

A director of TI Group plc prior to

its acquisition by Smiths Group.

other directorships Non executive

director of Cross Match Technologies Inc.

Jean‐Pierre Rodier (64)

appointed 7 June 2006.

committees Remuneration (chairman),

audit and risk, nomination.

strengths Significant international

business experience and an extensive

knowledge of the packaging and

aluminium industries.

previous business experience Chairman

and chief executive of Pechiney until

Pechiney merged with Alcan in 2003.

Chief executive of Union Minière and

chairman and chief executive of

MetalEurop France.

other directorships Advisor to Corporate

Value Associates and an associate with

Mediobanca Banca di Credito Finanziario

until his resignation on 1 January 2011.

appointed 1 December 2006.

committees Nomination, remuneration.

strengths Experience in the fast moving

consumer goods (FMCG) industry and an

in depth understanding of business

development.

previous business experience Held senior

international positions in the FMCG industry

and was chief executive of Tchibo until 2001.

other directorships Sits on the board of

several international FMCG companies

in Europe and an educational facility in

Switzerland. Chairman of Kägi Söhne AG

and Kaffee Partner GmbH, and of the non

executive board of Schoellershammer. Non

executive directorships include BS Group,

CCT Reig Group and Chiquita Fruit Bar.

company secretary

David Gibson (49)

changes to the board

Carl Symon, the non executive senior

independent director, retired from the

board on 23 November 2011.

Apart from the appointments of

Stuart Chambers and Leo Oosterveer

disclosed in this section, there were no

other changes to the board during 2011

and up until the date of this annual report.

financial statements governance

sustainability

business review


56 Rexam annual report 2011 directors’ report

corporate governance

good governance

During 2011 we focused on executing our

strategy to deliver value to our shareholders and

stakeholders. In doing so, we realise that it is

imperative that the Company promotes a strong

sense of meaningful and relevant governance in

each area of our operations. Our policies and

procedures ensure that the Company is directed

and guided to follow good governance practices.

We have an experienced board of directors

who are responsible to all our stakeholders for the

long term strategy and sustainable success of the

Company. During the year there were changes

to the board that were carefully considered to

ensure that the Company and its shareholders

benefit from a board with a depth of experience,

a diversity of influences, an independent

viewpoint and a varied skill set.

I am retiring as chairman of the board and this

will be my last report as chairman. With clear

objectives, strong management and talented

people, together with a board committed to

good governance practices, Rexam is in a

strong position for the future.

Sir Peter Ellwood

chairman

compliance

This corporate governance report has been prepared in

accordance with the UK Corporate Governance Code of June

2010 (the Code). The Code is published by the Financial Reporting

Council (FRC) and can be viewed on the www.frc.org.uk website.

This report, being part of the directors’ report which includes the

business review and the remuneration report, provides a summary

of the Group’s procedures for applying the principles of the Code

and the extent to which such principles have been applied. It is the

board’s view that throughout the period 1 January to 31 December

2011 the Company has complied with the Code.

leadership

the role of the board

The board’s primary role is to ensure the sustainable long term

success of the Group. This it does through the development, review

and implementation of the Group’s strategy and the leadership

of the executive directors to whom the board delegates the day to

day management of the business.

The role of the board is to:

• ensure the sustained long term success of the Group;

• ensure that the board’s obligations to its shareholders

are understood and met;

• ensure that the strategy takes into account the interests

of the Group’s customers, suppliers, employees and the

local communities in which Rexam operates;

• maintain control over the Group’s assets;

• monitor changes to the Group’s management and

control structures;

• develop robust corporate governance and risk

management practices and procedures; and

• establish high ethical standards of behaviour.

The Company operates through the board and its main board

committees, namely the audit and risk, the nomination and the

remuneration committees. The board also has a finance committee

which oversees the financial risk management strategy, policy and

treasury transactional matters delegated to it, and reviews and

approves major financial transactions on behalf of the board.

The board evaluates the membership of its individual board

committees on an annual basis and aims to ensure that its

principal committees have different non executive directors as

their chairman. The board committees are governed by terms

of reference which detail the matters delegated to the committee

and for which they have authority to make decisions. The terms

of reference for the main committees can be found on the

Rexam website.


57

schedule of matters reserved for the board

Board appointments and removals

The Group’s strategy, including the acquisition and disposal of businesses

Material financial decisions relating to equity, marketable securities, borrowing

facilities, guarantees or indemnities and changes in accounting policies

or practice

All capital expenditure projects over £10m or any capital expenditure project

which, regardless of the amount, does not meet the Group’s financial criteria

Changes to the Group’s management and control structures

Matters relating to the Company’s share listing

The appointment and removal of principal advisors and external auditors

The board does not routinely involve itself in day to day business

matters but there is a formal schedule of matters that require the

board’s specific approval, as well as those which can be delegated

to committees of the board or senior management. Matters referred

to the board are considered by the board as a whole and no one

individual has unrestricted powers of decision.

the main areas dealt with by the board during 2011

best

performance

customer

expectations

operational

excellence

winning

organisation

Strategy planning, implementation and monitoring

Strategy for each business sector and focus on emerging markets

Reports on the key issues affecting the business

Sale of the Closures business

Financial position of the Group and its performance against budget and forecast

Bank facility refinancing proposals

The Group’s budget for 2012 and long range plan to 2014

Reports on matters discussed at audit and risk committee meetings

Review of the effectiveness of the system of internal control

The Group’s full year and half year results

2010 final dividend and 2011 interim dividend

Annual general meeting

Reports on meetings with customers and suppliers

Major customer and supplier contracts

Research, development and innovation in relation to the strategic agenda

Board visit to a supplier operation in South America

board membership 2011 meetings 2011 1

Sir Peter Ellwood (chairman of the board) 9/9

Graham Chipchase 9/9

Noreen Doyle 9/9

John Langston 9/9

Wolfgang Meusburger 9/9

Leo Oosterveer (appointed 1 September 2011) 3/3

David Robbie 9/9

Jean‐Pierre Rodier 9/9

Carl Symon (retired 23 November 2011) 2 7/8

1 Number of scheduled meetings attended/maximum number of meetings that the

director could have attended.

2 Carl Symon was unable to attend one meeting of the board. He received the agenda

and the papers for that meeting and commented in advance of it.

Capital expenditure requests including new manufacturing start ups, additional lines and line conversions in Brazil,

Egypt, Finland, France and India

Rexam’s sustainability programmes (incorporating all aspects of corporate social responsibility)

The Group and business procedures and controls

The Group risk management process, risk tracking and mitigation

Presentations from business sectors

Legal compliance, code of conduct and anti bribery and corruption policies

Information management strategy

Health and safety matters

Reports on matters discussed at nomination committee and remuneration committee meetings

Appointment of a chairman designate and a non executive director

Board composition, diversity, development and succession planning

Effectiveness of the board following the board evaluation

Organisation and talent review

Employee engagement survey

Investor audit and feedback

Board meeting and plant visits with the South American beverage can and plastic packaging management teams

overview

financial statements governance

sustainability

business review


58 Rexam annual report 2011 directors’ report

corporate governance

chairman and chief executive

The roles of the chairman and chief executive are separate with

each having clearly defined responsibilities. Nonetheless, they

retain a close working relationship to ensure the integrity of the

board’s decision making process and the successful delivery of

the Group’s strategy.

Sir Peter Ellwood was chairman of the Company throughout the

period 1 January to 31 December 2011. The chairman creates and

manages a constructive dialogue between the executive and non

executive directors. He works with the company secretary to ensure

that appropriate matters are discussed during board meetings.

The main duties of the chairman are to:

• lead the board;

• promote a culture of openness, challenge and debate;

• review the effectiveness of the board;

• ensure that the board has the appropriate balance of

skills and experience and to give consideration to

succession planning;

• ensure compliance with Group policies concerning the

conduct of the business;

• provide guidance to the executive directors and senior

management; and

• safeguard the interests of shareholders.

Sir Peter advised the board that he wished to retire from office

with effect from close of business on 22 February 2012. Stuart

Chambers was appointed as non executive director and chairman

designate on 1 February 2012, and will succeed Sir Peter as

chairman. The board considers that Stuart Chambers was

independent on his appointment as non executive director and

will be independent on his appointment as chairman.

Graham Chipchase’s primary objective as chief executive is

to enhance long term shareholder value.

The main duties of the chief executive are to:

• develop and manage the Group and its trading

performance within the authorities delegated by

the board;

• deliver the Group’s strategic plan;

• lead the executive management and ensure that

management has the appropriate balance of skills

and experience;

• oversee the Group’s performance in safety, health

and environmental matters;

• be the primary interface with shareholders; and

• promote high standards of ethical business conduct.

non executive directors

At the date of this report, Rexam has seven non executive directors,

including the chairman, whose role is to understand the business

and its markets, consider proposals on strategy and constructively

challenge the management. Collectively they hold or have held

senior positions in industry and contribute a wide range of

international experience and objective perspective to the board.

Through the board committees, the non executive directors bring

focus on governance and succession planning, internal controls,

risk management and remuneration policies.

Non executive directors serve the Company under letters of

appointment which are generally for an initial three year term.

On appointment, an undertaking is requested confirming that

the non executive director has sufficient time to fulfil his or her

role on the board.

Carl Symon, Rexam’s senior independent director, retired from

the board on 23 November 2011. Carl Symon had served on the

board since 2003 and, having successfully led and completed the

search for the new chairman, felt that this was an appropriate time

to step down from the board. The board approved the appointment

of John Langston as acting senior independent director with effect

from 24 November 2011 and until such time as the nomination

committee can consult with the new chairman of the board and

make a recommendation for a permanent appointment.

The senior independent director, when necessary, supports the

chairman and the other non executive directors on Company

related matters. He is available to talk to shareholders if they have

any issues or concerns or if there are any unresolved matters that

shareholders believe should be brought to his attention. There is a

written job specification for this role and it is reviewed annually by

the nomination committee.

The non executive directors met several times during the year

with the chairman to discuss, on a less formal basis, the Group’s

performance, governance, strategy and succession planning.

The executive directors were not in attendance at these meetings.

directors’ indemnities and insurance cover

The Company granted indemnities to Leo Oosterveer and Stuart

Chambers on their appointments to the board in 2011 and 2012

respectively. The indemnities relate to certain losses and liabilities

which they may incur in the course of their duties and are in force

as at the date of this report. Insurance cover also remains in place

to protect all directors and senior management in the event of

a claim being brought against them in their capacity as directors

or officers of the Company and its subsidiaries. Similar indemnities

will be offered to other directors.

The written job specifications for the roles of chairman and chief

executive are reviewed annually by the nomination committee.


59

length of service of non executive directors as at

22 February 2012

board balance as at 22 February 2012

● 0–2 years 2

● 3–4 years 2

● 5–6 years 3

● 7 non executive directors

including the chairman

● 2 executive directors

overview

effectiveness

composition of the board

Rexam has a board of directors with international business

backgrounds and a range of diverse skills, experience and

nationalities. This diversity is invaluable in challenging and

developing the Group’s strategy and enables the board to govern

effectively a global business. The board works as a team but

independence of thought and approach as well as constructive

debate is encouraged.

Throughout 2011 and up to the date of this annual report the

Company had a majority of independent non executive directors

on the board.

The board is aware of the other commitments of the directors and

considers that these commitments do not conflict with their non

executive duties as directors of the Company. A biography of each

member of the board, including details of their business experience

and other directorships, is given on pages 54 and 55.

appointments to the board

The appointment and replacement of directors is governed

by the Company’s articles of association, which may only

be amended with shareholders’ approval in accordance with

relevant legislation. Recommendations for appointments to the

board are the responsibility of the nomination committee which

acts in accordance with its terms of reference and the articles

of association.

the nomination committee

All of the members of this committee are independent

non executive directors.

committee membership 2011 meetings 2011 1

Sir Peter Ellwood (committee chairman) 2 6/6

Noreen Doyle 3 5/6

John Langston 6/6

Wolfgang Meusburger 6/6

Leo Oosterveer (appointed 6 December 2011) 4 –

Jean‐Pierre Rodier 6/6

Carl Symon (retired 23 November 2011) 5/5

1 Number of scheduled meetings attended/maximum number of meetings that the

director could have attended.

2 Sir Peter Ellwood will retire as committee chairman on 22 February 2012.

Stuart Chambers was appointed as a member of the committee on 20 February 2012

and will succeed Sir Peter as committee chairman with effect from 23 February 2012.

3 Noreen Doyle was unable to attend one meeting of the committee. She received the

agenda and the papers for that meeting and was able to comment in advance of it.

4 No meetings were held in 2011 after Leo Oosterveer’s appointment date.

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60 Rexam annual report 2011 directors’ report

corporate governance

The main responsibilities of the committee are to:

• review the structure, size and composition of the board

(including the skills, knowledge, experience and diversity,

including gender diversity);

• give full consideration to succession planning and ensure

that processes and planning are in place with regard

to both the board and senior executive appointments;

• identify and consider candidates on merit against

objective criteria and to make recommendations to

the board on appointments to the board and board

committees, and on the appointment of the company

secretary;

• assess the time needed to fulfil the roles of chairman,

senior independent director and non executive directors;

• keep up to date about strategic issues and commercial

changes affecting the Company and its markets; and

• assist the chairman with the annual board performance

evaluation process to assess the overall performance

and effectiveness of the board and each board

committee, and the individual performance

of directors.

The performance and effectiveness of the committee are reviewed

as part of the main performance evaluation of the board and all

its committees.

All board appointments are conducted through a formal, rigorous

and transparent procedure between the nomination committee

and the board. The committee identifies through the management

review process any internal people whose skills, experience and

contribution to the Group would add value to the board. The

committee also works alongside executive recruitment consultants

to evaluate and consider prospective external candidates and

review internal candidates. Following an evaluation of candidates,

the committee meets with prospective candidates who are then

considered and, if appropriate, recommendations are made to the

board for approval.

During 2011 the committee identified the requirement to appoint

a new non executive director and, on Sir Peter Ellwood’s intended

retirement, a new chairman. The processes leading to the

appointments of Leo Oosterveer and Stuart Chambers were

conducted through external recruitment consultants who adhere

to a voluntary code of conduct to ensure that at least 30% of

the candidates on their initial list of candidates are women

(the Voluntary Code of Conduct). The committee considered the

candidates against the board’s requirements and recommendations

for the appointment of Leo Oosterveer and Stuart Chambers were

made to the board for approval.

Lord Davies’ February 2011 report into ‘Women on Boards’ and

the amendments to the Code subsequently proposed by the FRC

have highlighted the importance of effective diversity policies in

companies. The Rexam board is aware of the benefits of all forms

of diversity, including gender diversity, when seeking new

candidates for the board. It is the board’s aspiration that by 2015

at least 25% of the board will be women. Diversity is one of the

important factors in the specification given by the committee to

recruitment consultants when appointing new directors and the

committee ensures that, with the assistance of executive recruitment

consultants who adhere to the Voluntary Code of Conduct, it has

visibility of a range of suitable candidates, including women.

The Group’s gender balance in senior management roles is

currently 86% male and 14% female and, throughout the Group,

76% male and 24% female. The board reviews how diversity, in all

forms, can be enhanced through the senior management team and

across the Group with the overriding objective that the most

appropriate candidates are employed and the most effective

employees are retained and promoted.

succession planning

The board’s responsibility for succession planning means that it is

actively involved in the Group’s talent processes to identify internal

candidates for promotion and develop senior managers to give

them every opportunity to progress their careers. During 2011, the

board discussed the current senior management positions within

the organisational structure and, led by the chief executive,

considered potential successors to meet the Group’s leadership

needs over time.

development, information and support

Formal board meetings are held during the year and the chairman

and the company secretary ensure that, prior to each meeting,

the directors receive accurate, clear and timely information

which helps them to discharge their duties. In the months with no

scheduled board meeting, the directors receive the prior month

and cumulative financial and operating information relating to

the Group and its businesses.

All newly appointed directors participate in an internal induction

programme that introduces the director to the Group and includes

visiting Group businesses. This programme is tailored to each

director’s needs, taking into account individual qualifications and

experience. If required, an overview of the role and responsibilities

of a director can be facilitated by an external consultant.

The company secretary gives guidance on board procedures

and corporate governance.


61

Leo Oosterveer joined the board as a non executive

director on 1 September 2011 and is participating in an

induction programme. Leo has met with functional heads

for an overview of the Group. He has participated in a

one to one external course on the role and responsibilities

of a director, and has discussed areas of governance

relevant to board membership with the company

secretary. Leo is scheduled to visit some of Rexam’s

manufacturing plants and meet with operational

management. Stuart Chambers, who joined the board as

chairman designate on 1 February 2012, has started an

induction programme and is meeting with functional

heads and representatives from the Group’s advisors prior

to commencing a tour of the Group’s businesses.

The chairman is responsible for and regularly reviews and agrees

with each director their training and development needs and

members of the committees receive specific updates on matters

that are relevant to their role. The chairman arranges for the board

to visit at least one of the Group’s business locations each year to

ensure that the directors’ knowledge and familiarity with the

Group’s businesses are updated and maintained.

During 2011, the board held a meeting at the South

American beverage can headquarters in Brazil and

visited the beverage can plant in Jacareí and the plastic

packaging plant in Jundiaí. The board also visited the

main aluminium supplier to the South American

beverage can business.

Members of the senior management team with responsibility for

the Group’s businesses and those with corporate and service centre

functional responsibilities make periodic presentations at board

meetings about their businesses, functions, performance, suppliers,

customers, markets and strategy.

The company secretary, who is appointed by the board, is

responsible for ensuring compliance with board procedures.

This includes taking minutes of the board meetings and the

recording of any concerns relating to the running of the Company

or proposed actions arising therefrom that are expressed by a

director in a board meeting. The company secretary is also

secretary to the audit and risk, nomination and remuneration

committees. Under the direction of the chairman, he is responsible

for the communication of relevant information between the board,

its committees and the senior management team. He also advises

the board, through the chairman, on all governance and regulatory

compliance matters.

Should a director reasonably request independent professional

advice to carry out their duties, such advice is made available at

the Company’s expense.

board performance evaluation

All directors, including the chairman, receive a formal performance

evaluation to which all other members of the board have the

opportunity to contribute. The board’s 2010 performance evaluation

was led by an external independent consultant. In 2011 the annual

evaluations of the non executive directors, senior independent

director and chief executive were led by the chairman and

supported by the company secretary. In view of the announced

change in the chairmanship of the Company, a formal evaluation

of the chairman’s performance was not undertaken. The chief

executive led the evaluation of the finance director. The chairmen

of the respective committees reviewed the performance of their

own committees.

The chairman met with the non executive directors during 2011

to discuss the evaluation of the board and succession plans.

Achievement in 2011 of actions identified through the board performance

evaluation in 2010

strategic planning Focus on regular reporting to the

board on the progress of strategic

issues and actions

risk management Enterprise risk management function

provided regular updates to the board;

Finance director provided regular

updates to the board on key risks and

mitigation measures

financial and non

financial monitoring

talent management and

succession planning

board development

New format of financial report;

Development and understanding

of the Group’s balanced scorecard

Chairman designate and non executive

director appointed in accordance with

succession plans;

Review of executive leadership team

Participation in board updates focusing

on gender diversity in the boardroom,

the UK Bribery Act and changes to the

Takeover Code

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62 Rexam annual report 2011 directors’ report

corporate governance

In 2011 each director completed a questionnaire scoring his or her

response to statements focusing on the areas identified below and

commenting more specifically as appropriate.

board performance evaluation 2011

Board structure

Board meetings and administration

Talent management and succession

planning

Risk management

Strategy

Customers and suppliers

Financial and non financial

monitoring

The results of the 2011 board performance evaluation were

presented to the board. The evaluation focused on the effectiveness

of the board and its main committees.

The directors shared the view that, following this comprehensive

review, the board and its committees continue to operate

effectively. However, the board has agreed that during 2012

the following processes will be further developed and improved:

process

2012 actions following 2011 evaluation

strategic planning To further refine the strategic review

process

risk management To maintain a clear focus on risk

anticipation, risk management and crisis

management aligned to the challenges

of the global economic climate

non financial monitoring To progress non financial monitoring

and reporting through the Group’s

balanced scorecard

talent management and To continue to review and contribute

succession planning towards succession planning,

consideration of the talent pool and

people development

board development To further develop the way in which the

board works together as a unit

customers and suppliers To continue to develop knowledge

of and focus on the Group’s customers

and suppliers

A full performance evaluation of the board and its committees

will continue to be conducted annually and an independent

external assessment will take place at least every three years

as recommended by the Code.

election and re‐election of directors

The Company’s articles of association require that any director

appointed to the board since the date of the last annual general

meeting (AGM) should be proposed for election at the first AGM

after such appointment. Thereafter a director must be proposed

for re‐election at the third AGM following the AGM at which the

director was last elected or re‐elected. However, to promote

good governance and in accordance with the Code, the board

has recommended that all directors should submit themselves

for election or re‐election on an annual basis.

directors in office as at the date of this report to be proposed for election

or re-election at the AGM 2012

Stuart Chambers

non executive director and

chairman designate

Graham Chipchase

chief executive

David Robbie

finance director

Noreen Doyle

non executive director

John Langston

non executive director

Wolfgang Meusburger

non executive director

Leo Oosterveer

non executive director

Jean‐Pierre Rodier

non executive director

Following a rigorous evaluation of the performance of each

director and on the recommendation of the nomination committee

the board is proposing that Stuart Chambers and Leo Oosterveer,

who were appointed non executive directors since the date of the

last AGM, stand for election and that the other directors named

above stand for re‐election at the AGM 2012.

The board considers that Stuart Chambers was independent on

appointment as a non executive director and chairman designate.

Stuart Chambers is being recommended for election as the board

believes that he has an extensive breadth of business experience,

especially within the business to business markets, and his global

expertise will be of benefit to the board’s deliberations.

Leo Oosterveer is considered by the board to be independent.

He is being recommended for election as the board believes that

his global management experience and skills in marketing, sales

and strategy development will be an asset to the Company.

Graham Chipchase is being recommended for re‐election as the

board believes his leadership and insight into the Group and its

markets will help to develop Rexam and create shareholder value.

David Robbie is being recommended for re‐election as the board

believes his strong financial and corporate finance experience and

his financial and strategic skills are important to the board and to

the maintenance of tight financial controls.

Noreen Doyle, John Langston, Wolfgang Meusburger and

Jean‐Pierre Rodier are being recommended for re‐election as,

in the board’s view, they remain independent and, following

their formal performance evaluation, the chairman of the board

has confirmed that they continue to be effective and demonstrate

their commitment to the board. A biography of each member of

the board can be found on pages 54 and 55.


63

accountability

During 2011 the audit and risk committee focused

on a number of activities associated with and

complementary to its core internal financial

control responsibilities.

As well as reviewing the half year and full year

results, the committee carried out a detailed

assessment of the Group’s risk profile along with

the process and management of the Group’s

enterprise risk management function. It reviewed

the effectiveness of the external auditors and the

actions taken by internal audit following the

independent review of its effectiveness in 2010.

John Langston

audit and risk committee chairman

The board recognises its responsibility for ensuring the

implementation and maintenance of effective systems of risk

management and internal control, and presenting a balanced

and understandable assessment of the Group’s position and

prospects. The systems and controls in place include policies

and procedures which provide reasonable assurance that

transactions are recorded as necessary to facilitate the financial

reporting process and the preparation of consolidated financial

statements in accordance with International Financial Reporting

Standards (IFRS). Representatives of the businesses are required

to certify that their reported information gives a true and fair view

of the state of affairs of the business and its results for the year.

To discharge these duties and responsibilities the board works

closely with the audit and risk committee.

After taking account of the detailed work of the audit and risk

committee, the board confirms that it carried out a review of the

effectiveness of the system of internal control which operated

within the Group during 2011 and up to the date of this annual

report in accordance with the requirements of the revised Turnbull

Guidance on Internal Control published by the FRC. This review

covered the effectiveness of all internal controls, namely financial,

operational, compliance and risk management.

No significant failings or weaknesses were identified in the review

for 2011. The board is satisfied that, where areas for improvement

were identified, processes are in place to ensure that the necessary

action is taken and that progress is monitored. The board will

continue to carry out such reviews on an annual basis. Details

of the specific actions taken during 2011 to review the control

environment and continue to improve controls are set out in the

table under risk management and internal control in this section.

the audit and risk committee

The committee members comprise independent non executive

directors. John Langston is the chairman of the committee. As a

qualified chartered accountant and former finance director he is

well placed to provide the committee with the relevant financial

experience to enable it to carry out its responsibilities.

committee membership 2011 meetings 2011 1

John Langston (committee chairman) 4/4

Jean‐Pierre Rodier (appointed 6 December 2011) 2 –

Noreen Doyle 4/4

Carl Symon (retired 23 November 2011) 2 4/4

1 Number of scheduled meetings attended/maximum number of meetings that

the director could have attended.

2 No meetings were held in 2011 after Jean-Pierre Rodier’s appointment date.

The committee membership comprised three independent non executive directors

at the date of each meeting.

The main responsibilities of the committee are to:

• oversee and review the financial and operational risks,

policies and management;

• assist the board in meeting its responsibilities by

ensuring an effective system of internal control and

compliance and accurate external financial reporting;

• assist the board in managing the relationship with the

Company’s external auditors, to review and monitor

their independence, and in particular the provision of

non audit services provided by them to the Group;

• keep under review the effectiveness of the process

for the identification, assessment, mitigation, reporting

and monitoring of risks facing the business; and

• approve the appointment of the director internal audit

and review and approve the annual programme of

internal audit assignments.

The committee meets at least four times a year. At the request of

the committee chairman, the chairman of the board, the chief

executive, the finance director, the group director enterprise

risk, the director group finance, the director internal audit and

the external auditors are invited to attend each meeting.

overview

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64 Rexam annual report 2011 directors’ report

corporate governance

Should it be requested, the committee has access to independent

expert advice at the Company’s expense. The performance and

effectiveness of the committee are reviewed as part of the main

performance evaluation of the board and all its committees.

financial and business reporting

The audit and risk committee shares responsibility with the

board for reviewing in detail the annual report and half year

results announcement, which provide a clear assessment of the

performance and prospects of the Group through the business

model, strategy and a review of strategic risks and financial and

non financial performance. Also included in the annual report

is the external auditors’ report to the members providing an

independent view of the state of the Group’s affairs. The half

year results announcement includes the external auditors’ review

report to the Company.

Other published financial information is reviewed by the committee

for statutory and regulatory compliance and is submitted to the

board with a recommendation for approval.

risk management and internal control

The Group has well established risk management and internal control

systems. While all elements of risk cannot be eliminated, the

processes and systems aim to identify, assess, prioritise and, where

possible, mitigate the Group’s risks. Although no system can provide

absolute assurance against material misstatement or loss, the Group’s

systems are designed to provide the board with reasonable

assurance that assets are safeguarded, transactions are properly

authorised and recorded and that material errors and irregularities

are either prevented or detected within a timely period.

