Rexam's (REXMY) CEO Graham Chipchase on Q2 2014 Results - Earnings Call Transcript

Aug. 2.14 | About: Rexam PLC (REXMY)

Rexam PLC (OTCQX:REXMY) Q2 2014 Earnings Conference Call August 1, 2014 4:00 AM ET

Executives

Sandra Moura – Head-Investor Relations

Graham Chipchase – Chief Executive

Analysts

Fabio Lopes – Bank of America Merrill Lynch

Eshan Toorabally – Goldman Sachs Group Inc.

Lars Kjellberg – Credit Suisse

Sandy Morris – Jefferies & Co.

Paul D. Checketts – Barclays Capital Securities Ltd.

David Phillips – Redburn

James Armstrong – The Investment Analysts

Graham Chipchase

Good morning, everybody, and welcome to our Rexam’s 2014 half-one results. Just to explain a little bit about things up on the front of the stage, what I’m going to do is give a brief overview of the results. And then, as you know, I think many of you know, David Robbie’s not been very well recently. I am absolutely delighted to report that he’s making a full recovery, and we expect to see him soon. But as a result, Sandra, who, again, some of you will know, is leaving us in October, and as a reward, or possibly a penance, she has volunteered to step into David’s shoes and do the financials.

So, quick review of the results. As you’ll have seen from the release this morning, our results are in line with our expectations. Pretty much, very good volume growth, particularly in Q2, across all our regions, offsetting really high aluminum premiums, which Sandra will talk about more in a minute. The healthcare business sold in May, and £450 million of cash returned to our shareholders in June.

So, we’re now a focused beverage can business. And our strategic agenda is on track, and I’ll talk a little bit more about that when I follow Sandra. So, with that, I’ll hand over to Sandra.

Sandra Moura

Thank you. Good morning. Let me start with an overview for the half. This slide shows the performance of the Group on the left. It then excludes healthcare, which has now been sold. And then on the right, you can see the performance of continuing operations for the first half of 2014 versus the first half of 2013. Looking at the continuing business, reported sales were down 5%, as 4% beverage can volume growth was offset by foreign exchange translation headwinds due to stronger sterling against the dollar, euro, and the ruble.

Organically, sales were up 3%, as volume growth was partly offset by the pass through of lower LME costs. Reported operating profit was down 9%, while organic profit was flat, as 4% volume growth was offset by higher metal premium costs and pricing pressures in Russia. Net finance costs for the continuing business was down significantly, due to lower interest rates on refinanced debt. Continuing profit before tax was £166 million; down 2%. And EPS was 16.2p; up 4%. This is higher than the growth of underlying earnings due to the share consolidation, following the return of cash on the sale of healthcare. The half-year dividend is 5.8p, a 2% increase on last year.

Let’s now look at the volume performance by region, starting with Europe and Rest of World. In Europe, trading improved, as expected. We had a strong second quarter in Western Europe with volumes up 7%, driven by the UK, Benelux, and Spain. Specialty cans were up 1% in the half, as good growth in energy drinks was partly offset by some share loss as we continued to focus on returns. As a result, overall growth in Western Europe was 3% in the half. Trading in Russia has been subdued. Our volumes declined 4%, due to a soft market and adverse customer mix. Encouragingly, the proportion of beverage cans in the pack mix increased from 17% to just over 20% in the period.

In EMEA, we saw continued strong growth in India, where volumes were up 42%. This was offset by the impact of the slow ramp up of line conversion in Egypt, and some weakness in Turkey. As we look to the second half, we expect growth in Europe to slow down because of strong Q3 prior year comparators. And therefore, we continue to expect 2% volume growth for the full year.

In North America, overall volumes were down 2%. Standard cans were down 3%, reflecting our exposure to the CSD market. Specialty cans were up 1%, as good volume growth in sleek and 16-ounce offset weakness in larger sizes. The growth in sleek and 16-ounce was driven by customers in a wide range of beverage categories, including craft beers, CSDs, energy drinks, and flavored alcoholic beverages.

As we’ve said before, the specialty can market in North America is maturing, and this has started to impact our specialty can volumes and margins; a trend that will accelerate in the next few years. Looking into the second half of the year, we continue to expect overall volumes to decline by around 3%. Trading in South America has been very strong in the half. Volume growth in the first quarter was helped by good weather, heavy customer promotions, and the timing of carnival, which extended the busy summer season.

Growth during the second quarter accelerated due to the FIFA World Cup. And as a result, our volumes were up 22% in the half. The growth in Q2 was more weighted to the beginning of the quarter, as the supply chain was filled in preparation for the World Cup. We have seen volume growth slow towards the end of the quarter, as stocks were consumed, and inventories begin to return to more normal levels.

We gained share in Brazil. The market was up 21%, and Rexam’s own volumes were up 24%. However, the environment continues to be tough. And as we look ahead to the second half, we expect the market to slow down, due to the weak macroeconomic backdrop, GDP is expected to grow only 1% in 2014; tax increases, which are expected in the coming months, and the forthcoming elections in October. We also expect our customers to revert to the trend we saw in 2013, where they prioritized specialty cans over standard cans to differentiate their products and provide attractive price points with different can sizes.

The conversion of our line in Brasilia is up and running, and the line conversion in the south will be on-stream in Q3. We continue to look at opportunities to convert additional lines to give us the flexibility to meet our customers needs. Let’s now look at the operating profit grid for beverage cans as a whole. Starting on the left, profit in the first half last year was £217 million. It would have been £20 million lower at H1 2014 average exchange rates.

So, on a pro forma basis, the first half profit last year would have been a £197 million. Volume mix was £15 million, driven by 4% volume growth, partly offset by the mix impact of commoditizing specialty cans in North America. Efficiencies were £8 million as we continued to lightweight our cans and ends in all four regions. Metal premium has continued to be a headwind for us in 2014, impacting first-half profits by £7 million. At current spot rates, premium will be a further headwind in the second half, but I’ll go into a bit more detail on premium in a moment.

Finally, price costs was a negative £16 million. This included a one-off indirect tax benefit in Brazil, which helped offset some pricing pressures in Russia. As you know, spot energy prices in Brazil have increased significantly. And while our 2014 exposure is contracted, we expect energy costs in Brazil to be a headwind in 2015.

Taking all of these movements together, organic operating profit was flat for the half. RONA was 26.1%; and return on sales was down 50 basis points, due to higher premium costs. Historically, we reported two segments; beverage cans, and plastics. With the sale of healthcare, we are now a focused beverage can business. And going forward, we will provide regional segmental disclosure to increase transparency and understanding of our business. We will report two segments, the Americas, which includes North, South, and Central America; and Europe and Rest of World.

