Filtrona plc - Final Results

Thu Feb 28, 2008 2:02am EST

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RNS Number:9174O
Filtrona plc
28 February 2008



                                  Filtrona plc

            Preliminary results for the year ended 31 December 2007

Filtrona plc, the international, market leading, speciality plastic and fibre
products supplier, today announces its preliminary results for the year ended 31
December 2007. Following the disposal of Globalpack, the Brazilian consumer
packaging business, in June 2007 the results from continuing operations are
shown 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, and
supplemented 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 seeking
acquisitions which are in line with our strategic focus on high volume, low unit
cost, essential products. Overall, despite uncertain economic conditions, the
Board believes that Filtrona will continue to make progress and that the Company
remains well placed to deliver long-term growth."

Enquiries

Filtrona plc                                      Finsbury
Mark Harper, Chief Executive                      James Leviton
Steve Dryden, Finance Director                    Gordon Simpson
Tel: 01908 359 100                                Tel: 020 7251 3801


CHAIRMAN'S STATEMENT

Filtrona developed well during 2007. The Company built on the organic growth
momentum established in previous years, successfully managed the North American
restructuring programme in the Cigarette Filters division, and integrated the
newly acquired Duraco business in the US.

In 2007 operating profits for the Company, before intangible amortisation and
restructuring costs, moved ahead strongly, growing by 8.8% to £64.4m, an
increase of 14.2% at constant exchange rates. Revenue was 4.4% lower than the
prior year due to the effects of exchange rates and the decline in the Cigarette
Filters division which was highlighted at the end of 2006. Revenue for the other
businesses was higher in 2007, most strongly in the Protection & Finishing
Products and Bonded Fibre Components divisions. Company margins improved from
11.4% to 13.0% as a result of productivity improvements following the
restructuring of the Cigarette Filters division and sustained capital
investment. Adjusted earnings per share grew by 10.3% to 17.2p (2006: 15.6p) and
by 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 has
delivered ahead of expectations, with its attractive market positions and strong
margin generation complementing the existing Protection & Finishing Products
businesses.

The disposal of Globalpack, the Brazilian consumer packaging business, was
completed in June and consequently the results shown are on a continuing basis
with the contribution from Globalpack presented as a discontinued operation in
the Consolidated income statement.

Margin improvement and effective working capital management led to strong cash
inflow from operating activities of £84.9m in the year and, in the second half
of the year, the Company conducted a limited programme of market purchases of
its own shares under which 13.7 million shares (6.2% of the Company's issued
share capital) were bought into treasury, returning £30.6m to shareholders.

The Board is recommending a final dividend of 5.08p per share which, if
approved, at the Annual General Meeting on 24 April 2008 will make a total of
7.6p (2006: 6.9p) per share for the full year. This represents a 10.1% increase
on 2006. The final dividend will be paid on 2 May 2008 to shareholders on the
register 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 of
his responsibilities. Steve has made a valuable contribution to Filtrona during
his eleven years' of service and the Board wishes him every success in his
future career. The recruitment process for Steve's successor is well advanced.

In 2008, Filtrona will continue the programme of driving productivity
improvements in its existing businesses, and seeking acquisitions to strengthen
the Company's positions in key markets. The performance in Fibre Technologies is
expected to be in line with 2007 as a result of reduced volumes and further
restructuring costs in the Cigarette Filters division. This restructuring will
result in a lower cost base and a more competitive business. The good
performance in Plastic Technologies is expected to continue.

Overall, despite uncertain economic conditions, the Board believes that Filtrona
will continue to make progress and that the Company remains well placed to
deliver long-term growth.

Jeff Harris
Chairman
28 February 2008


OPERATING REVIEW

Overview
--------

Filtrona is an international, market leading, speciality plastic and fibre
products supplier with activities segmented into Plastic Technologies and Fibre
Technologies.

Filtrona derives strength from serving a wide range of customers, across diverse
geographies within a broad but targeted range of international markets.
Filtrona's key markets are tobacco, transport, writing instruments, point of
purchase, oil and gas and medical and represent important consumer and
industrial product segments. With its extensive, flexible manufacturing and
distribution capability, Filtrona is a supplier throughout the world to many
international, blue chip, market leading customers and the top ten customers in
2007 represented 36.7% of revenue.

As the Company seeks to continuously improve operational performance and provide
new innovative solutions, Filtrona anticipates that the quality and breadth of
its product and service offering combined with cost competiveness will provide
opportunities for growth with current and new customers and expansion into new
and 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 and
higher growth regions as the Company increasingly focuses on development in
higher growth markets such as China, India and Indonesia.

Strategy
--------

Filtrona's long-term objective is to continue to grow profitably for the benefit
of all its stakeholders through investing organically and by acquisition in
selected markets within or complementary to plastic and fibre technologies. The
Company's strategic focus is to build on its core competencies through the
development and acquisition of businesses which are engaged in the
manufacturing, sourcing and distribution of high volume, low unit cost, small
but essential products for use in consumer and industrial markets.

The identification and successful exploitation of markets which offer
significant value addition and growth opportunities through product innovation,
distribution, service and cost improvements are integral to the future
development of Filtrona as the Company seeks to enhance the competitive position
of 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 the
successful delivery of new business and market opportunities designed to secure
long-term value for Filtrona's shareholders.

Performance
-----------

In 2006 Filtrona reported a good performance in its first full year as an
independent public company. In 2007 the Company accelerated its rate of profit
growth before restructuring costs, despite the negative impact on profits from
currency translation caused by the further depreciation of the US dollar against
sterling. Filtrona also completed its first significant acquisition since the
June 2005 demerger, with the valuable addition of the Duraco business to the
Protection and Finishing Products division.

Operating profit before intangible amortisation and restructuring costs was up
8.8% to £64.4m (2006: £59.2m). Operating margins improved to 13.0% from 11.4% in
2006. At constant exchange rates, operating profit before intangible
amortisation and restructuring costs was up 14.2%. Revenue at constant exchange
rates 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 previously
announced revenue reductions in the Cigarette Filters division. Excluding the
Cigarette Filters division, revenue growth for the remainder of the Group was up
5.1% at constant exchange rates. The adverse impact of currency translation
during the year was £2.8m on operating profit before intangible amortisation and
restructuring costs and £22.9m on revenue.

The Cash inflow from operating activities of continuing operations was again
strong at £84.9m (2006: £77.2m) up 10.0%. Return on average operating capital
excluding intangible assets continued to improve, up from 24.8% in 2006 to 26.8%
in 2007. Return on average total invested capital, including intangible assets
and goodwill previously charged to reserves, improved from 13.1% to 13.9% on a
pre-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 share
grew by 15.4%.

Plastic Technologies
--------------------

Plastic Technologies produces, sources and distributes protection and finishing
products, self-adhesive tear tape and security products as well as proprietary
and customised plastic extrusions.

Plastic Technologies had a good year with operating profit before intangible
amortisation and restructuring costs up 6.7% to £41.6m (2006: £39.0m) and
revenue up 1.3% to £265.8m (2006: £262.4m). The operating margin again improved
to 15.7% (2006: 14.9%) reflecting the stronger performance of the higher margin
businesses. During 2007 significant revenue investments were made to establish
new distribution locations and to support businesses still in their infancy. At
constant exchange rates, revenue increased by 5.4% and operating profit before
intangible amortisation and restructuring costs increased by 10.3%.

Protection and Finishing Products
---------------------------------

The Protection and Finishing Products division continued to pursue its strategy
of geographic and range expansion combined with consistent investment in
business to business marketing programmes, integrated IT systems and supply
chain efficiencies. Filtrona's largest profit generating division continued to
perform well throughout the year, benefiting from the diversity of its customer
base, where no individual customer represents more than 3% of the revenue, and
the competitive advantages presented by the breadth of its product offering and
the quality of its service. The division holds over 900 million parts
representing 26,000 products in multiple stocking locations for same day
despatch.

Moss, the pan-European plastic parts supplier, had an excellent year and
benefited from a further strengthening of the mix of proprietary and custom
products in favour of the more profitable proprietary lines. Sales development
across the expanded Continental European network was particularly encouraging
within both recently opened and more established locations. The new distribution
unit in Hungary was opened successfully in April and the Chinese business,
co-located within the Fibertec facility in Ningbo, opened in December. The
distribution units in Brno, Czech Republic and in Newcastle, UK were relocated
to larger units to accommodate business growth. A new sophisticated fireproof
mould store became fully operational at the Kidlington, UK manufacturing
facility to further improve risk management at this important site.

Skiffy, the European specialist small nylon parts producer, has delivered
another strong year of growth. The new Skiffy distribution operation in Poland
was opened successfully in March. Revenue growth has again been assisted by the
further increased levels of marketing, including the new catalogue which was
launched successfully during April in eight languages. Internet ordering via the
multi-language website continues to grow and now represents 27.6% of revenue, up
from 22.0% in 2006.

