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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.
1
4
6
7
8
9
chairman’s statement who we are what we make where we operate how we performed in 2011
business review
16 market review
20 operating review
26 financial review
34 key risks
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.
44 products
47 operations
49 people
governance
54 directors and officers
56 corporate governance
69 remuneration report
81 other disclosures
governance
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.
business review
12 chief executive’s review (including KPIs)
86 Rexam PLC consolidated financial statements 2011
financial statements
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
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.
overview
overview
financial statements
134 five year financial summary
136 Rexam PLC Company financial statements 2011
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
4
chairman’s statement who we are
7 what we make
8 where we operate
9 how we performed in 2011
governance
sustainability
business review
overview
6
financial statements
Our chairman introduces the 201 annual
1
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
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. 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.
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.
We have seen a number of board changes.
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.
dividend
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.
4.7p + 9.7p =
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.
14.4p
5
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 governance Sir Peter Ellwood chairman 22 February 2012
Stuart Chambers
financial statements
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.
sustainability
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.
business review
overview
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.
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 values
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.
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.
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.
Best performance
Drive operational excellence Build a winning organisation
case studies: icons aligned to vision
recognition teamwork trust
blue chip
In 2011, we launched a Group wide recognition scheme known as the ‘Blue Chip’.
Customer expectations
Invest for value
continuous improvement
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.
To date we have awarded Blue Chips to more than 220 employees.
7
what we make
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
business review
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.
overview
beverage cans
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.
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.
sustainability
plastic packaging
carbon intensity
We make products for a wide selection of customers across the globe, but our top 10 account for 60% of sales.
We are well on our way to achieving our target of reducing our carbon intensity by 10% in 2013 vs 2010.
AB InBev
Carlsberg
Coca-Cola
Hansen Beverages
In 2011, we reduced our carbon intensity by
3.5% to 0.83kg carbon/kg of raw material converted (2010: 0.86kg).
Heineken
Hornell
L’Oréal
PepsiCo
Red Bull
Schincariol
60%
3.5%
more information in the sustainability section
financial statements
customers
governance
more information in the operating review
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 201 we employed on average 19,000 people in our continuing operations.
1,
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
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.
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. 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.
Beverage Cans Plastic Packaging head office regional offices
sales1 by customer location (£m)
2011
2010
1,576
1,586
● Brazil
747
● Austria
327
● Russia
● Spain
● US
1
Continuing operations.
2011
2010
● UK
203
200
700
● France
188
178
288
● Germany
136
131
281
267
● Other countries
1,050
1,051
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.
9
how we performed in 201
1
£m
£m
p p Statutory results
Sales2
Operating profit2,3
Profit before tax3
Total profit for the financial year3,4
Total basic earnings per share3,4
sales (£m)
£m
£m
£m
£m
p
2010
3,786
3,677
2011
948
942
2010
4,619
513
390
31.4
12.0
2%
7%
15%
15%
20%
4,734
507
431
376
43.1
4,619
473
338
124
14.2
4,619
4,734
4,619
2009
4,533
4,254
2007
3,423
● Plastic Packaging
4,734
governance
Continuing operations
4,734
549
450
36.1
14.4
sales2 (£m)
2011
2008
● Beverage Cans
change
business review
£m
2010
sustainability
2011
Underlying business performance1
Sales
Underlying operating profit
Underlying profit before tax
Underlying earnings per share
Total dividend per share
overview
2011 results summary
2011
2010
underlying operating pro t1 (£m)
● Beverage Cans
447
394
2011
549
● Plastic Packaging
102
119
2010
513
Continuing operations
549
513
2009
418
2008
423
2007
326
1
2
3
4
U nderlying business performance from continuing operations before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.
Continuing operations.
Includes exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.
Includes discontinued operations. more information in the operating and financial reviews
financial statements
underlying operating pro t1 (£m)
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
12
chief executive’s review (including KPIs) market review
20 operating review
26 financial review
34 key risks
governance
sustainability
business review
overview
16
financial statements
Our chief executive outlines how we performed against our strategy to deliver value. The operating and financial reviews outline our performance in 201 We also
1.
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
Rexam annual report 2011
directors’ report
chief executive’s review
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.
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 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.
13
‘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
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.
2009
£42m
2008
£35m
2007
£32m
£22m
£13m
£19m
£20m
£23m
£19m
£14m
£17m
£21m
overview
£39m
£15m
Beverage Cans
Plastic Packaging
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.
business review
£35m
2010
sustainability
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%.
2011
governance
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.
total ef ciency gains 2007–2011
financial statements
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%.
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 t wo 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 t ype 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
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.
2
3
4
5
6
7
8
9
2008
%
%
£m
GDP+
GDP++
Note 2
4
8
245
3
22
316
%
15% by 2013
13.7
12.3
9.5
11.0
11.9
1–10
%
£m
To be set
Continuous improvement
Note 2
7.8
32
17
n/a
31
19
n/a
27
20
n/a
27
19
n/a
23
14
£m
LTAR
ratio
c £30m
Zero accidents pa
–10% by 2013 vs 2010
35
0.28
0.83
34
0.30
0.86
42
0.63
0.91
35
0.76
n/a
32
1.13
n/a
%
%
Continuous improvement
Continuous improvement
n/a n/a 62
53
n/a n/a n/a n/a n/a n/a (7)
7
(17)
3
290 (128)
2007
11
(7)
24
U nderlying 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.
Will depend on investment plans (including capital) going forward.
U
nderlying 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.
C
ustomer 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.
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.
Assuming current Group structure.
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.
Kilogram of carbon per kilogram of raw materials converted (continuing operations).
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.
business review
2009
sustainability
2010
governance
1
2011
financial statements
targets
best performance
Organic sales growth1
Underlying operating profit growth1
Free cash flow
Return on capital employed3 customer expectations
Customer satisfaction score4
Emerging market sales as percentage of sales
Research and new product development5 operational excellence
Annual cost savings and efficiencies6
Lost time accident rate7
Carbon intensity8 winning organisation
Employee engagement index favourable score9
Values and leadership practices favourable score9
overview
key performance indicators
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 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.
consumer packaging market value by pack material 20111
● 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 source: PIRA International 2011
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
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.
28%
● South America
overview
33%
● North America
4%
1
Excludes secondary/bulk and industrial packaging.
source: PIRA International 2011 source: PIRA International 2011
consumer packaging market value by end use 20111
● Food
51%
● Beverages
18%
● Healthcare
6%
● Cosmetics
business review
35%
● Europe
sustainability
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.
● Asia and Rest of World
5%
● Other
1
20%
Excludes secondary/bulk and industrial packaging.
source: PIRA International 2011 source: PIRA International 2011
beverage cans only market value by geographic region 2011
● North America
43%
● Europe
26%
● Asia and Rest of World
25%
● South America
source: PIRA International 2011
6%
governance
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.
consumer packaging market value by geographical region 20111
financial statements
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.
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
Our plants – beverage cans
Our plants – plastic packaging
macro facts in our markets
Population (millions)
Population over the age of 65 (%)
GDP per capita (US$’000)
Real GDP growth 2011/12E (%)
beverages
Can consumption per capita (cans)
Can share (unit volume) – soft drinks (%)
Can share (unit volume) – beer (%)
Off trade beer consumption 2010 (%)
Beverage can recycling share 2009 (%)
healthcare
Average life expectancy (years)
Total exp. on health per capita 2008/9 (US$’000)
OTC medicine expenditure per capita (US$)
personal care and household care
Total exp. on colour cosmetics per capita (US$)
Beauty and personal care – premium share (%)
Rigid plastic share – PC/HC packaging (%)
Austria
Czech R
France
Germany
Ireland
2
1
Denmark
1
1
3
1
Italy Netherlands
2
–
Poland
–
Russia
3
–
–
–
6
1
–
–
1
1
–
8.4
10.5
5.5
63.2
81.4
4.6
60.6
16.7
38.1
142.4
18
16
17
17
21
12
20
16
14
13
41.8
25.9
37.7
35.0
37.9
39.5
30.2
42.3
20.1
16.7
0.9
0.7
1.4
0.2
0.3
1.1
-2.2
0.5
2.5
3.3
97
19
221
**
62
13
91
39
104
102
32
16
4
25
18
2
19
9
22
8
6
26
7
61
22
2
49
22
25
48
25
63
52
78
78
78
34
61
71
72
91
50
47
87
40
91
50
53
85
67
75
80
77
79
81
80
80
82
81
76
66
4.3
2.1
4.3
4.0
4.2
3.8
3.1
4.9
1.4
1.0
106
98
63
81
110
116
71
67
80
n/a
36.9
17.7
34.1
30.1
23.7
28.2
24.2
28.0
10.6
11.3
14
6
35
41
22
25
33
29
10
14
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
business review
overview
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.
Americas
Asia/Middle East &Africa
UK
Argentina
Brazil
Chile
2
1
1
2
1
9
1
–
–
–
–
–
1
46.1
9.4
72.2
62.6
40.9
17
20
6
17
11
30.6
40.6
14.6
36.0
-1.7
1.4
3.0
153
119
26
23
40
Guatemala
Mexico
US
China
India
Indonesia
1
*
1
15
1
1
–
S. Korea
1
*
Egypt
1
–
–
2
13
4
1
1
–
–
194.9
17.4
14.7
109.7
312.9
1,348.1 1,206.9
240.5
49.0
79.4
7
10
4
7
13
9
6
6
11
5
17.4
11.8
16.2
5.0
15.1
48.1
8.4
3.7
4.7
31.8
6.5
0.6
4.6
3.0
4.7
3.0
3.5
1.8
8.2
7.0
6.3
4.4
1.8
23
124
13
109
55
40
86
337
19
1
4
119
10
11
25
1
20
5
20
9
43
18
1
2
44
7
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
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
sustainability
Turkey
governance
Sweden
financial statements
Spain
20
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
Sales
Underlying operating profit
Return on sales
Return on net assets
2010
£3,786m £3,677m
£447m
£394m
11.8%
10.7%
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
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 SLEEKTM 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.
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.
overview business review
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.
sustainability
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.
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.
governance
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.
investing in growth
financial statements
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.
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.
plastic packaging
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.
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.
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.
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.
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.
business review
£119m
12.6%
29.1%
sustainability
£102m
10.8%
23.3%
governance
£942m
overview
2010
£948m
financial statements
2011
Sales
Underlying operating profit
Return on sales
Return on net assets
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 overview Sales growth GDP +
Pack mix changes in Europe
Growth in specialty cans in
North America
Growth in emerging markets
Organic investment c 1.0–1.5 times depreciation underpins
GDP + growth
Bolt on acquisitions
Maximise long term shareholder value aiming to reach 15% ROCE by 2013
Operating pro t growth GDP ++
Ef ciencies and pricing offset cost in ation over time
Good drop through from increased volume and utilisation business review
Investment
Cash generation
Strong balance sheet
sustainability
Investment grade credit rating
Surplus cash
Returned to shareholders
Dividend
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%.
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
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.
governance
Dividend cover 2.0–2.5 times
26
Rexam annual report 2011
directors’ report
financial review
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.
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
2011
Continuing operations:
Sales
Operating profit/(loss)
Share of associates and joint ventures profit after tax
Total net finance cost2
Profit/(loss) before tax
Profit/(loss) after tax
Discontinued operations:
Profit for the year
Total profit for the year
Total basic earnings per share
Underlying earnings per share
Interim dividend per share
Proposed3 final dividend per share
Underlying Exceptional business and other performance¹ items
£m
£m
4,734
549
9
(108)
450
315
(p)
(p)
(p)
(p)
Total
£m
– 4,734
(42) 507
–
23
(19)
(12)
9
(85)
431
303
73
376
43.1
36.1
4.7
9.7
3
5
(140)
338
236
(112)
124
14.2
31.4
4.0
8.0
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.
Total underlying net finance cost comprises net interest of £92m (2010: £113m) and retirement benefit obligations net finance cost of £16m (2010: £15m).
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).
Total
£m
Sales reported 2010
Currency fluctuations
Sales 2010 pro forma basis
Organic change in sales
Sales reported 2011
4,619
(53)
4,566
168
4,734
Beverage
Plastic
Cans Packaging
£m
£m
3,677
(43)
3,634
152
3,786
942
(10)
932
16
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.
business review
(p)
(p)
(p)
(p)
–
(12)
(52)
(38)
analysis of sales movement
sustainability
2
5
(128)
390
274
– 4,619
(40) 473
analysis of underlying operating profit movement
Total
£m
Underlying operating profit reported 2010
Currency fluctuations
Underlying operating profit 2010 pro forma basis
Organic change in underlying operating profit
Underlying operating profit reported 2011
Beverage
Plastic
Cans Packaging
£m
£m
513
(6)
394
(4)
119
(2)
507
390
117
42
57
(15)
549
447
102
governance
1
4,619
513
Total
£m
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.
financial statements
2010
Continuing operations:
Sales
Operating profit/(loss)
Share of associates and joint ventures profit after tax
Total net finance cost2
Profit/(loss) before tax
Profit/(loss) after tax
Discontinued operations:
Loss for the year
Total profit for the year
Total basic earnings per share
Underlying earnings per share
Interim dividend per share
Final dividend per share
Underlying Exceptional business and other performance¹ items
£m
£m
overview
27
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
Sales price and cost changes
Volume and mix changes
Efficiency and other savings
Organic change in underlying operating profit
Beverage
Plastic
Cans Packaging
£m
£m
7
–
35
18
17
22
(11)
(17)
13
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
Average:
Euro
US dollar
Russian rouble
Closing:
Euro
US dollar
Russian rouble
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.
2010
1.15
1.60
47.12
1.17
1.55
46.96
1.19
1.54
49.59
1.17
1.54
46.77
Underlying operating Sales profit £m
£m
US dollar
Russian rouble
Euro
Other currencies
(81)
(1)
20
9
(53)
(9)
–
3
–
(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
Net interest
Retirement benefit obligations net finance cost
Total underlying net finance cost
2011
£m
2010
£m
(92)
(16)
(108)
(113)
(15)
(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.
£m
Restructuring of businesses, including impairments
Amortisation of certain acquired intangible assets
Total exceptional and other items included in operating profit
Financing derivative market value changes
Total exceptional and other items before tax
Tax on:
Restructuring of businesses, including impairments
Amortisation of certain acquired intangible assets
Financing derivative market value changes
Total tax on exceptional and other items
Total exceptional and other items after tax
(16)
(26)
(42)
23
(19)
4
9
(6)
7
(12)
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.
business review
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.
sustainability
exceptional and other items
The exceptional and other items arising in 2011 in respect of continuing operations were as follows:
governance
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 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.
financial statements
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.
overview
29
30
Rexam annual report 2011
directors’ report
financial review
earnings per share
discontinued operations – closures
A summary of the performance of discontinued operations is set out below.
2011
£m
Sales
Underlying operating profit
Underlying profit before tax
Underlying profit after tax before exceptional and other items
Exceptional and other items included in operating profit:
Profit on disposal
Impairment of goodwill and other assets
Restructuring
Amortisation of certain acquired intangible assets
Tax on exceptional and other items
Exceptional and other items after tax
Profit/(loss) for financial year after tax
2010
£m
205
13
13
343
22
22
8
13
91
(34)
(5)
–
(179)
(6)
–
13
65
73
(14)
74
(125)
(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.