A separate enterprise risk function was established in 2010 led by

a senior executive who is a member of the executive leadership

team. The enterprise risk management function has brought an

increased focus and emphasis on global risk management,

providing leadership and co-ordination across the Group’s business

and operational risk activities. Other responsibilities include health

and safety, environment, fire and property protection, security,

insurance, business continuity and crisis management.

There is an ongoing process for identifying, assessing, mitigating,

reporting and monitoring the risks faced by the Group with a

formal audit and risk process (known as the ARC process) led by

the group director enterprise risk together with the finance director,

the director internal audit and other senior management

representatives. Meetings are held with businesses and functional

managers who present their risk registers, enabling discussion

of the risks identified, the management of those risks and the

mitigation measures as well as the effectiveness of the systems

of internal control. The process ensures that risks are not just the

product of a bottom up approach but are also examined from a top

down perspective and closely aligned with the Group’s strategy.

Through the risk council, chaired by the group director

enterprise risk, and comprising representatives from

each of the sectors and the director internal audit,

improvements to the ARC process were made during

2011 with an increased focus on risk mitigation actions.

The results of the ARC process are reported to the audit and risk

committee and provide an opportunity for the committee to discuss

and analyse the risks reported. In addition to reviewing the risks,

as presented by management, the committee also receives

presentations from the Group’s businesses or functional managers

to assess first hand the effectiveness of the process, and whether

the risks identified are being managed successfully, and to

challenge management on the mitigation measures in place.

The committee then reports its conclusions to the board for review.

Details of the key risks to which the Group is exposed and additional

information on risk processes and management are included in the

business review and can be found on pages 34 to 41.

The framework which the board has established to provide effective

internal control for both the Group and its associates and joint

ventures is supported by the key areas set out in the table below.

key areas of the internal control framework activity in 2011

financial reporting The Group has a comprehensive system for reporting

financial results to the board. An annual budget and

strategic review are prepared for each business and

are consolidated for review by the board before being

formally adopted. During the year, monthly management

accounts, including cash flow and capital expenditure

reporting, are prepared with a comparison against

budget and prior year. Forecasts are revised in light of

this comparison and are also reviewed by the board.

delegated authority

There are clearly defined lines of responsibility and

levels of authority in operation throughout the Group,

with specific matters reserved to the board. Businesses

are decentralised with operating autonomy and

financial responsibility delegated to corporate and

local management to the extent that they have approval

to operate within defined levels of authority and risk.

Regular reviews took place to ensure businesses

were performing in line with budget and strategy.

The chief executive and the finance director met

regularly with operational management to ensure

businesses were performing as expected and

reporting in accordance with the Group’s standards.

Following those meetings the chief executive and the

finance director reported back to the board. A new

financial report format was introduced for the board.

The Group authority levels and related financial limits,

which include information on those matters that are

specifically reserved for the board’s consideration,

were reviewed and updated.


65

procedures and controls There are formal written Group financial procedures

and controls in operation, including specific

procedures for treasury matters, capital investment

and the approval of significant contracts. Corporate

and local management are required to complete

bi‐annual representation letters formally confirming

that their businesses comply with the Group’s financial

reporting policies and other Group policies

and procedures.

internal audit

operational risk

management

The internal audit function monitors financial and

other risks faced throughout the Group and the

control systems in operation to manage those risks.

All significant internal audit findings are reported

to the audit and risk committee.

Operational risk management, part of the enterprise

risk function, provides the leadership to develop and

monitor processes which identify, assess and manage

risks associated with health and safety, environment,

business continuity and crisis management, fire and

loss prevention, security and asset protection. Purpose

built audit programmes allow for businesses to be

evaluated against Rexam’s and external best practice

standards in these areas, and provide the basis for

continuous improvement action plans. In addition,

many Rexam businesses are accredited to external

internationally recognised standards. The function

also manages Rexam’s global insurance programme.

Periodic updates including any significant findings and

issues are reported to the audit and risk committee.

Group authority levels were updated.

Improvements were made to access and security

controls along with a detailed review of the

consistency of the Group’s computerised management

systems and controls operating around the Group.

A Group control framework is being developed which

will be rolled out across the Group in 2012 to ensure

that controls are operated consistently and in line with

best practice.

The online legal compliance training developed to

ensure employees’ familiarity and compliance with

the Code of Conduct was further extended to include

specific training on Financial Integrity, Combating

Bribery in Business and Competition and Anti Trust

Law, and was completed by all levels of senior

management.

The annual internal audit plan was produced from

an assessment of the risks following the ARC process

reviews and was presented to the audit and risk

committee for approval.

Meetings were held regularly between internal audit

management and the finance director, together

with business management, to review progress on

implementing audit recommendations and to ensure

any significant issues identified were addressed.

Updates on performance were provided to the audit

and risk committee by the director internal audit.

In 2011, following the independent effectiveness

review of internal audit, the director internal audit

presented to the audit and risk committee a road map

for the internal audit function. This addressed the

structure and the remit of internal audit to ensure it was

focused and delivering the necessary assurance to the

committee and management, and was operating in

line with best practice.

In line with the Rexam values a system of awards was

introduced to recognise businesses receiving high

scores based on the audits.

An enhanced global Environment, Health and Safety

(EHS) audit approach was developed to provide the

basis of challenge for a more sustainable and robust

improvement of EHS management systems and

performance at all sites. In addition we introduced a

high standard fire safety and property protection audit

supported and performed by AXA Matrix. Further

details can be found in the key risks section of this

annual report on page 40.

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66 Rexam annual report 2011 directors’ report

corporate governance

internal audit

The internal audit function plans and undertakes audits of the

businesses to ensure that the controls operating in the businesses

conform with Group controls and procedures, and reviews the

effectiveness of the risk management process.

The director internal audit provides regular updates to the audit

and risk committee and reports on all significant audit findings.

He also has separate meetings with the chairman of the audit

and risk committee without any other member of management

being present.

In 2011 the committee reviewed and approved the annual internal

audit plan including the proposed audit approach, coverage and

allocation of resources. It also reviewed the results of the audits

undertaken, with particular emphasis on the recommendations

made and management’s response to the matters raised. A change

in the audit ratings used by internal audit in its reports to better

evaluate the control environment was also approved.

external auditors

The committee has primary responsibility for and advises the board

on the appointment, reappointment and the remuneration of the

Company’s external auditors. PricewaterhouseCoopers LLP (PwC)

have been the Company’s external auditors since 2003 with the

lead audit partner changing by rotation in 2008. During 2011, the

committee reviewed the effectiveness of the external auditors and

recommended to the board that a resolution to reappoint PwC be

proposed at the AGM 2012. A further review of PwC’s

effectiveness will be undertaken in 2012 following completion of

the 2011 year end audit. The committee will continue to keep under

review the independence and objectivity of the external auditors.

The external auditors attend all audit and risk committee meetings.

The committee chairman also has separate meetings with the

external auditors to discuss relevant matters.

The first meeting within the Group’s annual audit cycle is to

consider the nature and scope of the audit and to consider any

additional special reviews that may be necessary. Further meetings

are held prior to the approval of the half year and full year results

to consider, as relevant, the audit conclusions, the results of any

special reviews undertaken, the business risks facing the Group

and the reports from the ARC process meetings. The committee

reports its findings on the audit process and on the wider aspects

of internal control to the board.

Non audit services are provided by PwC to the Group only in

accordance with Rexam’s policy on the provision of non audit

services, which assesses the type of service to be provided and the

associated fees. Any request for non audit services above a fee

threshold of £25,000 is presented to the finance director for

approval prior to commencement of the work. The finance director

will, depending on the nature of and fee for the service, obtain the

prior authorisation of the chairman of the audit and risk committee.

This committee reviews the level of non audit fees to ensure that the

provision of non audit services does not impair PwC’s

independence or objectivity. Non audit fees in 2011 relate mainly

to assurance reporting on historic financial information required for

business disposals, assurance in relation to IT projects, including a

new treasury system, and global tax advisory services. The fees for

non audit services are disclosed in note 5 to the consolidated

financial statements. Other audit firms were engaged to provide

expatriate and specialist tax advisory services as well as to advise

on disposal transactions.

PwC are prohibited from providing services to the Group that

would be considered to jeopardise their independence, such as

financial systems design and implementation, actuarial services,

internal audit outsourcing services and investment services.

The policy on non audit services has been reviewed during 2011

to ensure it is in line with best practice.

directors’ conflicts of interest

The board has a formal system in place for directors to review

regularly their interests and to deal with situations where a director

reports any conflicts of interest. Any conflict situation reported to

the chairman and the company secretary is considered by the

board based on its particular facts. Any authorisations given to a

director who has a conflict situation are recorded in the board

minutes and in a register of directors’ conflicts which is reviewed

annually by the board. No conflict situations were reported to the

board during 2011 and up to the date of this annual report.

code of conduct

A worldwide Code of Conduct, which applies to all the Company’s

employees, has been approved by the board and provides a clear

statement for the benefit of stakeholders involved with or impacted

by Rexam’s activities. It is communicated through an induction

process for new employees, as part of the team briefings in the

Group’s businesses, and on the Group’s intranet and website.

The board is kept informed regarding the maintenance of the Code

of Conduct and any breaches of it. An online training system has

been introduced to ensure all management are aware of their

responsibilities and are in compliance with the Code of Conduct.

In addition, with the introduction of the UK Bribery Act, all policies

and procedures relating to bribery and corruption were reviewed

to ensure they are in line with best practice and that there

are adequate procedures to prevent bribery or corruption

taking place.


67

whistle blowing policy

Rexam has an open door policy on communication whereby

employees are encouraged to share concerns, raise issues,

provide ideas for improvement, with all levels of management

in the business. It is recognised, however, that there will be times

when an employee might be uncomfortable raising concerns

directly with local management and, in such cases, communication

with business and Group management is encouraged.

Rexam operates a whistle blowing policy which is supported

by an external confidential telephone helpline, available to all

employees for the raising of any concerns, including those of a

financial nature. The Raise Your Concern policy is highlighted in

team meetings to ensure the policy is understood and available

to all employees.

The Raise Your Concern telephone helpline has been beneficial as

an independent point of contact for employees where, if requested,

the anonymity of the employee is maintained. During 2011 there

were 41 concerns logged (2010: 45 concerns) raising matters,

in the majority of cases, related to human resource issues and

practices. All concerns reported are investigated at the earliest

opportunity by the director internal audit, in conjunction with the

company secretary and, if appropriate, by management of the

respective business. The director internal audit provides an update

on all calls received, and the actions taken to respond to and

resolve them, to Group management and the audit and risk

committee on a regular basis. Any significant concerns are

reported directly to the chairman of the audit and risk committee

as well as to Group management.

The committee reviews the whistle blowing policy and the Raise

Your Concern process annually.

In 2011 an external benchmark review was undertaken

of the nature and volume of calls received under Raise

Your Concern to ensure that the process was working

effectively and was comparable with the experience of

other organisations. The nature of the calls logged was

found to be broadly in line with benchmark data and the

committee was satisfied that concerns are investigated

thoroughly and that the callers receive appropriate

responses through the helpline.

going concern

The Group’s business activities, together with the factors likely

to affect its future development, performance and position are

set out in the business review on pages 10 to 41. The financial

position of the Group, its cash flows, liquidity position and

borrowing facilities are detailed in the financial review on pages

31 to 33. In addition, notes 24, 25 and 26 to the consolidated

financial statements include the Group’s objectives and policies

for managing its capital, its financial risk management objectives,

details of its financial instruments and hedging activities, and its

exposures to credit risk and liquidity risk.

The Group has considerable financial resources together with

established agreements with a number of key customers and

suppliers across different geographic areas and markets. The

financial resources include £2.6bn of debt facilities with the next

significant maturities due in March 2013 (£0.5bn) and June 2013

(£0.5bn). The directors believe that the Group is well placed to

manage its business despite the economic environment which

increases risks and uncertainties.

The directors, having made appropriate enquiries, are satisfied

that the Company and the Group have adequate resources

to continue in operational existence for the foreseeable future.

For this reason, they continue to adopt the going concern basis in

preparing the consolidated and Company financial statements.

remuneration

remuneration policy for directors

The remuneration committee is responsible for making

recommendations to the board on the Group’s remuneration

policy and setting the remuneration levels and specific packages

appropriate for the chairman and the executive directors

taking into account the Group’s annual salary negotiations.

The remuneration report is on pages 69 to 80 of this annual report.

overview

financial statements governance

sustainability

business review


68 Rexam annual report 2011 directors’ report

corporate governance

shareholder relations

dialogue with shareholders

The board believes that it is a priority to communicate with

shareholders and uses various methods to reach as many

shareholders as possible. There are programmes for the chief

executive, finance director and the head of investor relations

to meet with the Company’s major institutional investors in the

UK, the US and Europe. Presentations are made on the operating

and financial performance of the Group, including corporate

governance related matters, and the Group’s longer term strategy.

The presentation slides shown to representatives of the investment

community following the announcement of the half and full year

results are available on the Company’s website, as is a live

webcast of the related results presentation. Roadshows are held

in the UK, the US and Europe following the announcement of the

half and full year results. Where it is not possible to meet face

to face, meetings are held by video or telephone conference.

The Company also hosts plant visits and annual seminars for

institutional shareholders and representatives of the investment

community. The seminars are webcast live and replays, together

with presentation slides, are available online.

During 2011 investors were invited to attend a seminar in

person or by telephone focusing on the global beverage

can market. The seminar was well attended and investors

commented that it had improved their understanding of

the beverage can industry and its growth drivers, as well

as Rexam’s position within the industry.

Institutional shareholders can request an opportunity to meet

with any of the executive and non executive directors. The non

executive directors have an opportunity to meet with shareholders

at the AGM and may attend analyst presentations made by the

chief executive and finance director. The board fully supports the

principle of the Code which seeks to encourage more active

interest and contribution from institutional shareholders.

The non executive directors are given regular updates as to the

views of institutional shareholders. After the investor meetings

held following the announcement of the half and full year results,

a summary report on investor responses is prepared for the board,

normally by the Company’s corporate brokers. The board also

commissions an annual presentation of major investors’ views on

Company management and performance, based on results of surveys

and extensive interviews. This survey also helps to plan the investor

relations programme for the following year.

annual general meeting

Communication with private shareholders is largely through the

AGM, which is held at a central London location. The notice of the

AGM is posted to shareholders with, if requested, the annual report

and any related papers at least 20 working days before the date of

the AGM to ensure that shareholders have sufficient time in which

to consider the items of business to be voted upon. The majority of

shareholders have elected to access the annual report and other

shareholder documents online via the Rexam website rather than

receiving a copy by post.

A presentation is made at the AGM to update shareholders on the

Group’s activities. Shareholders are given the opportunity to ask

questions of the board and the chairman of each board committee

during the AGM and to meet all the directors informally at the

AGM. Separate resolutions are proposed at the AGM on a poll for

each item of business and shareholders are asked to vote ‘for’,

‘against’ or ‘vote withheld’ on each resolution. Votes are counted

and an announcement confirming whether each resolution was

passed at the AGM is made through the London Stock Exchange

and can be viewed on the Rexam website, together with a

summary of the number of votes cast in respect of each resolution.

Rexam’s ADR investors receive details of the AGM and are entitled

to instruct the depositary, The Bank of New York Mellon, to vote

on the resolutions to be proposed at the AGM.

Shareholders can ask questions of the Company at any

time through the Rexam website or by contacting the

company secretary’s department at the Company’s

headquarters.


69

remuneration report

strategy and focus

Our focus has always been to define a

remuneration strategy that clearly aligns with

the Company’s business strategy and aims to

incentivise people to deliver sustainable long term

shareholder value.

The Company’s remuneration policy allocates a

significant proportion of executive compensation

to performance related remuneration which is

balanced between annual and long term incentives

which are linked to these objectives. A proportion

of the annual incentive for executive directors

is awarded in shares and thus, ultimately, their

future value is tied to the long term success of the

Company. Executive directors are also expected

to acquire and retain over time a significant

shareholding.

We have seen policies and practices evolve to

align the interests of senior management with those

of the shareholders. The remuneration committee

ensures that the objectives and targets set for

performance related compensation are stretching

and have an acceptable degree of risk. Success

over an annual period is judged against

achievement of operating profit and cash flow

generation targets and individual objectives. Over

the longer term, the performance is based on three

measures that reflect a balance between capital

returns and earnings growth through a mixture of

relative total shareholder return, return on capital

employed and earnings per share growth.

In reaching its decisions, the committee is very

sensitive to the fact that delivering sustainable

shareholder value requires all employees around

the world to be appropriately paid and rewarded.

the remuneration committee

The members of the committee are independent non executive

directors.

committee membership 2011 meetings 2011 1

Jean-Pierre Rodier 2

(committee chairman from 6 December 2011) 4/4

Carl Symon 3

(retired 23 November 2011) 4/4

John Langston 4

(appointed 6 December 2011) –

Wolfgang Meusburger 4/4

1 Number of scheduled meetings attended/maximum number of meetings that the

director could have attended.

2 Jean-Pierre Rodier has been a member of the committee since July 2006.

3 Carl Symon retired from the committee and as committee chairman on

23 November 2011.

4 No meetings were held in 2011 after 6 December 2011.

The committee invites the chairman of the Company to attend its

meetings and normally also invites the chief executive and group

director human resources. The company secretary attends in his

capacity as secretary to the committee and as group general counsel.

None of the above attend the part of the meeting where their own

remuneration is being discussed. Other directors and senior

managers are invited to attend meetings where their expertise is

requested by the committee.

Kepler Associates were appointed by the Company and acted

as remuneration consultants to the committee and the Company.

Representatives from Kepler Associates have attended committee

meetings when requested to do so. The external advisors who

provided services to the committee during the year are detailed

below. In addition to their services to the committee, Aon Hewitt

and Mercer provide pension consultancy and retirement benefits

accounting advice to the Group, while Allen & Overy is the

Group’s principal UK legal advisor.

advisor

Kepler Associates

Aon Hewitt Limited and

Mercer Limited

Allen & Overy LLP

services

Executive remuneration advice and

provision of market data for salaries

and incentive programmes

Retirement benefits advice

Legal advice on cash and share

incentive schemes, employment

and retirement benefits matters

1 Addleshaw Goddard LLP advised on share incentive arrangements until August 2011.

overview

financial statements governance

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business review

Jean-Pierre Rodier

remuneration committee chairman


70 Rexam annual report 2011 directors’ report

remuneration report

role of the remuneration committee

The board has approved the terms of reference delegating certain

responsibilities to the committee. The terms of reference are

reviewed annually and are available on the Company’s website.

The main responsibilities of the committee are to:

• determine the ongoing appropriateness of the

remuneration principles and the remuneration and

benefits policy, including retirement benefits, for the

executive directors and band 1 executives who are

the Group’s most senior management;

• approve the terms and conditions for service contracts

for the executive directors and band 1 executives

including, when necessary, termination and

compensation payments, and to approve the individual

remuneration packages for the chairman of the

Company, the executive directors and band 1

executives;

• supervise the Group’s remuneration practices and

procedures;

• approve and recommend to the board the design of

any new executive or employee cash or share incentive

arrangements and, for existing cash or shares incentive

arrangements, annual awards and grants, the setting

of performance conditions and parameters and any

significant rule changes; and

• approve the achievement of any performance targets

for cash or share incentive arrangements.

The committee holds a strategy meeting once a year to review

market comparisons and discuss specifically the appropriateness

of the Company’s remuneration principles and the policy for the

following financial year.

The performance and effectiveness of the committee are reviewed

as part of the main performance evaluation of the board and all

its committees. The committee chairman discusses the results of the

evaluation with the committee and, where appropriate, areas for

improvement are identified.

remuneration principles, policy and package

The Group’s aim is to increase shareholder value. It is key that

the remuneration principles underpin this and that the committee

is focused on facilitating the achievement of the corporate

strategy through ensuring that achievement of the corporate

strategy is reinforced through appropriate performance and

management incentives.

Rewards are aligned with the Company’s performance so that

executive directors are incentivised to achieve demanding results

but within an appropriate risk profile for the Group.

The board believes that the remuneration principles and policy

should ensure that the Company is focused on the social, ethical,

environmental and governance issues that are relevant to the

business. The board and the committee aim to have processes

that reward all employees fairly according to their responsibilities,

their performance and market practice in their country of

employment. The committee is made aware of comparative

data relating to the pay and employment conditions for other

Group employees which is taken into consideration when the

remuneration package for executive directors and band 1

executives is being reviewed.

remuneration principles for the Group

To become an employer of choice by attracting, retaining and

motivating highly qualified and talented people and to provide

competitive remuneration to all employees appropriate to the

countries in which we are based

To create an integrated Group wide reward strategy, particularly

in the area of long term incentives, providing a balance between

annual and long term incentives and fixed and variable pay

To ensure that a significant portion of the remuneration package is

weighted towards variable, performance related pay to align the

interests of the executive directors with those of the shareholders

To promote a consistent, clear and transparent link between

business performance and shareholder value

To reward stretching and sustained financial and personal

performance focused on profitable growth, sustainable margins

and cash flow with an earnings opportunity in the upper quartile

of market comparative data

To ensure remuneration packages are market competitive

To reinforce the Rexam values and leadership practices

To provide transparency and simplicity in the reward strategy

The committee considers the remuneration principles in

determining the remuneration policy. To maintain a consistent

global approach to reward, the remuneration policy is

implemented not only for the executive directors, Graham

Chipchase and David Robbie, but also for the band 1 executives

who are charged with delivering long term shareholder value

and sustained business performance improvement.


71

Following the annual remuneration review in November 2011,

the committee concluded that the basis on which the remuneration

package is formulated remains relevant and that executive

directors’ remuneration remains appropriate and closely aligned

with the Company’s strategy. A summary of the main elements of

the remuneration package as they apply to executive directors is

shown below and further details are included in the respective

sections of this report.

remuneration policy 2011 and 2012

The focus of the remuneration policy is to set base salaries, benefits

and retirement benefits at or around the market median taking

account of the job description, experience and personal

performance, and reward exceptional achievement of stretching

financial and personal performance.

base Set at or around the market median

salary

annual

incentives

long term

incentives

clawback

policy

retirement

benefits

(UK)

90% of base salary at target and maximum bonus

opportunity of 180% of base salary with 25% of any

earned bonus to be deferred into Rexam shares

Performance conditions linked to compound annual

underlying earnings per share growth (33.3%), relative

total shareholder return (33.3%) and return on capital

employed growth (33.3%)

Provides for unvested shares or awards to be

forfeited in whole or in part in the event of conduct

detrimental to the Group or a material restatement

of the Group’s results

Career average revalued earnings defined benefit

plan for current executive directors

Executive directors appointed after 6 April 2011 will

be entitled to membership of a defined contribution

pension arrangement

Based on achievement of targets for the annual cash incentives

and the expected value of share awards vesting, the estimated

percentage value of an annual remuneration package is

illustrated below:

2012 annual remuneration package

Target/

expected value

Maximum

Graham Chipchase and David Robbie

32%

14% 27% 27%

18% 8% 33% 41%

0%

100%

● Salary ● Retirement benefit ● Annual incentive ● LTIP

source: Kepler Associates

The value placed on performance related incentives is an estimate

of the expected value. It cannot be accurately quantified until

the extent to which performance targets are met is known and

the incentives crystallise. If the respective minimum performance

targets are not achieved, then the incentive has no value. If share

based incentives vest, the Company’s share price at the time

of the vesting of the awards determines the value of the

incentives received.

base salary

Salary reviews take effect in May each year and are based on

the personal performance of the individual as well as reference to

the market median for the position and experience of the executive

director. The base salary for executive directors takes account of

prevailing market and economic conditions and the levels of base

salary provided for the broader employee base. All benchmarking

data is reviewed carefully and in context and the committee does

not accept unquestioningly benchmarking data but considers other

relevant criteria when base salaries are reviewed.

base salary 2011 base salary 2010

Graham Chipchase £715,000 £675,000

David Robbie £440,000 £418,200

For 2012, salaries will be reviewed taking account of the

remuneration policy, benchmark data as referred to above

and the salary review parameters set for the Group as a whole.

The committee is also sensitive to the levels of the remuneration

packages of other employees within the Group. Rexam operates

in many countries and has an employee base with a diverse range

of skills. Employee remuneration packages are therefore determined

locally to meet local needs, while respecting Rexam’s values.

overview

financial statements governance

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business review


72 Rexam annual report 2011 directors’ report

remuneration report

annual incentives

annual incentives for executive directors 2011

To incentivise management to achieve profitable growth and to

sustain the Group’s cash programme, the annual cash incentive

financial targets in 2011 depended upon the realisation of targets

for Group underlying profit before tax and free cash flow as well as

personal performance. At target, the annual incentive achievement

was 90% of base salary and the maximum incentive opportunity

was 180% of base salary for achieving demanding financial

targets and exceeding personal performance objectives. Personal

performance was measured against personal objectives and

Rexam specific leadership practices.

The executive directors will receive 25% of any annual incentive

awarded in 2012, in respect of 2011 annual incentives, as

a deferred award over Rexam shares, with no additional

performance conditions save that such shares must be held for

a period of not less than three years and are subject to clawback.

The policy relating to clawback is described in the long term

incentives section of this report.

annual incentive achievement for executive directors 2011

The financial targets for 2011 were achieved and resulted in

the executive directors being entitled to an annual incentive

equivalent to 100.7% of base salary. In addition, the committee

assessed the achievement by each executive director of their

personal performance objectives set at the beginning of 2011.

The total annual incentive entitlement approved by the committee,

including achievement of personal objectives, was 128.6% and

125.9% of base salary for Graham Chipchase and David Robbie

respectively. Executive directors will receive 75% of their annual

incentive as cash and 25% as a deferred award over Rexam

shares which will vest in three years.

performance conditions 2011 % of base salary 2011

target maximum actual

Underlying profit before tax 43.2 86.4 52.7

Free cash flow 28.8 57.6 48.0

Personal performance objectives 18.0 36.0 25.2–27.9

annual incentives for executive directors 2012

The performance conditions for 2012 continue to build on

achieving improved profit before tax and generating free cash

flow, together with achieving personal performance objectives.

The basis of performance measures for 2012, therefore, remains

unchanged to those in 2011. In its assessment of personal

performance, the committee will continue to ensure that there is an

appropriate balance between payments for personal performance

and the achievement of financial objectives. The target incentive

opportunity is 90% of base salary with an opportunity to achieve

180% of base salary for achieving demanding financial targets

and exceeding personal performance objectives.

The weighting of the performance targets for 2012 is shown below

and remains unchanged to those in 2011.

performance conditions 2012 % of base salary 2012

target maximum

Underlying profit before tax 43.2 86.4

Free cash flow 28.8 57.6

Personal performance objectives 18.0 36.0

Total 90.0 180.0

As in 2011, executive directors will receive in 2013, subject to

achievement of 2012 performance targets, 75% of their annual

incentive as cash and 25% as a deferred award over Rexam shares

which will vest in three years.

The band 1 executives participate in the annual incentive

arrangements on the same basis as the executive directors

but at a lower annual incentive opportunity and without any

deferral into shares.

long term incentives

Long Term Incentive Plan 2009 (2009 LTIP)

The 2009 LTIP is the primary long term incentive for executive

directors, band 1 executives and other senior management.

