28th Feb 2008 07:02
Filtrona plc28 February 2008 Filtrona plc Preliminary results for the year ended 31 December 2007 Filtrona plc, the international, market leading, speciality plastic and fibreproducts supplier, today announces its preliminary results for the year ended 31December 2007. Following the disposal of Globalpack, the Brazilian consumerpackaging business, in June 2007 the results from continuing operations areshown below: • Operating profit before intangible amortisation and restructuring costs 14.2% ahead to £64.4m at constant exchange rates, with good progress in both Plastic Technologies and Fibre Technologies • Operating profit margin before intangible amortisation and restructuring costs improved to 13.0% (2006: 11.4%), driven by stronger performances in higher margin businesses and operational efficiencies • Revenue flat at constant exchange rates, due to previously announced revenue reductions in the Cigarette Filters business. Excluding Cigarette Filters, revenue growth was up 5.1% • Profit before tax excluding intangible amortisation and restructuring costs up 14.8% at constant exchange rates to £58.2m • Profit before tax £51.7m (2006: £52.2m) down 1% after charging £5m of restructuring costs (2006: £nil) • Cash inflow from operating activities was again strong at £84.9m (2006: £77.2m) up 10.0% due to improved margins and working capital management • Adjusted earnings per share up 15.4% at constant exchange rates, and 10.3% at actual exchange rates, to 17.2p (2006: 15.6p) • Total dividend increased by 10.1% to 7.6p (2006: 6.9p) • Net debt of £135.2m (2006: £98.8m) Commenting on today's announcement, Mark Harper, Chief Executive of Filtrona,said: "Filtrona has continued to develop well in 2007, with strong margin improvement,building on the organic growth momentum established in previous years, andsupplemented by the successful acquisition of Duraco. We will continue our strategy of building strong positions in target markets,driving productivity improvements in our existing businesses, and seekingacquisitions which are in line with our strategic focus on high volume, low unitcost, essential products. Overall, despite uncertain economic conditions, theBoard believes that Filtrona will continue to make progress and that the Companyremains well placed to deliver long-term growth." Enquiries Filtrona plc FinsburyMark Harper, Chief Executive James LevitonSteve Dryden, Finance Director Gordon SimpsonTel: 01908 359 100 Tel: 020 7251 3801 CHAIRMAN'S STATEMENT Filtrona developed well during 2007. The Company built on the organic growthmomentum established in previous years, successfully managed the North Americanrestructuring programme in the Cigarette Filters division, and integrated thenewly acquired Duraco business in the US. In 2007 operating profits for the Company, before intangible amortisation andrestructuring costs, moved ahead strongly, growing by 8.8% to £64.4m, anincrease of 14.2% at constant exchange rates. Revenue was 4.4% lower than theprior year due to the effects of exchange rates and the decline in the CigaretteFilters division which was highlighted at the end of 2006. Revenue for the otherbusinesses was higher in 2007, most strongly in the Protection & FinishingProducts and Bonded Fibre Components divisions. Company margins improved from11.4% to 13.0% as a result of productivity improvements following therestructuring of the Cigarette Filters division and sustained capitalinvestment. Adjusted earnings per share grew by 10.3% to 17.2p (2006: 15.6p) andby 15.4% at constant exchange rates. The strategic development of Filtrona continued in 2007. The Duraco business,based in Chicago, Illinois, was acquired and successfully integrated. It hasdelivered ahead of expectations, with its attractive market positions and strongmargin generation complementing the existing Protection & Finishing Productsbusinesses. The disposal of Globalpack, the Brazilian consumer packaging business, wascompleted in June and consequently the results shown are on a continuing basiswith the contribution from Globalpack presented as a discontinued operation inthe Consolidated income statement. Margin improvement and effective working capital management led to strong cashinflow from operating activities of £84.9m in the year and, in the second halfof the year, the Company conducted a limited programme of market purchases ofits own shares under which 13.7 million shares (6.2% of the Company's issuedshare capital) were bought into treasury, returning £30.6m to shareholders. The Board is recommending a final dividend of 5.08p per share which, ifapproved, at the Annual General Meeting on 24 April 2008 will make a total of7.6p (2006: 6.9p) per share for the full year. This represents a 10.1% increaseon 2006. The final dividend will be paid on 2 May 2008 to shareholders on theregister at 11 April 2008. Steve Dryden announced his resignation as Finance Director in December 2007,although he currently remains part of the executive team pending the handover ofhis responsibilities. Steve has made a valuable contribution to Filtrona duringhis eleven years' of service and the Board wishes him every success in hisfuture career. The recruitment process for Steve's successor is well advanced. In 2008, Filtrona will continue the programme of driving productivityimprovements in its existing businesses, and seeking acquisitions to strengthenthe Company's positions in key markets. The performance in Fibre Technologies isexpected to be in line with 2007 as a result of reduced volumes and furtherrestructuring costs in the Cigarette Filters division. This restructuring willresult in a lower cost base and a more competitive business. The goodperformance in Plastic Technologies is expected to continue. Overall, despite uncertain economic conditions, the Board believes that Filtronawill continue to make progress and that the Company remains well placed todeliver long-term growth. Jeff HarrisChairman28 February 2008 OPERATING REVIEW Overview-------- Filtrona is an international, market leading, speciality plastic and fibreproducts supplier with activities segmented into Plastic Technologies and FibreTechnologies. Filtrona derives strength from serving a wide range of customers, across diversegeographies within a broad but targeted range of international markets.Filtrona's key markets are tobacco, transport, writing instruments, point ofpurchase, oil and gas and medical and represent important consumer andindustrial product segments. With its extensive, flexible manufacturing anddistribution capability, Filtrona is a supplier throughout the world to manyinternational, blue chip, market leading customers and the top ten customers in2007 represented 36.7% of revenue. As the Company seeks to continuously improve operational performance and providenew innovative solutions, Filtrona anticipates that the quality and breadth ofits product and service offering combined with cost competiveness will provideopportunities for growth with current and new customers and expansion into newand existing markets across international boundaries. In 2007, the geographic destination of the Company's revenue was: Europe 40.5%North America 40.0%Rest of World 19.5% The Rest of World segment includes many of the lower cost manufacturing andhigher growth regions as the Company increasingly focuses on development inhigher growth markets such as China, India and Indonesia. Strategy-------- Filtrona's long-term objective is to continue to grow profitably for the benefitof all its stakeholders through investing organically and by acquisition inselected markets within or complementary to plastic and fibre technologies. TheCompany's strategic focus is to build on its core competencies through thedevelopment and acquisition of businesses which are engaged in themanufacturing, sourcing and distribution of high volume, low unit cost, smallbut essential products for use in consumer and industrial markets. The identification and successful exploitation of markets which offersignificant value addition and growth opportunities through product innovation,distribution, service and cost improvements are integral to the futuredevelopment of Filtrona as the Company seeks to enhance the competitive positionof its global businesses. With a responsible winning culture based on Filtrona's values and key strengths,the reputation of the Company and its employees forms a sound basis for thesuccessful delivery of new business and market opportunities designed to securelong-term value for Filtrona's shareholders. Performance----------- In 2006 Filtrona reported a good performance in its first full year as anindependent public company. In 2007 the Company accelerated its rate of profitgrowth before restructuring costs, despite the negative impact on profits fromcurrency translation caused by the further depreciation of the US dollar againststerling. Filtrona also completed its first significant acquisition since theJune 2005 demerger, with the valuable addition of the Duraco business to theProtection and Finishing Products division. Operating profit before intangible amortisation and restructuring costs was up8.8% to £64.4m (2006: £59.2m). Operating margins improved to 13.0% from 11.4% in2006. At constant exchange rates, operating profit before intangibleamortisation and restructuring costs was up 14.2%. Revenue at constant exchangerates was flat, whilst reported revenue was down by 4.4% to £494.2m (2006:£517.1m) due to the combined effects of currency translation and the previouslyannounced revenue reductions in the Cigarette Filters division. Excluding theCigarette Filters division, revenue growth for the remainder of the Group was up5.1% at constant exchange rates. The adverse impact of currency translationduring the year was £2.8m on operating profit before intangible amortisation andrestructuring costs and £22.9m on revenue. The Cash inflow from operating activities of continuing operations was againstrong at £84.9m (2006: £77.2m) up 10.0%. Return on average operating capitalexcluding intangible assets continued to improve, up from 24.8% in 2006 to 26.8%in 2007. Return on average total invested capital, including intangible assetsand goodwill previously charged to reserves, improved from 13.1% to 13.9% on apre-tax basis. Adjusted earnings per share grew by 10.3% from 15.6p to 17.2p,and, excluding the impact of currency translation, adjusted earnings per sharegrew by 15.4%. Plastic Technologies-------------------- Plastic Technologies produces, sources and distributes protection and finishingproducts, self-adhesive tear tape and security products as well as proprietaryand customised plastic extrusions. Plastic Technologies had a good year with operating profit before intangibleamortisation and restructuring costs up 6.7% to £41.6m (2006: £39.0m) andrevenue up 1.3% to £265.8m (2006: £262.4m). The operating margin again improvedto 15.7% (2006: 14.9%) reflecting the stronger performance of the higher marginbusinesses. During 2007 significant revenue investments were made to establishnew distribution locations and to support businesses still in their infancy. Atconstant exchange rates, revenue increased by 5.4% and operating profit beforeintangible amortisation and restructuring costs increased by 10.3%. Protection and Finishing Products--------------------------------- The Protection and Finishing Products division continued to pursue its strategyof geographic and range expansion combined with consistent investment inbusiness to business marketing programmes, integrated IT systems and supplychain efficiencies. Filtrona's largest profit generating division continued toperform well throughout the year, benefiting from the diversity of its customerbase, where no individual customer represents more than 3% of the revenue, andthe competitive advantages presented by the breadth of its product offering andthe quality of its service. The division holds over 900 million partsrepresenting 26,000 products in multiple stocking locations for same daydespatch. Moss, the pan-European plastic parts supplier, had an excellent year andbenefited from a further strengthening of the mix of proprietary and customproducts in favour of the more profitable proprietary lines. Sales developmentacross the expanded Continental European network was particularly encouragingwithin both recently opened and more established locations. The new distributionunit in Hungary was opened successfully in April and the Chinese business,co-located within the Fibertec facility in Ningbo, opened in December. Thedistribution units in Brno, Czech Republic and in Newcastle, UK were relocatedto larger units to accommodate business growth. A new sophisticated fireproofmould store became fully operational at the Kidlington, UK manufacturingfacility to further improve risk management at this important site. Skiffy, the European specialist small nylon parts producer, has deliveredanother strong year of growth. The new Skiffy distribution operation in Polandwas opened successfully in March. Revenue growth has again been assisted by thefurther increased levels of marketing, including the new catalogue which waslaunched successfully during April in eight languages. Internet ordering via themulti-language website continues to grow and now represents 27.6% of revenue, upfrom 22.0% in 2006. Alliance, the US-based plastic parts supplier, traded well in spite of morechallenging conditions in the US domestic market. Development of the productoffering continued with the addition of significant new ranges during the year.The new Alliance Express location in Chicago has performed consistently wellsince its opening in February. Trading at the Alliance facility in S(C)?o Paulo,Brazil was strong throughout the year with the benefits of local manufacturereducing costs and materially improving its competitive position in theBrazilian market. Sales growth in Brazil has now driven the implementation of asecond production shift and an additional warehouse location is also beingutilised. Unit production costs at the Erie, Pennsylvania facility continued tofall as a result of the sustained investment in new tooling and machinery. The acquisition of Duraco, based in Chicago, Illinois, was completed in May fora consideration of $61m. The integration of the business has progressed well,and an experienced senior executive from within the Protection and FinishingProducts division was appointed to the position of President. The division'scommercial philosophies and Filtrona's values are now being implemented in thebusiness. Early responses to new marketing programmes, utilising the division'ssophisticated marketing techniques, have been encouraging and plans are in placefor the establishment of a Duraco Express operation to address the small ordersegment of the market. MSI, the oil country tubular goods thread protector business, experienced amoderation of growth compared to the strong growth rate achieved in 2006. Thisresulted from de-stocking in the second quarter of 2007 by the steel pipeyardswho form the majority of MSI's customer base. A number of important current andnew supply contracts were secured during the year with North American customers.The business continued to invest in driving productivity through both machineryand a new generation of high output tooling. In addition, the upgrade of theproduction capability at the Vera Cruz, Mexico facility continued. Looking forward to 2008, new distribution operations are planned for the Moss,Alliance and Duraco businesses and construction will commence on a newmanufacturing facility for the MSI business in Houston. Alongside the continuedexpansion of the manufacturing and distribution footprint, further additions tothe product range and sustained marketing investment are expected to secure theongoing development of the Protection and Finishing Products division. Coated and Security Products---------------------------- The Coated and Security Products division continued to pursue its strategy ofdeveloping new security technologies and applications for international marketswhilst sustaining its world leadership position in self-adhesive tear tape. Thedivision delivered an improved performance in both revenue and operating profit,despite increased revenue investment in the FractureCode business which remainedloss-making. The Payne tear tape business achieved good growth