Underlying earnings per share – continuing operations (p)
Basic earnings per share – total operations (p)
Average number of shares in issue (millions)
Year end number of shares in issue (millions)
2011
2010
36.1
43.1
872.6
877.0
31.4
14.2
875.6
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
Plan assets – higher than expected returns, principally on bonds
Demographic changes
Actuarial losses before tax
Tax
Actuarial losses after tax
(280)
139
35
(106)
30
(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.
Cost recognised in the income statement on annuitisation of certain US retirement obligations
Retirement benefit obligations net finance cost
144
(152)
(8)
(7)
(15)
(4)
(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
Defined benefit pension plans
Other pension plans
Retiree medical
Total cash payments
2010
£m
46
10
9
65
27
12
12
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.
2011
£m
Continuing operations:
Underlying operating profit
Depreciation and amortisation1
Retirement benefit obligations
Change in working capital
Restructuring costs
Other movements
Cash generated
Capital expenditure (net)
Net interest and tax paid
Loan from joint venture
Free cash flow from continuing operations
Free cash flow from discontinued operations
Free cash flow
Dividends paid to non controlling interests
Equity dividends
Business cash flow
Disposals2
Cash flow including borrowings acquired and disposed
Share capital changes
Exchange differences
Other non cash movements
Net borrowings at the beginning of the year
Net borrowings at the end of the year3
1
2
3
2010
£m
549
191
(41)
(19)
(19)
3
664
(226)
(165)
4
277
(32)
245
(1)
(111)
133
204
513
197
(27)
(20)
(41)
25
647
(181)
(173)
5
298
18
316
–
(105)
211
1
337
(18)
29
24
(1,684)
(1,312)
212
(6)
(38)
(24)
(1,828)
(1,684)
Excludes amortisation of certain acquired intangibles amounting to £26m (2010: £32m).
Disposal proceeds offset by £1m (2010: £nil) in respect of a capital injection in a joint venture.
Net borrowings comprises borrowings £1,838m (2010: £1,881m) less cash and cash equivalents £412m (2010: £114m) and financing derivatives £114m (2010: £83m).
business review
Retiree medical – interest on liabilities
142
(148)
(6)
(6)
(12)
sustainability
Defined benefit pension plans:
Expected return on plan assets
Interest on plan liabilities
2010
£m
governance
2011
£m
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.
financial statements
The retirement benefit obligations net finance cost is analysed as follows:
overview
31
32
Rexam annual report 2011
directors’ report
financial review
capital expenditure – continuing operations
2011
Capital expenditure (gross)1 (£m)
Depreciation and amortisation2 (£m)
Ratio (times)
1
2
2010
227
191
1.19
189
197
0.96
Capital expenditure is on a cash basis and includes computer software that has been capitalised. 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
Goodwill and other intangible assets
Property, plant and equipment
Retirement benefits (net of tax)
Net assets classified as held for sale
Other net assets
Total equity, including non controlling interests
Net borrowings1
Return on capital employed2 (%)
Net borrowings/EBITDA3 (times)
Interest cover4 (times)
Gearing5 (%)
1
2
3
4
5
As at
31.12.11
£m
2,177
1,590
(371)
2
233
3,631
2,319
1,312
3,631
13.7
1.8
6.0
57
As at
31.12.10
£m
2,231
1,571
(317)
232
292
4,009
2,325
1,684
4,009
12.3
2.4
4.5
72
Net borrowings comprise borrowings, cash and cash equivalents and certain derivative financial instruments.
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.
Based on net borrowings divided by underlying operating profit plus depreciation and amortisation from continuing operations, excluding amortisation of certain acquired intangible assets.
Based on underlying operating profit of continuing operations divided by underlying net interest expense.
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
US dollar
Euro
Sterling and other
Net borrowings
1,051
439
(178)
1,312
As at
31.12.10
£m
1,424
299
(39)
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$
Revolving credit facility
Multi currency
Bilateral credit facilities
Multi currency
US private placement and bond
US$
Medium term note
Euro
Bilateral credit facilities
Multi currency
Total committed loan and bank facilities
2067
2016
2016
654
602
207
2013
2013
2012
503
536
50
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
1,426
(114)
1,312
1,767
(83)
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
82
3
(2)
114
(55)
59
83
47
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.
sustainability
110
4
–
governance
Cross currency swaps
Interest rate swaps
Foreign exchange forward contracts
Derivative financial instruments included in net borrowings
Other derivative financial instruments
Total derivative financial instruments
As at
31.12.10
£m
financial statements
Net borrowings excluding derivative financial instruments
Derivative financial instruments
Net borrowings
As at
31.12.10
£m
business review
As at
31.12.11
£m
overview
Net borrowings include interest accruals and certain financial derivatives as set out below:
34
Rexam annual report 2011
directors’ report
key risks
enterprise risk management
Rexam risk management process
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.
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.
Rexam risk management process
Rexam objectives risk identi cation risk assessment risk mitigation risk reporting risk monitoring development 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.
35
Rexam risk management tool – heat map matrix overview impact of risk
Major
Signi cant
business review
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
Moderate
Rexam risk management tool – radar
Minor
Risk 1
Risk 2
Unlikely
Moderate
Likely
Almost certain likelihood of risk occurring
■ Very high
Risk 8
■ High
■ Medium ■ Low
Risk 4
Risk 7
Risk 5
Risk 6
■ Year 1
■ Year 0
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.
governance
Rare
Risk 3
Risk 9
sustainability
Insigni cant
financial statements
Risk 10
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.
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.
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.
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.
description
key mitigation
Economic downturn
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.
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.
Aluminium and other input cost increases
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.
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.
business review
risk
sustainability
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
governance
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.
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).
financial statements
summary of key Group risks
overview
37
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Rexam annual report 2011
directors’ report
key risks
risk
description
key mitigation
National political and economic stability
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.
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.
Competitive environment trends
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.
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.
Changes in packaging legislation and regulatory environment 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.
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
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.
Changes in consumer tastes, nutritional preferences, health related concerns and environment related concerns 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.
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.
Pension deficit
Risks relate to cash contributions, charges to the income statement and balance sheet volatility.
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.
business review
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.
sustainability
Counterparty failure
overview
key mitigation
governance
description
financial statements
risk
40
Rexam annual report 2011
directors’ report
key risks
risk
description
key mitigation
Business interruption
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.
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.
Environmental, fire, health and safety
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.
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
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.
Tax risks
In an increasingly complex international tax environment, some uncertainty is inevitable in estimating our tax liabilities.
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.
Fraud, bribery, internal control failure
The risk of an internal control failure such as a Rexam employee committing fraud or bribery.
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.
Funding
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.
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.
business review
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.
sustainability
Supply of faulty or contaminated products
overview
key mitigation
governance
description
financial statements
risk
42
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
products operations 49 people
44
governance governance sustainability
business review
overview
47
financial statements financial statements
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.
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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.
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.
products: enhanced value operations: efficient use of resources people: engaged employees
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.
45
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.
2015 targets
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 Optimum pack design
Under-packaging
Over-packaging
Minimum material 1
Minimum environmental impact
Increasing packaging material weight or volume
Derived from ‘Environmental Impact of Packaging: Performance in the
Household’ report by Dr Jan Kooijman, Food Technology Consulting.
source: Consumer Goods Forum source: TheThe Consumer Goods Forum
Beverage can average recycling rates (%)
1
2010
2009
2008
2007
Europe 75
USA 63
n/a
68
68
66
58
57
54
Brazil 98
54
98
98
91
sustainability
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.
business review
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.
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.
governance
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 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.
financial statements
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.
overview
‘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
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.
source: Metal Packaging Europe
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.
47
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
overview business review
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.
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.
sustainability
We continue to research and evaluate the viability of non fossil resins.
NoveliaTM 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.
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.
2011
Tonnes of raw material per tonne of production Group
2010
2009
1.14
1.15
1.24
Beverage Cans
1.16
1.17
1.30
Plastic Packaging
1.07
1.07
1.08
10.0
11.7
12.0
Lightweighting savings (‘000 tonnes) Beverage Cans
governance
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 PanacheTM spray mechanism, the R shaped lipstick case and the AdvanciaTM nasal spray.
innovation in Healthcare
financial statements
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.
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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.
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.
2013 targets
2011
2010
2009
MWh of gas/electricity used per tonne of can production –10%
(vs 2010)
2.72
2.80
3.30
MWh of gas/electricity used per tonne of plastic production1 –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.
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.
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 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.
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).
1
LTAR is the number of lost time accidents times 200,000/total hours worked.
overview business review
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.
sustainability
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 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.
governance
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.
people: engaged employees
financial statements
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.
50
Rexam annual report 2011
directors’ report
sustainability
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’.
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.
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
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.
cash donations
We increased charitable cash donations by the Group in 2011 to £458,000 as shown in the table (2010: £442,000):
2011
Rest of World (excluding UK)
2010
£55,000
UK
£52,000
£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
business review
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).
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).
sustainability
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.
governance
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.
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.
financial statements
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.
overview
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.
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
54 directors and officers
56 corporate governance
69 remuneration report
sustainability
business review
overview
other disclosures
governance
81
financial statements
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
Rexam annual report 2011
directors’ report
directors and officers
chairman
chairman designate
Sir Peter Ellwood (68) appointed Chairman on 1 May 2008
Stuart Chambers (55) appointed 1 February 2012 as a
(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
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.
executive leadership team
Jon Atchue human resources
André Balbi Cerviño beverage can Americas
Graham Chipchase chief executive
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.
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 of ficer of Royal P&O Nedlloyd
NV and finance director of CMG plc. other directorships Trustee of Aldeburgh
Music.
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
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.
John Langston (62) 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.
Wolfgang Meusburger (58) 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.
sustainability
Noreen Doyle (62) appointed 22 March 2006. committees Finance (chairman), audit
business review
overview
non executive directors
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.
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.
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
Leo Oosterveer (52) appointed 1 September 2011. committees Nomination. strengths Strong operational leader with
governance
company secretary
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 w ww.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; • nsure that the board’s obligations to its shareholders e are understood and met;
• nsure that the strategy takes into account the interests e of the Group’s customers, suppliers, employees and the local communities in which Rexam operates;
• aintain control over the Group’s assets; m • onitor changes to the Group’s management and m control structures;
• evelop robust corporate governance and risk d management practices and procedures; and
• stablish high ethical standards of behaviour. e 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
Sir Peter Ellwood (chairman of the board)
Graham Chipchase
Noreen Doyle
John Langston
Wolfgang Meusburger
Leo Oosterveer (appointed 1 September 2011)
David Robbie
Jean‑Pierre Rodier
Carl Symon (retired 23 November 2011)2
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.
1
2
meetings 20111
9/9
9/9
9/9
9/9
9/9
3/3
9/9
9/9
7/8
N umber of scheduled meetings attended/maximum number of meetings that the director could have attended.
C
arl 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.
overview
board membership 2011
Board appointments and removals
business review
schedule of matters reserved for the board
operational excellence winning organisation governance
customer expectations 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
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
financial statements
best performance sustainability
the main areas dealt with by the board during 2011
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: l • ead the board;
• promote a culture of openness, challenge and debate; • eview the effectiveness of the board; r • ensure that the board has the appropriate balance of skills and experience and to give consideration to succession planning;
• nsure compliance with Group policies concerning the e conduct of the business;
• rovide guidance to the executive directors and senior p management; and
• afeguard the interests of shareholders. s 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;
• eliver the Group’s strategic plan; d • 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;
• e the primary interface with shareholders; and b • romote high standards of ethical business conduct. p The written job specifications for the roles of chairman and chief executive are reviewed annually by the nomination committee.
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.
59
length of service of non executive directors as at
22 February 2012
board balance as at 22 February 2012
2
2
● 5 –6 years
3
● 7 non executive directors including the chairman
overview
● 3 –4 years
● 2 executive directors
business review
● 0 –2 years
committee membership 2011
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.
meetings 20111
Sir Peter Ellwood (committee chairman)
Noreen Doyle3
John Langston
Wolfgang Meusburger
Leo Oosterveer (appointed 6 December 2011)4
Jean‑Pierre Rodier
Carl Symon (retired 23 November 2011)
2
1
2
3
4
6/6
5/6
6/6
6/6
–
6/6
5/5
N umber of scheduled meetings attended/maximum number of meetings that the director could have attended.
S
ir 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.
N
oreen 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.
N
o meetings were held in 2011 after Leo Oosterveer’s appointment date.
governance
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.
sustainability
the nomination committee
All of the members of this committee are independent non executive directors.
financial statements
effectiveness
60
Rexam annual report 2011
directors’ report
corporate governance
The main responsibilities of the committee are to:
• eview the structure, size and composition of the board r (including the skills, knowledge, experience and diversity, including gender diversity);
• ive full consideration to succession planning and ensure g that processes and planning are in place with regard to both the board and senior executive appointments;
• dentify and consider candidates on merit against i 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; • ssess the time needed to fulfil the roles of chairman, a senior independent director and non executive directors;
• eep up to date about strategic issues and commercial k changes affecting the Company and its markets; and
• ssist the chairman with the annual board performance a 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
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.
overview business review
The chairman met with the non executive directors during 2011 to discuss the evaluation of the board and succession plans.
strategic planning
Focus on regular reporting to the board on the progress of strategic issues and actions
Enterprise risk management function risk management provided regular updates to the board;
Finance director provided regular updates to the board on key risks and mitigation measures
New format of financial report; financial and non
Development and understanding financial monitoring of the Group’s balanced scorecard talent management and Chairman designate and non executive director appointed in accordance with succession planning succession plans;
Review of executive leadership team
Participation in board updates focusing board development on gender diversity in the boardroom, the UK Bribery Act and changes to the
Takeover Code
sustainability
Achievement in 2011 of actions identified through the board performance evaluation in 2010
governance
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.
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.
financial statements
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.
Should a director reasonably request independent professional advice to carry out their duties, such advice is made available at the Company’s expense.
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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.
directors in office as at the date of this report to be proposed for election or re ‑ election at the AGM 2012
board performance evaluation 2011
Graham Chipchase
David Robbie
Noreen Doyle
John Langston
Wolfgang Meusburger
Leo Oosterveer
Jean‑Pierre Rodier
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.
Stuart Chambers
non executive director and chairman designate chief executive finance director non executive director non executive director non executive director non executive director 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.
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.
meetings 20111
John Langston (committee chairman)
Jean‑Pierre Rodier (appointed 6 December 2011)2
Noreen Doyle
Carl Symon (retired 23 November 2011)2
1
2
4/4
–
4/4
4/4
N umber of scheduled meetings attended/maximum number of meetings that the director could have attended.
N
o 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:
• versee and review the financial and operational risks, o policies and management;
• ssist the board in meeting its responsibilities by a ensuring an effective system of internal control and compliance and accurate external financial reporting;
• ssist the board in managing the relationship with the a 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;
• eep under review the effectiveness of the process k for the identification, assessment, mitigation, reporting and monitoring of risks facing the business; and
• pprove the appointment of the director internal audit a 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.
business review
committee membership 2011
sustainability
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.
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.
governance
During 2011 the audit and risk committee focused on a number of activities associated with and complementary to its core internal financial control responsibilities.
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.
financial statements
accountability
overview
63
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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.
Regular reviews took place to ensure businesses were performing in line with budget and strategy.
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.
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.
delegated authority
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.
65
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.
operational risk management 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.
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 A XA Matrix. Further details can be found in the key risks section of this annual report on page 40.
sustainability
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.
governance
internal audit
business review
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.
overview
Group authority levels were updated.
financial statements
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.
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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 t ype 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.
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.
