Notes

Close note

 

Notes to the consolidated financial statements

21 Assets and liabilities classified as held for sale

The Petainer plastic bottle business is in the process of being sold. At 31 December 2007, offers were received for the business in excess of its carrying value and advanced discussions are now being held with a preferred bidder. In accordance with IFRS5 ‘Non Current Assets Held for Sale and Discontinued Operations’, the related assets and liabilities of the business are separately classified in the consolidated balance sheet as held for sale and no depreciation or amortisation has been charged for the year. An analysis of the assets and liabilities at 31 December is set out below.

  2007
£m
2006
£m
Property, plant and equipment 15 12
Deferred tax assets 1 1
Inventories 9 4
Trade receivables 5 5
Total assets 30 22
     
Borrowings (1)
Trade payables (11) (7)
Retirement benefit obligations (1) (1)
Total liabilities (12) (9)
     
Net assets 18 13

22 Trade and other payables

  2007
£m
2006
restated
£m
Current liabilities    
Trade payables (579) (468)
Social security and other taxes (43) (48)
Accrued expenses (151) (113)
Other payables (76) (49)
  (849) (678)
Non current liabilities    
Accrued expenses (9) (8)
Other payables (17) (28)
  (26) (36)
     
Total trade and other payables (875) (714)

The carrying amounts of total trade and other payables are denominated in the following currencies, which in most instances are the functional currency of the respective subsidiaries.

  2007
£m
2006
restated
£m
US dollar (463) (296)
Euro (240) (252)
Brazilian real (77) (67)
Sterling (54) (44)
Other (41) (55)
  (875) (714)

23 Borrowings

  2007
£m
2006
£m
Current liabilities    
Bank overdrafts (77) (124)
Bank loans (17) (16)
Subordinated bond (24)
Medium term notes (37) (128)
Finance leases (9) (7)
  (164) (275)
Non current liabilities    
Bank loans (265) (297)
Subordinated bond (540)
Medium term notes (870) (830)
Finance leases (4) (13)
  (1,679) (1,140)
     
Total borrowings (1,843) (1,415)

The Group has a range of bank borrowings maturing between 2009 and 2012. 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 subordinated bond and a number of medium term notes in issue. The subordinated bond is denominated in euros with a maturity of 2067. It was issued at a fixed rate of interest but has been swapped to 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 sterling with maturities between 2008 and 2013. They were issued at fixed rates of interest although some have been swapped to floating rates of interest in euro and US dollar through the use of cross currency and interest rate derivatives. Those medium term notes not swapped to floating rates of interest are denominated in euro and are issued at a fixed rate of 4.375% per annum.

  2007
£m
2006
£m
Finance lease minimum lease payments:    
Less than 1 year (9) (7)
Between 1 and 5 years (4) (13)
Over 5 years (1) (1)
Total minimum lease payments (14) (21)
Future finance charges 1 1
Present value of finance leases (13) (20)
     
Present value of finance leases:    
Less than 1 year (9) (7)
Between 1 and 5 years (3) (12)
Over 5 years (1) (1)
  (13) (20)

The carrying amounts of total borrowings are denominated in the following currencies.

  2007
£m
2006
£m
Euro (1,112) (610)
Sterling (455) (462)
US dollar (195) (259)
Other (81) (84)
  (1,843) (1,415)

Included within borrowings are secured loans of £10m (2006: £2m), the security for which is principally property.

24 Financial instruments

(i) Carrying amount and fair value of financial assets and liabilities at 31 December

  2007
Carrying
amount
£m
2007
Fair
value
£m
2006
Carrying
amount
restated
£m
2006
Fair
value
restated
£m
Financial assets        
Cash and cash equivalents 113 113 138 138
Trade and other receivables 620 620 549 549
Available for sale financial assets 22 22 23 23
Derivative financial instruments 193 193 148 148
         
Financial liabilities        
Trade and other payables (875) (875) (714) (714)
Bank overdrafts (77) (77) (124) (124)
Bank loans (282) (282) (313) (313)
Subordinated bond (564) (500)
Medium term notes (907) (901) (958) (979)
Finance leases (13) (13) (20) (21)
Derivative financial instruments (37) (37) (14) (14)