Performance in the Americas was good in the half. Organic sales were 5%, as strong volume growth in South America was partly offset by 2% of volume decline in North America. Organic profit was up 6%. And return on sales was practically flat, as the regional mix benefit of strong sales in South America was offset by the commoditization of specialty cans in North America. Return on assets was lower than last year, reflecting the adverse impact of FX on profits, and the investment in line conversions in Brazil.

In our Europe and Rest of World segment, organic sales were up 1%, as 2% volume growth in Europe was partly offset by weakness in Egypt and Turkey. Organic profit and return on sales were down, due to higher metal premium in Europe and some pricing pressure in Russia. Return on assets was lower than last year, reflecting the impact of FX and metal premium on profits. The 2013 full-year restated figures, restated by segment, are in the appendix, should you want to make 2014 full-year estimates by region.

Given the impact it had on our results in the half, I’d like to spend a moment on foreign exchange. On the table, we have our major trading currencies: the dollar, euro, and Russian ruble. They have all devalued versus sterling over the past year. And the translation impact on foreign exchange movements on our half year results was £20 million. Our full year sensitivities remain unchanged, and therefore, at current spot rates, we expect foreign exchange translation to adversely impact full year profits by around £20 million. You will want to update your models to reflect that.

We have limited transaction foreign exchange exposure, because cans are typically produced in the geographies in which they are sold. In countries where we have costs, or revenues, that are not in the underlying functional currency of the business, we hedge most of our transaction risk; mainly metal, local currency costs, and working capital. Exchange rates remain volatile, and we’ll update you on the impact of currency headwinds through the second half of the year.

Moving onto talking more detail about metal premium, which has been an all-time high in Europe and North America. The LME are appealing the decision to overturn the new load-out rules, which were supposed to come into effect in April this year. If the LME is successful, new load-out rules could be implemented in the beginning of 2015. As and when new rules are in place, we expect metal premiums to start to ease. But in the meantime, higher metal premium costs are something we have to contend with.

Metal premium is passed through contractually in North America, and with some European customers. In the half, the impact of higher metal premium costs of non-passed through customers in Europe and South America was £7 million, which we already talked about when we looked at the operating profit bridge.

At current spot rates, premium will be a £30 million headwind for the full year. The impact is more weighted towards the second half of the year, because of a dip in premiums in H2 last year, and also because of the continued cost increase in Q3 this year. We continue to look at different ways to mitigate the impact of premium, including sourcing metal premium from non – metal from non-premium territories; lobbying with trade and other organizations; and working with our customers to share this increased cost.

Turning now to the bottom half of the income statement, profits from associates and JVs totaled £4 million; in line with last year. And when we complete the UAC acquisition later on in the year, it will be fully consolidated into sales and underlying operating profit with a 49% minority interest removed below the line.

Our total net interest expense was £27 million; £17 million lower than last year, reflecting the refinancing of our 2013 maturities. And the average interest rate was 4%, as planned. The retirement net interest cost was £8 million, and the charge for the full year is expected to be £16 million. The tax rate was 25%; below our previous guidance of 26% because of lower North American profits. We expect the tax rate to remain around 25% for the full year, and the foreseeable future. Profit after tax was £125 million; in line with last year and EPS was up 4%, reflecting the share consolidation following the £450 million return of cash.

Moving onto the cash flow, for the continuing business, with discontinued operations, healthcare, identified as a separate line. Working capital was a £69 million outflow; broadly in line with last year. And for the full year, we expect about half of this to reverse.

CapEx was £79 million, primarily from the investments in Widnau; the new Fusion line in Epovice; and line conversions in Brazil. For the full year, we expect CapEx to be 1.4x depreciation including the new can plant in India, that Graham will talk about in more detail later. Payment of the cash-settled element of the 2011 LTIP was £16 million.

Future plans are expected to have similar costs of £20 million to £25 million in total, cash and equity settled, but this will, of course, also depend on the future share price performance. Free cash flow for continuing operations was a £48 million inflow. And after dividends and the return of cash, we closed the half year with net debt of £1.1 billion.

Let’s now look at the balance sheet. We currently have around £800 million of undrawn facilities and our next significant maturity is not until 2018. Our debt profile is now 85% fixed, and 15% floating rates. About 80% of our debt is in bonds, and 20% in bank facilities and the currency mix is around 55% U.S. dollars, and 45% euros. Net debt-to-EBITDA for the continuing business was 2.0x; at the bottom end of our 2x to 2.5x leverage target. We remain investment grade, with a stable outlook with both credit rating agencies. ROCE was 14% in the half; up on last year’s 13.7%.

In summary then, we saw improved trading performance in the second quarter, with good growth in Western Europe and South America. Our balance sheet is strong, and the benefits of lower interest costs are coming through. Although we faced FX and premium cost headwinds, overall results were in line with our expectations, and we continue to focus on cash, cost, and return on capital employed.

Thank you. And now, I’ll hand you back to Graham.

Graham Chipchase

Thanks, Sandra. Before I get onto do my piece, I just wanted to note Sandra. Sandra has been with us for seven years, and I’d just like to say I think she’s done an absolutely outstanding job for Rexam the last seven years. David and I have loved working with you. You have done, as I say, a super job. I think everybody is going to miss you. But we’re all delighted, and wish you lots of luck and success at Compass, when you go in the middle of October.

So, I just want to say, thank you very much, Sandra. We’ll have an orderly transition. Sandra’s replacement is going to be someone called Marion Le Bot who has worked with us for a number of years in the finance function. So you’ll all get to meet her in the autumn, so we'll work that out so you get to see both of them at the same time.

So I’ll talk a little bit about our results, in the context of our strategy. You’ve heard, and we’ve said it now, that we’re a focused beverage can company. What that means is we can spend time and concentrate on the four strategic priorities, which we’ve talked about before, so as we pursue our vision of being the best beverage can maker in the world. And the four are investing with focus.

So we are looking at making sure we do the right sort of investments so that we can balance growth and returns, either through organic CapEx, or bolt-ons, with a view to ensuring that we’re creating shareholder value by getting that balance right between growth and returns. The next one is strengthening customer relationships. Our customers are facing some great challenges in terms of the market, and with consumers, so we need to improve our ability to help them address those challenges. And one of the things that we’re also seeing is that the market and the dynamics around the beverage cans are changing.