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.
business review sustainability 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 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.
governance
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.
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.
financial statements
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.
overview
67
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
the remuneration committee
The members of the committee are independent non executive directors. 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.
committee membership 2011
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.
Jean-Pierre Rodier remuneration committee chairman
Number of scheduled meetings attended/maximum number of meetings that the director could have attended.
Jean-Pierre Rodier has been a member of the committee since July 2006.
Carl Symon retired from the committee and as committee chairman on
23 November 2011.
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 services
Kepler Associates
Executive remuneration advice and provision of market data for salaries and incentive programmes
Retirement benefits advice
Aon Hewitt Limited and
Mercer Limited
Allen & Overy LLP
1
Legal advice on cash and share incentive schemes, employment and retirement benefits matters
Addleshaw Goddard LLP advised on share incentive arrangements until August 2011.
overview business review
4
–
4/4
sustainability
2
3
4/4
governance
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.
1
4/4
financial statements
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. meetings 20111
Jean-Pierre Rodier2
(committee chairman from 6 December 2011)
Carl Symon3
(retired 23 November 2011)
John Langston4
(appointed 6 December 2011)
Wolfgang Meusburger
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Rexam annual report 2011
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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
2012 annual remuneration package
Graham Chipchase and David Robbie
18%
14%
8%
27%
33%
27%
41%
0%
● Salary
100%
● Retirement bene t
● 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
Graham Chipchase
David Robbie
base salary 2010
£715,000
£440,000
business review
32%
sustainability
Target/ expected value
Maximum
governance
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
90% of base salary at target and maximum bonus incentives opportunity of 180% of base salary with 25% of any earned bonus to be deferred into Rexam shares long term Performance conditions linked to compound annual incentives underlying earnings per share growth (33.3%), relative total shareholder return (33.3%) and return on capital employed growth (33.3%) clawback Provides for unvested shares or awards to be policy forfeited in whole or in part in the event of conduct detrimental to the Group or a material restatement of the Group’s results retirement Career average revalued earnings defined benefit plan for current executive directors benefits (UK)
Executive directors appointed after 6 April 2011 will be entitled to membership of a defined contribution pension arrangement
overview
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:
£675,000
£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.
financial statements
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.
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 Underlying profit before tax
Free cash flow
Personal performance objectives
maximum
actual
43.2
28.8
18.0
86.4
57.6
36.0
52.7
48.0
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 Underlying profit before tax
Free cash flow
Personal performance objectives
Total
maximum
43.2
28.8
18.0
90.0
86.4
57.6
36.0
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
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.
ROCE performance
Below minimum 12% pa
Between minimum and maximum
Above maximum 16% pa
vesting of total award subject to ROCE %
None
8.3–33.3
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.
TSR performance percentile within comparator group
Below median
Between median and 25th
Above 25th
vesting of total award subject to TSR %
None
8.3–33.3
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.
overview
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
business review
None
8.3–33.3
33.3
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.
sustainability
Below minimum 3% pa
Between minimum and maximum
Above maximum 12% pa
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.
governance
EPS performance
vesting of total award subject to EPS %
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. financial statements
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).
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. executive Chief executive
Executive directors
2011
2010
shareholding requirement shareholding requirement number of shares number of shares
320,000
130,000
125,000
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 ve year cumulative total shareholder return
120
100
80
60
0
2006
2007
Rexam
FTSE 100 index
2008
2009
2010
2011
Points on this graph show the value of an investment on the last trading day of each year.
source: Alithos Limited
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
Rexam
FTSE 100 index
2011
Points on this graph show the value of an investment on the last trading day of each year.
source: Alithos Limited
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 notice period
(director)
compensation on early termination
10 February 2003
3 October 2005
30 November 2009
20 October 2010
12 months
12 months
12 months
12 months
As policy
As policy
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.
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
notice period
(company)
business review
2
2
date of current contract
sustainability
1
1
date of appointment governance
Graham Chipchase
David Robbie
notes
financial statements
executive director
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 non executive director
Stuart Chambers
Noreen Doyle
Sir Peter Ellwood
John Langston
Wolfgang Meusburger
Leo Oosterveer
Jean-Pierre Rodier
date of appointment date of original letter of appointment
effective date of current letter of appointment expiry of term
1 February 2012
22 March 2006
1 February 2008
30 October 2008
1 December 2006
1 September 2011
7 June 2006
15 November 2011
20 March 2006
17 January 2008
30 October 2008
26 October 2006
10 August 2011
6 June 2006
1 February 2012
22 March 2012
1 February 2011
30 October 2011
1 December 2009
1 September 2011
7 June 2009
31 January 2015
21 March 2015
31 January 2014
29 October 2014
30 November 2012
31 August 2014
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
Additional fees for:
Chairs of board committees
Senior independent director
£55,000
£10,000
£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
non executive directors
Noreen Doyle
John Langston
Wolfgang Meusburger
Leo Oosterveer (appointed 1 September 2011)
Jean-Pierre Rodier
Carl Symon (retired 23 November 2011)
executive directors
Graham Chipchase
David Robbie
2011 total
2010 total
2010 total £000
320
11
331
300
65
65
55
18
56
69
648
–
–
–
5
5
1
–
3
2
27
70
70
56
18
59
71
675
60
60
50
–
50
70
590
702
433
1,135
1,783
1,680
254
128
382
382
–
690
415
1,105
1,105
1,640
229
139
368
368
–
36
4
40
67
16
1,911
1,119
3,030
3,705
–
1,703
1,043
2,746
3,3362
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.
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.
governance
2
2011 total £000
financial statements
1
2011 benefits £000
business review
chairman
Sir Peter Ellwood
2011 pension supplement
£000
2011 annual incentive deferred shares1
£000
sustainability
2011 fees/ base salary
£000
2011 annual incentive cash1 £000
overview
directors’ remuneration (audited information)
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
2011
(b)
(a) increase in gross increase accrued pension in accrued excluding pension inflation per annum per annum
£000
£000
Graham Chipchase
David Robbie
1
2
3
4
13
9
8
5
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
101
78
126
62
583
418
1,886
1,427
1,294
993
Pension accruals shown are the amounts which would be paid annually on retirement based on service to 31 December 2011.
Transfer values (columns d, f and g) have been calculated in accordance with or consistent with the Occupational Pension Schemes (Transfer Values) Regulations 1996.
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.
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
lapsed during the year number outstanding
31.12.11
number
01.01.11
01.01.11
25.02.15
25.02.15
250,295
244,346
250,295
244,346
–
–
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 .
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.
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.
note
Graham Chipchase
2
3
Total
David Robbie
2
3
market value per share on date of grant
£
2.911
3.700
2.911
3.700
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
11.03.10
08.03.11
–
–
11.03.13
08.03.14
11.03.13
08.03.14
11.03.10
08.03.11
–
–
11.03.13
08.03.14
11.03.13
08.03.14
519,230
–
519,230
315,384
–
315,384
–
406,715
406,715
–
251,982
251,982
519,230
406,715
925,945
315,384
251,982
567,366
Total
1
2
3
4
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.
The award is subject to the performance conditions shown below, measured over a three year period which commenced on 1 January 2010.
The award is subject to the performance conditions shown below, measured over a three year period which commenced on 1 January 2011.
No awards vested, were exercised or lapsed during the year.
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
25th
33.3%
25th
40%
min
11%
8.3%
–
–
max
15%
33.3%
–
–
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.
1
Between the minimum and maximum targets, vesting will be calculated on a straight line basis.
business review
1
1
2
outstanding
01.01.11
number
sustainability
26.03.08
26.03.08
expiry date note 1
governance
1
2
3
grant date
2
first exercise date note 1
financial statements
note
Graham Chipchase
David Robbie
exercise price per holding £
overview
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.
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
Graham Chipchase
David Robbie
1
15.10.09
15.10.09
exercise price exercise per share period £ commences
2.12
2.12
01.12.14
01.12.14
expiry date outstanding
01.01.11
number
outstanding
31.12.11
number
31.05.15
31.05.15
7,334
7,334
7,334
7,334
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
Graham Chipchase
Noreen Doyle
Sir Peter Ellwood
John Langston
Wolfgang Meusburger
Leo Oosterveer (appointed 1 September 2011)
David Robbie
Jean-Pierre Rodier
1
2
3
shares at 01.01.111
168,441
8,636
61,785
4,090
13,198
168,441
8,466
59,645
4,090
12,742
–
69,416
8,181
–
71,907
8,181
Or date of appointment, if later.
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.
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
• 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 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.
business review
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:
sustainability
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:
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.
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)
2011 interim
2011 final
ex dividend date record date payment date 4.7
9.7
07.09.11
09.05.12
09.09.11
11.05.12
04.10.11
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.
governance
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.
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.
financial statements
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.
overview
other disclosures
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. share purchase authority
10% of issued share capital
AGM 2012 proposed AGM 2011 approved 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
BlackRock Inc
Legal & General Group Plc
number of shares disclosed % interest in issued share capital
44,138,256
34,660,260
5.03
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.
1
2
maturity
June 2067
June 2013
June 2013
March 2013
December 2012
November 2016
November 2016
November 2016
November 2016
November 2016
November 2016
November 2016
November 2016
November 2016
November 2016
All of the above bilateral credit facilities and the revolving credit facility are multi currency.
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.
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:
business review
amount
€750m
US$550m
US$225m
€638m
£50m
£602m
£45m
£20m
£20m
£20m
£20m
£20m
£20m
£20m
£20m
• 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.
sustainability
Subordinated bond
US public bond
US private placement
Medium term note
Bilateral credit facility
Revolving credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
Bilateral credit facility
governance
debt facilities
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.
On behalf of the board
David Gibson company secretary
22 February 2012
financial statements
At 31 December 2011 the debt facilities subject to these provisions were:
overview
83
84
Rexam annual report 2011
consolidated financial statements These caps are for Rexam’s innovative AdvanciaTM, the world’s first all in one nasal spray pump.
90
91
92
98
111
112
112
113
113
114
115
115
note 15 – investments in subsidiaries note 16 – investments in associates and joint ventures note 17 – available for sale financial assets note 18 – insurance backed assets note 19 – inventories note 20 – trade and other receivables note 21 – cash and cash equivalents note 22 – assets and liabilities classified as held for sale note 23 – trade and other payables note 24 – borrowings note 25 – net borrowings note 26 – financial instruments note 27 – retirement benefit obligations note 28 – provisions note 29 – share capital note 30 – other reserves note 31 – share based payment note 32 – reconciliation of profit/(loss) before tax to cash generated/(used) from operations note 33 – contingent liabilities note 34 – commitments
consolidated financial statements 100
101
102
102
102
103
105
106
107
107
109
110
116
117
118
125
129
130
130
131
133
133
133
business review
89
111
sustainability
88
independent auditors’ report to the members of Rexam PLC consolidated income statement consolidated statement of comprehensive income consolidated balance sheet consolidated cash flow statement consolidated statement of changes in equity notes to the consolidated financial statements: note 1 – principal accounting policies note 2 – segment analysis note 3 – operating expenses note 4 – employee costs and numbers note 5 – auditors’ remuneration note 6 – exceptional items – continuing operations note 7 – interest note 8 – tax note 9 – earnings/(loss) per share note 10 – discontinued operations note 11 – equity dividends note 12 – goodwill note 13 – other intangible assets note 14 – property, plant and equipment
governance
87
financial statements
86
overview
85
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 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.
