Annual Report 2009 Contents Page Introduction to Rexam 1 2009 Results Summary 2 Chairman’s Statement 4 Business Review 6 Our vision and strategy 6 Key performance indicators 7 Operational review 8 Beverage Cans 10 Plastic Packaging 12 Financial review 14 The global consumer packaging market 20 Key Group risk factors 22 Corporate responsibility 24 Directors and Officers 30 Directors’ Report 32 Corporate Governance Report 36 Remuneration Report 44 Rexam PLC consolidated financial statements 2009 57 Five year financial summary 105 Rexam PLC company financial statements 2009 106 Shareholder information 116 Addresses 118 The Annual Report 2009 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 2009 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 2009, and other unknown future events and circumstances which can cause results and developments to differ materially from those anticipated. Nothing in this Annual Report 2009 should be construed as a profit forecast. The Annual Report 2009 can be viewed online at www.rexam.com/ar09. Downloadable files are also provided. Introduction to Rexam Rexam is a leading global consumer packaging company. We make beverage cans as well as a broad range of plastic packaging products and solutions. Our manufacturing skills, level of service and understanding of customer and consumer needs make us a sought after business partner for many of the world’s most famous and successful consumer brands. Our packaging is often key to maintaining and reinforcing our customers’ reputation and values. It plays a major role in their strategies, helping to shape their consumers’ brand experiences. Consumer packaging is an integral part of modern living. It protects and preserves. It enables efficient distribution. It helps brand owners to promote their goods and to inform their consumers. The lifestyle many of us take for granted is predicated, in part, on the availability of a sustainable packaging supply chain. We are continually seeking innovative ways to design more effective packaging and manufacture it more efficiently. Packaging is a significant part of the supply chain and there are compelling commercial reasons to use less materials, energy and water but there are equally good environmental ones too. We focus on reducing costs and environmental impact throughout the supply chain and the lifecycle of the packaging and we actively support measures to increase the amount of used packaging that is recovered and recycled. Rexam Annual Report 2009 1 2009 Results Summary 2009 2008 Underlying business performance1 Sales £4,866m £4,618m Underlying operating profit £446m £466m Underlying profit before tax £285m £328m Underlying earnings per share 25.4p 31.5p3 Dividends proposed and paid per share 8.0p 18.7p3 Statutory results2 Sales £4,866m £4,618m Operating profit £92m £380m (Loss)/profit before tax £(59)m £240m Total (loss)/profit for financial year £(29)m £171m Total basic (loss)/earnings per share (3.7)p 23.9p3 Sales from continuing operations4 Underlying operating profit from continuing operations4 1 2005: £2,806m 1 2005: £371m 2 2006: £3,301m 2 2006: £375m 3 2007: £3,611m 3 2007: £354m 4 2008: £4,618m 4 2008: £466m 5 2009: £4,866m 5 2009: £446m 1 2 3 4 5 1 2 3 4 5 1 Underlying business performance is continuing operations before exceptional items, the amortisation of certain acquired intangible assets and fair value changes on financing derivatives. 2 Statutory results, profits and earnings include exceptional items, the amortisation of certain acquired intangible assets, fair value changes on financing derivatives and discontinued operations. 3 Restated for the 2009 rights issue. 4 Continuing operations include ongoing operations and businesses that have been disposed or were held for sale but exclude discontinued operations. 2 Rexam Annual Report 2009 Sales 2009 Underlying operating profit 2009 2 2 1 Beverage Cans 74% 1 Beverage Cans 70% 2 Plastic Packaging 26% 2 Plastic Packaging 30% 1 1 2009 2008 2009 2008 £m £m £m £m Beverage Cans 3,573 3,289 Beverage Cans 310 306 Plastic Packaging 1,241 1,273 Plastic Packaging 130 157 Ongoing operations 4,814 4,562 Ongoing operations 440 463 Disposals and businesses for sale 52 56 Disposals and businesses for sale 6 3 Continuing operations 4,866 4,618 Continuing operations 446 466 Sales by customer location 2009 Rexam is headquartered in London, UK. We have 105 plants in more than 20 countries across the 1 US globe. In addition to the well established markets 9 2 Brazil of Western Europe and North America, we have 3 Russia 1 4 Austria operations in countries including Brazil, China, 8 5 Spain Egypt, Guatemala, India, Malaysia, Mexico, 7 6 UK 6 Poland and Russia. Some 25% of our sales come 7 France 5 8 Germany from emerging markets. 