Alliance, the US-based plastic parts supplier, traded well in spite of more
challenging conditions in the US domestic market. Development of the product
offering continued with the addition of significant new ranges during the year.
The new Alliance Express location in Chicago has performed consistently well
since 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 manufacture
reducing costs and materially improving its competitive position in the
Brazilian market. Sales growth in Brazil has now driven the implementation of a
second production shift and an additional warehouse location is also being
utilised. Unit production costs at the Erie, Pennsylvania facility continued to
fall as a result of the sustained investment in new tooling and machinery.

The acquisition of Duraco, based in Chicago, Illinois, was completed in May for
a consideration of $61m. The integration of the business has progressed well,
and an experienced senior executive from within the Protection and Finishing
Products division was appointed to the position of President. The division's
commercial philosophies and Filtrona's values are now being implemented in the
business. Early responses to new marketing programmes, utilising the division's
sophisticated marketing techniques, have been encouraging and plans are in place
for the establishment of a Duraco Express operation to address the small order
segment of the market.

MSI, the oil country tubular goods thread protector business, experienced a
moderation of growth compared to the strong growth rate achieved in 2006. This
resulted from de-stocking in the second quarter of 2007 by the steel pipeyards
who form the majority of MSI's customer base. A number of important current and
new supply contracts were secured during the year with North American customers.
The business continued to invest in driving productivity through both machinery
and a new generation of high output tooling. In addition, the upgrade of the
production 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 new
manufacturing facility for the MSI business in Houston. Alongside the continued
expansion of the manufacturing and distribution footprint, further additions to
the product range and sustained marketing investment are expected to secure the
ongoing development of the Protection and Finishing Products division.

Coated and Security Products
----------------------------

The Coated and Security Products division continued to pursue its strategy of
developing new security technologies and applications for international markets
whilst sustaining its world leadership position in self-adhesive tear tape. The
division delivered an improved performance in both revenue and operating profit,
despite increased revenue investment in the FractureCode business which remained
loss-making.

The Payne tear tape business achieved good growth in volumes, revenue and
operating profits. Volume growth in fast moving consumer goods markets outside
of the tobacco industry was achieved in all regions around the world and the
continued development of innovative packaging and promotional solutions remains
key to ongoing success within those markets. Development of the proprietary
Payne authentication system was completed and sales have already been achieved
for application on tobacco products, tax stamps and fine wines. A restructuring
programme within the European tear tape operations was actioned in the first
quarter and significant cost, productivity and quality benefits have resulted.

The Payne security business performed well with the benefit from a full year of
volumes of the new UK passport. Within the personal identification activity, the
first year of the CORGI card renewal process went smoothly with excellent
service levels being achieved. Investment was made in customer card fulfilment
and smartcard chip encoding capability to assist in strengthening market
position. The new security label line was successfully commissioned at the
Banbury, UK facility and the first orders from this line have been fulfilled.

The FractureCode business continued to prepare for future growth with the
support of revenue investment. The existing FractureCode licensee has installed
FractureCode in three countries and opportunities are being actively discussed
with potential licensees across a number of different end user markets.

During 2008, it is anticipated that the Coated and Security Products division
will continue to benefit from the growth in the market for solutions to combat
the global contraband and counterfeit problem. As the Company looks to maximise
the potential of the opportunities within that market, commercialisation of the
proprietary Payne authentication system and the security labels offering will
continue and further investment will be made in the development of new laminates
for secure documents.

Plastic Profile and Sheet
-------------------------

After an excellent 2006, the Plastic Profile and Sheet division encountered
tough trading conditions throughout the year, particularly in the US. Revenue
and operating profit performance was down in 2007 in the US, although excellent
growth was achieved at Enitor in the Netherlands.

Good revenue growth was achieved in the key product sectors of aerospace, point
of purchase ('POP'), medical and traffic control. In November the division was
confirmed as the supplier of a family of parts for the Boeing 787 Dreamliner
aircraft, reflecting a longstanding customer's continued commitment to the
engineering and design expertise of the business and its high standards of
quality and service. In Monterrey, Mexico the 100,000 square feet extension to
the facility was completed including a new cleanroom for medical products.

Volumes in the commercial lighting and fence products sectors were flat and
volumes of custom products, which typically provide significant value adding
opportunities for the business, were down in the US. The general weakness in the
US extrusion sector has also generated pricing pressures, particularly with
consistently rising raw material prices throughout the second half of the year.
In response to the more difficult market conditions, cost reduction measures
have been taken to streamline the organisation and to optimise production
efficiency. The Northborough, Massachusetts facility was closed at the end of
the year and production transferred to the neighbouring Athol facility, where a
new cleanroom has been constructed to focus on the opportunities within the
medical market.

Enitor in the Netherlands had an excellent year due to strong sales growth and
an improvement in operating efficiency resulting from a strengthening of the
management team.

Trading conditions for the Plastic Profile and Sheet division are expected to
remain challenging in 2008. The operational focus will be on ensuring that the
business delivers the cost efficiencies from the realignment of the North
American manufacturing capability. From a sales perspective, the key growth
markets of aerospace, POP, medical and traffic control remain a priority.

Fibre Technologies
------------------

Fibre Technologies focuses on the production and supply of special filters for
cigarettes and bonded fibre products such as reservoirs and wicks for writing
instruments and printers, household products and medical devices.

Fibre Technologies delivered a strong improvement in operating performance in
the year, with operating profit before intangible amortisation and restructuring
costs up 12.5% to £31.6m (2006: £28.1m) reflecting a sharp improvement in
operating margin to 13.8% (2006: 11.0%) despite lower revenue. Revenue was down
10.3% to £228.4m (2006: £254.7m). At constant exchange rates, operating profit
before 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 significant
operational improvements at all locations, a turnaround in performance in
Mexico, the benefits of plant rationalisation in the US, and selected price
adjustments. This performance was particularly encouraging given the reduced
volumes from the business losses announced at the end of 2006. Total filter
volumes reduced by 9.5% or 6.3 billion filters in 2007.

The operational performance improvement has been driven by the focus on six
sigma and continuous improvement programmes combined with an increase in
training at the newly established Filters Learning Centre which is located at
the Filtrona Technology Centre in Jarrow, UK. The benefits of these activities
have manifested themselves in process waste and conversion cost improvements.

In Europe, the new lower cost manufacturing facility on the outskirts of
Budapest, Hungary commenced production on schedule and shipped its first filters
to customers in October.

In the Americas, the previously announced restructuring programme was completed
without disruption and to budget. The Monterrey facility continued to improve
operationally and was consistently profitable through the year.

Good growth was achieved at each of the Asian locations with improvements in
both volume and financial performance. A representative office was established
in Beijing, China and a senior manager has been deployed to improve the
Company's presence in the world's largest cigarette market.

The Filtrona Technology Centre continued to seek opportunities to secure
enhanced value for research and development services and a key joint development
project with a major customer was progressed during the year.

Market conditions are expected to remain challenging in 2008 and beyond for the
Cigarette Filters division. Cigarette market volume reductions in the mature
markets of Western Europe, the US and Japan are generating an increased focus on
cost management by the tobacco industry. This is expected to increase the risk
of further losses of conventional dual filter volumes with multi-national
customers who may perceive in-house production as a lower unit cost option for
higher volume specifications. In addition, the industry is moving its focus away
from selective filtration of smoke for potentially reduced exposure consumer
offerings and towards non-lit products.

However, Filtrona anticipates that the impact of these factors will be partially
mitigated by pursuing opportunities within market sub-segments as filters are
increasingly seen as key product differentiators, particularly for lower tar and
premium products, such as slim cigarettes.

Filtrona will continue to focus on conversion cost improvement and product
innovation to defend market position and exploit growth opportunities. The
development of capacity and capability in the new lower cost Hungarian facility
and further strengthening of Filtrona's market position in Asia, particularly
with state-owned and independent cigarette producers, remain key priorities.

Given the prevailing conditions, a reduction in overall volume in 2008 is
anticipated and there is risk of further future volume declines. The Company
will seek to mitigate the impact of any adverse volume movements through
increased commercial activity with state-owned and independent customers,
selective pricing action, commercialisation of new products and planned
operational improvements, including further restructuring, to drive down unit
costs.

Bonded Fibre Components
-----------------------

The Fibertec Bonded Fibre Components division delivered strong results with all
locations performing well and a number of important multi-year supply agreements
were concluded during the year. Strong organic growth has seen further market
share gains continuing to be made in the traditional areas of the business,
particularly in writing instrument reservoirs, with increased marketing
activities designed to increase the awareness of Fibertec's market leading
capabilities. With the continued strengthening of the global sales presence,
Asia and Eastern Europe provide a focus for the expansion of the business into
emerging markets.