16
27
7
7
7
7
6
7
8
6
8
10
73
376
(112)
124
31.4
1.4
32.8
27.1
(12.9)
14.2
34.5
8.3
42.8
27.0
(12.9)
14.1
overview
6
4,619
(4,146)
513
(8)
(32)
473
5
(15)
(117)
(12)
(129)
4
390
(8)
(32)
(12)
338
(116)
1
10
3
(102)
236
business review
2
4,734
(4,227)
549
(16)
(26)
507
9
(16)
(99)
23
(76)
7
450
(16)
(26)
23
431
(135)
4
9
(6)
(128)
303
34.7
8.4
43.1
3
sustainability
Underlying earnings per share (pence)
Continuing operations
Discontinued operations
Total
Basic earnings/(loss) per share (pence)
Continuing operations
Discontinued operations
Total
Diluted earnings/(loss) per share (pence)
Continuing operations
Discontinued operations
Total
2
2010
£m
9
9
9
governance
Continuing operations
Sales
Operating expenses Underlying operating profit Exceptional items Amortisation of certain acquired intangible assets
Operating profit
Share of post tax profits of associates and joint ventures
Retirement benefit obligations net finance cost Underlying interest expense Fair value changes on financing derivatives
Interest expense
Interest income Underlying profit before tax Exceptional items Amortisation of certain acquired intangible assets Fair value changes on financing derivatives
Profit before tax Tax on underlying profit Tax on exceptional items Tax on amortisation of certain acquired intangible assets Tax on fair value changes on financing derivatives
Tax
Profit for the financial year from continuing operations
Discontinued operations
Profit/(loss) for the financial year from discontinued operations
Total profit for the financial year attributable to equity shareholders of Rexam PLC
2011
£m
36.1
0.9
37.0
notes
financial statements
For the year ended 31 December
88
Rexam annual report 2011
consolidated statement of comprehensive income
For the year ended 31 December
Profit for the financial year Actuarial losses Tax on actuarial losses Premium paid on annuitisation of certain pension obligations Cost recognised in the income statement on annuitisation of certain pension obligations (net of tax) Exchange differences before recognition of net investment hedges Net investment hedges recognised Exchange differences recognised in the income statement on disposal of Closures Cash flow hedges recognised Cash flow hedges transferred to inventory Cash flow hedges recognised in the income statement Tax on cash flow hedges Disposal of non controlling interests Change in market value of available for sale financial assets
Other comprehensive loss for the year
Total comprehensive income for the year attributable to equity shareholders of Rexam PLC
notes
18, 27
8
17, 18
30
30
30
30
30
30
30
8, 30
30
2011
£m
2010
£m
376
(104)
30
(2)
124
(64)
24
–
3
(30)
14
(89)
(92)
(16)
–
28
(2)
–
(260)
116
–
(12)
22
–
40
(25)
2
(4)
–
1
(16)
108
89
consolidated balance sheet
1,848
383
1,571
61
19
–
252
120
27
256
4,537
517
2
626
1
38
412
1,596
2
1,598
6,124
415
–
648
1
70
114
1,248
282
1,530
6,067
(53)
(63)
(13)
(861)
(36)
(1,026)
–
(1,026)
(81)
(10)
(20)
(768)
(39)
(918)
(50)
(968)
Total liabilities
Net assets
(1,785)
(181)
(540)
(63)
(87)
(53)
(70)
(2,779)
(3,805)
2,319
(1,800)
(186)
(482)
(77)
(85)
(81)
(63)
(2,774)
(3,742)
2,325
Equity
Ordinary share capital
Share premium account
Capital redemption reserve
Retained earnings
Other reserves
Shareholders’ equity
Non controlling interests
Total equity
564
989
351
211
204
2,319
–
2,319
564
989
351
32
386
2,322
3
2,325
13
14
16
27
18
8
20
17
26
Current assets
Inventories
Insurance backed assets
Trade and other receivables
Available for sale financial assets
Derivative financial instruments
Cash and cash equivalents
19
18
20
17
26
21
Assets classified as held for sale
22
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Current tax
Trade and other payables
Provisions
24
26
23
28
Liabilities classified as held for sale
22
Non current liabilities
Borrowings
Derivative financial instruments
Retirement benefit obligations
Deferred tax liabilities
Non current tax
Other payables
Provisions
Approved by the board on 22 February 2012
Graham Chipchase, chief executive
24
26
27
8
23
28
30
David Robbie, finance director
business review
1,834
343
1,590
70
–
23
294
106
1
265
4,526
12
overview
2010
£m
sustainability
Assets
Non current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in associates and joint ventures
Pension assets
Insurance backed assets
Deferred tax assets
Trade and other receivables
Available for sale financial assets
Derivative financial instruments
2011
£m
governance
notes
financial statements
As at 31 December
90
Rexam annual report 2011
consolidated cash flow statement notes
2011
£m
2010
£m
32
650
(91)
(86)
473
685
(110)
(75)
500
(240)
1
205
4
7
(1)
(24)
(206)
8
–
5
4
6
(183)
7
(36)
(18)
(111)
(1)
10
(149)
21
(159)
(6)
(105)
–
(13)
(262)
Net increase in cash and cash equivalents
300
55
Cash and cash equivalents at the beginning of the year
Exchange differences and other non cash adjustments
Net increase in cash and cash equivalents
Cash and cash equivalents at the end of the year
99
3
300
402
62
(18)
55
99
83
329
(10)
402
46
68
(15)
99
For the year ended 31 December
Cash flows from operating activities
Cash generated from operations
Interest paid
Tax paid
Net cash flows from operating activities
Cash flows from investing activities
Capital expenditure
Proceeds from sale of property, plant and equipment
Disposal of Closures (net of cash and cash equivalents disposed)
Loan from joint venture
Interest received
Other investing items
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Purchase of Rexam PLC shares by Employee Share Trust
Dividends paid to equity shareholders
Dividends paid to non controlling interests
Other financing items
Net cash flows from financing activities
Cash and cash equivalents comprise:
Cash at bank and in hand
Short term bank deposits
Bank overdrafts
10
31
11
21
21
25
91
consolidated statement of changes in equity
Ordinary
share capital £m
Share
Capital
premium redemption account reserve
£m
£m
Retained earnings £m
Non
Other Shareholders’ controlling reserves equity interests £m
£m
£m
Total equity £m
386
–
–
–
2,322
376
(104)
30
3
–
–
–
2,325
376
(104)
30
–
–
–
(2)
–
(2)
–
(2)
–
–
–
–
3
3
–
3
–
–
–
–
–
–
–
–
(30)
14
(30)
14
–
–
(30)
14
–
–
–
–
–
–
–
–
–
–
564
–
–
–
–
–
–
–
–
–
–
989
–
–
–
–
–
–
–
–
–
–
351
–
–
–
–
–
(76)
300
8
(18)
(111)
211
(89)
(92)
(16)
28
–
(182)
(182)
–
–
–
204
(89)
(92)
(16)
28
–
(258)
118
8
(18)
(111)
2,319
–
–
–
–
(2)
(2)
(2)
–
–
(1)
–
(89)
(92)
(16)
28
(2)
(260)
116
8
(18)
(112)
2,319
At 1 January 2010
Profit for the financial year Actuarial losses ax on actuarial losses
T
xchange differences before recognition of net
E
investment hedges Net investment hedges recognised Cash flow hedges transferred to inventory ash flow hedges transferred to the income statement
C
Cash flow hedges recognised Tax on cash flow hedges hanges in market value of available for sale
C
financial assets
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Share options: value of services provided
Share option schemes: proceeds from shares issued
Purchase of Rexam PLC shares by Employee Share Trust
Change in non controlling interests
Dividends paid
At 31 December 2010
563
–
–
–
989
–
–
–
351
–
–
–
55
124
(64)
24
362
–
–
–
2,320
124
(64)
24
2
–
–
–
2,322
124
(64)
24
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12)
22
(25)
2
40
(4)
(12)
22
(25)
2
40
(4)
–
–
–
–
–
–
(12)
22
(25)
2
40
(4)
–
–
–
–
1
–
–
–
564
–
–
–
–
–
–
–
–
989
–
–
–
–
–
–
–
–
351
–
(40)
84
5
–
(6)
(1)
(105)
32
1
24
24
–
–
–
–
–
386
1
(16)
108
5
1
(6)
(1)
(105)
2,322
–
–
–
–
–
–
1
–
3
1
(16)
108
5
1
(6)
–
(105)
2,325
overview
32
376
(104)
30
business review
351
–
–
–
sustainability
989
–
–
–
governance
564
–
–
–
financial statements
At 1 January 2011
Profit for the financial year Actuarial losses ax on actuarial losses
T
remium paid on annuitisation of certain pension
P
related liabilities Cost recognised in the income statement on annuitisation of certain pension related liabilities (net of tax) xchange differences before recognition of net
E
investment hedges Net investment hedges recognised xchange differences recognised in the income
E
statement on the disposal of Closures Cash flow hedges recognised Cash flow hedges transferred to inventory Tax on cash flow hedges isposal of non controlling interests
D
Other comprehensive loss for the year
Total comprehensive income/(loss) for the year
Share options: value of services provided
Purchase of Rexam PLC shares by Employee Share Trust
Dividends paid
At 31 December 2011
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) AS19 (Revised) ‘Employee Benefits’, issued in June 2011, requires the immediate recognition of all changes to the funded position of
I
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) FRS9 ‘Financial Instruments’, issued in November 2009, is the first step in the process to replace IAS39 ‘Financial Instruments:
I
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 t wo 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 t wo principal pension plans and the retiree medical plan are set out in note 27 to the consolidated financial statements.
93
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:
Average
2011
Euro
US dollar
Closing
2011
Average
2010
Closing
2010
1.15
1.60
1.19
1.54
1.17
1.55
1.17
1.54
business review sustainability 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.
governance
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.
financial statements
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.
overview
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.
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, t ypically 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, t ypically 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.
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:
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.
governance
2 to 3 years
Up to 7 years
5 to 20 years
5 to 20 years
Up to 5 years
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.
financial statements
Computer software acquired
Computer software developed
Customer contracts and relationships acquired
Technology and patents acquired
Other development projects
business review
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.
sustainability
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 t ype and class of customers and the methods to distribute products are all similar.
overview
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.
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
Up to 50 years
Shorter of 50 years or lease term
7 to 17 years
Up to 8 years
4 to 10 years
Residual values and useful lives are reviewed at least at each financial year end. 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.
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:
Q
(i) uoted 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).
business review
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.
sustainability
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.
overview
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.
(iii) nputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
I
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:
governance
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.
C
(ii) ash 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.
N
(iii) et 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.
financial statements
F
(i) air value hedges where they hedge the exposure to changes in the fair value of a recognised asset or liability.
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
Continuing operations
3,786
Beverage Cans
Plastic Packaging
948
Total reportable segments
4,734
Share of post tax profits of associates and joint ventures
Retirement benefit obligations net finance cost
Net interest expense
Profit before tax
Tax
Profit for the financial year from continuing operations
Discontinued operations
Profit for the financial year from discontinued operations (note 10)
Total profit for the financial year
Underlying operating profit
£m
447
102
549
Underlying return on sales %
11.8
10.8
11.6
Underlying return on net assets
%
31.6
23.3
29.7
Continuing operations
Beverage Cans
Plastic Packaging
Total reportable segments
Associates and joint ventures
Unallocated assets and liabilities
Total continuing operations
Discontinued operations (note 10)
1
2
Other items comprise the amortisation of certain acquired intangible assets.
Net of impairment reversals.
3,488
1,532
5,020
70
1,034
6,124
–
6,124
(7)
(35)
(42)
Profit
£m
440
67
507
9
(16)
(69)
431
(128)
303
73
376
Assets
£m
Exceptional and other items1 £m
Liabilities
£m
(771)
(249)
(1,020)
–
(2,785)
(3,805)
–
(3,805)
Capital Depreciation and expenditure amortisation
£m
£m
174
65
239
–
–
239
10
249
134
83
217
–
–
217
–
217
Impairment: intangible assets
£m
–
–
–
–
–
–
20
20
Impairment: property, plant and equipment2
£m
4
2
6
–
–
6
14
20
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.
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
394
119
513
Underlying return on sales %
10.7
12.6
11.1
Underlying return on net assets
%
27.6
29.1
27.9
Continuing operations
Beverage Cans
Plastic Packaging
Total reportable segments
Associates and joint ventures
Unallocated assets and liabilities
Total continuing operations
Discontinued operations (notes 10, 22)
1
2
3,449
1,566
5,015
61
711
5,787
280
6,067
Liabilities
£m
(683)
(268)
(951)
–
(2,741)
(3,692)
(50)
(3,742)
(11)
(29)
(40)
Profit/
(loss)
£m
383
90
473
5
(15)
(125)
338
(102)
236
(112)
124
Assets
£m
Exceptional and other items1 £m
Capital Depreciation and expenditure amortisation
£m
£m
141
51
192
–
–
192
19
211
142
87
229
–
–
229
36
265
Impairment: goodwill £m
–
–
–
–
–
–
59
59
Impairment: intangible assets
£m
–
–
–
–
–
–
65
65
Impairment: property, plant and equipment2
£m
6
(3)
3
–
–
3
55
58
Other items comprise the amortisation of certain acquired intangible assets.
Net of impairment reversals.
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.
governance
Continuing operations
3,677
Beverage Cans
Plastic Packaging
942
Total reportable segments
4,619
Share of post tax profits of associates and joint ventures
Retirement benefit obligations net finance cost
Net interest expense
Profit before tax
Tax
Profit for the financial year from continuing operations
Discontinued operations
Loss for the financial year from discontinued operations (note 10)
Total profit for the financial year
Underlying operating profit
£m
financial statements
Sales
£m
business review
Non specific central costs are allocated on the basis of underlying operating profit.
sustainability
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.
overview
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.
100
Rexam annual report 2011
notes to the consolidated financial statements
2 segment analysis continued
(iii) geographic and other information
2011
Sales
£m
Continuing operations
US
Brazil
Austria
Russia
Spain
UK
France
Germany
Other countries
1,576
747
327
281
226
203
188
136
1,050
4,734
–
4,734
205
4,939
Unallocated non current assets
Total continuing operations
Discontinued operations
2011
Non current assets £m
1,398
482
86
191
93
210
349
288
847
3,944
582
4,526
–
4,526
2010
Sales
£m
1,586
700
288
267
218
200
178
131
1,051
4,619
–
4,619
343
4,962
2010
Non current assets £m
1,470
432
91
208
102
200
339
327
841
4,010
527
4,537
–
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
Raw materials used
Changes in inventories of WIP and finished goods
Employee benefit expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of goodwill
Impairment of intangible assets
Impairment of property, plant and equipment
Reversal of impairment of property, plant and equipment
Freight costs
Operating lease rental expense
Operating lease rental income
Other operating expenses
Other operating income
1
2011
Continuing
operations exceptional and other items1 £m
(2,520)
(7)
(731)
(179)
(12)
–
–
(5)
–
–
(8)
–
(26)
–
–
(2)
(2,520)
(7)
(739)
(179)
(38)
–
–
(7)
1
(222)
(33)
2
(500)
21
(4,185)
–
–
–
–
(6)
–
(42)
1
(222)
(33)
2
(506)
21
(4,227)
2010
Continuing
operations underlying £m
2010
Continuing
operations exceptional and other items1 £m
(107)
1
(43)
–
–
–
(20)
(14)
(2,371)
(10)
(730)
(183)
(14)
–
–
(6)
–
–
–
–
(32)
–
–
–
(2,371)
(10)
(730)
(183)
(46)
–
–
(6)
(169)
(5)
(80)
(21)
(15)
(59)
(65)
(55)
–
(6)
(3)
–
(39)
–
(231)
–
(224)
(33)
2
(552)
15
(4,106)
3
–
–
–
(11)
–
(40)
3
(224)
(33)
2
(563)
15
(4,146)
–
(10)
(6)
–
(37)
2
(520)
2011
2011
Continuing Discontinued operations operations total total
£m
£m
2010
2010
Continuing Discontinued operations operations total total
£m
£m
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
(615)
(80)
(11)
(24)
(730)
(80)
(810)
2010
£m
(10)
(1)
(4)
(15)
(10)
(1)
(2)
(13)
(ii) key management compensation (including directors of Rexam PLC)
Salaries and short term employee benefits
Post employment benefits
Share based payment
Key management comprises all directors of Rexam PLC and band 1 executives. For details of directors’ remuneration see the remuneration report.
overview
(611)
(85)
(19)
(24)
(739)
(43)
(782)
2011
£m
Continuing operations
Wages and salaries
Social security
Share based payment
Retirement benefit obligations
Total continuing operations
Discontinued operations
2010
£m
business review
2011
£m
Continuing operations
Beverage Cans
Plastic Packaging
Total continuing operations
Discontinued operations
7,600
11,400
19,000
1,200
20,200
2011
Number
Continuing operations
US
China
France
Brazil
Germany
Russia
UK
Other countries
Total continuing operations
Discontinued operations
4,500
4,300
2,300
2,000
1,100
700
600
3,500
19,000
1,200
20,200
2010
Number
7,500
12,100
19,600
2,100
21,700
2010
Number
4,600
4,900
2,300
1,800
1,100
700
600
3,600
19,600
2,100
21,700
governance
2011
Number
financial statements
(iii) average number of employees
sustainability
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).
102
Rexam annual report 2011
notes to the consolidated financial statements
5 auditors’ remuneration
2011
£m
Fees payable to PricewaterhouseCoopers LLP for the audit of the consolidated financial statements
Statutory audit fees payable to associate members of PricewaterhouseCoopers LLP
Total audit fees
Audit related assurance services
Other assurance services
Tax advisory services
Tax compliance services
All other non audit services
2010
£m
0.9
2.5
3.4
0.2
2.2
0.3
–
0.5
6.6
0.8
2.5
3.3
0.2
–
0.4
0.1
0.6
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
2011
£m
Restructuring
Impairment of property, plant and equipment (net of reversals)
Exceptional items before tax
Tax on exceptional items
Total exceptional items after tax
2010
£m
(14)
(2)
(16)
4
(12)
(11)
3
(8)
1
(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
2011
£m
Interest expense
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Interest on financing derivatives
Foreign exchange (losses)/gains
Underlying interest expense
Fair value gains/(losses) on financing derivatives
Interest income
Cash and cash equivalents
Bank loans in 2010 included £10m of capitalised facility fees written off on the cancellation of related bank facilities.
2010
£m
(9)
(8)
(24)
(9)
(45)
(25)
24
(3)
(99)
23
(76)
(8)
(26)
(25)
(9)
(41)
(31)
21
2
(117)
(12)
(129)
7
4
103
7 interest continued
An analysis of fair value gains/(losses) on financing derivatives is set out below.
(3)
30
(18)
9
Fair value gains/(losses) on financing derivatives
(7)
(10)
(17)
23
Not hedge accounted
Interest rate swaps
Cross currency swaps
(1)
11
(5)
5
5
9
14
Fair value hedges
Interest rate swaps
Cross currency swaps
Fair value adjustment to borrowings
2010
£m
(12)
overview
2011
£m
8 tax
(i) tax included in the consolidated income statement
Continuing operations
Current and non current tax
Adjustment in respect of prior years
Current and non current tax
(82)
2
(80)
(5)
–
(5)
(87)
2
(85)
(82)
7
(75)
6
–
6
(76)
7
(69)
Origination and reversal of temporary differences
Adjustment in respect of prior years
Deferred tax
(55)
–
(55)
12
–
12
(43)
–
(43)
(38)
(3)
(41)
8
–
8
(30)
(3)
(33)
(135)
(5)
(140)
7
39
46
(128)
34
(94)
(116)
(9)
(125)
14
74
88
(102)
65
(37)
Total continuing operations
Discontinued operations
1
2010
Exceptional
and other items1 £m
2010
Total
£m
Other items comprise the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.