And I’ll talk about that a little bit more in a few minutes. Operational excellence. Manufacturing company, it’s in our DNA. We have to produce more with less, faster, better quality; that’s what we do. We’ll talk a bit about our efficiency savings. Another factor that is coming in is that the market, consumers, our customers are demanding more can sizes. We need to be much more – it’s much more complex, and we have to be much more flexible to address that and we’ll talk a little bit about that.

And finally, we’re aiming to shape the future through what we do in innovation and sustainability. Talking about each of those in a detail, this slide, you will have seen before. This is talking about the projects we’ve got in the pipeline. So the new line in Chile, which we talked about last year, that's on track, on budget, and should come onstream in the next few months.

The line conversions that Sandra mentioned in Brazil, as we try and make sure that we can participate in the growth in specialty cans going forward, and continue to take a bit more market share, which we’ve already seen in the second quarter this year. We’re converting a line in the south, as Sandra mentioned, at Aguas Claras, and that should be done should be done by the end of the year. The Widnau investment in Switzerland for Red Bull, that’s on track, on budget.

Construction has started. I had the pleasure of going there, and digging a hole in the ground, and putting a tree to mark the start of the process. So that’s definitely happening; I’ve seen that; I know it’s going on. So we expect the first line to be up and running by the end of next year. And then that’s the start of, obviously, of multi-line plant and the benefit of that investment is it actually frees up capacity in the rest of our European system around specialty cans, where we expect to see some more growth.

We’re going to talk a little bit more later about Fusion. But we’re putting investment into our plant in Ejpovice in the Czech Republic to allow us to do more Fusion bottles. We'll talk about that in a minute. And then a new piece of information around India. So we’ve talked in the past about our strategy for India is to grow and put capacity in slightly ahead of demand so that we can improve our footprint. And what we’re going to do here is build a new plant in southern India; £50 million. So we’re going to spend about £10 million this year bulk of it will come next year. And it should be up and running towards the end of 2013. Capacity, about 800 million cans.

Now what we could have done is increased our capacity in our existing plant in Mumbai, and that in the short term would have given us a cost advantage. But we feel it’s much better to have plants in different of India so that we’re improving our footprint, as well as well as in the long term giving ourselves a freight advantage, as clearly, at the moment, distribution costs are quite difficult, and it’s quite hard to ship cans around India.

So having a footprint around north and south India, as well as in the middle, would be very helpful. So as part of this project, we’re also going to secure some land in northern India so that in due course we’ll build a third plant in the north. At the moment, Mumbai; 2016, southern India; and then, in due course, we’ll have one in the north of India as well.

A bit of an update on UAC. We’re very confident we’ll get all the clearances we need to complete this transaction by the end of the year. The first half, the market in Saudi Arabia, and for UAC, was up 1% volume. So it’s doing well, despite all the uncertainties in the region.

As we said before, UAC’s capacity is pretty much used now, so we’re putting a third line in. It’s on budget and on track to come onstream in the middle of next year, as planned. And we’re very much looking forward to welcoming UAC into the Rexam network. And what we’ll do is we’ll make an announcement as soon as we actually have closed the transaction, which, as I say, should be before the end of the year.

Again, this is a slide you will have seen before. It shows the areas that we’re focusing on, both in terms of bolt-ons and greenfield opportunities; so Central America, Sub-Sahara Africa, Africa, India, and South East Asia. Clearly, some good examples: UAC in the Middle East, and the Indian investment in terms of a greenfield opportunity. As we’ve said before, there aren’t loads and loads of potential opportunities, particularly on the bolt-on area, and some of them do take a long time to crystallize. But we are very confident that we can create significant shareholder value if we spend our cash sensibly in this area, and that’s what we’re looking to do.

The second strategic priority is around strengthening customer relationships. Back in November, at the investor seminar, we talked a lot about what we were doing to address and to support our customers’ needs around differentiating their products; productivity; getting access to emerging markets; and this license to operate. What we know is that the beverage can market is changing. In terms of growth rates, we’re seeing subdued growth in Europe, based on a weak macroeconomic backdrop. We’re seeing structural decline in North America, 2% or 3% per annum. And South America and AMEA have got long term growth prospects, but they’re volatile, like any emerging market.

I talked a little bit earlier about this need, or this trend, towards increasing complexity. India’s a good example. In the past, in an emerging market it could take five or ten years, before we moved away from standard cans to different sizes, specialty cans. In India, where the total market for cans is less than one billion cans, there already the consumers, our customers want four or five different sizes. So that’s completely different. It’s making the way we manufacture much more complex, and we need to be much more flexible.

We’re also seeing, particularly, for example, in North America, that, that historical premium of two times, or more, margin for specialty versus standard cans standard cans. Yes, you will get that in the early days because it’s about supply and demand, but that premium is eroding and normalizing down to a standard can sort of margin much more quickly than it’s done in the past. And we’re seeing that in North America at the moment.

And the other thing we’re seeing is, obviously, our customer base is consolidating. We’ve all heard about what’s going on in the brewing industry. But broadly, we’re seeing beverage customers getting bigger and more consolidated. And in addition, they’re moving to a more coordinated global approach to procurement. So just like automotive have done, and aerospace have done, it’s similar sorts getting very, very coordinated. And, of course, what does that do? That puts growing pressure on us on terms of pricing.

Now, sounds quite gloomy, but we can respond. We can innovate, which clearly helps maintain margins. And we have to continue to look at how we manage our costs; making sure we’re efficient. And that’s something we’re good at doing. So there is a way to respond to this environment.

In addition, we’ve done something in January this year which is very important in terms of how we organize ourselves. We have set up now a set of global key account leads for our core global customers. And these are people who are spending significant amount of their time making sure that we, as an organization, are coming across to our customers in a joined-up way. And we’re bringing to our customer, in a very focused, consolidated way, all the strengths of Rexam, be it technical innovation, or just our footprint, when we go and talk to the customer in one conversation, rather than coming across as a more disjointed organization.

The feedback we’re getting is that we are leading the industry in the way we do this. What it does is it means that we are forming long-lasting forming long-lasting strong relationships with our customers, and we’re putting our case towards being a preferred can supplier to them. We’re showing that we’re going to try and help them meet the problems and the needs that they have better than any other can maker.

In addition, we’re seeing that by setting up this sort of function within Rexam, we’re getting to talk now to not just the procurement functions in our customers. We are getting access both to their marketing functions, and to the people who are running their sustainability initiatives, which clearly is a very good thing in terms of us being able to broaden our customer and value proposition.

