Final Results
Filtrona plc
01 March 2007
Filtrona plc
Preliminary results for the year ended 31 December 2006
Filtrona plc, the international, market leading, speciality plastic and fibre
products supplier, today announces annual results for the year ended 31 December
2006.
Financial Highlights
• Revenue up 5.9% to £544.2m (2005: £513.7m)
• Operating profit before intangible amortisation up 6.6% to £61.6m (2005:
£57.8m) with underlying operating profit growth up 9.0%#
• Profit before tax up 9.2% to £54.6m (2005: £50.0m)
• 81% increase in net cash inflow before financing activities to £28.6m
(2005: £15.8m)
• Diluted earnings per share up 8.3% to 15.6p
• Full year dividend of 6.9p per share providing an increase of 7.8%
compared with 6.4p for 2005
# after taking account of the impact of foreign currency translation and a full
year of central service cost.
Operational Highlights
• Strong growth of higher margin businesses in Plastic Technologies with
Protection and Finishing Products now the largest profit contributing line
of business
• Continued expansion of manufacturing and supply operations in lower cost
regions including the Ningbo factory in China
• Significant investment in geographic expansion, product innovation and
intellectual property development to drive organic growth
• Company remains active in the pursuit of value enhancing acquisitions in
selected niche markets
Commenting on today's announcement, Jeff Harris, Chairman of Filtrona, said:-
'These are a strong set of results for Filtrona's first full year as an
independent listed company. The achievement of above trend organic operating
profit growth reflects our continued investment to drive improved operational
efficiency, geographic expansion and product innovation. Filtrona's
international niche market positions and strong balance sheet give the Board
confidence in the Company's continued progress.'
Enquiries
Filtrona plc
Mark Harper, Chief Executive
Steve Dryden, Finance Director
Tel: 01908 359100
Finsbury
James Leviton
Gordon Simpson
Tel: 020 7251 3801
Note:
A webcast of today's analyst presentation will be available on www.filtrona.com
no later than 3.p.m. today.
Chairman's Statement
Results Summary
This is Filtrona's first full financial year as an independent listed company
following the separation from Bunzl plc in June 2005. Our management has shown
the benefits of that independence by delivering revenue growth of 5.9%, profit
before tax growth of 9.2%, and increasing diluted earnings per share by 8.3%.
Underlying operating profit grew by 9.0%, after taking account of foreign
currency translation and a full year of central service cost, which is well
ahead of our historical trend of organic growth.
The Company is established as an international group with strong market
positions and manufacturing facilities in most major markets in the world.
Both business segments made real progress in 2006, with Plastic Technologies
showing particularly strong profit and margin improvement. Fibre Technologies
recovered from the tough conditions in the first half of the year and delivered
both revenue and profit growth for the full financial year.
The Company achieved an 81% improvement in net cash inflow before financing
activities, increasing from £15.8m in 2005 to £28.6m. This was largely achieved
by operational management focusing on stronger working capital control. During
the year interest cover increased to 10.1 times (2005: 9.6 times) and, at the
year end, the ratio of net debt to earnings before interest, tax, depreciation
and amortisation had improved from 1.5 in 2005 to 1.2 in 2006.
Dividend
The Board is recommending a final dividend of 4.6p per share, which if approved
at the Annual General Meeting will make a total of 6.9p (2005: 6.4p) per share
for the full year. This represents a 7.8% increase on last year. The final
dividend will be paid on 4 May 2007 to shareholders on the register at 10 April
2007.
Employees
After the challenges presented by the demerger, Filtrona's employees renewed
their focus on generating sustained growth of revenue and profit throughout
2006. The performance of the Company demonstrates the commitment and skill of
Filtrona employees across the many regions in which the businesses operate. On
behalf of the Board and the shareholders, I would like to thank them all for
their continuing contribution to the strong development of Filtrona.
Outlook
Looking forward, Filtrona expects 2007 to be a year of further good underlying
progress, although the headline results will be affected by an anticipated £5m
restructuring charge. As previously announced, this charge relates to the
restructuring of Cigarette Filters' manufacturing facilities to match the
expected reduction in demand for conventional carbon dual filters.
In Plastic Technologies, the combination of strong market positions and the
expected favourable trading conditions give the Company confidence in continued
positive progress in 2007.
Within Fibre Technologies, further progress is expected in revenue and operating
profit from the Bonded Fibre Components business and the Company remains
confident in the future prospects for Cigarette Filters.
The Company will continue to invest in the organic growth of the business and it
is anticipated that capital spend in 2007 will again be ahead of depreciation.
Capital investments will reduce unit costs of production and improve both
quality and service performance. Revenue investments will drive geographic
expansion, product innovation and intellectual property development. In
addition, the Company remains active in the pursuit of value enhancing
acquisitions in selected niche markets.
With a clear strategy, a committed team and a strong balance sheet, the Board
remains confident the Company will continue to achieve good underlying growth
and deliver attractive returns.
Jeff Harris
Chairman
1 March 2007
Chief Executive's Review
Overview
Filtrona is an international, market leading, speciality plastic and fibre
products supplier with activities segmented into Plastic Technologies and Fibre
Technologies.
Plastic Technologies produces, sources and distributes protection and finishing
products, self-adhesive tear tape and security products as well as proprietary
and customised plastic extrusions and packaging items for consumer products.
Fibre Technologies focuses on the production and supply of special filters for
cigarettes and bonded fibre products such as reservoirs and wicks for writing
instruments and printers, household products and medical devices.
Filtrona derives strength from serving a diverse group of customers across a
selected range of niche markets. Filtrona is a supplier throughout the world to
many international, blue chip, market leading customers.
In 2006, the geographic destination of the Company's revenue was:
£m % of total
-- ----------
Europe 191.7 35.2
North America 219.6 40.4
Rest of World 132.9 24.4
----- -----
544.2 100.0
----- -----
The Rest of World segment includes many of the lower cost manufacturing regions
and has grown from 22.5% of revenue in 2004 to 24.4% in 2006. As the Company
moves into new regions for manufacture and supply it seeks to maximise the
opportunities across all of its lines of business. It is expected that the
expansion of the Ningbo, China factory, which was opened in 2004 by the Bonded
Fibre Components business, will facilitate the introduction of both Protection
and Finishing Products and Plastic Profile and Sheet activities into the Chinese
market during 2007.
Performance
Last year Filtrona reported that it had made a promising start as an independent
listed company. In its first full financial year since the June 2005 demerger,
the Company continued to perform well with revenue up 5.9% to £544.2m (2005:
£513.7m) and operating profit before intangible amortisation and demerger
expense up 6.6% to £61.6m (2005: £57.8m). Underlying operating profit growth was
9.0% after taking account of the impact of foreign currency translation and a
full year of central service cost. The net cash inflow from operating activities
was strong at £61.1m (2005: £56.9m) up 7.4%. The return on average operating
capital excluding intangibles improved from 23.7% to 23.8% in 2006 and adjusted
earnings per share grew by 6.7% from 15.0p to 16.0p.
Strategy
Filtrona's strategy is to continue to grow profitably through investing
organically and by acquisition in selected niche international markets within
Plastic Technologies and Fibre Technologies. The Company endeavours to
strengthen its competitive position through product innovation, sourcing and
distribution expansion, supply chain improvement and cost reduction. In
addition, investments in people, systems and infrastructure, combined with the
acquisition of selected value enhancing businesses, will also drive the future
performance of Filtrona.
Plastic Technologies
Plastic Technologies had another very successful year with revenue up 5.9% to
£289.5m (2005: £273.3m) and operating profit before intangible amortisation up
10.1% to £41.4m (2005: £37.6m). The operating margin improved again to 14.3%
(2005: 13.8%) reflecting the stronger performance of the higher margin
businesses. During 2006, polymer input costs rose progressively throughout the
year in Europe but showed some easing during the final quarter in the Americas
after three consecutive quarters of increases. These increases were fully
recovered, through selective pricing action, thereby underlining the strength of
Filtrona's niche market positions. Revenue per employee increased by 2.4% to
£94,763 (2005: £92,550) and operating profit before intangible amortisation per
employee increased by 6.4% to £13,552 (2005: £12,733).
Protection and Finishing Products again performed particularly well. It has now
grown to become Filtrona's largest profit contributing line of business and is
expected to continue in this position. The key strategic drivers behind its
progress remain geographic development, product range expansion and investment
in marketing programmes.
Moss, the pan-European plastic parts supplier, continued to gain market share in
Continental Europe and maintained its market leading position in the UK where
the ongoing decline of manufacturing industry is generating tough trading
conditions. The mix of proprietary and custom lines strengthened further in
favour of proprietary products. The expansion of the Moss North European
distribution hub in Germany was completed in April 2006 and this will yield
important service benefits to the Continental European operations. The Company
intends to continue the development of the distribution network and the opening
of the next unit in Hungary is planned for the first half of 2007. In China, the
headcount within the sourcing organisation in Ningbo was further increased and
reliable, high quality sources for both finished products and tooling have now
been established. Production output improved as a result of investment in larger
machines and tooling, and a new tool handling and storage system was completed
in the second half of the year at the Oxfordshire facility. The disposal of a
small non-core plastic promotional products business was completed in March
2006.
Skiffy, the European specialist small nylon parts producer, achieved strong
sales growth and continued to perform well ahead of the forecasts set at the
time of its acquisition in 2004. All locations benefited from further investment
in marketing programmes which, combined with improved productivity, increased
margins. Internet ordering via the website, www.skiffy.com, is an important
component of the business model and usage again increased to account for 22.0%
of Skiffy's 2006 revenues. The new Skiffy distribution facility in Poland is now
fully operational.
In the Americas, Alliance, the US-based plastic parts supplier, continued to
progress as planned with good growth despite the weakness in the automotive
sector. During 2006 substantial internal resources were dedicated to the
implementation programme for a new computer system which will streamline
operations and improve customer service. The new system went live successfully
over the year end period without business disruption and benefits from the
improvements to overall efficiency are already being seen. The new manufacturing
operation in Sao Paulo started up on schedule and the improved competitiveness
from manufacturing locally is already having a positive impact on revenue growth
rates in Brazil. The configuration of the Erie, Pennsylvania central warehouse
was modified to improve stocking density by 35%. Unit production costs continued
to fall at the Erie facility as a result of further investment in new machinery
and high cavitation tooling. Preparations were made for a new Alliance Express
location in Chicago, US which is now open.