The continued development of new products and their associated intellectual
property is driving growth in new applications and international markets. A
total of seven patent applications were filed during the year as continuous
innovation and the expansion of capillary science expertise remain key to the
ongoing success of the Fibertec business. The inkjet printer reservoir business
secured with a major new US entrant into the inkjet printer market has
progressed ahead of expectations and pre-launch volumes for a further new
project with an existing customer are now in production. A new wicking material
for saliva based medical testing was launched to the market and a number of
potential customers have designed drug abuse test protocols for US Food and Drug
Administration approval containing this material, which is particularly
effective in cannabis testing.

The Ningbo, China factory expansion was completed in the third quarter on
schedule and on budget and the facility was consistently profitable during the
year. The Ningbo facility achieved ISO 14001 accreditation and all three Fibertec
sites achieved the OHSAS 18001 occupational health and safety accreditation in
line with the Group's objective.

As Fibertec seeks to further enhance the quality and capability of its global
footprint, work on the extensive renovation programme for the Reinbek, Germany
facility commenced and, once completed, will bring operational benefits to the
facility and its health and safety infrastructure.

Looking forward into 2008, it is anticipated that the Bonded Fibre Components
division will benefit from increasing revenues in the inkjet printer reservoir
market and the commercialisation of the new saliva wick technology. A
continuation in the increase of volume through the Ningbo facility should also
serve to drive performance. The commissioning of new machinery within the
division should support the business growth expected from the increased sales
and marketing activity.

Mark Harper
Chief Executive
28 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 and
restructuring costs                                            64.4       59.2
Intangible amortisation                                        (1.5)      (0.9)
Restructuring costs                                            (5.0)         -
--------------------------------------------------------------------------------
Operating profit                                       2,3     57.9       58.3
Finance income                                           4      9.6        8.5
Finance expense                                          4    (15.8)     (14.6)
--------------------------------------------------------------------------------
Profit before tax                                              51.7       52.2
Income tax expense                                       5    (17.6)     (17.7)
--------------------------------------------------------------------------------
Profit from continuing operations                              34.1       34.5
Profit 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       34.5
Minority 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 sheet
at 31 December 2007
                                                              2007        2006
                                                 Note           £m          £m
--------------------------------------------------------------------------------
Assets
Property, plant and equipment                        8       170.7       178.4
Intangible assets                                    9        87.2        59.5
Deferred tax assets                                 16         0.3         0.3
Other receivables                                 1,11         8.1           -
--------------------------------------------------------------------------------
Total non-current assets                                     266.3       238.2
Inventories                                         10        55.2        55.7
Income tax receivable                                          2.3         1.8
Trade and other receivables                       1,11        71.7        81.1
Derivative assets                                 1,15         0.2         0.2
Cash and cash equivalents                         1,12        23.8        20.7
--------------------------------------------------------------------------------
Total current assets                                         153.2       159.5
--------------------------------------------------------------------------------
Total assets                                                 419.5       397.7
================================================================================

Equity
Issued capital                                      19        54.8        54.8
Capital redemption reserve                          20         0.1         0.1
Other reserve                                       20      (132.8)     (132.8)
Cash flow hedging reserve                           20        (0.3)          -
Translation reserve                                 20         1.9         1.6
Retained earnings                                   20       211.6       219.0
--------------------------------------------------------------------------------
Attributable to equity holders of Filtrona plc               135.3       142.7
Minority interests                                  20         4.8         6.0
--------------------------------------------------------------------------------
Total equity                                                 140.1       148.7
================================================================================

Liabilities
Interest bearing loans and borrowings             1,14       157.8       117.9
Retirement benefit obligations                      18        22.3        30.9
Income tax payable                                             0.9           -
Provisions                                          17         4.5         2.7
Deferred tax liabilities                            16        12.3        11.6
--------------------------------------------------------------------------------
Total non-current liabilities                                197.8       163.1
Bank overdrafts                                   1,12         0.2         1.0
Interest bearing loans and borrowings             1,14         1.0         0.6
Derivative liabilities                            1,15         1.8         0.3
Income tax payable                                            11.5        16.0
Trade and other payables                          1,13        65.0        65.0
Provisions                                          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 flows
for the year ended 31 December 2007
                                                                      Restated
                                                               2007       2006
                                                     Note        £m         £m
--------------------------------------------------------------------------------
Operating activities
Profit before tax from continuing operations                   51.7       52.2
Adjustments 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)       0.4
Restructuring costs paid                                       (4.5)         -
Additional pension contributions                               (2.0)      (1.5)
Other cash movements                                           (1.3)      (1.9)
--------------------------------------------------------------------------------
Cash inflow from operating activities of continuing
operations                                                     84.9       77.2
--------------------------------------------------------------------------------
Income tax paid                                               (20.7)     (18.0)
Net cash inflow from operating activities of
discontinued operations                                         3.3        3.1
--------------------------------------------------------------------------------
Net cash inflow from operating activities                      67.5       62.3
================================================================================

Investing activities
Interest received                                               0.3        0.8
Acquisition of property, plant and equipment                  (25.0)     (32.3)
Proceeds from sale of property, plant and equipment             0.6        1.8
Acquisition of businesses net of cash acquired          23    (31.5)      (0.5)
Proceeds from sale of businesses                        24     12.9        0.3
Income tax paid on sale of businesses                          (1.0)         -
Other investing cash flows                              20     (0.7)      (0.8)
--------------------------------------------------------------------------------
Net cash outflow from investing activities of
continuing operations                                         (44.4)     (30.7)
--------------------------------------------------------------------------------
Net cash outflow from investing activities of
discontinued operations                                        (2.6)      (1.8)
--------------------------------------------------------------------------------
Net cash outflow from investing activities                    (47.0)     (32.5)
================================================================================

Financing activities
Interest 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)       2.5
Proceeds 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 of
continuing operations                                         (16.5)     (34.5)
--------------------------------------------------------------------------------             
Net cash outflow from financing activities of
discontinued 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 of
the year                                                       19.7       25.7
Net increase/(decrease) in cash and cash equivalents            3.4       (4.8)
Net effect of currency translation on cash and cash
equivalents                                                     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 expense
for the year ended 31 December 2007
                                                                  2007    2006
                                                         Note       £m      £m
--------------------------------------------------------------------------------
Actuarial gains on defined benefit pension schemes          18     6.9     2.2
Deferred tax expense on actuarial gains on defined
benefit pension schemes                                     16    (2.4)   (0.7)
Effective portion of changes in fair value of cash flow
hedges:
  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    32.3
Minority interests                                                 2.0     1.2
--------------------------------------------------------------------------------
Total recognised income and expense                               40.6    33.5
================================================================================

Accounting policies

a     Basis of preparation
The consolidated financial information has been prepared and approved by the
Directors in accordance with International Financial Reporting Standards as
adopted by the EU in accordance with EU law (IAS Regulation EC 1606/2002)
('adopted IFRS').

Filtrona plc's 2007 Annual Report will be despatched to shareholders in March
2008. The financial information set out does not constitute the Company's
statutory accounts for the year ended 31 December 2007 but is derived from those
accounts. Statutory accounts for 2007 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting which will be held on
24 April 2008. The auditor has reported on those accounts; their reports were
unqualified and did not contain statements under Section 237 (2) or (3) of the
Companies Act 1985.

The financial information is prepared on a historical cost basis except for
derivatives which are stated at fair value.

The preparation of financial information that conforms with adopted IFRS
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial information and the
reported amounts of income and expense during the reporting period. Although
these estimates are based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and future periods if relevant.

The accounting policies used in the preparation of the financial information are
detailed below. These policies have been consistently applied to all periods
presented. 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 the
disclosure requirements of IAS 32: Financial instruments: disclosure and
presentation and must be applied to reporting periods that commence on or after
1 January 2007.

The following standards or interpretations have not yet been adopted by the
Group:

   • 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' means
Filtrona plc ('the Company') and its subsidiaries.

The results for the year ended 31 December 2006 have been restated on a
continuing basis following the disposal of Globalpack (see note 24).

b     Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by Filtrona. Control exists when Filtrona
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain economic benefit from its activities. The
financial statements of subsidiaries are included in the financial information
from the date that control commences until the date that control ceases.

(ii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expense
arising from intragroup transactions are eliminated in preparing the financial
information.

c     Foreign currency
Items included in the financial statements of the Group's subsidiaries are
measured using the primary currency in which the entity operates (functional
currency). The consolidated financial information is prepared in sterling
(functional currency of parent company).

(i) Foreign currency transactions
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into sterling at the
exchange rate ruling at that date and recognised in the income statement unless
hedge accounting criteria apply (see policy for derivatives).

(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated at the exchange rate
ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated at average exchange rates.