Market values have been used to determine the fair values of cash and cash equivalents, available for sale financial assets, cross currency swaps and bank overdrafts and floating rate loans. The carrying value of trade and other receivables and trade and other payables are assumed to approximate their fair values. The fair value of the subordinated bond and medium term notes have been determined by reference to quoted market prices at the close of business on 31 December. The fair values of interest rate 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 aluminium commodity contracts has been determined by marking those contracts to market at prevailing forward aluminium prices. The fair value of embedded derivatives has been calculated using valuation models incorporating market commodity prices and foreign exchange rates.

(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 strict policies and parameters defined by the Rexam Board and supervised by its Finance Committee. Group Treasury is not operated as a separate profit centre nor does it enter into any transactions for speculative purposes.

The Group’s major operational hedges comply with IAS39 and hedge accounting treatment is applied. Some smaller trading exposures are hedged on an economic basis and hedge accounting treatment is not applied where the compliance burden is deemed to be unduly onerous and the income statement volatility arising is not expected to be significant.

(a) Market risk: currencies

The Group seeks 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.

The Group looks to mitigate currency risk arising on cross border trading transactions using forward foreign exchange contracts. Generally, the Group will hedge a higher proportion of shorter term, contractually committed transactions, but does also hedge some longer term contracts into the medium term. None of the foreign exchange derivative instruments at 31 December 2007 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.

Group businesses are required to report their foreign exchange risks against their functional currency to Group Treasury and these risks are then hedged in accordance with the Group’s policy on foreign exchange management. Foreign exchange risks are hedged by Rexam Treasury unless it is a legal requirement in the country where the foreign exchange risk arises that hedging is carried out locally. In this 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.

(b) Market risk: interest rates

The objective of the Group’s interest rate risk management is to reduce its exposure to the impact of changes in interest rates in the currencies in which debt is borrowed. Interest rate risk is managed through the issue of fixed rate medium term notes and subordinated bonds and through the use of interest rate derivatives that are used to manage the overall fixed to floating mix of bank and bond debt, which was 32% fixed and 68% floating at 31 December 2007 (2006: 49% and 51%). 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. The Group will generally look to keep between 20% and 80% of its overall debt at fixed rates.

Cash at bank earns interest at floating rates based on bank deposit rates in the relevant currency. Short term deposits are made for varying periods of 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 re-priced 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, while economically effective, are ineligible for hedge accounting treatment. Fair value gains and losses on these hedges are recognised in the consolidated income statement. In 2007, there was a net loss of £2m (2006: gain of £7m) on financing derivatives on which hedge accounting was not applied, recorded within exceptional interest in the consolidated income statement.

(c) Market risk: commodity prices

The objective of commodity risk management is to identify those businesses that have exposures to commodities traded on commodity markets and to then determine which, if any, commodity market instruments are appropriate for hedging those exposures. To manage such exposures, 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 and energy costs through physical supply contracts which, in the main, relate directly to commodity price indices. The supply contracts may be hedged with appropriate derivative contracts to fix and manage costs. The derivative hedge contracts may extend over several years. Usually a higher proportion of short term exposures are hedged than those further forward. The extent of the forward cover taken is judged according to market conditions and prices of futures prevailing at the time. None of the commodity derivative financial instruments at 31 December 2007 related to derivative trading activity, although some fair value gains and losses were taken to the consolidated income statement because IFRS hedge accounting was not applied. The commodity hedges mainly relate to contracted and expected future purchases of aluminium but can also include energy and other tradeable commodities.