(ii) tax credited/(charged) in equity
2011
£m
Actuarial losses
Cash flow hedges
Annuitisation of certain pension obligations
Tax included in equity
2010
£m
30
28
(1)
57
24
(4)
–
20
sustainability
2011
Total
£m
2010
Underlying
profit
£m
governance
2011
Exceptional
and other items1 £m
financial statements
2011
Underlying
profit
£m
business review
The net gain on fair value hedges of £9m (2010: £5m) represents the total hedge ineffectiveness for the year.
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 items1 £m
2011
Total
£m
2010
Underlying
profit/tax
£m
2010
Exceptional
and other items1 £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
Non deductible and non taxable items
(Higher)/lower domestic tax rates on overseas earnings
Tax overprovided in prior years
Tax in the consolidated income statement
(119)
(2)
(16)
2
(135)
5
(1)
3
–
7
(114)
(3)
(13)
2
(128)
(109)
6
(17)
4
(116)
14
(2)
2
–
14
(95)
4
(15)
4
(102)
Effective rate of tax on continuing operations
30%
30%
30%
1
30%
Other items comprise the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.
(iv) analysis of deferred tax
2011
£m
294
(63)
231
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
2010
£m
252
(77)
175
Retirement benefit obligations
£m
Tax losses £m
Accelerated tax depreciation
£m
At 1 January 2011
Exchange differences
(Charge)/credit for the year
Credit to equity
At 31 December 2011
146
–
(7)
30
169
59
–
(22)
–
37
(90)
(1)
(15)
–
(106)
50
2
25
–
77
10
1
15
28
54
175
2
(4)
58
231
At 1 January 2010
Exchange differences
Credit/(charge) for the year
Credit/(charge) to equity
Transfer to liabilities classified as held for sale
At 31 December 2010
117
4
1
24
–
146
61
2
(4)
–
–
59
(106)
(1)
13
–
4
(90)
12
1
37
–
–
50
18
1
(6)
(4)
1
10
102
7
41
20
5
175
Goodwill and other intangible assets
£m
Other temporary differences
£m
Total
£m
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
Basic
2010
Pence
Diluted
2010
Pence
34.7
8.4
43.1
34.5
8.3
42.8
27.1
(12.9)
14.2
27.0
(12.9)
14.1
2011
£m
2010
£m
2011
Millions
2010
Millions
872.6
6.2
878.8
875.6
2.6
878.2
(ii) underlying earnings per share
2011
Pence
36.1
0.9
37.0
Continuing operations
Discontinued operations
Total
2010
Pence
31.4
1.4
32.8
2011
Continuing
operations
£m
Underlying profit before tax
Tax on underlying profit
Underlying profit for the financial year
Attributable to:
Shareholders of Rexam PLC
Non controlling interests
2011
Discontinued
operations
£m
2010
Continuing
operations
£m
2010
Discontinued
operations
£m
450
(135)
315
13
(5)
8
390
(116)
274
22
(9)
13
315
–
315
8
–
8
275
(1)
274
12
1
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.
sustainability
Weighted average number of shares in issue
Dilution on conversion of outstanding share options
Weighted average number of shares in issue on a diluted basis
237
(113)
124
business review
303
73
376
governance
Profit/(loss) for the financial year attributable to equity shareholders of Rexam PLC
Continuing operations
Discontinued operations
Total
financial statements
Continuing operations
Discontinued operations
Total
Diluted
2011
Pence
overview
Basic
2011
Pence
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
2011
£m
205
(231)
13
(39)
–
(26)
(5)
13
–
8
(18)
91
73
343
(520)
22
(185)
(14)
(177)
(9)
68
6
65
(112)
–
(112)
2011
£m
Sales
Operating expenses Underlying operating profit Exceptional items (note ii) Amortisation of certain acquired intangible assets
Loss before tax Tax on underlying profit Tax on exceptional items (note ii) Tax on amortisation of certain acquired intangible assets
Tax
Loss after tax
Profit on disposal (note iii)
Net profit/(loss)
2010
£m
2010
£m
(28)
(6)
(5)
(39)
10
3
(26)
(171)
(8)
(6)
(185)
63
5
(117)
(ii) exceptional items
Impairment of Closures
Other impairment
Restructuring
Exceptional items before tax
Tax on impairment of Closures
Tax on other impairment and restructuring
Exceptional items after tax
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)
Cash and cash equivalents disposed
Net cash inflow in the cash flow statement
Net assets disposed (net of tax)
Accrued costs
Exchange differences recognised in the income statement on disposal
Profit on disposal
207
(2)
205
(197)
(6)
89
91
(iv) cash flows
2011
£m
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Net cash (outflow)/inflow
2010
£m
(19)
(14)
(1)
(34)
30
(12)
–
18
107
10 discontinued operations continued
(v) other comprehensive loss
2011
£m
Exchange differences recognised in the income statement on disposal
Disposal of non controlling interests
Total other comprehensive loss
2010
£m
(89)
(2)
(91)
–
–
–
11 equity dividends
–
–
35
70
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
Carrying value at 31 December
1,852
(15)
–
1,837
2,085
30
(263)
1,852
(4)
1
–
–
(3)
(199)
(9)
(59)
263
(4)
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. 2011
£m
Europe
US
Brazil
Russia
Egypt
Mexico
Beverage Cans
Healthcare
Personal Care
Plastic Packaging
Carrying value at 31 December
2010
£m
639
367
197
42
33
7
1,285
647
367
197
44
35
7
1,297
327
222
549
330
221
551
1,834
1,848
sustainability
Cost
At 1 January
Exchange differences
Transfer to assets classified as held for sale
At 31 December
Impairment
At 1 January
Exchange differences
Impairment of Closures
Transfer to assets classified as held for sale
At 31 December
2010
£m
governance
2011
£m
overview
41
70
–
–
111
financial statements
Interim dividend for 2011 of 4.7p paid on 4 October 2011
Final dividend for 2010 of 8.0p paid on 7 June 2011
Interim dividend for 2010 of 4.0p paid on 5 October 2010
Final dividend for 2009 of 8.0p paid on 3 June 2010
2010
£m
business review
2011
£m
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) iscount rates. The pre tax discount rates used in the value in use calculations are set out in the table below. These discount rates are
D
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.
2011
%
Europe
US
Brazil
Russia
China
Egypt
Mexico
2010
%
10
10
13
15
13
20
14
11
11
15
18
14
21
16
(b) rowth rates. Cash flows beyond the three year planning horizon have been extrapolated using growth rates ranging between
G
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) perating profit. Forecasts for sales and margins are based on analyses of sales, markets, costs and competitors. Consideration is
O
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.
109
13 other intangible assets
Total
£m
98
(1)
4
(5)
96
24
–
–
(4)
20
346
(3)
–
–
343
127
(1)
–
–
126
16
–
1
(1)
16
611
(5)
5
(10)
601
(71)
1
(9)
5
(2)
(76)
(18)
1
(2)
4
(2)
(17)
(86)
1
(18)
–
–
(103)
(46)
–
(8)
–
–
(54)
(7)
–
(1)
–
–
(8)
(228)
3
(38)
9
(4)
(258)
20
3
240
72
8
343
Carrying value at 31 December 2011
Cost
At 1 January 2010
Exchange differences
Additions
Disposals
Transfers
Transfer to assets classified as held for sale
At 31 December 2010
Accumulated amortisation
At 1 January 2010
Exchange differences
Amortisation for the year
Disposals
Impairment
Transfer to assets classified as held for sale
At 31 December 2010
95
(1)
9
(2)
1
(4)
98
26
1
–
(1)
–
(2)
24
498
19
–
–
–
(171)
346
188
6
–
–
–
(67)
127
13
–
2
–
2
(1)
16
820
25
11
(3)
3
(245)
611
(65)
1
(11)
1
–
3
(71)
(17)
(1)
(3)
1
–
2
(18)
(91)
(2)
(32)
–
(65)
104
(86)
(46)
(1)
(14)
–
–
15
(46)
(6)
–
(1)
–
–
–
(7)
(225)
(3)
(61)
2
(65)
124
(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.
overview
Other development projects
£m
business review
Technology and patents acquired £m
sustainability
Customer contracts and relationships acquired
£m
governance
Cost
At 1 January 2011
Exchange differences
Additions
Disposals
At 31 December 2011
Accumulated amortisation
At 1 January 2011
Exchange differences
Amortisation for the year
Disposals
Impairment
At 31 December 2011
Computer software developed
£m
financial statements
Computer software acquired
£m
110
Rexam annual report 2011
notes to the consolidated financial statements
14 property, plant and equipment
Property
£m
Cost
At 1 January 2011
Exchange differences
Additions
Disposals
Reclassifications
At 31 December 2011
Accumulated depreciation
At 1 January 2011
Exchange differences
Disposals
Depreciation for the year
Impairment
Reversal of impairment
At 31 December 2011
Plant and equipment £m
Assets under construction £m
Total
£m
579
(7)
5
(2)
19
594
2,289
(23)
61
(37)
117
2,407
127
(4)
168
(2)
(136)
153
2,995
(34)
234
(41)
–
3,154
(160)
1
–
(21)
–
–
(180)
(1,264)
12
34
(158)
(9)
1
(1,384)
–
–
–
–
–
–
–
(1,424)
13
34
(179)
(9)
1
(1,564)
414
1,023
153
1,590
Carrying value at 31 December 2011
Cost
At 1 January 2010
Exchange differences
Additions
Disposals
Transfers
Reclassifications
Transfer to assets classified as held for sale
At 31 December 2010
Accumulated depreciation
At 1 January 2010
Exchange differences
Disposals
Depreciation for the year
Impairment
Reversal of impairment
Transfer to assets classified as held for sale
At 31 December 2010
602
4
3
(9)
–
23
(44)
579
2,389
13
43
(48)
2
95
(205)
2,289
113
2
154
(1)
(3)
(118)
(20)
127
3,104
19
200
(58)
(1)
–
(269)
2,995
(150)
(2)
3
(22)
–
–
11
(160)
(1,231)
(5)
43
(182)
(61)
3
169
(1,264)
–
–
–
–
–
–
–
–
(1,381)
(7)
46
(204)
(61)
3
180
(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.
Nature of business activities
US
Russia
Brazil
Brazil
UK
France
UK
Sweden
US
UK
US
US
Russia
South America
South America
UK
France
UK
Continental Europe
US
UK
US
Common stock
Capital stock
Common stock
Quotas
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
Ordinary shares
Common stock
Consumer packaging
Consumer packaging
Consumer packaging
Consumer packaging
Holding company
Consumer packaging
Holding company
Holding company
Holding company
Holding company
Holding company
Issued capital
Group share
South Korea
Guatemala
1.7m shares of 5,000 won each
334.5m shares of 1 quetzal each
40%
50%
Associates
£m
Joint ventures
£m
Total
£m
At 1 January 2011
Share of post tax profits
At 31 December 2011
35
4
39
26
5
31
61
9
70
At 1 January 2010
Exchange differences
Share of post tax profits
Transfer to assets classified as held for sale
At 31 December 2010
31
2
2
–
35
23
1
3
(1)
26
54
3
5
(1)
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
Sales
Profit after tax
Assets
Liabilities
2011
Joint ventures
£m
2010
Associates
£m
2010
Joint ventures
£m
187
11
161
(64)
70
9
73
(11)
153
5
150
(63)
56
5
62
(10)
sustainability
Hanil Can Company Limited – associate
Controladora Envases Universales Rexam SA – joint venture
governance
16 investments in associates and joint ventures
The principal associate and joint venture are set out below.
Country of incorporation and area of operation
overview
Identity of capital held
financial statements
Rexam Beverage Can Company
Rexam Beverage Can Naro Fominsk LLC
Rexam Beverage Can South America SA
Rexam do Brazil Ltda
Rexam European Holdings Limited
Rexam France SA
Rexam Group Holdings Limited
Rexam Holdings AB
Rexam Inc
Rexam Overseas Holdings Limited
Rexam Plastic Packaging Inc
Principal area of operation
business review
Country of incorporation 112
Rexam annual report 2011
notes to the consolidated financial statements
17 available for sale financial assets
2011
£m
At 1 January
Exchange differences
Income for the year
Changes in market value
Cash injection
Payments in respect of pension obligations
Disposals
At 31 December
Non current assets
Current assets
At 31 December
2010
£m
28
(1)
2
–
–
(2)
(25)
2
23
1
2
1
3
(2)
–
28
1
1
2
27
1
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.
2011
£m
US dollar
Euro
1
1
2
2010
£m
27
1
28
18 insurance backed assets
2011
£m
2010
£m
At 1 January
Exchange differences
Additions
Payments in respect of pension obligations
Actuarial gains
–
1
23
(1)
2
25
–
–
–
–
–
–
Non current assets
Current assets
At 31 December
23
2
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
2011
£m
211
17
289
517
176
15
224
415
2011
£m
2010
£m
(29)
(22)
6
5
–
(40)
(32)
(13)
3
4
9
(29)
2011 £m
2010 £m
4
(4)
–
62
11
33
106
4
(4)
–
68
9
43
120
527
(9)
518
36
33
39
626
509
(17)
492
55
37
64
648
732
768
2011
£m
Raw materials, stores and consumables
Work in progress
Finished goods
2010
£m
2010
£m
(21)
(7)
14
1
(13)
(16)
(7)
1
1
(21)
Current assets
Trade receivables
Provision for impairment
Net trade receivables
Prepayments
Taxes
Other receivables
Total trade and other receivables
An analysis of provisions for impairment of trade and other receivables is set out below.
At 1 January
Impairment in the year
Released in the year
Utilised
At 31 December
business review sustainability Non current assets
Trade receivables
Provision for impairment
Net trade receivables
Prepayments
Taxes
Other receivables
governance
20 trade and other receivables
financial statements
At 1 January
Charge for the year
Released in the year
Utilised
Transfer to assets classified as held for sale
At 31 December
overview
An analysis of provisions against inventories is set out below.
114
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.
2011
£m
Not yet due
Past due less than 1 month
Between 1 and 2 months
Between 2 and 3 months
Between 3 and 6 months
Between 6 and 12 months
In more than 12 months
2010
£m
691
31
7
2
–
1
–
732
715
21
4
1
2
5
20
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.
2011
£m
259
204
154
115
732
259
242
154
113
768
2011
£m
Euro
US dollar
Brazilian real
Other
2010
£m
2010
£m
83
329
412
46
68
114
21 cash and cash equivalents
Cash at bank and in hand
Short term bank deposits
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
US dollar
Sterling
Euro
Other
2010
£m
184
166
22
40
412
72
2
20
20
114
115
22 assets and liabilities classified as held for sale
2011
£m
Assets
Liabilities
2010
£m
2
–
2
282
(50)
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.
Total trade and other payables
(21)
(32)
(53)
(30)
(51)
(81)
(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.