in volumes, revenue andoperating profits. Volume growth in fast moving consumer goods markets outsideof the tobacco industry was achieved in all regions around the world and thecontinued development of innovative packaging and promotional solutions remainskey to ongoing success within those markets. Development of the proprietaryPayne authentication system was completed and sales have already been achievedfor application on tobacco products, tax stamps and fine wines. A restructuringprogramme within the European tear tape operations was actioned in the firstquarter and significant cost, productivity and quality benefits have resulted. The Payne security business performed well with the benefit from a full year ofvolumes of the new UK passport. Within the personal identification activity, thefirst year of the CORGI card renewal process went smoothly with excellentservice levels being achieved. Investment was made in customer card fulfilmentand smartcard chip encoding capability to assist in strengthening marketposition. The new security label line was successfully commissioned at theBanbury, UK facility and the first orders from this line have been fulfilled. The FractureCode business continued to prepare for future growth with thesupport of revenue investment. The existing FractureCode licensee has installedFractureCode in three countries and opportunities are being actively discussedwith potential licensees across a number of different end user markets. During 2008, it is anticipated that the Coated and Security Products divisionwill continue to benefit from the growth in the market for solutions to combatthe global contraband and counterfeit problem. As the Company looks to maximisethe potential of the opportunities within that market, commercialisation of theproprietary Payne authentication system and the security labels offering willcontinue and further investment will be made in the development of new laminatesfor secure documents. Plastic Profile and Sheet------------------------- After an excellent 2006, the Plastic Profile and Sheet division encounteredtough trading conditions throughout the year, particularly in the US. Revenueand operating profit performance was down in 2007 in the US, although excellentgrowth was achieved at Enitor in the Netherlands. Good revenue growth was achieved in the key product sectors of aerospace, pointof purchase ('POP'), medical and traffic control. In November the division wasconfirmed as the supplier of a family of parts for the Boeing 787 Dreamlineraircraft, reflecting a longstanding customer's continued commitment to theengineering and design expertise of the business and its high standards ofquality and service. In Monterrey, Mexico the 100,000 square feet extension tothe facility was completed including a new cleanroom for medical products. Volumes in the commercial lighting and fence products sectors were flat andvolumes of custom products, which typically provide significant value addingopportunities for the business, were down in the US. The general weakness in theUS extrusion sector has also generated pricing pressures, particularly withconsistently rising raw material prices throughout the second half of the year.In response to the more difficult market conditions, cost reduction measureshave been taken to streamline the organisation and to optimise productionefficiency. The Northborough, Massachusetts facility was closed at the end ofthe year and production transferred to the neighbouring Athol facility, where anew cleanroom has been constructed to focus on the opportunities within themedical market. Enitor in the Netherlands had an excellent year due to strong sales growth andan improvement in operating efficiency resulting from a strengthening of themanagement team. Trading conditions for the Plastic Profile and Sheet division are expected toremain challenging in 2008. The operational focus will be on ensuring that thebusiness delivers the cost efficiencies from the realignment of the NorthAmerican manufacturing capability. From a sales perspective, the key growthmarkets of aerospace, POP, medical and traffic control remain a priority. Fibre Technologies------------------ Fibre Technologies focuses on the production and supply of special filters forcigarettes and bonded fibre products such as reservoirs and wicks for writinginstruments and printers, household products and medical devices. Fibre Technologies delivered a strong improvement in operating performance inthe year, with operating profit before intangible amortisation and restructuringcosts up 12.5% to £31.6m (2006: £28.1m) reflecting a sharp improvement inoperating margin to 13.8% (2006: 11.0%) despite lower revenue. Revenue was down10.3% to £228.4m (2006: £254.7m). At constant exchange rates, operating profitbefore intangible amortisation and restructuring costs increased by 18.8%,although revenue was down by 5.6%. Cigarette Filters----------------- Cigarette Filters delivered a strong performance resulting from significantoperational improvements at all locations, a turnaround in performance inMexico, the benefits of plant rationalisation in the US, and selected priceadjustments. This performance was particularly encouraging given the reducedvolumes from the business losses announced at the end of 2006. Total filtervolumes reduced by 9.5% or 6.3 billion filters in 2007. The operational performance improvement has been driven by the focus on sixsigma and continuous improvement programmes combined with an increase intraining at the newly established Filters Learning Centre which is located atthe Filtrona Technology Centre in Jarrow, UK. The benefits of these activitieshave manifested themselves in process waste and conversion cost improvements. In Europe, the new lower cost manufacturing facility on the outskirts ofBudapest, Hungary commenced production on schedule and shipped its first filtersto customers in October. In the Americas, the previously announced restructuring programme was completedwithout disruption and to budget. The Monterrey facility continued to improveoperationally and was consistently profitable through the year. Good growth was achieved at each of the Asian locations with improvements inboth volume and financial performance. A representative office was establishedin Beijing, China and a senior manager has been deployed to improve theCompany's presence in the world's largest cigarette market. The Filtrona Technology Centre continued to seek opportunities to secureenhanced value for research and development services and a key joint developmentproject with a major customer was progressed during the year. Market conditions are expected to remain challenging in 2008 and beyond for theCigarette Filters division. Cigarette market volume reductions in the maturemarkets of Western Europe, the US and Japan are generating an increased focus oncost management by the tobacco industry. This is expected to increase the riskof further losses of conventional dual filter volumes with multi-nationalcustomers who may perceive in-house production as a lower unit cost option forhigher volume specifications. In addition, the industry is moving its focus awayfrom selective filtration of smoke for potentially reduced exposure consumerofferings and towards non-lit products. However, Filtrona anticipates that the impact of these factors will be partiallymitigated by pursuing opportunities within market sub-segments as filters areincreasingly seen as key product differentiators, particularly for lower tar andpremium products, such as slim cigarettes. Filtrona will continue to focus on conversion cost improvement and productinnovation to defend market position and exploit growth opportunities. Thedevelopment of capacity and capability in the new lower cost Hungarian facilityand further strengthening of Filtrona's market position in Asia, particularlywith state-owned and independent cigarette producers, remain key priorities. Given the prevailing conditions, a reduction in overall volume in 2008 isanticipated and there is risk of further future volume declines. The Companywill seek to mitigate the impact of any adverse volume movements throughincreased commercial activity with state-owned and independent customers,selective pricing action, commercialisation of new products and plannedoperational improvements, including further restructuring, to drive down unitcosts. Bonded Fibre Components----------------------- The Fibertec Bonded Fibre Components division delivered strong results with alllocations performing well and a number of important multi-year supply agreementswere concluded during the year. Strong organic growth has seen further marketshare gains continuing to be made in the traditional areas of the business,particularly in writing instrument reservoirs, with increased marketingactivities designed to increase the awareness of Fibertec's market leadingcapabilities. With the continued strengthening of the global sales presence,Asia and Eastern Europe provide a focus for the expansion of the business intoemerging markets. The continued development of new products and their associated intellectualproperty is driving growth in new applications and international markets. Atotal of seven patent applications were filed during the year as continuousinnovation and the expansion of capillary science expertise remain key to theongoing success of the Fibertec business. The inkjet printer reservoir businesssecured with a major new US entrant into the inkjet printer market hasprogressed ahead of expectations and pre-launch volumes for a further newproject with an existing customer are now in production. A new wicking materialfor saliva based medical testing was launched to the market and a number ofpotential customers have designed drug abuse test protocols for US Food and DrugAdministration approval containing this material, which is particularlyeffective in cannabis testing. The Ningbo, China factory expansion was completed in the third quarter onschedule and on budget and the facility was consistently profitable during theyear. The Ningbo facility achieved ISO 14001 accreditation and all three Fibertecsites achieved the OHSAS 18001 occupational health and safety accreditation inline with the Group's objective. As Fibertec seeks to further enhance the quality and capability of its globalfootprint, work on the extensive renovation programme for the Reinbek, Germanyfacility commenced and, once completed, will bring operational benefits to thefacility and its health and safety infrastructure. Looking forward into 2008, it is anticipated that the Bonded Fibre Componentsdivision will benefit from increasing revenues in the inkjet printer reservoirmarket and the commercialisation of the new saliva wick technology. Acontinuation in the increase of volume through the Ningbo facility should alsoserve to drive performance. The commissioning of new machinery within thedivision should support the business growth expected from the increased salesand marketing activity. Mark HarperChief Executive28 February 2008 Consolidated income statement for the year ended 31 December 2007 Restated 2007 2006 Note £m £m-------------------------------------------------------------------------------- Revenue 2 494.2 517.1--------------------------------------------------------------------------------Operating profit before intangible amortisation andrestructuring costs 64.4 59.2Intangible amortisation (1.5) (0.9)Restructuring costs (5.0) ---------------------------------------------------------------------------------Operating profit 2,3 57.9 58.3Finance income 4 9.6 8.5Finance expense 4 (15.8) (14.6)--------------------------------------------------------------------------------Profit before tax 51.7 52.2Income tax expense 5 (17.6) (17.7)--------------------------------------------------------------------------------Profit from continuing operations 34.1 34.5Profit from discontinued operations 24 2.0 1.5--------------------------------------------------------------------------------Profit for the year 36.1 36.0================================================================================ Attributable to:Equity holders of Filtrona plc 34.1 34.5Minority interests 2.0 1.5--------------------------------------------------------------------------------Profit for the year 36.1 36.0================================================================================ Earnings per share attributable to equity holders of Filtrona plc:Basic 7 15.8p 15.8p--------------------------------------------------------------------------------Diluted 7 15.6p 15.6p================================================================================ Earnings per share from continuing operations attributable to equity holders of Filtrona plc:Basic 7 15.3p 15.3p--------------------------------------------------------------------------------Diluted 7 15.1p 15.1p================================================================================ Consolidated balance sheetat 31 December 2007 2007 2006 Note £m £m--------------------------------------------------------------------------------AssetsProperty, plant and equipment 8 170.7 178.4Intangible assets 9 87.2 59.5Deferred tax assets 16 0.3 0.3Other receivables 1,11 8.1 ---------------------------------------------------------------------------------Total non-current assets 266.3 238.2Inventories 10 55.2 55.7Income tax receivable 2.3 1.8Trade and other receivables 1,11 71.7 81.1Derivative assets 1,15 0.2 0.2Cash and cash equivalents 1,12 23.8 20.7--------------------------------------------------------------------------------Total current assets 153.2 159.5--------------------------------------------------------------------------------Total assets 419.5 397.7================================================================================ EquityIssued capital 19 54.8 54.8Capital redemption reserve 20 0.1 0.1Other reserve 20 (132.8) (132.8)Cash flow hedging reserve 20 (0.3) -Translation reserve 20 1.9 1.6Retained earnings 20 211.6 219.0--------------------------------------------------------------------------------Attributable to equity holders of Filtrona plc 135.3 142.7Minority interests 20 4.8 6.0--------------------------------------------------------------------------------Total equity 140.1 148.7================================================================================ LiabilitiesInterest bearing loans and borrowings 1,14 157.8 117.9Retirement benefit obligations 18 22.3 30.9Income tax payable 0.9 -Provisions 17 4.5 2.7Deferred tax liabilities 16 12.3 11.6--------------------------------------------------------------------------------Total non-current liabilities 197.8 163.1Bank overdrafts 1,12 0.2 1.0Interest bearing loans and borrowings 1,14 1.0 0.6Derivative liabilities 1,15 1.8 0.3Income tax payable 11.5 16.0Trade and other payables 1,13 65.0 65.0Provisions 17 2.1 3.0--------------------------------------------------------------------------------Total current liabilities 81.6 85.9--------------------------------------------------------------------------------Total liabilities 279.4 249.0--------------------------------------------------------------------------------Total equity and liabilities 419.5 397.7================================================================================ Consolidated statement of cash flowsfor the year ended 31 December 2007 Restated 2007 2006 Note £m £m--------------------------------------------------------------------------------Operating activitiesProfit before tax from continuing operations 51.7 52.2Adjustments for: Net finance expense 6.2 6.1 Intangible amortisation 1.5 0.9 Restructuring costs 5.0 - Depreciation 3 20.4 20.7 Share option expense 18 1.7 1.2 Other items - (0.3)Increase in inventories (1.4) (0.8)Decrease in trade and other receivables 8.0 0.2(Decrease)/increase in trade and other payables (0.4) 0.4Restructuring costs paid (4.5) -Additional pension contributions (2.0) (1.5)Other cash movements (1.3) (1.9)--------------------------------------------------------------------------------Cash inflow from operating activities of continuingoperations 84.9 77.2--------------------------------------------------------------------------------Income tax paid (20.7) (18.0)Net cash inflow from operating activities ofdiscontinued operations 3.3 3.1--------------------------------------------------------------------------------Net