26 retirement benefit obligations
(i) summary
| UK defined benefit pensions £m |
US defined benefit pensions £m |
Other defined benefit pensions £m |
Total defined benefit pensions £m |
Other pensions £m |
Total pensions £m |
Retiree medical £m |
Gross retirement benefit obligations £m |
|
|---|---|---|---|---|---|---|---|---|
| At 1 January 2010 | (11) | (218) | (37) | (266) | (19) | (285) | (111) | (396) |
| Exchange differences | – | (11) | – | (11) | 1 | (10) | (5) | (15) |
| Service cost – continuing operations | (9) | (4) | (1) | (14) | (9) | (23) | (1) | (24) |
| Net finance cost – continuing operations | 8 | (14) | (2) | (8) | – | (8) | (7) | (15) |
| Service cost – discontinued operations | – | (1) | – | (1) | (3) | (4) | – | (4) |
| Exceptional items – discontinued operations | – | 2 | – | 2 | – | 2 | – | 2 |
| Total operating profit – discontinued operations | – | 1 | – | 1 | (3) | (2) | – | (2) |
| Actuarial changes | 9 | (73) | (1) | (65) | – | (65) | 1 | (64) |
| Cash contributions and benefits paid | 22 | 2 | 3 | 27 | 12 | 39 | 12 | 51 |
| Transfers | – | 2 | – | 2 | – | 2 | – | 2 |
| At 31 December 2010 | 19 | (315) | (38) | (334) | (18) | (352) | (111) | (463) |
| Restated: | ||||||||
| At 1 January 2009 | 16 | (54) | (43) | (81) | (20) | (101) | (127) | (228) |
| Exchange differences | – | 8 | 3 | 11 | 1 | 12 | 9 | 21 |
| Service cost – continuing operations | (7) | (3) | (1) | (11) | (8) | (19) | (1) | (20) |
| Exceptional items – continuing operations | 1 | 1 | – | 2 | – | 2 | – | 2 |
| Total operating profit – continuing operations | (6) | (2) | (1) | (9) | (8) | (17) | (1) | (18) |
| Net finance cost – continuing operations | (2) | (19) | (2) | (23) | – | (23) | (8) | (31) |
| Service cost – discontinued operations | – | (1) | – | (1) | (4) | (5) | – | (5) |
| Actuarial changes | (36) | (154) | 4 | (186) | – | (186) | 5 | (181) |
| Cash contributions and benefits paid | 17 | 1 | 2 | 20 | 12 | 32 | 11 | 43 |
| Transfers | – | 3 | – | 3 | – | 3 | – | 3 |
| At 31 December 2009 | (11) | (218) | (37) | (266) | (19) | (285) | (111) | (396) |
| 2010 £m |
2009 £m |
|
|---|---|---|
| Pension assets | 19 | – |
| Retirement benefit obligations | (482) | (396) |
| Gross retirement benefit obligations | (463) | (396) |
| Tax | 146 | 117 |
| Net retirement benefit obligations | (317) | (279) |
(ii) defined benefit pension plans
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 2008 and updated to 31 December 2010. The next full actuarial valuation is due as at 31 March 2011. With respect to the US, a full actuarial valuation by a qualified actuary was carried out as at 1 January 2010 and updated to 31 December 2010.
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 pension covenant.
IFRIC14 ‘IAS19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’ had no impact on the Group in 2010 or 2009.