Again, operational excellence, this is in our DNA. Our cost savings, which Sandra mentioned, the first half, £8 million. Absolutely on track to meet our annual target of £20 million which we talked about every year, through lightweighting the cans, and using less energy. It usually is more second-half weighted, so there’s nothing to be alarmed there. We’re very confident of getting to our £20 million.

One of the things I think I’m very proud of at Rexam, but also it shows the world-class nature of our operations, we talked a little bit in the past about Shingo, which is a third party independent gold mark standard if you like for accreditation around lean enterprise and operational excellence.

So we’ve had five plants in South America in last couple of years have been accredited. I’m absolutely delighted to say that in the first half of this year we’ve had our first European beverage can plant accredited; this is Enzesfeld in Austria. And our head office in Rio has been accredited by Shingo. It’s actually the first corporate head office in any sector, any segment, anywhere in the world to be accredited by Shingo, which is an incredible achievement. So we’re doing really well in terms of operational excellence. And clearly, we’re trying to roll this program out and get as many of our plants accredited as possible.

Finally, we’ve done an internal reorganization of our European beverage can organization, so it’s now operating in four distinct but interdependent regions. And the reason for doing this is it’s allowing us to fulfill our customer needs much more efficiently, particularly as, in Europe in particular, it’s getting quite a complex market. So it’s just something about discharging and fulfilling customer needs more effectively; some small savings in SG&A, as well. And that focus on costs, it’s something we feel we’re pretty good at doing. We’ve shown in the past we’ve got a good track record of addressing costs, but we have to continue focus on it in the future.

So I’ll spend some time on innovation now. Innovation and sustainability are absolutely crucial to our future. Innovation allows our customers to both grow their businesses, but also improve their margins. And operating a sustainable business is absolutely essentially now, it’s on the top of everybody’s agendas.

And what we’re trying to do is ensure that we can operate and work with our big customers, in particular, who have got very challenging and ambitious sustainability targets themselves, so that we can align with them, help them deliver on their targets; as well as making the case for the can versus other packaging substrates in terms of sustainability. And the can has got a very strong case. We’ve always talked about it being infinitely recyclable, for example.

So our ability to innovate has always allowed us to broaden our customer offering in the segments in which we sell can. For many, many years, it’s been part of our strategy to work with small, but growing categories and show them the benefits of the can. So for example, we were behind the growth of the energy drink segments in Europe. We also supported the growth of iced teas in specialty cans in North America, and those are now growing into quite large segments. So building on that sort of success, we've started – and we look at craft brewing in the U.S. That's a segment that's growing at about 10% per annum in the U.S. And if you think about the beverage can market, which is shrinking at 3% per annum, that's quite an interesting segment to be in. Our first craft brewing customer was back in 2007, and we now have more than 35.

We got about a 20% market share of the craft brewing segment for cans in North America, but it's less than 1% of our total volume. So with that sort of 10% per annum volume growth, it will become a larger segment. But what we've done is we've looked at our success with craft brewers in North America and taken a more targeted approach to craft brewers across the world. And you can see a picture down the bottom there. We just this year signed a contract with a small family brewery in London, called FourPure, and they are going to present their beers in cans.

And similarly, in Brazil, and we have one here, we've sent our Fusion bottle for a small brewer in Brazil, called Germania, who are selling beer both in Fusion bottle and, actually, now 24-ounce can. So there are some of these on your way out. Please, enjoy. I'm delighted to say that this beer is doing extremely well in Brazil. Germania is the name of the brewer. Despite the recent World Cup semi-final results it's still doing extremely well. So there are some there for you to enjoy later.

Interesting, going into new categories is really important, so if you're looking at the future growth of Rexam's cans and our business. So only around 10% of our cans are sold into categories outside of beers, CSDs, and energy drinks. We've identified 16 new categories, and we've got customers in all, but two of them, at the moment. These are things like juices; milk-based beverage, cider; vitamin drinks. There's a whole range of them. And to try and bring this a bit more to life, I'll try and talk about some of them. So the first one you can see up there is Vita Coco, or – which is a vitamin drink for left-hand side of the Atlantic; vitamin drink for those on the right-hand side of the Atlantic, which is now in cans.

We've got in the U.S. the middle there, what used to be called the flavored alcoholic beverage segment is now in the U.S. being called the progressive adult beverage segment. One of our customers is, there, Mike's hard lemonade. And what was very interesting, that segment is really being attracted by smaller can sizes. So we're seeing 8-ounce sleek cans being very attractive in that segment, which is why our specialty can business in North America is growing so well. So that’s an interesting new segment.

We can see, on the right there, Mio, which is a milk-based beverage that's being sold in Russia. And here, this one, very interesting. So in India, Bisleri are absolutely synonymous with bottled water. And, of course, most of that's in PT. We've just this year signed a breakthrough contract with Bisleri to produce and sell water in cans in India. So that's, I think, a fantastic breakthrough. So, I'm going to enjoy that in a minute.

Next, and finally, on innovation, fusion. So you can see, that's been some pretty good growth in our fusion bottle over the last few years. Again, launched in 2010, so off a low base. Very interesting what's going on. We're seeing quite a lot of seeding of markets globally. So if we look at South America, not only do we have beer in fusion cans now; but we have, for certainly a year now, been working with Diageo, and we're seeing Smirnoff Ice in the fusion can in South America. And that's just being used to seed the markets.

It's being used by both big, global key accounts and smaller customers. And they're using it for a number of different things. So for example, in Europe, both Pepsi and Heineken are using it to access new distribution channels. But we're seeing other people using it for special editions, or for new product launches, as well as market trials, and various other things. So we're quite interested in this. It's growing well. Right now, we're about to run out of capacity in one line in the Czech Republic, which is why we're investing in a capacity upgrade, so that we would continue to help seed these new markets, so that over time this should become a very interesting and sizeable segment. It's going to take a while, but we're certainly investing with a view to making that happen.

So just in summary, we've talked about the portfolio for a number of years now. We have now done all that. So the Company is focused on beverage cans. We have returned £450 million to our shareholders this year. We're doing what we can do. We're managing the levers that we can control. So it's back to the three seeds; focus on cost, and cash, and return on capital employed. The strategic agenda is on track. I've talked through the four strategic priorities. And particularly, I think about – this is the whole point about investing with focus on bolt-ons, as well as greenfield investments, so that we can create shareholder value, by balancing growth and returns.

The business is in very good shape, operationally. So despite the ongoing foreign exchange translation headwinds and the impact of premiums, we still expect to make further progress in 2014 on a constant currency basis. So with that, I’d like to take some questions. Just one request: could you please say who you are, and who you work for, before we answer the questions? Who's first? Fabio, over the front.