Awards to be granted in 2012

In 2012 the committee intends that individual awards to the

executive directors will be the same as in 2011 at 220% of base

salary. As in 2011, awards will be measured against improvement

in compound annual growth in underlying earnings per share,

relative total shareholder return, and return on capital employed.

performance measure

Compound annual

growth in underlying

earnings per share

(EPS)

Return on capital

employed (ROCE)

Relative total

shareholder return

(TSR)

award % reason for performance condition

33.3 Business performance

A visible and recognised

indicator of the Company’s

financial returns

33.3 Business performance

Profitable use of assets

33.3 Shareholder value

An external, verifiable

measurement that provides

a robust and comparative

indicator of the Company’s

performance against other

companies listed in the FTSE

All three performance measures demonstrate the success of the

Company’s strategy. A combined EPS, ROCE and TSR approach

maximises alignment with shareholder interests and provides a

clear link between management action and sustained business

performance. The committee believes that the performance

targets closely align executive director compensation with the

Company’s strategy.


73

EPS performance will be measured by compound annual growth

in earnings per share adjusted to exclude retirement benefit

obligations net finance cost. For the awards to be granted in 2012,

the committee has targeted EPS growth performance in a range

between 3% pa and 12% pa (2011: 3% pa and 12% pa).

vesting of total award

EPS performance

subject to EPS %

Below minimum 3% pa

None

Between minimum and maximum 8.3–33.3

Above maximum 12% pa 33.3

ROCE performance will be measured by averaging the annual return

on capital employed over the measurement period. The committee

has targeted ROCE performance in a range between 12% pa

and 16% pa for the 2012 awards (2011: 11% pa and 15% pa).

These targets reflect the commitment of the management to further

increase the ROCE of the Group.

vesting of total award

ROCE performance

subject to ROCE %

Below minimum 12% pa

None

Between minimum and maximum 8.3–33.3

Above maximum 16% pa 33.3

Rexam’s TSR will be compared with the TSRs of a comparator group

comprising the largest 150 companies (excluding investment trusts)

by market capitalisation within the FTSE All Share index on

1 January 2012.

vesting of total award

TSR performance percentile within comparator group subject to TSR %

Below median

None

Between median and 25th 8.3–33.3

Above 25th 33.3

The 2012 awards will include a dividend equivalent whereby

executive directors will be entitled to receive in shares or cash the

dividends notionally paid during the measurement period on any

shares that vest.

The awards will also be granted subject to a clawback provision

whereby unvested shares or awards can be forfeited in whole or in

part in the event of conduct detrimental to the Group; specifically

conduct which results in material reputational damage, significant

financial loss or a restatement of results other than pursuant to a

change of the accounting rules.

Under the rules of the 2009 LTIP, awards granted under this plan

will vest to the extent that certain performance conditions have

been achieved over a three year measurement period. In certain

early leaver situations, the committee has discretion as to whether

awards can be exercised and, if so, to determine the achievement

of performance targets. Participants who leave the Group with a

right to retain their awards under the rules of the 2009 LTIP must

normally wait until the end of the measurement period. If the award

vests, the participant will receive an entitlement which will be time

apportioned for the period from the start of the performance

period to the date on which employment ended.

Similarly, on takeover or change of control of the Company, the

committee will determine vesting according to the achievement

of performance targets and time apportionment of the resulting

entitlement.

In 2012, band 1 executives will receive awards at a lower

percentage level of base salary but with the same performance

conditions and targets as the executive directors.

other share incentive schemes

The Company also operates the Savings Related Share Option

Scheme 2007 in the United Kingdom in which eligible executive

directors are permitted to participate.

dilution limits

During the year, the Company remained within the issued share

capital headroom limits as set out in the rules of its share incentive

arrangements for the issue of new shares.

headroom limits

5% in 10 years for discretionary

share option schemes

10% in 10 years for all share

option schemes

% of issued

share capital

as at 31.12.2011

% of issued

share capital

as at 31.12.2010

0.9 1.3

1.3 1.6

Awards granted under the 2009 LTIP will be settled by the Rexam

Employee Share Trust from shares it purchases in the market.

retirement benefits

Current executive directors employed in the UK are members

of the career average revalued earnings defined benefit Rexam

Pension Plan (the Plan). The maximum pensionable pay for

executive directors who are members of the Plan is their base

salary less an offset in accordance with the rules of the Plan.

Each year they individually earn a pension entitlement equal to

1/30th of their pensionable pay in that year which is then revalued

to age 60, which is their expected retirement age under the Plan.

Current executive directors are able to fully or partially opt out of

the Plan for accrual of their individual retirement pension and

receive a cash supplement instead. The value of this cash

supplement is 44% of any eligible base salary not pensioned

under the Plan. In the event of the death in service of a member

of the Plan, and if the member has dependants, an age related

amount of between 11 and 15 times salary is provided, with any

amount not paid as a lump sum to beneficiaries being converted

into dependants’ pensions.

The benefits provided to executive directors are set out in the rules

of the Plan and as such are valued and funded as part of the Plan’s

normal actuarial valuation cycle. Any surplus and deficit in respect

of executive directors are aggregated, and funded with that of all

other Plan members. Discretionary benefits for executive directors

are also dealt with in the same way as discretionary benefits for

other Plan members. There are no allowances for discretionary

increases in cash equivalent transfer value calculations. The

funding position of the Plan on an accounting basis is reported

in note 27 to the consolidated financial statements.

overview

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sustainability

business review


74 Rexam annual report 2011 directors’ report

remuneration report

With the agreement of the employer and the Plan Trustee, early

retirement benefits can be taken on cessation of employment after

attainment of age 55 with accrued benefits for executive directors

reduced by 3% pa before age 60. On retirement, a member

can elect to convert some of the pension into a tax free lump

sum payment and, accordingly, take a smaller monthly pension.

Pensions in payment are increased annually in line with the retail

prices index, subject to various minimum and maximum increases

(according to periods of service) as set out in the rules of the Plan.

Graham Chipchase and David Robbie are members of the Plan

and their retirement benefit arrangements are on the basis

summarised above. Each selected a pensionable salary for the

year which was below the maximum and received a salary

supplement on pension eligible basic salary. Details of their

entitlements and transfer values under the Plan during 2011 are

shown in the table on page 78 and their salary supplements are

shown in the table on page 77.

retirement benefits in 2012

Any new executive director appointment, who is not currently a

contributing member of the Plan, will be eligible to join a defined

contribution pension arrangement with a Company contribution

of 25% of base salary or alternatively elect for a cash supplement

equivalent to 22% of base salary. Death in service life cover of

4 times basic salary and a Group income replacement plan,

providing continuing income for two years at 50% of base salary

after short term sickness benefit expires, with a lump sum of 2 times

base salary payable on cessation of service if there is no return to

work, are also provided.

shareholding requirement

In order to forge a closer community of interest with shareholders,

executive directors are required to accumulate a shareholding over

time from shares acquired on the vesting of their share incentives.

The minimum shareholding requirement was increased with effect

from 1 January 2011. The committee has reviewed the share

ownership guidelines for the chief executive and the executive

directors and consider that the current minimum shareholding

requirement remains relevant.

2011

shareholding requirement

number of shares

2010

shareholding requirement

number of shares

executive

Chief executive 320,000 125,000

Executive directors 130,000 75,000

No shares have been acquired through the exercise of share

incentives as no share awards vested in the year. Each of the

executive directors can purchase ordinary shares where there

is an opportunity to do so. During 2011, David Robbie acquired

shares through the reinvestment of cash dividends.

The band 1 executives have a shareholding requirement of

50,000 shares.

The shareholdings of directors are shown on page 80.

share performance

The graphs below illustrate the Company’s share performance

in terms of total shareholder return compared with that of the

FTSE 100 index of which the Company is a constituent member.

This index has been selected as it is considered to be the most

appropriate broad equity market index against which the Group’s

performance should be measured as it provides a cross section of

other leading UK listed companies. The first graph shows the value

at each year end to 31 December 2011, on a total shareholder

return basis, of £100 invested in Rexam shares on 31 December

2006 compared with the value of £100 invested over the same

periods in the FTSE 100 share index.

The Rexam share price for the period preceding the rights issue

in 2009 has been adjusted for the bonus element inherent in that

rights issue.

comparison of five year cumulative total

shareholder return

120

100

80

60

0

2006 2007 2008 2009 2010 2011

Rexam

FTSE 100 index

source: Alithos Limited

Points on this graph show the value of an

investment on the last trading day of each year.

The graph below measures TSR since 2010 reflecting the period of

time since the Company began its significant focus on the strategic

priorities of controlling costs, optimising cash and improving the

return on capital employed.

comparison of two year cumulative total

shareholder return

140

120

100

80

0

2009 2010 2011

Rexam

FTSE 100 index

source: Alithos Limited

Points on this graph show the value of an

investment on the last trading day of each year.

Total shareholder return reflected in the graphs above is not an

indication of the likely vesting of awards granted under the LTIP

2009, which is based on a different comparator group, as

explained on page 79.


75

executive directors’ contracts of employment

date of

appointment

date of

current contract

notice period

(company)

notice period

(director)

compensation on

early termination

executive director

notes

Graham Chipchase 1 10 February 2003 30 November 2009 12 months 12 months As policy

David Robbie 2 3 October 2005 20 October 2010 12 months 12 months As policy

1 Graham Chipchase had a contract of employment dated 1 October 2002 that was effective from his commencement of employment with Rexam in February 2003. On his appointment as

chief executive, Graham Chipchase signed a new contract of employment on 30 November 2009 that was effective from 16 November 2009 and which acknowledged his continuous

employment from February 2003.

2 David Robbie had a contract of employment dated 24 August 2005 that was effective from his commencement of employment with Rexam in October 2005. Following the update of the

Company’s policy for executive director contracts, David Robbie signed a new contract of employment on 20 October 2010 which acknowledged his continuous employment from October 2005.

duration of contracts

The Company’s current policy is that all executive directors serve under contracts terminable on one year’s notice. However, in exceptional

circumstances, the policy allows for an externally recruited executive director to be offered a contract terminable by the Company on two

years’ notice if terminated in the first year of appointment. Thereafter, the contract would become terminable on one year’s notice.

Executive directors’ contracts continue until such date as agreed between the executive director and the Company. The contract can also

be terminated by either party subject to required notice.

termination of contracts

The Company has the right to terminate a contract immediately, even where termination is without cause. In such circumstances, the

contract provides for a payment in lieu of notice to be made and calculated by reference to base salary, retirement benefits and other

benefits. There is no provision for payment of any annual incentive in respect of the termination notice period. The Company will make

any termination payment in monthly instalments over what would have been the notice period until the earlier of the director commencing

in a new position or the notice period expiring. The executive has a duty to mitigate his or her loss of office and actively seek alternative

comparable employment at the earliest opportunity, thereby reducing the need for compensation.

share based entitlements

Any share based rights granted to an executive director will be determined at the discretion of the committee, as permitted by the rules

of the relevant scheme. If an executive director resigns from employment or is dismissed for gross misconduct, he or she will not retain his

or her right to acquire shares under awards or options granted to him or her.

overview

financial statements governance

sustainability

business review


76 Rexam annual report 2011 directors’ report

remuneration report

external directorships

The Company’s policy on executive directors having non executive directorships with other companies is that such appointments are

permitted, subject to the approval of the chairman of the board. Any fees payable will be retained by the executive director unless

otherwise agreed.

non executive directors

date of

appointment

date of original

letter of appointment

effective date of

current letter of

appointment

non executive director

expiry of term

Stuart Chambers 1 February 2012 15 November 2011 1 February 2012 31 January 2015

Noreen Doyle 22 March 2006 20 March 2006 22 March 2012 21 March 2015

Sir Peter Ellwood 1 February 2008 17 January 2008 1 February 2011 31 January 2014

John Langston 30 October 2008 30 October 2008 30 October 2011 29 October 2014

Wolfgang Meusburger 1 December 2006 26 October 2006 1 December 2009 30 November 2012

Leo Oosterveer 1 September 2011 10 August 2011 1 September 2011 31 August 2014

Jean-Pierre Rodier 7 June 2006 6 June 2006 7 June 2009 6 June 2012

Non executive directors serve under letters of appointment and are generally appointed for an initial three year term renewable thereafter,

at the discretion of the board, for a maximum of two further three year terms, subject to election or re-election by shareholders at the AGM.

Appointments of non executive directors are terminable without compensation by either the Company or the director giving written notice.

The remuneration of the chairman is determined by the committee (the chairman absenting himself from the discussions if present at

the meeting) and non executive directors’ fees are recommended by the chairman and chief executive and approved by the executive

directors. The fees of the chairman, the senior independent director and the other non executive directors are reviewed annually in line

with current market practice.

non executive directors current fees

per annum

Basic fees £55,000

Additional fees for:

Chairs of board committees £10,000

Senior independent director £10,000

Sir Peter Ellwood, as chairman of the Company, received fees of £320,000 during 2011. Stuart Chambers will receive the basic non

executive director fees for the period from 1 February to 22 February 2012. From the date of his appointment as chairman of the Company

on 23 February 2012, he will receive annual fees of £320,000. The fees of the non executive directors will remain at the current level

for 2012.

The executive directors’ contracts of employment and the non executive directors’ letters of appointment are available for inspection

by any shareholder of the Company during normal business hours at the registered office of the Company on Monday to Friday

(public holidays excepted), and will be available at the AGM 2012.


77

directors’ remuneration (audited information)

2011

fees/

base salary

£000

2011

pension

supplement

£000

2011

annual

incentive

cash 1

£000

2011

annual

incentive

deferred

shares 1

£000

2011

benefits

£000

chairman

Sir Peter Ellwood 320 11 331 300

2011

total

£000

2010

total

£000

overview

non executive directors

Noreen Doyle 65 5 70 60

John Langston 65 5 70 60

Wolfgang Meusburger 55 1 56 50

Leo Oosterveer (appointed 1 September 2011) 18 – 18 –

Jean-Pierre Rodier 56 3 59 50

Carl Symon (retired 23 November 2011) 69 2 71 70

648 – – – 27 675 590

executive directors

Graham Chipchase 702 254 690 229 36 1,911 1,703

David Robbie 433 128 415 139 4 1,119 1,043

1,135 382 1,105 368 40 3,030 2,746

2011 total 1,783 382 1,105 368 67 3,705

2010 total 1,680 – 1,640 – 16 – 3,336 2

1 The underlying profit before tax and free cash flow targets for 2011 were exceeded which, including the achievement of personal performance objectives, resulted in an annual incentive of 128.6%

(2010: 150%) of base salary due to Graham Chipchase and 125.9% (2010: 150%) of base salary due to David Robbie. Details of the financial and personal performance targets are explained on

page 72. Executive directors will receive 75% of their annual incentive as cash and 25% as a deferred share award which will vest in three years.

2 The total remuneration reported in the annual report 2010 was £3,346,000. The amount of £3,336,000 shown above excludes amounts received in 2010 by Leslie Van de Walle, the former chief

executive. Leslie Van de Walle did not receive any payments in 2011.

The benefits in kind provided to directors comprise one or more of healthcare, accommodation, subsistence and the payment of certain

professional fees. Executive directors are offered membership of a Group pension scheme, which includes life assurance protection.

No amounts were paid to third parties in respect of any executive director’s services to the Company and no termination payments were

made to any past director during the year.

Details of each director’s share incentives can be found on pages 79 and 80.

financial statements governance

sustainability

business review


78 Rexam annual report 2011 directors’ report

remuneration report

retirement benefits (audited information)

The following directors were members of defined benefit arrangements provided by the Company during the year. Entitlements and

corresponding transfer values are shown in the table below. The values at 31.12.11 reflect the decision taken by both executive directors

to pension a lower amount of their eligible basic salary in 2011. Their eligible basic salary in 2010 was fully pensioned.

2011

(a)

gross increase

in accrued

pension

per annum

£000

2011

(b)

increase in

accrued pension

excluding

inflation

per annum

£000

2011

(c)

total accrued

pension

31.12.11

per annum

£000

2011

(d)

transfer value

of net increase

in accrual over

period

£000

2011

(e)

change in

transfer

value during

period

£000

2011

(f)

transfer value

of accrued

pension at

31.12.11

£000

2010

(g)

transfer value

of accrued

pension at

31.12.10

£000

Graham Chipchase 13 8 101 126 583 1,886 1,294

David Robbie 9 5 78 62 418 1,427 993

1 Pension accruals shown are the amounts which would be paid annually on retirement based on service to 31 December 2011.

2 Transfer values (columns d, f and g) have been calculated in accordance with or consistent with the Occupational Pension Schemes (Transfer Values) Regulations 1996.

3 The value of net increase in accrual (column d) represents the incremental value to the director of the benefit accrued. It is based on the increase in accrued pension (column b) after deducting

contributions made by the director.

4 The change in the transfer value (column e) includes the effect of fluctuations due to factors beyond the control of the Company or the director, such as market conditions which include long term

interest rate movements. It is calculated after deducting contributions made by the director.

There were no pension contributions paid by any Group employer for any executive director in respect of defined contribution schemes

in 2011 or 2010.

long term incentives (audited information)

The interests of the directors in the shares of the Company through the Company’s share incentive arrangements are disclosed in the

following tables. There is no requirement for an executive director to make a payment on the grant of an award or an option under any

of the arrangements. No variations were made during the year to the terms and conditions of any awards or options.

The vesting of awards granted under the 2009 LTIP will be satisfied from Rexam shares that the Rexam Employee Share Trust, a

discretionary trust resident in Jersey, Channel Islands, has purchased or will purchase in the market and the cost will normally be met

by the participant’s employing company. The exercise of options granted under the Company’s savings related share option scheme

will be satisfied from the allotment of new ordinary shares.

The market price of the Company’s shares at 31 December 2011 was £3.528 per share. The lowest and highest daily closing share

prices during 2011 were £2.998 and £4.00 respectively. There were no gains from the exercise of directors’ share options during 2011

through all share incentive arrangements (2010: £159,811).


79

Long Term Incentive Plan 2007 (2007 LTIP)

The maximum number of shares to which the participant is entitled is reflected in the ‘outstanding’ columns of the table. Directors held the

following options over shares.

exercise

price per

holding

£

first

exercise

date

note 1

expiry

date

note 1

outstanding

01.01.11

number

lapsed

during

the year

number

outstanding

31.12.11

number

note

grant date

Graham Chipchase 2 26.03.08 1 01.01.11 25.02.15 250,295 250,295 –

David Robbie 2 26.03.08 1 01.01.11 25.02.15 244,346 244,346 –

1 The first exercise date and the expiry date are dependent upon the options vesting but the final expiry date must be no later than six years and 11 months from the grant date for the 2007 LTIP .

2 Options lapsed on 1 January 2011 as the TSR performance target had not been achieved. Rexam ranked 33rd which fell below the median percentile of its comparator group of 42 companies.

3 No options were granted, vested, were exercised or lapsed during the year.

Long Term Incentive Plan 2009 (2009 LTIP)

The maximum number of shares to which the participant is entitled is reflected in the ‘outstanding’ columns of the table. Directors held the

following awards over shares.

market value

per share on

date of grant

£ grant date

exercise

price per

holding

£

vesting

date

note 1

expiry

date

note 1

outstanding

01.01.11

number

granted

during

the year

number

outstanding

31.12.11

number

note

Graham Chipchase 2 2.911 11.03.10 – 11.03.13 11.03.13 519,230 – 519,230

3 3.700 08.03.11 – 08.03.14 08.03.14 – 406,715 406,715

Total 519,230 406,715 925,945

David Robbie 2 2.911 11.03.10 – 11.03.13 11.03.13 315,384 – 315,384

3 3.700 08.03.11 – 08.03.14 08.03.14 – 251,982 251,982

Total 315,384 251,982 567,366

1 The vesting date and the expiry date are dependent upon the awards vesting. The final expiry date is the close of business on the vesting date.

2 The award is subject to the performance conditions shown below, measured over a three year period which commenced on 1 January 2010.

3 The award is subject to the performance conditions shown below, measured over a three year period which commenced on 1 January 2011.

4 No awards vested, were exercised or lapsed during the year.

performance measures

compound earnings per share growth (EPS)

This measure has been chosen as it is a visible and recognised indicator by both

employees and shareholders of the Company’s financial returns. EPS performance

will be measured by compound annual growth in underlying earnings per share.

relative total shareholder return performance (TSR)

This measure has been chosen as it is an external, verifiable measurement target

that provides a robust and comparative indicator of the Company’s performance

against other UK listed companies. Rexam’s TSR will be compared with the TSR of

a comparator group comprising the largest 150 companies by market capitalisation

within the FTSE All Share index on the 1 January of the year of grant. Investment trusts

are excluded from this comparator group.

return on capital employed (ROCE)

This measure was introduced in 2011 to align more closely the performance

measures with the Company’s strategy.

2011

grant

target

2011 grant

vesting of

total award

note 1

2010

grant

target

2010 grant

vesting of

total award

note 1

min 3% 8.3% 3% 15%

max 12% 33.3% 12% 60%

min median 8.3% median 10%

max 25 th 33.3% 25 th 40%

min 11% 8.3% – –

max 15% 33.3% – –

overview

financial statements governance

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business review

1 Between the minimum and maximum targets, vesting will be calculated on a straight line basis.


80 Rexam annual report 2011 directors’ report

remuneration report

Savings Related Share Option Scheme (2007 SAYE)

Directors held the following options over shares through the 2007 SAYE.

grant

date

exercise

price

per share

£

exercise

period

commences

expiry

date

outstanding

01.01.11

number

outstanding

31.12.11

number

Graham Chipchase 15.10.09 2.12 01.12.14 31.05.15 7,334 7,334

David Robbie 15.10.09 2.12 01.12.14 31.05.15 7,334 7,334

1 No options were granted to executive directors, were exercised by or lapsed during the year.

directors’ interests in shares (audited information)

shares

at 31.12.11

shares

at 01.01.11 1

Graham Chipchase 168,441 168,441

Noreen Doyle 8,636 8,466

Sir Peter Ellwood 61,785 59,645

John Langston 4,090 4,090

Wolfgang Meusburger 13,198 12,742

Leo Oosterveer (appointed 1 September 2011) – –

David Robbie 71,907 69,416

Jean-Pierre Rodier 8,181 8,181

1 Or date of appointment, if later.

2 Stuart Chambers was appointed a non executive director on 1 February 2012. At the date of appointment and at the date of this report he held 30,000 shares.

3 The above interests in shares, and awards and options over shares at 31 December 2011 remain unchanged at the date of this report.

compliance

The remuneration report for the year ended 31 December 2011 is presented by the remuneration committee on behalf of the board.

The report covers the main responsibilities of the committee, the current remuneration policy for directors, together with details of directors’

remuneration, annual and long term incentives and provision of retirement benefits for the year ended 31 December 2011.

The report has been prepared in accordance with the Companies Act and schedule 8 of the Large and Medium sized Companies and

Groups (Accounts and Reports) Regulations 2008. In addition, the committee has followed the principles of good governance set out in

the UK Corporate Governance Code and complied with the requirements of the Listing Rules.

The sections of the report that have been referenced in PricewaterhouseCoopers LLP’s auditors’ report have been marked as audited

information in this report.

On behalf of the board

Jean-Pierre Rodier

remuneration committee chairman

22 February 2012


81

other disclosures

The annual report 2011 has been prepared for, and only for,

the members of the Company, as a body, and no other persons.

The Company, its directors, employees, agents and advisers do

not accept or assume responsibility to any other person to whom

this document is shown or into whose hands it may come and any

such responsibility or liability is expressly disclaimed. This annual

report may contain statements which are not based on current or

historical fact and which are forward looking in nature. These

forward looking statements reflect knowledge and information

available at the date of preparation of this annual report and the

Company undertakes no obligation to update these forward

looking statements. Such forward looking statements are subject

to known and unknown risks and uncertainties facing the Group

including, without limitation, those risks described in this annual

report, and other unknown future events and circumstances which

can cause results and developments to differ materially from those

anticipated. Nothing in this annual report should be construed

as a profit forecast.

statement of directors’ responsibilities

The directors are responsible for preparing the annual report, the

remuneration report and the financial statements in accordance

with applicable law and regulations.

Company law requires the directors to prepare financial statements

for each financial year. Under that law the directors have prepared

the consolidated financial statements in accordance with

International Financial Reporting Standards (IFRSs) as adopted by

the European Union and the parent company financial statements

in accordance with UK Generally Accepted Accounting Practice

(UK Accounting Standards and applicable law). Under company

law the directors must not approve the financial statements unless

they are satisfied that they give a true and fair view of the state of

affairs of the Group and the Company and of the profit or loss of

the Group for that year. In preparing these financial statements,

the directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and accounting estimates that are reasonable

and prudent;

• state whether IFRSs as adopted by the European Union and

applicable UK Accounting Standards have been followed,

subject to any material departures disclosed and explained

in the consolidated and parent company financial statements

respectively; and

• prepare the financial statements on the going concern basis

unless it is inappropriate to presume that the Group and the

Company will continue in business.

The directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Group’s and the

Company’s transactions and disclose with reasonable accuracy

at any time the financial position of the Company and the Group

and enable them to ensure that the financial statements and the

remuneration report comply with the Companies Act 2006 and,

as regards the consolidated financial statements, Article 4 of the

IAS Regulation. They are also responsible for safeguarding the

assets of the Company and the Group and hence for taking

reasonable steps for the prevention and detection of fraud

and other irregularities.

The directors are responsible for the maintenance and integrity

of the Group’s website. Legislation in the UK governing the

preparation and dissemination of financial statements may differ

from legislation in other jurisdictions.

Each of the current directors, whose names are listed on pages 54

and 55 of the annual report, confirms that, to the best of his or

her knowledge:

• the consolidated financial statements, which have been prepared

in accordance with IFRSs as adopted by the EU, give a true and

fair view of the assets, liabilities, financial position and profit of

the Group; and

• the business review includes a fair review of the development

and performance of the business and the position of the Group,

together with a description of the principal risks and uncertainties

that it faces.

dividends

Subject to shareholder approval, the directors have proposed

a 2011 final dividend of 9.7p per share. The total dividend for the

year ended 31 December 2011 is 14.4p per share (2010: 12.0p).

dividend

per share (p)

ex dividend

date

record

date

payment

date

2011 interim 4.7 07.09.11 09.09.11 04.10.11

2011 final 9.7 09.05.12 11.05.12 07.06.12

principal acquisitions and disposals

The disposal of the Group’s beverage and speciality closures

business to Berry Plastics Inc for a cash consideration (net of costs)

of £207m was announced on 20 June 2011 and was completed

on 1 September 2011.

directors and directors’ interests

The board of directors during the year ended 31 December 2011

and at the date of this annual report is set out on pages 54 and 55.

Leo Oosterveer was appointed a non executive director on

1 September 2011 and Carl Symon retired as senior independent

director on 23 November 2011. The chairman of the Company,

Sir Peter Ellwood, is to retire from office at the close of business

on 22 February 2012. Sir Peter is succeeded as chairman by

Stuart Chambers who was appointed a non executive director

and chairman designate on 1 February 2012.

overview

financial statements governance

sustainability

business review


82 Rexam annual report 2011 directors’ report

other disclosures

None of the directors had any interest during or at the end of

the year in any contract of significance in relation to the business

of the Company or its subsidiary undertakings.