(d) 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 and therefore is not representative of transactions throughout the 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):

  1. For the floating rate element of interest rate swaps, the sensitivity calculation is performed based on the floating rates as at 31 December each year and the number of days since the last interest rate reset date.
  2. The translation impact of overseas subsidiaries is not included in the sensitivity analysis.
  3. The sensitivity analysis ignores any tax implications.
Currencies

The two tables set out below show the impact at 31 December each year on profit before tax and equity of changing the relative values of currency pairs significant to Rexam by a realistic percentage. The impact of the sensitivities disclosed is shown gross for each currency pair. They do not include the effect of any offsetting reductions that are created through the use of forward foreign exchange contracts to manage currency balances. Therefore, the sensitivities disclosed are, in overall terms, larger than would be expected to arise taking into consideration all factors.

(i) Profit before tax

Currency pair Reason for impact 2007
Change
%
2007
Impact +/–
£m
2006
Change
%
2006
Impact +/–
£m
Sterling/US dollar US dollar intercompany loans in sterling business 5 14 4 2
Euro/US dollar Forward foreign exchange contracts not hedge accounted 5 12 4
Sterling/euro Euro debt in sterling business 2 4 3
Brazilian real/US dollar Real denominated net assets in US dollar business 7 3 6 3

(ii) Equity

Currency pair Reason for impact 2007
Change
%
2007
Impact +/–
£m
2006
Change
%
2006
Impact +/–
£m
Euro/US dollar Cash flow hedges of inventory 5 13 4 6
Sterling/euro Net investment hedges 2 7 3 16
Euro/Swedish krona Cash flow hedges of income 4 2 3 2
Sterling/US dollar Net investment hedges 5 4 8

The impact of currency risk on net investment hedges is offset by the translation of overseas subsidiaries on consolidation.

Interest rates

At 31 December 2007, if the US dollar interest rate was changed by 1% with all other held variables constant, profit before tax for 2007 would change by £4m (2006: 1% and £1m), mainly as a result of US dollar denominated floating rate debt. There was no significant interest rate risk relating to equity in either year.

Commodity prices

There was no significant price risk relating to the income statement since the majority of the commodity derivatives are treated as cash flow hedges, with movements being reflected in equity. At 31 December 2007, if the aluminum price was changed by 10% with all other variables held constant, equity for 2007 would change by £27m (2006: 11% and £15m).

Equity prices

The Group is not subject to any significant equity price risk.

(e) Liquidity risk

The Group monitors its liquidity to maintain a sufficient level of undrawn committed debt facilities thereby ensuring financial flexibility. As at 31 December 2007, Rexam had £707m of undrawn committed debt facilities available, (2006: £503m). The increase in undrawn committed facilities reflects Rexam’s action to reduce liquidity risk in response to deteriorating conditions in the financial markets during the second half of 2007.

Group Treasury mitigates refinancing risk by raising its debt requirements from a range of different sources and with a range of maturity dates. As at 31 December 2007, committed debt maturities ranged from less than two years (18% of drawn debt) (2006: less than two years 12% of drawn debt) to 2067 (32% of drawn debt) (2006: 2013, (33% of drawn debt)). No more than 32% of drawn debt (2006: 33% of drawn debt) expires in any one financial year.

An analysis of undiscounted contractual maturities for non derivative financial liabilities and derivative financial liabilities and assets is set out below.

  Within
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
5 years
£m
Total
contractual
maturity
£m
At 31 December 2007          
Trade and other payables (849) (9) (7) (10) (875)
Bank overdrafts (76) (76)
Bank loans (27) (16) (254) (16) (313)
Subordinated bond (37) (37) (111) (695) (880)
Medium term notes (57) (419) (66) (533) (1,075)
Finance leases (9) (2) (2) (13)
Derivative contracts – payments (809) (375) (222) (1,308) (2,714)
Derivative contracts – receipts 775 529 231 1,359 2,894
Derivative contracts – net settlements (2) 2 2 2
Commodity contracts (3) (3)
  (1,094) (327) (429) (1,203) (3,053)
  Within
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
5 years
£m
Total
contractual
maturity
£m
At 31 December 2006          
Trade and other payables (678) (20) (7) (9) (714)
Bank overdrafts (124) (124)
Bank loans (31) (19) (326) (29) (405)
Medium term notes (140) (54) (459) (517) (1,170)
Finance leases (7) (9) (4) (1) (21)
Derivative contracts – payments (408) (64) (333) (805)
Derivative contracts – receipts 404 63 432 890
Derivative contracts – net settlements (7) 4 5 1 3
Commodity contracts 24 12 36
  (967) (87) (701) (555) (2,310)

(f) 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 quality measures that are applied to counterparty institutions and also limits on maximum exposure levels to any one counterparty. For exposure purposes, cash deposits are weighted at 100% of the exposure to the counterparty and derivative instruments on a sliding scale based on the type of instrument and length of contract to maturity.