2011
£m
US dollar
Euro
Brazilian real
Sterling
Other
2010
£m
(464)
(255)
(80)
(43)
(72)
(914)
(398)
(259)
(92)
(41)
(59)
(849)
business review
(438)
(60)
(202)
(5)
(63)
(768)
sustainability
Non current liabilities
Accrued expenses
Other payables
(510)
(66)
(198)
(9)
(78)
(861)
governance
Current liabilities
Trade payables
Social security and other taxes
Accrued expenses
Loan from joint venture
Other payables
2010
£m
financial statements
2011
£m
overview
23 trade and other payables
116
Rexam annual report 2011
notes to the consolidated financial statements
24 borrowings
2011
£m
Current liabilities
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Finance leases
Non current liabilities
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Total borrowings
2010
£m
(10)
(4)
(1)
(1)
(21)
(16)
–
(53)
(15)
(25)
(1)
(1)
(21)
(17)
(1)
(81)
(28)
(356)
(146)
(715)
(540)
(1,785)
(43)
(356)
(146)
(706)
(549)
(1,800)
(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.
2011
£m
Euro
US dollar
Other
2010
£m
(1,291)
(509)
(38)
(1,838)
(1,296)
(529)
(56)
(1,881)
117
25 net borrowings
Net borrowings at 31 December by instrument.
412
(10)
(32)
(357)
(147)
(736)
(556)
–
114
(1,312)
114
(15)
(68)
(357)
(147)
(727)
(566)
(1)
83
(1,684)
2011
£m
2010
£m
(1,684)
29
300
(7)
36
14
(1,312)
(1,828)
(38)
55
(21)
159
(11)
(1,684)
2011
£m
Cash and cash equivalents
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Finance leases
Financing derivatives
2010
£m
2010
£m
59
55
114
412
(53)
(1,785)
(1,312)
130
(47)
83
114
(81)
(1,800)
(1,684)
overview
2011
£m
At 1 January
Exchange differences
Increase in cash and cash equivalents
Proceeds from borrowings
Repayment of borrowings
Fair value and other changes
At 31 December
business review
Movement in net borrowings.
governance financial statements
Total derivative financial instruments (net)
Derivatives not included in net borrowings
Financing derivatives included in net borrowings
Cash and cash equivalents
Borrowings included in current liabilities
Borrowings included in non current liabilities
sustainability
Reconciliation of net borrowings to the consolidated balance sheet.
118
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
At 31 December 2011
Financial assets
Cash and cash equivalents
Trade and other receivables1
Available for sale financial assets
Derivative financial instruments
Financial liabilities
Trade and other payables2
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Derivative financial instruments
At 31 December 2010
Financial assets
Cash and cash equivalents
Trade and other receivables1
Available for sale financial assets
Derivative financial instruments
Financial liabilities
Trade and other payables2
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Finance leases
Derivative financial instruments
1
2
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
–
–
–
300
–
–
–
3
412
590
–
–
–
–
2
–
–
–
–
–
412
590
2
303
412
590
2
303
–
–
–
–
–
–
–
(72)
228
–
–
–
–
–
–
–
(172)
(169)
–
–
–
–
–
–
–
–
1,002
–
–
–
–
–
–
–
–
2
(848)
(10)
(32)
(357)
(147)
(736)
(556)
–
(2,686)
(848)
(10)
(32)
(357)
(147)
(736)
(556)
(244)
(1,623)
(848)
(10)
(32)
(381)
(156)
(595)
(569)
(244)
(1,528)
–
–
–
324
–
–
–
2
114
599
–
–
–
–
28
–
–
–
–
–
114
599
28
326
114
599
28
326
–
–
–
–
–
–
–
–
(6)
318
–
–
–
–
–
–
–
–
(190)
(188)
–
–
–
–
–
–
–
–
–
713
–
–
–
–
–
–
–
–
–
28
(789)
(15)
(68)
(357)
(147)
(727)
(566)
(1)
–
(2,670)
(789)
(15)
(68)
(357)
(147)
(727)
(566)
(1)
(196)
(1,799)
(789)
(15)
(68)
(392)
(160)
(642)
(585)
(1)
(196)
(1,781)
Excludes prepayments and taxes.
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.
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.
business review sustainability 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.
governance
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.
financial statements
(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).
overview
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.
120
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):
F
(a) or 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.
Impact on profit before tax
£m
Impact on equity
£m
Decrease
%
Impact on profit before tax
£m
Impact on equity
£m
10
10
10
(4)
11
(1)
–
29
(23)
(10)
(10)
(10)
5
(13)
1
–
(36)
23
10
10
10
(19)
23
15
4
32
(16)
(10)
(10)
(10)
23
(28)
(16)
(5)
(39)
16
Increase
%
At 31 December 2011
Sterling/US dollar
Sterling/euro
Euro/US dollar
At 31 December 2010
Sterling/US dollar
Sterling/euro
Euro/US dollar
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
US dollar
Euro
Other currencies
2011
Underlying
operating profit £m
2010
Sales
£m
2010
Underlying
operating profit £m
(81)
20
8
(53)
(9)
3
–
(6)
31
(51)
42
22
3
(3)
7
7
121
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
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.
More than
5 years
£m
Total contractual amount
£m
(795)
(10)
(4)
(24)
(9)
(43)
(23)
(13)
–
(2)
(381)
(155)
(43)
(559)
(15)
–
–
–
–
(128)
–
(25)
–
(26)
–
–
(673)
–
(848)
(10)
(32)
(405)
(164)
(887)
(582)
(403)
433
1
(49)
50
(124)
151
4
(10)
–
(148)
204
(1)
(3)
809
(1,186)
1,189
–
–
–
(1,861)
1,977
4
(62)
859
(708)
(15)
(24)
(24)
(9)
(43)
(24)
(1)
(18)
–
(7)
(24)
(9)
(43)
(24)
–
(38)
–
(7)
(381)
(155)
(130)
(569)
–
(25)
–
(29)
–
–
(728)
–
–
(789)
(15)
(67)
(429)
(173)
(944)
(617)
(1)
(607)
631
(3)
36
–
(103)
123
2
12
50
(205)
228
5
1
1,028
(1,276)
1,282
–
–
–
(2,191)
2,264
4
49
1,078
sustainability
2 to 5 years £m
governance
At 31 December 2011
Non derivative financial liabilities:
Trade and other payables
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Derivative financial instruments:
Derivative contracts – settled gross payments
Derivative contracts – settled gross receipts
Derivative contracts – net settlements
Commodity contracts
Undrawn committed debt facilities
At 31 December 2010
Non derivative financial liabilities:
Trade and other payables
Bank overdrafts
Bank loans
US public bond
US private placement
Subordinated bond
Medium term notes
Finance leases
Derivative financial instruments:
Derivative contracts – settled gross payments
Derivative contracts – settled gross receipts
Derivative contracts – net settlements
Commodity contracts
Undrawn committed debt facilities
1 to 2 years £m
financial statements
Within
1 year
£m
business review
(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.
122
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.
2011
£m
Maturity date
2012
2013
2015
2016
2067
50
1,039
–
809
654
2,552
2010
£m
50
1,048
1,028
–
654
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.
Credit rating
AA
AA–
A+
A
A–
BBB+ and below
2011
Individual
counterparty limit £m
70 to 90
60 to 80
50 to 70
40 to 60
20 to 40
10 to 30
2011
Cash
and cash equivalents £m
–
13
132
136
130
1
412
2011
Derivatives
£m
–
48
77
87
91
–
303
2011
Total
£m
–
61
209
223
221
1
715
2010
Individual
counterparty limit £m
70 to 90
60 to 80
50 to 70
40 to 60
20 to 40
10 to 30
2010
Cash
and cash equivalents £m
12
75
1
25
–
1
114
2010
Derivatives
£m
46
65
68
147
–
–
326
2010
Total
£m
58
140
69
172
–
1
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.
257
13
270
Total hedge accounted
228
318
Not hedge accounted
Cross currency swaps
Interest rate swaps
Forward foreign exchange contracts
Total not hedge accounted
(166)
(5)
2
(169)
(175)
(10)
(3)
(188)
59
130
Total net fair value of derivative financial instruments
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.
business review
50
(2)
–
48
sustainability
(64)
(2)
9
(57)
Cash flow hedges
Forward aluminium commodity contracts
Forward gas commodity contracts
Forward foreign exchange contracts
governance
276
9
285
Fair value hedges
Cross currency swaps
Interest rate swaps
overview
2010
£m
financial statements
2011
£m
124
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
Total
£m
At 1 January 2011
Net decrease in designations
Exchange differences recognised in equity
At 31 December 2011
(373)
13
12
(348)
(43)
41
2
–
(416)
54
14
(348)
At 1 January 2010
Net decrease in designations
Exchange differences recognised in equity
At 31 December 2010
(483)
86
24
(373)
(194)
153
(2)
(43)
(677)
239
22
(416)
2011
Notional
amounts
£m
2010
Notional
amounts
£m
An analysis of the notional amounts and maturity dates for derivative financial instruments is set out below.
Currency
Fair value hedges
Cross currency swaps
Cross currency swaps
Interest rate swaps
Forward aluminium commodity contracts
Cash flow hedges
Forward foreign exchange contracts
Forward foreign exchange contracts
Forward foreign exchange contracts
Forward aluminium commodity contracts
Forward gas commodity contracts
Forward resin commodity contracts
Not hedge accounted
Cross currency swaps
Cross currency swaps
Interest rate swaps
Interest rate swaps
Forward foreign exchange contracts
Forward aluminium commodity contracts
Forward resin commodity contracts
Maturity date Euro
Sterling
Euro
US dollar
2017
2017
2013
2012
630
(505)
168
(4)
641
(505)
171
(5)
US dollar
Sterling
Swedish krone
US dollar
US dollar
US dollar
2012 to 2014
2012
2012
2012 to 2014
2012 to 2014
2012
177
(30)
(17)
493
8
5
141
(24)
(21)
408
8
–
Sterling
US dollar
US dollar
Euro
US dollar
US dollar
US dollar
2017
2017
2012 to 2014
2014
2012 to 2014
2012
2011
505
(654)
803
168
52
(17)
–
505
(654)
364
–
(210)
–
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
At 1 January 2011
Exchange differences
Service cost – continuing operations
Service cost – discontinued operations
Net finance (cost)/credit (see note below)
Actuarial losses
Cash contributions and benefits paid
Transfers
At 31 December 2011
19
–
(7)
–
11
(68)
32
–
(13)
(315)
(1)
(5)
–
(15)
(27)
11
2
(350)
(38)
1
(1)
–
(2)
(7)
3
–
(44)
(334)
–
(13)
–
(6)
(102)
46
2
(407)
(18)
–
(10)
(1)
–
–
10
–
(19)
(352)
–
(23)
(1)
(6)
(102)
56
2
(426)
(111)
(1)
(1)
–
(6)
(4)
9
–
(114)
(463)
(1)
(24)
(1)
(12)
(106)
65
2
(540)
At 1 January 2010
Exchange differences
Service cost – continuing operations
Service cost – discontinued operations
Exceptional items – discontinued operations
Net finance (cost)/credit
Actuarial (losses)/gains
Cash contributions and benefits paid
Transfers
At 31 December 2010
(11)
–
(9)
–
–
8
9
22
–
19
(218)
(11)
(4)
(1)
2
(14)
(73)
2
2
(315)
(37)
–
(1)
–
–
(2)
(1)
3
–
(38)
(266)
(11)
(14)
(1)
2
(8)
(65)
27
2
(334)
(19)
1
(9)
(3)
–
–
–
12
–
(18)
(285)
(10)
(23)
(4)
2
(8)
(65)
39
2
(352)
(111)
(5)
(1)
–
–
(7)
1
12
–
(111)
(396)
(15)
(24)
(4)
2
(15)
(64)
51
2
(463)
19
(482)
(463)
146
(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.
business review sustainability –
(540)
(540)
169
(371)
governance
Pension assets
Retirement benefit obligations
Gross retirement benefit obligations
Tax
Net retirement benefit obligations
2010
£m
financial statements
2011
£m
overview
Gross retirement Retiree benefit medical obligations
£m
£m
126
Rexam annual report 2011
notes to the consolidated financial statements
27 retirement benefit obligations continued
(ii) defined benefit pension plans
(a) Amounts recognised in the consolidated balance sheet
Fair value of plan assets
Present value of funded obligations
Funded defined benefit pension plans
Present value of unfunded obligations
Net (liability)/asset
(b) Amounts recognised in the consolidated income statement
Continuing operations
Current service cost
Past service cost
Exceptional items – past service credit
Exceptional items – curtailments
Employee benefit expense
Expected return on plan assets
Interest cost
Net finance (cost)/credit
Total
Discontinued operations
Current service cost
Exceptional items – curtailment
Employee benefit expense
(c) Amounts recognised in the consolidated statement of comprehensive income
Actuarial gains/(losses) on plan assets
Actuarial losses on retirement benefit obligations
Total
(d) Changes in the fair value of plan assets
At 1 January
Exchange differences
Expected return on plan assets
Actuarial gains/(losses)
Employer contributions
Plan participant contributions
Benefits paid
At 31 December
Total
2011
£m
UK
2010
£m
US
2010
£m
Other
2010
£m
Total
2010
£m
2,811
(3,132)
(321)
(86)
(407)
1,598
(1,579)
19
–
19
1,026
(1,295)
(269)
(46)
(315)
13
(16)
(3)
(35)
(38)
2,637
(2,890)
(253)
(81)
(334)
(1)
–
–
–
(1)
1
(3)
(2)
(3)
(13)
–
–
–
(13)
142
(148)
(6)
(19)
(8)
(1)
–
–
(9)
92
(84)
8
(1)
(4)
–
(1)
1
(4)
52
(66)
(14)
(18)
(1)
–
–
–
(1)
–
(2)
(2)
(3)
(13)
(1)
(1)
1
(14)
144
(152)
(8)
(22)
–
–
–
–
–
–
–
–
–
–
–
–
(1)
2
1
–
–
–
(1)
2
1
52
(120)
(68)
88
(115)
(27)
(1)
(6)
(7)
139
(241)
(102)
57
(48)
9
46
(119)
(73)
1
(2)
(1)
104
(169)
(65)
1,598
–
95
52
32
2
(60)
1,719
1,026
2
46
88
9
–
(92)
1,079
13
(2)
1
(1)
1
1
–
13
2,637
–
142
139
42
3
(152)
2,811
1,489
–
92
57
22
2
(64)
1,598
980
44
52
46
–
–
(96)
1,026
11
–
–
1
1
1
(1)
13
2,480
44
144
104
23
3
(161)
2,637
UK
2011
£m
US
2011
£m
Other
2011
£m
1,719
(1,732)
(13)
–
(13)
1,079
(1,380)
(301)
(49)
(350)
13
(20)
(7)
(37)
(44)
(7)
–
–
–
(7)
95
(84)
11
4
(5)
–
–
–
(5)
46
(61)
(15)
(20)
–
–
–
127
27 retirement benefit obligations continued
UK
2011
%
Other
2011
%
Total
2011
%
UK
2010
%
US
2010
%
45
54
1
(e) Major categories of plan assets
Equities
Bonds
Cash and other
US
2011
%
12
88
–
74
23
3
32
67
1
50
49
1
18
82
–
Other
2010
%
Total
2010
%
74
22
4
38
61
1
At 1 January
Exchange differences
Current service cost – continuing operations
Current service cost – discontinued operations
Past service cost – continuing operations
Exceptional items – discontinued operations
Interest cost
Actuarial losses
Plan participant contributions
Benefits paid
Transfer from available for sale financial assets
At 31 December
US
2011
£m
Other
2011
£m
Total
2011
£m
UK
2010
£m
US
2010
£m
Other
2010
£m
Total
2010
£m
(1,579)
–
(7)
–
–
–
(84)
(120)
(2)
60
–
(1,732)
(1,341)
(3)
(5)
–
–
–
(61)
(115)
–
94
2
(1,429)
(51)
3
(1)
–
–
–
(3)
(6)
(1)
2
–
(57)
(2,971)
–
(13)
–
–
–
(148)
(241)
(3)
156
2
(3,218)
(1,500)
–
(8)
–
(1)
–
(84)
(48)
(2)
64
–
(1,579)
(1,198)
(55)
(4)
(1)
–
2
(66)
(119)
–
98
2
(1,341)
(48)
–
(1)
–
–
–
(2)
(2)
(1)
3
–
(51)
(2,746)
(55)
(13)
(1)
(1)
2
(152)
(169)
(3)
165
2
(2,971)
US
2011
%
Other
2011
%
US
2010
%
Other
2010
%
business review
UK
2011
£m
overview
(f) changes in the present value of defined benefit pension obligations
4.60
3.10
4.70
3.10
4.00
–
4.00
2.50
3.10
1.32
4.54
2.00
5.00
3.50
5.40
3.50
4.00
–
4.90
2.50
3.08
1.35
5.20
2.00
6.11
3.51
0.31
7.46
4.46
2.56
7.00
3.60
0.20
7.51
4.61
0.31
7.67
4.37
2.77
8.25
3.90
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.