Question-and-Answer Session

Fabio Lopes – Bank of America Merrill Lynch

Hi, good morning. Fabio Lopes from Bank of America Merrill Lynch. I have a question on India. You mentioned this, the market is 1 billion cans. I would like to ask, who are supplying those 1 billion cans? How are people getting access to it? And what is the competitive landscape? And how would you see that developing? And which categories of drinks you see driving the growth faster in India?

Graham Chipchase

Okay. So, as you say, it's about a 1 billion can market. There are two suppliers of cans in the Indian market: we're one, and Canpack are the other, and it's about 50/50 split in terms of market share. The consumers are getting access to the cans through the limited amount of modern retail that there is in India. So that's one access. Bars and clubs. So it's still a premium product, so those sort of on-trade outlets you would expect to see it in, as well as some of the larger retailers. The categories that are driving it?

At the moment, the big categories are beer and carbonated soft drinks, as you would expect. But interestingly, we have been seeing growth in other categories, quite quickly for such a small market. So we've seen an equivalent – a local brand doing equivalent of sort of energy drink; it's carbonated, it's got herbs and flavorings, and honey in it. So that's something we've been supporting. I've just talked about the water category. I mean I think one of the other ones that could be really interesting, if you look at the Indian consumer market, one of the biggest beverages of drink are tea-based beverages.

So, again, we're looking to see if we can get those sorts of beverages into cans as well. But for the short term, the growth will be driven by beer and carbonated soft drinks.

Eshan Toorabally – Goldman Sachs Group Inc.

And this is Eshan Toorabally from Goldman Sachs. Just a couple of questions from me. Firstly, in terms of growth, so you've spoken a bit about penetration opportunities in emerging markets, and changes in the pack mix, and so on, in maybe developed markets, previously. You mention in the release about the customers consolidating suppliers, so I just wanted to get an idea of how you think Rexam is placed to benefit from that. So does your global network put you in a good position? Or are there any holes in your geography, maybe, which prevents you from fully maximizing that opportunity?

And then secondly, just in terms of Russia, so in the first half I think volumes were down 4%, so I just wanted to get a sense of whether that's the sort of run rate we can expect going forwards? Or is that going to get worse, given the macroeconomic headwinds? Thanks.

Graham Chipchase

Let me take Russia, first. So as you said, we were down 4% in the first half. The market was down about 0.5%, so it's interesting to understand what's going on there. Actually, the beer volumes were okay. For us, we've got pretty much all of the flavored alcoholic beverage segment in Russia, or the progressive adult beverages as it's probably now being called. And that segment has actually struggled a little bit with the laws that came in place to restrict beer being sold last year. They have not found a way, so far, to maintain their share of throat with the consumer. They haven't managed to do it the way that the brewers have.

So for us, from a customer mix perspective, we had a tougher time than the market because we've got so much of that segment. I mean I'm sure they will find a way, in due course. So we wouldn't really expect – that will resolve itself at some time, but the actual underlying – majority of the business is carbonated soft drinks and beer, and that's actually done okay. And the reason it's not growing at the moment, it's been fairly flat, is for all the reasons we expect, which are the macroeconomic backgrounds.

So the Russian economy has not really taken off; and then again, that's largely due to the price of oil. So going forward, and I'll expand this around the whole sanctions questions, because I'm sure that will come up otherwise, we've not really – and we did say last year we didn't expect to see much impact or sanctions on our business and there were a number of reasons for that. One is that if you look at our business, our largest raw materials aluminium.

It's produced by Alcoa in Russia, so it's not having to be shipped across borders. So it produced in Russia. Most of our customers’ raw materials are also produced in Russia and they are the product is being consumed in Russia, it’s not being shipped out of Russia. So any sort of physical sanctions on goods coming across the boarder shouldn’t affect us. The latest round of sanctions appeared to be aimed at more strategic industries, like defense, and oil, so it’s not really aimed at consumers, which would obviously be our part of the business. For me, I think the only thing that really could impact the business is if the sanctions bite so hard that they absolutely affect GDP, and the economy and consumer confidence of Russian consumers.

Having seen that yet, it might happen but we haven’t seen that yet. I think longer-term, we’d obviously always keep an eye out on foreign currency restrictions in terms of getting funds in and out of Russia. So far, we've not seen that. As a matter of fact, we don't have much cash in Russia, we take it out on a regular basis. So it's not a big exposure there. So you know I clearly want to never be overly optimistic in these sort of situations because they're very unpredictable. But I think we're as well placed as any in terms of resisting, or certainly managing, the impact. In terms of customer consolidation, what we're seeing, as I said, our customers are getting bigger and more coordinated. And I don't think they're looking for one supplier to match all their needs, globally. They're looking for a couple of big suppliers to match their needs, globally.

So I think we’re very well placed from a global footprint perspective, but we can’t and wouldn’t trying to be in every single country around the world and we’re not clearly not, but I think we’re incredibly well placed. If you look at the map of the world and where we are, we've got a great position in the Americas and that means North, Central, and South. We've got a really great position in Europe, and beginning to get a better position in the Middle East. We've got a little bit North Africa; pretty good in obviously Southern Asia with our Indian position. I think we are underrepresented in South East; and, clearly, we're not in China.

So that’s I think our footprint's well placed. But the important things as well are relationships; how we do business; the reputation we have; quality; innovation; our contribution to their big initiatives, which is around sustainability. And that's what makes us, we think, someone who should be one of the preferred can suppliers for the big customers. If we look at the various large customers around the world, we're building our share with all of them now. If you'd asked me four years ago, I would say we’re underrepresented with some of the large customers. We've done a great job over the last four years at building up positions where we weren't present before. So I'm fairly comfortable with where we are. Lars?

Lars Kjellberg – Credit Suisse

Lars Kjellberg, Credit Suisse. Looking in the full year numbers, I mean you probably had some sort of guidance of 45/55 split. Given the headwinds now from incremental metal premiums FX slow markets, how should we think about the second half? And what is sort of continuing to drive that number higher in H2, and suddenly versus H1 in given incremental headwinds?

Graham Chipchase

So I think some of the key things, and I'll let Sandra fill in the things I will undoubtedly forget, we're expecting still good volume growth. We expect there to be some good volume improvement, particularly in North America – I am sorry in Europe whether the margins are good. We again would expect our efficiency savings to be more back-half weighted. So whilst the premiums are more back-half weighted, the efficiencies are also more back-half weighted. And we expect some of the cost pressures we've had in the first half not should be in the second half. So those are the main reasons we'd expect to see more – slightly more second half than first half. We've always done, as you say, 45/55, so this is not a big difference between what we've historically done. Because we have got the second half, or certainly fourth quarter South America is their summer, where the margins are better. We'd always expect that a little bit. Is there something I've missed out?