cash inflow from operating activities 67.5 62.3================================================================================ Investing activitiesInterest received 0.3 0.8Acquisition of property, plant and equipment (25.0) (32.3)Proceeds from sale of property, plant and equipment 0.6 1.8Acquisition of businesses net of cash acquired 23 (31.5) (0.5)Proceeds from sale of businesses 24 12.9 0.3Income tax paid on sale of businesses (1.0) -Other investing cash flows 20 (0.7) (0.8)--------------------------------------------------------------------------------Net cash outflow from investing activities ofcontinuing operations (44.4) (30.7)--------------------------------------------------------------------------------Net cash outflow from investing activities ofdiscontinued operations (2.6) (1.8)--------------------------------------------------------------------------------Net cash outflow from investing activities (47.0) (32.5)================================================================================ Financing activitiesInterest paid (7.2) (7.1)Dividends paid to equity holders 20 (15.5) (14.3)Realised (losses)/gains on hedges of net investments (3.5) 2.5Proceeds from/(repayments of) short-term loans 0.9 (0.1)Proceeds from/(repayments of) long-term loans 41.1 (14.3)Acquisition of employee trust shares 20 (1.7) (1.2)Purchase of own shares into treasury 20 (30.6) ---------------------------------------------------------------------------------Net cash outflow from financing activities ofcontinuing operations (16.5) (34.5)-------------------------------------------------------------------------------- Net cash outflow from financing activities ofdiscontinued operations (0.6) (0.1)--------------------------------------------------------------------------------Net cash outflow from financing activities (17.1) (34.6)================================================================================ Net increase/(decrease) in cash and cash equivalents 21 3.4 (4.8)================================================================================ Net cash and cash equivalents at the beginning ofthe year 19.7 25.7Net increase/(decrease) in cash and cash equivalents 3.4 (4.8)Net effect of currency translation on cash and cashequivalents 0.5 (1.2)--------------------------------------------------------------------------------Net cash and cash equivalents at the end of the year 1,12 23.6 19.7================================================================================ Consolidated statement of recognised income and expensefor the year ended 31 December 2007 2007 2006 Note £m £m--------------------------------------------------------------------------------Actuarial gains on defined benefit pension schemes 18 6.9 2.2Deferred tax expense on actuarial gains on definedbenefit pension schemes 16 (2.4) (0.7)Effective portion of changes in fair value of cash flowhedges: Losses to equity 20 (0.3) -Foreign exchange translation differences: Transferred to profit on disposal of discontinued operations 24 (5.0) - Attributable to equity holders of Filtrona plc 4.8 (3.7) Attributable to minority interests 0.5 (0.3)--------------------------------------------------------------------------------Income and expense recognised directly in equity 4.5 (2.5)Profit for the year 36.1 36.0--------------------------------------------------------------------------------Total recognised income and expense 40.6 33.5================================================================================ Attributable to:Equity holders of Filtrona plc 38.6 32.3Minority interests 2.0 1.2--------------------------------------------------------------------------------Total recognised income and expense 40.6 33.5================================================================================ Accounting policies a Basis of preparationThe consolidated financial information has been prepared and approved by theDirectors in accordance with International Financial Reporting Standards asadopted by the EU in accordance with EU law (IAS Regulation EC 1606/2002)('adopted IFRS'). Filtrona plc's 2007 Annual Report will be despatched to shareholders in March2008. The financial information set out does not constitute the Company'sstatutory accounts for the year ended 31 December 2007 but is derived from thoseaccounts. Statutory accounts for 2007 will be delivered to the Registrar ofCompanies following the Company's Annual General Meeting which will be held on24 April 2008. The auditor has reported on those accounts; their reports wereunqualified and did not contain statements under Section 237 (2) or (3) of theCompanies Act 1985. The financial information is prepared on a historical cost basis except forderivatives which are stated at fair value. The preparation of financial information that conforms with adopted IFRSrequires the use of estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the financial information and thereported amounts of income and expense during the reporting period. Althoughthese estimates are based on management's best knowledge of the amount, event oractions, actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised and future periods if relevant. The accounting policies used in the preparation of the financial information aredetailed below. These policies have been consistently applied to all periodspresented. In the financial information IFRS 7: Financial instruments:disclosures and amendment to IAS 1: Presentation of financial statements:capital disclosures has been adopted for the first time. IFRS 7 replaces thedisclosure requirements of IAS 32: Financial instruments: disclosure andpresentation and must be applied to reporting periods that commence on or after1 January 2007. The following standards or interpretations have not yet been adopted by theGroup: • IFRS 8: Operating segments (effective for annual periods beginning on or after 1 January 2009) • IFRIC 11: Group and treasury share transactions (effective for annual periods beginning on or after 1 March 2007) For the purposes of the financial information 'Filtrona' or 'the Group' meansFiltrona plc ('the Company') and its subsidiaries. The results for the year ended 31 December 2006 have been restated on acontinuing basis following the disposal of Globalpack (see note 24). b Basis of consolidation(i) SubsidiariesSubsidiaries are entities controlled by Filtrona. Control exists when Filtronahas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain economic benefit from its activities. Thefinancial statements of subsidiaries are included in the financial informationfrom the date that control commences until the date that control ceases. (ii) Transactions eliminated on consolidationIntragroup balances and any unrealised gains and losses or income and expensearising from intragroup transactions are eliminated in preparing the financialinformation. c Foreign currencyItems included in the financial statements of the Group's subsidiaries aremeasured using the primary currency in which the entity operates (functionalcurrency). The consolidated financial information is prepared in sterling(functional currency of parent company). (i) Foreign currency transactionsTransactions in foreign currencies are recorded at the rate of exchange at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are translated into sterling at theexchange rate ruling at that date and recognised in the income statement unlesshedge accounting criteria apply (see policy for derivatives). (ii) Financial statements of foreign operationsThe assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, are translated at the exchange rateruling at the balance sheet date. The revenues and expenses of foreignoperations are translated at average exchange rates. (iii) Net investment in foreign operationsExchange differences on retranslation at the closing rate of the openingbalances of overseas entities are taken to reserves, as are exchange differencesarising on related foreign currency borrowings and derivatives designated as netinvestment hedges, to the extent that they are effective. Other exchangedifferences are taken to the income statement. Differences arising prior to 1January 2004 are included in retained earnings. d DerivativesUnder IAS 39: Financial instruments: recognition and measurement ('IAS 39'),derivatives are measured initially at fair value. The subsequent measurementdepends on the classification of the derivative. Interest bearing loans andborrowings and other financial liabilities (excluding derivatives) are held atamortised cost, unless they are included in a hedge accounting relationship. Seenote 15 for separate disclosure of hedge types. (i) Cash flow hedgesWhere a derivative is designated as a hedging instrument in a cash flow hedgethe change in fair value is recognised in equity to the extent that it iseffective and any ineffective portion is recognised in the income statement.Where the underlying transaction results in a financial asset, accumulated gainsand losses are recognised in the income statement in the same period as thehedged item affects profit or loss. Where the hedged item results in anon-financial asset the accumulated gains and losses previously recognised inequity are included in the initial carrying value of the asset. (ii) Fair value hedgesWhere a derivative is used to hedge the foreign exchange exposure of a monetaryasset or liability, any gain or loss on the derivative is recognised in theincome statement. (iii) Hedges of net investment in foreign operationsThe gain or loss on an instrument used to hedge a net investment in a foreignoperation that is deemed effective is recognised in equity. Any ineffectiveportion is recognised in the income statement. e Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciationand impairment losses. Previously revalued properties were treated as being heldat deemed cost upon transition to adopted IFRS. Where parts of an item of property, plant and equipment or other assets havedifferent useful lives, they are accounted for as separate items. The carryingvalues of property, plant and equipment and other assets are periodicallyreviewed for impairment when events or changes in circumstances indicate thatthe carrying values may not be recoverable. f DepreciationProperty, plant and equipment are depreciated over their estimated remaininguseful lives on a straight line basis at the following annual rates: Freehold land Not depreciatedBuildings 2% or life of lease if shorterPlant and machinery 7-20%Fixtures, fittings and equipment 10-33% The assets' useful lives are reviewed, and adjusted if appropriate, at eachbalance sheet date. g LeasesWhere Filtrona has substantially all the risks and rewards of ownership of anasset subject to a lease, the lease is treated as a finance lease. All otherleases are treated as operating leases and the rentals expensed to the incomestatement on a straight line basis. Lease incentives are amortised in the incomestatement over the life of the lease. h Intangible assets(i) GoodwillGoodwill is stated at cost less any impairment losses.Acquisitions are accounted for using the purchase method. For acquisitions thathave occurred since 1 January 2004 goodwill represents the difference betweenthe cost of acquisition and fair value of identifiable assets, liabilities andcontingent liabilities of the acquiree. For acquisitions made before 1 January2004, goodwill is included on the basis of its deemed cost, which represents theamount previously recorded under UK GAAP. (ii) Research and developmentResearch costs are expensed to the income statement in the year in which theyare incurred. Development costs relating to new products are capitalised if the new product istechnically and commercially feasible. Other development costs are recognised inthe income statement and expensed as incurred. (iii) Customer relationshipsCustomer relationships are identified on acquisition of businesses and valuedusing discounted cash flows based on historical customer attrition rates.Amortisation is expensed in the income statement on a straight line basis overthe estimated useful economic life, being a period of up to 25 years. i ImpairmentAll assets, except intangible assets, deferred tax assets and inventories, arereviewed annually to determine whether there is any indication of impairment.Goodwill and intangible assets with indefinite lives are tested annually. If anindication of impairment exists the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of a non-financialasset or its cash generating unit exceeds its recoverable amount, being thegreater of value in use and net selling price, and is recognised in the incomestatement. Value in use is estimated based on future cash flows discounted usinga pre-tax discount rate. j InventoriesInventories are valued at the lower of cost (on a first in, first out basis) andnet realisable value. For work-in-progress and finished goods, cost includes anappropriate proportion of labour cost and overheads. k Cash and cash equivalentsCash and cash equivalents comprise cash balances and fixed term investmentswhose maturities are three months or less from the date of acquisition. Bankoverdrafts repayable on demand form an integral part of Filtrona's cashmanagement and are included as part of cash and cash equivalents in thestatement of cash flows. l Loans and borrowingsLoans and borrowings are initially measured at cost (which is equal to fairvalue at inception), and are subsequently measured at amortised cost using theeffective interest rate method. Any difference between the proceeds, net oftransaction costs, and the settlement or redemption of borrowings is recognisedover the term of the borrowings using the effective interest rate method. m Trade and other receivablesThe fair value of trade and other receivables is estimated as the present valueof future cash flows less impairment losses. n Trade and other payablesTrade payables are non-interest bearing and are stated at their nominal value. o Income taxIncome tax in the income statement comprises current and deferred tax. Incometax is recognised in the income statement except to the extent that it relatesto items recognised in equity. Current tax is the expected tax payable on the taxable income for the year usingtax rates enacted or substantively enacted at the balance sheet date and anyadjustment to tax payable in prior years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences arising between the tax bases and the carrying amounts ofassets and liabilities in the financial information. The following temporarydifferences are not provided for: goodwill not deductible for tax purposes, theinitial recognition of assets or liabilities that affect neither accounting nortaxable profit, and differences relating to investments in subsidiaries to theextent that they will not reverse in the foreseeable future. Deferred tax isdetermined using tax rates that are expected to apply when the related deferredtax asset or liability is settled. A deferred tax asset is recognised only to the extent that it is probable thatfuture 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 thatthe related tax benefit will be realised. p RevenueRevenue from the sale of goods is recognised in the income statement when thesignificant risks and rewards of ownership have been transferred to the buyer.No revenue is recognised if there are significant uncertainties regardingrecovery of the consideration due, associated expenses or the possible return ofgoods. q Finance income and expenseFinance income and expense is recognised in the income statement as it accrues. r Segment reportingA segment is a distinguishable component of Filtrona that is engaged inproviding products (business segment), or in providing products within aparticular economic environment (geographic segment), which is subject to risksand rewards that are different from those of other segments. For operational and financial reporting purposes, Filtrona identifies twobusiness segments which are characterised by shared technology and raw materialinputs. s Pensions(i) Defined contribution schemesObligations for contributions to defined contribution pension schemes areexpensed to the income statement as incurred. (ii) Defined benefit schemesThe significant pension schemes in Europe and the US have been accounted for ona defined benefit basis under IAS 19 (revised): Employee benefits ('IAS 19(revised)'). Actuarial gains and losses that have arisen are recognised in full in thestatement of recognised income and expense. The net obligations in respect of defined benefit pension schemes are calculatedseparately for each scheme by estimating the amount of future benefit thatemployees have earned in return for their service in the current and priorperiods; that benefit is discounted to determine its present value, and the fairvalue of any scheme assets is deducted. The discount rate is the yield at thebalance sheet date on AA credit-rated bonds that have maturity datesapproximating to the terms of Filtrona's obligations. The calculation isperformed by a qualified independent actuary using the projected unit creditmethod. The amounts charged to operating profit are the current service cost, pastservice cost and gains and losses on settlement and curtailments. The expectedincrease in the present value of scheme liabilities is included within financeexpense and the expected return on scheme assets is included within financeincome. t Share-based paymentsFiltrona operates equity-settled, share-based incentive plans. A charge is madein the income statement based on the fair value of options using theBlack-Scholes, Monte Carlo or binomial valuation models with a correspondingincrease in equity. The fair value is measured at grant date and spread over theperiod between grant and vesting date of the options. The amount recognised asan expense will be adjusted to reflect the actual number of share options thatvest. u Restructuring costsThe restructuring of Filtrona's operations in 2007 has given rise to significantincremental one-off costs. The most significant component of these restructuringcosts was redundancy payments. Filtrona views restructuring costs as an expenseassociated with investment in the future performance of the business and notpart of the trading performance. These costs have had a material impact on theabsolute amount of, and trend in, Filtrona's operating profit and operatingmargin. Therefore such restructuring costs are shown as a separate line itemwithin operating profit on the face of the income statement. v Investment in own sharesThe shares held in the Filtrona Employee Benefit Trust for the purpose offulfilling obligations in respect of share option plans are treated as belongingto the Company and are deducted from its retained earnings. The cost of sharesheld directly (treasury shares) is also deducted from retained earnings. w ProvisionsA provision is recognised when there is a probable legal or constructiveobligation as a result of a past event and a reliable estimate can be made ofthe outflow of economic resources that will be required to settle theobligation. x Net debtNet debt is defined as cash and cash equivalents, net of interest bearing loansand borrowings. y DividendsDividends are recognised as a liability in the period in which they aredeclared. z Discontinued operationsIn 2007 Filtrona disposed of Globalpack and this has been classified as adiscontinued operation in accordance with IFRS 5: Non-current assets held forsale and discontinued operations. The profit after tax of Globalpack, includingprofit on disposal, is disclosed as a single line in the income statement andsimilarly the cash flows are also disclosed as a single line in each of thecategories in the statement of cash flows. The comparative income statement andstatement of cash flows have been restated as if Globalpack had beendiscontinued from 1 January 2006. Critical accounting policies The following provides information on those policies that management considerscritical because of the level of judgement and estimation required which ofteninvolves assumptions regarding future events which can vary from what isanticipated. The Directors believe that the financial information reflectsappropriate judgements and estimates and provide a true and fair view ofFiltrona's performance and financial position. i PensionsFiltrona accounts for its defined benefit pension schemes in accordance with IAS19 (revised). The application of IAS 19 (revised) requires the exercise ofjudgement in relation to the assumptions used (see note 18) and for eachassumption there is a range of possible outcomes. In consultation withFiltrona's actuaries, management decides the point within those ranges that mostappropriately reflects Filtrona's circumstances. Small changes to theseassumptions can have a significant impact on valuations. ii Intangible assetsIFRS 3: Business combinations requires the identification of acquired intangibleassets as part of a business combination. The methods used to value suchintangible assets require the use of estimates. Future results are impacted bythe amortisation periods adopted and changes to the estimated useful lives wouldresult in different effects on the income statement. Goodwill is not amortised but is tested annually for impairment. Tests forimpairment are based on discounted cash flows and assumptions (includingdiscount rates, timing and growth prospects) which are inherently subjective. iii TaxationFiltrona is required to use management judgement to estimate the corporate taxin each of the jurisdictions in which it operates. This requires an estimate ofthe current tax liability together with an assessment of the temporarydifferences which arise as a consequence of different accounting and taxtreatments. iv ProvisionsFiltrona's provisions are based on management's best estimate of exposure basedon currently available information. By their nature these provisions arejudgemental. Notes 1. Risk management Filtrona's activities expose the business to a number of key risks which havethe potential to affect its ability to achieve its business objectives. The Board has overall responsibility for Filtrona's system of internal controland risk management and for reviewing the effectiveness of this system. Such asystem can only be designed to manage, rather than eliminate, the risk offailure to achieve business objectives and can therefore only providereasonable, and not absolute, assurance against material misstatement or loss. Filtrona has a centralised treasury department to manage funding, liquidity andexposure to interest rate and foreign exchange risk. Treasury policies areapproved by the Board and cover the nature of the exposure to be hedged, thetypes of derivatives that may be employed and the criteria for investing andborrowing cash. Filtrona uses derivatives only to manage currency and interestrate risk arising from underlying business activities. No transactions of aspeculative nature are undertaken. The treasury department is subject toperiodic independent reviews by the internal audit department. Underlying policyassumptions and activities are reviewed by the Executive Directors. Controls over exposure changes and transaction authenticity are in place anddealings are restricted to those banks with the relevant combination ofgeographic presence, expertise and suitable credit rating. The following describes Filtrona's financial risk exposure and management from aquantitative and qualitative perspective. i) Credit riskCredit risk is the risk of financial loss if a customer or counterparty to afinancial asset or liability fails to meet its contractual obligations, andarises principally from trade receivables. Filtrona has no significantindividual concentrations of credit risk. The following is an overview of howFiltrona manages its credit risk exposures. Trade and other receivablesFiltrona's exposure to credit risk is driven by the profile of its customers.This is influenced by the demographics of the customer base, including theindustry and country in which customers operate, which is wide and diverse.Filtrona monitors significant customers' credit limits and there is an allowancefor impairment that represents the estimate of potential losses in respect oftrade and other receivables. The components of this allowance are a specificallowance for individual losses and a collective allowance for losses that havebeen incurred but not yet identified. The collective allowance is determinedbased on historical experience. Trade and other receivables are generally due from customers who are unlikely toseek credit ratings as part of their normal course of business. The followingtable provides information on the trade and other receivables credit riskexposure. 2007 2006 £m £m--------------------------------------------------------------------------------Not impaired or past due: New customers (less than one year) 4.6 3.7 Existing customers (more than one year) with no defaults in the past 45.1 55.81-30 days past due not impaired 10.0 11.031-60 days past due not impaired 1.7 1.861-90 days past due not impaired 0.7 0.6More than 90 days past due not impaired 0.5 0.9Impaired 1.0 1.0-------------------------------------------------------------------------------- 63.6 74.8================================================================================ Trade and other receivables carried at £79.8m (2006: £81.1m) include prepaymentsand accrued income of £5.6m (2006: £6.3m) which are not financial assets.Therefore, these amounts are excluded from the above analysis. Trade and otherreceivables also include deferred consideration of £10.6m (2006: £nil) due fromthe Itavema Group for the purchase of the Globalpack business. This amount isalso excluded as it is included in the credit ratings analysis below. During the year impairment losses on trade and other receivables of £0.6m (2006:£0.2m) have been recognised within net operating expense. Derivative assetsCredit risk with respect to derivatives is controlled by limiting transactionsto major banking counterparties where internationally agreed standard formdocumentation exists. The credit ratings of these counterparties are monitored. Cash and cash equivalentsCredit risk relating to cash and cash equivalents is monitored daily, on acounterparty by counterparty basis. The credit limits imposed specify themaximum amount of cash which can be invested in or with any single counterparty.These limits are determined by geographic presence, expertise and credit rating.Filtrona monitors the credit ratings of counterparties. The following credit risk table provides information regarding the credit riskexposure of Filtrona by classifying deferred consideration, derivative assetsand cash and cash equivalents according to credit ratings of the counterparties.AAA is the highest possible rating and all of the assets are neither impairednor past due. 2007 ------------------------------------------------------------- AAA AA A BBB BB B Not rated Total £m £m £m £m £m £m £m £m--------------------------------------------------------------------------------Deferred - 10.6 - - - - - 10.6considerationDerivative assets - 0.2 - - - - - 0.2Cash and cash equivalents 0.1 11.4 9.4 1.6 0.1 0.4 0.8 23.8-------------------------------------------------------------------------------- 0.1 22.2 9.4 1.6 0.1 0.4 0.8 34.6================================================================================ 2006 ------------------------------------------------------------- AAA AA A BBB BB B Not rated Total £m £m £m £m £m £m £m £m--------------------------------------------------------------------------------Derivative assets - 0.2 - - - - - 0.2Cash and cash equivalents 0.1 9.8 8.2 1.4 0.1 0.4 0.7 20.7-------------------------------------------------------------------------------- 0.1 10.0 8.2 1.4 0.1 0.4 0.7 20.9================================================================================ Filtrona's maximum credit risk exposure is £98.2m (2006: £95.7m) and nocollateral is held against this amount (2006: £nil). ii) Market riskMarket risk is the risk that changes in foreign exchange rates and interestrates will affect income or the value of financial assets and liabilities.Filtrona has produced a sensitivity analysis that shows the estimated change tothe income statement and equity of either an increase or decrease of 100 basispoints ('bp') in market interest rates or a 5% weakening or strengthening insterling against all other currencies. The amounts generated from thesensitivity analysis are estimates and actual results in the future maymaterially differ. Filtrona is exposed to two types of market risk; currency risk and interest raterisk. a) Currency riskFiltrona publishes its consolidated financial information in sterling butconducts business in several foreign currencies. Therefore it is subject tocurrency risk due to exchange rate movements which affect the translation ofresults and underlying net assets of its operations and their transaction costs. Hedge of net investment in foreign operationsThe majority of Filtrona's net assets are in currencies other than sterling.Filtrona's policy is to eliminate approximately 100% of the impact onshareholders' funds from translation exposure to US dollars and euros byborrowing in those currencies and by using forward foreign exchange contracts.Throughout the year borrowings were primarily held in US dollars and sterling. Transaction exposure hedgingThe majority of Filtrona's transactions are carried out in the functionalcurrencies of its operations and so transaction exposure is limited. However,where they do occur, Filtrona's policy is to hedge 100% of the exposures as soonas they are committed cash flows using forward foreign exchange contracts for aperiod between three and six months. The following table shows Filtrona's sensitivity to a 5% weakening or a 5%strengthening in sterling against all currencies. To calculate the impact on theincome statement for the year all currencies' average rates have been increasedor decreased by 5%. The translational effect on equity is limited as all USdollar and euro exposure is fully hedged. Accordingly the effect on equity iscalculated by increasing or decreasing the closing rate of all currencies,except US dollar and euro, by 5%. It is assumed that all net investment and cashflow hedges will be 100% effective. 2007 2006 ------------------------------ ---------------------------- 5% 5% 5% 5% weakening in strengthening weakening in strengthening sterling in sterling sterling in sterling £m £m £m £m--------------------------------------------------------------------------------Impact on the income statement - gain/(loss) 1.9 (1.8) 1.8 (1.8)Impact on equity -gain/(loss) 4.0 (3.7) 4.6 (4.1)================================================================================ b) Interest rate riskFiltrona's strategy is to ensure with a reasonable amount of certainty that atleast 50% of the overall net finance expense is protected against materialadverse movements in interest rates using interest rate swaps and caps. The following table shows Filtrona's sensitivity to a 100 bp decrease or a 100bp increase in sterling, US dollar and euro interest rates. To calculate theimpact on the income statement for the year the interest rates on all externalinterest bearing loans and deposits have been increased or decreased by 100 bp,and the resulting increase or decrease in the net interest charge has beenadjusted for the effect of Filtrona's interest rate derivatives. The effect onequity includes the above impact on the income statement and the impact of a 100bp decrease or increase in interest rates on the market values of Filtrona'sinterest rate derivatives. The impact on derivatives is estimated by discountingthe future cash flows to net present values using appropriate market ratesprevailing at the year end. 2007 2006 --------------------------------- --------------------------------- 100 bp decrease 100 bp increase 100 bp decrease 100 bp increase in interest in interest in interest in interest rates rates rates rates £m £m £m £m--------------------------------------------------------------------------------Impact on the incomestatement - gain/(loss) 1.0 (0.7) 1.2 (1.1)Impact on equity -gain/(loss) 0.7 (0.3) 0.7 (0.3)================================================================================ See note 14 for interest rate disclosure on loans and borrowings. iii) Liquidity riskLiquidity risk is the risk that Filtrona, although solvent, either does not haveavailable sufficient financial resources to enable it to meet its obligations asthey fall due, or can secure them only at excessive cost. Filtrona's objective is to maintain a balance between continuity of funding andflexibility. Filtrona is funded by a multi-currency syndicated facility from itsbankers. The syndicated facility matures in May 2010. At 31 December 2007 theavailable bank facilities totalled £215.0m of which £157.8m was drawn down. Inaddition, uncommitted and overdraft facilities are maintained to provide shortterm flexibility. Filtrona's available undrawn committed facilities at 31 December were: 2007 2006 £m £m--------------------------------------------------------------------------------Expiring within one year - -Expiring after one but within two years - -Expiring after two years 57.2 97.2-------------------------------------------------------------------------------- 57.2 97.2================================================================================ Any loans drawn on these facilities would bear interest at floating rates withreference to LIBOR for the currency and period of the loan. The maturity of Filtrona's financial liabilities is analysed below. 