Performance at MSI, the oil country tubular goods thread protector business, was
again strong resulting from favourable trading conditions, market share gains
and investment-driven productivity improvements. At the end of the year, trial
orders were placed by an important new international customer and the benefit
from this new account should feed through in 2007. Additional investments in new
production machinery and tooling were made at Houston, Texas and Vera Cruz,
Mexico and the purchase of land adjacent to the Houston facility was completed
to secure space for the future growth of that operation.
Protection and Finishing Products has a clear strategy and good momentum behind
it. Looking ahead to 2007, it is expected to again perform well.
Coated and Security Products continued to pursue its strategy of developing new
security technologies and applications, whilst sustaining its world leadership
position in the self-adhesive tear tape market. A modest revenue increase was
achieved, with the good growth in security products and FractureCode partly
offset by reductions in tear tape.
The tear tape business suffered from continued weakness in demand for
promotional tapes as some important customers in the tobacco sector reduced
promotional activity. Sales into other fast-moving consumer goods ('FMCG')
sectors were strong. The facility in Richmond, US was upgraded to enable the
printing of security products and, during the second half of the year, new
slitting lines were installed in the UK and US to enhance both productivity and
quality. In January 2007, a labour cost reduction programme was announced within
the tear tape business.
Supplies of the laminate for the new generation UK passport were strong
throughout 2006 and a new label placing line for this project was commissioned
in the first half of the year. In May, the acquisition of the CORGI identity
card printing operation was announced and production was successfully relocated
to the Payne facility in North Wales where a major upgrade programme was
completed. Machinery for the production of security labels was ordered and this,
combined with the development of proprietary security technologies for use
across the business, is anticipated to stimulate sales within Payne during 2007.
In August 2006, the first FractureCode licence for its patented track and trace
technology was agreed with a major FMCG company and the roll out is progressing
well. The losses incurred in the first half of the year were substantially
reversed in the second half and the business incurred a small deficit for the
year. Since the launch in May at the Intergraf Symposium, a major international
industry event, the FractureCode organisation has been strengthened
progressively to facilitate growth as new prospects are developed. A new
Managing Director has been recruited with relevant experience in the IT
industry.
The increasing investment in the development of new security technologies and
the focus on reducing cost are anticipated to result in a satisfactory
performance for the Coated and Security Products business in 2007 despite the
ongoing weak demand for promotional tapes.
Plastic Profile and Sheet achieved strong growth in the year resulting from the
combination of good market demand and significant restructuring to reduce cost
and enhance organisational effectiveness. Sales in the North American facilities
were particularly encouraging and performance was assisted by the closure of the
small Phoenix, Arizona facility at the start of 2006 and the transfer of
production to the facilities at Chicago and Tacoma in the US and Monterrey in
Mexico. Further factory rationalisation has been announced involving the
consolidation in the US of the two Massachusetts facilities into one at Athol,
where a significant redevelopment is being undertaken, including the
construction of a new clean room for medical products. The Monterrey facility
has been expanded to support business growth and the addition of a new clean
room for medical products is planned for 2007.
During 2006 the North American organisation has been restructured with a
reduction from three to two operating regions and the establishment of a central
marketing and sales function for the key product groups. Sector specialist sales
groups have been formed to sharpen focus and to facilitate improved market
penetration. Sales into the key aerospace and point of purchase markets in North
America have been very strong with point of purchase revenue in 2006 being more
than double the level of circa US $12m achieved in 2004. Further investment in
machinery took place across the network of facilities which, in conjunction with
continuous improvement activities, assisted in reducing conversion costs. Good
revenue growth continued at the Enitor business in the Netherlands and a major
factory expansion was completed in the summer.
With the benefits accruing from the strengthened management team, the new
structure and the streamlined plant configuration, it is anticipated that the US
Plastic Profile and Sheet business will have another good year in 2007, subject
to underlying activity in the US economy remaining healthy. The European Plastic
Profile and Sheet business should continue to experience good growth.
The Globalpack Consumer Packaging business in Brazil experienced very tough
trading conditions in the first half as performance was held back by market
overcapacity, particularly in tubes, and rising raw material prices. The
improved performance in the second half, which was consistently ahead of the
comparable period in 2005, was driven by the combination of greater demand,
recovery of rising raw material costs through pricing and improvements in
manufacturing efficiencies.
The third deodorant roll-on ball line came on stream successfully at the end of
the first quarter of 2006 and ball volumes continue to grow satisfactorily. The
investment programme continued throughout the year and important new machinery
for tube production and decoration has been ordered for delivery in the first
half of 2007. A minor expansion at one of the two Globalpack locations will
facilitate a partial plant re-layout and an increase in warehouse space to drive
the programme of productivity and service improvement.
Globalpack's recovery is expected to continue into 2007.
Fibre Technologies
Fibre Technologies achieved good revenue growth in the year of 5.9% to £254.7m
(2005: £240.4m). Operating profit, before intangible amortisation, which was
flat at the half year, improved in the second half to deliver a full year
increase of 4.5% to £28.1m (2005: £26.9m). The operating margin reduced to 11.0%
(2005: 11.2%). Revenue per employee increased by 0.8% to £106,792 (2005:
£105,903) whilst operating profit, before intangible amortisation, per employee
decreased by 0.6% to £11,782 (2005: £11,850).
In Cigarette Filters, total volumes reduced by 1.6% or 1.1 billion filter rods
with the increase of 14.1% in special filters volumes offset by a reduction of
19.0% in monoacetate filters. In response to changing customer demands, the
strategy for the business has evolved with an increased focus on the research
and development of innovative and more complex filter solutions to complement
the core manufacturing capability. Much progress was made during 2006 in
strengthening the management team, including the recruitment of two senior level
operations specialists to drive improvement in factory performance.
In the Americas, overall revenue was flat as growth in North America was offset
by a decline in South America. The losses incurred by the Monterrey facility in
the first half of the year were substantially reversed in the second half due to
productivity gains. Although the full year position remained loss making, the
operation moved into profit in the fourth quarter. Revenue and operating profit
grew in Europe as performance at the UK facility improved with productivity
gains derived from the development of manufacturing expertise in the products
formerly manufactured in Switzerland. An important European customer launched a
new brand into the Polish market featuring Filtrona's proprietary Active PatchTM
technology as the product differentiator. In Asia, strong revenue and profit
growth was achieved. The transfer of the Indonesian business to a new and larger
facility was successfully completed in the early part of the year and volumes
produced in Indonesia were up 94.2% from 2005.
The market conditions for the Cigarette Filters business in 2007 will remain
challenging as customers respond to mature and declining Western markets with
significant capacity reconfiguration. Customer discussions have confirmed that
Filtrona will experience a reduction in volumes of conventional carbon dual
filters during 2007 which will impact the Company's facilities in both North
America and Europe. Significant plant restructuring is underway to reduce costs
and improve productivity. These actions, together with increased volumes in
Asia, will mitigate the impact from the reduction in activity. The plant
restructuring will result in an anticipated charge of £5m in 2007. Filtrona
remains confident in the future prospects for the Cigarette Filters business due
to the growing demand for innovative filters for PREPs (potentially reduced
exposure products) and other differentiated tobacco smoking products and for
research and development services. To this end, increased investment is planned
in 2007 to strengthen the research and development capability and to continue
the progressive movement of production to lower cost regions.
Bonded Fibre Components continued to make important progress. Fibertec
strengthened its position in its core markets through the development of new
products and technologies and also experienced good growth in Asia. The Ningbo
facility moved into profit as productivity and quality improved and ISO9000:2000
accreditation was achieved during the year. Volumes in China continued to grow
following production transfers and the development of new business won in the
region. The pace of progress at Ningbo has generated the need for a plant
expansion and construction of a factory extension began late in the year for
completion in the third quarter of 2007.
The recovery of volumes in household products continued throughout the year and
was assisted by customer requirements for multiple wicking devices in air
fresheners which provide a selection of fragrances in one unit. The writing
instrument product segment progressed well and important business was won in
Europe and Asia from a principal competitor. The Reinbek, Germany facility
performed strongly due to improved activity levels and the impact of the cost
reduction programme which commenced in 2005. A plant upgrade programme at
Reinbek has now begun.
The research and development centre in Richmond continued to develop potentially
valuable technologies for the medical device market and 11 patents were filed
during the year. A key customer in the pregnancy test kit market signed a long
term contract with Fibertec for the supply of wicks. During 2007 it is expected
that the business will benefit from important new product introductions both in
the medical and inkjet printer reservoir product sectors. Filtrona has been
selected as the exclusive supplier of reservoirs by a major US corporation for
its entry into the inkjet printer market.