Sandra Moura

The only other thing is that we have higher premium, the incremental hit of £5 million in the FX hit, £5 million will hit H2, so it will be probably more 48/52 than the 45/55.

Lars Kjellberg – Credit Suisse

Okay. If we look at into 2015 then instead, you know you have a decent take or maybe 2% or 3% growth or whatever the numbers going to be. How should we look in 2015? It's been a very strong first half, and particularly in Brazil of course. And how are you placed to service that market with your current capacity expansion plans? Are you – do you have high utilization rates? Or do you have spare capacity in that system that – good flow through margins as possibility for 2015?

Graham Chipchase

Trying to predict Brazil for 2015 is a little ambitious at this stage of the year, and I notice that both our U.S. competitors have refused to give any indication on 2015. I'll try and do a little better than that, but not much. I think one of the key think – if you look at the things which make it difficult to predict 2015 in Brazil, one is there's going to be an election. So we don't know what's going to happen from a political perspective. GDP is not helping, for sure. But the growth of beverage cans in Brazil are largely about the move from the lower classes into the middle classes, as well as GDP impact. And that's still happening. And the cans' share of the pack mix is still increasing.

So we'd expect there to still be some growth don’t know how much. And we have always said, and we said way back at the end of 2012 that we thought a medium range growth rate for Brazil should be between 4% and 5%, underpinned by things like the World Cup and the Olympics. So I think we would still stick with that sort of guidance. The other thing though in Brazil for 2015, and Sandra mentioned it, was the energy costs. So energy in Brazil is largely generated through hydro, and there's been a drought in Brazil, so recently there's been quite a big spike in their energy prices.

Now that will impact us, but we will try and mitigate is as much as we can. So all those things are saying it's quite uncertain. But we would still be comfortable with that 4% or 5% growth rate. And our capacity utilization is in the low 90s, mid 90s for Brazil. We are just heard, doing some conversions, so we have probably got more than that. We're more underutilized in 12-ounce than we are in specialties, so being able to convert 12-ounce into specialty allows us to be quite comfortable at satisfying that 4%, 5% growth rate with the assets we've got on the ground, or are converting at the moment.

Lars Kjellberg – Credit Suisse

Just the final question. The dividend increased 2%, is there any particular thought behind where that – that not at least much EPS growth?

Graham Chipchase

I would like to think there was some thought about it, because the Board did spend sometime discussing it, but – so you’re right, EPS growth is 4%, dividend up 2%. I think the things to say are our policy is to have a cover between 2 times and 2.5 times, so that would be in line with that. It's an interim dividend, and I think it's quite reasonable for us to be prudent at this point of the year, given Russia, given Brazil. And the Board will look at the full-year dividend in the light of the full-year results, in due course. But there's no particular (indiscernible) nothing to take away from that, other than that it is growing, which is a good thing. Is there anyone else, Sandy? It's a question for Sandra, I hope, Sandy.

Sandy Morris – Jefferies & Co.

No. I've just got to ask, what accounting policy Sandra is planning on changing. It's about time you liven things up. A slightly odd question, but just to understand this can sizes, and shapes, and all the stuff, what does this mean for the customers' filling plans in terms of what do they have to do in order to take advantage of this?

Graham Chipchase

So normally it’s about the – the two variables of diameter and height because we think about the customers filling lines, they're very highly automated. And normally it doesn’t take too much to adjust a filling line to take different can sizes, unless we're going to really big cans or really small ones. But it's normally a question of a little bit of capital from a customer's perspective, and us working with the customer just to make sure it's working smoothly. The only one I would have a caveat on is the Fusion bottle, clearly, is much more difficult to fill because the diameter is very, very narrow. So it takes a longer to fill it. So that’s one where you use looking more like glass bottle lines to fill those, and that is a bit more capital. But otherwise, it’s pretty much – it’s fairly straight forward for them to adapt. And we will tend to work very closely with our customers in terms of making sure that their filling lines can work with new can sizes, so it’s not a big issue.

Sandy Morris – Jefferies & Co.

All right. So not a big issue but it introduces a decree of complexity for you, but also some complexity for them. So it's not just something that they do on a whim.

Graham Chipchase

No, but they're driving – we're not saying we want to give you more can sizes. They are the ones who are saying our marketing department and our view of the consumer is that we would like to have these new can sizes. They are gearing up and driving it. And they often are, usually, big enough that they not changing over their filling lines to different filling sizes that frequently. It's they’ve usually got many lines and they’ll have one line dedicated to one size and another to another.

And if you actually go around a brewery, or carbonated soft drinks customer, quite often, there'll some lines that are just not running, and others are running flat out on one size. And what that allows them to do is these things are reasonably messy, they clean – obviously, cleanliness standards are huge in those sort of plants. They're often cleaning lines whilst they're having them shutdown and running a different size. So it's not, operationally for them, a big deal.

Sandy Morris – Jefferies & Co.

Right. Sorry to keep laboring this, but what we’re seeing, this change, this multitude of the time, we’re not seeing that in glass, and we're not really seeing it in PET, are we? This is fairly unique to cans, which takes us to this point of this change, sometimes in the past, when specialty cans came, creates an opportunity as much as it creates a threat. So it may be a little while before we actually know what the opportunity is, I guess.

Graham Chipchase

I agree. It's – whilst we complain a little bit about how we have to – it's tough on us to manufacture these different can sizes, I don't think it’s doable in glass and it’s very hard in PET, to the breadth of sizes and shapes that you can do with cans as quickly. You can do them in the substrates, but it's not – their processes are even more rigid than ours. So you're right: it could be an opportunity for the can to take some more share of the pack mix, because we are offering these different sizes. It's possible, but I think that's quite a brave statement at this stage of the process. We have to wait a little longer.

Sandy Morris – Jefferies & Co.

I hope Sandra's chance before, go for it, Sandra; nothing to lose. And then just on India, which I know we've touched on, are we doing a sort of build-and-they-will-come trick here? Because I wasn't – my impression was that all the major brewers were actually up in the North, and no where down in the South. Has somebody decided to build a brewery down there?