| UK 2010 £m |
US 2010 £m |
Other 2010 £m |
Total 2010 £m |
UK 2009 £m |
US 2009 restated £m |
Other 2009 £m |
Total 2009 restated £m |
|
|---|---|---|---|---|---|---|---|---|
| (a) Amounts recognised in the consolidated balance sheet | ||||||||
| Fair value of plan assets | 1,598 | 1,026 | 13 | 2,637 | 1,489 | 980 | 11 | 2,480 |
| Present value of funded obligations | (1,579) | (1,295) | (16) | (2,890) | (1,500) | (1,159) | (14) | (2,673) |
| Funded defined benefit pension plans | 19 | (269) | (3) | (253) | (11) | (179) | (3) | (193) |
| Present value of unfunded obligations | – | (46) | (35) | (81) | – | (39) | (34) | (73) |
| Net asset/(liability) | 19 | (315) | (38) | (334) | (11) | (218) | (37) | (266) |
| (b) Amounts recognised in the consolidated income statement | ||||||||
| Continuing operations | ||||||||
| Current service cost | (8) | (4) | (1) | (13) | (7) | (3) | (1) | (11) |
| Past service cost | (1) | – | – | (1) | – | – | – | – |
| Exceptional items – past service credit | – | (1) | – | (1) | – | 1 | – | 1 |
| Exceptional items – curtailments | – | 1 | – | 1 | 1 | – | – | 1 |
| Employee benefit expense | (9) | (4) | (1) | (14) | (6) | (2) | (1) | (9) |
| Expected return on plan assets | 92 | 52 | – | 144 | 74 | 52 | 1 | 127 |
| Interest cost | (84) | (66) | (2) | (152) | (76) | (71) | (3) | (150) |
| Net finance credit/(cost) | 8 | (14) | (2) | (8) | (2) | (19) | (2) | (23) |
| Total | (1) | (18) | (3) | (22) | (8) | (21) | (3) | (32) |
| Discontinued operations | ||||||||
| Current service cost | – | (1) | – | (1) | – | (1) | – | (1) |
| Exceptional items – curtailment | – | 2 | – | 2 | – | – | – | – |
| Employee benefit expense | – | 1 | – | 1 | – | (1) | – | (1) |
| (c) Amounts recognised in the consolidated statement of comprehensive income | ||||||||
| Actuarial gains/(losses) on plan assets | 57 | 46 | 1 | 104 | 142 | (71) | 2 | 73 |
| Actuarial (losses)/gains on retirement benefit obligations | (48) | (119) | (2) | (169) | (178) | (83) | 2 | (259) |
| Total | 9 | (73) | (1) | (65) | (36) | (154) | 4 | (186) |
| (d) Changes in the fair value of plan assets | ||||||||
| At 1 January | 1,489 | 980 | 11 | 2,480 | 1,310 | 1,186 | 9 | 2,505 |
| Exchange differences | – | 44 | – | 44 | – | (93) | (1) | (94) |
| Expected return on plan assets | 92 | 52 | – | 144 | 74 | 52 | 1 | 127 |
| Actuarial gains/(losses) | 57 | 46 | 1 | 104 | 142 | (71) | 2 | 73 |
| Employer contributions | 22 | – | 1 | 23 | 17 | – | – | 17 |
| Plan participant contributions | 2 | – | 1 | 3 | 3 | – | – | 3 |
| Benefits paid | (64) | (96) | (1) | (161) | (57) | (94) | – | (151) |
| At 31 December | 1,598 | 1,026 | 13 | 2,637 | 1,489 | 980 | 11 | 2,480 |
| UK 2010 % |
US 2010 % |
Other 2010 % |
Total 2010 % |
UK 2009 % |
US 2009 % |
Other 2009 % |
Total 2009 % |
|
|---|---|---|---|---|---|---|---|---|
| (e) Major categories of plan assets | ||||||||
| Equities | 50 | 18 | 74 | 38 | 53 | 18 | 74 | 39 |
| Bonds | 49 | 82 | 22 | 61 | 45 | 82 | 22 | 59 |
| Cash and other | 1 | – | 4 | 1 | 2 | – | 4 | 2 |
| (f) changes in the present value of defined benefit pension obligations |
UK 2010 £m |
US 2010 £m |
Other 2010 £m |
Total 2010 £m |
UK 2009 £m |
US 2009 restated £m |
Other 2009 £m |
Total 2009 restated £m |
|---|---|---|---|---|---|---|---|---|