Mark Harper
Chief Executive
1 March 2007
Consolidated income statement
for the year ended 31 December 2006
Note 2006 2005
£m £m
--------------------------------------------------------------------------------
Revenue 1 544.2 513.7
--------------------------------------------------------------------------------
Operating profit before intangible amortisation and
demerger expense 61.6 57.8
Intangible amortisation (0.9) (0.8)
Demerger expense - (1.0)
--------------------------------------------------------------------------------
Operating profit 1,2 60.7 56.0
Finance income 3 8.8 5.6
Finance expense 3 (14.9) (11.6)
--------------------------------------------------------------------------------
Profit before tax 54.6 50.0
Income tax expense 4 (18.6) (17.0)
--------------------------------------------------------------------------------
Profit for the year 36.0 33.0
================================================================================
Attributable to:
Equity holders of Filtrona plc 34.5 31.6
Minority interests 1.5 1.4
--------------------------------------------------------------------------------
Profit for the year 36.0 33.0
================================================================================
Earnings per share attributable to equity holders of
Filtrona plc:
Basic 6 15.8p 14.4p
================================================================================
Diluted 6 15.6p 14.4p
================================================================================
Consolidated balance sheet
at 31 December 2006
Note 2006 2005
£m £m
--------------------------------------------------------------------------------
Assets
Property, plant and equipment 7 178.4 180.5
Intangible assets 8 59.5 63.0
Deferred tax assets 15 0.3 1.6
--------------------------------------------------------------------------------
Total non-current assets 238.2 245.1
Inventories 9 55.7 59.8
Income tax receivable 1.8 1.6
Trade and other receivables 10 81.1 85.6
Derivative assets 14 0.2 0.1
Cash and cash equivalents 11 20.7 30.7
--------------------------------------------------------------------------------
Total current assets 159.5 177.8
--------------------------------------------------------------------------------
Total assets 397.7 422.9
================================================================================
Equity
Issued capital 18 54.8 54.8
Capital redemption reserve 19 0.1 0.1
Other reserve 19 (132.8) (132.8)
Translation reserve 19 1.6 5.3
Retained earnings 19 219.0 197.3
--------------------------------------------------------------------------------
Attributable to equity holders of Filtrona plc 142.7 124.7
Minority interests 19 6.0 5.6
--------------------------------------------------------------------------------
Total equity 148.7 130.3
================================================================================
Liabilities
Interest bearing loans and borrowings 13 117.9 145.2
Retirement benefit obligations 17 30.9 35.8
Other payables 13 - 2.1
Provisions 16 2.7 2.5
Deferred tax liabilities 15 11.6 11.4
--------------------------------------------------------------------------------
Total non-current liabilities 163.1 197.0
Bank overdrafts 11 1.0 5.0
Interest bearing loans and borrowings 13 0.6 0.7
Derivative liabilities 14 0.3 0.8
Income tax payable 16.0 15.2
Trade and other payables 12 65.0 68.9
Provisions 16 3.0 5.0
--------------------------------------------------------------------------------
Total current liabilities 85.9 95.6
--------------------------------------------------------------------------------
Total liabilities 249.0 292.6
--------------------------------------------------------------------------------
Total equity and liabilities 397.7 422.9
================================================================================
Consolidated statement of cash flows
for the year ended 31 December 2006
Note 2006 2005
£m £m
--------------------------------------------------------------------------------
Operating activities
Profit before tax 54.6 50.0
Adjustments for:
Net finance expense 6.1 6.0
Intangible amortisation 0.9 0.8
Depreciation 22.9 22.1
Share option expense 1.2 1.1
Other items (0.3) 1.1
Increase in inventories (0.3) (2.2)
Increase in trade and other receivables (0.7) (4.7)
Increase in trade and other payables 0.1 2.1
Acquisition of employee trust shares (1.2) (1.0)
Additional pension contribution (1.5) (0.7)
Other cash movements (1.9) (3.9)
--------------------------------------------------------------------------------
Cash inflow from operating activities 79.9 70.7
--------------------------------------------------------------------------------
Income tax paid (18.8) (13.8)
--------------------------------------------------------------------------------
Net cash inflow from operating activities 61.1 56.9
================================================================================
Investing activities
Interest received 1.0 1.2
Acquisition of property, plant and equipment (34.3) (38.2)
Proceeds from sale of property, plant and equipment 1.8 0.9
Acquisition of businesses net of cash acquired 22 (0.5) (4.6)
Proceeds from sale of business 23 0.3 -
Other investing cash flows (0.8) (0.4)
--------------------------------------------------------------------------------
Net cash outflow from investing activities (32.5) (41.1)
================================================================================
Financing activities
Interest paid (7.2) (6.7)
Dividends paid to equity holders (14.3) (4.7)
Repayments of short-term loans (0.1) (0.6)
(Repayments of)/proceeds from long-term loans (11.8) 133.7
Capital contributions from former parent company - 4.2
Repayments to former parent company - (147.0)
--------------------------------------------------------------------------------
Net cash outflow from financing activities (33.4) (21.1)
================================================================================
Net decrease in cash and cash equivalents (4.8) (5.3)
================================================================================
Net cash and cash equivalents at the beginning of the year 25.7 29.7
Net decrease in cash and cash equivalents (4.8) (5.3)
Net effect of currency translation on cash and cash
equivalents (1.2) 1.3
--------------------------------------------------------------------------------
Net cash and cash equivalents at the end of the year 11 19.7 25.7
================================================================================
Consolidated statement of recognised income and expense
for the year ended 31 December 2006
2006 2005
£m £m
--------------------------------------------------------------------------------
Recognition of defined benefit pension schemes on demerger:
Actuarial loss - (34.7)
Deferred tax credit on actuarial loss - 10.5
Other actuarial gains/(losses) on defined benefit pension
schemes 2.2 (2.0)
Deferred tax (expense)/credit on other actuarial
gains/(losses) on defined benefit pension schemes (0.7) 0.7
Movement on cash flow hedge - (0.1)
Foreign exchange translation differences:
Attributable to equity holders of Filtrona plc (3.7) 6.9
Attributable to minority interests (0.3) 0.5
--------------------------------------------------------------------------------
Income and expense recognised directly in equity (2.5) (18.2)
Profit for the year 36.0 33.0
--------------------------------------------------------------------------------
Total recognised income and expense 33.5 14.8
================================================================================
Attributable to:
Equity holders of Filtrona plc 32.3 12.9
Minority interests 1.2 1.9
--------------------------------------------------------------------------------
Total recognised income and expense 33.5 14.8
================================================================================
Accounting policies
a Basis of preparation
The consolidated financial information has been prepared and approved by the
Directors in accordance with International Financial Reporting Standards as
adopted by the EU in accordance with EU law (IAS Regulation EC 1606/2002)
('adopted IFRS').
Filtrona plc's 2006 Annual Report will be despatched to shareholders at the end
of March 2007. The financial information set out does not constitute the
Company's statutory accounts for the year ended 31 December 2006 but is derived
from those accounts. Statutory accounts for 2006 will be delivered to the
Registrar of Companies following the Company's Annual General Meeting which will
be held on 30 April 2007. The auditor has reported on those accounts; their
reports were unqualified and did not contain statements under Section 237 (2) or
(3) of the Companies Act 1985.
The financial information is prepared on a historical cost basis except for
derivative financial instruments which are stated at fair value.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and future periods if relevant.
The preparation of financial information that conforms with adopted IFRS
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial information and the
reported amounts of income and expense during the reporting period. Although
these estimates are based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those estimates.
The accounting policies used in the preparation of this financial information
are detailed below. These policies have been consistently applied to all periods
presented.
On 6 June 2005 the Filtrona business was demerged from Bunzl plc ('Bunzl' or
'former parent company') and the ordinary shares of Filtrona plc ('the Company')
were listed on the London Stock Exchange. The demerger was effected by the
payment of a dividend in specie by Bunzl and has been accounted for as if it
were a reverse acquisition.
For the purposes of this financial information 'Filtrona' or 'the Group' means
Filtrona plc, its subsidiaries and joint ventures.
b Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by Filtrona. Control exists when Filtrona
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain economic benefit from its activities. The
financial statements of subsidiaries are included in the financial information
from the date that control commences until the date that control ceases.
(ii) Joint ventures
Joint ventures are accounted for using the equity method of accounting. A joint
venture is an entity in which Filtrona has a long-term interest and exercises
joint control. Under the equity method, Filtrona's share of the aggregate assets
and liabilities is included in the balance sheet and Filtrona's share of
operating profit, finance and income tax expense of the joint venture is
included in the income statement.
(iii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expense
arising from intragroup transactions are eliminated in preparing the financial
information.
c Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into sterling at the
exchange rate ruling at that date and recognised in the income statement unless
hedging criteria apply (see policy for derivative instruments).
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated at the exchange rate
ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated at average exchange rates.
(iii) Net investment in foreign operations
Exchange differences since 1 January 2004, the date of transition to adopted
IFRS, arising from the translation of the net investment in foreign operations,
and related hedges are taken to the translation reserve and released to the
income statement upon disposal. Differences arising prior to 1 January 2004 are
included in retained earnings.
d Financial instruments
Under IAS 39, financial instruments are measured initially at fair value. The
subsequent measurement depends on the classification of the financial
instrument. Interest bearing loans and borrowings and other financial
liabilities (excluding derivatives) are held at amortised cost, unless they are
included in a hedge accounting relationship.
(i) Cash flow hedges
Where a derivative is designated as a cash flow hedge the change in fair value
is recognised in equity to the extent that it is effective and any ineffective
portion is recognised in the income statement. Where the underlying transaction
results in a financial asset, accumulated gains and losses are recognised in the
income statement in the same period as the hedged item. Where the hedged item
results in a non-financial asset the accumulated gains and losses previously
recognised in equity are included in the initial carrying value of the asset.
(ii) Fair value hedges
Where a derivative financial instrument is used to hedge the foreign exchange
exposure of a monetary asset or liability, any gain or loss on the hedging
instrument is recognised in the income statement.
(iii) Hedges of net investment in foreign operations
The gain or loss on an instrument used to hedge a net investment in a foreign
operation that is deemed effective is recognised in equity. Any ineffective
portion is recognised in the income statement.
e Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Previously revalued properties were treated as being held
at deemed cost upon transition to adopted IFRS.
Where parts of an item of property, plant and equipment or other assets have
different useful lives, they are accounted for as separate items. The carrying
values of property, plant and equipment and other assets are periodically
reviewed for impairment when events or changes in circumstances indicate that
the carrying values may not be recoverable.
f Depreciation
Property, plant and equipment are depreciated over their estimated remaining
useful lives on a straight line basis at the following annual rates:
Freehold land Not depreciated
Buildings 2% or life of lease if shorter
Plant and machinery 7 - 20%
Fixtures, fittings and equipment 10 - 33%
The assets' useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date.
g Leases
Where Filtrona has substantially all the risks and rewards of ownership of an
asset subject to a lease, the lease is treated as a finance lease. All other
leases are treated as operating leases and the rentals expensed to the income
statement on a straight line basis. Lease incentives are amortised in the income
statement over the life of the lease.
h Intangible assets
(i) Goodwill
Goodwill is stated at cost less any impairment losses.
Acquisitions are accounted for using the purchase method. For acquisitions that
have occurred since 1 January 2004 goodwill represents the difference between
the cost and fair value of identifiable assets acquired. For acquisitions made
before 1 January 2004, goodwill is included on the basis of its deemed cost,
which represents the amount previously recorded under UK GAAP.