Graham Chipchase

There are some big breweries in Bangalore. The biggest independent Indian-based brewery in India is in Bangalore. 19 breweries are based there, so there are breweries in the South. If you look at the concentration of filling lines in India, CSD and beer, there's a lot in the North; there's a lot in the West; and there's quite a few in the South. Those are the three – the only place there aren't many is in the East, so those are the areas to be looking at. Are we doing a build and they will come actually, well, we did say that a little bit, when we put – when we converted the line from still to aluminum, and there's an element of that. It's not completely that strategy, because we are confident, with cans growing at 40% per annum or more, the growth is there.

As I said before, I think part of the strategy for India is to try and make it look a little the strategy for Brazil, which is lots of single line plants that you're getting the freight advantage and the competitive advantage before anybody else, even if those lines remain a little more underutilized than we would like for the medium term. The only tricky thing is determining just how fast that market will turn into a sizeable market. At one billion cans, at the moment, it's not sizeable. And if it gets to 10 billion cans that would be great, but I really don’t know what that will be.

Sandra Moura

Yes. I think I’d say all have been vulnerable. I’m not – I'm actually really quite pleased you are doing it frankly. I just thought my knowledge of breweries in India is not as good as my knowledge of breweries in India is not as good as my knowledge of breweries in every other country.

Graham Chipchase

Clearly, you need to spend some more time there, Sandy.

Sandy Morris – Jefferies & Co.

(Indiscernible) to take that one away. And then last but not least just when I was looking at AB, AmBev, and we were talking about their 1.4 billion, whatever it was, hectoliters, but they sort of implied that 20% of the sales, I think, the volume, had spilled into July, the third quarter. Just out of idle curiosity, does that mean they bought all the cans in the second quarter and it just might mean third quarter is a little bit quieter than normal

Graham Chipchase

Interesting. We don't think the inventory levels have done anything particularly odd, so we think there is still pull-through demand coming post June. And we've seen, so far in July, that there's been some growth in Brazil, so it not gone negative, or flat. I think we've seen some numbers and done some – and even if you work backwards from that number of hectoliters, if you assumed it was all 330, which clearly it's not, it comes to the same sort of numbers as triangulation. The estimate of what the World Cup meant in can sales is about, for the industry, 0.5 billion cans, so it's not that big actually. What we think is happening, though, is that's very much looking at that period of when the World Cup was on. There was a lot of customer promotional activity around their brands leading to the World Cup, and we think that’s partly due – that helped the very strong Q1 as well.

So there was carnival weather and the customer promotions, before you actually even gone into the World Cup period. Clearly, we're not going to see that again in the second half, but we still think there's still some reasonable growth. And the good thing for us is, we took some market share in Q1, Q2 because of this ability now of having more specialist canning capacity, we would hope to take a little bit more market share the second half as well.

So we're comfortable about Brazil. Why not? It's Sandra's last day.

Sandy Morris – Jefferies & Co.

This one must be dedicated to Sandra, then. Because what I was puzzling about was how we managed to do 24% more volume in Brazil, because I thought the capacity utilization, and I know it differed across specialty and standard, was at about 85, or high 80s. It's not like we were ever in a really underutilized position and yet somehow we found 24% more capacity, which I assume must have come at a cost, which you did kind of allude to

Graham Chipchase

Sandy, there are days sometimes we're not doing well enough; and then we do really well, you've got a problem with that as well. You are the archetypal man with a glass – glass is half empty. But I'll try and answer your question, anyway. We did have some – and one of the interesting things is there's a lot of growth in 12-ounce. If look back, there was 15% growth in 12-ounce, so we had oodles of 12-ounce capacity. There was a of a cost. So the costs we incurred as we had higher freight costs than we would normally expect, because we were shipping specialty cans further distances.

So that was the cost. But we were cost. But we were able to – through a combination of having the swing line capacity that we were converting done on time. But also, the guys in Brazil were exceptionally talented in being able to really, really speed up the existing lines that we had in specialty to try and just get that extra little bit out. We didn't stop didn't stop for maintenance perhaps as much as we would have done normally; we just kept things going flat out to make sure we maximized the benefit.

Sandra Moura

And don’t forget that Q2 is a very small quarter, seasonally. So you can produce more cans. And utilization is a yearly number. So the utilization in the quarter was a utilization that would look more like a utilization in Q4.

Sandy Morris – Jefferies & Co.

Right, okay. I thought I was actually quite chipper this morning. I'll go back to the office and kick the cat. The last, slightly trivial question was can I assume that Scandinavia was relatively flat? So we actually did okay in Europe in overall terms, probably with Scandinavia quite flat?

Graham Chipchase

It was a bit, yes, but that's on the back of several years now of very good growth. But, yes, it was a bit flat.

Sandy Morris – Jefferies & Co.

Thank you.

Paul D. Checketts – Barclays Capital Securities Ltd.

Hi it’s Paul Check, it’s from BarCap. I’ve got three, please. On LatAm, in Brazil, is it possible to estimate the impact of the higher energy costs, at this point?

Graham Chipchase

So, yes it is, but I don't want this to be taken as the number. We think the impact’s somewhere around about £10 million to £12 million. But that’s unmitigated. We're not going to just sit here and let that happen; we'll do everything we can to mitigate it. But that's our first view. Because we have now gone out and contracted energy for next year to make sure we're not left short, because it’s not just about price, there's also an issue about availability as well. So it was very important that we went and got the energy contract signed, so we got the availability. That we think that’s the right impact.

Paul D. Checketts – Barclays Capital Securities Ltd.

And outside of Brazil and LatAm, Mexico, it sounds like there's a shortage of glass bottles. Does that provide an opportunity to increase cans as part of the pack mix?

Graham Chipchase

Absolutely, yes Mexico is an interesting market. And we’ve got our plant in Queretaro which has got two lines now, so it's 12-ounce and 24-ounce and that’s been going really well. And clearly there's an opportunity, if there's spare capacity in the southern part of North America – the U.S., to be able to service Brazil, Mexico as well. So there's a good opportunity in that market.

Paul D. Checketts – Barclays Capital Securities Ltd.

Right. And if I think about what you're saying on the customer changing to a global procurement system, in reality, most countries have very tight production of cans, so it would be quite hard to have a global production system. Is it conceivable that they could ask you to add capacity in a country that’s already well served?

Graham Chipchase

They can always ask. But I think that’s part of where the discipline around the industry’s important. So, I don’t think any of Ball Crown, or ourselves, would go and put capacity into market that is already well served, because it doesn’t make sense. That’s from just a financial perspective it wouldn’t make sense. Therefore the issue is will you be leveraged by not doing that in the markets where you already have got capacity? And that’s just where we have to be very professional in dealing with our customers’ very professional procurement functions. And that’s always the creative tension that you get in those sorts of negotiations. But we do not feel it’s the right thing to do for the industry, and for us as part of the – a leading part of the industry, to be putting capacity into market that is already well served with capacity. We wouldn’t do that.