| At 1 January | (1,500) | (1,198) | (48) | (2,746) | (1,294) | (1,240) | (52) | (2,586) |
| Exchange differences | – | (55) | – | (55) | – | 101 | 4 | 105 |
| Current service cost – continuing operations | (8) | (4) | (1) | (13) | (7) | (3) | (1) | (11) |
| Current service cost – discontinued operations | – | (1) | – | (1) | – | (1) | – | (1) |
| Past service cost – continuing operations | (1) | – | – | (1) | – | – | – | – |
| Exceptional items – continuing operations | – | – | – | – | 1 | 1 | – | 2 |
| Exceptional items – discontinued operations | – | 2 | – | 2 | – | – | – | – |
| Interest cost – continuing operations | (84) | (66) | (2) | (152) | (76) | (71) | (3) | (150) |
| Actuarial (losses)/gains | (48) | (119) | (2) | (169) | (178) | (83) | 2 | (259) |
| Plan participant contributions | (2) | – | (1) | (3) | (3) | – | – | (3) |
| Benefits paid | 64 | 98 | 3 | 165 | 57 | 95 | 2 | 154 |
| Transfer from available for sale financial assets | – | 2 | – | 2 | – | 3 | – | 3 |
| At 31 December | (1,579) | (1,341) | (51) | (2,971) | (1,500) | (1,198) | (48) | (2,746) |
| (g) principal actuarial assumptions |
UK 2010 % |
US 2010 % |
Other 2010 % |
UK 2009 % |
US 2009 % |
Other 2009 % |
|---|---|---|---|---|---|---|
| Future salary increases | 5.00 | 4.00 | 3.08 | 5.20 | 4.00 | 3.07 |
| Future pension increases | 3.50 | – | 1.35 | 3.70 | – | 2.00 |
| Discount rate | 5.40 | 4.90 | 5.20 | 5.70 | 5.50 | 5.06 |
| Inflation rate | 3.50 | 2.50 | 2.00 | 3.70 | 2.50 | 2.00 |
| Expected return on plan assets (net of administration expenses): |
||||||
| Equities | 7.51 | 7.67 | 8.25 | 7.75 | 7.56 | 8.30 |
| Bonds | 4.61 | 4.37 | 3.90 | 4.70 | 4.76 | 3.70 |
| Cash and other | 0.31 | 2.77 | 1.00 | 0.25 | 3.16 | 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 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 a 65 year old pensioner is 86.2 years (2009: 86.2 years) for a male and 89.3 years (2009: 89.3 years) for a female. The life expectancy for a non pensioner currently aged 45 is 88.4 years (2009: 88.4 years) for a male and 91.7 years (2009: 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 (2009 projected to 2006), weighted 70% blue collar and 30% white collar. The life expectancy assumed for a 65 year old pensioner is 83.6 years (2009: 82.8 years) for a male and 85.7 years (2009: 85.2 years) for a female.
| (h) historic information on defined benefit plans |
2010 £m |
2009 £m |
2008 £m |
2007 £m |
2006 £m |
|---|---|---|---|---|---|
| Fair value of plan assets | 2,637 | 2,480 | 2,505 | 2,361 | 2,313 |
| Present value of defined benefit obligations | (2,971) | (2,746) | (2,586) | (2,424) | (2,639) |
| Net liability | (334) | (266) | (81) | (63) | (326) |
| Cumulative actuarial (losses)/gains | (28) | 37 | 223 | 253 | 36 |
| 2010 | 2009 | 2008 | 2007 | 2006 | |
|---|---|---|---|---|---|
| Experience gains/(losses) arising on plan assets: | |||||
| Amount (£m) | 104 | 73 | (221) | 81 | 32 |
| Percentage of plan assets (%) | 4 | 3 | (9) | 3 | 1 |
| Experience (losses)/gains arising on defined benefit obligations: | |||||
| Amount (£m) | (169) | (259) | 191 | 136 | 103 |
| Percentage of present value of defined benefit obligations (%) | (6) | (9) | 7 | 6 | 4 |
The Group expects to contribute £46m in cash to its defined benefit pension plans in 2011.