(ii) Research and development
Research costs are expensed to the income statement in the year in which they
are incurred.
Development costs relating to new products are capitalised if the new product is
technically and commercially feasible. Other development costs are recognised in
the income statement and expensed as incurred.
(iii) Customer relationships
Customer relationships are identified on acquisition of businesses and valued
using discounted cash flows based on historical customer attrition rates.
Amortisation is expensed in the income statement on a straight line basis over
the estimated useful economic life, being a period of up to 25 years.
i Impairment
All assets, except intangible assets, deferred tax assets and inventories, are
reviewed annually to determine whether there is any indication of impairment.
Intangible assets are tested annually. If an indication of impairment exists the
asset's recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its
cash generating unit exceeds its recoverable amount, being the greater of value
in use and net selling price, and is recognised in the income statement. Value
in use is estimated based on future cash flows discounted using a pre-tax
discount rate.
j Inventories
Inventories are valued at the lower of cost (on a first in, first out basis) and
net realisable value. For work-in-progress and finished goods, cost includes an
appropriate proportion of labour cost and overheads.
k Cash and cash equivalents
Cash and cash equivalents comprise cash balances and fixed term investments
whose maturities are three months or less from the date of acquisition. Bank
overdrafts repayable on demand which form an integral part of Filtrona's cash
management are included as part of cash and cash equivalents in the statement of
cash flows.
l Trade and other receivables
Trade and other receivables are stated at cost less impairment losses.
m Income tax
Income tax in the income statement comprises current and deferred tax. Income
tax is recognised in the income statement except to the extent that it relates
to items recognised in equity.
Current tax is the expected tax payable on the taxable income for the year using
tax rates enacted or substantively enacted at the balance sheet date and any
adjustment to tax payable in prior years.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences arising between the tax bases and the carrying amounts of
assets and liabilities in the financial information. The following temporary
differences are not provided for: goodwill not deductible for tax purposes, the
initial recognition of assets or liabilities that affect neither accounting nor
taxable profit, and differences relating to investments in subsidiaries to the
extent that they will not reverse in the foreseeable future. Deferred tax is
determined using tax rates that are expected to apply when the related deferred
tax asset/liability is settled.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profit will be available against which the asset can be utilised.
Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.
n Revenue
Revenue from the sale of goods is recognised in the income statement when the
significant risks and rewards of ownership have been transferred to the buyer.
No revenue is recognised if there are significant uncertainties regarding
recovery of the consideration due, associated expenses or the possible return of
goods.
o Finance income and expense
Finance income and expense is recognised in the income statement as it accrues.
The finance expense prior to demerger includes interest payable to Bunzl.
Following demerger the net reported finance expense only reflects the cost of
external borrowing.
p Segment reporting
A segment is a distinguishable component of Filtrona that is engaged in
providing products (business segment), or in providing products within a
particular economic environment (geographic segment), which is subject to risks
and rewards that are different from those of other segments.
For operational and financial reporting purposes, Filtrona identifies two
business segments which are characterised by shared technology and raw material
inputs.
q Pensions
(i) Defined contribution schemes
Obligations for contributions to defined contribution pension schemes are
expensed to the income statement as incurred.
(ii) Defined benefit schemes
The significant pension schemes in Europe and the US have been accounted for on
a defined benefit basis under IAS 19 (revised): Employee benefits ('IAS 19
(revised)'). Under IAS 19 (revised) Filtrona had to account for defined benefit
pension charges up to the period of demerger on a defined contribution basis and
on a defined benefit basis thereafter. Accordingly Filtrona recognised the
retirement benefit obligation of £34.7m at demerger in the consolidated
statement of recognised income and expense.
Actuarial gains and losses that have arisen subsequently are recognised in full
in the statement of recognised income and expense.
The net obligations in respect of defined benefit pension schemes are calculated
separately for each scheme by estimating the amount of future benefit that
employees have earned in return for their service in the current and prior
periods; that benefit is discounted to determine its present value, and the fair
value of any scheme assets is deducted. The discount rate is the yield at the
balance sheet date on AA credit-rated bonds that have maturity dates
approximating to the terms of Filtrona's obligations. The calculation is
performed by a qualified independent actuary using the projected unit credit
method.
The amounts charged to operating profit are the current service cost, past
service cost and gains and losses on settlement and curtailments. The expected
increase in the present value of scheme liabilities is included within finance
expense and the expected return on scheme assets is included within finance
income.
r Share-based payments
Filtrona operates equity-settled, share-based incentive plans. A charge is made
in the income statement based on the fair value of options using the
Black-Scholes model with a corresponding increase in equity. The fair value is
measured at grant date and spread over the period between grant and vesting date
of the options. The amount recognised as an expense will be adjusted to reflect
the actual number of share options that vest.
The expense for share-based payments prior to demerger was the charge allocated
by Filtrona's former parent company based on the participation of Filtrona
employees in schemes that it operated.
The shares held indirectly in the Filtrona Employee Benefit Trust for the
purpose of fulfilling obligations in respect of share option plans are treated
as belonging to the Company and are deducted from its retained earnings.
s Provisions
A provision is recognised when there is a probable legal or constructive
obligation as a result of a past event and a reliable estimate can be made of
the outflow of economic resources that will be required to settle the
obligation.
t Net debt
Net debt is defined as cash and cash equivalents, net of interest bearing loans
and borrowings.
u Dividends
Dividends are recognised as a liability in the period in which they are
declared.
Notes
1. Segment analysis
Filtrona comprises the following business segments:
Plastic Technologies produces, sources and distributes protection and finishing
products, self-adhesive tear tape and certain security products as well as
proprietary and customised plastic extrusions and packaging items for consumer
products.
Fibre Technologies focuses on the production and supply of special filters for
cigarettes and bonded fibre products such as reservoirs and wicks for writing
instruments and printers, household products and medical devices.
Business segments
2006
--------------------------------------------------------------------------------------------
Plastic Fibre Central Filtrona
Technologies Technologies Services+
£m £m £m £m
--------------------------------------------------------------------------------------------
Revenue 289.5 254.7 - 544.2
--------------------------------------------------------------------------------------------
Operating
profit/(loss) before
intangible
amortisation 41.4 28.1 (7.9) 61.6
Intangible
amortisation (0.8) (0.1) - (0.9)
--------------------------------------------------------------------------------------------
Operating
profit/(loss) 40.6 28.0 (7.9) 60.7
============================================================================================
Segment assets 175.0 139.1 1.2 315.3
Intangible assets 56.3 3.2 - 59.5
Unallocated items 22.9 22.9
--------------------------------------------------------------------------------------------
Total assets 231.3 142.3 24.1 397.7
============================================================================================
Segment liabilities 35.7 29.1 6.7 71.5
Unallocated items 177.5 177.5
--------------------------------------------------------------------------------------------
Total liabilities 35.7 29.1 184.2 249.0
============================================================================================
Other segment items
Capital expenditure 21.2 12.9 0.2 34.3
Depreciation 13.6 9.0 0.3 22.9
Closing number of employees 3,159 2,413 33 5,605
Average number of employees 3,055 2,385 33 5,473
2005
--------------------------------------------------------------------------------------------
£m £m £m £m
--------------------------------------------------------------------------------------------
Revenue 273.3 240.4 - 513.7
--------------------------------------------------------------------------------------------
Operating profit/(loss)
before intangible amortisation
and demerger expense 37.6 26.9 (6.7) 57.8
Intangible amortisation (0.7) (0.1) - (0.8)
Demerger expense - - (1.0) (1.0)
--------------------------------------------------------------------------------------------
Operating profit/(loss) 36.9 26.8 (7.7) 56.0
============================================================================================
Segment assets 180.1 143.1 4.5 327.7
Intangible assets 59.7 3.3 - 63.0
Unallocated items 32.2 32.2
--------------------------------------------------------------------------------------------
Total assets 239.8 146.4 36.7 422.9
============================================================================================
Segment liabilities 35.4 32.7 9.1 77.2
Unallocated items 215.4 215.4
--------------------------------------------------------------------------------------------
Total liabilities 35.4 32.7 224.5 292.6
============================================================================================
Other segment items
Capital expenditure 21.6 16.4 0.2 38.2
Depreciation 13.3 8.5 0.3 22.1
Closing number of employees 2,873 2,340 33 5,246
Average number of employees 2,953 2,270 30 5,253
+ Central Services includes group accounts, tax, treasury, legal, internal
audit, corporate development, human resources, information technology and other
services provided centrally to support the business segments
Inter-segment sales are not significant in either year. Net finance expense of
£6.1m (2005: £6.0m) and income tax expense of £18.6m (2005: £17.0m) cannot be
meaningfully allocated by segment. The majority of unallocated assets relate to
cash and cash equivalents and the majority of unallocated liabilities relate to
interest bearing loans and borrowings, retirement benefit obligations, deferred
tax liabilities, bank overdrafts and income tax payable.
Geographic segments
2006
-------------------------------------------------------------------------------------------
Revenue by Segment assets Intangible Capital
destination assets expenditure
£m £m £m £m
-------------------------------------------------------------------------------------------
Europe 191.7 128.3 40.0 14.7
North America 219.6 115.6 19.2 11.6
Rest of World 132.9 71.4 0.3 8.0
-------------------------------------------------------------------------------------------
544.2 315.3 59.5 34.3
Unallocated items - 22.9 - -
-------------------------------------------------------------------------------------------
544.2 338.2 59.5 34.3
===========================================================================================
2005
£m £m £m £m
-------------------------------------------------------------------------------------------
Europe 183.7 124.5 40.7 16.7
North America 215.5 133.1 21.9 14.2
Rest of World 114.5 70.1 0.4 7.3
-------------------------------------------------------------------------------------------
513.7 327.7 63.0 38.2
Unallocated items - 32.2 - -
-------------------------------------------------------------------------------------------
513.7 359.9 63.0 38.2
===========================================================================================
All segments are continuing operations.