2007 2006---------------------------------------------------------------- --------------------------------------- < 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 1.0 - 157.8 158.8 0.1 0.1 117.8 118.0Unsecured non-bank loan - - - - 0.5 - - 0.5Bank overdrafts 0.2 - - 0.2 1.0 - - 1.0Derivative liabilities 1.8 - - 1.8 0.3 - - 0.3Trade and other payables 41.7 - - 41.7 48.0 - - 48.0--------------------------------------------------------------------------------------------------------- 44.7 - 157.8 202.5 49.9 0.1 117.8 167.8========================================================================================================= Trade and other payables carried at £65.0m (2006: £65.0m) include accruals anddeferred income of £23.3m (2006: £17.0m) which are not financial liabilities.Therefore, these amounts are excluded from the above analysis. All trade and other payables are due to be settled in less than six months. Total financial assets and liabilitiesThe table below sets out Filtrona's accounting categories and fair value foreach class of financial asset and liability. 2007 2006 --------------------------------------------------- ------------------------------------------------ Total Total Designated carrying Designated carrying at fair Loans and Amortised and fair at fair Loans and Amortised and fair value receivables cost value value receivables cost value £m £m £m £m £m £m £m £m------------------------------------------------------------------------------------------------------------------------Trade and other receivables - 74.2 - 74.2 - 74.8 - 74.8Derivative assets 0.2 - - 0.2 0.2 - - 0.2Cash and cash - 23.8 - 23.8 - 20.7 - 20.7equivalentsInterest bearingloans and borrowings - - (158.8) (158.8) - - (118.5) (118.5)Bank overdrafts - - (0.2) (0.2) - - (1.0) (1.0)Derivative liabilities (1.8) - - (1.8) (0.3) - - (0.3)Trade and other - - (41.7) (41.7) - - (48.0) (48.0)payables ------------------------------------------------------------------------------------------------------------------------ (1.6) 98.0 (200.7) (104.3) (0.1) 95.5 (167.5) (72.1)======================================================================================================================== iv) Capital structureFiltrona's objective when managing its capital structure is to safeguard itsability to continue as a going concern, so that it can continue to providereturns for shareholders and benefits for other stakeholders. Filtrona sets the amount of capital in proportion to risk. Filtrona manages thecapital structure and makes adjustments to it in the light of changes ineconomic conditions and the risk characteristics of the underlying assets. Inorder to maintain or adjust the capital structure, Filtrona may return capitalto shareholders, through dividends and share buy backs as it did in 2007, issuenew shares or sell assets to reduce debt. Filtrona monitors its capital structure on the basis of the medium-term netdebt-to-EBITDA ratio. EBITDA is defined as operating profit before depreciation,share option expense, intangible amortisation and restructuring costs fromcontinuing operations. During 2007, Filtrona's strategy, which was unchangedfrom 2006, was to maintain the medium-term net debt-to-EBITDA ratio in the range1.0 to 2.5. The net debt-to-EBITDA ratios at 31 December were: 2007 2006 £m £m--------------------------------------------------------------------------------Net debt 135.2 98.8 Operating profit before intangible amortisation andrestructuring costs 64.4 59.2Plus depreciation 20.4 20.7Plus share option expense 1.7 1.2--------------------------------------------------------------------------------EBITDA 86.5 81.1Net debt-to-EBITDA ratio 1.56 1.22================================================================================ Amounts drawn by Filtrona on its committed facilities are subject to standardbanking covenants. 2. Segment analysis Filtrona comprises the following business segments: Plastic Technologies produces, sources and distributes protection and finishingproducts, self-adhesive tear tape and certain security products as well asproprietary and customised plastic extrusions. Fibre Technologies focuses on the production and supply of special filters forcigarettes and bonded fibre products such as reservoirs and wicks for writinginstruments and printers, household products and medical devices. Business segments 2007 --------------------------------------------------------------------------------- Plastic Fibre Central Continuing Discontinued Technologies Technologies Services+ operations operations Total £m £m £m £m £m £m------------------------------------------------------------------------------------------------------------------Revenue 265.8 228.4 - 494.2 14.0 508.2Operating profit/(loss) beforeintangible amortisationand restructuring costs 41.6 31.6 (8.8) 64.4 1.8 66.2Intangible amortisation (1.4) (0.1) - (1.5) - (1.5)Restructuring costs (0.8) (4.2) - (5.0) - (5.0)------------------------------------------------------------------------------------------------------------------Operating profit/(loss) 39.4 27.3 (8.8) 57.9 1.8 59.7==================================================================================================================Segment assets 163.8 131.1 10.6 305.5 - 305.5Intangible assets 83.9 3.3 - 87.2 - 87.2Unallocated items 26.8 26.8 26.8------------------------------------------------------------------------------------------------------------------Total assets 247.7 134.4 37.4 419.5 - 419.5==================================================================================================================Segment liabilities 32.2 26.6 7.2 66.0 5.7 71.7Unallocated items 207.7 207.7 207.7------------------------------------------------------------------------------------------------------------------Total liabilities 32.2 26.6 214.9 273.7 5.7 279.4==================================================================================================================Other segment itemsCapital expenditure 14.7 10.3 - 25.0 2.7 27.7Depreciation 11.7 8.5 0.2 20.4 1.2 21.6Closing number of employees 2,457 2,172 37 4,666 - 4,666Average number of employees 2,474 2,253 37 4,764 358 5,122 Restated 2006 --------------------------------------------------------------------------------- Plastic Fibre Central Continuing Discontinued Technologies Technologies Services+ operations operations Total £m £m £m £m £m £m------------------------------------------------------------------------------------------------------------------Revenue 262.4 254.7 - 517.1 27.1 544.2Operating profit/(loss) before intangible amortisation 39.0 28.1 (7.9) 59.2 2.4 61.6Intangible amortisation (0.8) (0.1) - (0.9) - (0.9)------------------------------------------------------------------------------------------------------------------Operating profit/(loss) 38.2 28.0 (7.9) 58.3 2.4 60.7==================================================================================================================Segment assets 151.5 139.1 1.2 291.8 23.5 315.3Intangible assets 56.3 3.2 - 59.5 - 59.5Unallocated items 22.9 22.9 22.9------------------------------------------------------------------------------------------------------------------Total assets 207.8 142.3 24.1 374.2 23.5 397.7==================================================================================================================Segment liabilities 32.7 29.1 6.7 68.5 3.0 71.5Unallocated items 177.5 177.5 177.5------------------------------------------------------------------------------------------------------------------Total liabilities 32.7 29.1 184.2 246.0 3.0 249.0==================================================================================================================Other segment itemsCapital expenditure 19.2 12.9 0.2 32.3 2.0 34.3Depreciation 11.4 9.0 0.3 20.7 2.2 22.9Closing number of employees 2,339 2,413 33 4,785 820 5,605Average number of employees 2,294 2,385 33 4,712 761 5,473 + 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. Continuing operations'net finance expense of £6.2m (2006: £6.1m) and income tax expense of £17.6m(2006: £17.7m) cannot be meaningfully allocated by segment. The majority ofunallocated assets relate to cash and cash equivalents and the majority ofunallocated liabilities relate to interest bearing loans and borrowings,retirement benefit obligations, deferred tax liabilities, bank overdrafts andincome tax payable. Geographic segments 2007 ----------------------------------------------------------------- Revenue by Segment Intangible Capital destination assets assets expenditure £m £m £m £m-------------------------------------------------------------------------------------Europe 200.1 141.6 42.1 10.3North America 197.6 116.1 44.9 10.1Rest of World 96.5 47.8 0.2 4.6------------------------------------------------------------------------------------- 494.2 305.5 87.2 25.0Unallocated items 26.8-------------------------------------------------------------------------------------Continuing operations 494.2 332.3 87.2 25.0Discontinued operations 14.0 - - 2.7------------------------------------------------------------------------------------- 508.2 332.3 87.2 27.7------------------------------------------------------------------------------------- Restated 2006 ----------------------------------------------------------------- Revenue by Segment Intangible Capital destination assets assets expenditure £m £m £m £m-------------------------------------------------------------------------------------Europe 191.7 128.3 40.0 14.7North America 219.6 115.6 19.2 11.6Rest of World 105.8 47.9 0.3 6.0------------------------------------------------------------------------------------- 517.1 291.8 59.5 32.3Unallocated items - 22.9 - --------------------------------------------------------------------------------------Continuing operations 517.1 314.7 59.5 32.3Discontinued operations 27.1 23.5 - 2.0------------------------------------------------------------------------------------- 544.2 338.2 59.5 34.3===================================================================================== 3. Net operating expense Restated 2007 2006Continuing operations £m £m-------------------------------------------------------------------------------------------------Changes in inventories of finished goods and work-in-progress (1.6) 0.1Raw materials and consumables 217.0 240.9Personnel expense (note 6) 119.5 121.2Depreciation and other amounts written off property, plant and equipment 20.4 20.7Amortisation and other amounts written off intangible assets 1.5 0.9Restructuring costs 5.0 -Hire of plant and machinery - rentals payable under operating leases 0.8 0.6Fair value hedging instrument losses/(gains) 0.4 (0.3)Fair value hedged items (gains)/losses (0.4) 0.3Other operating expenses 73.7 74.4-------------------------------------------------------------------------------------------------Net operating expense 436.3 458.8================================================================================================= Filtrona's cash flow hedges and hedges of net investments were entirely effective, as defined by IAS 39, and therefore no hedge ineffectiveness has been recognised in net operating expense in 2007 (2006: £nil). Auditor's remuneration 2007 2006 Note £m £m---------------------------------------------------------------------------------------------------- Audit of these financial statements i 0.2 0.2Audit 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 0.1Other services relating to tax iii 0.6 0.1Services relating to corporate finance transactions enteredinto or proposed to be entered into by or on behalf of the Company or the Group iv 0.1 0.3---------------------------------------------------------------------------------------------------- Total non-audit fees v 0.8 0.5---------------------------------------------------------------------------------------------------- Total fees 1.6 1.3==================================================================================================== Notesi Includes remuneration and expenses for the audit of the Company for the year of £4,238 (2006: £4,115)ii Fees for other services pursuant to such legislation related principally to the review of the interim financial statementsiii Other services relating to tax are fees paid for tax compliance services and tax adviceiv 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 compromisedv £0.8m (2006: £0.4m) of the total non-audit fees were charged in the UKvi Fees of £20,575 (2006: £23,000) were paid in relation to the audit of the Filtrona pension schemes 4. Net finance expense Restated 2007 2006Continuing operations £m £m--------------------------------------------------------------------------------Finance incomeBank deposits 0.4 0.7Unwind of discount on Globalpack deferred consideration 0.4 -Other finance income 0.1 0.1Expected return on pension scheme assets (note 18) 8.7 7.7-------------------------------------------------------------------------------- 9.6 8.5-------------------------------------------------------------------------------- Finance expenseLoans and overdrafts (7.2) (7.1)Other finance expense (0.2) -Interest on pension scheme liabilities (note 18) (8.4) (7.5)-------------------------------------------------------------------------------- (15.8) (14.6)--------------------------------------------------------------------------------Net finance expense (6.2) (6.1)================================================================================ 5. Income tax expense Restated 2007 2006Continuing operations £m £m--------------------------------------------------------------------------------Components of tax expense:Current tax 23.8 21.2Prior years' tax (1.0) (1.7)Double tax relief (5.7) (2.4)Deferred tax (note 16) 0.5 0.6--------------------------------------------------------------------------------Income tax expense 17.6 17.7-------------------------------------------------------------------------------- Income tax expense in the UK is £2.0m (2006: £2.4m). Factors affecting income tax expense for the year Filtrona operates across the world and is subject to income tax in manydifferent jurisdictions. Filtrona calculates its average expected tax rate as aweighted average of the national corporate income tax rates in the taxjurisdictions in which it operates. Restated 2007 2006Continuing operations £m £m--------------------------------------------------------------------------------Profit before income tax 51.7 52.2Tax at weighted average (2007: 32.5%; 2006: 33.0%) 16.8 17.2Effects of: Permanent disallowables 0.3 0.8 Overseas state and local tax 0.7 0.8 Unrelieved tax losses 0.4 0.2 Prior year adjustments (1.0) (1.7) Other items 0.4 0.4--------------------------------------------------------------------------------Income tax expense 17.6 17.7================================================================================ 6. Personnel expense Restated 2007 2006Continuing operations £m £m--------------------------------------------------------------------------------Wages and salaries 101.0 103.8Social security expense 10.6 10.8Pension expense (note 18) 6.2 5.4Share option expense 1.7 1.2-------------------------------------------------------------------------------- 119.5 121.2================================================================================ Key management remuneration Restated 2007 2006Continuing operations £m £m--------------------------------------------------------------------------------Salary 1.8 1.6Bonus 0.6 0.5Benefits 0.5 0.4-------------------------------------------------------------------------------- 2.9 2.5================================================================================ Filtrona considers key management personnel to be the members of the GlobalExecutive. 