To manage credit risk, the maximum limits for Group bank exposures held under company policy are set out below by counterparty rating. These limits are used when making investments and for the use of derivative instruments. The table also sets out the Group’s exposure at 31 December in percentage terms for each counterparty credit rating category.

Credit rating Exposure
2007
%
Counterparty
limit
2007
£m
Exposure
2006
%
Counterparty
limit
2006
£m
AA+ 11 80 to 100 80 to 100
AA 8 70 to 90 45 70 to 90
AA– 51 60 to 80 11 60 to 80
A+ 8 50 to 70 2 50 to 70
A 11 40 to 60 13 40 to 60
A– 2 20 to 40 5 20 to 40
BBB+ and below 9 10 to 30 24 10 to 30

(g) 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. This objective is subject always to an overriding principal 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 2007, the Group’s net debt to EBITDA for financial covenant purposes was 2.2 times (2006: 2.2 times). The Group aims to keep this ratio within the range 1.25 times to 3.5 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 to reflect non sterling amounts at average exchange rates. EBITDA is underlying operating profit from continuing operations after adding back depreciation and amortisation of computer software and adjusted to include acquisitions on a pro forma basis and exclude disposed businesses.

(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 is set out below.

  2007
£m
2006
£m
Fair value hedges    
Interest rate swaps 2 3
Cross currency swaps 146 80
  148 83
Cash flow hedges    
Forward foreign exchange contracts (7) (5)
Forward aluminium commodity contracts (3) 36
  (10) 31
Not hedge accounted    
Cross currency swaps 20 22
Forward foreign exchange contracts (2)
Embedded derivatives (2)
  18 20
     
Total net fair value of derivative financial instruments 156 134
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 4.4% to 7.1% (2006: 4.4% to 7.1%). These swaps hedge the exposure to changes in the fair value of medium term notes which mature in 2009 and 2013 (2006: 2009 and 2013). The cross currency swaps hedge changes in the fair value of US dollar intercompany loans which mature in 2009 and changes in the fair value of the euro subordinated bond which matures in 2067. Ineffectiveness gains of £1m were included in interest in 2007 (2006: £nil).

Cash flow hedges

The Group has designated forward foreign exchange, aluminium commodity and energy contracts as cash flow hedges. The aluminium commodity and energy contracts hedge anticipated future purchases of aluminium and energy respectively and mature between 2008 and 2009 (2006: between 2007 and 2008). Forward foreign exchange contracts hedge foreign currency transaction risk and mature between 2008 and 2009 (2006: between 2007 and 2009).

Not hedge accounted

Derivatives are not used for trading purposes. However, under IAS39 some derivatives may not qualify for hedge accounting, or are specifically not designated as a hedge where natural offset is more appropriate.

Net investment hedges

In addition, the fair values of the Group’s non derivative financial instruments at 31 December designated as net investment hedges with respect to its subsidiaries in the Eurozone and USA are set out below.

  2007
£m
2006
£m
Bank loans (11) (140)
Medium term notes (350) (538)
  (361) (678)

Analysis of the notional amounts and maturity dates for the derivatives financial instruments.

  Maturity 2007
£m
2006
£m
Fair value hedges      
Interest rate swaps      
Sterling 2009 120 120
Euro 2013 146 134
Cross currency swaps      
Sterling 2009 to 2017 (255) 250
Euro 2017 547
US dollar 2009 (179) (182)
Cash flow hedges      
Forward foreign exchange contracts      
Euro 2008 to 2009 (18) (122)
US dollar 2008 to 2009 29 251
Swedish krona 2008 to 2009 (55) (85)
Forward aluminium commodity contracts      
US dollar 2008 to 2009 282 107
Not hedge accounted      
Cross currency swaps      
Sterling 2009 to 2017 625 120
US dollar 2009 to 2017 (603) (99)
Interest rate swaps      
US dollar 2009 179 182

For forward foreign exchange contracts there are other currencies traded, but have been excluded based on the fair valuation of these trades being immaterial.