Full details of the interests in the share capital of the Company of

those directors holding office on 31 December 2011, including any

interest of a connected person, are set out in the remuneration report.

share capital

At 31 December 2011, the Company had 877,030,922 shares

in issue as shown, together with details of the rights and restrictions

attaching to the shares, in note 29 to the consolidated financial

statements.

powers given to directors

The powers given to the directors are contained in the articles

of association (the Articles) and are subject to relevant legislation

and, in certain circumstances, (including in relation to the issuing

or buying back by the Company of its shares), subject to authority

being given to the directors by shareholders in general meeting.

The Articles also govern the appointment and replacement

of directors. The Articles, which may only be amended with

shareholders’ approval in accordance with relevant legislation,

can be found on the Company’s website.

purchase of own shares

At the AGM 2011, shareholders passed a special resolution

renewing the authority granted to the Company, in accordance

with the Companies Act 2006 and relevant institutional guidelines,

to purchase a limited number of its own shares in the market.

No shares have been purchased in the market, nor has any

contract been made to purchase shares under the previous or

existing authorities from 1 January 2011 to the date of this report.

The directors are seeking an annual renewal of the authority at

the AGM 2012. Further details can be found in the notice of

AGM 2012.

AGM 2012 AGM 2011

share purchase authority

proposed approved

10% of issued share capital 87.70m 87.68m

substantial shareholdings

At the date of this report, the Company had been advised of the

following significant direct and indirect interests in the issued

ordinary share capital of the Company, in accordance with

the Disclosure and Transparency Rules (DTR) of the Financial

Services Authority.

name of shareholder

number of shares

disclosed

% interest in issued

share capital

BlackRock Inc 44,138,256 5.03

Legal & General Group Plc 34,660,260 3.95

Information provided to Rexam pursuant to the DTR is publicly

available via the regulatory information services and on the

Company’s website.

research and development

The Group’s expenditure on research and development during

the year amounted to £17m from continuing operations and £2m

from discontinued operations (2010: £16m and £3m).

significant agreements

Rexam has a number of commercial agreements which are

essential to the Group’s business, as discussed in the key risks

section of the business review on pages 34 to 41. Mitigation

arrangements are in place to safeguard, as far as possible,

the Group’s business in the event of the unexpected termination

or amendment of such agreements.

The Company is also required to disclose any significant

agreements that take effect, alter or terminate on a change

of control of the Company following a takeover bid. Some

commercial agreements allow the counterparties to alter or

terminate the arrangements in these circumstances. The Company

also has committed debt facilities all of which are directly or

indirectly subject to change of control provisions, albeit the

facilities do not necessarily require mandatory prepayment on

a change of control.


83

At 31 December 2011 the debt facilities subject to these

provisions were:

debt facilities amount maturity

Subordinated bond €750m June 2067

US public bond US$550m June 2013

US private placement US$225m June 2013

Medium term note €638m March 2013

Bilateral credit facility £50m December 2012

Revolving credit facility £602m November 2016

Bilateral credit facility £45m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

Bilateral credit facility £20m November 2016

1 All of the above bilateral credit facilities and the revolving credit facility are multi currency.

2 The revolving credit facility and certain of the bilateral credit facilities include options to

extend the final maturity from November 2016 to November 2018, subject to the agreement

of the banks.

The service contracts of the executive directors do not contain

a change of control provision.

The trustee of the Rexam Employee Share Trust (the Trust) holds

shares in order to satisfy awards under the Rexam employee share

incentive plans. If an offer is made to acquire the Company’s

shares, the trustee is not obliged to accept or reject any such offer

in respect of any shares which are intended to satisfy awards

which are outstanding. However, the trustee shall have regard to

the interests of the beneficiaries and shall have the power to consult

them to obtain their views on such offer and, subject to the

foregoing, may consider any recommendations made to it by the

Company but shall not be obliged to comply with such

recommendations.

The Company has granted a qualifying pension scheme indemnity

in the form permitted by the Companies Act 2006 to the directors

of Rexam Pension Trustees Limited, the Trustee to the Rexam Pension

Plan. The indemnity remains in force at the date of this report.

payments to suppliers

The Group’s operating businesses are responsible for the terms

and conditions under which they conduct business transactions

with their suppliers. It is Group policy to agree the terms of payment

and make payments to suppliers in accordance with those terms,

provided that suppliers have complied with all relevant terms

and conditions.

The Company had 14 days (2010: 13 days) purchases outstanding

at 31 December 2011 based on the average daily amount invoiced

by suppliers.

corporate governance statement

The information that fulfils the requirements of the corporate

governance statement in accordance with rule 7.2 of the DTR

can be found in this directors’ report within pages 10 to 83.

auditors

disclosure of information to the auditors

Each person who is a director of the Company at the date of

approval of this annual report confirms that:

• so far as the director is aware, there is no relevant audit

information of which the Company’s auditors are unaware; and

• each director individually has taken all the steps that he or she

ought to have taken as a director to make him or herself aware

of any relevant audit information and to establish that the

Company’s auditors are aware of that information.

reappointment of auditors

PricewaterhouseCoopers LLP will be proposed for reappointment

as the Company’s auditors at the AGM 2012 as recommended by

the audit and risk committee.

annual general meeting 2012

The AGM of the Company, details of which can be found in the

notice of AGM 2012, will be held at 11.00am on 3 May 2012 at

One Great George Street, London SW1.

On behalf of the board

David Gibson

company secretary

22 February 2012

overview

financial statements governance

sustainability

business review


84

Rexam annual report 2011

consolidated financial

statements

These caps are for Rexam’s innovative Advancia TM ,

the world’s first all in one nasal spray pump.


85

86 independent auditors’ report to the members of Rexam PLC

87 consolidated income statement

88 consolidated statement of comprehensive income

89 consolidated balance sheet

90 consolidated cash flow statement

91 consolidated statement of changes in equity

notes to the consolidated financial statements:

92 note 1 – principal accounting policies

98 note 2 – segment analysis

100 note 3 – operating expenses

101 note 4 – employee costs and numbers

102 note 5 – auditors’ remuneration

consolidated financial

statements

102 note 6 – exceptional items – continuing operations

102 note 7 – interest

103 note 8 – tax

105 note 9 – earnings/(loss) per share

106 note 10 – discontinued operations

107 note 11 – equity dividends

107 note 12 – goodwill

109 note 13 – other intangible assets

110 note 14 – property, plant and equipment

111 note 15 – investments in subsidiaries

111 note 16 – investments in associates and joint ventures

112 note 17 – available for sale financial assets

112 note 18 – insurance backed assets

113 note 19 – inventories

113 note 20 – trade and other receivables

114 note 21 – cash and cash equivalents

115 note 22 – assets and liabilities classified as held for sale

115 note 23 – trade and other payables

116 note 24 – borrowings

117 note 25 – net borrowings

118 note 26 – financial instruments

125 note 27 – retirement benefit obligations

129 note 28 – provisions

130 note 29 – share capital

130 note 30 – other reserves

131 note 31 – share based payment

133 note 32 – reconciliation of profit/(loss) before tax

to cash generated/(used) from operations

133 note 33 – contingent liabilities

133 note 34 – commitments

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86 Rexam annual report 2011

independent auditors’ report to the members of Rexam PLC

We have audited the consolidated financial statements of Rexam PLC for the year ended 31 December 2011 which comprise the

consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated

cash flow statement, the consolidated statement of changes in equity and the related notes. The financial reporting framework that

has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the

European Union.

respective responsibilities of directors and auditors

As explained more fully in the statement of directors’ responsibilities set out on page 81, the directors are responsible for the preparation

of the consolidated financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express

an opinion on the consolidated financial statements in accordance with applicable law and International Standards on Auditing (UK and

Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3

of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for

any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by

our prior consent in writing.

scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance

that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether

the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed;

the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

In addition, we read all the financial and non financial information in the Rexam annual report 2011 to identify material inconsistencies

with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the

implications for our report.

opinion on financial statements

In our opinion the consolidated financial statements:

• give a true and fair view of the state of the Group’s affairs as at 31 December 2011 and of its profit and cash flows for the year

then ended;

• have been properly prepared in accordance with IFRSs as adopted by the European Union; and

• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the lAS Regulation.

opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the directors’ report for the financial year for which the consolidated financial statements are

prepared is consistent with the consolidated financial statements.

matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• the directors’ statement, set out on page 67, in relation to going concern;

• the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate

Governance Code specified for our review; and

• certain elements of the report to shareholders by the board on directors’ remuneration.

other matter

We have reported separately on the parent Company financial statements of Rexam PLC for the year ended 31 December 2011 and on

the information in the remuneration report that is described as having been audited.

Robert Milburn (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

22 February 2012


87

consolidated income statement

For the year ended 31 December

notes

Continuing operations

Sales 2 4,734 4,619

Operating expenses 3 (4,227) (4,146)

Underlying operating profit 2 549 513

Exceptional items 6 (16) (8)

Amortisation of certain acquired intangible assets (26) (32)

Operating profit 507 473

Share of post tax profits of associates and joint ventures 16 9 5

Retirement benefit obligations net finance cost 27 (16) (15)

Underlying interest expense 7 (99) (117)

Fair value changes on financing derivatives 7 23 (12)

Interest expense 7 (76) (129)

Interest income 7 7 4

Underlying profit before tax 450 390

Exceptional items 6 (16) (8)

Amortisation of certain acquired intangible assets (26) (32)

Fair value changes on financing derivatives 7 23 (12)

Profit before tax 431 338

Tax on underlying profit 8 (135) (116)

Tax on exceptional items 6 4 1

Tax on amortisation of certain acquired intangible assets 9 10

Tax on fair value changes on financing derivatives (6) 3

Tax 8 (128) (102)

Profit for the financial year from continuing operations 303 236

Discontinued operations

Profit/(loss) for the financial year from discontinued operations 10 73 (112)

Total profit for the financial year attributable to equity shareholders of Rexam PLC 376 124

Underlying earnings per share (pence) 9

Continuing operations 36.1 31.4

Discontinued operations 0.9 1.4

Total 37.0 32.8

Basic earnings/(loss) per share (pence) 9

Continuing operations 34.7 27.1

Discontinued operations 8.4 (12.9)

Total 43.1 14.2

Diluted earnings/(loss) per share (pence) 9

Continuing operations 34.5 27.0

Discontinued operations 8.3 (12.9)

Total 42.8 14.1

For details of equity dividends paid and proposed see note 11 to the consolidated financial statements.

The notes on pages 92 to 133 form part of these consolidated financial statements.

2011

£m

2010

£m

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88 Rexam annual report 2011

consolidated statement of comprehensive income

For the year ended 31 December

notes

Profit for the financial year 376 124

Actuarial losses 18, 27 (104) (64)

Tax on actuarial losses 8 30 24

Premium paid on annuitisation of certain pension obligations 17, 18 (2) –

Cost recognised in the income statement on annuitisation of certain

pension obligations (net of tax) 30 3 –

Exchange differences before recognition of net investment hedges 30 (30) (12)

Net investment hedges recognised 30 14 22

Exchange differences recognised in the income statement on disposal of Closures 30 (89) –

Cash flow hedges recognised 30 (92) 40

Cash flow hedges transferred to inventory 30 (16) (25)

Cash flow hedges recognised in the income statement 30 – 2

Tax on cash flow hedges 8, 30 28 (4)

Disposal of non controlling interests (2) –

Change in market value of available for sale financial assets 30 – 1

Other comprehensive loss for the year (260) (16)

Total comprehensive income for the year attributable to equity shareholders of Rexam PLC 116 108

2011

£m

2010

£m


89

consolidated balance sheet

As at 31 December

notes

Assets

Non current assets

Goodwill 12 1,834 1,848

Other intangible assets 13 343 383

Property, plant and equipment 14 1,590 1,571

Investments in associates and joint ventures 16 70 61

Pension assets 27 – 19

Insurance backed assets 18 23 –

Deferred tax assets 8 294 252

Trade and other receivables 20 106 120

Available for sale financial assets 17 1 27

Derivative financial instruments 26 265 256

4,526 4,537

Current assets

Inventories 19 517 415

Insurance backed assets 18 2 –

Trade and other receivables 20 626 648

Available for sale financial assets 17 1 1

Derivative financial instruments 26 38 70

Cash and cash equivalents 21 412 114

1,596 1,248

Assets classified as held for sale 22 2 282

1,598 1,530

Total assets 6,124 6,067

Liabilities

Current liabilities

Borrowings 24 (53) (81)

Derivative financial instruments 26 (63) (10)

Current tax (13) (20)

Trade and other payables 23 (861) (768)

Provisions 28 (36) (39)

(1,026) (918)

Liabilities classified as held for sale 22 – (50)

(1,026) (968)

Non current liabilities

Borrowings 24 (1,785) (1,800)

Derivative financial instruments 26 (181) (186)

Retirement benefit obligations 27 (540) (482)

Deferred tax liabilities 8 (63) (77)

Non current tax (87) (85)

Other payables 23 (53) (81)

Provisions 28 (70) (63)

(2,779) (2,774)

Total liabilities (3,805) (3,742)

Net assets 2,319 2,325

Equity

Ordinary share capital 564 564

Share premium account 989 989

Capital redemption reserve 351 351

Retained earnings 211 32

Other reserves 30 204 386

Shareholders’ equity 2,319 2,322

Non controlling interests – 3

Total equity 2,319 2,325

Approved by the board on 22 February 2012

Graham Chipchase, chief executive

David Robbie, finance director

2011

£m

2010

£m

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90 Rexam annual report 2011

consolidated cash flow statement

For the year ended 31 December

notes

Cash flows from operating activities

Cash generated from operations 32 650 685

Interest paid (91) (110)

Tax paid (86) (75)

Net cash flows from operating activities 473 500

2011

£m

2010

£m

Cash flows from investing activities

Capital expenditure (240) (206)

Proceeds from sale of property, plant and equipment 1 8

Disposal of Closures (net of cash and cash equivalents disposed) 10 205 –

Loan from joint venture 4 5

Interest received 7 4

Other investing items (1) 6

Net cash flows from investing activities (24) (183)

Cash flows from financing activities

Proceeds from borrowings 7 21

Repayment of borrowings (36) (159)

Purchase of Rexam PLC shares by Employee Share Trust 31 (18) (6)

Dividends paid to equity shareholders 11 (111) (105)

Dividends paid to non controlling interests (1) –

Other financing items 10 (13)

Net cash flows from financing activities (149) (262)

Net increase in cash and cash equivalents 300 55

Cash and cash equivalents at the beginning of the year 99 62

Exchange differences and other non cash adjustments 3 (18)

Net increase in cash and cash equivalents 300 55

Cash and cash equivalents at the end of the year 402 99

Cash and cash equivalents comprise:

Cash at bank and in hand 21 83 46

Short term bank deposits 21 329 68

Bank overdrafts 25 (10) (15)

402 99


91

consolidated statement of changes in equity

Ordinary

share

capital

£m

Share

premium

account

£m

Capital

redemption

reserve

£m

Retained

earnings

£m

Other

reserves

£m

Shareholders’

equity

£m

Non

controlling

interests

£m

At 1 January 2011 564 989 351 32 386 2,322 3 2,325

Profit for the financial year – – – 376 – 376 – 376

Actuarial losses – – – (104) – (104) – (104)

Tax on actuarial losses – – – 30 – 30 – 30

Premium paid on annuitisation of certain pension

related liabilities – – – (2) – (2) – (2)

Cost recognised in the income statement on

annuitisation of certain pension related liabilities

(net of tax) – – – – 3 3 – 3

Exchange differences before recognition of net

investment hedges – – – – (30) (30) – (30)

Net investment hedges recognised – – – – 14 14 – 14

Exchange differences recognised in the income

statement on the disposal of Closures – – – – (89) (89) – (89)

Cash flow hedges recognised – – – – (92) (92) – (92)

Cash flow hedges transferred to inventory – – – – (16) (16) – (16)

Tax on cash flow hedges – – – – 28 28 – 28

Disposal of non controlling interests – – – – – – (2) (2)

Other comprehensive loss for the year – – – (76) (182) (258) (2) (260)

Total comprehensive income/(loss) for the year – – – 300 (182) 118 (2) 116

Share options: value of services provided – – – 8 – 8 – 8

Purchase of Rexam PLC shares by Employee Share Trust – – – (18) – (18) – (18)

Dividends paid – – – (111) – (111) (1) (112)

At 31 December 2011 564 989 351 211 204 2,319 – 2,319

At 1 January 2010 563 989 351 55 362 2,320 2 2,322

Profit for the financial year – – – 124 – 124 – 124

Actuarial losses – – – (64) – (64) – (64)

Tax on actuarial losses – – – 24 – 24 – 24

Exchange differences before recognition of net

investment hedges – – – – (12) (12) – (12)

Net investment hedges recognised – – – – 22 22 – 22

Cash flow hedges transferred to inventory – – – – (25) (25) – (25)

Cash flow hedges transferred to the income statement – – – – 2 2 – 2

Cash flow hedges recognised – – – – 40 40 – 40

Tax on cash flow hedges – – – – (4) (4) – (4)

Changes in market value of available for sale

financial assets – – – – 1 1 – 1

Other comprehensive (loss)/income for the year – – – (40) 24 (16) – (16)

Total comprehensive income for the year – – – 84 24 108 – 108

Share options: value of services provided – – – 5 – 5 – 5

Share option schemes: proceeds from shares issued 1 – – – – 1 – 1

Purchase of Rexam PLC shares by Employee Share Trust – – – (6) – (6) – (6)

Change in non controlling interests – – – (1) – (1) 1 –

Dividends paid – – – (105) – (105) – (105)

At 31 December 2010 564 989 351 32 386 2,322 3 2,325

Total

equity

£m

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92 Rexam annual report 2011

notes to the consolidated financial statements

1 principal accounting policies

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)

and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) and with

those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been

prepared under the historical cost convention as modified by the revaluation of certain financial instruments, share based payments and

retirement benefit obligations.

The Group adopted IAS24 (Revised) ‘Related Party Disclosures’ from 1 January 2011. This revision to an existing accounting standard

clarifies the definition of a related party and the disclosure of transactions between the Group and its subsidiaries, associates and

joint ventures.

The following accounting standards are not yet effective and have not been early adopted by the Group. The Group has yet to assess the

full impact of these accounting standards. Intended adoption dates are subject to endorsement by the EU.

(i) IAS19 (Revised) ‘Employee Benefits’, issued in June 2011, requires the immediate recognition of all changes to the funded position of

retirement benefit plans and changes the basis upon which income and expense is calculated for recognition in the income statement

and the statement of comprehensive income. The Group intends to adopt IAS19 (Revised) for the accounting period beginning on

1 January 2013.

(ii) IFRS9 ‘Financial Instruments’, issued in November 2009, is the first step in the process to replace IAS39 ‘Financial Instruments:

Recognition and Measurement’. The standard introduces new requirements for classifying and measuring financial assets.

The Group intends to adopt IFRS9 no later than the accounting period beginning on 1 January 2015.

There are no other IFRS or IFRIC interpretations that are not yet effective that are expected to have a material impact on the Group.

key estimates and assumptions

The preparation of consolidated financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the

reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and

expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, events or

actions, actual results may ultimately differ from those estimates. The key estimates and assumptions used in these consolidated financial

statements are set out below.

goodwill impairment testing

Goodwill is tested at least annually for impairment in accordance with the accounting policy for goodwill. The recoverable amounts of

cash generating units relating to continuing operations are determined based on value in use calculations. These calculations require the

use of estimates which include cash flow projections for each cash generating unit and discount rates based on the Group’s weighted

average cost of capital, adjusted for specific risks associated with particular cash generating units. For details of impairment testing see

note 12 to the consolidated financial statements. The accounting policies for goodwill and impairment testing are set out below.

retirement benefits

The consolidated financial statements include costs in relation to, and provision for, retirement benefit obligations. There are two principal

funded defined benefit pension plans, in the UK and US, and an unfunded retiree medical plan in the US. The costs and the present value

of any related pension assets and liabilities depend on factors such as life expectancy of the members, the salary progression of current

employees, the returns that plan assets generate and the discount rate used to calculate the present value of the liabilities. The Group

uses estimates based on previous experience and external actuarial advice in determining these future cash flows and in determining the

discount rate. If the discount rates were to fall by 0.5%, the net liabilities of the plans at 31 December 2011 would rise by approximately

£105m (2010: £110m). If equity values were to fall by 10%, then the plan assets at 31 December 2011 would fall by approximately £90m

(2010: £100m). The accounting policy for retirement benefit obligations is set out below and details of the assumptions used for the two

principal pension plans and the retiree medical plan are set out in note 27 to the consolidated financial statements.


93

1 principal accounting policies continued

income taxes

Judgement is required in determining the provision for income taxes. There are many transactions and calculations whose ultimate

tax treatment is uncertain. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes are

likely to be due. The Group recognises deferred tax assets and liabilities based on estimates of future taxable income and recoverability.

Where a change in circumstance occurs, or the final tax outcome of these matters is different from the amounts that were initially recorded,

such differences will impact the income tax and deferred tax balances in the year in which that change or outcome is known. The

accounting policy for income taxes is set out below.

basis of consolidation

The consolidated financial statements comprise Rexam PLC and all its subsidiaries, together with the Group’s share of the results of its

associates and joint ventures. The financial statements of subsidiaries, associates and joint ventures are prepared at the same reporting

date using consistent accounting policies. Intercompany balances and transactions, including any unrealised profits arising from

intercompany transactions, are eliminated in full.

Subsidiaries are entities where the Group has the power to govern the financial and operating policies, generally accompanied by a share

of more than 50% of the voting rights. Subsidiaries are consolidated from the date on which control is transferred to the Group and are

included until the date on which the Group ceases to control them. Associates are entities over which the Group has significant influence

but not control, generally accompanied by a share of between 20% and 50% of the voting rights. Joint ventures are entities over which the

Group has joint control, whereby the strategic, financial and operating decisions relating to the venture require the unanimous consent of

the parties sharing control and are generally accompanied by a 50% share of voting rights. Investments in associates and joint ventures

are accounted for using the equity method. If the Group’s share of losses in an associate or joint venture equals or exceeds its investment

in the associate or joint venture, the Group does not recognise further losses unless it has incurred obligations or made payments on behalf

of the associate or joint venture.

All acquisitions are accounted for by applying the purchase method. The cost of an acquisition is measured as the aggregate of the

fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity instruments issued by the Group.

The identifiable assets, liabilities and contingent liabilities of the acquiree are measured initially at fair value at the acquisition date,

irrespective of the extent of any non controlling interests. The excess of the cost of the acquisition over the Group’s interest in the net fair

value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill.

foreign currencies

The financial statements for each of the Group’s subsidiaries, associates and joint ventures are prepared using their functional currency.

The functional currency is the currency of the primary economic environment in which an entity operates. Foreign currency transactions are

translated into the functional currency using exchange rates prevailing at the dates of the transactions. Exchange differences resulting from

the settlement of such transactions and from the translation at exchange rates ruling at the balance sheet date of monetary assets and

liabilities denominated in currencies other than the functional currency are recognised directly in the consolidated income statement.

Exceptions to this are where the monetary items form part of the net investment in a foreign operation or designated as hedges of a net

investment, or designated as cash flow hedges. Such exchange differences are initially recognised in equity.

The presentation currency of the Group is sterling. The balance sheets of foreign operations are translated into sterling using the exchange

rate at the balance sheet date and the income statements are translated into sterling using the average exchange rate for the year. Where

this average is not a reasonable approximation of the cumulative effect of the rate prevailing on the transaction date, the exchange rate on

the transaction date is used. Exchange differences on translation into sterling arising since 1 January 2004 are recognised as a separate

component of equity. On disposal of a subsidiary, any cumulative exchange differences held in equity are transferred to the consolidated

income statement.

On the repayment of a quasi equity loan, the proportionate share of the cumulative amount of the exchange differences on the loan

recognised in other comprehensive income is not reclassified to the consolidated income statement unless the Group loses control over

the entity to which the quasi equity loan related.

The principal exchange rates against sterling used in these consolidated financial statements are as follows:

Euro 1.15 1.19 1.17 1.17

US dollar 1.60 1.54 1.55 1.54

Average

2011

Closing

2011

Average

2010

Closing

2010

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94

Rexam annual report 2011

notes to the consolidated financial statements

1 principal accounting policies continued

revenue recognition and other income

Revenue from the sale of goods is measured at the fair value of the consideration, net of rebates and trade discounts. Revenue from the

sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership of the goods to the buyer,

when the amount of revenue can be measured reliably and when it is probable that the economic benefits associated with the transaction

will flow to the Group, typically on delivery of goods. The Group makes certain advance payments to customers in relation to contracts

which are charged against sales in the consolidated income statement over their useful economic lives, typically being the contract term.

Other income includes licence income and project management fees for the construction of manufacturing lines and equipment

on behalf of customers.

exceptional items

Items which are exceptional, being material in terms of size and/or nature, are presented separately from underlying business

performance in the consolidated income statement. The separate reporting of exceptional items helps provide an indication of the Group’s

underlying business performance. The principal events which may give rise to exceptional items include the restructuring and integration

of businesses, significant changes to retirement benefit obligations, gains or losses on the disposal of businesses, goodwill impairments,

major asset impairments and disposals and significant litigation and tax claims.

retirement benefit obligations

The Group operates defined benefit pension plans and defined contribution pension plans.

A defined benefit pension plan is one that specifies the amount of pension benefit that an employee will receive on retirement. The Group

operates both funded defined benefit pension plans, where actuarially determined payments are made to trustee administered funds, and

unfunded defined benefit pension plans, where no such payments are made. The asset or liability recognised in the consolidated balance

sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation less, for funded schemes, the fair

value of plan assets at the balance sheet date. The defined benefit obligation is calculated, at least triennially, by independent actuaries

using the projected unit credit method and is determined by discounting the estimated future cash outflows using interest rates of high

quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity

approximating to the terms of the related pension liability. The current service cost and gains and losses on settlements and curtailments

are included in operating expenses in the consolidated income statement. Past service costs are similarly included where the benefits

have vested, otherwise they are amortised on a straight line basis over the vesting period. The pension element of the net finance cost in

the consolidated income statement comprises the expected return on assets of funded defined benefit pension plans, less administration

expenses of pension plans, and the interest on pension plan liabilities. Differences between the actual and expected return on assets,

experience gains and losses and changes in actuarial assumptions are included in the consolidated statement of comprehensive income.

A defined contribution plan is one under which fixed contributions are paid to a third party. The Group has no further payment obligations

once these contributions have been paid. The contributions are recognised in the consolidated income statement when they are due.

Prepaid contributions are recognised in the consolidated balance sheet as an asset to the extent that a cash refund or a reduction in future

payments is likely.