2. Net operating expense
2006 2005
£m £m
-------------------------------------------------------------------------------------------
Changes in inventories of finished goods and work-in-progress 0.2 (0.1)
Raw materials and consumables 250.0 232.0
Personnel expenses (note 5) 129.9 124.8
Depreciation and other amounts written off property, plant and
equipment 22.9 22.1
Amortisation and other amounts written off intangible assets 0.9 0.8
Demerger expense - 1.0
Hire of plant and machinery - rentals payable under
operating leases 0.6 0.5
Other operating expenses 79.0 76.6
-------------------------------------------------------------------------------------------
Net operating expense 483.5 457.7
===========================================================================================
Auditor's remuneration
Note 2006 2005
£m £m
-------------------------------------------------------------------------------------------
Audit of this financial information i 0.2 0.2
Audit of financial statements of subsidiaries pursuant
to legislation 0.6 0.6
-------------------------------------------------------------------------------------------
Total audit fees 0.8 0.8
Other services pursuant to such legislation ii 0.1 0.1
Other services relating to tax iii 0.1 0.2
Services relating to corporate finance transactions
entered into or proposed to be entered into by or on
behalf of the Company or the Group iv 0.3 -
-------------------------------------------------------------------------------------------
Total non-audit fees 0.5 0.3
-------------------------------------------------------------------------------------------
Total fees 1.3 1.1
===========================================================================================
Notes
i Includes remuneration and expenses for the audit of the Company for the year
of £4,115 (2005: £4,000)
ii Fees for other services pursuant to such legislation related principally to
the review of the interim financial statements
iii Other services relating to tax are fees paid for tax compliance services and
tax advice
iv The Company believes that, given their detailed knowledge of Filtrona's
operations, its structure and accounting policies and the importance of carrying
out detailed due diligence as part of the acquisition process, it is appropriate
for certain audit-related work to be carried out by the Company's auditor rather
than another firm of accountants. The Audit Committee, which consists of
independent Non-executive Directors, reviews and approves the level and nature
of non-audit work which the auditor performs, including the fees paid for such
work, thus ensuring that their objectivity and independence is not compromised.
£0.4m (2005: £0.3m) of the total fees for non-audit services were charged in the UK
v Fees of £23,000 (2005: £22,000) were paid in relation to the audit of the
Filtrona pension schemes
3. Net finance expense
2006 2005
£m £m
--------------------------------------------------------------------------------
Finance income
Bank deposits 1.0 1.1
Other finance income 0.1 0.1
Expected return on pension scheme assets 7.7 4.4
--------------------------------------------------------------------------------
8.8 5.6
--------------------------------------------------------------------------------
Finance expense
Loans and overdrafts (7.4) (5.4)
Former parent company financing - (1.7)
Other finance expense - (0.1)
Interest on pension scheme liabilities (7.5) (4.4)
--------------------------------------------------------------------------------
(14.9) (11.6)
--------------------------------------------------------------------------------
Net finance expense (6.1) (6.0)
================================================================================
4. Income tax expense
2006 2005
£m £m
--------------------------------------------------------------------------------
Components of tax expense:
Current tax 22.0 17.3
Prior years' tax (1.7) (1.2)
Double tax relief (2.4) (0.2)
Deferred tax (note 15) 0.7 1.1
--------------------------------------------------------------------------------
Income tax expense 18.6 17.0
================================================================================
Income tax expense in the UK is £2.4m (2005: £1.1m).
Factors affecting income tax expense for the year
Filtrona operates across the world and is subject to income tax in many
different jurisdictions. Filtrona calculates its average expected tax rate as a
weighted average of the national corporate income tax rates in the tax
jurisdictions in which it operates.
2006 2005
£m £m
--------------------------------------------------------------------------------
Profit before income tax 54.6 50.0
Tax at weighted average 18.0 16.0
Effects of:
Permanent disallowables 0.8 0.2
Overseas state and local tax 0.8 0.5
Unrelieved tax losses 0.2 1.8
Prior year adjustments (1.7) (1.2)
Other items 0.5 (0.3)
--------------------------------------------------------------------------------
Income tax expense 18.6 17.0
================================================================================
5. Personnel expense
2006 2005
£m £m
--------------------------------------------------------------------------------
Wages and salaries 110.2 105.2
Social security expense 13.1 13.1
Pension expense (note 17) 5.4 5.4
Share option expense 1.2 1.1
--------------------------------------------------------------------------------
129.9 124.8
================================================================================
6. Earnings per share
2006 2005
£m £m
--------------------------------------------------------------------------------
Earnings attributable to equity holders of Filtrona plc 34.5 31.6
Adjustment* 0.6 1.2
--------------------------------------------------------------------------------
Adjusted earnings 35.1 32.8
================================================================================
Basic weighted average ordinary shares in issue (million) 218.8 219.1#
Dilutive effect of employee share option plans (million) 1.8 0.8
--------------------------------------------------------------------------------
Diluted weighted average ordinary shares (million) 220.6 219.9
================================================================================
Basic earnings per share 15.8p 14.4p
Adjustment* 0.2p 0.6p
--------------------------------------------------------------------------------
Adjusted earnings per share 16.0p 15.0p
================================================================================
Diluted basic earnings per share 15.6p 14.4p
================================================================================
Adjusted earnings per share is provided to reflect the underlying earnings
performance of Filtrona.
* The adjustment relates to intangible amortisation (2005: intangible
amortisation and demerger expense) less tax relief thereon
# The number of ordinary shares issued on demerger was used as the weighted
average number for the period prior to demerger
7. Property, plant and equipment
2006
--------------------------------------------------------------------------------
Land and Plant and Fixtures,
buildings machinery fittings and
equipment Total
£m £m £m £m
--------------------------------------------------------------------------------
Cost
Beginning of year 59.2 267.1 40.9 367.2
Acquisition - 0.1 - 0.1
Divestment - (0.7) (0.2) (0.9)
Additions 3.9 27.0 3.4 34.3
Disposals (1.5) (4.8) (1.5) (7.8)
Currency translation (3.5) (17.3) (2.1) (22.9)
--------------------------------------------------------------------------------
End of year 58.1 271.4 40.5 370.0
================================================================================
Depreciation
Beginning of year 12.7 147.3 26.7 186.7
Expense in year 1.5 17.6 3.8 22.9
Divestment - (0.7) (0.2) (0.9)
Disposals (0.4) (4.4) (1.5) (6.3)
Currency translation (0.8) (9.0) (1.0) (10.8)
--------------------------------------------------------------------------------
End of year 13.0 150.8 27.8 191.6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net book value
at end of year 45.1 120.6 12.7 178.4
================================================================================
2005
--------------------------------------------------------------------------------
Land and Plant and Fixtures,
buildings machinery fittings and
equipment Total
£m £m £m £m
--------------------------------------------------------------------------------
Cost
Beginning of year 46.5 230.5 36.0 313.0
Additions 8.8 25.2 4.2 38.2
Disposals (0.4) (5.9) (0.8) (7.1)
Currency translation 4.3 17.3 1.5 23.1
--------------------------------------------------------------------------------
End of year 59.2 267.1 40.9 367.2
--------------------------------------------------------------------------------
Depreciation
Beginning of year 10.8 126.6 23.1 160.5
Expense in year 1.3 17.4 3.4 22.1
Disposals (0.2) (5.6) (0.7) (6.5)
Currency translation 0.8 8.9 0.9 10.6
--------------------------------------------------------------------------------
End of year 12.7 147.3 26.7 186.7
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net book value at end
of year 46.5 119.8 14.2 180.5
================================================================================
Net book value at
beginning of year 35.7 103.9 12.9 152.5
--------------------------------------------------------------------------------
8. Intangible assets
2006
--------------------------------------------------------------------------------
Customer
Goodwill relationships Total
£m £m £m
--------------------------------------------------------------------------------
Cost
Beginning of year 54.5 21.0 75.5
Acquisition (note 22) - 0.6 0.6
Currency translation (3.7) (0.2) (3.9)
--------------------------------------------------------------------------------
End of year 50.8 21.4 72.2
--------------------------------------------------------------------------------
Amortisation
Beginning of year 11.2 1.3 12.5
Expense in year - 0.9 0.9
Currency translation (0.7) - (0.7)
--------------------------------------------------------------------------------
End of year 10.5 2.2 12.7
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net book value at end of year 40.3 19.2 59.5
================================================================================
2005
--------------------------------------------------------------------------------
Customer
Goodwill relationships Total
£m £m £m
--------------------------------------------------------------------------------
Cost
Beginning of year 46.9 21.9 68.8
Acquisition (note 22) 5.1 - 5.1
Currency translation 2.5 (0.9) 1.6
--------------------------------------------------------------------------------
End of year 54.5 21.0 75.5
--------------------------------------------------------------------------------
Amortisation
Beginning of year 10.7 0.5 11.2
Expense in year - 0.8 0.8
Currency translation 0.5 - 0.5
--------------------------------------------------------------------------------
End of year 11.2 1.3 12.5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net book value at end of year 43.3 19.7 63.0
================================================================================
Net book value at
beginning of year 36.2 21.4 57.6
--------------------------------------------------------------------------------
Filtrona tests intangible assets annually for impairment, or more frequently if
there are indications that they are impaired. Intangible assets are allocated to
cash generating units and a discounted cash flow analysis is computed to compare
discounted estimated future operating cash flows to the net carrying value of
each business. The analysis is based on forecast cash flows, with zero growth
used to determine terminal values. The estimated cash flows are discounted using
Filtrona's weighted average cost of capital and any impairment write-downs
identified are charged to the income statement. The test is dependent on
management estimates and judgements, in particular in relation to the
forecasting of future cash flows, and the discount rate applied to these cash
flows.
9. Inventories
2006 2005
£m £m
--------------------------------------------------------------------------------
Raw materials and consumables 23.9 25.7
Work-in-progress 3.1 3.0
Finished goods and goods for resale 28.7 31.1
--------------------------------------------------------------------------------
55.7 59.8
================================================================================
Inventories held at net realisable value and amounts recognised as income from
the reversal of write-downs were not significant.