governance
Future salary increases
Future pension increases
Discount rate
Inflation rate
Expected return on plan assets
(net of administration expenses):
Equities
Bonds
Cash and other
UK
2010
%
financial statements
UK
2011
%
sustainability
(g) principal actuarial assumptions
128
Rexam annual report 2011
notes to the consolidated financial statements
27 retirement benefit obligations continued
(h) historic information on defined benefit plans
2011
£m
Fair value of plan assets
Present value of defined benefit obligations
Net liability
Cumulative actuarial (losses)/gains
2010
£m
2009
£m
2008
£m
2007
£m
2,811
(3,218)
(407)
2,637
(2,971)
(334)
2,480
(2,746)
(266)
2,505
(2,586)
(81)
2,361
(2,424)
(63)
(130)
(28)
37
223
253
2008
2007
2011
Experience gains/(losses) arising on plan assets:
Amount (£m)
Percentage of plan assets (%)
Experience (losses)/gains arising on defined benefit obligations:
Amount (£m)
Percentage of present value of defined benefit obligations (%)
2010
2009
139
5
104
4
73
3
(221)
(9)
81
3
(241)
(7)
(169)
(6)
(259)
(9)
191
7
136
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.
2011
£m
(a) Amounts recognised in the consolidated balance sheet
Present value of the retiree medical obligation
(b) Amounts recognised in the consolidated income statement
Continuing operations
Current service cost
Interest cost (including administration costs of £1m (2010: £1m))
(c) Amounts recognised in the consolidated statement of comprehensive income
Actuarial (losses)/gains
(d) Changes in the present value of the retiree medical obligation
At 1 January
Exchange differences
Current service cost
Interest cost
Actuarial (losses)/gains
Benefits paid
At 31 December
2010
£m
(114)
(111)
(1)
(6)
(7)
(1)
(7)
(8)
(4)
1
(111)
(1)
(1)
(6)
(4)
9
(114)
(111)
(5)
(1)
(7)
1
12
(111)
129
27 retirement benefit obligations continued
(e) principal actuarial assumptions
2011
%
4.00
8.00 reducing to
4.50 over 16 years
Discount rate
Healthcare cost trend rate
2010
%
4.90
8.30 reducing to
4.50 over 17 years
2011
£m
–
(3)
–
3
1% increase – service cost and interest cost combined increase
1% increase – retiree medical obligation increase
1% decrease – service cost and interest cost combined reduction
1% decrease – retiree medical obligation reduction
2010
£m
–
(3)
–
3
(f) historic information on retiree medical
2008
(111)
19
(127)
14
2007
(98)
15
(4)
(4)
1
1
5
5
(1)
(1)
–
–
28 provisions
Environmental
compliance
£m
Restructuring of businesses
£m
Indirect tax exposures £m
Regulatory and other claims £m
Share based payment
£m
Total
£m
At 1 January 2011
Exchange differences
Charge for the year
Release for the year
Utilised
Transfers
At 31 December 2011
(21)
–
–
–
2
–
(19)
(21)
–
(19)
–
20
(2)
(22)
(32)
2
(3)
–
–
–
(33)
(22)
–
–
5
2
–
(15)
(6)
–
(11)
–
–
–
(17)
(102)
2
(33)
5
24
(2)
(106)
Current liabilities
Non current liabilities
At 31 December 2011
(5)
(14)
(19)
(20)
(2)
(22)
–
(33)
(33)
(11)
(4)
(15)
–
(17)
(17)
(36)
(70)
(106)
Current liabilities
Non current liabilities
At 31 December 2010
(3)
(18)
(21)
(18)
(3)
(21)
–
(32)
(32)
(18)
(4)
(22)
–
(6)
(6)
(39)
(63)
(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.
sustainability
2009
(111)
20
governance
2010
(114)
16
financial statements
2011
Present value of retiree medical obligation (£m)
Cumulative actuarial gains (£m)
Experience (losses)/gains arising on retiree medical obligation:
Amount (£m)
Percentage of present value of retiree medical obligation (%)
business review
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.
overview
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.
130
Rexam annual report 2011
notes to the consolidated financial statements
29 share capital
2011
Thousands
Number of issued and fully paid ordinary shares of 642/7p
At 1 January
Issued under employee share option schemes
At 31 December
2010
Thousands
876,864
167
877,031
876,829
35
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
Total
£m
At 1 January 2011
Cost recognised in the income statement on annuitisation of certain pension obligations (net of tax)
Exchange differences before recognition of net investment hedges
Net investment hedges recognised
Exchange differences recognised in the income statement on disposal of Closures
Cash flow hedges recognised
Cash flow hedges transferred to inventory
Tax on cash flow hedges
At 31 December 2011
429
(104)
64
(3)
386
–
(30)
–
–
–
14
–
–
–
3
–
–
3
(30)
14
(89)
–
–
–
310
–
–
–
–
(90)
–
(92)
(16)
28
(16)
–
–
–
–
–
(89)
(92)
(16)
28
204
At 1 January 2010
Exchange differences before recognition of net investment hedges
Net investment hedges recognised
Cash flow hedges recognised
Tax on cash flow hedges
Cash flow hedges transferred to inventory
Cash flow hedges transferred to the income statement
Changes in market value of available for sale financial assets
At 31 December 2010
441
(12)
–
–
–
–
–
–
429
(126)
–
22
–
–
–
–
–
(104)
51
–
–
40
(4)
(25)
2
–
64
(4)
–
–
–
–
–
–
1
(3)
362
(12)
22
40
(4)
(25)
2
1
386
131
31 share based payment
(i) summary of Rexam’s share based payment schemes
Scheme status
Settlement basis
LTIP
LTIP 2007
ESOS
Phantoms
SAYE
Open
Closed
Closed
Closed
Open
Equity and cash
Equity
Equity
Cash
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 t wo 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.
overview
Abbreviation
Long Term Incentive Plan 2009
Long Term Incentive Plan 2007
Executive Share Option Scheme
Phantom Stock Plan
Savings Related Share Option Schemes
business review
Scheme name
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.
sustainability
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.
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
2011
£m
Equity settled
Cash settled
Total
2010
£m
9
10
19
6
5
11
financial statements
governance
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.
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
Expected dividend growth (%)
Expected historical volatility (%)
Risk free interest rate (%)
Expected life (years)
Weighted average share price (£)
Weighted average fair value (£)
SAYE
TSR – Monte Carlo
EPS/ROCE – Black – Scholes
–
TSR – 25.4 to 36.4
TSR – 0.85 to 1.85
2.2 to 2.7
3.40 to 3.70
2.38 to 3.70
Valuation models
Binomial
3.8
29 to 35
0.9 to 1.9
3.25, 5.25, 7.25
3.40
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
2011
Number of Weighted average options exercise price
Thousands
£
2010
2010
Number of Weighted average options exercise price
Thousands
£
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
21,502
10,857
(252)
(3,771)
28,336
1.18
0.05
2.71
0.52
0.82
13,043
13,195
(93)
(4,643)
21,502
2.34
0.04
0.89
1.22
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
LTIP
LTIP 2007
ESOS
SAYE
Phantoms
21,674
–
2,808
1,878
1,976
2011
2011 Weighted average
Range of remaining exercise prices contractual life £ Years
–
–
2.71 to 4.58
2.12 to 3.88
2.71 to 4.57
1.7
–
5.5
2.8
5.4
2010
Number of options Thousands
12,224
2,058
3,090
1,866
2,264
2010
2010 Weighted average
Range of remaining exercise prices contractual life
£
Years
–
–
2.14 to 4.61
2.12 to 3.88
2.71 to 4.57
2.2
4.2
6.3
3.4
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 642/ p in Rexam
7
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
Total
operations
£m
2010
Continuing
operations
£m
2010
Discontinued
operations
£m
2010
Total
operations
£m
405
338
(177)
161
(9)
69
–
–
7
(1)
179
38
(19)
5
(29)
(7)
664
–
–
–
20
14
–
–
–
(24)
(1)
1
2
(14)
(9)
69
–
20
21
(1)
179
38
(43)
4
(28)
(5)
650
(5)
125
–
–
6
(3)
183
46
(20)
(8)
(12)
(3)
647
–
–
59
65
55
–
21
15
–
(2)
2
–
38
(5)
125
59
65
61
(3)
204
61
(20)
(10)
(10)
(3)
685
sustainability
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.
Less than 1 year
Between 1 and 5 years
Over 5 years
Total
2011
Plant and equipment £m
23
43
43
109
5
5
–
10
2010
Property
£m
22
47
42
111
2010
Plant and equipment £m
2
2
–
4
Total future minimum sublease receipts under non cancellable operating leases are £8m (2010: £10m).
(ii) capital commitments
2011
£m
Contracts placed for future capital expenditure not provided in the consolidated financial statements:
Property, plant and equipment
2010
£m
52
51
governance
2011
Property
£m
overview
(26)
business review
431
financial statements
Profit/(loss) before tax
Adjustments for:
Share of post tax profits of associates and joint ventures
Net interest expense
Impairment of goodwill
Impairment of intangible assets
Impairment of property, plant and equipment
Reversal of impairment of property, plant and equipment
Depreciation of property, plant and equipment
Amortisation of intangible assets
Movement in working capital
Movement in provisions
Movement in retirement benefit obligations
Other adjustments
Cash generated/(used) from operations
2011
Discontinued
operations
£m
134
Rexam annual report 2011
five year financial summary
2011
£m
2010
£m
2009
£m
2008
£m
2007
£m
4,734
(4,185)
549
9
(16)
(92)
450
(19)
431
(128)
303
4,619
(4,106)
513
5
(15)
(113)
390
(52)
338
(102)
236
4,533
(4,115)
418
2
(31)
(131)
258
(124)
134
(44)
90
4,254
(3,831)
423
2
(7)
(132)
286
(65)
221
(62)
159
3,423
(3,097)
326
–
(14)
(94)
218
22
240
(78)
162
73
376
(112)
124
(119)
(29)
12
171
78
240
2011
£m
2010
£m
2009
£m
2008
£m
2007
£m
Consolidated balance sheet
Goodwill and other intangible assets
Property, plant and equipment
Retirement benefit obligations (net of tax)
Other net assets/(liabilities)
Underlying net assets
2,177
1,590
(371)
235
3,631
2,231
1,571
(317)
524
4,009
2,481
1,723
(279)
225
4,150
2,949
1,982
(170)
16
4,777
2,216
1,310
(128)
(3)
3,395
Shareholders’ equity
Non controlling interests
Total equity
Net borrowings
Capital employed
2,319
–
2,319
1,312
3,631
2,322
3
2,325
1,684
4,009
2,320
2
2,322
1,828
4,150
2,174
2
2,176
2,601
4,777
1,831
2
1,833
1,562
3,395
%
11.6
Pence
36.1
Pence
34.7
Pence
14.4
Times
6.0
£m
245
£m
240
%
29.5
%
13.7
%
57
Number 19,000
11.1
31.4
27.1
12.0
4.5
316
206
27.0
12.3
72
19,600
9.2
23.0
11.4
8.0
3.2
290
184
22.1
9.5
79
20,700
9.9
27.7
22.2
18.7
3.2
(128)
389
27.5
11.0
120
22,500
9.5
22.4
23.5
17.8
3.5
24
311
30.3
11.9
85
21,100
For the year ended 31 December
Consolidated income statement
Continuing operations
Sales
Underlying operating expenses
Underlying operating profit
Underlying share of post tax profits of associates and joint ventures
Retirement benefit obligations net finance cost
Underlying net interest expense
Underlying profit before tax
Exceptional and other items1
Profit before tax
Tax
Profit for the financial year
Discontinued operations
Profit/(loss) for the financial year
Total profit/(loss) for the financial year
As at 31 December
Statistics
Underlying return on sales2
Underlying earnings per share2
Basic earnings per share3
Dividends per ordinary share4
Interest cover5
Free cash flow
Capital expenditure (gross)
Return on net assets6
Return on capital employed7
Gearing
Average number of employees3
1
2
3
4
5
6
7
Other items comprise the amortisation of certain acquired intangible assets and fair value changes on financing derivatives.
Based on continuing operations before exceptional and other items.
Based on continuing operations.
Includes proposed final dividends.
Based on underlying operating profit from continuing operations and underlying net interest expense from continuing operations.
U
nderlying 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.
U
nderlying 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.
139
139
140
140
141
141
141
142
142
142
143
143
business review
138
sustainability
independent auditors’ report to the members of Rexam PLC
Rexam PLC balance sheet notes to the Company financial statements: note 1 – principal accounting policies note 2 – employee costs and numbers note 3 – equity dividends note 4 – tangible assets note 5 – investments in subsidiaries note 6 – debtors receivable within one year note 7 – other creditors note 8 – borrowings note 9 – derivative financial instruments note 10 – operating lease commitments note 11 – contingent liabilities note 12 – capital and reserves note 13 – share based payment
governance
137
financial statements
company financial statements
136
overview
135
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
• he information given in the directors’ report for the financial year for which the Company financial statements are prepared is t 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:
• dequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from a branches not visited by us; or
• he Company financial statements and the part of the remuneration report to be audited are not in agreement with the accounting t 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
Investments in subsidiaries
Derivative financial instruments
2011
£m
2010
£m
(41)
(3)
(420)
(464)
(1)
5,491
(354)
5,108
Provisions for liabilities and charges
Net assets
(1,753)
(170)
(693)
(2,616)
(2)
2,873
(1,753)
(184)
(674)
(2,611)
(1)
2,496
Capital and reserves
Ordinary share capital
Share premium account
Capital redemption reserve
Profit and loss reserve
Other reserves
Total capital and reserves
564
989
351
814
155
2,873
564
989
351
437
155
2,496
9
Creditors: amounts falling due within one year
Borrowings
Derivative financial instruments
Other creditors
8
9
7
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Borrowings
Derivative financial instruments
Other creditors
8
9
7
12
Approved by the board on 22 February 2012
Graham Chipchase, chief executive
David Robbie, finance director
business review
(39)
(2)
(333)
(374)
6
sustainability
14
27
69
110
Current assets
Debtors receivable within one year
Derivative financial instruments
Cash at bank and in hand
governance
20
10
343
373
9
overview
15
5,204
243
5,462
5
financial statements
14
5,202
276
5,492
4
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
Fixtures and fittings
2 to 7 years
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.