25 Retirement benefit obligations

(i) Summary

  Defined
benefit
pensions
£m
Other
pensions
£m
Total
pensions
£m
Retiree
medical
£m
Gross
retirement
benefit
obligations
£m
At 1 January 2007 (326) (22) (348) (163) (511)
Exchange differences (1) (1) 3 2
Acquisition of subsidiaries (7) (7) (1) (8)
Current service cost (15) (6) (21) (1) (22)
Exceptional items 63 63
Total included in operating profit – continuing operations (15) (6) (21) 62 41
Net finance cost – continuing operations (4) (4) (10) (14)
Current service cost (1) (1) (2) (2)
Adjustment on sale 24 5 29 29
Total – discontinued operations 23 4 27 27
Actuarial changes 217 217 217
Cash contributions and benefits paid 47 8 55 11 66
Transfers 2 2 2
At 31 December 2007 (63) (17) (80) (98) (178)
           
At 1 January 2006 (514) (23) (537) (244) (781)
Exchange differences 21 1 22 24 46
Current service cost (20) (2) (22) (2) (24)
Exceptional items 18 18 39 57
Total included in operating profit – continuing operations (2) (2) (4) 37 33
Net finance cost – continuing operations (10) (10) (12) (22)
Current service cost (2) (2) (4) (4)
Net finance cost (1) (1) (1)
Total discontinued operations (3) (2) (5) (5)
Actuarial changes 135 135 20 155
Cash contributions and benefits paid 44 4 48 12 60
Transfers 3 3 3
At 31 December 2006 (326) (22) (348) (163) (511)

Exceptional items from continuing operations in 2007 comprise a past service credit of £63m on retiree medical. Exceptional items from continuing operations in 2006 comprised curtailment gains on defined benefit pensions of £3m arising from disposal of businesses and £15m arising from US pension plan changes and a curtailment gain of £39m on retiree medical.

Deferred tax on gross retirement benefit obligations is set out below.

  2007
£m
2006
£m
Gross retirement benefit obligations (178) (511)
Deferred tax 50 146
Net retirement benefit obligations (128) (365)

Analysis of net retirement benefit obligations included in the consolidated balance sheet.

  2007
£m
2006
£m
Pension asset 68
Deferred tax assets 69 146
Other receivables receivable in more than one year 3 3
Retirement benefit obligations (249) (514)
Deferred tax liabilities (19)
Net retirement benefit obligations (128) (365)

Rexam pays the retiree medical costs on behalf of certain disposed businesses which are subsequently reimbursed by those businesses. The £3m (2006: £3m) included in other receivables represents the actuarial value of the total amount that is reimbursable.

(ii) Defined benefit pension plans

The Group operates various defined benefit pension plans throughout the world, the largest being in the UK and USA. With respect to the UK, a full actuarial valuation by a qualified actuary was carried out as at 31 March 2005 and updated to 31 December 2007. With respect to the USA, a full actuarial valuation by a qualified actuary was carried out as at 1 January 2007 and updated to 31 December 2007.