(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 £7m for continuing operations and £3m for discontinued operations (2009 restated: £6m for continuing operations and £4m for discontinued operations) and cash contributions were £10m (2009: £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.
| 2010 £m |
2009 £m |
|
|---|---|---|
| (a) Amounts recognised in the consolidated balance sheet | ||
| Present value of the retiree medical obligation | (111) | (111) |
| (b) Amounts recognised in the consolidated income statement | ||
| Continuing operations | ||
| Current service cost | (1) | (1) |
| Interest cost (including administration costs of £1m (2009: £1m)) | (7) | (8) |
| (8) | (9) | |
| (c) Amounts recognised in the consolidated statement of comprehensive income | ||
| Actuarial gains | 1 | 5 |
| (d) Changes in the present value of the retiree medical obligation | ||
| At 1 January | (111) | (127) |
| Exchange differences | (5) | 9 |
| Current service cost | (1) | (1) |
| Interest cost | (7) | (8) |
| Actuarial gains | 1 | 5 |
| Benefits paid | 12 | 11 |
| At 31 December | (111) | (111) |
| (e) principal actuarial assumptions |
2010 % |
2009 % |
|---|---|---|
| Discount rate | 4.90 | 5.50 |
| Healthcare cost trend rate | 9 reducing to 5 over 17 years |
9 reducing to 5 over 17 years |
The mortality assumptions used in valuing the liabilities for retiree medical are based on the RP2000 combined active and retiree table projected to 2017 (2009: projected to 2006), weighted 85% blue collar and 15% white collar. The life expectancy assumed for a 65 year old pensioner is 83.4 years (2009: 81.8 years) for a male and 85.5 years (2009: 84.6 years) for a female.
Assumed 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.
| 2010 £m |
2009 £m |
|
|---|---|---|
| 1% increase – service cost and interest cost combined increase | – | – |
| 1% increase – retiree medical obligation increase | (3) | (3) |
| 1% decrease – service cost and interest cost combined reduction | – | – |
| 1% decrease – retiree medical obligation reduction | 3 | 3 |
| (f) historic information on retiree medical |
2010 | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|---|
| Present value of retiree medical obligation (£m) | (111) | (111) | (127) | (98) | (163) |
| Cumulative actuarial gains (£m) | 20 | 19 | 14 | 15 | 15 |
| Experience gains/(losses) arising on retiree medical obligation: | |||||
| Amount (£m) | 1 | 5 | (1) | – | 20 |
| Percentage of present value of retiree medical obligation (%) | 1 | 5 | (1) | – | 12 |
27 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 2010 | (22) | (56) | (22) | (14) | – | (114) |
| Exchange differences | (1) | 1 | (1) | – | – | (1) |
| Charge for the year | – | (20) | (9) | (20) | (6) | (55) |
| Released in the year | – | 2 | – | 3 | – | 5 |
| Utilised | 2 | 49 | – | 9 | – | 60 |
| Transfer to liabilities classified as held for sale | – | 3 | – | – | – | 3 |
| At 31 December 2010 | (21) | (21) | (32) | (22) | (6) | (102) |
| Current liabilities | (3) | (18) | – | (18) | – | (39) |
| Non current liabilities | (18) | (3) | (32) | (4) | (6) | (63) |
| At 31 December 2010 | (21) | (21) | (32) | (22) | (6) | (102) |
| Current liabilities | (3) | (54) | (4) | (1) | – | (62) |
| Non current liabilities | (19) | (2) | (18) | (13) | – | (52) |
| At 31 December 2009 | (22) | (56) | (22) | (14) | – | (114) |
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 £11m relating to Plastic Packaging and £10m relating to Beverage Cans in respect of 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.
28 share capital
| Number of issued and fully paid ordinary shares of 642/7p | 2010 Thousands |
2009 Thousands |
|---|---|---|
| At 1 January | 876,829 | 642,920 |
| Issued on employee share option schemes | 35 | 110 |
| Issued on rights issue | – | 233,799 |
| At 31 December | 876,864 | 876,829 |
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. The Companies Act 2006 abolished the requirement for a company to have an authorised share capital and the Company adopted new articles of association at the AGM 2010 to reflect this. Shares are held by the Rexam Employee Share Trust (Trust) for the satisfaction of certain share options (note 30). The independent trustee of the Trust has the same rights as any other shareholder. Participants 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.