(iii) Net investment in foreign operations
Exchange differences on retranslation at the closing rate of the opening
balances of overseas entities are taken to reserves, as are exchange differences
arising on related foreign currency borrowings and derivatives designated as net
investment hedges, to the extent that they are effective. Other exchange
differences are taken to the income statement. Differences arising prior to 1
January 2004 are included in retained earnings.

d     Derivatives
Under IAS 39: Financial instruments: recognition and measurement ('IAS 39'),
derivatives are measured initially at fair value. The subsequent measurement
depends on the classification of the derivative. Interest bearing loans and
borrowings and other financial liabilities (excluding derivatives) are held at
amortised cost, unless they are included in a hedge accounting relationship. See
note 15 for separate disclosure of hedge types.

(i) Cash flow hedges
Where a derivative is designated as a hedging instrument in a cash flow hedge
the change in fair value is recognised in equity to the extent that it is
effective and any ineffective portion is recognised in the income statement.
Where the underlying transaction results in a financial asset, accumulated gains
and losses are recognised in the income statement in the same period as the
hedged item affects profit or loss. Where the hedged item results in a
non-financial asset the accumulated gains and losses previously recognised in
equity are included in the initial carrying value of the asset.

(ii) Fair value hedges
Where a derivative is used to hedge the foreign exchange exposure of a monetary
asset or liability, any gain or loss on the derivative is recognised in the
income statement.

(iii) Hedges of net investment in foreign operations
The gain or loss on an instrument used to hedge a net investment in a foreign
operation that is deemed effective is recognised in equity. Any ineffective
portion is recognised in the income statement.

e     Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Previously revalued properties were treated as being held
at deemed cost upon transition to adopted IFRS.

Where parts of an item of property, plant and equipment or other assets have
different useful lives, they are accounted for as separate items. The carrying
values of property, plant and equipment and other assets are periodically
reviewed for impairment when events or changes in circumstances indicate that
the carrying values may not be recoverable.

f     Depreciation
Property, plant and equipment are depreciated over their estimated remaining
useful lives on a straight line basis at the following annual rates:

Freehold land                           Not depreciated
Buildings                               2% or life of lease if shorter
Plant and machinery                     7-20%
Fixtures, fittings and equipment        10-33%

The assets' useful lives are reviewed, and adjusted if appropriate, at each
balance sheet date.

g     Leases
Where Filtrona has substantially all the risks and rewards of ownership of an
asset subject to a lease, the lease is treated as a finance lease. All other
leases are treated as operating leases and the rentals expensed to the income
statement on a straight line basis. Lease incentives are amortised in the income
statement over the life of the lease.

h     Intangible assets
(i) Goodwill
Goodwill is stated at cost less any impairment losses.
Acquisitions are accounted for using the purchase method. For acquisitions that
have occurred since 1 January 2004 goodwill represents the difference between
the cost of acquisition and fair value of identifiable assets, liabilities and
contingent liabilities of the acquiree. For acquisitions made before 1 January
2004, goodwill is included on the basis of its deemed cost, which represents the
amount previously recorded under UK GAAP.

(ii) Research and development
Research costs are expensed to the income statement in the year in which they
are incurred.

Development costs relating to new products are capitalised if the new product is
technically and commercially feasible. Other development costs are recognised in
the income statement and expensed as incurred.

(iii) Customer relationships
Customer relationships are identified on acquisition of businesses and valued
using discounted cash flows based on historical customer attrition rates.
Amortisation is expensed in the income statement on a straight line basis over
the estimated useful economic life, being a period of up to 25 years.

i     Impairment
All assets, except intangible assets, deferred tax assets and inventories, are
reviewed annually to determine whether there is any indication of impairment.
Goodwill and intangible assets with indefinite lives are tested annually. If an
indication of impairment exists the asset's recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of a non-financial
asset or its cash generating unit exceeds its recoverable amount, being the
greater of value in use and net selling price, and is recognised in the income
statement. Value in use is estimated based on future cash flows discounted using
a pre-tax discount rate.

j     Inventories
Inventories are valued at the lower of cost (on a first in, first out basis) and
net realisable value. For work-in-progress and finished goods, cost includes an
appropriate proportion of labour cost and overheads.

k     Cash and cash equivalents
Cash and cash equivalents comprise cash balances and fixed term investments
whose maturities are three months or less from the date of acquisition. Bank
overdrafts repayable on demand form an integral part of Filtrona's cash
management and are included as part of cash and cash equivalents in the
statement of cash flows.

l     Loans and borrowings
Loans and borrowings are initially measured at cost (which is equal to fair
value at inception), and are subsequently measured at amortised cost using the
effective interest rate method. Any difference between the proceeds, net of
transaction costs, and the settlement or redemption of borrowings is recognised
over the term of the borrowings using the effective interest rate method.

m     Trade and other receivables
The fair value of trade and other receivables is estimated as the present value
of future cash flows less impairment losses.

n     Trade and other payables
Trade payables are non-interest bearing and are stated at their nominal value.

o     Income tax
Income tax in the income statement comprises current and deferred tax. Income
tax is recognised in the income statement except to the extent that it relates
to items recognised in equity.

Current tax is the expected tax payable on the taxable income for the year using
tax rates enacted or substantively enacted at the balance sheet date and any
adjustment to tax payable in prior years.

Deferred tax is provided using the balance sheet liability method, providing for
temporary differences arising between the tax bases and the carrying amounts of
assets and liabilities in the financial information. The following temporary
differences are not provided for: goodwill not deductible for tax purposes, the
initial recognition of assets or liabilities that affect neither accounting nor
taxable profit, and differences relating to investments in subsidiaries to the
extent that they will not reverse in the foreseeable future. Deferred tax is
determined using tax rates that are expected to apply when the related deferred
tax asset or liability is settled.

A deferred tax asset is recognised only to the extent that it is probable that
future taxable profit will be available against which the asset can be utilised.
Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.

p     Revenue
Revenue from the sale of goods is recognised in the income statement when the
significant risks and rewards of ownership have been transferred to the buyer.
No revenue is recognised if there are significant uncertainties regarding
recovery of the consideration due, associated expenses or the possible return of
goods.

q     Finance income and expense
Finance income and expense is recognised in the income statement as it accrues.

r     Segment reporting
A segment is a distinguishable component of Filtrona that is engaged in
providing products (business segment), or in providing products within a
particular economic environment (geographic segment), which is subject to risks
and rewards that are different from those of other segments.

For operational and financial reporting purposes, Filtrona identifies two
business segments which are characterised by shared technology and raw material
inputs.

s     Pensions
(i) Defined contribution schemes
Obligations for contributions to defined contribution pension schemes are
expensed to the income statement as incurred.

(ii) Defined benefit schemes
The significant pension schemes in Europe and the US have been accounted for on
a defined benefit basis under IAS 19 (revised): Employee benefits ('IAS 19
(revised)').

Actuarial gains and losses that have arisen are recognised in full in the
statement of recognised income and expense.

The net obligations in respect of defined benefit pension schemes are calculated
separately for each scheme by estimating the amount of future benefit that
employees have earned in return for their service in the current and prior
periods; that benefit is discounted to determine its present value, and the fair
value of any scheme assets is deducted. The discount rate is the yield at the
balance sheet date on AA credit-rated bonds that have maturity dates
approximating to the terms of Filtrona's obligations. The calculation is
performed by a qualified independent actuary using the projected unit credit
method.

The amounts charged to operating profit are the current service cost, past
service cost and gains and losses on settlement and curtailments. The expected
increase in the present value of scheme liabilities is included within finance
expense and the expected return on scheme assets is included within finance
income.

t     Share-based payments
Filtrona operates equity-settled, share-based incentive plans. A charge is made
in the income statement based on the fair value of options using the
Black-Scholes, Monte Carlo or binomial valuation models with a corresponding
increase in equity. The fair value is measured at grant date and spread over the
period between grant and vesting date of the options. The amount recognised as
an expense will be adjusted to reflect the actual number of share options that
vest.

u     Restructuring costs
The restructuring of Filtrona's operations in 2007 has given rise to significant
incremental one-off costs. The most significant component of these restructuring
costs was redundancy payments. Filtrona views restructuring costs as an expense
associated with investment in the future performance of the business and not
part of the trading performance. These costs have had a material impact on the
absolute amount of, and trend in, Filtrona's operating profit and operating
margin. Therefore such restructuring costs are shown as a separate line item
within operating profit on the face of the income statement.

v     Investment in own shares
The shares held in the Filtrona Employee Benefit Trust for the purpose of
fulfilling obligations in respect of share option plans are treated as belonging
to the Company and are deducted from its retained earnings. The cost of shares
held directly (treasury shares) is also deducted from retained earnings.

w     Provisions
A provision is recognised when there is a probable legal or constructive
obligation as a result of a past event and a reliable estimate can be made of
the outflow of economic resources that will be required to settle the
obligation.

x     Net debt
Net debt is defined as cash and cash equivalents, net of interest bearing loans
and borrowings.

y     Dividends
Dividends are recognised as a liability in the period in which they are
declared.

z     Discontinued operations
In 2007 Filtrona disposed of Globalpack and this has been classified as a
discontinued operation in accordance with IFRS 5: Non-current assets held for
sale and discontinued operations. The profit after tax of Globalpack, including
profit on disposal, is disclosed as a single line in the income statement and
similarly the cash flows are also disclosed as a single line in each of the
categories in the statement of cash flows. The comparative income statement and
statement of cash flows have been restated as if Globalpack had been
discontinued from 1 January 2006.