The Group also provides post retirement healthcare benefits (retiree medical) to certain of its current and former employees. The entitlement

to these benefits is usually conditional on an employee remaining in service up to retirement age and the completion of a minimum service

period. The consolidated income statement and consolidated balance sheet accounting treatment with respect to retiree medical is similar

to that for defined benefit pension plans. These obligations are valued by independent actuaries, usually on an annual basis.

share based payment

The Group operates equity and cash settled share option schemes. For equity settled share options, the services received from employees

are measured by reference to the fair value of the share options. The fair value is calculated at grant date and recognised in the

consolidated income statement, together with a corresponding increase in equity, on a straight line basis over the vesting period, based

on an estimate of the number of options that will eventually vest. Vesting conditions, which comprise service conditions and performance

conditions, are not taken into account when estimating the fair value. All non vesting conditions are included in the fair value. For cash

settled share options, the services received from employees are measured at the fair value of the liability and recognised in the

consolidated income statement on a straight line basis over the vesting period. The fair value of the liability is measured at each balance

sheet date and at the date of settlement with changes in fair value recognised in the consolidated income statement. IFRS2 ‘Share based

Payment’ has been applied to equity settled share options granted after 7 November 2002 and to all cash settled share options.

The Rexam Employee Share Trust holds ordinary shares in Rexam PLC which are presented in the consolidated balance sheet

as a deduction from equity.


95

1 principal accounting policies continued

interest

Interest on cash and cash equivalents and borrowings held at amortised cost is recognised in the consolidated income statement using

the effective interest method. Interest includes exchange differences arising on cash and cash equivalents and borrowings, where such

exchange differences are recognised in the consolidated income statement. Interest includes all fair value gains and losses on derivative

financial instruments, and corresponding adjustments to hedged items under designated fair value hedging relationships, where

they relate to financing activities and are recognised in the consolidated income statement. Interest relating to payments made over

an extended period of development of large capital projects is added to the capital cost and amortised over the expected lives

of those projects.

Non hedge accounted financing derivative financial instruments fair value changes and hedge ineffectiveness on financing derivative

financial instruments are separately disclosed, within interest, on the face of the consolidated income statement.

segment reporting

Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief

operating decision maker has been identified as the executive leadership team, which comprises the executive directors and certain senior

executives. The executive leadership team is responsible for assessing the performance of the operating segments for the purpose of

making decisions about resources to be allocated. Operating segments are combined for external reporting purposes where they have

similar economic characteristics, and the nature of products and production processes, the type and class of customers and the methods

to distribute products are all similar.

goodwill

Goodwill represents the excess of the cost of an acquisition over the Group’s interest in the fair value of the identifiable assets and

liabilities of the acquiree at the date of acquisition. Goodwill is tested for impairment at 31 December each year and at any time where

there is any indication that goodwill may be impaired. Goodwill is carried at cost less accumulated impairment losses. At the date of

acquisition, goodwill is allocated to cash generating units for the purpose of impairment testing. Goodwill arising on acquisitions on or

before 31 December 1997 has been deducted from equity. Gains and losses on the disposal of a business include the carrying amount

of goodwill relating to the business sold except for any goodwill deducted from equity. Goodwill arising on the acquisition of subsidiaries

is presented in goodwill and goodwill arising on the acquisition of associates and joint ventures is presented in investments in associates

and joint ventures. Internally generated goodwill is not recognised as an asset.

other intangible assets

Other intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation begins when

an asset is available for use and is calculated on a straight line basis to allocate the cost of the asset over its estimated useful life as follows:

Computer software acquired

2 to 3 years

Computer software developed

Up to 7 years

Customer contracts and relationships acquired

5 to 20 years

Technology and patents acquired

5 to 20 years

Other development projects

Up to 5 years

The cost of intangible assets acquired in an acquisition is the fair value at acquisition date. The cost of separately acquired intangible

assets, including computer software, comprises the purchase price and any directly attributable costs of preparing the asset for use.

Computer software development costs that are directly associated with the implementation of major business systems are capitalised as

intangible assets. Expenditure on research is recognised as an expense in the consolidated income statement as incurred. Expenditure

incurred on other development projects is capitalised as an intangible asset if it is probable that the expenditure will generate future

economic benefits and can be measured reliably.

The amortisation of certain acquired intangible assets, comprising acquired customer contracts and relationships and technology and

patents, is separately disclosed within operating profit on the face of the consolidated income statement.

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96

Rexam annual report 2011

notes to the consolidated financial statements

1 principal accounting policies continued

property, plant and equipment

Property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses. Cost comprises

purchase price and directly attributable costs. Freehold land and assets under construction are not depreciated. For all other property,

plant and equipment, depreciation is calculated on a straight line basis to allocate cost, less residual value of the assets, over their

estimated useful lives as follows:

Freehold buildings

Leasehold buildings

Manufacturing machinery

Computer hardware

Fixtures, fittings and vehicles

Residual values and useful lives are reviewed at least at each financial year end.

Up to 50 years

Shorter of 50 years or lease term

7 to 17 years

Up to 8 years

4 to 10 years

impairment of assets

This policy applies to all assets except inventories, deferred tax assets, financial assets and non current assets classified as held for sale.

At each balance sheet date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of

impairment exists, the Group makes an estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable

amount the asset is written down to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value

in use and is determined for an individual asset (see also accounting policy for assets and liabilities classified as held for sale and

discontinued operations below). If the asset does not generate cash inflows that are largely independent of those from other assets or

groups of assets, the recoverable amount of the cash generating unit to which the asset belongs is determined. Discount rates reflecting the

asset specific risks and the time value of money are used for the value in use calculation. When an asset is written down to its recoverable

amount the impairment loss is recognised in the consolidated income statement in the year in which it is incurred. Impairment losses

incurred in a cash generating unit or group of cash generating units are applied against the carrying amount of any goodwill allocated

to the units. Where no goodwill exists, the impairment losses reduce the other non current assets of the cash generating units. Should

circumstances change which result in a reversal of a previous impairment, the value of the asset is increased and the reversal is recognised

in the consolidated income statement in the year in which it occurs. The increase in the carrying amount of the asset is limited to the

amount which would have been recorded had no impairment been recognised in prior years. Impairment losses applied to goodwill

are not reversed.

inventories

Inventories are measured at the lower of cost and net realisable value. Cost is determined on a first in first out or a weighted average cost

basis. Cost comprises directly attributable purchase and conversion costs and an allocation of production overheads based on normal

operating capacity. Net realisable value is the estimated selling price less estimated costs to completion and selling costs.

cash and cash equivalents

Cash and cash equivalents for the purposes of the consolidated cash flow statement comprise cash at bank and in hand, bank and money

market deposits and other short term highly liquid investments generally with original maturities of three months or less and bank

overdrafts. Bank overdrafts are presented in borrowings within current liabilities in the consolidated balance sheet.

assets and liabilities classified as held for sale and discontinued operations

Assets and liabilities are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction

and the sale is highly probable. Assets and liabilities classified as held for sale are stated at the lower of carrying amount and fair value

less costs to sell. They are not depreciated or amortised. Operations are classified as discontinued when they are either disposed or

are part of a single coordinated plan to dispose, and represent a major line of business or geographical area of operation.

grants

Grants received in respect of property, plant and equipment are capitalised and released to the consolidated income statement in equal

instalments over the estimated useful lives of the related assets.

leases

Leases are classified as finance leases where substantially all the risks and rewards of ownership are transferred to the Group. Finance

leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum

lease payments. Lease payments are apportioned between the liability and finance charge to produce a constant rate of interest on the

finance lease balance outstanding. Assets capitalised under finance leases are depreciated over the shorter of the useful life of the

asset and the lease term. Leases other than finance leases are classified as operating leases. Payments made under operating leases

are recognised as an expense in the consolidated income statement on a straight line basis over the lease term. Any incentives to enter

into operating leases are recognised as a reduction of rental expense over the lease term on a straight line basis.


97

1 principal accounting policies continued

income taxes

The tax expense represents the sum of current tax, non current tax and deferred tax.

Current tax and non current tax are based on taxable profit for the year. Taxable profit differs from net profit as reported in the

consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and

it further excludes items that are never taxable or deductible.

Deferred tax is recognised in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities

and their carrying amounts in the consolidated financial statements. Deferred tax arising from initial recognition of an asset or liability

in a transaction, other than an acquisition, that at the time of the transaction affects neither accounting nor taxable profit or loss, is not

recognised. Deferred tax is measured using tax rates that have been enacted or substantively enacted at the balance sheet date and are

expected to apply when the asset is realised or the liability is settled. Deferred tax assets are recognised to the extent that it is probable

that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary

differences arising on investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing

of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Tax is recognised in the consolidated income statement, unless the tax relates to items recognised directly in equity, in which case the

tax is recognised directly in equity through the consolidated statement of comprehensive income.

provisions

Provisions are recognised when a present obligation exists in respect of a past event and where the amount can be reliably estimated.

Provisions for restructuring are recognised for direct expenditure on business reorganisations where plans are sufficiently detailed and

well advanced, and where appropriate communication to those affected has been undertaken on or before the balance sheet date.

Provisions are discounted where the time value of money is considered to be material.

dividends

Final equity dividends to the shareholders of Rexam PLC are recognised in the period that they are approved by the shareholders.

Interim equity dividends are recognised in the period that they are paid.

financial instruments

Financial instruments that are measured at fair value are disclosed in the consolidated financial statements in accordance with the

following fair value measurement hierarchy:

(i) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

(ii) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices)

or indirectly (that is, derived from prices) (level 2).

(iii) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation

techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates.

If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Derivative financial instruments are measured at fair value. Derivative financial instruments utilised by the Group include interest rate

swaps, cross currency swaps, forward foreign exchange contracts and forward aluminium, resin and energy commodity contracts.

Certain derivative financial instruments are designated as hedges in line with the Group’s risk management policies. Hedges are classified

as follows:

(i) Fair value hedges where they hedge the exposure to changes in the fair value of a recognised asset or liability.

(ii) Cash flow hedges where they hedge exposure to variability in cash flows that is attributable to a particular risk associated

with a recognised asset or liability or a forecasted transaction.

(iii) Net investment hedges where they hedge exposure to changes in the value of the Group’s interests in the net assets of

foreign operations.

For fair value hedges, any gain or loss from remeasuring the hedging instrument at fair value is recognised in the consolidated income

statement. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item

and similarly recognised in the consolidated income statement.

For cash flow hedges and net investment hedges, the portion of the gain or loss on the hedging instrument that is determined to be an

effective hedge is recognised in equity, with any ineffective portion recognised in the consolidated income statement. When hedged

cash flows result in the recognition of a non financial asset or liability, the associated gains or losses previously recognised in equity

are included in the initial measurement of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in

equity are transferred to the consolidated income statement in the same period in which the hedged cash flows affect the consolidated

income statement.

Any gains or losses arising from changes in fair value of derivative financial instruments not designated as hedges are recognised

immediately in the consolidated income statement.

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98

Rexam annual report 2011

notes to the consolidated financial statements

1 principal accounting policies continued

Gains and losses on derivative financial instruments related to operating activities are included in operating profit when recognised in the

consolidated income statement. Gains and losses on derivative financial instruments related to financing activities are included in interest

when recognised in the consolidated income statement.

Borrowings are measured at amortised cost except where they are hedged by an effective fair value hedge, in which case the carrying

value is adjusted to reflect the fair value movements associated with the hedged risk. Where borrowings are used to hedge the Group’s

interests in the net assets of foreign operations, the portion of the exchange gain or loss on the borrowings that is determined to be an

effective hedge is recognised in equity.

Upfront fees paid on the establishment of loan facilities are initially capitalised as transaction costs of the loan and amortised in interest

over the expected term of the loan. Ongoing commitment fees are expensed in interest as incurred.

Available for sale financial assets are measured at fair value. Unrealised gains and losses are recognised in equity except for impairment

losses, interest and dividends arising from those assets which are recognised in the consolidated income statement.

Trade and other receivables are initially measured at fair value and subsequently measured at amortised cost less any provision for

impairment. They are discounted when the time value of money is considered material. Trade and other payables are measured at cost.

2 segment analysis

For internal reporting, Rexam is organised into three operating segments for Beverage Cans based on the geographical locations of

Europe and Asia, North America and South America, and into one operating segment for Plastic Packaging. For external reporting,

the three operating segments for Beverage Cans are combined into one reportable segment.

Beverage Cans comprise aluminium and steel cans for a wide variety of beverages including carbonated soft drinks, energy drinks and

beer. Plastic Packaging comprises rigid plastic products for customers in the healthcare and personal care markets.

The Closures division has been reported as discontinued operations in the segment information set out below.

(i) segment information 2011

Sales

£m

Underlying

operating

profit

£m

Underlying

return on

sales

%

Underlying

return on

net assets

%

Exceptional

and other

items 1

£m

Continuing operations

Beverage Cans 3,786 447 11.8 31.6 (7) 440

Plastic Packaging 948 102 10.8 23.3 (35) 67

Total reportable segments 4,734 549 11.6 29.7 (42) 507

Share of post tax profits of associates and joint ventures 9

Retirement benefit obligations net finance cost (16)

Net interest expense (69)

Profit before tax 431

Tax (128)

Profit for the financial year from continuing operations 303

Discontinued operations

Profit for the financial year from discontinued operations (note 10) 73

Total profit for the financial year 376

Profit

£m

Assets

£m

Liabilities

£m

Capital

expenditure

£m

Depreciation and

amortisation

£m

Impairment:

intangible

assets

£m

Impairment:

property, plant

and equipment 2

£m

Continuing operations

Beverage Cans 3,488 (771) 174 134 – 4

Plastic Packaging 1,532 (249) 65 83 – 2

Total reportable segments 5,020 (1,020) 239 217 – 6

Associates and joint ventures 70 – – – – –

Unallocated assets and liabilities 1,034 (2,785) – – – –

Total continuing operations 6,124 (3,805) 239 217 – 6

Discontinued operations (note 10) – – 10 – 20 14

6,124 (3,805) 249 217 20 20

1 Other items comprise the amortisation of certain acquired intangible assets.

2 Net of impairment reversals.


99

2 segment analysis continued

Share of post tax profits of associates and joint ventures are wholly attributable to Beverage Cans. Segment assets are disclosed after

deducting inter segment assets of £3m for Beverage Cans and £1m for Plastic Packaging. Segment liabilities are disclosed after deducting

inter segment liabilities of £3m for Beverage Cans and £1m for Plastic Packaging. The assets of associates and joint ventures are wholly

attributable to Beverage Cans.

Underlying operating profit comprises operating profit from continuing operations before exceptional items and the amortisation of certain

acquired intangible assets. Underlying operating profit from continuing operations is included as it is felt that adjusting operating profit

for exceptional items and the amortisation of certain acquired intangible assets provides a better indication of the Group’s performance.

Underlying return on sales comprises underlying operating profit from continuing operations divided by sales from continuing operations.

Underlying return on net assets is based on underlying operating profit plus share of associates and joint ventures after tax divided by the

average of opening and closing net assets after adding back retirement benefit obligations (net of tax) and net borrowings and excluding

goodwill and certain acquired intangible assets.

Non specific central costs are allocated on the basis of underlying operating profit.

Unallocated assets comprise derivative financial instrument assets, deferred tax assets, pension assets, insurance backed assets and cash

and cash equivalents which are used as part of the Group’s financing offset arrangements. Unallocated liabilities comprise borrowings,

derivative financial instrument liabilities, current and non current tax, deferred tax liabilities and retirement benefit obligations.

(ii) segment information 2010

Sales

£m

Underlying

operating

profit

£m

Underlying

return on

sales

%

Underlying

return on

net assets

%

Exceptional

and other

items 1

£m

Continuing operations

Beverage Cans 3,677 394 10.7 27.6 (11) 383

Plastic Packaging 942 119 12.6 29.1 (29) 90

Total reportable segments 4,619 513 11.1 27.9 (40) 473

Share of post tax profits of associates and joint ventures 5

Retirement benefit obligations net finance cost (15)

Net interest expense (125)

Profit before tax 338

Tax (102)

Profit for the financial year from continuing operations 236

Discontinued operations

Loss for the financial year from discontinued operations (note 10) (112)

Total profit for the financial year 124

Assets

£m

Liabilities

£m

Capital

expenditure

£m

Depreciation and

amortisation

£m

Impairment:

goodwill

£m

Impairment:

intangible

assets

£m

Profit/

(loss)

£m

Impairment:

property, plant

and equipment 2

£m

Continuing operations

Beverage Cans 3,449 (683) 141 142 – – 6

Plastic Packaging 1,566 (268) 51 87 – – (3)

Total reportable segments 5,015 (951) 192 229 – – 3

Associates and joint ventures 61 – – – – – –

Unallocated assets and liabilities 711 (2,741) – – – – –

Total continuing operations 5,787 (3,692) 192 229 – – 3

Discontinued operations (notes 10, 22) 280 (50) 19 36 59 65 55

6,067 (3,742) 211 265 59 65 58

1 Other items comprise the amortisation of certain acquired intangible assets.

2 Net of impairment reversals.

financial statements governance

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overview

Share of post tax profits of associates and joint ventures from continuing operations are wholly attributable to Beverage Cans. Segment

assets are disclosed after deducting inter segment assets of £2m for Beverage Cans and £1m for Plastic Packaging. Segment liabilities are

disclosed after deducting inter segment liabilities of £1m for Beverage Cans and £2m for Plastic Packaging. The assets of associates and

joint ventures are wholly attributable to Beverage Cans.


100

Rexam annual report 2011

notes to the consolidated financial statements

2 segment analysis continued

(iii) geographic and other information

2011

Sales

£m

2011

Non current

assets

£m

2010

Sales

£m

2010

Non current

assets

£m

Continuing operations

US 1,576 1,398 1,586 1,470

Brazil 747 482 700 432

Austria 327 86 288 91

Russia 281 191 267 208

Spain 226 93 218 102

UK 203 210 200 200

France 188 349 178 339

Germany 136 288 131 327

Other countries 1,050 847 1,051 841

4,734 3,944 4,619 4,010

Unallocated non current assets – 582 – 527

Total continuing operations 4,734 4,526 4,619 4,537

Discontinued operations 205 – 343 –

4,939 4,526 4,962 4,537

Sales are stated by external customer location. One customer, principally in Beverage Cans, contributed sales of £1,171m

(2010: £1,394m), and another Beverage Cans customer contributed sales of £507m (2010: £610m).

Unallocated non current assets comprise derivative financial instrument assets, pension assets, insurance backed assets and deferred

tax assets.

3 operating expenses

2011

Continuing

operations

underlying

£m

2011

Continuing

operations

exceptional

and other

items 1

£m

2011

Continuing

operations

total

£m

2011

Discontinued

operations

total

£m

2010

Continuing

operations

underlying

£m

2010

Continuing

operations

exceptional

and other

items 1

£m

2010

Continuing

operations

total

£m

2010

Discontinued

operations

total

£m

Raw materials used (2,520) – (2,520) (107) (2,371) – (2,371) (169)

Changes in inventories of WIP and finished goods (7) – (7) 1 (10) – (10) (5)

Employee benefit expense (731) (8) (739) (43) (730) – (730) (80)

Depreciation of property, plant and equipment (179) – (179) – (183) – (183) (21)

Amortisation of intangible assets (12) (26) (38) – (14) (32) (46) (15)

Impairment of goodwill – – – – – – – (59)

Impairment of intangible assets – – – (20) – – – (65)

Impairment of property, plant and equipment (5) (2) (7) (14) (6) – (6) (55)

Reversal of impairment of property,

plant and equipment 1 – 1 – – 3 3 –

Freight costs (222) – (222) (6) (224) – (224) (10)

Operating lease rental expense (33) – (33) (3) (33) – (33) (6)

Operating lease rental income 2 – 2 – 2 – 2 –

Other operating expenses (500) (6) (506) (39) (552) (11) (563) (37)

Other operating income 21 – 21 – 15 – 15 2

(4,185) (42) (4,227) (231) (4,106) (40) (4,146) (520)

1 Other items comprise the amortisation of certain acquired intangible assets.

Operating expenses include research and development expenditure of £17m from continuing operations and £2m from discontinued

operations (2010: £16m and £3m); and fair value gains on forward foreign exchange contracts not hedge accounted of £2m from

continuing operations (2010: £3m).


101

4 employee costs and numbers

(i) employee benefit expense

Continuing operations

Wages and salaries (611) (615)

Social security (85) (80)

Share based payment (19) (11)

Retirement benefit obligations (24) (24)

Total continuing operations (739) (730)

Discontinued operations (43) (80)

(782) (810)

(ii) key management compensation (including directors of Rexam PLC)

Salaries and short term employee benefits (10) (10)

Post employment benefits (1) (1)

Share based payment (4) (2)

(15) (13)

Key management comprises all directors of Rexam PLC and band 1 executives. For details of directors’ remuneration see the

remuneration report.

A member of key management has an outstanding loan of £0.5m at 31 December 2011 (2010: £0.5m). The remaining term of the loan

is 13 years (2010: 14 years) and is on a secured arms length basis. Interest charged on the loan during the year was £26,000

(2010: £26,000).

(iii) average number of employees

2011

£m

2011

£m

2011

Number

2010

£m

2010

£m

2010

Number

Continuing operations

Beverage Cans 7,600 7,500

Plastic Packaging 11,400 12,100

Total continuing operations 19,000 19,600

Discontinued operations 1,200 2,100

20,200 21,700

2011

Number

2010

Number

Continuing operations

US 4,500 4,600

China 4,300 4,900

France 2,300 2,300

Brazil 2,000 1,800

Germany 1,100 1,100

Russia 700 700

UK 600 600

Other countries 3,500 3,600

Total continuing operations 19,000 19,600

Discontinued operations 1,200 2,100

20,200 21,700

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102

Rexam annual report 2011

notes to the consolidated financial statements

5 auditors’ remuneration

Fees payable to PricewaterhouseCoopers LLP for the audit of the consolidated financial statements 0.9 0.8

Statutory audit fees payable to associate members of PricewaterhouseCoopers LLP 2.5 2.5

Total audit fees 3.4 3.3

Audit related assurance services 0.2 0.2

Other assurance services 2.2 –

Tax advisory services 0.3 0.4

Tax compliance services – 0.1

All other non audit services 0.5 0.6

2011

£m

2010

£m

6.6 4.6

Included in total audit fees are amounts payable to associate members of PricewaterhouseCoopers LLP of £0.1m in relation to discontinued

operations (2010: £0.2m). Other assurance services comprise assurance reporting on historic financial information required for business

disposals.

6 exceptional items – continuing operations

Restructuring (14) (11)

Impairment of property, plant and equipment (net of reversals) (2) 3

Exceptional items before tax (16) (8)

Tax on exceptional items 4 1

Total exceptional items after tax (12) (7)

Exceptional items before tax include £9m (2010: £6m) for restructuring costs and £2m for impairment of property, plant and equipment

(2010: £3m reversal of impairment) in Plastic Packaging in respect of previously announced plant closures and restructuring of some of the

remaining continuing businesses following the disposal of the Closures division. They also include £5m (2010: £5m) of restructuring costs

in Beverage Cans in respect of previously announced plant closures.

7 interest

Interest expense

Bank overdrafts (9) (8)

Bank loans (8) (26)

US public bond (24) (25)

US private placement (9) (9)

Subordinated bond (45) (41)

Medium term notes (25) (31)

Interest on financing derivatives 24 21

Foreign exchange (losses)/gains (3) 2

Underlying interest expense (99) (117)

Fair value gains/(losses) on financing derivatives 23 (12)

(76) (129)

Interest income

Cash and cash equivalents 7 4

Bank loans in 2010 included £10m of capitalised facility fees written off on the cancellation of related bank facilities.

2011

£m

2011

£m

2010

£m

2010

£m


103

7 interest continued

An analysis of fair value gains/(losses) on financing derivatives is set out below.

Fair value hedges

Interest rate swaps (3) (1)

Cross currency swaps 30 11

Fair value adjustment to borrowings (18) (5)

9 5

Not hedge accounted

Interest rate swaps 5 (7)

Cross currency swaps 9 (10)

14 (17)

2011

£m

2010

£m

overview

Fair value gains/(losses) on financing derivatives 23 (12)

The net gain on fair value hedges of £9m (2010: £5m) represents the total hedge ineffectiveness for the year.

8 tax

(i) tax included in the consolidated income statement

2011

Underlying

profit

£m

2011

Exceptional

and other

items 1

£m

2011

Total

£m

2010

Underlying

profit

£m

2010

Exceptional

and other

items 1

£m

Continuing operations

Current and non current tax (82) (5) (87) (82) 6 (76)

Adjustment in respect of prior years 2 – 2 7 – 7

Current and non current tax (80) (5) (85) (75) 6 (69)

Origination and reversal of temporary differences (55) 12 (43) (38) 8 (30)

Adjustment in respect of prior years – – – (3) – (3)

Deferred tax (55) 12 (43) (41) 8 (33)

Total continuing operations (135) 7 (128) (116) 14 (102)

Discontinued operations (5) 39 34 (9) 74 65

(140) 46 (94) (125) 88 (37)

1 Other items comprise the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.

(ii) tax credited/(charged) in equity

Actuarial losses 30 24

Cash flow hedges 28 (4)

Annuitisation of certain pension obligations (1) –

Tax included in equity 57 20

2011

£m

2010

Total

£m

2010

£m

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104

Rexam annual report 2011

notes to the consolidated financial statements

8 tax continued

(iii) tax reconciliation

A reconciliation of the tax charge applicable to the Group’s profit/(loss) before tax on continuing operations at the UK statutory rate of

26.5% (2010: 28%) with the tax charge on continuing operations based on the Group’s effective rate is set out below.

2011

Underlying

profit/tax

£m

2011

Exceptional

and other

items 1

£m

2011

Total

£m

2010

Underlying

profit/tax

£m

2010

Exceptional

and other

items 1

£m

2010

Total

£m

Profit/(loss) before tax on continuing operations 450 (19) 431 390 (52) 338

Tax on continuing operations at the UK statutory rate (119) 5 (114) (109) 14 (95)

Non deductible and non taxable items (2) (1) (3) 6 (2) 4

(Higher)/lower domestic tax rates on overseas earnings (16) 3 (13) (17) 2 (15)

Tax overprovided in prior years 2 – 2 4 – 4

Tax in the consolidated income statement (135) 7 (128) (116) 14 (102)

Effective rate of tax on continuing operations 30% 30% 30% 30%

1 Other items comprise the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.

(iv) analysis of deferred tax

Deferred tax assets 294 252

Deferred tax liabilities (63) (77)

Net deferred tax assets 231 175

2011

£m

2010

£m

Retirement

benefit

obligations

£m

Tax

losses

£m

Accelerated

tax

depreciation

£m

Goodwill

and other

intangible assets

£m

Other

temporary

differences

£m

At 1 January 2011 146 59 (90) 50 10 175

Exchange differences – – (1) 2 1 2

(Charge)/credit for the year (7) (22) (15) 25 15 (4)

Credit to equity 30 – – – 28 58

At 31 December 2011 169 37 (106) 77 54 231

Total

£m

At 1 January 2010 117 61 (106) 12 18 102

Exchange differences 4 2 (1) 1 1 7

Credit/(charge) for the year 1 (4) 13 37 (6) 41

Credit/(charge) to equity 24 – – – (4) 20

Transfer to liabilities classified as held for sale – – 4 – 1 5

At 31 December 2010 146 59 (90) 50 10 175

Deferred tax assets and liabilities are presented as non current in the consolidated balance sheet. Of the total deferred tax assets,

£36m (2010: £29m) are recoverable within one year. Deferred tax assets and liabilities are only offset where there is a legally enforceable

right of offset and there is an intention to settle the balance net.