10. Trade and other receivables
2006 2005
£m £m
--------------------------------------------------------------------------------
Trade receivables 68.2 71.3
Other receivables 6.6 7.1
Prepayments and accrued income 6.3 7.2
--------------------------------------------------------------------------------
81.1 85.6
================================================================================
11. Cash and cash equivalents
2006 2005
£m £m
--------------------------------------------------------------------------------
Bank balances 18.3 29.7
Short-term bank deposits not repayable on demand 2.4 1.0
--------------------------------------------------------------------------------
Cash and cash equivalents 20.7 30.7
Bank overdrafts (1.0) (5.0)
--------------------------------------------------------------------------------
Cash and cash equivalents in the statement of cash flows 19.7 25.7
================================================================================
12. Trade and other payables
2006 2005
£m £m
--------------------------------------------------------------------------------
Trade payables 38.1 39.5
Other tax and social security contributions 3.2 2.8
Other payables 6.7 7.2
Accruals and deferred income 17.0 19.4
--------------------------------------------------------------------------------
65.0 68.9
================================================================================
13. Interest bearing loans and borrowings
2006 2005
£m £m
--------------------------------------------------------------------------------
Non-current liabilities
Unsecured bank loans 117.9 145.2
================================================================================
Current liabilities
Unsecured bank loans 0.1 0.1
Unsecured non-bank loan 0.5 0.6
--------------------------------------------------------------------------------
0.6 0.7
================================================================================
Terms and debt repayment schedule
2006 2005
---------------------------------------------------------------------------------------------------------------
< 1 yr 1 - 2 yrs 2 - 5 yrs Total < 1 yr 1 - 2 yrs 2 - 5 yrs Total
£m £m £m £m £m £m £m £m
---------------------------------------------------------------------------------------------------------------
Unsecured bank loans 0.1 0.1 117.8 118.0 0.1 0.1 145.1 145.3
Unsecured non-bank loan 0.5 - - 0.5 0.6 - - 0.6
---------------------------------------------------------------------------------------------------------------
0.6 0.1 117.8 118.5 0.7 0.1 145.1 145.9
===============================================================================================================
All debt due for repayment in two to five years must be repaid no later than May
2010.
At 31 December 2006, the majority of Filtrona's interest bearing loans and
borrowings were at floating rates of interest set with reference to LIBOR for
periods ranging from seven days to three months. €30m and up to US$65m of net
debt was protected from adverse movements in interest rates with interest rate
caps for a period of 20 months. On 24 February 2006 the interest rate on US$40m
of net debt was effectively fixed at 5.1775% with an interest rate swap for a
period of two years. With effect from 24 November 2006 the interest rate on a
further US$30m of net debt was effectively fixed at 5.4313% with an interest
rate swap for a period of two years.
At 31 December 2005, the majority of Filtrona's interest bearing loans and
borrowings were at floating rates of interest set with reference to LIBOR for
periods ranging from seven days to three months.
After taking into account foreign exchange swaps, the currency and interest rate
profile of Filtrona's financial assets and liabilities is as follows:
2006 2005
-----------------------------------------------------------------------------------------------------------------
Impact of Impact of
Non- Foreign Non- Foreign
Fixed Floating Interest Exchange Floating Interest Exchange
Rate Rate Bearing swaps Total Rate Bearing Swaps Total
£m £m £m £m £m £m £m £m £m
Assets
Sterling - 3.4 11.0 - 14.4 3.5 22.3 - 25.8
US dollar - 5.0 29.8 - 34.8 4.9 30.2 - 35.1
Euro - 4.3 20.7 - 25.0 7.5 11.7 - 19.2
Other - 8.0 21.4 - 29.4 14.8 23.1 - 37.9
-----------------------------------------------------------------------------------------------------------------
- 20.7 82.9 - 103.6 30.7 87.3 - 118.0
=================================================================================================================
Liabilities
Sterling - 31.1 18.9 (61.3) (11.3) 37.9 27.4 (78.1) (12.8)
US dollar 35.7 52.5 35.2 9.5 132.9 111.7 35.7 20.2 167.6
Euro - 0.2 16.5 52.1 68.8 0.3 9.1 58.6 68.0
Other - - 10.4 - 10.4 1.0 14.1 - 15.1
-----------------------------------------------------------------------------------------------------------------
35.7 83.8 81.0 0.3 200.8 150.9 86.3 0.7 237.9
=================================================================================================================
£nil (2005: £2.1m) of Filtrona's non-interest bearing financial liabilities are due for payment in one to two years.
Filtrona's available undrawn committed facilities at 31 December were:
2006 2005
£m £m
--------------------------------------------------------------------------------
Expiring within one year - -
Expiring after one but within two years - -
Expiring after two years 97.2 70.0
--------------------------------------------------------------------------------
97.2 70.0
================================================================================
Any loans drawn on these facilities would bear interest at floating rates with
reference to LIBOR for the period of the loan.
14. Derivative instruments
Filtrona uses derivative financial instruments to hedge its exposure to foreign
exchange and interest rate risks arising from operational, financing and
investment activities. In accordance with its treasury policy, Filtrona does not
hold or issue derivative financial instruments for trading purposes.
Assets Liabilities
--------------------------------------------------------------------------------
Contractual Contractual
Fair or notional Fair or notional
values amounts values amounts
£m £m £m £m
--------------------------------------------------------------------------------
At 31 December 2006
Fair value hedges
Forward foreign exchange
contracts - 1.6 - 9.7
Cash flow hedges
Forward foreign exchange
contracts - 1.8 - 2.5
Interest rate swaps 0.2 35.9 - -
Hedges of net investments
Cross currency swaps - 4.4 (0.3) 57.2
--------------------------------------------------------------------------------
0.2 43.7 (0.3) 69.4
================================================================================
Assets Liabilities
--------------------------------------------------------------------------------
Contractual Contractual
Fair or notional Fair or notional
values amounts values amounts
£m £m £m £m
--------------------------------------------------------------------------------
At 31 December 2005
Fair value hedges
Forward foreign exchange
contracts 0.1 4.9 (0.1) 9.6
Cash flow hedges
Forward foreign exchange
contracts - 0.8 - 0.8
Hedges of net investments
Cross currency swaps - 14.6 (0.7) 64.2
--------------------------------------------------------------------------------
0.1 20.3 (0.8) 74.6
--------------------------------------------------------------------------------
Fair values of forward foreign exchange contracts and cross currency swaps have
been calculated at year end exchange rates compared to contracted rates. Fair
values of interest rate swaps have been calculated by discounting cash flows at
the rates of interest prevailing at the year end. Fair values of other financial
assets and liabilities are not significantly different from their carrying
amounts in 2006 and 2005.
The net fair value gains on open forward foreign exchange contracts that hedge
foreign currency risk of anticipated future sales and purchases will be
transferred to the income statement when the forecast sales and purchases occur
over the next 12 months. With the exception of the interest rate swaps discussed
in note 13 all other derivative instruments mature within the next 12 months.
Filtrona has US dollar denominated borrowings and US dollar and euro currency
swaps which it has designated as hedges of its net investments in subsidiary
undertakings. The exchange gains of £15.5m (2005: losses of £11.3m) on these
borrowings and the gains of £2.1m (2005: losses of £0.1m) on the US dollar
currency swaps and gains of £0.8m (2005: gains of £0.3m) on euro currency swaps
have been recognised in reserves.
15. Deferred tax
Deferred tax assets and liabilities are attributable to the following:
2006 2005
---------------------------------------------------------------------------------------
Assets Liabilities Net Assets Liabilities Net
£m £m £m £m £m £m
---------------------------------------------------------------------------------------
Property, plant and
equipment (0.6) 17.8 17.2 (0.7) 13.2 12.5
Intangible assets - 7.2 7.2 - 5.1 5.1
Employee benefits (10.0) - (10.0) (11.4) - (11.4)
Other (3.8) 0.7 (3.1) (4.6) 8.2 3.6
---------------------------------------------------------------------------------------
Tax(assets)/
liabilities (14.4) 25.7 11.3 (16.7) 26.5 9.8
Set off of tax 14.1 (14.1) - 15.1 (15.1) -
---------------------------------------------------------------------------------------
Net tax(assets)/
liabilities (0.3) 11.6 11.3 (1.6) 11.4 9.8
=======================================================================================
Movements in temporary differences in the year:
2006 2005
£m £m
---------------------------------------------------------------------------------------
Beginning of year 9.8 18.4
Charge to the income statement in respect of current year (note 4) 0.7 1.1
Charge to the income statement in respect of prior years 0.9 1.7
Recognition of defined benefit pension schemes on demerger - (10.5)
Charge/(credit) to reserves on movements of defined benefit
pension schemes 0.7 (0.3)
Currency translation (0.8) (0.6)
---------------------------------------------------------------------------------------
End of year 11.3 9.8
=======================================================================================
No deferred tax liability is provided in respect of any future remittance of
earnings of foreign subsidiaries where Filtrona is able to control the
remittance of earnings and it is probable that such earnings will not be
remitted in the foreseeable future. A deferred tax asset of £0.7m (2005: £0.7m)
has not been recognised in respect of capital losses as the realisation of this
deferred tax asset is not considered probable.
16. Provisions
2006 2005
£m £m
--------------------------------------------------------------------------------
Movements
Beginning of year 7.5 5.6
Expensed in the income statement - 2.5
Acquisitions 0.3 -
Reclassified from other payables - 3.1
Utilised (2.0) (3.8)
Currency translation (0.1) 0.1
--------------------------------------------------------------------------------
End of year 5.7 7.5
================================================================================
Non-current 2.7 2.5
Current 3.0 5.0
--------------------------------------------------------------------------------
5.7 7.5
================================================================================
Provisions relate primarily to vacant properties, employees' compensation
claims, legal claims and environmental clean up expenses. Non-current provisions
are generally long-term in nature with the timing of utilisation uncertain.
17. Employee benefits
Post retirement benefits
For the period prior to demerger Filtrona employees were members of the former
parent company's defined benefit and defined contribution pension schemes. The
liabilities and assets of these schemes were transferred to successor Filtrona
schemes following demerger. Liabilities were actuarially allocated between
Filtrona and the former parent company and scheme assets were split in the same
proportion as liabilities.
Under IAS 19 (revised) Filtrona has to account for defined benefit pension costs
up to the period of demerger on a defined contribution basis and on a defined
benefit basis thereafter. Accordingly Filtrona recognised the retirement benefit
obligation of £34.7m at demerger in the consolidated statement of recognised
income and expense.
Trustees administer the schemes and the assets are held independently from
Filtrona.