7. Earnings per share Restated 2007 2006 £m £m--------------------------------------------------------------------------------Continuing operationsEarnings attributable to equity holders of Filtrona plc 33.0 33.5Adjustment* 4.3 0.6--------------------------------------------------------------------------------Adjusted earnings 37.3 34.1================================================================================ Discontinued operationsEarnings attributable to equity holders of Filtrona plc 1.1 1.0================================================================================ Basic weighted average ordinary shares in issue (million) 216.3 218.8Dilutive effect of employee share option plans (million) 2.2 1.8--------------------------------------------------------------------------------Diluted weighted average ordinary shares (million) 218.5 220.6================================================================================ Continuing operationsBasic earnings per share 15.3p 15.3pAdjustment* 1.9p 0.3p--------------------------------------------------------------------------------Adjusted earnings per share 17.2p 15.6p================================================================================Diluted basic earnings per share 15.1p 15.1p--------------------------------------------------------------------------------Diluted adjusted earnings per share 17.1p 15.5p-------------------------------------------------------------------------------- Discontinued operationsBasic earnings per share 0.5p 0.5p--------------------------------------------------------------------------------Diluted basic earnings per share 0.5p 0.5p-------------------------------------------------------------------------------- Adjusted earnings per share is provided to reflect the underlying earningsperformance of Filtrona. The basic weighted average number of ordinary shares in issue excludes sharesheld in treasury and shares held by an employee benefit trust. * The adjustment relates to intangible amortisation and restructuring costs (2006: intangible amortisation) less tax relief at 34.0% (2006: 34.0%) thereon 8. Property, plant and equipment 2007 --------------------------------------------------------- Fixtures, Land and Plant and fittings and buildings machinery equipment Total £m £m £m £m--------------------------------------------------------------------------------CostBeginning of year 58.1 271.4 40.5 370.0Acquisitions 2.6 0.3 0.1 3.0Divestment of Globalpack (1.6) (30.4) (3.9) (35.9)Additions 3.2 20.9 3.6 27.7Disposals (0.3) (6.3) (2.1) (8.7)Restructuring (0.7) (1.5) (0.3) (2.5)Currency translation 1.0 3.4 1.0 5.4--------------------------------------------------------------------------------End of year 62.3 257.8 38.9 359.0-------------------------------------------------------------------------------- DepreciationBeginning of year 13.0 150.8 27.8 191.6Expense in year 1.3 16.5 3.8 21.6Divestment of Globalpack (0.4) (15.8) (2.2) (18.4)Disposals (0.3) (5.6) (2.0) (7.9)Restructuring (0.6) (1.1) (0.2) (1.9)Currency translation 0.4 2.5 0.4 3.3--------------------------------------------------------------------------------End of year 13.4 147.3 27.6 188.3----------------------------------------------------------------------------------------------------------------------------------------------------------------Net book value at end of year 48.9 110.5 11.3 170.7================================================================================ 2006 --------------------------------------------------------- Fixtures, Land and Plant and fittings and buildings machinery equipment Total £m £m £m £m--------------------------------------------------------------------------------CostBeginning of year 59.2 267.1 40.9 367.2Acquisitions - 0.1 - 0.1Divestment - (0.7) (0.2) (0.9)Additions 3.9 27.0 3.4 34.3Disposals (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-------------------------------------------------------------------------------- DepreciationBeginning of year 12.7 147.3 26.7 186.7Expense in year 1.5 17.6 3.8 22.9Divestment - (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================================================================================Net book value at beginningof year 46.5 119.8 14.2 180.5-------------------------------------------------------------------------------- 9. Intangible assets 2007 2006Goodwill £m £m--------------------------------------------------------------------------------Net book valueBeginning of year 40.3 43.3Acquisitions (note 23) 12.4 -Currency translation 1.1 (3.0)--------------------------------------------------------------------------------End of year 53.8 40.3-------------------------------------------------------------------------------- Customer relationships--------------------------------------------------------------------------------CostBeginning of year 21.4 21.0Acquisitions (note 23) 14.1 0.6Currency translation 1.8 (0.2)--------------------------------------------------------------------------------End of year 37.3 21.4-------------------------------------------------------------------------------- AmortisationBeginning of year 2.2 1.3Expense in year 1.5 0.9Currency translation 0.2 ---------------------------------------------------------------------------------End of year 3.9 2.2----------------------------------------------------------------------------------------------------------------------------------------------------------------Net book value at end of year 33.4 19.2================================================================================Net book value at beginning of year 19.2 19.7-------------------------------------------------------------------------------- Total net book value of intangible assets at end of year 87.2 59.5================================================================================ Filtrona tests intangible assets annually for impairment, or more frequently ifthere are indications that they are impaired. Intangible assets are allocated tocash generating units and a discounted cash flow analysis is computed to comparediscounted estimated future operating cash flows to the net carrying value ofeach business, as discussed in the Business Review. The analysis is based onforecast cash flows, with zero growth used to determine terminal values. Theestimated cash flows are discounted using Filtrona's weighted average cost ofcapital and any impairments identified are charged to the income statement. Thetest is dependent on management estimates and judgements, in particular inrelation to the forecasting of future cash flows, and the discount rate appliedto these cash flows. 10. Inventories 2007 2006 £m £m--------------------------------------------------------------------------------Raw materials and consumables 21.9 23.9Work-in-progress 2.6 3.1Finished goods and goods for resale 30.7 28.7-------------------------------------------------------------------------------- 55.2 55.7================================================================================ Inventories held at net realisable value and amounts recognised as income fromthe reversal of impairments were not significant. 11. Trade and other receivables 2007 2006 £m £m--------------------------------------------------------------------------------Non-current assetsOther receivables 8.1 -================================================================================ Current assetsTrade receivables 56.3 68.2Other receivables 9.8 6.6Prepayments and accrued income 5.6 6.3-------------------------------------------------------------------------------- 71.7 81.1================================================================================ Total trade and other receivables 79.8 81.1================================================================================ Other receivables include an amount of £10.6m (2006: £nil) due from the ItavemaGroup for the purchase of the Globalpack business. 12. Cash and cash equivalents 2007 2006 £m £m--------------------------------------------------------------------------------Bank balances 23.8 18.3Short-term bank deposits not repayable on demand - 2.4--------------------------------------------------------------------------------Cash and cash equivalents 23.8 20.7Bank overdrafts (0.2) (1.0)--------------------------------------------------------------------------------Cash and cash equivalents in the statement of cash flows 23.6 19.7================================================================================ 13. Trade and other payables 2007 2006 £m £m--------------------------------------------------------------------------------Trade payables 33.2 38.1Other tax and social security contributions 3.0 3.2Other payables 5.5 6.7Accruals and deferred income 23.3 17.0-------------------------------------------------------------------------------- 65.0 65.0================================================================================ 14. Interest bearing loans and borrowings 2007 2006 £m £m--------------------------------------------------------------------------------Non-current liabilitiesUnsecured bank loans 157.8 117.9================================================================================ Current liabilitiesUnsecured bank loans 1.0 0.1Unsecured non-bank loan - 0.5-------------------------------------------------------------------------------- 1.0 0.6================================================================================ All debt must be repaid no later than May 2010. At 31 December 2007, the majority of Filtrona's interest bearing loans andborrowings were at floating rates of interest set with reference to LIBOR forperiods ranging from seven days to three months. €30m and up to US$75m of netdebt was protected from adverse movements in interest rates with interest ratecaps for a period of 23 months. On 24 February 2006 the interest rate on US$40mof net debt was effectively fixed at 5.1775% with an interest rate swap for aperiod of two years. With effect from 24 November 2006 the interest rate on afurther US$30m of net debt was effectively fixed at 5.4313% with an interestrate swap for a period of two years. On 31 July 2007 and with effect from 21November 2008 the interest rate on a further US$30m of net debt was effectivelyfixed at 5.3935% for a period of one year, extending to November 2009. At 31 December 2006, the majority of Filtrona's interest bearing loans andborrowings were at floating rates of interest set with reference to LIBOR forperiods ranging from seven days to three months. €30m and up to US$65m of netdebt was protected from adverse movements in interest rates with interest ratecaps for a period of 20 months. After taking into account foreign exchange swaps, the currency and interest rateprofile of Filtrona's financial assets and liabilities is as follows: 2007 2006 ---------------------------------------------------------------------------------------------------------------------- Impact of Impact of Non- foreign Non- foreign Fixed Floating interest exchange Fixed Floating interest exchange rate rate bearing swaps Total rate rate bearing swaps Total £m £m £m £m £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------------AssetsSterling - - 6.8 19.8 26.6 - 3.4 8.9 - 12.3US dollar - 7.0 39.2 (11.7) 34.5 - 5.0 27.2 - 32.2Euro - 6.4 15.9 (7.4) 14.9 - 4.3 20.1 - 24.4Other - 10.4 12.3 (0.5) 22.2 - 8.0 18.6 - 26.6---------------------------------------------------------------------------------------------------------------------- - 23.8 74.2 0.2 98.2 - 20.7 74.8 - 95.5====================================================================================================================== LiabilitiesSterling - 51.5 6.5 (60.2) (2.2) - 31.1 7.5 (61.3) (22.7)US dollar 35.2 71.3 19.8 4.9 131.2 35.7 52.5 23.4 9.5 121.1Euro - 0.1 8.1 56.8 65.0 - 0.2 10.5 52.1 62.8Other - 0.9 7.6 - 8.5 - - 6.6 - 6.6---------------------------------------------------------------------------------------------------------------------- 35.2 123.8 42.0 1.5 202.5 35.7 83.8 48.0 0.3 167.8---------------------------------------------------------------------------------------------------------------------- 15. Derivatives Filtrona uses derivatives to hedge its exposure to foreign exchange and interestrate risks arising from operational, financing and investment activities. Inaccordance with its treasury policy, Filtrona does not hold or issue derivativesfor trading purposes. Assets Liabilities ----------------------- ----------------------- Contractual Contractual Fair or notional Fair or notional values amounts values amounts £m £m £m £m------------------------------------------------------------------------------------------At 31 December 2007Fair value hedgesForward foreign exchange contracts 0.2 5.5 (0.5) 20.1Cash flow hedgesForward foreign exchange contracts - 0.4 - 1.3Interest rate swaps - 20.1 (0.3) 30.2Hedges of net investmentsCross currency swaps - 1.6 (1.0) 59.6------------------------------------------------------------------------------------------ 0.2 27.6 (1.8) 111.2========================================================================================== Assets Liabilities ----------------------- ----------------------- Contractual Contractual Fair or notional Fair or notional values amounts values amounts £m £m £m £m------------------------------------------------------------------------------------------At 31 December 2006Fair value hedgesForward foreign exchange contracts - 1.6 - 9.7Cash flow hedgesForward foreign exchange contracts - 1.8 - 2.5Interest rate swaps 0.2 35.9 - -Hedges of net investmentsCross currency swaps - 4.4 (0.3) 57.2------------------------------------------------------------------------------------------ 0.2 43.7 (0.3) 69.4========================================================================================== Fair value hedges are hedges of the currency risk exposure to changes in thefair value of recognised assets or liabilities or a previously unrecognised firmcommitment to buy or sell assets at a fixed price. Cash flow hedges are hedges of the currency and interest rate risk exposure tovariability in cash flows. Hedges of net investments are hedges of the currency risk exposure to changes inthe fair value of recognised investments in foreign operations. Fair values of forward foreign exchange contracts and cross currency swaps havebeen calculated at year end forward exchange rates compared to contracted rates.Fair values of interest rate swaps have been calculated by discounting cashflows at forward rates. All other financial assets, classified as 'loans andreceivables', and financial liabilities, classified as 'amortised cost', areheld at amortised cost and have short terms to maturity. For this reason, theircarrying amounts at the reporting date approximate the fair values. The net fair value gains on open forward foreign exchange contracts that hedgeforeign currency risk of anticipated future sales and purchases will betransferred to the income statement when the forecast sales and purchases occur.With the exception of the receipt of the Globalpack disposal consideration fromthe Itavema Group all of the hedged transactions are expected to occur over thenext 12 months. With the exception of the consideration discussed above and theinterest rate swaps discussed in note 14 all other derivative instruments maturewithin the next 12 months. Filtrona has US dollar denominated borrowings and US dollar and euro currencyswaps which it has designated as hedges of its net investments in subsidiaryundertakings. The exchange gains of £0.8m (2006: gains of £15.5m) on theseborrowings and the gains of £0.4m (2006: gains of £2.1m) on the US dollarcurrency swaps and losses of £4.4m (2006: gains of £0.8m) on euro currency swapshave been recognised in reserves. Finance income and expense arising on financial assets and financial liabilitiesheld at amortised cost are those amounts, excluding the expected return onpension scheme assets and interest on pension scheme liabilities, detailed innote 4. The only losses recognised on financial assets held at amortised costare those detailed as impairment losses in note 1. 