Critical accounting policies

The following provides information on those policies that management considers
critical because of the level of judgement and estimation required which often
involves assumptions regarding future events which can vary from what is
anticipated. The Directors believe that the financial information reflects
appropriate judgements and estimates and provide a true and fair view of
Filtrona's performance and financial position.

i     Pensions
Filtrona accounts for its defined benefit pension schemes in accordance with IAS
19 (revised). The application of IAS 19 (revised) requires the exercise of
judgement in relation to the assumptions used (see note 18) and for each
assumption there is a range of possible outcomes. In consultation with
Filtrona's actuaries, management decides the point within those ranges that most
appropriately reflects Filtrona's circumstances. Small changes to these
assumptions can have a significant impact on valuations.

ii    Intangible assets
IFRS 3: Business combinations requires the identification of acquired intangible
assets as part of a business combination. The methods used to value such
intangible assets require the use of estimates. Future results are impacted by
the amortisation periods adopted and changes to the estimated useful lives would
result in different effects on the income statement.

Goodwill is not amortised but is tested annually for impairment. Tests for
impairment are based on discounted cash flows and assumptions (including
discount rates, timing and growth prospects) which are inherently subjective.

iii   Taxation
Filtrona is required to use management judgement to estimate the corporate tax
in each of the jurisdictions in which it operates. This requires an estimate of
the current tax liability together with an assessment of the temporary
differences which arise as a consequence of different accounting and tax
treatments.

iv    Provisions
Filtrona's provisions are based on management's best estimate of exposure based
on currently available information. By their nature these provisions are
judgemental.


Notes

1. Risk management

Filtrona's activities expose the business to a number of key risks which have
the potential to affect its ability to achieve its business objectives.

The Board has overall responsibility for Filtrona's system of internal control
and risk management and for reviewing the effectiveness of this system. Such a
system can only be designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can therefore only provide
reasonable, and not absolute, assurance against material misstatement or loss.

Filtrona has a centralised treasury department to manage funding, liquidity and
exposure to interest rate and foreign exchange risk. Treasury policies are
approved by the Board and cover the nature of the exposure to be hedged, the
types of derivatives that may be employed and the criteria for investing and
borrowing cash. Filtrona uses derivatives only to manage currency and interest
rate risk arising from underlying business activities. No transactions of a
speculative nature are undertaken. The treasury department is subject to
periodic independent reviews by the internal audit department. Underlying policy
assumptions and activities are reviewed by the Executive Directors.

Controls over exposure changes and transaction authenticity are in place and
dealings are restricted to those banks with the relevant combination of
geographic presence, expertise and suitable credit rating.

The following describes Filtrona's financial risk exposure and management from a
quantitative and qualitative perspective.

i) Credit risk
Credit risk is the risk of financial loss if a customer or counterparty to a
financial asset or liability fails to meet its contractual obligations, and
arises principally from trade receivables. Filtrona has no significant
individual concentrations of credit risk. The following is an overview of how
Filtrona manages its credit risk exposures.

Trade and other receivables
Filtrona's exposure to credit risk is driven by the profile of its customers.
This is influenced by the demographics of the customer base, including the
industry and country in which customers operate, which is wide and diverse.
Filtrona monitors significant customers' credit limits and there is an allowance
for impairment that represents the estimate of potential losses in respect of
trade and other receivables. The components of this allowance are a specific
allowance for individual losses and a collective allowance for losses that have
been incurred but not yet identified. The collective allowance is determined
based on historical experience.

Trade and other receivables are generally due from customers who are unlikely to
seek credit ratings as part of their normal course of business. The following
table provides information on the trade and other receivables credit risk
exposure.

                                                                 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     55.8
1-30 days past due not impaired                                  10.0     11.0
31-60 days past due not impaired                                  1.7      1.8
61-90 days past due not impaired                                  0.7      0.6
More than 90 days past due not impaired                           0.5      0.9
Impaired                                                          1.0      1.0
--------------------------------------------------------------------------------
                                                                 63.6     74.8
================================================================================

Trade and other receivables carried at £79.8m (2006: £81.1m) include prepayments
and accrued income of £5.6m (2006: £6.3m) which are not financial assets.
Therefore, these amounts are excluded from the above analysis. Trade and other
receivables also include deferred consideration of £10.6m (2006: £nil) due from
the Itavema Group for the purchase of the Globalpack business. This amount is
also 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 assets
Credit risk with respect to derivatives is controlled by limiting transactions
to major banking counterparties where internationally agreed standard form
documentation exists. The credit ratings of these counterparties are monitored.

Cash and cash equivalents
Credit risk relating to cash and cash equivalents is monitored daily, on a
counterparty by counterparty basis. The credit limits imposed specify the
maximum 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 risk
exposure of Filtrona by classifying deferred consideration, derivative assets
and cash and cash equivalents according to credit ratings of the counterparties.
AAA is the highest possible rating and all of the assets are neither impaired
nor past due.

                                                                          2007
                   -------------------------------------------------------------
                    AAA     AA      A    BBB     BB      B   Not rated   Total
                     £m     £m     £m     £m     £m     £m          £m      £m
--------------------------------------------------------------------------------
Deferred              -   10.6      -      -      -      -           -    10.6
consideration
Derivative assets     -    0.2      -      -      -      -           -     0.2
Cash 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      -      -      -      -           -     0.2
Cash 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 no
collateral is held against this amount (2006: £nil).

ii) Market risk
Market risk is the risk that changes in foreign exchange rates and interest
rates will affect income or the value of financial assets and liabilities.
Filtrona has produced a sensitivity analysis that shows the estimated change to
the income statement and equity of either an increase or decrease of 100 basis
points ('bp') in market interest rates or a 5% weakening or strengthening in
sterling against all other currencies. The amounts generated from the
sensitivity analysis are estimates and actual results in the future may
materially differ.

Filtrona is exposed to two types of market risk; currency risk and interest rate
risk.

a) Currency risk
Filtrona publishes its consolidated financial information in sterling but
conducts business in several foreign currencies. Therefore it is subject to
currency risk due to exchange rate movements which affect the translation of
results and underlying net assets of its operations and their transaction costs.

Hedge of net investment in foreign operations
The majority of Filtrona's net assets are in currencies other than sterling.
Filtrona's policy is to eliminate approximately 100% of the impact on
shareholders' funds from translation exposure to US dollars and euros by
borrowing in those currencies and by using forward foreign exchange contracts.
Throughout the year borrowings were primarily held in US dollars and sterling.

Transaction exposure hedging
The majority of Filtrona's transactions are carried out in the functional
currencies 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 soon
as they are committed cash flows using forward foreign exchange contracts for a
period 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 the
income statement for the year all currencies' average rates have been increased
or decreased by 5%. The translational effect on equity is limited as all US
dollar and euro exposure is fully hedged. Accordingly the effect on equity is
calculated 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 cash
flow 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 risk
Filtrona's strategy is to ensure with a reasonable amount of certainty that at
least 50% of the overall net finance expense is protected against material
adverse movements in interest rates using interest rate swaps and caps.

The following table shows Filtrona's sensitivity to a 100 bp decrease or a 100
bp increase in sterling, US dollar and euro interest rates. To calculate the
impact on the income statement for the year the interest rates on all external
interest bearing loans and deposits have been increased or decreased by 100 bp,
and the resulting increase or decrease in the net interest charge has been
adjusted for the effect of Filtrona's interest rate derivatives. The effect on
equity includes the above impact on the income statement and the impact of a 100
bp decrease or increase in interest rates on the market values of Filtrona's
interest rate derivatives. The impact on derivatives is estimated by discounting
the future cash flows to net present values using appropriate market rates
prevailing 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 income
statement - 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 risk
Liquidity risk is the risk that Filtrona, although solvent, either does not have
available sufficient financial resources to enable it to meet its obligations as
they fall due, or can secure them only at excessive cost.

Filtrona's objective is to maintain a balance between continuity of funding and
flexibility. Filtrona is funded by a multi-currency syndicated facility from its
bankers. The syndicated facility matures in May 2010. At 31 December 2007 the
available bank facilities totalled £215.0m of which £157.8m was drawn down. In
addition, uncommitted and overdraft facilities are maintained to provide short
term 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 with
reference 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   118.0
Unsecured non-bank loan        -          -           -       -      0.5           -           -     0.5
Bank overdrafts              0.2          -           -     0.2      1.0           -           -     1.0
Derivative liabilities       1.8          -           -     1.8      0.3           -           -     0.3
Trade 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 and
deferred 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 liabilities
The table below sets out Filtrona's accounting categories and fair value for
each 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          -        74.8
Derivative assets          0.2            -            -           0.2         0.2             -          -         0.2
Cash and cash                -         23.8            -          23.8           -          20.7          -        20.7
equivalents
Interest bearing
loans 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 structure
Filtrona's objective when managing its capital structure is to safeguard its
ability to continue as a going concern, so that it can continue to provide
returns for shareholders and benefits for other stakeholders.