For cash flow hedges, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in reserves, with any ineffective portion recognised in the profit and loss account. When hedged cash flows result in the recognition of a non financial asset or liability, the associated gains or losses previously recognised in reserves 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 reserves are transferred to the profit and loss account in the same period in which the hedged cash flows affect the profit and loss account.
Any gains or losses arising from changes in fair value of derivative financial instruments not designated as hedges are recognised immediately in the profit and loss account.
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.
Up front 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.
business review
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 adjusted against the carrying amount of the hedged item and similarly recognised in the profit and loss account.
overview
(ii) ash flow hedges where they hedge exposure to variability in cash flows that is attributable to a particular risk associated with c a recognised asset or liability or a forecast transaction.
Employee costs including directors:
Wages and salaries
Social security
Retirement benefits
Share based payment
2010
£m
18
2
10
4
34
17
2
8
2
29
For details of directors’ remuneration see the remuneration report.
2011
Number
Average employee numbers
3 equity dividends
For details of equity dividends see note 11 to the consolidated financial statements.
126
2010
Number
109
governance
2011
£m
financial statements
2 employee costs and numbers
sustainability
Debtors are measured at amortised cost less any provision for impairment. Debtors are discounted when the time value of money is considered material.
140
Rexam annual report 2011
notes to the Company financial statements
4 tangible assets
Computer
hardware and software
£m
Cost
At 1 January 2011
Additions
At 31 December 2011
Accumulated depreciation
At 1 January 2011
Depreciation for the year
At 31 December 2011
Fixtures and fittings
£m
Total
£m
25
2
27
2
1
3
27
3
30
(11)
(4)
(15)
(1)
–
(1)
(12)
(4)
(16)
12
2
14
Carrying value at 31 December 2011
Cost
At 1 January 2010
Additions
At 31 December 2010
Accumulated depreciation
At 1 January 2010
Depreciation for the year
At 31 December 2010
18
7
25
2
–
2
20
7
27
(8)
(3)
(11)
(1)
–
(1)
(9)
(3)
(12)
Carrying value at 31 December 2010
14
1
15
5 investments in subsidiaries Shares
£m
Loans
£m
Total
£m
At 1 January 2011
Exchange differences
Additions/advances
Disposals/repayments
At 31 December 2011
2,000
–
15
–
2,015
3,204
(37)
341
(321)
3,187
5,204
(37)
356
(321)
5,202
At 1 January 2010
Exchange differences
Additions/advances
Disposals/repayments
At 31 December 2010
1,778
–
611
(389)
2,000
3,555
42
1,007
(1,400)
3,204
5,333
42
1,618
(1,789)
5,204
For details of the principal subsidiaries of Rexam PLC see note 15 to the consolidated financial statements.
141
6 debtors receivable within one year
2011
£m
2
2
3
13
20
1
2
3
8
14
2011
£m
2010
£m
(3)
(306)
(2)
(10)
(12)
(333)
(1)
(402)
(2)
(12)
(3)
(420)
(693)
–
(693)
(672)
(2)
(674)
2011
£m
Trade debtors
Trade balances due from subsidiaries
Prepayments
Other debtors
2010
£m
2010
£m
(1)
5
(357)
(147)
(736)
(556)
(1,792)
–
3
(357)
(147)
(727)
(566)
(1,794)
(1,040)
5
(718)
(1,753)
(39)
(1,792)
–
(1,044)
(709)
(1,753)
(41)
(1,794)
Amounts falling due after more than one year
Due to subsidiaries
Other creditors
business review
Amounts falling due within one year
Trade creditors
Interest bearing loans due to subsidiaries
Other tax and social security
Accruals
Other creditors
overview
7 other creditors
Amounts falling due within one year
In 2011 a fair value loss of £1m (2010: £nil) on medium term notes and a fair value gain of £10m (2010: loss of £5m) on the subordinated bond under designated fair value hedge relationships were included in retained profit for the year.
governance
Repayment analysis
Amounts falling due after more than one year:
In more than one year but not more than t wo years
In more than t wo years but not more than five years
In more than five years
financial statements
Unsecured
Bank overdrafts
Bank loans net of capitalised financing fees
US public bond
US private placement
Subordinated bond
Medium term notes
sustainability
8 borrowings
142
Rexam annual report 2011
notes to the Company financial statements
9 derivative financial instruments
For details of the financial risk management objectives and policies and principal financial risks see note 26 to the consolidated financial statements.
2011
£m
Fair value of derivative financial instruments at 31 December
Cross currency swaps
Interest rate swaps
Forward foreign exchange contracts
110
4
–
114
2010
£m
82
3
(2)
83
Market values have been used to calculate the fair value of cross currency swaps. The fair value of interest rate swaps has 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.
2011
£m
(57)
3
(3)
(57)
Fair value changes included in retained profit at 31 December
Cross currency swaps
Interest rate swaps
Forward foreign exchange contracts
2010
£m
40
9
(1)
48
cross currency swaps
At 31 December 2011 and 2010 t wo cross currency swaps were outstanding. The first swapped €750m to £505m receiving fixed interest rates of 6.75% and paying floating interest rates. The second swapped £505m to US$1,007m receiving and paying floating interest rates.
Both of these swaps mature in 2017. interest rate swaps
Principal
€200m
US$400m
US$161m
€200m
US$350m
US$325m
Start date 2006
2009
2010
2013
2013
2013
Maturity date 2013
2012
2012
2014
2014
2014
Receive
Pay
4.375%
Floating
Floating
Floating
Floating
Floating
Floating + margin
2.06%
1.0% to 3.7%
1.56%
1.27%
1.10%
forward foreign exchange contracts
At 31 December 2011, forward foreign exchange contracts had principal amounts equivalent to £41m (2010: £269m). The main currencies traded were the US dollar, euro and rouble. These contracts mature in 2012 (2010: 2011).
10 operating lease commitments
Operating lease rentals payable in 2012 relating to contracts expiring after five years are £1m (2011: £1m).
11 contingent liabilities
2011
£m
Guarantees
2
2010
£m
44
143
12 capital and reserves
Ordinary
share capital £m
Share premium account
£m
Capital redemption reserve
£m
Profit and loss reserve £m
Merger and other reserves £m
Total equity £m
989
–
–
–
–
989
351
–
–
–
–
351
437
377
3
15
(18)
814
155
–
–
–
–
155
2,496
377
3
15
(18)
2,873
At 1 January 2010
Retained profit for the year
Share options: value of services provided
Share options: proceeds from shares issued
Share options: cost of investment
Purchase of Rexam PLC shares by Employee Share Trust
At 31 December 2010
563
–
–
1
–
–
564
989
–
–
–
–
–
989
351
–
–
–
–
–
351
342
90
2
–
9
(6)
437
155
–
–
–
–
–
155
2,400
90
2
1
9
(6)
2,496
The profit after tax for the financial year dealt within the financial statements of Rexam PLC is £488m (2010: £195m). Other reserves reflect unrealised gains related to the transfer of investments between subsidiaries. The profit and loss reserve of £814m (2010: £437m) arose partly as a result of a provision of £214m against certain investments in subsidiaries in 2001 of which £156m was reversed in 2005. The directors consider the value of the remaining investments in subsidiaries is considerably more than their book value. Accordingly, the remaining provision of £58m does not impact the distributable reserves of Rexam PLC which were £842m at 31 December 2011
(2010: £480m) after deducting £30m (2010: £15m) in respect of share options capitalised in cost of investment.
overview
564
–
–
–
–
564
business review
At 1 January 2011
Retained profit for the year
Share options: value of services provided
Share options: cost of investment
Purchase of Rexam PLC shares by Employee Share Trust
At 31 December 2011
2011
2011
Number of Weighted average options exercise price
Thousands
£
Outstanding at 1 January
Granted
Transferred in
Exercised
Lapsed
Outstanding at 31 December
2010
2010
Number of Weighted average options exercise price
Thousands
£
5,450
2,567
57
(52)
(1,464)
6,558
4,598
2,814
8
(62)
(1,908)
5,450
1.22
0.03
2.12
0.16
0.47
0.88
967
Exercisable at 31 December
0.88
0.06
–
2.24
0.09
0.72
3.99
505
4.03
The exercise prices and average remaining contractual lives of share options relating to Rexam PLC by scheme are set out below.
2011
Number of options Thousands
LTIP
LTIP 2007
ESOS
SAYE
5,211
–
958
389
2011
2011 Weighted average
Range of remaining exercise prices contractual life £ Years
–
–
2.71 to 4.57
2.12 to 2.91
1.7
–
5.5
2.8
2010
Number of options Thousands
2,726
1,343
1,024
357
2010
2010 Weighted average
Range of remaining exercise prices contractual life
£
Years
–
–
2.14 to 4.57
2.12 to 3.65
2.2
4.2
6.3
3.5
governance
The number of options and weighted average exercise prices of share option schemes relating to Rexam PLC are set out below.
financial statements
13 share based payment
Rexam PLC’s share based payment schemes comprise LTIP, LTIP 2007, ESOS and SAYE. For further information on these schemes, including the valuation models, assumptions used and settlement basis, see note 31 to the consolidated financial statements.
sustainability
For details of ordinary shares see note 29 to the consolidated financial statements.
144
Rexam annual report 2011
shareholder information
Rexam website w ww.rexam.com
The Rexam website has a range of information on the Group.
You can view online or download publications such as the
Consumer Packaging Report (packaging unwrapped), Rexam’s annual reports, half year results announcements, press releases and AGM related information and documents. There is practical information such as real time and historic Rexam shares prices and, in the Investors’ section, information on dividend payments and record dates, and choices as to how your dividend can be paid directly to your bank account or reinvested in shares through the dividend reinvestment plan. stock exchange listing
The Company’s ordinary shares of 642/ p each are listed with
7
the UK Listing Authority and trade on the London Stock Exchange under the code REX. In the US, shares are traded in the form of ADRs under the symbol REXMY on the Pink Sheets electronic trading market. holders of ordinary shares registrar www.shareview.co.uk
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
Tel: 0800 169 6946 for UK shareholders1
Tel: +44 121 415 7008 for overseas shareholders2
Please write to Equiniti or contact their helpline to:
• check your shareholding
• register change of address or name
• obtain a replacement dividend cheque or tax voucher
• record the death of a shareholder
• amalgamate multiple accounts
• ask any other question about your shareholding.
1
2
Calls to this number are free of charge when dialled from a BT landline. Other telephone provider costs may vary. Lines open 8.30am to 5.30pm, Monday to Friday.
Lines open 8.30am to 5.30pm, Monday to Friday.
holders of american depositary receipts (ADRs) depositary www.bnymellon.com/shareowner
The Bank of New York Mellon
PO Box 358516
Pittsburgh, PA 15252-8516
United States
Tel: +1 201 680 6825
Tel: 1 888 BNY ADRS (toll free within the US) email: shrrelations@bnymellon.com
Please write to The Bank of New York Mellon or contact their helpline to ask any question about Rexam’s ADR programme. capital gains tax
The market value of Rexam shares at 31 March 1982 was 75.3p per share, as adjusted for the subdivision of shares in November 1992 and the capital reorganisation in October 1998.
Shareholders requiring clarification of their capital gains tax position should consult their professional advisor.
ShareGift w ww.sharegift.org
Tel: +44 (0)20 7930 3737
ShareGift is an independent charity share donation scheme that provides a charitable solution to the problem of unwanted small holdings of shares. If you have shares that you wish to dispose of and whose value makes it uneconomic to sell, you may wish to consider donating them to charity through ShareGift. fraudulent transactions http://www.fsa.gov.uk/consumerinformation The Financial Services Authority (FSA)
25 The North Colonnade
Canary Wharf
London E14 5HS
United Kingdom
Tel: 0845 606 1234 if calling from within the UK
Tel: +44 20 7066 1000 if calling from outside the UK
The FSA has issued a warning to all UK shareholders about unsolicited phone calls or correspondence concerning investment matters. If you receive such calls and are concerned, report the matter to the FSA either by calling them or visiting their website. financial calendar 2012
Please check the Rexam website nearer to the expected dates to ensure there have been no changes to them.
Events
2012
Announcement of 2011 final results
22 February
3 May
Announcement of 1st interim management statement
Annual General Meeting 2012
3 May
Ex dividend date for 2011 final dividend
9 May
Record date for 2011 final dividend
11 May
Proposed payment date for 2011 final dividend
7 June
Announcement of 2012 half year results
1 August
Proposed payment date for 2012 interim dividend 4 September
Announcement of 2nd interim management statement 15 November
Financial year end
31 December shareholder profile
An analysis of Rexam PLC ordinary shares by category and size of holding, as at 21 February 2012, is as follows: holdings number
Category
Individuals
Institutions
Size of holding
Up to 2,000 shares
2,001 – 20,000 shares
20,001 – 100,000 shares
Over 100,000 shares
%
shares number 13,824
4,917
18,741
74
26
100
20,874,240
2
856,164,013 98
877,038,253 100
13,583
4,389
356
413
18,741
73
23
2
2
100
9,998,966
1
20,281,777
2
17,117,760
2
829,639,750 95
877,038,253 100
%
145
addresses registered office and headquarters
Rexam PLC
4 Millbank
London SW1P 3XR
United Kingdom
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.
Tel: +44 (0)20 7227 4100
Fax: +44 (0)20 7227 4109 main overseas service centre
USA
Rexam Inc
4201 Congress Street
Suite 340
Charlotte
NC 28209
United States
Tel: +1 704 551 1500
Fax: +1 704 551 1572
And, it makes an essential contribution to a sustainable society as it helps reduce waste from spoilage.
operational headquarters
Rexam Beverage Can Europe & Asia
100 Capability Green
Luton
Bedfordshire LU1 3LG
United Kingdom
Tel: +44 (0)1582 408999
Fax: +44 (0)1582 726065
Rexam Beverage Can North America
8770 W Bryn Mawr Avenue
Chicago
IL 60631
United States
Tel: +1 773 399 3000
Fax: +1 773 399 8088
Rexam Beverage Can South America
Av. Luis Carlos Prestes
290 – sala 101
Barra da Tijuca
Rio de Janeiro – RJ
CEP 22.775-055
Brazil
Tel: +55 21 2104 3300
Fax: +55 21 2104 3425
The lifestyle many of us take for granted is predicated, in part, on the availability of a sustainable packaging supply chain.
Rexam Plastic Packaging
4 Millbank
London SW1P 3XR
United Kingdom
For details of our individual operations please go to our website www.rexam.com
Tel: +44 (0)20 7227 4100
Fax: +44 (0)20 7227 4109
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.
Board photography: Marcus Lyon
Feature photography:
L2PM Films and Lasse Davidsson design and production by Radley Yeldar www.ry.com This report has been printed on Hello Silk, a paper which is certified by the Forest
Stewardship Council®. The paper is made in a mill registered to EMAS, the Eco
Management Audit Scheme, and with
ISO14001 environmental management system accreditation. This report was printed using vegetable oil based inks by a CarbonNeutral® printer registered to
EMAS and with ISO14001 environmental management system accreditation.
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.
www.rexam.com
Rexam annual report 2011
Rexam PLC
4 Millbank
London SW1P 3XR
United Kingdom
annual report 201
1 