Deferred tax assets have been recognised where it is probable that they will be recovered. In recognising deferred tax assets, the

Group has considered if it is more likely than not that sufficient future profits will be available to absorb tax losses and other temporary

differences. Deferred tax assets of £80m (2010: £61m) have not been recognised in respect of losses and other temporary differences due

to the uncertainty of the availability of suitable profits in the foreseeable future. The principal items on which no deferred tax assets have

been recognised are tax losses, including capital losses, of £288m (2010: £227m) of which £57m (2010: £nil) expire within five years.

No deferred tax has been recognised on the unremitted earnings of overseas subsidiaries except where it is probable that the temporary

difference will reverse in the forseeable future. If the earnings were remitted in full, tax of £20m (2010: £25m) would be payable.


105

9 earnings/(loss) per share

(i) basic and diluted earnings/(loss) per share

Continuing operations 34.7 34.5 27.1 27.0

Discontinued operations 8.4 8.3 (12.9) (12.9)

Total 43.1 42.8 14.2 14.1

Basic

2011

Pence

Diluted

2011

Pence

Basic

2010

Pence

Diluted

2010

Pence

Profit/(loss) for the financial year attributable to equity shareholders of Rexam PLC

Continuing operations 303 237

Discontinued operations 73 (113)

Total 376 124

2011

£m

2010

£m

overview

Weighted average number of shares in issue 872.6 875.6

Dilution on conversion of outstanding share options 6.2 2.6

Weighted average number of shares in issue on a diluted basis 878.8 878.2

(ii) underlying earnings per share

Continuing operations 36.1 31.4

Discontinued operations 0.9 1.4

Total 37.0 32.8

2011

Continuing

operations

£m

2011

Discontinued

operations

£m

2011

Millions

2011

Pence

2010

Continuing

operations

£m

2010

Millions

2010

Pence

2010

Discontinued

operations

£m

Underlying profit before tax 450 13 390 22

Tax on underlying profit (135) (5) (116) (9)

Underlying profit for the financial year 315 8 274 13

Attributable to:

Shareholders of Rexam PLC 315 8 275 12

Non controlling interests – – (1) 1

315 8 274 13

Underlying earnings per share is based on underlying profit for the financial year attributable to shareholders of Rexam PLC divided by the

weighted average number of shares in issue. Underlying profit for the financial year is profit before exceptional items, the amortisation of

certain acquired intangible assets and fair value changes on financing derivatives. Underlying earnings per share is included as it is felt

that adjusting basic earnings per share for exceptional items, the amortisation of certain acquired intangible assets and fair value changes

on financing derivatives provides a better indication of the Group’s performance.

financial statements governance

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106

Rexam annual report 2011

notes to the consolidated financial statements

10 discontinued operations

The sale of the discontinued Closures division completed on 1 September 2011. In 2010 the division was reported in the consolidated

balance sheet within assets and liabilities classified as held for sale.

A summary of results, exceptional items, profit on disposal, cash flows and other comprehensive loss are set out below.

(i) summary of results

Sales 205 343

Operating expenses (231) (520)

Underlying operating profit 13 22

Exceptional items (note ii) (39) (185)

Amortisation of certain acquired intangible assets – (14)

Loss before tax (26) (177)

Tax on underlying profit (5) (9)

Tax on exceptional items (note ii) 13 68

Tax on amortisation of certain acquired intangible assets – 6

Tax 8 65

Loss after tax (18) (112)

Profit on disposal (note iii) 91 –

Net profit/(loss) 73 (112)

2011

£m

2010

£m

(ii) exceptional items

Impairment of Closures (28) (171)

Other impairment (6) (8)

Restructuring (5) (6)

Exceptional items before tax (39) (185)

Tax on impairment of Closures 10 63

Tax on other impairment and restructuring 3 5

Exceptional items after tax (26) (117)

Impairment of Closures comprises goodwill of £nil (2010: £59m), intangible assets of £16m (2010: £65m) and property, plant and

equipment of £12m (2010: £47m). Other impairment in 2011 comprises £4m related to the write off of certain software licenses and £2m

related to the write down of a plastic packaging plant in Poland. Other impairment in 2010 of £8m comprised the closure of a facility in

Constantine, US.

(iii) profit on disposal

2011

£m

Gross proceeds (net of costs of £10m) 207

Cash and cash equivalents disposed (2)

Net cash inflow in the cash flow statement 205

Net assets disposed (net of tax) (197)

Accrued costs (6)

Exchange differences recognised in the income statement on disposal 89

Profit on disposal 91

(iv) cash flows

Net cash flows from operating activities (19) 30

Net cash flows from investing activities (14) (12)

Net cash flows from financing activities (1) –

Net cash (outflow)/inflow (34) 18

2011

£m

2011

£m

2010

£m

2010

£m


107

10 discontinued operations continued

(v) other comprehensive loss

Exchange differences recognised in the income statement on disposal (89) –

Disposal of non controlling interests (2) –

Total other comprehensive loss (91) –

2011

£m

2010

£m

11 equity dividends

Interim dividend for 2011 of 4.7p paid on 4 October 2011 41 –

Final dividend for 2010 of 8.0p paid on 7 June 2011 70 –

Interim dividend for 2010 of 4.0p paid on 5 October 2010 – 35

Final dividend for 2009 of 8.0p paid on 3 June 2010 – 70

2011

£m

2010

£m

111 105

A final dividend per equity share of 9.7p has been proposed for 2011 and, subject to shareholder approval, is payable on 7 June 2012.

The proposed final dividend has not been accrued in these consolidated financial statements.

12 goodwill

(i) summary

Cost

At 1 January 1,852 2,085

Exchange differences (15) 30

Transfer to assets classified as held for sale – (263)

At 31 December 1,837 1,852

Impairment

At 1 January (4) (199)

Exchange differences 1 (9)

Impairment of Closures – (59)

Transfer to assets classified as held for sale – 263

At 31 December (3) (4)

Carrying value at 31 December 1,834 1,848

The carrying value of goodwill at 31 December is allocated to cash generating units or groups of cash generating units (CGUs) as set out

below.

Europe 639 647

US 367 367

Brazil 197 197

Russia 42 44

Egypt 33 35

Mexico 7 7

Beverage Cans 1,285 1,297

2011

£m

2011

£m

2010

£m

2010

£m

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Healthcare 327 330

Personal Care 222 221

Plastic Packaging 549 551

Carrying value at 31 December 1,834 1,848


108

Rexam annual report 2011

notes to the consolidated financial statements

12 goodwill continued

(ii) impairment testing

The recoverable amounts of CGUs or groups of CGUs were determined based on value in use calculations at 31 December 2011.

The cash flow projections used in these calculations are based on the Group’s financial budget for 2012, as approved by the board in

December 2011, and the Group’s financial plans in respect of 2013 and 2014. As highlighted in the principal accounting policies, the

calculation of value in use requires the use of estimates which, although based on management’s best knowledge, may ultimately differ

from actual results.

Key assumptions

The key assumptions for the value in use calculations are:

(a) Discount rates. The pre tax discount rates used in the value in use calculations are set out in the table below. These discount rates are

derived from the Group’s pre tax weighted average cost of capital (WACC), as adjusted for the specific risks relating to each region in

which the CGUs operate. The Group’s pre tax WACC fell by 1% due primarily to a fall in the underlying risk free rate.

Europe 10 11

US 10 11

Brazil 13 15

Russia 15 18

China 13 14

Egypt 20 21

Mexico 14 16

(b) Growth rates. Cash flows beyond the three year planning horizon have been extrapolated using growth rates ranging between

1.6% and 7.5%. The growth rates used do not exceed the medium to long term GDP growth rates relating to each region in which

the CGUs operate.

(c) Operating profit. Forecasts for sales and margins are based on analyses of sales, markets, costs and competitors. Consideration is

given to past experience and knowledge of future contracts. Forecasts for aluminium and resin are based on forward prices and time

projections after taking into account pass through of costs and hedging. Forecasts for other raw materials and energy are based on

inflation forecasts and supply and demand factors.

Sensitivities

The recoverable amount of the goodwill allocated to the Personal Care CGUs was calculated using discount rates between 10% and 13%

and growth rates between 1.6% and 7.5% to reflect the different regions in which the CGUs operate. A comparison of the recoverable

amount with carrying value gave rise to minimal goodwill headroom. A 1% increase in discount rates would reduce the recoverable

amount by approximately £60m. Similarly, a 1% decrease in either growth rates or operating profit would reduce the recoverable amount

by approximately £70m and £10m, respectively.

With respect to all other CGUs or groups of CGUs, management considers that no reasonably possible change in any of the key

assumptions would cause the recoverable amount of goodwill to fall below carrying value.

2011

%

2010

%


109

13 other intangible assets

Computer

software

acquired

£m

Computer

software

developed

£m

Customer

contracts and

relationships

acquired

£m

Technology

and patents

acquired

£m

Other

development

projects

£m

Cost

At 1 January 2011 98 24 346 127 16 611

Exchange differences (1) – (3) (1) – (5)

Additions 4 – – – 1 5

Disposals (5) (4) – – (1) (10)

At 31 December 2011 96 20 343 126 16 601

Accumulated amortisation

At 1 January 2011 (71) (18) (86) (46) (7) (228)

Exchange differences 1 1 1 – – 3

Amortisation for the year (9) (2) (18) (8) (1) (38)

Disposals 5 4 – – – 9

Impairment (2) (2) – – – (4)

At 31 December 2011 (76) (17) (103) (54) (8) (258)

Carrying value at 31 December 2011 20 3 240 72 8 343

Cost

At 1 January 2010 95 26 498 188 13 820

Exchange differences (1) 1 19 6 – 25

Additions 9 – – – 2 11

Disposals (2) (1) – – – (3)

Transfers 1 – – – 2 3

Transfer to assets classified as held for sale (4) (2) (171) (67) (1) (245)

At 31 December 2010 98 24 346 127 16 611

Accumulated amortisation

At 1 January 2010 (65) (17) (91) (46) (6) (225)

Exchange differences 1 (1) (2) (1) – (3)

Amortisation for the year (11) (3) (32) (14) (1) (61)

Disposals 1 1 – – – 2

Impairment – – (65) – – (65)

Transfer to assets classified as held for sale 3 2 104 15 – 124

At 31 December 2010 (71) (18) (86) (46) (7) (228)

Carrying value at 31 December 2010 27 6 260 81 9 383

The impairment of £4m in 2011 comprises the write off of certain software licenses. The impairment of £65m in 2010 related to the

discontinued Closures division.

Total

£m

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Rexam annual report 2011

notes to the consolidated financial statements

14 property, plant and equipment

Property

£m

Plant and

equipment

£m

Assets under

construction

£m

Cost

At 1 January 2011 579 2,289 127 2,995

Exchange differences (7) (23) (4) (34)

Additions 5 61 168 234

Disposals (2) (37) (2) (41)

Reclassifications 19 117 (136) –

At 31 December 2011 594 2,407 153 3,154

Accumulated depreciation

At 1 January 2011 (160) (1,264) – (1,424)

Exchange differences 1 12 – 13

Disposals – 34 – 34

Depreciation for the year (21) (158) – (179)

Impairment – (9) – (9)

Reversal of impairment – 1 – 1

At 31 December 2011 (180) (1,384) – (1,564)

Total

£m

Carrying value at 31 December 2011 414 1,023 153 1,590

Cost

At 1 January 2010 602 2,389 113 3,104

Exchange differences 4 13 2 19

Additions 3 43 154 200

Disposals (9) (48) (1) (58)

Transfers – 2 (3) (1)

Reclassifications 23 95 (118) –

Transfer to assets classified as held for sale (44) (205) (20) (269)

At 31 December 2010 579 2,289 127 2,995

Accumulated depreciation

At 1 January 2010 (150) (1,231) – (1,381)

Exchange differences (2) (5) – (7)

Disposals 3 43 – 46

Depreciation for the year (22) (182) – (204)

Impairment – (61) – (61)

Reversal of impairment – 3 – 3

Transfer to assets classified as held for sale 11 169 – 180

At 31 December 2010 (160) (1,264) – (1,424)

Carrying value at 31 December 2010 419 1,025 127 1,571

The carrying value of property, plant and equipment includes finance leased assets of £33m (2010: £34m) in respect of property

and £nil (2010: £1m) in respect of plant and equipment.

Of the impairment of £9m in 2011, £5m relates to the write down of assets on conversion from steel to aluminium in the Indian beverage

cans business and £4m relates to write downs of assets in Plastic Packaging in respect of previously announced plant closures and

restructuring in some of the remaining continuing businesses following disposal of the Closures division. In 2010 the impairment of £61m

comprised £6m on continuing operations and £55m in respect of the discontinued Closures division. Of the £6m from continuing

operations, £5m related to the write down of assets on conversion of plants from steel to aluminium in the European beverage cans

business and £1m related to over capacity in the Mexican beverage cans business.

The reversal of impairment of £1m in 2011 is an over provision relating to the write down of assets on conversion from steel to aluminium in

a Spanish beverage cans plant. The reversal of impairment in 2010 of £3m related to the North American plastic packaging business

whereby the proceeds from the sale of assets were higher than previously expected.


111

15 investments in subsidiaries

The principal subsidiaries, all of which are wholly owned, are shown below. An asterisk indicates that the capital is directly owned by

Rexam PLC. Subsidiaries incorporated in the UK are registered in England and Wales. All subsidiaries are included in the consolidated

financial statements.

Country of

incorporation

Principal area

of operation

Identity of

capital held

Nature of

business activities

Rexam Beverage Can Company US US Common stock Consumer packaging

Rexam Beverage Can Naro Fominsk LLC Russia Russia Capital stock Consumer packaging

Rexam Beverage Can South America SA Brazil South America Common stock Consumer packaging

Rexam do Brazil Ltda Brazil South America Quotas Consumer packaging

Rexam European Holdings Limited UK UK Ordinary shares Holding company

Rexam France SA France France Ordinary shares Consumer packaging

Rexam Group Holdings Limited UK UK Ordinary shares Holding company

Rexam Holdings AB Sweden Continental Europe Ordinary shares Holding company

Rexam Inc US US Common stock Holding company

Rexam Overseas Holdings Limited UK UK Ordinary shares Holding company

Rexam Plastic Packaging Inc US US Common stock Holding company

16 investments in associates and joint ventures

The principal associate and joint venture are set out below.

Country of

incorporation and

area of operation Issued capital Group share

Hanil Can Company Limited – associate South Korea 1.7m shares of 5,000 won each 40%

Controladora Envases Universales Rexam SA – joint venture Guatemala 334.5m shares of 1 quetzal each 50%

Associates

£m

Joint ventures

£m

At 1 January 2011 35 26 61

Share of post tax profits 4 5 9

At 31 December 2011 39 31 70

At 1 January 2010 31 23 54

Exchange differences 2 1 3

Share of post tax profits 2 3 5

Transfer to assets classified as held for sale – (1) (1)

At 31 December 2010 35 26 61

There is £3m of goodwill allocated to the joint venture in Guatemala (2010: £3m).

The following table sets out summary information on all associates and joint ventures on a 100% basis.

2011

Associates

£m

2011

Joint ventures

£m

2010

Associates

£m

Total

£m

2010

Joint ventures

£m

Sales 187 70 153 56

Profit after tax 11 9 5 5

Assets 161 73 150 62

Liabilities (64) (11) (63) (10)

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Rexam annual report 2011

notes to the consolidated financial statements

17 available for sale financial assets

At 1 January 28 23

Exchange differences (1) 1

Income for the year 2 2

Changes in market value – 1

Cash injection – 3

Payments in respect of pension obligations (2) (2)

Disposals (25) –

At 31 December 2 28

2011

£m

2010

£m

Non current assets 1 27

Current assets 1 1

At 31 December 2 28

Available for sale financial assets at 31 December 2011 include £1m (2010: £27m) of investments used to satisfy certain US retirement

obligations, of which £nil (2010: £27m) comprises fixed rate listed investments, the fair values of which were determined directly by

reference to published price quotations in an active market, and £1m (2010: £nil) comprises cash and cash equivalents. Also included in

available for sale financial assets at 31 December 2011 are unlisted investments of £1m (2010: £1m).

Disposals comprise £23m of assets transferred to insurance backed assets and a £2m loss on the ‘buy in’ of insurance policies on the

transfer, as set out in note 18. The £2m is recognised in the consolidated statement of comprehensive income.

The carrying amounts of available for sale financial assets are denominated in the following currencies, which are the functional currencies

of the relevant subsidiaries.

US dollar 1 27

Euro 1 1

18 insurance backed assets

2011

£m

2011

£m

2010

£m

2 28

At 1 January – –

Exchange differences 1 –

Additions 23 –

Payments in respect of pension obligations (1) –

Actuarial gains 2 –

2010

£m

25 –

Non current assets 23 –

Current assets 2 –

At 31 December 25 –

The Group, through its subsidiary Rexam Inc, has a number of non qualified defined benefit pension plans in the US, some of which are

structured as Rabbi Trusts, whereby investments held by the Group are linked to the obligations in the plans.

Historically the Group was required to maintain its defined benefit Rabbi Trust assets at 100% of the value of the related US defined benefit

pension obligations and this gave rise to volatile cash funding requirements. To eliminate this investment and demographic related

volatility, the Group purchased a number of non qualifying insurance policies in July 2011 at a cost of £25m, including a £2m ‘buy in’

insurance premium, recognised in the consolidated statement of comprehensive income. The insurance policies pay the benefits to the

Group as they fall due, and the Group in turn makes the payments to the eligible beneficiaries.

Although eligible beneficiaries have no vested rights in the insurance policies, the policies remain under the Rabbi Trust structure and as

such they cannot be used by the Group, but they would revert to the benefit of general creditors in the event of Rexam Inc’s bankruptcy.

The insurance backed assets are recognised in the consolidated balance sheet at the present value of the matching defined benefit pension

obligations and are accounted for in accordance with the Group’s accounting policy for retirement benefit obligations.


113

19 inventories

Raw materials, stores and consumables 211 176

Work in progress 17 15

Finished goods 289 224

An analysis of provisions against inventories is set out below.

2011

£m

2010

£m

517 415

At 1 January (29) (32)

Charge for the year (22) (13)

Released in the year 6 3

Utilised 5 4

Transfer to assets classified as held for sale – 9

At 31 December (40) (29)

2011

£m

2010

£m

overview

20 trade and other receivables

Non current assets

Trade receivables 4 4

Provision for impairment (4) (4)

Net trade receivables – –

Prepayments 62 68

Taxes 11 9

Other receivables 33 43

106 120

Current assets

Trade receivables 527 509

Provision for impairment (9) (17)

Net trade receivables 518 492

Prepayments 36 55

Taxes 33 37

Other receivables 39 64

626 648

Total trade and other receivables 732 768

An analysis of provisions for impairment of trade and other receivables is set out below.

At 1 January (21) (16)

Impairment in the year (7) (7)

Released in the year 14 1

Utilised 1 1

At 31 December (13) (21)

2011

£m

2011

£m

2010

£m

2010

£m

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Rexam annual report 2011

notes to the consolidated financial statements

20 trade and other receivables continued

An analysis of total trade and other receivables including those which are past due but not impaired is set out below.

Not yet due 691 715

Past due less than 1 month 31 21

Between 1 and 2 months 7 4

Between 2 and 3 months 2 1

Between 3 and 6 months – 2

Between 6 and 12 months 1 5

In more than 12 months – 20

2011

£m

2010

£m

732 768

The maximum amount of credit risk with respect to customers is represented by the carrying amount on the balance sheet. Customer credit

facilities for new customers must be approved by designated managers at business level or by senior sector management. Credit limits are

set with reference to trading history and reports from credit rating agencies. Customer credit facilities are reviewed at the sales order entry

stage and at the time of shipment so as not to exceed customer limits. Overdue accounts are regularly reviewed and impairment provisions

are created where necessary. As a matter of policy, all outstanding trade balances greater than three months are fully provided except as

approved by senior sector management and with due regard to the historical risk profile of the customer. The Group has extremely low

historical levels of customer credit defaults, due in part to the large multinational nature of many of its customers and the long term

relationships it has with them. There were no major new customers in 2011 where the Group considered there was a risk of significant

credit default. There are no trade and other receivables that would otherwise be past due or impaired whose terms have been

renegotiated.

The carrying amounts of total trade and other receivables are denominated in the following currencies which, in most instances, are the

functional currencies of the relevant subsidiaries.

Euro 259 259

US dollar 204 242

Brazilian real 154 154

Other 115 113

21 cash and cash equivalents

2011

£m

2010

£m

732 768

Cash at bank and in hand 83 46

Short term bank deposits 329 68

The Group has provided letters of credit, secured by short term bank deposits, totalling £1m (2010: £1m) as part of its insurance

arrangements.

The carrying amounts of cash and cash equivalents are denominated in the following currencies.

2011

£m

2010

£m

412 114

US dollar 184 72

Sterling 166 2

Euro 22 20

Other 40 20

2011

£m

2010

£m

412 114


115

22 assets and liabilities classified as held for sale

Assets 2 282

Liabilities – (50)

2011

£m

2010

£m

2 232

Assets classified as held for sale in 2011 comprise properties in the US deemed surplus to requirements (2010: £2m). In 2010 assets and

liabilities classified as held for sale included £230m relating to the discontinued Closures division.

23 trade and other payables

Current liabilities

Trade payables (510) (438)

Social security and other taxes (66) (60)

Accrued expenses (198) (202)

Loan from joint venture (9) (5)

Other payables (78) (63)

(861) (768)

Non current liabilities

Accrued expenses (21) (30)

Other payables (32) (51)

(53) (81)

Total trade and other payables (914) (849)

The carrying amounts of total trade and other payables are denominated in the following currencies, which in most instances are the

functional currencies of the relevant subsidiaries.

US dollar (464) (398)

Euro (255) (259)

Brazilian real (80) (92)

Sterling (43) (41)

Other (72) (59)

(914) (849)

2011

£m

2011

£m

2010

£m

2010

£m

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Rexam annual report 2011

notes to the consolidated financial statements

24 borrowings

Current liabilities

Bank overdrafts (10) (15)

Bank loans (4) (25)

US public bond (1) (1)

US private placement (1) (1)

Subordinated bond (21) (21)

Medium term notes (16) (17)

Finance leases – (1)

(53) (81)

Non current liabilities

Bank loans (28) (43)

US public bond (356) (356)

US private placement (146) (146)

Subordinated bond (715) (706)

Medium term notes (540) (549)

(1,785) (1,800)

2011

£m

2010

£m

Total borrowings (1,838) (1,881)

The Group has a range of bank facilities maturing between 2012 and 2016. These facilities may generally be drawn in a range of freely

available currencies and are at floating rates of interest. In addition, the Group has a US public bond, a US private placement,

a subordinated bond and medium term notes in issue. The US public bond and US private placement totalling US$775m were issued at

a fixed price and mature in 2013. The subordinated bond is denominated in euros with a maturity in 2067. It was issued at a fixed rate

of interest but has been swapped into US dollar floating rates of interest through the use of cross currency and interest rate derivatives.

The medium term notes are denominated in euros and mature in 2013. They were issued at fixed rates of interest although some have

been swapped to floating rates of interest in euro through the use of interest rate derivatives. The bulk of the Group’s drawn debt is currently

represented by various bond issues with significant headroom available under its committed bank facilities.

Total minimum lease payments at 31 December 2011 are £nil (2010: £1m).

Included within borrowings are secured loans of £1m (2010: £15m), the security for which is principally property.

The carrying amounts of total borrowings are denominated in the following currencies.

Euro (1,291) (1,296)

US dollar (509) (529)

Other (38) (56)

(1,838) (1,881)

2011

£m

2010

£m


117

25 net borrowings

Net borrowings at 31 December by instrument.

Cash and cash equivalents 412 114

Bank overdrafts (10) (15)

Bank loans (32) (68)

US public bond (357) (357)

US private placement (147) (147)

Subordinated bond (736) (727)

Medium term notes (556) (566)

Finance leases – (1)

Financing derivatives 114 83

2011

£m

2010

£m

(1,312) (1,684)

overview

Movement in net borrowings.

At 1 January (1,684) (1,828)

Exchange differences 29 (38)

Increase in cash and cash equivalents 300 55

Proceeds from borrowings (7) (21)

Repayment of borrowings 36 159

Fair value and other changes 14 (11)

At 31 December (1,312) (1,684)

Reconciliation of net borrowings to the consolidated balance sheet.

Total derivative financial instruments (net) 59 130

Derivatives not included in net borrowings 55 (47)

Financing derivatives included in net borrowings 114 83

Cash and cash equivalents 412 114

Borrowings included in current liabilities (53) (81)

Borrowings included in non current liabilities (1,785) (1,800)

2011

£m

2011

£m

2010

£m

2010

£m

(1,312) (1,684)

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Rexam annual report 2011

notes to the consolidated financial statements

26 financial instruments

(i) carrying amount and fair value of financial assets and liabilities

Analysis of the carrying values and fair values at 31 December, by category and by class, of financial assets and liabilities.

Derivatives

used for

hedging

£m

Derivatives

used for

trading

£m

Loans

and

receivables

£m

Available

for sale

assets

£m

Other

financial

liabilities

£m

Total

carrying

amount

£m

Total

fair value

£m

At 31 December 2011

Financial assets

Cash and cash equivalents – – 412 – – 412 412

Trade and other receivables 1 – – 590 – – 590 590

Available for sale financial assets – – – 2 – 2 2

Derivative financial instruments 300 3 – – – 303 303

Financial liabilities

Trade and other payables 2 – – – – (848) (848) (848)

Bank overdrafts – – – – (10) (10) (10)

Bank loans – – – – (32) (32) (32)

US public bond – – – – (357) (357) (381)

US private placement – – – – (147) (147) (156)

Subordinated bond – – – – (736) (736) (595)

Medium term notes – – – – (556) (556) (569)

Derivative financial instruments (72) (172) – – – (244) (244)

228 (169) 1,002 2 (2,686) (1,623) (1,528)

At 31 December 2010

Financial assets

Cash and cash equivalents – – 114 – – 114 114

Trade and other receivables 1 – – 599 – – 599 599

Available for sale financial assets – – – 28 – 28 28

Derivative financial instruments 324 2 – – – 326 326

Financial liabilities

Trade and other payables 2 – – – – (789) (789) (789)

Bank overdrafts – – – – (15) (15) (15)

Bank loans – – – – (68) (68) (68)

US public bond – – – – (357) (357) (392)

US private placement – – – – (147) (147) (160)

Subordinated bond – – – – (727) (727) (642)

Medium term notes – – – – (566) (566) (585)

Finance leases – – – – (1) (1) (1)

Derivative financial instruments (6) (190) – – – (196) (196)

318 (188) 713 28 (2,670) (1,799) (1,781)

1 Excludes prepayments and taxes.

2 Excludes social security and other taxes.

Market values have been used to determine the fair values of available for sale financial assets, bank overdrafts and floating rate bank

loans. The carrying values of trade and other receivables and trade and other payables are assumed to approximate their fair values

due to their short term nature. The fair values of the US public bond, subordinated bond and medium term notes have been determined by

reference to quoted market prices at the close of business on 31 December. The US private placement is not a publicly traded instrument

and its fair value has been approximated using the market value of the US public bond, which has a similar maturity date. The fair values

of interest rate swaps, cross currency swaps, fixed rate loans and finance leases have been determined by discounting cash flows at

prevailing interest rates. The fair value of forward foreign exchange contracts has been determined by marking those contracts to market

against prevailing forward foreign exchange rates. The fair value of forward commodity contracts has been determined by marking those

contracts to market at prevailing forward prices.