Under the authority given to the directors at the AGM 2009, the Company issued 233,799,459 new ordinary shares on 19 August 2009 by way of a 4 for 11 rights issue at a price of 150p per share announced on 29 July 2009. The rights issue raised net proceeds of £334m after costs of £16m. As part of the arrangement for the rights issue, the Company entered into an arrangement with a subsidiary availing itself of statutory merger relief for not recording share premium under section 131 of the Companies Act 1985. The nominal value of the new ordinary shares issued of £150m was credited to share capital, the costs of £16m were charged to the share premium account and the remaining consideration of £200m was recorded as a merger reserve. This merger reserve was transferred to retained earnings on 10 November 2009 following redemption of the preference shares in the subsidiary.
29 other reserves
| Translation
reserve £m |
Net investment hedge reserve £m |
Cash flow hedge reserve £m |
Available for sale financial assets reserve £m |
Merger
reserve £m |
Total £m |
|
|---|---|---|---|---|---|---|
| At 1 January 2010 | 441 | (126) | 51 | (4) | – | 362 |
| Exchange differences before recognition of net investment hedges | (12) | – | – | – | – | (12) |
| Net investment hedges recognised | – | 22 | – | – | – | 22 |
| Cash flow hedges recognised | – | – | 40 | – | – | 40 |
| Tax on cash flow hedges | – | – | (4) | – | – | (4) |
| Cash flow hedges transferred to inventory | – | – | (25) | – | – | (25) |
| Cash flow hedges transferred to the income statement | – | – | 2 | – | – | 2 |
| Changes in market value of available for sale financial assets | – | – | – | 1 | – | 1 |
| At 31 December 2010 | 429 | (104) | 64 | (3) | – | 386 |
| At 1 January 2009 | 662 | (183) | (151) | – | – | 328 |
| Exchange differences before recognition of net investment hedges | (207) | – | – | – | – | (207) |
| Net investment hedges recognised | – | 57 | – | – | – | 57 |
| Exchange differences recycled to the income statement on disposal of subsidiaries | (14) | – | – | – | – | (14) |
| Cash flow hedges recognised | – | – | 73 | – | – | 73 |
| Tax on cash flow hedges | – | – | (48) | – | – | (48) |
| Cash flow hedges transferred to inventory | – | – | 163 | – | – | 163 |
| Cash flow hedges transferred to the income statement | – | – | 14 | – | – | 14 |
| Changes in market value of available for sale financial assets | – | – | – | (4) | – | (4) |
| Recognised on rights issue | – | – | – | – | 200 | 200 |
| Transfer to retained earnings | – | – | – | – | (200) | (200) |
| At 31 December 2009 | 441 | (126) | 51 | (4) | – | 362 |
30 share based payment
A summary of all Rexam’s share based payment schemes is set out below.
| Scheme name | Abbreviation | Scheme status | Settlement basis |
|---|---|---|---|
| Long Term Incentive Plan 2009 | LTIP | Open | Equity and cash |
| Long Term Incentive Plan 2007 | LTIP 2007 | Closed | Equity |
| Executive Share Option Scheme | ESOS | Closed | Equity |
| Savings Related Share Option Schemes | SAYE | Open | Equity |
| Phantom Stock Plan | Phantoms | Closed | Cash |
| Deferred Bonus Incentive Scheme | DBIS | Closed | Equity |
LTIP
Following approval by shareholders at the 2009 AGM, the primary long term incentive plan for Rexam's executive directors, senior executives and other senior management is now the Long Term Incentive Plan 2009 (LTIP). 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 2010 to executive directors and band 1 executives are subject to two performance conditions, compound annual earnings per share (EPS) growth and relative Total Shareholder Return (TSR) performance in the proportion 60% and 40%, respectively. These options are equity settled. Options granted in 2010 to other senior management are subject entirely to EPS growth and are either equity settled or cash settled depending on the seniority of the employee.
For further details of the LTIP refer to the remuneration report.
LTIP 2007
Prior to 2009, annual grants of options were made to executive directors and senior executives. The percentage of share options that actually vest is dependent upon Rexam's TSR performance over a three year measurement period. If performance targets are met, share options vest three years after the start of the measurement period and can be exercised at a nominal cost to the employee. The expiry date is six years and 11 months after the grant date.