4 9 Other countries 3 2 In 2009, we employed on average 22,900 3 Rexam Annual Report 2009 people, around a quarter of whom were in China and South East Asia. 2009 2008 £m £m US 1,899 1,825 Brazil 560 460 Russia 300 314 Austria 269 280 Spain 241 213 UK 185 204 France 173 181 Germany 172 154 Other countries 1,067 987 4,866 4,618 Rexam Annual Report 2009 3 Chairman’s Statement 2009 was a difficult and turbulent year for most businesses as the global economy saw a significant reversal after years of growth. Retailers and suppliers dramatically reduced their inventory levels to protect cash and there was a radical change in consumer behaviour as loss of confidence caused individuals to rein in their expenditure, especially on discretionary purchases. Rexam was not immune to these macro factors. Trading in 2009 was very challenging and it is disappointing to report a loss after tax on a statutory basis of £29m. Details of our underlying and statutory performance can be found in the Business Review, but let me highlight the key points. In summary, Peter Ellwood reported Group sales grew 5% to £4,866m due to favourable Chairman foreign currency exchange. Organic sales, however, which excludes the impact of acquisitions, disposals and currency, declined 7% mainly as a result of lower volumes, especially in Plastic Packaging and parts of Beverage Can Europe, and the pass through of lower aluminium and resin costs to customers. Underlying profit before tax was down 13% to £285m and underlying earnings per share dropped to 25.4p. But the figures only tell part of the 2009 story. In the first part of the year we experienced, as did our customers, declining volumes. We focused therefore on taking cost out of the business and protecting our cash flow. Our expectation was that trading would stabilise in the second quarter as customers replenished stocks. We announced the closure of plants in both Beverage Cans and in Plastic Packaging to balance capacity with demand, as well as headcount reductions including a number of senior management positions. We focused on improving working capital and reducing capital expenditure to optimise cash flow. However, conditions did not improve in the second quarter and it became apparent that destocking had given way to lower demand especially in the more cyclical and premium parts of our business such as dispensing systems, specialty cans and beverage closures. As you will see in detail in the Business Review, this put pressure on profits and cash flow. It became clear that our capital structure would not cope with this drop in operating profits and that our credit rating consequently was coming under significant pressure. We had to act swiftly to address this, and that is why the Board decided to proceed with a rights issue. “ We are today a stronger and more competitive Company than at the start of 2009 and we are well placed to participate in the upturn when it comes.” 4 Rexam Annual Report 2009 Rights issue Changes to the Board Let me briefly give you more background to the rights issue. At the One of the Board’s most important tasks in 2009 was to manage beginning of 2009 our debt stood at £2.6bn. Whilst a large part the succession of the Chief Executive, Leslie Van de Walle, once he of the increase in 2008 was due to currency translation, driven by had signalled his intention to retire. The search for his successor by the weakness of sterling against the dollar, the underlying cause the Nomination Committee followed due process and was both swift behind the level of debt was our significant capital expenditure and thorough. We are delighted that Graham Chipchase accepted programme and the acquisitions of OI Plastics and Rostar. The the offer to become our new Chief Executive. He has been a expectations were that these investments would yield the profit growth member of the Board since 2003, first as Finance Director and required to service and pay down debt and help to maintain our then as Group Director, Plastic Packaging. He knows Rexam and investment grade rating. Indeed, our investments did begin to bear its people well through his financial and operational roles and has fruit in the first half of 2008 when we saw 8% organic growth in demonstrated the leadership skills to take our Company forward. both sales and operating profit. With Graham at the helm, we look forward with confidence to the next phase of Rexam’s development. In March 2009, the credit rating agency Standard & Poor’s downgraded Rexam to the lowest investment grade rating with a I would like to take this opportunity to thank Leslie for his contribution stable outlook and, whilst Moody’s reaffirmed its investment grade to Rexam.