Filtrona sets the amount of capital in proportion to risk. Filtrona manages the
capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of the underlying assets. In
order to maintain or adjust the capital structure, Filtrona may return capital
to shareholders, through dividends and share buy backs as it did in 2007, issue
new shares or sell assets to reduce debt.

Filtrona monitors its capital structure on the basis of the medium-term net
debt-to-EBITDA ratio. EBITDA is defined as operating profit before depreciation,
share option expense, intangible amortisation and restructuring costs from
continuing operations. During 2007, Filtrona's strategy, which was unchanged
from 2006, was to maintain the medium-term net debt-to-EBITDA ratio in the range
1.0 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 and
restructuring costs                                           64.4        59.2
Plus depreciation                                             20.4        20.7
Plus share option expense                                      1.7         1.2
--------------------------------------------------------------------------------
EBITDA                                                        86.5        81.1
Net debt-to-EBITDA ratio                                      1.56        1.22
================================================================================

Amounts drawn by Filtrona on its committed facilities are subject to standard
banking covenants.

2. Segment analysis

Filtrona comprises the following business segments:

Plastic Technologies produces, sources and distributes protection and finishing
products, self-adhesive tear tape and certain security products as well as
proprietary and customised plastic extrusions.

Fibre Technologies focuses on the production and supply of special filters for
cigarettes and bonded fibre products such as reservoirs and wicks for writing
instruments and printers, household products and medical devices.

Business segments
                                                                                                             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    508.2
Operating profit/(loss) before
intangible amortisation
and restructuring costs                  41.6           31.6          (8.8)          64.4            1.8     66.2
Intangible 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              -    305.5
Intangible assets                        83.9            3.3             -           87.2              -     87.2
Unallocated 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     71.7
Unallocated items                                                    207.7          207.7                   207.7
------------------------------------------------------------------------------------------------------------------
Total liabilities                        32.2           26.6         214.9          273.7            5.7    279.4
==================================================================================================================
Other segment items
Capital expenditure                      14.7           10.3             -           25.0            2.7     27.7
Depreciation                             11.7            8.5           0.2           20.4            1.2     21.6
Closing number of employees             2,457          2,172            37          4,666              -    4,666
Average 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    544.2
Operating profit/(loss) before 
intangible amortisation                  39.0           28.1          (7.9)          59.2            2.4     61.6
Intangible 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    315.3
Intangible assets                        56.3            3.2             -           59.5              -     59.5
Unallocated 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     71.5
Unallocated items                                                    177.5          177.5                   177.5
------------------------------------------------------------------------------------------------------------------
Total liabilities                        32.7           29.1         184.2          246.0            3.0    249.0
==================================================================================================================
Other segment items
Capital expenditure                      19.2           12.9           0.2           32.3            2.0     34.3
Depreciation                             11.4            9.0           0.3           20.7            2.2     22.9
Closing number of employees             2,339          2,413            33          4,785            820    5,605
Average 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 of
unallocated assets relate to cash and cash equivalents and the majority of
unallocated liabilities relate to interest bearing loans and borrowings,
retirement benefit obligations, deferred tax liabilities, bank overdrafts and
income tax payable.

Geographic segments
                                                                                2007
                    -----------------------------------------------------------------
                       Revenue by           Segment     Intangible           Capital
                      destination            assets         assets       expenditure
                               £m                £m             £m                £m
-------------------------------------------------------------------------------------
Europe                      200.1             141.6           42.1              10.3
North America               197.6             116.1           44.9              10.1
Rest of World                96.5              47.8            0.2               4.6
-------------------------------------------------------------------------------------
                            494.2             305.5           87.2              25.0
Unallocated items                              26.8
-------------------------------------------------------------------------------------
Continuing operations       494.2             332.3           87.2              25.0
Discontinued 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              14.7
North America               219.6             115.6           19.2              11.6
Rest of World               105.8              47.9            0.3               6.0
-------------------------------------------------------------------------------------
                            517.1             291.8           59.5              32.3
Unallocated items               -              22.9              -                 -
-------------------------------------------------------------------------------------
Continuing operations       517.1             314.7           59.5              32.3
Discontinued operations      27.1              23.5              -               2.0
-------------------------------------------------------------------------------------
                            544.2             338.2           59.5              34.3
=====================================================================================

3. Net operating expense
                                                                                        Restated
                                                                                 2007       2006
Continuing operations                                                              £m         £m
-------------------------------------------------------------------------------------------------
Changes in inventories of finished goods and work-in-progress                    (1.6)       0.1
Raw materials and consumables                                                   217.0      240.9
Personnel expense (note 6)                                                      119.5      121.2
Depreciation and other amounts written off property, plant and equipment         20.4       20.7
Amortisation and other amounts written off intangible assets                      1.5        0.9
Restructuring costs                                                               5.0          -
Hire of plant and machinery - rentals payable under operating leases              0.8        0.6
Fair value hedging instrument losses/(gains)                                      0.4       (0.3)
Fair value hedged items (gains)/losses                                           (0.4)       0.3
Other 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       0.2
Audit of financial statements of subsidiaries pursuant to legislation                 0.6       0.6
----------------------------------------------------------------------------------------------------            
Total audit fees                                                                      0.8       0.8
----------------------------------------------------------------------------------------------------   

Other services pursuant to such legislation                                   ii      0.1       0.1
Other services relating to tax                                               iii      0.6       0.1
Services relating to corporate finance transactions entered
into or proposed to be entered into by or on behalf of                        
the Company or the Group                                                      iv      0.1       0.3
----------------------------------------------------------------------------------------------------  
Total non-audit fees                                                           v      0.8       0.5
----------------------------------------------------------------------------------------------------  
Total fees                                                                            1.6       1.3
====================================================================================================

Notes
i     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 statements
iii   Other services relating to tax are fees paid for tax compliance services and tax advice
iv    The Company believes that, given their detailed knowledge of Filtrona's operations, its structure 
      and accounting policies and the importance of carrying out detailed due diligence as part of the 
      acquisition process, it is appropriate for certain audit-related work to be carried out by the 
      Company's auditor rather than another firm of accountants. The Audit Committee, which consists of
      independent Non-executive Directors, reviews and approves the level and nature of non-audit work which 
      the auditor performs, including the fees paid for such work, thus ensuring that their objectivity and 
      independence is not compromised
v     £0.8m (2006: £0.4m) of the total non-audit fees were charged in the UK
vi    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         2006
Continuing operations                                          £m           £m
--------------------------------------------------------------------------------
Finance income
Bank deposits                                                 0.4          0.7
Unwind of discount on Globalpack deferred consideration       0.4            -
Other finance income                                          0.1          0.1
Expected return on pension scheme assets (note 18)            8.7          7.7
--------------------------------------------------------------------------------
                                                              9.6          8.5
--------------------------------------------------------------------------------

Finance expense
Loans 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         2006
Continuing operations                                          £m           £m
--------------------------------------------------------------------------------
Components of tax expense:
Current tax                                                  23.8         21.2
Prior 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 many
different jurisdictions. Filtrona calculates its average expected tax rate as a
weighted average of the national corporate income tax rates in the tax
jurisdictions in which it operates.

                                                                      Restated
                                                             2007         2006
Continuing operations                                          £m           £m
--------------------------------------------------------------------------------
Profit before income tax                                     51.7         52.2
Tax at weighted average (2007: 32.5%; 2006: 33.0%)           16.8         17.2
Effects 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         2006
Continuing operations                                          £m           £m
--------------------------------------------------------------------------------
Wages and salaries                                          101.0        103.8
Social security expense                                      10.6         10.8
Pension expense (note 18)                                     6.2          5.4
Share option expense                                          1.7          1.2
--------------------------------------------------------------------------------
                                                            119.5        121.2
================================================================================

Key management remuneration
                                                                      Restated
                                                             2007         2006
Continuing operations                                          £m           £m
--------------------------------------------------------------------------------
Salary                                                        1.8          1.6
Bonus                                                         0.6          0.5
Benefits                                                      0.5          0.4
--------------------------------------------------------------------------------
                                                              2.9          2.5
================================================================================

Filtrona considers key management personnel to be the members of the Global
Executive.