Pension costs of the defined benefit schemes are assessed in accordance with the
advice of independent professionally qualified actuaries. Full triennial
actuarial valuations were carried out on the principal European defined benefit
schemes as at 5 April 2006 and annual actuarial valuations are performed on the
principal US defined benefit schemes. The assets and liabilities of the defined
benefit schemes have been updated to the balance sheet date from the most recent
actuarial valuations taking account of the investment returns achieved by the
schemes and the level of contributions.
Contributions to all schemes are determined in line with actuarial advice, local
conditions and practices. Defined benefit contributions in 2007 are expected to
be £5.9m, which consists of payments to fund future service accruals and
contributions to amortise the deficit in respect of past service.
The amounts included in the consolidated financial information in respect of
arrangements in Europe and the US are as follows:
2006 2005
£m £m
--------------------------------------------------------------------------------
Amounts charged to operating profit
Defined contribution schemes 2.2 3.6
Defined benefit schemes:
Service cost 3.2 1.8
--------------------------------------------------------------------------------
Total operating expense (note 5) 5.4 5.4
================================================================================
Amounts included as finance (income)/expense
Expected return on scheme assets (7.7) (4.4)
Interest on scheme liabilities 7.5 4.4
--------------------------------------------------------------------------------
Net financial return (0.2) -
================================================================================
Amounts recognised in the statement of recognised income and
expense
Recognition of actuarial losses on demerger - (34.7)
Actual return less expected return on scheme assets 5.5 5.7
Impact of changes in assumptions relating to the present value
of scheme liabilities (3.3) (7.7)
--------------------------------------------------------------------------------
Actuarial gain/(loss) 2.2 (36.7)
================================================================================
The principal assumptions used by the independent qualified actuaries for the
purposes of IAS 19 (revised) were:
2006 2005
----------------------------------------------
Europe US Europe US
Rate of increase in salaries 3.90% 4.00% 3.75% 3.00%
Rate of increase in pensions 2.90% n/a* 2.75% n/a*
Discount rate 5.00% 5.75% 4.75% 5.50%
Inflation rate 2.90% n/a* 2.75% n/a*
Expected return on scheme assets 6.10% 8.30% 5.90% 8.30%
* not applicable
The assumptions used by the actuaries are the estimates chosen from a range of
possible actuarial assumptions which, due to the timescale covered, may not be
borne out in practice.
The life expectancy assumptions used to estimate defined benefit obligations at
31 December 2006 are:
2006
------------------------
Europe US
Male retiring today at age 65 21.8 18.1
Female retiring today at age 65 24.7 20.4
Male retiring in 20 years at age 65 23.0 18.1
Female retiring in 20 years at age 65 25.8 20.4
The fair value of scheme assets, which are not intended to be realised in the
short-term and may be subject to significant change before they are realised,
and the present value of the scheme liabilities, which are derived from cash
flow projections over long periods and are therefore inherently uncertain, are:
2006
--------------------------------------------------------------------------------
Long-term Long-term
rate rate
of return Europe £m of return US £m Total
--------------------------------------------------------------------------------
Equities 6.90% 73.2 9.75% 17.5 90.7
Bonds 4.70% 13.3 5.75% 10.4 23.7
Gilts 3.90% 19.9 - 19.9
Other 4.70% 0.3 4.50% 0.2 0.5
--------------------------------------------------------------------------------
Fair value of scheme assets 106.7 28.1 134.8
Present value of scheme
liabilities (131.6) (34.1) (165.7)
--------------------------------------------------------------------------------
Retirement benefit
obligations (24.9) (6.0) (30.9)
================================================================================
2005
--------------------------------------------------------------------------------
Long-term Long-term
rate rate
of return Europe £m of return US £m Total
--------------------------------------------------------------------------------
Equities 6.80% 64.7 9.75% 18.8 83.5
Bonds 4.45% 12.5 5.75% 10.2 22.7
Gilts 3.80% 18.1 - 18.1
Other - 4.50% 0.1 0.1
--------------------------------------------------------------------------------
Fair value of scheme assets 95.3 29.1 124.4
Present value
of scheme liabilities (123.3) (36.9) (160.2)
Retirement benefit obligations (28.0) (7.8) (35.8)
================================================================================
Movement in fair value of scheme assets/(liabilities) during the year
2006 2005
------------------------------------------------------------------------------------------------------
Scheme Scheme Scheme Scheme
assets liabilities Total assets liabilities Total
£m £m £m £m £m £m
------------------------------------------------------------------------------------------------------
Beginning of year 124.4 (160.2) (35.8) - - -
Recognition of defined - - - 116.2 (150.9) (34.7)
benefit pension
schemes on demerger
Contribution to defined
benefit pension - - - 1.4 - 1.4
schemes by former parent
company
Service cost (3.2) (3.2) - (1.8) (1.8)
Employer contributions 4.7 - 4.7 2.5 - 2.5
Employee contributions 0.8 (0.8) - 0.7 (0.7) -
Actuarial
gains/(losses) 5.5 (3.3) 2.2 5.7 (7.7) (2.0)
Finance
income/(expense) 7.7 (7.5) 0.2 4.4 (4.4) -
Benefits paid (4.7) 4.7 - (1.7) 1.7 -
Curtailment - - - (7.3) 7.5 0.2
Changes in
scheme coverage - - - 0.3 (1.1) (0.8)
Currency translation (3.6) 4.6 1.0 2.2 (2.8) (0.6)
------------------------------------------------------------------------------------------------------
End of year 134.8 (165.7) (30.9) 124.4 (160.2) (35.8)
======================================================================================================
2006 2005
--------------------------------------------------
% of scheme £m % of scheme £m
assets/ assets/
liabilities liabilities
--------------------------------------------------------------------------------
Experience gains and losses
Difference between actual and
expected return on scheme 4.1 5.5 4.6 5.7
assets
Net actuarial gains/(losses)
recognised in the statement
of recognised income and expense 1.3 2.2 (1.2) (2.0)
Sensitivity
For the significant assumptions used in determining post retirement costs and
liabilities, the following sensitivity analysis gives the estimate of the impact
on the income statement and balance sheet for the year ended 31 December 2006.
Scheme liaibilities Annual service
Europe US Total Europe US Total
£m £m £m £m £m £m
0.5% decrease in the discount rate 15.0 2.6 17.6 0.4 0.1 0.5
1.0% increase in the rate of inflation 25.0 - 25.0 0.9 - 0.9
1 year increase in life expectancy 3.5 1.1 4.6 0.1 - 0.1
0.5% increase in the discount rate (13.0) (2.2) (15.2) (0.4) (0.1) (0.5)
1.0% decrease in the rate of inflation 20.0) - (20.0) (0.8) - (0.8)
Share-based incentives
Filtrona operates share-based incentive plans for its Executive Directors and
employees. The total charge in respect of these plans during the year was £1.2m
(2005: £1.1m). Details of these plans are set out below:
Share options outstanding
2006
-----------------------------------------------------------------------------------------------------------------------
At 1 Weighted Granted Weighted Lapsed Weighted Exercised
Jan average during average during average during
2006 exercise the exercise the exercise the
price year price year price year
-----------------------------------------------------------------------------------------------------------------------
LTIP
Part A 2,133,262 239.5p 1,987,174 257.0p (138,812) 239.5p -
LTIP
Part B
'Matching' 600,666 - - - - - -
LTIP Part B
'Performance' 515,347 - 496,810 - - - -
DASB - - 128,320 - - - -
SAYE 3 year
plan - - 764,823 237.0p (93,122) 237.0p (843)
SAYE 5 year
plan - - 710,677 237.0p (46,191) 237.0p -
-----------------------------------------------------------------------------------------------------------------------
3,249,275 4,087,804 (278,125) (843)
=======================================================================================================================
Share options outstanding (continued)
2006
---------------------------------------------------------------------
Weighted Weighted
average At average Exercisable
exercise 31 Dec exercise at 31
price 2006 price Dec 2006
---------------------------------------------------------------------
LTIP
Part A - 3,981,624 248.2p -
LTIP
Part B
'Matching' - 600,666 - -
LTIP Part B
'Performance' - 1,012,157 - -
DASB - 128,320 - -
SAYE 3 year
plan 237.0p 670,858 237.0p -
SAYE 5 year
plan - 664,486 237.0p -
---------------------------------------------------------------------
7,058,111 -
======================================================================
2005
-----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Granted average Lapsed average average Exercisable
during the exercise during the exercise AT 31 Dec exercise at 31 Dec
At 1 Jan 2005 year price year price 2005 price 2005
-----------------------------------------------------------------------------------------------------------
LTIP Part A - 2,281,608 239.5p (148,346) 239.0p 2,133,262 239.5p -
LTIP Part B 'Matching' - 600,666 - - - 600,666 - -
LTIP Part B 'Performance' - 570,992 - (55,645) - 515,347 - -
-----------------------------------------------------------------------------------------------------------
- 3,453,266 (203,991) 3,249,275 -
-----------------------------------------------------------------------------------------------------------
Fair value model inputs for share options outstanding
2006
-----------------------------------------------------------------------------------------------------
LTIP Part A LTIP Part B LTIP Part B DASB SAYE 3 year SAYE 5 year
'Matching' 'Performance' plan plan
-----------------------------------------------------------------------------------------------------
Weighted average
fair value at grant 41.1p 211.9p 237.1p 276.4p 77.6p 92.2p
Weighted average
share price at grant 248.2p 232.0p 262.1p 296.8p 296.3p 296.3p
Weighted average
exercise price 248.2p - - - 237.0p 237.0p
Weighted average
volatility 22.7% 23.6% 24.1% 20.5% 20.3% 24.2%
Weighted average
dividend yield 2.87% 3.07% 2.75% 2.40% 2.40% 2.40%
Weighted risk
free rate 4.36% 4.10% 4.23% 4.35% 4.39% 4.36%
Expected employee
retention rates 76.9% 85.0% 91.5% 98.0% 55.0% 55.0%
Expected term 3.25 years 3.00 years 3.75 years 3.00 years 3.00 years 5.00 years
------------------------------------------------------------------------------------------------------
2005
------------------------------------------------------
LTIP Part A LTIP Part B LTIP Part B
'Matching' 'Performance'
--------------------------------------------------------------------------------
Weighted average fair
value at grant 40.6p 211.9p 207.2p
Weighted average share
price at grant 239.5p 232.0p 232.0p
Weighted average
exercise price 239.5p - -
Weighted average
volatility 24.0% 23.6% 23.8%
Weighted average
dividend yield 2.98% 3.07% 3.07%
Weighted risk
free rate 4.12% 4.10% 4.15%
Expected employee
retention rates 73.7% 85.0% 85.0%
Expected term 3.25 years 3.00 years 3.75 years
--------------------------------------------------------------------------------
All options have been valued using the Black-Scholes model.