  UK
2007
£m
USA
2007
£m
Other
2007
£m
Total
2007
£m
UK
2006
£m
USA
2006
£m
Other
2006
restated
£m
Total
2006
restated
£m
(a) Amounts recognised in the consolidated balance sheet  
Fair value of plan assets 1,491 861 9 2,361 1,388 856 69 2,313
Present value of funded obligations (1,423) (931) (10) (2,364) (1,514) (970) (74) (2,558)
Funded defined benefit pension plans 68 (70) (1) (3) (126) (114) (5) (245)
Present value of unfunded obligations (31) (29) (60) (32) (49) (81)
Net asset/(liability) 68 (101) (30) (63) (126) (146) (54) (326)
(b) Amounts recognised in the consolidated income statement  
Continuing operations  
Current service cost (10) (3) (2) (15) (10) (8) (2) (20)
Exceptional items 2 15 1 18
Employee benefit expense (10) (3) (2) (15) (8) 7 (1) (2)
Expected return on plan assets 90 37 127 80 43 123
Interest cost (75) (55) (1) (131) (72) (60) (1) (133)
Net finance credit/(charge) 15 (18) (1) (4) 8 (17) (1) (10)
Total – continuing operations 5 (21) (3) (19) (10) (2) (12)
Discontinued operations                
Current service cost (1) (1) (2) (2)
Expected return on plan assets 2 2 3 3
Interest cost (2) (2) (4) (4)
Net finance cost (1) (1)
Adjustment on sale – discontinued operations 10 14 24
Total – discontinued operations 10 13 23 (3) (3)
(c) Amounts recognised in the statement of recognised income and expense  
Actuarial gains/(losses) on plan assets 37 44 81 36 (5) 1 32
Actuarial gains on retirement benefit obligations 112 11 13 136 48 41 14 103
Total recognised in the statement of recognised income and expense 149 55 13 217 84 36 15 135
(d) Changes in the fair value of plan assets  
At 1 January 1,388 856 69 2,313 1,296 997 64 2,357
Exchange differences (13) 2 (11) (110) (2) (112)
Expected return on plan assets – continuing operations 90 37 127 80 43 123
Expected return on plan assets – discontinued operations 2 2 3 3
Adjustment on sale – discontinued operations (65) (65)
Actuarial gains/(losses) 37 44 81 36 (5) 1 32
Employer contributions 30 13 1 44 27 11 3 41
Plan participant contributions 2 1 3 2 2 4
Benefits paid (56) (76) (1) (133) (53) (80) (2) (135)
At 31 December 1,491 861 9 2,361 1,388 856 69 2,313
  % % % % % % % %
(e) Major categories of plan assets  
Equities 53 17 72 39 73 8 48 48
Bonds 45 83 24 59 25 92 47 50
Cash 2 4 2 2 5 2

(f) Changes in the fair value of defined benefit pension obligations

  UK
2007
£m
USA
2007
£m
Other
2007
£m
Total
2007
£m
UK
2006
£m
USA
2006
£m
Other
2006
restated
£m
Total
2006
restated
£m
At 1 January (1,514) (1,002) (123) (2,639) (1,533) (1,203) (135) (2,871)
Exchange differences 15 (4) 11 131 2 133
Acquisition of subsidiaries (7) (7)
Current service cost – continuing operations (10) (3) (2) (15) (10) (8) (2) (20)
Exceptional items – continuing operations 2 15 1 18
Interest cost – continuing operations (75) (55) (1) (131) (72) (60) (1) (133)
Current service cost – discontinued operations (1) (1) (2) (2)
Interest cost – discontinued operations (2) (2) (4) (4)
Adjustment on sale – discontinued operations 10 79 89
Actuarial gains 112 11 13 136 48 41 14 103
Plan participant contributions (2) (1) (3) (2) (2) (4)
Benefits paid 56 77 3 136 53 80 5 138
Transfer from available for sale financial assets 2 2 2 2
Transfer to liabilities classified as held for sale 1 1
At 31 December (1,423) (962) (39) (2,424) (1,514) (1,002) (123) (2,639)

(g) Principal actuarial assumptions

  UK
2007
%
USA
2007
%
Other
2007
%
UK
2006
%
USA
2006
%
Other
2006
restated
%
Future salary increases 4.80 4.00 3.05 4.40 4.50 2.89
Future pension increases 3.30 2.00 3.00 1.95
Discount rate 5.60 6.00 5.08 5.00 5.75 4.46
Inflation rate 3.30 2.50 2.00 3.00 2.50 1.95
Expected return on plan assets (net of administration expenses):            
Equities 7.87 7.34 7.15 7.37 7.24 6.88
Bonds 4.62 4.70 3.65 4.62 4.37 4.08
Cash 5.37 3.16 3.35 4.87 2.96 4.05