16. Deferred tax Deferred tax assets and liabilities are attributable to the following: 2007 2006 -------------------------------- ---------------------------------- Assets Liabilities Net Assets Liabilities Net £m £m £m £m £m £m------------------------------------------------------------------------------------------------------------Property, plant and equipment (1.8) 13.7 11.9 (0.6) 17.8 17.2Intangible assets - 8.7 8.7 - 7.2 7.2Employee benefits (6.7) - (6.7) (10.0) - (10.0)Other (3.7) 1.8 (1.9) (3.8) 0.7 (3.1)------------------------------------------------------------------------------------------------------------Tax (assets)/liabilities (12.2) 24.2 12.0 (14.4) 25.7 11.3Set off of tax 11.9 (11.9) - 14.1 (14.1) -------------------------------------------------------------------------------------------------------------Net tax (assets)/liabilities (0.3) 12.3 12.0 (0.3) 11.6 11.3============================================================================================================ Movements in temporary differences in the year: 2007 2006 £m £m-------------------------------------------------------------------------------------------------Beginning of year 11.3 9.8Charge to the income statement in respect of current year (note 5) 0.5 0.6Charge to the income statement in respect of current year - discontinued operations - 0.1(Credit)/charge to the income statement in respect of prior years (0.5) 0.9Charge to reserves on movements on defined benefit pension schemes 2.4 0.7Acquisitions (note 23) (0.3) -Divestment of Globalpack (1.8) -Currency translation 0.4 (0.8)-------------------------------------------------------------------------------------------------End of year 12.0 11.3================================================================================================= No deferred tax liability is provided in respect of any future remittance ofearnings of foreign subsidiaries where Filtrona is able to control theremittance of earnings and it is probable that such earnings will not beremitted in the foreseeable future, or where no liability would arise on theremittance. Deferred tax assets of £1.9m (2006: £0.7m) have not been recognisedwhere their realisation is not considered probable. These assets include capitallosses of £0.6m (2006: £0.7m) and other temporary differences of £1.3m (2006:£nil). 17. Provisions 2007-------------------------------------------------------------------------------- Discontinued Other Total £m £m £m--------------------------------------------------------------------------------MovementsBeginning of year - 5.7 5.7Provisions made during the year - 2.5 2.5Provisions reversed during the year - (2.3) (2.3)Acquisitions (note 23) - 0.2 0.2Reclassified to working capital - (2.2) (2.2)Reclassified to employee benefits (note 18) - (0.6) (0.6)Utilised (0.7) (2.4) (3.1)Charged against discontinued operations 6.4 - 6.4--------------------------------------------------------------------------------End of year 5.7 0.9 6.6================================================================================ Non-current 3.7 0.8 4.5Current 2.0 0.1 2.1-------------------------------------------------------------------------------- 5.7 0.9 6.6================================================================================ Discontinued provisions relate to warranties made on the disposal of Globalpack.Other provisions relate primarily to vacant properties and employees'compensation claims. Non-current provisions are generally long-term in naturewith the timing of utilisation uncertain. 2006 £m--------------------------------------------------------------------------------MovementsBeginning of year 7.5Acquisitions 0.3Utilised (2.0)Currency translation (0.1)--------------------------------------------------------------------------------End of year 5.7================================================================================ Non-current 2.7Current 3.0-------------------------------------------------------------------------------- 5.7================================================================================ Provisions relate primarily to vacant properties and employees' compensationclaims. Non-current provisions are generally long-term in nature with the timingof utilisation uncertain. 18. Employee benefits Post-retirement benefitsTrustees administer the schemes and the assets are held independently fromFiltrona. Pension costs of the defined benefit schemes are assessed in accordance with theadvice of independent professionally qualified actuaries. Full triennialactuarial valuations were carried out on the principal European defined benefitschemes as at 5 April 2006 and annual actuarial valuations are performed on theprincipal US defined benefit schemes. The assets and liabilities of the definedbenefit schemes have been updated to the balance sheet date from the most recentactuarial valuations taking account of the investment returns achieved by theschemes and the level of contributions. Contributions to all schemes are determined in line with actuarial advice, localconditions and practices. Defined benefit contributions in 2008 are expected tobe £6.6m, which consists of payments to fund future service accruals andcontributions to amortise the deficit in respect of past service. The amounts included in the consolidated financial information in respect ofarrangements in Europe and the US is as follows: 2007 2006 £m £m--------------------------------------------------------------------------------Amounts charged to operating profitDefined contribution schemes (note 6) 2.8 2.2Defined benefit schemes: Service cost (note 6) 3.4 3.2 Curtailment gain recognised within restructuring costs (0.1) ---------------------------------------------------------------------------------Total operating expense 6.1 5.4================================================================================ Amounts included as finance (income)/expenseExpected return on scheme assets (note 4) (8.7) (7.7)Interest on scheme liabilities (note 4) 8.4 7.5--------------------------------------------------------------------------------Net financial return (0.3) (0.2)================================================================================ Amounts recognised in the statement of recognised income and expenseActual return less expected return on scheme assets (0.3) 5.5Impact of changes in assumptions relating to the present valueof scheme liabilities 7.2 (3.3)--------------------------------------------------------------------------------Actuarial gain 6.9 2.2================================================================================ The principal assumptions used by the independent qualified actuaries for thepurposes of IAS 19 (revised) were: 2007 2006------------------------------------------------------ ----------------------- Europe US Europe USRate of increase in salaries 4.20% 4.00% 3.90% 4.00%Rate of increase in pensions 3.20% n/a* 2.90% n/a*Discount rate 5.60% 6.00% 5.00% 5.75%Inflation rate 3.20% n/a* 2.90% n/a*Expected return on scheme assets 6.20% 8.50% 6.10% 8.30%================================================================================ * not applicable The assumptions used by the actuaries are the estimates chosen from a range ofpossible actuarial assumptions which, due to the timescale covered, may not beborne out in practice. The life expectancy assumptions used to estimate defined benefit obligations atthe year end are: 2007 2006------------------------------------------------------- ---------------------- Europe US Europe USMale retiring today at age 65 21.8 18.2 21.8 18.1Female retiring today at age 65 24.7 20.5 24.7 20.4Male retiring in 20 years at age 65 23.0 18.2 23.0 18.1Female retiring in 20 years at age 65 25.8 20.5 25.8 20.4================================================================================ The fair value of scheme assets, which are not intended to be realised in theshort-term and may be subject to significant change before they are realised,and the present value of the scheme liabilities, which are derived from cashflow projections over long periods and are therefore inherently uncertain, are: 2007 ---------------------------------------------------- Long- Long- term term rate of Europe rate of US return £m return £m Total---------------------------------------------------------------------------------------Equities 7.00% 78.4 9.75% 19.4 97.8Bonds 5.30% 14.0 5.75% 9.2 23.2Gilts 4.00% 22.1 - 22.1Other 5.20% 0.3 4.50% 0.1 0.4---------------------------------------------------------------------------------------Fair value of scheme assets 114.8 28.7 143.5Present value of scheme liabilities (131.2) (34.6) (165.8)---------------------------------------------------------------------------------------Retirement benefit obligations (16.4) (5.9) (22.3)======================================================================================= 2006 ---------------------------------------------------- Long- Long- term term rate of Europe rate of US return £m return £m Total---------------------------------------------------------------------------------------Equities 6.90% 73.2 9.75% 17.5 90.7Bonds 4.70% 13.3 5.75% 10.4 23.7Gilts 3.90% 19.9 - 19.9Other 4.70% 0.3 4.50% 0.2 0.5---------------------------------------------------------------------------------------Fair value of scheme assets 106.7 28.1 134.8Present value of scheme liabilities (131.6) (34.1) (165.7)---------------------------------------------------------------------------------------Retirement benefit obligations (24.9) (6.0) (30.9)-====================================================================================== Movement in fair value of scheme assets/(liabilities) during the year 2007 2006------------------------------------------------------------- ---------------------------------------- Scheme Scheme Scheme Scheme assets liabilities Total assets liabilities Total £m £m £m £m £m £m--------------------------------------------------------------------------------------------------------Beginning of year 134.8 (165.7) (30.9) 124.4 (160.2) (35.8)Service cost - (3.4) (3.4) - (3.2) (3.2)Employer contributions 5.3 - 5.3 4.7 - 4.7Employee contributions 0.8 (0.8) - 0.8 (0.8) -Actuarial (losses)/gains (0.3) 7.2 6.9 5.5 (3.3) 2.2Reclassificati on (note 17) - (0.6) (0.6) - - -Finance income/(expense) 8.7 (8.4) 0.3 7.7 (7.5) 0.2Benefits paid (5.4) 5.4 - (4.7) 4.7 -Curtailment - 0.1 0.1 - - -Currency translation (0.4) 0.4 - (3.6) 4.6 1.0--------------------------------------------------------------------------------------------------------End of year 143.5 (165.8) (22.3) 134.8 (165.7) (30.9)======================================================================================================== 2007 2006 -------------------------- ---------------------- % of scheme % of scheme assets/ assets/ liabilities £m liabilities £m---------------------------------------------------------------------------------------------------------------Experience gains and lossesDifference between actual and expected return on scheme assets (0.2) (0.3) 4.1 5.5Net actuarial gains recognised in the statement of recognised income and expense 4.2 6.9 1.3 2.2 ================================================================================================================ SensitivityFor the significant assumptions used in determining post-retirement costs andliabilities, the following sensitivity analysis gives the estimate of the impacton the income statement and balance sheet for the year ended 31 December 2007. Scheme liaibilities Annual service cost ---------------------------------------------------------- Europe US Total Europe US Total £m £m £m £m £m £m---------------------------------------------------------------------------------------------------0.5% decrease in the discount rate 15.5 2.5 18.0 0.4 0.1 0.51.0% increase in the rate of inflation 25.0 - 25.0 0.9 - 0.91 year increase in life expectancy 3.0 1.0 4.0 0.1 - 0.1 0.5% increase in the discount rate (13.5) (2.2) (15.7) (0.4) (0.1) (0.5)1.0% decrease in the rate of inflation (20.0) - (20.0) (0.7) - (0.7)=================================================================================================== Historical information 2007 2006 2005 £m £m £m---------------------------------------------------------------------------------------------------Scheme assets 143.5 134.8 124.4Scheme liabilities (165.8) (165.7) (160.2)---------------------------------------------------------------------------------------------------Retirement benefit obligations (22.3) (30.9) (35.8) Actual return less expected return on scheme assets (0.3) 5.5 5.7Impact of changes in assumptions relating to thepresent value of scheme liabilities 7.2 (3.3) (7.7)=================================================================================================== Share-based incentivesFiltrona operates share-based incentive plans for its Executive Directors andemployees. The total charge for continuing operations in respect of these plansduring the year was £1.7m (2006: £1.2m). Details of these plans are set outbelow: Share options outstanding 2007 ----------------------------------------------------------------------------------------------------------- Exer- Exer- Weighted Granted Weighted Lapsed Weighted cised Weighted Weighted cisable At 1 average during average during average during average At 31 average at 31 Jan exercise the exercise the exercise the exercise Dec exercise Dec 2007 price year price year price year price 2007 price 2007------------------------------------------------------------------------------------------------------------------------LTIP Part A 3,981,624 248.2p 2,367,082 239.0p (303,579) 250.3p - - 6,045,127 244.6p -LTIP Part 'Matching' 600,666 - - - (25,378) - - - 575,288 - -LTIP Part B'Performance' 1,012,157 - 588,829 - - - - - 1,600,986 - -DASB 128,320 - 182,985 - - - - - 311,305 - -SAYE 3 yearplan 670,858 237.0p 674,008 199.8p (522,692) 231.7p (2,003) 237.0p 820,171 209.8p -SAYE 5 yearplan 664,486 237.0p 408,594 199.8p (489,942) 234.2p (3,244) 237.0p 579,894 213.2p ------------------------------------------------------------------------------------------------------------------------- 7,058,111 4,221,498 (1,341,591) (5,247) 9,932,771======================================================================================================================== 2006 ----------------------------------------------------------------------------------------------------------- Exer- Exer- Weighted Granted Weighted Lapsed Weighted cised Weighted Weighted cisable At 1 average during average during average during average At 31 average at 31 Jan exercise the exercise the exercise the exercise Dec exercise Dec 2007 price year price year price year price 2006 price 2006------------------------------------------------------------------------------------------------------------------------LTIP Part A 2,133,262 239.5p 1,987,174 257.0p (138,812) 239.5p - - 3,981,624 248.2p -LTIP Part B'Matching' 600,666 - - - - - - - 600,666 - -LTIP Part B'Performance' 515,347 - 496,810 - - - - - 1,012,157 - -DASB - - 128,320 - - - - - 128,320 - -SAYE 3 yearplan - - 764,823 237.0p (93,122) 237.0p (843) 237.0p 670,858 237.0p -SAYE 5 yearplan - - 710,677 237.0p (46,191) 237.0p - - 664,486 237.0p ------------------------------------------------------------------------------------------------------------------------- 3,249,275 4,087,804 (278,125) (843) 7,058,111 -======================================================================================================================== Fair value model inputs for share options outstanding 2007 ------------------------------------------------------------------------------------- LTIP Part B LTIP Part B SAYE 3 year SAYE 5 year LTIP Part A 'Matching' 'Performance' DASB plan plan------------------------------------------------------------------------------------------------------------------------Weighted average fair value at grant 45.3p 211.9p 192.9p 246.9p 74.3p 87.3pWeighted average share price at grant 244.5p 232.0p 257.7p 266.9p 274.5p 279.3pWeighted average exercise price 244.5p - - - 219.6p 223.4pWeighted average volatility 22.8% 23.6% 23.3% N/A 21.0% 23.9%Weighted average dividend yield 2.91% 3.07% 2.76% 2.64% 2.57% 2.53%Weighted risk free rate 4.62% 4.10% 4.57% 4.83% 4.76% 4.60%Expected employee retention rates 80.0% 100.0% 98.0% 98.0% 30.0% 30.0%Expected term 3.25 years 3.00 years 3.75 years 3.00 years 3.23 years 5.18 yearsValuation model Binomial Black-Scholes Monte Carlo Binomial Binomial Binomial======================================================================================================================== 2006 ------------------------------------------------------------------------------------- LTIP Part B LTIP Part B SAYE 3 year SAYE 5 year LTIP Part A 'Matching' 'Performance' DASB plan plan------------------------------------------------------------------------------------------------------------------------Weighted average fair value at grant 41.1p 211.9p 237.1p 276.4p 77.6p 92.2pWeighted average share price at grant 248.2p 232.0p 262.1p 296.8p 296.3p 296.3pWeighted average exercise price 248.2p - - - 237.0p 237.0pWeighted 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======================================================================================================================== In 2006, all options were valued using the Black-Scholes model. Volatility has been calculated over the length of the expected term, for theperiod immediately before the grant date. 2007 and 2006-------------------------------------------------------------------------------------------------------------------- LTIP LTIP SAYE SAYE LTIP Part B Part B 3 year 5 year Part A 'Matching' 'Performance' DASB plan plan --------------------------------------------------------------------------------------------------------------------Contractual life 3 - 10 years 3 - 6 years 3 - 6 years 3 years 3 years 5 years==================================================================================================================== All options are settled with equity. 