Volatility has been calculated over the length of the expected term, for the
period immediately before the grant date. The volatility of the former parent
company's shares has been used as a proxy for Filtrona plc's share price
volatility in the period prior to demerger.
2006
-----------------------------------------------------------------------------------------------
LTIP LTIP LTIP DASB SAYE SAYE
Part A Part B Part B 3 year 5 year
'Matching' 'Performance' plan plan
-----------------------------------------------------------------------------------------------
Contractual 3 - 10 years 3 - 6 years 3 - 6 years 3 years 3 years 5 years
life
2005
-----------------------------------------------------------------------------------------------
LTIP LTIP LTIP
Part A Part B Part B
'Matching' 'Performance'
-----------------------------------------------------------------------------------------------
Contractual life 3 - 10 years 3 - 6 years 3 - 6 years
All options are settled with equity.
18. Share capital
2006 2005
£m £m
----------------------------------------------------------------------------------
Authorised: 500 million (2005: 500 million) ordinary shares
of 25p (2005: 25p) each 125.0 125.0
----------------------------------------------------------------------------------
Issued and fully paid ordinary shares of 25p (2005: 25p) 54.8 54.8
each
==================================================================================
Number of shares in issue Beginning and end of year 219,326,795 219,326,795
==================================================================================
On 8 June 2005 a resolution was passed reducing the ordinary share capital by
100p per share (total: £219.3m), and on 9 June 2005 this was confirmed by an
Order of the High Court. The amounts arising were used to create retained
earnings in the Company.
19. Movements on reserves
2006
--------------------------------------------------------------------------------------------
Capital Other Translation Retained Minority Total
redemption reserve reserve earnings interests
reserve
£m £m £m £m £m £m
--------------------------------------------------------------------------------------------
At 1 January 2006 0.1 (132.8) 5.3 197.3 5.6 75.5
Total recognised income
and expense for the year (3.7) 36.0 1.2 33.5
Acquisition of employee
trust shares (1.2) (1.2)
Share option expense 1.2 1.2
Dividends paid (14.3) (0.8) (15.1)
---------------------------------------------------------------------------------------------
At 31 December 2006 0.1 (132.8) 1.6 219.0 6.0 93.9
---------------------------------------------------------------------------------------------
2006
---------------------------------------------------------------------------------------------------------
Capital Other Cash flow Translation Retained Minority Total
redemption reserve hedging reserve earnings interests
reserve reserve
£m £m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------
At 1 January 2005 - (132.8) - (1.6) (28.7) 3.9 (159.2)
Adoption of IAS 32 and IAS 39 0.1 0.1
----------------------------------------------------------------------------------------------------------
At 1 January 2005 restated - (132.8) 0.1 (1.6) (28.7) 3.9 (159.1)
Total recognised income and
expense for the year (0.1) 6.9 6.1 1.9 14.8
Transfer to retained
earnings on reduction in
share capital 219.3 219.3
Acquisition of employee trust
shares (1.0) (1.0)
Share option expense 1.1 1.1
Dividends paid (4.7) (0.4) (5.1)
Arising on acquisition 0.2 0.2
Redemption of £1 preference
shares 0.1 0.1
Former parent company's
capital contribution 4.2 4.2
Former parent company's
contribution to the
defined benefit pension scheme
net of deferred tax 1.0 1.0
----------------------------------------------------------------------------------------------------------
At 31 December 2005 0.1 (132.8) - 5.3 197.3 5.6 75.5
==========================================================================================================
Employee trust shares are ordinary shares of the Company held in an employee
benefit trust. The purpose of this trust is to hold shares in the Company for
subsequent transfer to Executive Directors and employees relating to options
granted and awards made in respect of market purchase shares under the Company's
share-based incentive plans. The assets, liabilities and expenditure of the
trust have been incorporated in this financial information. At 31 December 2006,
the trust held 872,166 (2005: 423,009) shares, upon which dividends have been
waived, with an aggregate nominal value of £0.2m (2005: £0.1m) and market value
of £2.3m (2005: £1.2m).
The other reserve relates to the Group reorganisation which took place as part
of the demerger and represents the difference between Filtrona plc's share
capital and Filtrona International Ltd's share capital and share premium on 6
June 2005 and is not distributable.
20. Analysis of net debt
Exchange
1 Jan 2006 Cash flow movements 31 Dec 2006
£m £m £m £m
--------------------------------------------------------------------------------
Cash at bank and in hand 22.6 (5.8) (1.0) 15.8
Short-term bank deposits
repayable on demand 7.1 (4.3) (0.3) 2.5
Short-term bank deposits
not repayable on demand 1.0 1.4 - 2.4
--------------------------------------------------------------------------------
Cash and cash equivalents 30.7 (8.7) (1.3) 20.7
Overdrafts (5.0) 3.9 0.1 (1.0)
--------------------------------------------------------------------------------
Cash and cash equivalents
in the statement of cash
flows 25.7 (4.8) (1.2) 19.7
Debt due within one year (0.7) 0.1 - (0.6)
Debt due after one year (145.2) 11.8 15.5 (117.9)
--------------------------------------------------------------------------------
Net debt (120.2) 7.1 14.3 (98.8)
================================================================================
21. Operating lease commitments
At 31 December Filtrona had the following commitments under non-cancellable
operating leases:
2006 2005
£m £m
--------------------------------------------------------------------------------
Payable within one year 1.6 1.4
Payable between one and five years 4.5 4.4
Payable after five years 4.4 4.4
--------------------------------------------------------------------------------
10.5 10.2
================================================================================
22. Acquisitions
In May 2006 Filtrona purchased certain assets and the business of the CSL
Digital Print division of CORGI Services Limited and, concurrently, entered into
a five year agreement with CORGI Group Limited for the exclusive supply of
registered gas installer identity cards.
In December 2005 Filtrona purchased an additional 30% of FractureCode
Corporation ApS ('FractureCode'), taking Filtrona's share in FractureCode to
80%. FractureCode was previously accounted for as a joint venture using equity
accounting. Following the purchase it is now fully consolidated and contributed
£nil to operating profit before intangible amortisation in 2005.
The remaining 20% of shares in FractureCode could be acquired between March 2009
and December 2012. The consideration for the remaining 20% of shares is
dependent on various profit related targets and is capped at a maximum of €40m.
On acquisition the assets and liabilities of the businesses acquired were
adjusted to reflect their fair values to Filtrona. The fair value adjustments
are provisional and subject to finalisation for up to one year from the date of
acquisition.
The principal fair value adjustments are as follows:
In 2006:
There were no adjustments to the book value of assets and liabilities acquired.
In 2005:
The adjustment to intangibles represents the write-off of goodwill in the entity
on acquisition in accordance with IAS 38: Intangible Assets.
The adjustment to investment in associate and minority interest reflects the
change from equity accounting to full consolidation.
A summary of the acquisition of CSL Digital Print in 2006 is detailed below:
Book and fair
value of assets
acquired
£m
--------------------------------------------------------------------------------
Property, plant and equipment 0.1
Trade and other receivables 0.1
Provisions (0.3)
--------------------------------------------------------------------------------
(0.1)
Customer relationships 0.6
--------------------------------------------------------------------------------
Consideration, satisfied in cash 0.5
================================================================================
A summary of the effect of the acquisition of FractureCode in 2005 is detailed
below:
Book value at Consistency of Fair value of
acquisition accounting assets acquired
policy
£m £m £m
--------------------------------------------------------------------------------
Intangible
assets 0.5 (0.5) -
Trade and
other
receivables 0.7 - 0.7
Trade and
other payables (0.4) - (0.4)
Cash and cash
equivalents 0.1 - 0.1
Investment in
associate - (0.5) (0.5)
Minority
interest - (0.2) (0.2)
--------------------------------------------------------------------------------
0.9 (1.2) (0.3)
Goodwill 5.1
--------------------------------------------------------------------------------
Consideration 4.8
Satisfied by:
Accrued expenses 0.1
Cash consideration 4.7
================================================================================
The net cash outflow in the period
in respect of the acquisition of
FractureCode comprised:
Cash consideration 4.7
Cash and cash equivalents acquired (0.1)
--------------------------------------------------------------------------------
Net cash outflow in
respect of acquisition of
FractureCode 4.6
================================================================================
23. Disposals
In March 2006, Filtrona completed the sale of the High Profile business for
£0.3m, which was satisfied in cash, and the control of the business passed to
the acquirer.
This disposal had the following effect on Filtrona's assets and liabilities:
£m
--------------------------------------------------------------------------------
Inventories 0.3
Trade and other receivables 0.1
Trade and other payables (0.1)
--------------------------------------------------------------------------------
Net identifiable assets and liabilities (at date of completion) 0.3
--------------------------------------------------------------------------------
Consideration, satisfied in cash 0.3
================================================================================
24. Dividends
Per share Total
--------------------------------------------
2006 2005 2006 2005
p p £m £m
--------------------------------------------------------------------------------
2005 interim: paid 31 October 2005 2.13 4.7
2005 final: paid 28 April 2006 4.27 9.3
2006 interim: paid 27 October 2006 2.30 5.0
2006 proposed final: payable 4 May 2007 4.60 10.1
--------------------------------------------------------------------------------
6.90 6.40 15.1 14.0
================================================================================
25. Transactions with related parties
Other than the acquisition of FractureCode in 2005, Filtrona has not entered
into any material transactions with related parties. Furthermore, throughout
2006 and 2005, no Director had a personal interest in any significant
transaction of Filtrona.
This information is provided by RNS
The company news service from the London Stock Exchange