7. Earnings per share
                                                                      Restated
                                                             2007         2006
                                                               £m           £m
--------------------------------------------------------------------------------
Continuing operations
Earnings attributable to equity holders of Filtrona plc      33.0         33.5
Adjustment*                                                   4.3          0.6
--------------------------------------------------------------------------------
Adjusted earnings                                            37.3         34.1
================================================================================

Discontinued operations
Earnings attributable to equity holders of Filtrona plc       1.1          1.0
================================================================================

Basic weighted average ordinary shares in issue (million)   216.3        218.8
Dilutive effect of employee share option plans (million)      2.2          1.8
--------------------------------------------------------------------------------
Diluted weighted average ordinary shares (million)          218.5        220.6
================================================================================

Continuing operations
Basic earnings per share                                     15.3p        15.3p
Adjustment*                                                   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 operations
Basic 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 earnings
performance of Filtrona.

The basic weighted average number of ordinary shares in issue excludes shares
held 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
--------------------------------------------------------------------------------
Cost
Beginning of year             58.1           271.4             40.5       370.0
Acquisitions                   2.6             0.3              0.1         3.0
Divestment of Globalpack      (1.6)          (30.4)            (3.9)      (35.9)
Additions                      3.2            20.9              3.6        27.7
Disposals                     (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
--------------------------------------------------------------------------------

Depreciation
Beginning of year             13.0           150.8             27.8       191.6
Expense in year                1.3            16.5              3.8        21.6
Divestment 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
--------------------------------------------------------------------------------
Cost
Beginning of year             59.2           267.1             40.9       367.2
Acquisitions                     -             0.1                -         0.1
Divestment                       -            (0.7)            (0.2)       (0.9)
Additions                      3.9            27.0              3.4        34.3
Disposals                     (1.5)           (4.8)            (1.5)       (7.8)
Currency translation          (3.5)          (17.3)            (2.1)      (22.9)
--------------------------------------------------------------------------------
End of year                   58.1           271.4             40.5       370.0
--------------------------------------------------------------------------------

Depreciation
Beginning of year             12.7           147.3             26.7       186.7
Expense in year                1.5            17.6              3.8        22.9
Divestment                       -            (0.7)            (0.2)       (0.9)
Disposals                     (0.4)           (4.4)            (1.5)       (6.3)
Currency translation          (0.8)           (9.0)            (1.0)      (10.8)
--------------------------------------------------------------------------------
End of year                   13.0           150.8             27.8       191.6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net book value at end 
of year                       45.1           120.6             12.7       178.4
================================================================================
Net book value at beginning
of year                       46.5           119.8             14.2       180.5
--------------------------------------------------------------------------------

9. Intangible assets
                                                                2007      2006
Goodwill                                                          £m        £m
--------------------------------------------------------------------------------
Net book value
Beginning of year                                               40.3      43.3
Acquisitions (note 23)                                          12.4         -
Currency translation                                             1.1      (3.0)
--------------------------------------------------------------------------------
End of year                                                     53.8      40.3
--------------------------------------------------------------------------------

Customer relationships
--------------------------------------------------------------------------------
Cost
Beginning of year                                               21.4      21.0
Acquisitions (note 23)                                          14.1       0.6
Currency translation                                             1.8      (0.2)
--------------------------------------------------------------------------------
End of year                                                     37.3      21.4
--------------------------------------------------------------------------------

Amortisation
Beginning of year                                                2.2       1.3
Expense in year                                                  1.5       0.9
Currency 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 if
there are indications that they are impaired. Intangible assets are allocated to
cash generating units and a discounted cash flow analysis is computed to compare
discounted estimated future operating cash flows to the net carrying value of
each business, as discussed in the Business Review. The analysis is based on
forecast cash flows, with zero growth used to determine terminal values. The
estimated cash flows are discounted using Filtrona's weighted average cost of
capital and any impairments identified are charged to the income statement. The
test is dependent on management estimates and judgements, in particular in
relation to the forecasting of future cash flows, and the discount rate applied
to these cash flows.

10. Inventories
                                                             2007         2006
                                                               £m           £m
--------------------------------------------------------------------------------
Raw materials and consumables                                21.9         23.9
Work-in-progress                                              2.6          3.1
Finished goods and goods for resale                          30.7         28.7
--------------------------------------------------------------------------------
                                                             55.2         55.7
================================================================================

Inventories held at net realisable value and amounts recognised as income from
the reversal of impairments were not significant.

11. Trade and other receivables
                                                             2007         2006
                                                               £m           £m
--------------------------------------------------------------------------------
Non-current assets
Other receivables                                             8.1            -
================================================================================

Current assets
Trade receivables                                            56.3         68.2
Other receivables                                             9.8          6.6
Prepayments 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 Itavema
Group for the purchase of the Globalpack business.

12. Cash and cash equivalents
                                                               2007       2006
                                                                 £m         £m
--------------------------------------------------------------------------------
Bank balances                                                  23.8       18.3
Short-term bank deposits not repayable on demand                  -        2.4
--------------------------------------------------------------------------------
Cash and cash equivalents                                      23.8       20.7
Bank 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         38.1
Other tax and social security contributions                   3.0          3.2
Other payables                                                5.5          6.7
Accruals and deferred income                                 23.3         17.0
--------------------------------------------------------------------------------
                                                             65.0         65.0
================================================================================

14. Interest bearing loans and borrowings
                                                            2007          2006
                                                              £m            £m
--------------------------------------------------------------------------------
Non-current liabilities
Unsecured bank loans                                       157.8         117.9
================================================================================

Current liabilities
Unsecured bank loans                                         1.0           0.1
Unsecured 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 and
borrowings were at floating rates of interest set with reference to LIBOR for
periods ranging from seven days to three months. €30m and up to US$75m of net
debt was protected from adverse movements in interest rates with interest rate
caps for a period of 23 months. On 24 February 2006 the interest rate on US$40m
of net debt was effectively fixed at 5.1775% with an interest rate swap for a
period of two years. With effect from 24 November 2006 the interest rate on a
further US$30m of net debt was effectively fixed at 5.4313% with an interest
rate swap for a period of two years. On 31 July 2007 and with effect from 21
November 2008 the interest rate on a further US$30m of net debt was effectively
fixed 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 and
borrowings were at floating rates of interest set with reference to LIBOR for
periods ranging from seven days to three months. €30m and up to US$65m of net
debt was protected from adverse movements in interest rates with interest rate
caps for a period of 20 months.

After taking into account foreign exchange swaps, the currency and interest rate
profile 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
----------------------------------------------------------------------------------------------------------------------
Assets
Sterling         -          -        6.8       19.8       26.6          -        3.4        8.9           -      12.3
US dollar        -        7.0       39.2      (11.7)      34.5          -        5.0       27.2           -      32.2
Euro             -        6.4       15.9       (7.4)      14.9          -        4.3       20.1           -      24.4
Other            -       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
======================================================================================================================

Liabilities
Sterling         -       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     121.1
Euro             -        0.1        8.1       56.8       65.0          -        0.2       10.5        52.1      62.8
Other            -        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 interest
rate risks arising from operational, financing and investment activities. In
accordance with its treasury policy, Filtrona does not hold or issue derivatives
for trading purposes.

                                                      Assets                  Liabilities
                                      -----------------------      -----------------------
                                                 Contractual                  Contractual
                                         Fair    or notional          Fair    or notional
                                       values        amounts        values        amounts
                                           £m             £m            £m             £m
------------------------------------------------------------------------------------------
At 31 December 2007
Fair value hedges
Forward foreign exchange contracts        0.2            5.5          (0.5)          20.1
Cash flow hedges
Forward foreign exchange contracts          -            0.4             -            1.3
Interest rate swaps                         -           20.1          (0.3)          30.2
Hedges of net investments
Cross 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 2006
Fair value hedges
Forward foreign exchange contracts          -            1.6             -            9.7
Cash flow hedges
Forward foreign exchange contracts          -            1.8             -            2.5
Interest rate swaps                       0.2           35.9             -              -
Hedges of net investments
Cross currency swaps                        -            4.4          (0.3)          57.2
------------------------------------------------------------------------------------------
                                          0.2           43.7          (0.3)          69.4
==========================================================================================

Fair value hedges are hedges of the currency risk exposure to changes in the
fair value of recognised assets or liabilities or a previously unrecognised firm
commitment to buy or sell assets at a fixed price.

Cash flow hedges are hedges of the currency and interest rate risk exposure to
variability in cash flows.

Hedges of net investments are hedges of the currency risk exposure to changes in
the fair value of recognised investments in foreign operations.

Fair values of forward foreign exchange contracts and cross currency swaps have
been calculated at year end forward exchange rates compared to contracted rates.
Fair values of interest rate swaps have been calculated by discounting cash
flows at forward rates. All other financial assets, classified as 'loans and
receivables', and financial liabilities, classified as 'amortised cost', are
held at amortised cost and have short terms to maturity. For this reason, their
carrying amounts at the reporting date approximate the fair values.

The net fair value gains on open forward foreign exchange contracts that hedge
foreign currency risk of anticipated future sales and purchases will be
transferred to the income statement when the forecast sales and purchases occur.
With the exception of the receipt of the Globalpack disposal consideration from
the Itavema Group all of the hedged transactions are expected to occur over the
next 12 months. With the exception of the consideration discussed above and the
interest rate swaps discussed in note 14 all other derivative instruments mature
within the next 12 months.