19. Share capital 2007 2006 £m £m----------------------------------------------------------------------------------------------------------------Authorised: 500 million (2006: 500 million) ordinary shares of 25p (2006: 25p) each 125.0 125.0----------------------------------------------------------------------------------------------------------------Issued and fully paid ordinary shares of 25p (2006: 25p) each 54.8 54.8================================================================================================================ Number of shares in issueBeginning and end of year 219,326,795 219,326,795================================================================================================================ At 31 December 2007 the Company held 13,664,604 (2006: nil) of its own shares in treasury. 20. Movements on reserves 2007----------------------------------------------------------------------------------------------------------------------- Retained earnings ----------------- Capital Cash flow redemption Other hedging Translation Own Minority reserve reserve reserve reserve shares Earnings interest Total £m £m £m £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------------At 1 January 2007 0.1 (132.8) - 1.6 (2.2) 221.2 6.0 93.9Total recognised income and expense for the year (0.3) 0.3 38.6 2.0 40.6Acquisition of employee trust shares (1.7) (1.7)Share option expense 1.8 1.8Purchase of shares intotreasury (30.6) (30.6)Divestment of Globalpack (2.5) (2.5)Dividends paid (15.5) (0.7) (16.2)-----------------------------------------------------------------------------------------------------------------------At 31 December 2007 0.1 (132.8) (0.3) 1.9 (34.5) 246.1 4.8 85.3======================================================================================================================= 2006----------------------------------------------------------------------------------------------------------------------- Retained earnings ----------------- Capital redemption Other Translation Own Minority reserve reserve reserve shares Earnings interest Total £m £m £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------------At 1 January 2006 0.1 (132.8) 5.3 (1.0) 198.3 5.6 75.5Total recognised income and expense for the year (3.7) 36.0 1.2 33.5Acquisition of employee trust shares (1.2) (1.2)Share option expense 1.2 1.2Dividends paid (14.3) (0.8) (15.1)-----------------------------------------------------------------------------------------------------------------------At 31 December 2006 0.1 (132.8) 1.6 (2.2) 221.2 6.0 93.9======================================================================================================================= Employee trust shares are ordinary shares of the Company held in an employeebenefit trust. The purpose of this trust is to hold shares in the Company forsubsequent transfer to Executive Directors and employees relating to optionsgranted and awards made in respect of market purchase shares under the Company'sshare-based incentive plans. The assets, liabilities and expenditure of thetrust have been incorporated in this financial information. At 31 December 2007the trust held 1,557,107 (2006: 872,166) shares, upon which dividends have beenwaived, with an aggregate nominal value of £0.4m (2006: £0.2m) and market valueof £3.2m (2006: £2.3m). During 2007, 13,664,604 ordinary shares with a nominalvalue of £3.4m were purchased into treasury at a cost of £30.6m. This represents6.2% of the number of ordinary shares in issue at the beginning of 2007. The other reserve relates to the Group reorganisation which took place as partof the demerger from Bunzl plc and represents the difference between Filtronaplc's share capital and Filtrona International Ltd's share capital and sharepremium on 6 June 2005 and is not distributable. 21. Analysis of net debt Exchange 1 Jan 2007 Cash flow movements 31 Dec 2007 £m £m £m £m--------------------------------------------------------------------------------------------------------Cash at bank and in hand 15.8 7.0 0.3 23.1Short-term bank deposits repayable on demand 2.5 (2.0) 0.2 0.7Short-term bank deposits not repayable on demand 2.4 (2.4) - ---------------------------------------------------------------------------------------------------------Cash and cash equivalents 20.7 2.6 0.5 23.8Bank overdrafts (1.0) 0.8 - (0.2)--------------------------------------------------------------------------------------------------------Cash and cash equivalents in the statement of cash flows 19.7 3.4 0.5 23.6Debt due within one year (0.6) (0.3) (0.1) (1.0)Debt due after one year (117.9) (41.1) 1.2 (157.8)--------------------------------------------------------------------------------------------------------Net debt (98.8) (38.0) 1.6 (135.2)======================================================================================================== 22. Commitments Operating leasesAt 31 December Filtrona had the following commitments under non-cancellable operating leases: 2007 2006 £m £m--------------------------------------------------------------------------------------------------------Payable within one year 1.4 1.6Payable between one and five years 3.1 4.5Payable after five years 3.5 4.4-------------------------------------------------------------------------------------------------------- 8.0 10.5======================================================================================================== Other commitmentsIn December 2005 Filtrona entered into an agreement that could lead to thepurchase of the remaining 20% of FractureCode Corporation ApS sometime betweenMarch 2009 and December 2012. The consideration payable for the remaining 20% ofshares is dependent on various profit related targets with a minimumconsideration payable of €3.1m and a maximum of €40m. 23. Acquisitions On 3 May 2007, Filtrona acquired the assets and business of Duraco, Inc.('Duraco') based in Chicago, Illinois for a total consideration of £31.7m.Duraco is a market leading manufacturer and supplier of self-adhesive foamproducts for protection and finishing applications in a broad array of servedmarkets including point of purchase products and white goods. Duraco contributed £9.7m to revenue and £2.3m to operating profit beforeintangible amortisation and restructuring costs in 2007. In May 2006 Filtrona purchased certain assets and the business of the CSLDigital Print division of CORGI Services Limited and, concurrently, entered intoa five year agreement with CORGI Group Limited for the exclusive supply ofregistered gas installer identity cards. On acquisition the assets and liabilities of the businesses acquired wereadjusted to reflect their fair values to Filtrona. The fair value adjustmentsare provisional and subject to finalisation for up to one year from the date ofacquisition. The principal fair value adjustments are as follows: In 2007: The adjustment to property, plant and equipment reflects the open market valueof the freehold property. The adjustment to inventories and receivables reflects the impact of applyingFiltrona group accounting policies to these items. The adjustment to deferred tax reflects the asset arising from a temporarydifference between the accounting and tax base of property, plant and equipment. The adjustment to provisions includes amounts relating to the reassessment ofpotential liabilities that were not fully recognised on acquisition. In 2006: There were no adjustments to the book value of assets and liabilities acquired. A summary of the acquisition of Duraco in 2007 is detailed below: Book value Consistency Fair value of at of accounting assets acquisition Revaluation policy acquired £m £m £m £m------------------------------------------------------------------------------------------------------Property, plant and equipment 1.4 1.6 - 3.0Inventories 1.2 - (0.2) 1.0Receivables 2.1 - (0.1) 2.0Deferred tax - 0.3 - 0.3Payables (0.9) - - (0.9)Provisions - (0.2) - (0.2)------------------------------------------------------------------------------------------------------ 3.8 1.7 (0.3) 5.2Customer relationships (note 9) 14.1Goodwill (note 9) 12.4------------------------------------------------------------------------------------------------------Consideration 31.7Satisfied by:Cash consideration 30.4Acquisition expenses settled in cash 1.1Accrued acquisition expenses 0.2======================================================================================================The net cash outflow in the period in respect of the acquisition of Duraco comprised:Cash consideration 30.4Acquisition expenses settled in cash 1.1------------------------------------------------------------------------------------------------------Net cashoutflow in respect of acquisition of Duraco 31.5====================================================================================================== Included in the £12.4m of goodwill recognised above is the value of the uniquerevenue synergy opportunities available to Filtrona through the integration ofthe business. Due to its nature this asset cannot be individually identified norreliably measured. 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 0.1Trade and other receivables 0.1Provisions (0.3)-------------------------------------------------------------------------------- (0.1)Customer relationships (note 9) 0.6--------------------------------------------------------------------------------Consideration, satisfied in cash 0.5================================================================================ 24. Discontinued operations On 29 June 2007, Filtrona completed the disposal of Globalpack, its Brazilianconsumer packaging business, to the Itavema Group for a total grossconsideration of £27.9m. The disposal resulted in a profit before tax of £2.7mwhich has been recognised as discontinued operations in the income statement. 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 tothe acquirer. The results for Globalpack are presented below: 2007 2006 £m £m================================================================================ Revenue 13.6 27.1 Operating profit 1.7 2.4Finance income 0.1 0.3Finance expense (0.1) (0.3)--------------------------------------------------------------------------------Profit before tax from discontinued operations 1.7 2.4Profit on disposal of discontinued operations 2.7 -Income tax expense (2.4) (0.9)--------------------------------------------------------------------------------Profit for the period 2.0 1.5================================================================================ Attributable to:Equity holders of Filtrona plc 1.1 1.0Minority interests 0.9 0.5--------------------------------------------------------------------------------Profit for the period 2.0 1.5================================================================================ Earnings per share attributable to equity holders of Filtrona plc:Basic 0.5p 0.5p--------------------------------------------------------------------------------Diluted 0.5p 0.5p-------------------------------------------------------------------------------- Income tax expense is analysed as follows: 2007 2006 £m £m--------------------------------------------------------------------------------On profit on ordinary activities 0.7 0.9On the profit on disposal 1.7 --------------------------------------------------------------------------------- 2.4 0.9================================================================================ The major classes of assets and liabilities sold are analysed as follows: £m--------------------------------------------------------------------------------Assets and liabilities disposed of other than cashProperty, plant and equipment 17.5Inventories 2.1Trade and other receivables 6.2Trade and other payables (4.9)--------------------------------------------------------------------------------Net assets disposed of other than cash and cash equivalents 20.9================================================================================ £m--------------------------------------------------------------------------------Gain on disposal of discontinued operationsCash consideration 15.4Disposal expenses settled in cash during the period (1.2)Disposal provisions utilised in cash during the period (0.7)Cash and short-term deposits in Globalpack on disposal (0.6)--------------------------------------------------------------------------------Net cash inflow in respect of disposal of Globalpack 12.9Fair value of deferred consideration 10.2Net assets disposed of less minority share (18.4)Cumulative exchange gains deferred in equity 5.0Accrued disposal expenses (0.8)Warranty provisions (5.7)Closure expenses (0.4)Accelerated share option expense (0.1)--------------------------------------------------------------------------------Gain on disposal of discontinued operations 2.7================================================================================ Closure expenses relate to the exit from a Coated and Security Products officein Barcelona, Spain. The disposal of High Profile in 2006 had the following effect on Filtrona'sassets and liabilities: £m--------------------------------------------------------------------------------Inventories 0.3Trade and other receivables 0.1Trade and other payables (0.1)--------------------------------------------------------------------------------Net identifiable assets and liabilities (at date of completion) 0.3--------------------------------------------------------------------------------Consideration, satisfied in cash 0.3================================================================================ 25. Dividends Per share Total -------------- ------------- 2007 2006 2007 2006 p p £m £m--------------------------------------------------------------------------------2006 interim: paid 27 October 2006 2.30 5.02006 final: paid 4 May 2007 4.60 10.12007 interim: paid 26 October 2007 2.52 5.42007 proposed final: payable 2 May 2008 5.08 10.4-------------------------------------------------------------------------------- 7.60 6.90 15.8 15.1================================================================================ The 2007 interim dividend paid was £5.4m, £0.1m lower than the amount proposeddue to the impact of the Company purchasing its own shares. 26. Transactions with related parties Filtrona has not entered into any material transactions with related partiesother than with key management as disclosed in note 6. Furthermore, throughout2007 and 2006, no Director had a personal interest in any significanttransaction of Filtrona. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Essentra