In both 2011 and 2010, all financial instruments measured at fair value are categorised as level 2 in the fair value measurement hierarchy,

whereby the fair value is determined by using valuation techniques. In 2010 there were £27m of fixed rate listed investments included in

available for sale financial assets that were classified as level 1. The valuation techniques for level 2 instruments use observable market

data where it is available, for example quoted market prices, and rely less on estimates.


119

26 financial instruments continued

(ii) financial risk management

The Group bases its financial risk management on sound economic objectives and good corporate practice. Group treasury

operations are carried out under policies and parameters defined by the Rexam board and supervised by its finance committee.

Group treasury is not operated as a separate profit centre nor does it enter into any transactions for speculative purposes.

The Group’s major operational hedges comply with IAS39 and hedge accounting treatment is applied. Some smaller operational

exposures are hedged on an economic basis and hedge accounting treatment is not applied where the compliance burden is deemed

to be onerous and the income statement volatility arising is not expected to be significant.

(a) market risk: currencies

Currency risks arise from the multi currency cash flows within the Group. These risks arise from exchange rate fluctuations relating

to the translation of balance sheet items of foreign subsidiaries (translation risk) and from currency flows from sales and purchases

(transaction risk).

The policy regarding translation risk is to mitigate the impact of foreign exchange movements between overseas currencies and sterling

arising on the translation of the value of non UK operations into sterling for reporting purposes. This is achieved by borrowing a proportion

of debt, either directly or through the use of cross currency swaps and forward foreign exchange contracts, in currencies which match or

are closely linked to the currencies of the overseas businesses. This approach also provides some protection against the foreign exchange

translation of overseas earnings as it matches the currency of earnings to the currency of the interest expense. These amounts are included

in the consolidated financial statements by translation into sterling at the balance sheet date and, where hedge accounted, offset in equity

against the translation movement in net assets. Some cross currency swaps used to manage the Group’s currency exposures, whilst

economically effective, are ineligible for hedge accounting treatment.

The policy regarding transaction risk is to hedge the reported net transaction exposure in full less an allowance for variability in

forecasting. This is generally achieved through the use of forward foreign exchange contracts with amounts hedged being based on

the reporting from individual Group businesses. None of the foreign exchange derivative instruments at 31 December 2011 related to

derivative trading activity, although some fair value gains and losses were taken to the consolidated income statement because IAS39

hedge accounting treatment was not applied. Foreign exchange derivative instruments are used for hedging general business exposures

in foreign currencies such as the purchase and sale of goods, capital expenditure and dividend flows.

Transactional foreign exchange risks are hedged by Group treasury unless it is a legal requirement in the country where the foreign

exchange risk arises that hedging is carried out locally. In the latter case, hedging is carried out by the individual responsible for treasury

within the local business, but still operating within the overall Group policy on foreign exchange management.

The currency denomination of borrowings at 31 December 2011 was 68% in US dollars and 32% in euros (2010: 75% US dollars,

22% euros, 3% all other currencies).

(b) market risk: interest rates

Changes in interest rates on interest bearing receivables and floating rate debt in different currencies create interest rate risk. The objective

of the Group’s interest rate risk management is to manage its exposure to the impact of changes in interest rates in the currencies in which

debt is borrowed. Group policy is to keep between 35% and 85% of interest on borrowings at fixed rates. Interest rate risk is managed

through the issue of fixed rate debt and through the use of interest rate derivatives that are used to manage the overall fixed to floating mix

of debt, which was 75% fixed and 25% floating at 31 December 2011 (2010: 76% and 24%). Group treasury operates within a broad

framework in respect of the mix of fixed and floating rate debt, as the optimum blend will vary depending on the mix of currencies and the

Group’s view of the debt markets at any point in time.

Cash at bank earns interest at floating rates based on bank deposit rates in the relevant currency. Short term deposits are usually made

for periods varying between one day and three months depending on the immediate cash requirements of the Group and earn interest at

the respective short term deposit rates. Other floating rate financial instruments are at the appropriate LIBOR interest rates as adjusted by

variable margins. Interest on floating rate financial instruments is repriced at intervals of less than one year. Interest on fixed rate financial

instruments is fixed until maturity of the instrument.

Some interest rate swaps used to manage the Group’s fixed to floating debt mix, whilst economically effective, are ineligible for hedge

accounting treatment. Fair value gains and losses on these hedges are recognised in the consolidated income statement. In 2011, there

was a gain of £23m (2010: loss £12m) on fair value changes on financing derivatives, disclosed separately within interest expense in the

consolidated income statement.

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Rexam annual report 2011

notes to the consolidated financial statements

26 financial instruments continued

(c) market risk: commodity prices

Changes in the market price of commodities used by the Group create commodity risk. Group policy is to manage these risks through both

its supply chain management and through use of financial derivatives. Where financial derivatives are used, the Group uses mainly over

the counter instruments transacted with banks, which are themselves priced through a recognised commodity exchange, such as the

London Metal Exchange. The Group manages the purchase of certain raw materials, including aluminium, resin and energy costs through

physical supply contracts which, in the main, relate directly to commodity price indices. With regard to aluminium, which represents the

Group’s largest commodity exposure, the policy is to eliminate as far as possible any market price variability through hedging in tandem

with contractual commitments to customers. Where Rexam assumes the aluminium price risk on customer contracts, it has defined a risk

appetite with a predetermined aggregate consolidated income statement limit arising from any related aluminium hedging activities.

Its position against this limit is monitored and reported on a monthly basis. For other commodities, the policy is to follow an incremental

hedge approach over a period of up to three years in order to manage the price year over year and limit uncertainty. None of the

commodity derivative financial instruments at 31 December 2011 related to derivative trading activity, although some fair value gains

and losses were taken to the consolidated income statement because hedge accounting was not applied. The commodity hedges mainly

relate to contracted and expected future purchases of aluminium, but also include resin and energy.

(d) market risk: euro

In response to the current instability in Europe, a ‘euro crisis committee’ has been established by the Group to monitor risks, create

contingency plans and take action as appropriate.

(e) market risk: sensitivities

A sensitivity analysis for financial assets and liabilities affected by market risk is set out below. Each risk is analysed separately and shows

the sensitivity of financial assets and liabilities when a certain risk is changed. The sensitivity analysis has been performed on balances

at 31 December each year. The rates used are based on historical trends and, where relevant, projected forecasts.

Key methods and assumptions made when performing the sensitivity analysis (net of hedging):

(a) For the floating rate element of interest rate swaps, the sensitivity calculation is performed based on the floating rates at 31 December

each year.

(b) The translation impact of overseas subsidiaries into sterling is not included in the sensitivity analysis.

(c) The sensitivity analysis ignores any tax implications.

currencies

The foreign exchange rate sensitivity analysis set out in the table below is based on foreign currency positions, other than each Group

entity’s own functional currency, on the balance sheet at 31 December. The analysis includes only risks arising from financial instruments

and gives the estimated impact on profit before tax and equity of a 10% increase and decrease in exchange rates between currency pairs

with significant currency positions.

Increase

%

Impact on

profit

before tax

£m

Impact

on equity

£m

Decrease

%

Impact on

profit

before tax

£m

Impact

on equity

£m

At 31 December 2011

Sterling/US dollar 10 (4) – (10) 5 –

Sterling/euro 10 11 29 (10) (13) (36)

Euro/US dollar 10 (1) (23) (10) 1 23

At 31 December 2010

Sterling/US dollar 10 (19) 4 (10) 23 (5)

Sterling/euro 10 23 32 (10) (28) (39)

Euro/US dollar 10 15 (16) (10) (16) 16

The impact of currency risk on net investment hedges is offset by the translation of overseas subsidiaries on consolidation.

The net impact of currency translation resulted in sales and underlying profit from continuing operations (reducing)/increasing

as set out below.

2011

Sales

£m

2011

Underlying

operating

profit

£m

2010

Sales

£m

2010

Underlying

operating

profit

£m

US dollar (81) (9) 31 3

Euro 20 3 (51) (3)

Other currencies 8 – 42 7

(53) (6) 22 7


121

26 financial instruments continued

interest rates

At 31 December 2011, if the US dollar interest rate were increased by 1% with all other variables held constant, profit before tax would

increase by £12m (2010: £7m) as a result of US dollar denominated floating rate debt and interest rate and cross currency derivatives that

are not hedge accounted. If euro and sterling interest rates were increased by 1% with all other variables held constant, profit before tax

would reduce by £9m (2010: £8m) as a result of fixed rate debt being swapped into floating rate debt. A reduction in interest rates would

not have a significant effect on profit before tax. There was no significant interest rate risk relating to equity in either year.

commodity prices

At 31 December 2011, there was no price risk relating to the income statement since all significant commodity derivatives were treated

as cash flow hedges with movements being reflected in equity. If the aluminium price was increased or reduced by 10% with all other

variables held constant, equity would increase or decrease by £48m (2010: £45m).

equity prices

The Group is not subject to any significant equity price risk.

overview

(f) liquidity risk

An analysis of undiscounted contractual maturities for non derivative financial liabilities, derivative financial instruments and undrawn

committed debt facilities is set out below.

Within

1 year

£m

1 to 2

years

£m

2 to 5

years

£m

More than

5 years

£m

Total

contractual

amount

£m

At 31 December 2011

Non derivative financial liabilities:

Trade and other payables (795) (13) (15) (25) (848)

Bank overdrafts (10) – – – (10)

Bank loans (4) (2) – (26) (32)

US public bond (24) (381) – – (405)

US private placement (9) (155) – – (164)

Subordinated bond (43) (43) (128) (673) (887)

Medium term notes (23) (559) – – (582)

Derivative financial instruments:

Derivative contracts – settled gross payments (403) (124) (148) (1,186) (1,861)

Derivative contracts – settled gross receipts 433 151 204 1,189 1,977

Derivative contracts – net settlements 1 4 (1) – 4

Commodity contracts (49) (10) (3) – (62)

Undrawn committed debt facilities 50 – 809 – 859

At 31 December 2010

Non derivative financial liabilities:

Trade and other payables (708) (18) (38) (25) (789)

Bank overdrafts (15) – – – (15)

Bank loans (24) (7) (7) (29) (67)

US public bond (24) (24) (381) – (429)

US private placement (9) (9) (155) – (173)

Subordinated bond (43) (43) (130) (728) (944)

Medium term notes (24) (24) (569) – (617)

Finance leases (1) – – – (1)

Derivative financial instruments:

Derivative contracts – settled gross payments (607) (103) (205) (1,276) (2,191)

Derivative contracts – settled gross receipts 631 123 228 1,282 2,264

Derivative contracts – net settlements (3) 2 5 – 4

Commodity contracts 36 12 1 – 49

Undrawn committed debt facilities – 50 1,028 – 1,078

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Rexam annual report 2011

notes to the consolidated financial statements

26 financial instruments continued

The Group monitors its liquidity to maintain a sufficient level of undrawn committed debt facilities, thereby ensuring financial flexibility.

As at 31 December 2011, Rexam had £859m of undrawn committed debt facilities available (2010: £1,078m).

The Group mitigates refinancing risk by raising its debt requirements from a range of different sources. The range of maturity dates arising

on committed debt facilities is set out below.

Maturity date

2012 50 50

2013 1,039 1,048

2015 – 1,028

2016 809 –

2067 654 654

2011

£m

2010

£m

2,552 2,780

(g) credit risk

The maximum credit risk exposure of the Group’s financial assets at 31 December is represented by the amounts reported under the

corresponding balance sheet headings. There are no significant concentrations of credit risk associated with financial instruments of

the Group. Credit risk arises from exposures to external counterparties. In order to manage this risk, the Group has strict credit control

quality measures that are applied to counterparty institutions and also limits on maximum exposure levels to any one counterparty.

To manage credit risk, the maximum limits for bank exposures held under Group policy are set out in the table below by individual

counterparty credit rating category. These limits are used when making investments and for the use of derivative instruments. The table also

sets out the Group’s financial asset exposure at 31 December for each counterparty credit rating category.

2011

Individual

counterparty

limit

£m

2011

Cash

and cash

equivalents

£m

2011

Derivatives

£m

2011

Total

£m

2010

Individual

counterparty

limit

£m

2010

Cash

and cash

equivalents

£m

2010

Derivatives

£m

Credit rating

AA 70 to 90 – – – 70 to 90 12 46 58

AA– 60 to 80 13 48 61 60 to 80 75 65 140

A+ 50 to 70 132 77 209 50 to 70 1 68 69

A 40 to 60 136 87 223 40 to 60 25 147 172

A– 20 to 40 130 91 221 20 to 40 – – –

BBB+ and below 10 to 30 1 – 1 10 to 30 1 – 1

2010

Total

£m

412 303 715 114 326 440

Since 31 December 2011, the credit ratings of certain banks included in the above table have been downgraded. However, none of the

Group’s individual counterparty limits have been breached as a result of these downgrades.

See note 20 for information on credit risk with respect to customers.

(h) capital risk management

The Group’s objective is to minimise its cost of capital by optimising the efficiency of its capital structure, being the balance between equity

and debt. The Group views its ordinary share capital as equity. This objective is always subject to an overriding principle that capital must

be managed to ensure the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other

stakeholders. The Group is able to adjust its capital structure through the issue or redemption of either debt or equity and by adjustment to

the dividend paid to equity holders. The Group uses a range of financial metrics to monitor the efficiency of its capital structure, including

its weighted average cost of capital and net debt to EBITDA and ensures that its capital structure provides sufficient financial strength to

allow it to secure access to debt finance at reasonable cost.

At 31 December 2011, the Group’s net debt to EBITDA for financial covenant purposes was 1.3 times (2010: 1.8 times). The Group aims

to keep this ratio below 2.5 times. For this purpose, net debt is broadly net borrowings adjusted to exclude interest accruals, certain

derivative financial instruments and an equity portion of the subordinated bond and reflects non sterling amounts at average exchange

rates. EBITDA is underlying operating profit after adding back depreciation and amortisation of computer software and adjusted where

appropriate to include acquisitions on a pro forma basis and excludes disposed businesses.


123

26 financial instruments continued

(iii) derivative financial instruments

The net fair values of the Group’s derivative financial instruments designated as fair value or cash flow hedges and those not designated

as hedging instruments are set out below.

Fair value hedges

Cross currency swaps 276 257

Interest rate swaps 9 13

285 270

Cash flow hedges

Forward aluminium commodity contracts (64) 50

Forward gas commodity contracts (2) (2)

Forward foreign exchange contracts 9 –

(57) 48

2011

£m

2010

£m

overview

Total hedge accounted 228 318

Not hedge accounted

Cross currency swaps (166) (175)

Interest rate swaps (5) (10)

Forward foreign exchange contracts 2 (3)

Total not hedge accounted (169) (188)

Total net fair value of derivative financial instruments 59 130

fair value hedges

The Group has designated interest rate swaps and the interest element of cross currency swaps as fair value hedges whereby interest is

receivable at fixed interest rates varying from 4.375% to 6.75% (2010: 4.375% to 6.75%) and payable at floating rates. These swaps

hedge the exposure to changes in the fair value of medium term notes which mature in 2013 (2010: 2013). The cross currency swaps

hedge changes in the fair value of the euro subordinated bond which matures in 2067. Net ineffectiveness gains of £9m were included

in interest in 2011 (2010: £5m).

cash flow hedges

The Group has designated forward foreign exchange contracts and aluminium, gas and resin commodity contracts as cash flow hedges.

Forward foreign exchange contracts hedge foreign currency transaction risk and mature between 2012 and 2014 (2010: between

2011 and 2013). The aluminium commodity, gas and resin commodity contracts hedge anticipated future purchases of aluminium and gas

respectively, and mature between 2012 and 2014 (2010: between 2011 and 2013).

not hedge accounted

Derivatives are not used for trading purposes. However, some derivatives may not qualify for hedge accounting, or are specifically not

designated as a hedge where natural offset is more appropriate.

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Rexam annual report 2011

notes to the consolidated financial statements

26 financial instruments continued

net investment hedges

An analysis of the Group’s non derivative financial instruments designated as net investment hedges with respect to its subsidiaries,

principally in the eurozone and the US, are set out below.

Medium

term notes

£m

US public

bond

£m

At 1 January 2011 (373) (43) (416)

Net decrease in designations 13 41 54

Exchange differences recognised in equity 12 2 14

At 31 December 2011 (348) – (348)

Total

£m

At 1 January 2010 (483) (194) (677)

Net decrease in designations 86 153 239

Exchange differences recognised in equity 24 (2) 22

At 31 December 2010 (373) (43) (416)

An analysis of the notional amounts and maturity dates for derivative financial instruments is set out below.

Maturity

date

2011

Notional

amounts

£m

2010

Notional

amounts

£m

Currency

Fair value hedges

Cross currency swaps Euro 2017 630 641

Cross currency swaps Sterling 2017 (505) (505)

Interest rate swaps Euro 2013 168 171

Forward aluminium commodity contracts US dollar 2012 (4) (5)

Cash flow hedges

Forward foreign exchange contracts US dollar 2012 to 2014 177 141

Forward foreign exchange contracts Sterling 2012 (30) (24)

Forward foreign exchange contracts Swedish krone 2012 (17) (21)

Forward aluminium commodity contracts US dollar 2012 to 2014 493 408

Forward gas commodity contracts US dollar 2012 to 2014 8 8

Forward resin commodity contracts US dollar 2012 5 –

Not hedge accounted

Cross currency swaps Sterling 2017 505 505

Cross currency swaps US dollar 2017 (654) (654)

Interest rate swaps US dollar 2012 to 2014 803 364

Interest rate swaps Euro 2014 168 –

Forward foreign exchange contracts US dollar 2012 to 2014 52 (210)

Forward aluminium commodity contracts US dollar 2012 (17) –

Forward resin commodity contracts US dollar 2011 – 2

For forward foreign exchange contracts, there are other currencies traded which have been excluded as the fair values for these contracts

were immaterial.


125

27 retirement benefit obligations

(i) summary

UK

defined

benefit

pensions

£m

US

defined

benefit

pensions

£m

Other

defined

benefit

pensions

£m

Total

defined

benefit

pensions

£m

Other

pensions

£m

Total

pensions

£m

Retiree

medical

£m

Gross

retirement

benefit

obligations

£m

At 1 January 2011 19 (315) (38) (334) (18) (352) (111) (463)

Exchange differences – (1) 1 – – – (1) (1)

Service cost – continuing operations (7) (5) (1) (13) (10) (23) (1) (24)

Service cost – discontinued operations – – – – (1) (1) – (1)

Net finance (cost)/credit (see note below) 11 (15) (2) (6) – (6) (6) (12)

Actuarial losses (68) (27) (7) (102) – (102) (4) (106)

Cash contributions and benefits paid 32 11 3 46 10 56 9 65

Transfers – 2 – 2 – 2 – 2

At 31 December 2011 (13) (350) (44) (407) (19) (426) (114) (540)

overview

At 1 January 2010 (11) (218) (37) (266) (19) (285) (111) (396)

Exchange differences – (11) – (11) 1 (10) (5) (15)

Service cost – continuing operations (9) (4) (1) (14) (9) (23) (1) (24)

Service cost – discontinued operations – (1) – (1) (3) (4) – (4)

Exceptional items – discontinued operations – 2 – 2 – 2 – 2

Net finance (cost)/credit 8 (14) (2) (8) – (8) (7) (15)

Actuarial (losses)/gains 9 (73) (1) (65) – (65) 1 (64)

Cash contributions and benefits paid 22 2 3 27 12 39 12 51

Transfers – 2 – 2 – 2 – 2

At 31 December 2010 19 (315) (38) (334) (18) (352) (111) (463)

Pension assets – 19

Retirement benefit obligations (540) (482)

Gross retirement benefit obligations (540) (463)

Tax 169 146

Net retirement benefit obligations (371) (317)

In addition to the £12m net finance cost for 2011 set out above, there is also a £4m transfer from the available for sale financial assets

reserve relating to market value losses transferred to the consolidated income statement following the annuitisation of certain pension

obligations. This gives a total net finance cost for 2011 of £16m as disclosed in the consolidated income statement.

The Group operates various defined benefit pension plans throughout the world, the largest being the funded plans in the UK and the US.

With respect to the UK, a full actuarial valuation by a qualified actuary was carried out as at 31 March 2011. This valuation is in its final

stages and it is expected that the plan will be fully funded at that date. The next full actuarial valuation is due no later than 31 March 2014.

With respect to the US, a full actuarial valuation by a qualified actuary is carried out annually, the latest being as at 1 January 2011.

As part of the 31 March 2011 UK valuation, Rexam PLC and the trustees to the plan expect to agree a six year escrow investment with

contributions of £10m in 2012 and £15m for each of the following five years. At each subsequent valuation date, the assets in escrow will

either be allocated to the plan, to Rexam PLC, or remain in escrow subject to the funding position of the plan. If there is a change of control

with a subsequent material decline in Rexam’s credit rating or Rexam’s financial covenant, the escrow would be paid into the plan.

In 2009, Rexam PLC entered into a security agreement with the trustees of the UK pension plan, granting them a charge over the Beverage

Cans UK facilities and machinery at Milton Keynes and Wakefield, enforceable up to 1 January 2013 in the event of a contribution default

or a material decline in Rexam’s financial covenant.

IFRIC 14 ‘IAS19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’ had no impact on the Group in

2011 or 2010.

2011

£m

2010

£m

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126

Rexam annual report 2011

notes to the consolidated financial statements

27 retirement benefit obligations continued

(ii) defined benefit pension plans

UK

2011

£m

(a) Amounts recognised in the consolidated

balance sheet

Fair value of plan assets 1,719 1,079 13 2,811 1,598 1,026 13 2,637

Present value of funded obligations (1,732) (1,380) (20) (3,132) (1,579) (1,295) (16) (2,890)

Funded defined benefit pension plans (13) (301) (7) (321) 19 (269) (3) (253)

Present value of unfunded obligations – (49) (37) (86) – (46) (35) (81)

Net (liability)/asset (13) (350) (44) (407) 19 (315) (38) (334)

US

2011

£m

Other

2011

£m

Total

2011

£m

UK

2010

£m

US

2010

£m

Other

2010

£m

Total

2010

£m

(b) Amounts recognised in the consolidated

income statement

Continuing operations

Current service cost (7) (5) (1) (13) (8) (4) (1) (13)

Past service cost – – – – (1) – – (1)

Exceptional items – past service credit – – – – – (1) – (1)

Exceptional items – curtailments – – – – – 1 – 1

Employee benefit expense (7) (5) (1) (13) (9) (4) (1) (14)

Expected return on plan assets 95 46 1 142 92 52 – 144

Interest cost (84) (61) (3) (148) (84) (66) (2) (152)

Net finance (cost)/credit 11 (15) (2) (6) 8 (14) (2) (8)

Total 4 (20) (3) (19) (1) (18) (3) (22)

Discontinued operations

Current service cost – – – – – (1) – (1)

Exceptional items – curtailment – – – – – 2 – 2

Employee benefit expense – – – – – 1 – 1

(c) Amounts recognised in the consolidated

statement of comprehensive income

Actuarial gains/(losses) on plan assets 52 88 (1) 139 57 46 1 104

Actuarial losses on retirement benefit obligations (120) (115) (6) (241) (48) (119) (2) (169)

Total (68) (27) (7) (102) 9 (73) (1) (65)

(d) Changes in the fair value of plan assets

At 1 January 1,598 1,026 13 2,637 1,489 980 11 2,480

Exchange differences – 2 (2) – – 44 – 44

Expected return on plan assets 95 46 1 142 92 52 – 144

Actuarial gains/(losses) 52 88 (1) 139 57 46 1 104

Employer contributions 32 9 1 42 22 – 1 23

Plan participant contributions 2 – 1 3 2 – 1 3

Benefits paid (60) (92) – (152) (64) (96) (1) (161)

At 31 December 1,719 1,079 13 2,811 1,598 1,026 13 2,637


127

27 retirement benefit obligations continued

UK

2011

%

(e) Major categories of plan assets

Equities 45 12 74 32 50 18 74 38

Bonds 54 88 23 67 49 82 22 61

Cash and other 1 – 3 1 1 – 4 1

US

2011

%

Other

2011

%

Total

2011

%

UK

2010

%

US

2010

%

Other

2010

%

Total

2010

%

(f) changes in the present value of defined benefit pension obligations

UK

2011

£m

US

2011

£m

At 1 January (1,579) (1,341) (51) (2,971) (1,500) (1,198) (48) (2,746)

Exchange differences – (3) 3 – – (55) – (55)

Current service cost – continuing operations (7) (5) (1) (13) (8) (4) (1) (13)

Current service cost – discontinued operations – – – – – (1) – (1)

Past service cost – continuing operations – – – – (1) – – (1)

Exceptional items – discontinued operations – – – – – 2 – 2

Interest cost (84) (61) (3) (148) (84) (66) (2) (152)

Actuarial losses (120) (115) (6) (241) (48) (119) (2) (169)

Plan participant contributions (2) – (1) (3) (2) – (1) (3)

Benefits paid 60 94 2 156 64 98 3 165

Transfer from available for sale financial assets – 2 – 2 – 2 – 2

At 31 December (1,732) (1,429) (57) (3,218) (1,579) (1,341) (51) (2,971)

(g) principal actuarial assumptions

Future salary increases 4.60 4.00 3.10 5.00 4.00 3.08

Future pension increases 3.10 – 1.32 3.50 – 1.35

Discount rate 4.70 4.00 4.54 5.40 4.90 5.20

Inflation rate 3.10 2.50 2.00 3.50 2.50 2.00

Expected return on plan assets

(net of administration expenses):

Equities 6.11 7.46 7.00 7.51 7.67 8.25

Bonds 3.51 4.46 3.60 4.61 4.37 3.90

Cash and other 0.31 2.56 0.20 0.31 2.77 1.00

To develop the expected return on plan assets assumptions, the Group considered the current level of expected returns on risk free

investments, primarily government bonds, the historical level of the risk premium associated with the asset class concerned and the

expectations for future returns of the asset class. The resulting returns for equities, bonds and cash were then reduced to allow for

administration expenses.