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 target was set for the 2007 and 2008 grants and the options vest three years after the grant date, provided the participant is an employee of the Group at that time. Options are exercisable three years after grant date and expire 10 years after grant date. The exercise price is set at market value using the market price of a Rexam share at the grant date.
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.
Phantoms
This scheme operates in the same way as the ESOS with the same terms and conditions. Prior to 2009, grants were made to certain senior management located outside the UK and Europe and are settled in cash.
DBIS
A grant of options was made during 2007 to Graham Chipchase. The number of shares that vested was measured against a non market based condition relating to an OI Plastics operating profit target. The option was exercised at nominal cost on 18 February 2010.
The employee benefit expense recognised in relation to share based payment in 2010 is set out below.
| 2010 £m |
2009 £m |
|
|---|---|---|
| Continuing operations | ||
| Equity settled schemes | 6 | 6 |
| Cash settled schemes | 5 | – |
| Total continuing operations | 11 | 6 |
The key assumptions used in valuing options granted during the year are set out below.
| LTIP | SAYE | |
|---|---|---|
| Valuation models | TSR – Monte Carlo | Binomial |
| EPS – Black–Scholes | ||
| Expected dividend growth (%) | 4.5 to 6.1 | 4.5 |
| Expected historical volatility (%) | TSR – 38.8 to 39.4 | 29.3 to 38.8 |
| Risk free interest rate (%) | TSR – 1.2 to 1.9 | 1.2 to 2.6 |
| Expected life (years) | 2.2 to 2.7 | 3.2, 5.2 and 7.2 |
| Weighted average share price (£) | 2.91 to 3.33 | 3.08 |
| Weighted average fair value (£) | 1.43 to 3.01 | 0.77 to 0.88 |
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.
The number of options and weighted average exercise prices of all option schemes are set out below.
| 2010 Number of options Thousands |
2010 Weighted average exercise price £ |
2009 Number of options Thousands |
2009 Weighted average exercise price £ |
|
|---|---|---|---|---|
| Outstanding at 1 January | 13,043 | 2.34 | 16,907 | 2.72 |
| Granted | 13,195 | 0.04 | 1,537 | 2.12 |
| Exercised | (93) | 0.89 | (131) | 2.62 |
| Lapsed | (4,643) | 1.22 | (6,037) | 2.48 |
| Expired | – | – | (658) | 3.98 |
| Rights issue adjustment | – | – | 1,425 | 2.52 |
| Outstanding at 31 December | 21,502 | 1.18 | 13,043 | 2.34 |
| Exercisable at 31 December | 2,665 | 4.06 | 846 | 3.13 |
The exercise prices and average remaining contractual lives of options by scheme are set out below.
| 2010 Number of options Thousands |
2010 Range of exercise prices £ |
2010 Weighted average remaining contractual life Years |
2009 Number of options Thousands |
2009 Range of exercise prices £ |
2009 Weighted average remaining contractual life Years |
|
|---|---|---|---|---|---|---|
| LTIP | 12,224 | – | 2.2 | – | – | – |
| LTIP 2007 | 2,058 | – | 4.2 | 4,474 | – | 4.7 |
| ESOS | 3,090 | 2.14 to 4.61 | 6.3 | 3,770 | 1.87 to 4.61 | 7.4 |
| SAYE | 1,866 | 2.12 to 3.88 | 3.4 | 1,946 | 2.12 to 3.88 | 4.0 |
| Phantoms | 2,264 | 2.71 to 4.57 | 6.3 | 2,795 | 2.71 to 4.57 | 7.4 |
| DBIS | – | – | – | 58 | – | 0.2 |
Rexam Employee Share Trust
The Group operates an employee share trust, the Rexam Employee Share Trust (Trust), that owns 2,468,028 ordinary shares of 642/7p in Rexam PLC at 31 December 2010 (2009: 525,805 shares) acquired at an average cost per share of £3.38 (2009: £4.72) and included in the consolidated balance sheet within retained earnings at a cost of £8m (2009: £2m). The 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 relevant LTIP options are exercised. The market value of the shares at 31 December 2010 was £8m (2009: £2m).
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