Paul D. Checketts – Barclays Capital Securities Ltd.

And then the last one is on aluminum premiums. I’m surprised it’s not more, the impact. So you’re clearly pulling the levers very hard. You mentioned some of them. Can you maybe talk a bit more about that; the countries that don’t attract premiums, how much extra you’re sourcing from there? And also, you mentioned, on the lobbying side, you’re doing some work. Can you just give us a bit more detail on what is actually available for you to do?

Graham Chipchase

Yes, I’ll give you a little bit more detail. There’s not much we can say. The countries, top of top of mind, where they don’t ship with premium are China and South Africa. So we’ve pretty much used most of what’s available already. It’s not a huge amount. The big issue is about, a, qualifying the quality, because a lot of the suppliers have not been used to making beverage can sheets. And that’s a very different quality standard, because it actually gets so thin that has to have no potential for holes, and things like that. So there are many suppliers who can do it. And we’ve pretty much looked at most of the opportunities. It’s small, but it’s something we can do. What was the other piece? Sorry, I’ve forgotten. Lobbying?

So there are two things going on at the moment, and this is widely reported so you probably know it. The LME tried to get the load-out rates increased, and that was – and they went through a consultation process. And one of the large aluminum producers took that to court and said that wasn’t – wasn’t contravention of their human rights, I think was the phrase they used, so that then stopped the consultation process and stopped the LME from being able to increase the load-out rates.

The LME appealed that decision, and that has literally this week just been heard by the appeal court in UK. It’s going to be some months before they deliberate. So, we won’t know what will happen, but obviously, hopefully, we’d hope that, that appeal would be upheld, and, therefore, the load-out rates would be increased, if that all went to plan load-out rates wouldn’t increase to 2015.

And it’s going to take sometime, which is exactly what [Board] (ph) said yesterday. It takes some for that impact to help us. Similarly, in the US, there’s quite a lot of lobbying going on to the SCC and the DoJ from the aluminum user group. Again, they’re trying to get the SCC and the DoJ to put pressure on the LME to increase the load-out rates, as well, or to get the warehouses to increase the load-out rates. So there is quite a lot of pressure going on, but it’s been going on for some time. I think the things that are more likely to help us are an increase in interest rates, and a flattening out of the forward curve on aluminum, because that’s what drives the business model for the warehouse owners.

Paul D. Checketts – Barclays Capital Securities Ltd.

And if it didn’t improve, do you know what the impact would be on 2015 in terms of if it was to stay where it is?

Graham Chipchase

Yes. if it stays where it is now, there’d be no impact year-on-year.

Paul D. Checketts – Barclays Capital Securities Ltd.

As in the average?

Graham Chipchase

54, 60-ish, or 65, if it stays at that for next year, then that would be no impact, because that’s where we are at the moment.

Paul D. Checketts – Barclays Capital Securities Ltd.

All right. Thank you.

David Phillips – Redburn

Hey, good morning. David Phillips from Redburn. Can I ask about the volume mix bar on slide 10 and clearly volumes were decent in the first half. So the implied mix was fairly negative, and you said that the Russian responsible progressive alcohol was a big part of that. Just wondered if you dig you into what else was in that, and how much of it was Russia, and how much of it was in the U.S.?

Graham Chipchase

It’s a bit of in the U.S. for the large base…

Sandra Moura

Yes. U.S. will be an important, but…

David Phillips – Redburn

So just rough math then, the 15 up with the volumes then, would it roughly be half of the balance, so like 60-odd would be Russia and the rest in the U.S.

Sandra Moura

Will be more U.S…

David Phillips – Redburn

More U.S…

Sandra Moura

That will be more U.S. because the Russia pricing will be reflected in the price cost and the adverse mix – the commoditization of specialty cans will be – in North America will be in the volume mix.

David Phillips – Redburn

And is there similarly a bit of headwind as we go into 2015 for that same effect as well?

Sandra Moura

For commoditization of specialty cans, absolutely yes.

David Phillips – Redburn

Thank you.

Graham Chipchase

Anyone else, yes, one over there.

James Armstrong – The Investment Analysts

James Armstrong from The Investment Analyst. Just a question on the fusion bottles. Do you see any potential for that to actually replace glass bottles or is it purely seen as a premium product? And what are the economics of making one of these bottles versus making a glass bottle?

Graham Chipchase

So, we see potential and we would love that that potential to be realized. I mean it would be a great opportunity for the can to break it out of its sort of pack mix constraint and start really going into the glass bottles and PT bottles, actually, as well for some products. At the moment, it's not there, and the reason it’s not there at the moment is because effectively the cost per bottle is too high compared to the glass bottle or a PT bottle and why the cost is so high well because the volumes are so low. So it's a bit of a chicken-and-egg thing. And what we're trying to do, which is why, again when we set up our line in Ejpovice, we set up the line ahead of demand, so it's another good news not quite an India strategy, but it was about we truly, truly believe in the potential of that aluminium bottle to replace other packages, but also to break into new categories.

So we built the capacity without having lots of orders from customers, because we wanted to test the concept. And with beverage cans, and especially with new sizes, and particularly one that's so new as that, it's about having going up a learning curve. Just learning how to make it, and then making it faster and faster and faster. And if you can make it faster then the unit cost comes down, and then you can go to some of the bigger customers who might start looking at replacing their existing – their packages with that. But we're some way off that, but that’s the ultimate goal, if we could get there.

James Armstrong – The Investment Analysts

So if it was eventually to reach the same scale of production as glass bottles do at the moment?

Graham Chipchase

Then I would be retiring.

James Armstrong – The Investment Analysts

Then presumably cost of bottle would be comparable? Would it be more…

Graham Chipchase

Well I suspect not because you have to look at the cost of aluminum. I mean aluminum is an expensive substrate compared to sand, but yes the idea is if it was getting into the tens of billions we should be able to produce it at a very competitive price. I mean that’s – that would be plan, but we have got to that first. If you know anyone, big customers, who want to put an order for a few billions to help us on the curve that would be most welcome.

James Armstrong – The Investment Analysts

I look at it and I see huge potential for it…

Graham Chipchase

Now, we absolutely agree, absolutely agree. Thank you. Okay, if there is nobody else, just say thank you very much, and we'll see you very soon. Thank you.

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