The mortality assumptions used in valuing the liabilities of the UK pension plan are based on the standard tables S1NA as published by

the Institute and Faculty of Actuaries. These tables are adjusted to reflect the circumstances of the plan membership. The life expectancy

assumed for a 65 year old pensioner is 86.9 years (2010: 86.2 years) for a male and 89.1 years (2010: 89.3 years) for a female.

The life expectancy for a non pensioner currently aged 45 is 88.7 years (2010: 88.4 years) for a male and 90.9 years (2010: 91.7 years)

for a female.

The mortality assumptions used in valuing the liabilities of the US pension plans are based on the RP2000 combined active and retiree

mortality table projected to 2017 (2010: 2017), weighted 70% blue collar and 30% white collar. The life expectancy assumed for a

65 year old pensioner is 83.6 years (2010: 83.6 years) for a male and 85.7 years (2010: 85.7 years) for a female.

UK

2011

%

Other

2011

£m

US

2011

%

Total

2011

£m

UK

2010

£m

Other

2011

%

US

2010

£m

UK

2010

%

Other

2010

£m

US

2010

%

Total

2010

£m

Other

2010

%

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Rexam annual report 2011

notes to the consolidated financial statements

27 retirement benefit obligations continued

(h) historic information on defined benefit plans

Fair value of plan assets 2,811 2,637 2,480 2,505 2,361

Present value of defined benefit obligations (3,218) (2,971) (2,746) (2,586) (2,424)

Net liability (407) (334) (266) (81) (63)

2011

£m

2010

£m

2009

£m

2008

£m

2007

£m

Cumulative actuarial (losses)/gains (130) (28) 37 223 253

2011 2010 2009 2008 2007

Experience gains/(losses) arising on plan assets:

Amount (£m) 139 104 73 (221) 81

Percentage of plan assets (%) 5 4 3 (9) 3

Experience (losses)/gains arising on defined benefit obligations:

Amount (£m) (241) (169) (259) 191 136

Percentage of present value of defined benefit obligations (%) (7) (6) (9) 7 6

The Group expects to contribute £53m in cash to its defined benefit pension plans in 2012, excluding any amounts deposited in escrow.

(iii) other pension plans

The Group operates a number of US based defined contribution plans, included as part of other pensions in (i) above, for which the charge

in the consolidated income statement for the year was £7m for continuing operations and £1m for discontinued operations (2010: £7m

and £3m) and total cash contributions were £8m (2010: £10m).

(iv) retiree medical

Certain current and former employees in the US are provided with cover for medical costs and life assurance, referred to in these

consolidated financial statements as retiree medical. These unfunded benefits are assessed with the advice of a qualified actuary.

(a) Amounts recognised in the consolidated balance sheet

Present value of the retiree medical obligation (114) (111)

2011

£m

2010

£m

(b) Amounts recognised in the consolidated income statement

Continuing operations

Current service cost (1) (1)

Interest cost (including administration costs of £1m (2010: £1m)) (6) (7)

(7) (8)

(c) Amounts recognised in the consolidated statement of comprehensive income

Actuarial (losses)/gains (4) 1

(d) Changes in the present value of the retiree medical obligation

At 1 January (111) (111)

Exchange differences (1) (5)

Current service cost (1) (1)

Interest cost (6) (7)

Actuarial (losses)/gains (4) 1

Benefits paid 9 12

At 31 December (114) (111)


129

27 retirement benefit obligations continued

(e) principal actuarial assumptions

2011

2010

%

%

Discount rate 4.00 4.90

Healthcare cost trend rate

8.00 reducing to

4.50 over 16 years

8.30 reducing to

4.50 over 17 years

The mortality assumptions used in valuing the liabilities for retiree medical are based on the RP2000 combined active and retiree table

projected to 2017 (2010: 2017), weighted 85% blue collar and 15% white collar. The life expectancy assumed for a 65 year old

pensioner is 83.4 years (2010: 83.4 years) for a male and 85.5 years (2010: 85.5 years) for a female.

Healthcare cost trend rates do not have a significant impact on the Group with respect to retiree medical. A one percentage point change

in assumed rates would have the impact as set out below.

1% increase – service cost and interest cost combined increase – –

1% increase – retiree medical obligation increase (3) (3)

1% decrease – service cost and interest cost combined reduction – –

1% decrease – retiree medical obligation reduction 3 3

(f) historic information on retiree medical

2011 2010 2009 2008 2007

Present value of retiree medical obligation (£m) (114) (111) (111) (127) (98)

Cumulative actuarial gains (£m) 16 20 19 14 15

Experience (losses)/gains arising on retiree medical obligation:

Amount (£m) (4) 1 5 (1) –

Percentage of present value of retiree medical obligation (%) (4) 1 5 (1) –

28 provisions

Environmental

compliance

£m

Restructuring

of businesses

£m

Indirect tax

exposures

£m

Regulatory

and other

claims

£m

2011

£m

Share

based

payment

£m

At 1 January 2011 (21) (21) (32) (22) (6) (102)

Exchange differences – – 2 – – 2

Charge for the year – (19) (3) – (11) (33)

Release for the year – – – 5 – 5

Utilised 2 20 – 2 – 24

Transfers – (2) – – – (2)

At 31 December 2011 (19) (22) (33) (15) (17) (106)

Current liabilities (5) (20) – (11) – (36)

Non current liabilities (14) (2) (33) (4) (17) (70)

At 31 December 2011 (19) (22) (33) (15) (17) (106)

Current liabilities (3) (18) – (18) – (39)

Non current liabilities (18) (3) (32) (4) (6) (63)

At 31 December 2010 (21) (21) (32) (22) (6) (102)

Environmental compliance mainly relates to the US and France and is long term in nature with the timing of utilisation unknown due to the

need to complete remedial investigations, to negotiate remedial plans with local authorities and to implement agreed plans. The provision

for restructuring of businesses comprises £15m relating to Plastic Packaging in respect of restructuring following the disposal of Closures

and £7m relating to Beverage Cans for previously announced plant closures. Indirect tax exposures relate to Brazil and are long term in

nature, with the timing of payment, if any, dependent upon the outcome of tax cases and exposures. Regulatory and other claims relate to

various proceedings where the timing of payment, if any, is dependent upon the outcome of the proceedings. Share based payment

relates to cash settled share option schemes, the timing of payment being dependent on various performance criteria being met.

2010

£m

Total

£m

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130

Rexam annual report 2011

notes to the consolidated financial statements

29 share capital

2011

Thousands

2010

Thousands

Number of issued and fully paid ordinary shares of 64 2 /7p

At 1 January 876,864 876,829

Issued under employee share option schemes 167 35

At 31 December 877,031 876,864

The rights and restrictions attaching to the shares and the provisions relating to the transfer of shares are as governed by law and in

accordance with the Company’s articles of association. Holders of shares are entitled to receive all shareholder documents, to attend,

speak and exercise voting rights, either in person or by proxy, on resolutions proposed at general meetings and participate in any

distribution of income or capital. The directors may refuse to register a transfer of shares where such transfer documents are not lodged by

acceptable means or proof of title is required. Shares are held by the Rexam Employee Share Trust (Trust) for the satisfaction of certain

share options (note 31). The independent trustee of the Trust has the same rights as any other shareholder. Participants in option schemes

do not hold any voting rights on the shares until the date of exercise. There are no restrictions on the voting rights of holders of shares nor

any known agreements between holders of shares under which financial rights are held by any person other than the registered holder, or

voting rights or the transfer of shares are restricted.

30 other reserves

Translation

reserve

£m

Net

investment

hedge

reserve

£m

Cash flow

hedge

reserve

£m

Available

for sale

financial

assets

reserve

£m

At 1 January 2011 429 (104) 64 (3) 386

Cost recognised in the income statement on annuitisation of

certain pension obligations (net of tax) – – – 3 3

Exchange differences before recognition of net investment hedges (30) – – – (30)

Net investment hedges recognised – 14 – – 14

Exchange differences recognised in the income statement on

disposal of Closures (89) – – – (89)

Cash flow hedges recognised – – (92) – (92)

Cash flow hedges transferred to inventory – – (16) – (16)

Tax on cash flow hedges – – 28 – 28

At 31 December 2011 310 (90) (16) – 204

Total

£m

At 1 January 2010 441 (126) 51 (4) 362

Exchange differences before recognition of net investment hedges (12) – – – (12)

Net investment hedges recognised – 22 – – 22

Cash flow hedges recognised – – 40 – 40

Tax on cash flow hedges – – (4) – (4)

Cash flow hedges transferred to inventory – – (25) – (25)

Cash flow hedges transferred to the income statement – – 2 – 2

Changes in market value of available for sale financial assets – – – 1 1

At 31 December 2010 429 (104) 64 (3) 386


131

31 share based payment

(i) summary of Rexam’s share based payment schemes

Scheme name Abbreviation Scheme status Settlement basis

Long Term Incentive Plan 2009 LTIP Open Equity and cash

Long Term Incentive Plan 2007 LTIP 2007 Closed Equity

Executive Share Option Scheme ESOS Closed Equity

Phantom Stock Plan Phantoms Closed Cash

Savings Related Share Option Schemes SAYE Open Equity

LTIP

The LTIP is the primary long term incentive plan for Rexam’s executive directors, band 1 executives and other senior management. The LTIP

measures performance targets over a three year period. Options will normally vest, subject to performance targets being achieved, on the

third anniversary of the date of grant at a nominal cost to the employee. Employees who leave with a right to exercise options must

normally wait until the end of the measurement period. If the option vests, the employee will receive an entitlement which normally will be

time apportioned for the period from the start of the measurement period to the date on which employment ended.

Options granted in 2011 to executive directors and band 1 executives are subject to three performance conditions, compound annual

growth in underlying earnings per share (EPS), return on capital employed (ROCE) and relative Total Shareholder Return (TSR), in the

proportion 33%, 33% and 33%, respectively. These options are equity settled. Options granted in 2011 to other senior management are

subject to two performance conditions, EPS and ROCE, in the proportion 67% and 33% respectively. These options are either equity

settled or cash settled depending on the seniority of the employee.

Options granted in 2011 include a dividend equivalent element whereby employees will be entitled to receive, in shares or cash, the

notional dividends paid during the measurement period on any options that vest.

For further details of the LTIP refer to the remuneration report.

LTIP 2007

Prior to 2009, annual grants of options were made to executive directors and senior executives under the LTIP 2007. All outstanding

options lapsed in 2011.

ESOS

Prior to 2009, annual grants of options over ordinary shares were made to certain senior management. For grants up to and

including 2006, shares vested if a performance target (growth in economic profit) was met over the three year measurement period.

No performance targets were set for the 2007 and 2008 grants. Options are exercisable three years after grant date and expire ten years

after grant date. The exercise price was set at market value using the market price of a Rexam share at the grant date.

Phantoms

This cash settled scheme operates in the same way as the ESOS scheme and relates to certain senior management located outside the UK

and Europe.

SAYE

All employee SAYE schemes are open to eligible employees resident in the UK and Ireland. Annual grants of options over shares are

currently made at an exercise price of 80% of the market value of Rexam shares at the grant date. Options vest three, five or seven

years after the commencement of the savings contract, depending on the term selected by the employee at grant and expire six

months after vesting.

(ii) employee benefit expense

Equity settled 9 6

Cash settled 10 5

Total 19 11

2011

£m

2010

£m

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132

Rexam annual report 2011

notes to the consolidated financial statements

31 share based payment continued

(iii) key assumptions used in valuing options granted during the year

LTIP

SAYE

Valuation models TSR – Monte Carlo Binomial

EPS/ROCE – Black – Scholes

Expected dividend growth (%) – 3.8

Expected historical volatility (%) TSR – 25.4 to 36.4 29 to 35

Risk free interest rate (%) TSR – 0.85 to 1.85 0.9 to 1.9

Expected life (years) 2.2 to 2.7 3.25, 5.25, 7.25

Weighted average share price (£) 3.40 to 3.70 3.40

Weighted average fair value (£) 2.38 to 3.70 0.84 to 0.89

The assumptions made to incorporate the effects of expected early exercise have been included by assuming an expected option life

based on historical exercise patterns for each option scheme. Historical volatilities are arrived at using a period comparable with the

expected life of the option. The correlation coefficient for LTIP is calculated using the correlation matrix for the TSR simulation using three

year daily historical stock price series for each company in the comparator group, including Rexam, from the beginning of the

measurement period.

(iv) number of options and weighted average exercise prices of all option schemes

2011

Number of

options

Thousands

2011

Weighted average

exercise price

£

2010

Number of

options

Thousands

2010

Weighted average

exercise price

£

Outstanding at 1 January 21,502 1.18 13,043 2.34

Granted 10,857 0.05 13,195 0.04

Exercised (252) 2.71 (93) 0.89

Lapsed (3,771) 0.52 (4,643) 1.22

Outstanding at 31 December 28,336 0.82 21,502 1.18

Exercisable at 31 December 4,823 3.98 2,665 4.06

(v) exercise prices and average remaining contractual lives of options by scheme

2011

Number of

options

Thousands

2011

Range of

exercise prices

£

2011

Weighted average

remaining

contractual life

Years

2010

Number of

options

Thousands

2010

Range of

exercise prices

£

2010

Weighted average

remaining

contractual life

Years

LTIP 21,674 – 1.7 12,224 – 2.2

LTIP 2007 – – – 2,058 – 4.2

ESOS 2,808 2.71 to 4.58 5.5 3,090 2.14 to 4.61 6.3

SAYE 1,878 2.12 to 3.88 2.8 1,866 2.12 to 3.88 3.4

Phantoms 1,976 2.71 to 4.57 5.4 2,264 2.71 to 4.57 6.3

(vi) Rexam Employee Share Trust

The Group operates an employee share trust, the Rexam Employee Share Trust, that owns 7,468,028 ordinary shares of 64 2 / 7

p in Rexam

PLC at 31 December 2011 (2010: 2,468,028) acquired at an average cost per share of £3.50 (2010: £3.38) and included in the

consolidated balance sheet within retained earnings at a cost of £26m (2010: £8m). These shares will be used to satisfy LTIP exercises.

The purchases are funded by cash contributions from participating companies. Dividends receivable during the year have been waived.

The administration expenses of the Trust are borne by the Trust. Shares are allocated by the Trust when related LTIP options are exercised.

The market value of the shares at 31 December 2011 was £26m (2010: £8m).


133

32 reconciliation of profit/(loss) before tax to cash generated/(used) from operations

2011

Continuing

operations

£m

2011

Discontinued

operations

£m

2011

Total

operations

£m

2010

Continuing

operations

£m

2010

Discontinued

operations

£m

2010

Total

operations

£m

Profit/(loss) before tax 431 (26) 405 338 (177) 161

Adjustments for:

Share of post tax profits of associates and joint ventures (9) – (9) (5) – (5)

Net interest expense 69 – 69 125 – 125

Impairment of goodwill – – – – 59 59

Impairment of intangible assets – 20 20 – 65 65

Impairment of property, plant and equipment 7 14 21 6 55 61

Reversal of impairment of property, plant and equipment (1) – (1) (3) – (3)

Depreciation of property, plant and equipment 179 – 179 183 21 204

Amortisation of intangible assets 38 – 38 46 15 61

Movement in working capital (19) (24) (43) (20) – (20)

Movement in provisions 5 (1) 4 (8) (2) (10)

Movement in retirement benefit obligations (29) 1 (28) (12) 2 (10)

Other adjustments (7) 2 (5) (3) – (3)

Cash generated/(used) from operations 664 (14) 650 647 38 685

33 contingent liabilities

In an international group a variety of claims arise from time to time; some have little or no foundation in law or in fact and others cannot

be quantified. The claims include litigation against Group companies, investigations by regulatory and fiscal authorities and obligations

arising under environmental legislation. Provision has been made in these consolidated financial statements against those claims which

the directors consider are likely to result in significant liabilities. There are no contingent liabilities at 31 December 2011 or 31 December

2010 that require disclosure.

34 commitments

(i) operating lease commitments

The Group leases offices and warehouses under non cancellable operating leases. The leases have varying terms, purchase options,

escalation clauses and renewal rights. The Group also leases plant and equipment under cancellable operating leases.

An analysis of the total future minimum lease payments under non cancellable operating leases is set out below.

2011

Property

£m

2011

Plant and

equipment

£m

2010

Property

£m

2010

Plant and

equipment

£m

Less than 1 year 23 5 22 2

Between 1 and 5 years 43 5 47 2

Over 5 years 43 – 42 –

Total 109 10 111 4

Total future minimum sublease receipts under non cancellable operating leases are £8m (2010: £10m).

(ii) capital commitments

Contracts placed for future capital expenditure not provided in the consolidated financial statements:

Property, plant and equipment 52 51

2011

£m

2010

£m

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134

Rexam annual report 2011

five year financial summary

For the year ended 31 December

Consolidated income statement

Continuing operations

Sales 4,734 4,619 4,533 4,254 3,423

Underlying operating expenses (4,185) (4,106) (4,115) (3,831) (3,097)

Underlying operating profit 549 513 418 423 326

Underlying share of post tax profits of associates and joint ventures 9 5 2 2 –

Retirement benefit obligations net finance cost (16) (15) (31) (7) (14)

Underlying net interest expense (92) (113) (131) (132) (94)

Underlying profit before tax 450 390 258 286 218

Exceptional and other items 1 (19) (52) (124) (65) 22

Profit before tax 431 338 134 221 240

Tax (128) (102) (44) (62) (78)

Profit for the financial year 303 236 90 159 162

Discontinued operations

Profit/(loss) for the financial year 73 (112) (119) 12 78

Total profit/(loss) for the financial year 376 124 (29) 171 240

2011

£m

2010

£m

2009

£m

2008

£m

2007

£m

As at 31 December

Consolidated balance sheet

Goodwill and other intangible assets 2,177 2,231 2,481 2,949 2,216

Property, plant and equipment 1,590 1,571 1,723 1,982 1,310

Retirement benefit obligations (net of tax) (371) (317) (279) (170) (128)

Other net assets/(liabilities) 235 524 225 16 (3)

Underlying net assets 3,631 4,009 4,150 4,777 3,395

2011

£m

2010

£m

2009

£m

2008

£m

2007

£m

Shareholders’ equity 2,319 2,322 2,320 2,174 1,831

Non controlling interests – 3 2 2 2

Total equity 2,319 2,325 2,322 2,176 1,833

Net borrowings 1,312 1,684 1,828 2,601 1,562

Capital employed 3,631 4,009 4,150 4,777 3,395

Statistics

Underlying return on sales 2 % 11.6 11.1 9.2 9.9 9.5

Underlying earnings per share 2 Pence 36.1 31.4 23.0 27.7 22.4

Basic earnings per share 3 Pence 34.7 27.1 11.4 22.2 23.5

Dividends per ordinary share 4 Pence 14.4 12.0 8.0 18.7 17.8

Interest cover 5 Times 6.0 4.5 3.2 3.2 3.5

Free cash flow £m 245 316 290 (128) 24

Capital expenditure (gross) £m 240 206 184 389 311

Return on net assets 6 % 29.5 27.0 22.1 27.5 30.3

Return on capital employed 7 % 13.7 12.3 9.5 11.0 11.9

Gearing % 57 72 79 120 85

Average number of employees 3 Number 19,000 19,600 20,700 22,500 21,100

1 Other items comprise the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.

2 Based on continuing operations before exceptional and other items.

3 Based on continuing operations.

4 Includes proposed final dividends.

5 Based on underlying operating profit from continuing operations and underlying net interest expense from continuing operations.

6 Underlying operating profit from total operations (excluding Glass, sold in 2007) plus share of associates and joint ventures profit after tax divided by the average of opening and closing

shareholders’ equity after adding back retirement benefit obligations (net of tax) and net borrowings and excluding goodwill and certain acquired intangible assets.

7 Underlying operating profit from total operations (excluding Glass, sold in 2007) plus share of associates and joint ventures profit after tax divided by the average of opening and closing

shareholders’ equity after adding back retirement benefit obligations (net of tax) and net borrowings.


135

company

financial

statements

136 independent auditors’ report to the members of Rexam PLC

137 Rexam PLC balance sheet

notes to the Company financial statements:

138 note 1 – principal accounting policies

139 note 2 – employee costs and numbers

139 note 3 – equity dividends

140 note 4 – tangible assets

140 note 5 – investments in subsidiaries

141 note 6 – debtors receivable within one year

141 note 7 – other creditors

141 note 8 – borrowings

142 note 9 – derivative financial instruments

142 note 10 – operating lease commitments

142 note 11 – contingent liabilities

143 note 12 – capital and reserves

143 note 13 – share based payment

financial statements governance sustainability

business review

overview

Rexam produces a variety of can ends, some of

which have coloured and customised tabs – giving

our customers an enhanced on-shelf presence.


136 Rexam annual report 2011

independent auditors’ report to the members of Rexam PLC

We have audited the Company financial statements of Rexam PLC for the year ended 31 December 2011 which comprise the Rexam PLC

balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and

United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

respective responsibilities of directors and auditors

As explained more fully in the statement of directors’ responsibilities set out on page 81, the directors are responsible for the preparation of

the Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an

opinion on the Company financial statements in accordance with applicable law and International Standards on Auditing (UK and

Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3

of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for

any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by

our prior consent in writing.

scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance

that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether

the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed;

the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In

addition, we read all the financial and non financial information in the Rexam annual report 2011 to identify material inconsistencies with

the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the

implications for our report.

opinion on financial statements

In our opinion the Company financial statements:

• give a true and fair view of the state of the company’s affairs as at 31 December 2011;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and

• the information given in the directors’ report for the financial year for which the Company financial statements are prepared is

consistent with the Company financial statements.

matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from

branches not visited by us; or

• the Company financial statements and the part of the remuneration report to be audited are not in agreement with the accounting

records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

other matter

We have reported separately on the consolidated financial statements of Rexam PLC for the year ended 31 December 2011.

Robert Milburn (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

22 February 2012


137

Rexam PLC balance sheet

As at 31 December

notes

Fixed assets

Tangible assets 4 14 15

Investments in subsidiaries 5 5,202 5,204

Derivative financial instruments 9 276 243

5,492 5,462

Current assets

Debtors receivable within one year 6 20 14

Derivative financial instruments 9 10 27

Cash at bank and in hand 343 69

373 110

Creditors: amounts falling due within one year

Borrowings 8 (39) (41)

Derivative financial instruments 9 (2) (3)

Other creditors 7 (333) (420)

(374) (464)

Net current liabilities (1) (354)

Total assets less current liabilities 5,491 5,108

Creditors: amounts falling due after more than one year

Borrowings 8 (1,753) (1,753)

Derivative financial instruments 9 (170) (184)

Other creditors 7 (693) (674)

(2,616) (2,611)

Provisions for liabilities and charges (2) (1)

Net assets 2,873 2,496

Capital and reserves

Ordinary share capital 564 564

Share premium account 989 989

Capital redemption reserve 351 351

Profit and loss reserve 814 437

Other reserves 155 155

Total capital and reserves 12 2,873 2,496

Approved by the board on 22 February 2012

Graham Chipchase, chief executive

David Robbie, finance director

2011

£m

2010

£m

financial statements governance

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138 Rexam annual report 2011

notes to the Company financial statements

1 principal accounting policies

The financial statements of Rexam PLC are prepared under UK GAAP using the historical cost convention as modified by the revaluation

of certain financial instruments and share based payments and in accordance with applicable accounting standards. As permitted by

section 408 of the Companies Act 2006, the profit and loss account is not presented.

foreign currencies

All exchange differences arising on foreign currencies are taken to the profit and loss account.

interest

Interest on cash and cash equivalents and borrowings held at amortised cost is recognised in the profit and loss account using the effective

interest method. Interest includes exchange differences arising on cash and cash equivalents and borrowings. Interest includes all fair

value gains and losses on derivative financial instruments, and corresponding adjustments to hedged items under designated fair value

hedging relationships, where they relate to financing activities and are recognised in the profit and loss account.

retirement benefits

The pension rights of Rexam PLC employees are dealt with through a self administered scheme, the assets of which are held independently

of the Group. The scheme is a defined benefit scheme that is funded partly by contributions from members and partly by contributions from

Rexam PLC and its subsidiaries at rates advised by independent professionally qualified actuaries. In accordance with FRS17, Rexam PLC

accounts for its contributions as though it were a defined contribution scheme. This is because the underlying assets and liabilities of the

scheme cover Rexam PLC and a number of its subsidiaries and it cannot be split between each subsidiary on a consistent and reasonable

basis, as the scheme has a large number of members who were employed by companies which are no longer in existence or are no longer

part of the Group. An actuarial valuation at a Group level on an FRS17 basis has not been performed, but a deficit at 31 December 2011

of £13m (2010: surplus £19m) has been calculated in accordance with IAS19. Further details of the scheme and its accounting deficit can

be found in note 27 to the consolidated financial statements.

share based payment

Rexam PLC operates various equity settled share option schemes. The services received from employees are measured by reference to

the fair value of the share options. The fair value is calculated at grant date and recognised in the profit and loss account, together with a

corresponding increase in shareholders’ funds. Equity settled share options granted directly to subsidiary company employees are treated

as a capital contribution to the subsidiary. The capital contribution is measured by reference to the fair value of the share options and

recognised as an increase in the cost of investment with a corresponding increase in shareholders’ funds. The recognition of the fair value

is based on a straight line basis over the vesting period, based on an estimate of the number of options that will eventually vest. Vesting

conditions, which comprise service conditions and performance conditions, are not taken into account when estimating the fair value.

All non vesting conditions are included in fair value. FRS20 has been applied to equity settled share options granted after 7 November

2002. The Rexam Employee Share Trust holds shares in Rexam PLC which are presented in the balance sheet as a deduction from

shareholders’ funds.

tangible fixed assets

Tangible fixed assets are stated in the balance sheet at cost less provision for depreciation. Depreciation is calculated to write off the cost,

less estimated residual value, of tangible fixed assets over their expected lives by equal annual instalments. Depreciation is provided on all

tangible fixed assets. Assumed lives vary according to the class of asset as follows:

Computer hardware and software

2 to 7 years

Fixtures and fittings

4 to 10 years

investments in subsidiaries

Investments in subsidiaries are stated at cost less provisions for impairment where appropriate.

dividends

Under FRS21, final ordinary dividends payable to the shareholders of Rexam PLC are recognised in the period that they are approved by

the shareholders. Interim ordinary dividends payable are recognised in the period that they are paid. Dividends receivable are recognised

when the Company’s right to receive payment is established.


139

1 principal accounting policies continued

financial instruments

Derivative financial instruments are measured at fair value. Derivative financial instruments used by the Company include interest rate

swaps, cross currency swaps, forward foreign exchange contracts and forward aluminium commodity contracts.

Certain derivative financial instruments are designated as hedges in line with the Company’s risk management policies. Hedges are

classified as follows:

(i) fair value hedges where they hedge the exposure to changes in the fair value of a recognised asset or liability.

(ii) cash flow hedges where they hedge exposure to variability in cash flows that is attributable to a particular risk associated with

a recognised asset or liability or a forecast transaction.

For fair value hedges, any gain or loss from remeasuring the hedging instrument at fair value is recognised in the profit and loss account.

Any gain or loss on the hedged item attributable to the hedged risk is