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 in 2007 and 2006 are based on the standard tables PA92 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 male pensioners aged 65 is 19.6 years (2006: 19.6 years) and for female pensioners aged 65 is 22.4 years (2006: 22.4 years). The mortality assumptions used in valuing the liabilities of the US pension plans in 2007 are based on the RP2000 combined active and retiree mortality table projected to 2007 (2006: RP2000 combined active and mortality table projected to 2006) weighted 70% blue collar and 30% white collar. The life expectancy assumed for male pensioners aged 65 is 17.8 years (2006: 17.8 years) and for female pensioners aged 65 is 20.2 years (2006: 20.2 years).

(h) Historic information on defined benefit plans

  2007
£m
2006
£m
2005
£m
2004
£m
Fair value of plan assets 2,361 2,313 2,357 2,089
Present value of defined benefit obligations (2,424) (2,639) (2,871) (2,566)
Net liability (63) (326) (514) (477)
 
Cumulative actuarial gains/(losses) 253 36 (99) (79)
  2007 2006 2005 2004
Experience gains/(losses) arising on defined benefit obligations:        
Amount (£m) 136 103 (165) (142)
Percentage of present value of defined benefit obligations (%) 6 4 (6) (6)
Experience gains arising on plan assets:        
Amount (£m) 81 32 145 63
Percentage of plan assets (%) 3 1 6 3

The Group expects to contribute £51m in cash to its defined benefit pension plans in 2008.

(iii) Other pension plans

The Group operates a number of 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 £6m (2006: £1m) and cash contributions were £6m (2006: £1m).

(iv) Retiree medical

Certain current and former employees in the USA 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.

  2007
£m
2006
£m
(a) Amounts recognised in the consolidated balance sheet    
Present value of the retiree medical obligation (98) (163)
(b) Amounts recognised in the consolidated income statement    
Current service cost (1) (2)
Past service credit – exceptional item 63 39
Employee benefit credit 62 37
Interest cost (including administration costs of £1m (2006: £1m)) (10) (12)
  52 25
(c) Amounts recognised in the statement of recognised income and expense    
Actuarial gains 20
(d) Changes in the present value of the retiree medical obligation    
At 1 January (163) (244)
Exchange differences 3 24
Acquisition of subsidiaries (1)
Current service cost (1) (2)
Past service credit – exceptional item 63 39
Interest cost (10) (12)
Actuarial gains 20
Benefits paid 11 12
At 31 December (98) (163)

(e) Principal actuarial assumptions

  2007
%
2006
%
Discount rate 6.00 5.75
Healthcare cost trend rate 9 in 2007
reducing to 5
over 7 years
13 in 2003
reducing to 5
over 10 years

The mortality assumptions used in valuing the liabilities of retiree medical for 2007 are based on the RP2000 combined active and retiree blue collar table projected to 2007 (2006: RP2000 combined active and retiree blue collar table projected to 2006). The life expectancy assumed for male pensioners aged 65 is 16.8 years (2006: 16.8 years) and for female pensioners aged 65 is 19.6 years (2006: 19.6 years).

Assumed healthcare cost trend rates can have a significant effect on amounts reported for retiree medical. A one percentage point change in assumed rates would have the impact as set out below.

  2007
£m
2006
£m
1% increase – Service cost and interest cost combined increase (1) (2)
1% increase – Retiree medical obligation increase (3) (13)
1% decrease – Service cost and interest cost combined reduction 1 1
1% decrease – Retiree medical obligation reduction 4 11

(f) Historic information on retiree medical

  2007 2006 2005 2004
Present value of retiree medical obligation (£m) (98) (163) (244) (269)
Cumulative actuarial gains/(losses) (£m) 15 15 (5) (13)
Experience gains/(losses) arising on retiree medical obligation:        
Amount (£m) 20 8 (13)
Percentage of present value of retiree medical obligation (%) 12 3 (5)