Filtrona has US dollar denominated borrowings and US dollar and euro currency
swaps which it has designated as hedges of its net investments in subsidiary
undertakings. The exchange gains of £0.8m (2006: gains of £15.5m) on these
borrowings and the gains of £0.4m (2006: gains of £2.1m) on the US dollar
currency swaps and losses of £4.4m (2006: gains of £0.8m) on euro currency swaps
have been recognised in reserves.

Finance income and expense arising on financial assets and financial liabilities
held at amortised cost are those amounts, excluding the expected return on
pension scheme assets and interest on pension scheme liabilities, detailed in
note 4. The only losses recognised on financial assets held at amortised cost
are 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        17.2
Intangible assets                          -          8.7        8.7            -           7.2         7.2
Employee 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        11.3
Set 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    9.8
Charge to the income statement in respect of current year (note 5)                    0.5    0.6
Charge 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)   0.9
Charge to reserves on movements on defined benefit pension schemes                    2.4    0.7
Acquisitions (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 of
earnings of foreign subsidiaries where Filtrona is able to control the
remittance of earnings and it is probable that such earnings will not be
remitted in the foreseeable future, or where no liability would arise on the
remittance. Deferred tax assets of £1.9m (2006: £0.7m) have not been recognised
where their realisation is not considered probable. These assets include capital
losses of £0.6m (2006: £0.7m) and other temporary differences of £1.3m (2006:
£nil).

17. Provisions
                                                                          2007
--------------------------------------------------------------------------------
                                              Discontinued     Other     Total
                                                        £m        £m        £m
--------------------------------------------------------------------------------
Movements
Beginning of year                                        -       5.7       5.7
Provisions made during the year                          -       2.5       2.5
Provisions reversed during the year                      -      (2.3)     (2.3)
Acquisitions (note 23)                                   -       0.2       0.2
Reclassified 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       4.5
Current                                                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 nature
with the timing of utilisation uncertain.
                                                                          2006
                                                                            £m
--------------------------------------------------------------------------------
Movements
Beginning of year                                                          7.5
Acquisitions                                                               0.3
Utilised                                                                  (2.0)
Currency translation                                                      (0.1)
--------------------------------------------------------------------------------
End of year                                                                5.7
================================================================================

Non-current                                                                2.7
Current                                                                    3.0
--------------------------------------------------------------------------------
                                                                           5.7
================================================================================

Provisions relate primarily to vacant properties and employees' compensation
claims. Non-current provisions are generally long-term in nature with the timing
of utilisation uncertain.

18. Employee benefits

Post-retirement benefits
Trustees administer the schemes and the assets are held independently from
Filtrona.

Pension costs of the defined benefit schemes are assessed in accordance with the
advice of independent professionally qualified actuaries. Full triennial
actuarial valuations were carried out on the principal European defined benefit
schemes as at 5 April 2006 and annual actuarial valuations are performed on the
principal US defined benefit schemes. The assets and liabilities of the defined
benefit schemes have been updated to the balance sheet date from the most recent
actuarial valuations taking account of the investment returns achieved by the
schemes and the level of contributions.

Contributions to all schemes are determined in line with actuarial advice, local
conditions and practices. Defined benefit contributions in 2008 are expected to
be £6.6m, which consists of payments to fund future service accruals and
contributions to amortise the deficit in respect of past service.

The amounts included in the consolidated financial information in respect of
arrangements in Europe and the US is as follows:
                                                                    2007    2006
                                                                      £m      £m
--------------------------------------------------------------------------------
Amounts charged to operating profit
Defined contribution schemes (note 6)                                2.8     2.2
Defined 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)/expense
Expected 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 expense
Actual return less expected return on scheme assets                 (0.3)    5.5
Impact of changes in assumptions relating to the present value
of scheme liabilities                                                7.2    (3.3)
--------------------------------------------------------------------------------
Actuarial gain                                                       6.9     2.2
================================================================================

The principal assumptions used by the independent qualified actuaries for the
purposes of IAS 19 (revised) were:
                                                2007                      2006
------------------------------------------------------   -----------------------
                                  Europe          US        Europe          US
Rate 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 of
possible actuarial assumptions which, due to the timescale covered, may not be
borne out in practice.

The life expectancy assumptions used to estimate defined benefit obligations at
the year end are:
                                                   2007                  2006
-------------------------------------------------------   ----------------------
                                       Europe        US      Europe        US
Male retiring today at age 65            21.8      18.2        21.8      18.1
Female retiring today at age 65          24.7      20.5        24.7      20.4
Male retiring in 20 years at age 65      23.0      18.2        23.0      18.1
Female 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 the
short-term and may be subject to significant change before they are realised,
and the present value of the scheme liabilities, which are derived from cash
flow projections over long periods and are therefore inherently uncertain, are:

                                                                                  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     97.8
Bonds                                 5.30%       14.0           5.75%    9.2     23.2
Gilts                                 4.00%       22.1                      -     22.1
Other                                 5.20%        0.3           4.50%    0.1      0.4
---------------------------------------------------------------------------------------
Fair value of scheme assets                      114.8                   28.7    143.5
Present 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     90.7
Bonds                                 4.70%       13.3           5.75%   10.4     23.7
Gilts                                 3.90%       19.9                      -     19.9
Other                                 4.70%        0.3           4.50%    0.2      0.5
---------------------------------------------------------------------------------------
Fair value of scheme assets                      106.7                   28.1    134.8
Present value of scheme liabilities             (131.6)                 (34.1)  (165.7)
---------------------------------------------------------------------------------------
Retirement benefit obligations                   (24.9)                  (6.0)   (30.9)
-======================================================================================

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             -     4.7
Employee contributions             0.8          (0.8)      -                  0.8          (0.8)      -
Actuarial (losses)/gains          (0.3)          7.2     6.9                  5.5          (3.3)    2.2
Reclassificati on (note 17)          -          (0.6)   (0.6)                   -             -       -
Finance income/(expense)           8.7          (8.4)    0.3                  7.7          (7.5)    0.2
Benefits 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 losses
Difference between actual and expected return on scheme assets        (0.2)     (0.3)              4.1     5.5
Net actuarial gains recognised in the statement of 
recognised income and expense                                          4.2       6.9               1.3     2.2    
================================================================================================================

Sensitivity
For the significant assumptions used in determining post-retirement costs and
liabilities, the following sensitivity analysis gives the estimate of the impact
on the income statement and balance sheet for the year ended 31 December 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      0.5
1.0% increase in the rate of inflation       25.0        -     25.0          0.9        -      0.9
1 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    124.4
Scheme 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      5.7
Impact of changes in assumptions relating to the
present value of scheme liabilities                                          7.2     (3.3)    (7.7)
===================================================================================================

Share-based incentives
Filtrona operates share-based incentive plans for its Executive Directors and
employees. The total charge for continuing operations in respect of these plans
during the year was £1.7m (2006: £1.2m). Details of these plans are set out
below:

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 year
plan            670,858    237.0p    674,008    199.8p (522,692)    231.7p  (2,003)   237.0p    820,171   209.8p       -
SAYE 5 year
plan            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 year
plan                  -        -     764,823    237.0p  (93,122)    237.0p    (843)    237.0p   670,858   237.0p       -
SAYE 5 year
plan                  -        -     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        87.3p
Weighted average share price at grant    244.5p          232.0p          257.7p       266.9p       274.5p       279.3p
Weighted average exercise price          244.5p              -               -            -        219.6p       223.4p
Weighted 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 years
Valuation 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        92.2p
Weighted average share price at grant    248.2p          232.0p          262.1p       296.8p       296.3p       296.3p
Weighted average exercise price          248.2p              -               -            -        237.0p       237.0p
Weighted average volatility               22.7%           23.6%           24.1%        20.5%        20.3%        24.2%
Weighted average dividend yield           2.87%           3.07%           2.75%        2.40%        2.40%        2.40%
Weighted risk free rate                   4.36%           4.10%           4.23%        4.35%        4.39%        4.36%
Expected employee retention rates         76.9%           85.0%           91.5%        98.0%        55.0%        55.0%
Expected term                        3.25 years      3.00 years      3.75 years   3.00 years   3.00 years   5.00 years
========================================================================================================================

In 2006, all options were valued using the Black-Scholes model.

Volatility has been calculated over the length of the expected term, for the
period immediately before the grant date.

                                                                                                      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 issue
Beginning 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    93.9
Total recognised income 
and expense for the year                                (0.3)          0.3                    38.6         2.0    40.6
Acquisition of employee 
trust shares                                                                       (1.7)                          (1.7)
Share option expense                                                                           1.8                 1.8
Purchase of shares into
treasury                                                                          (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    75.5
Total recognised income 
and expense for the year                                              (3.7)                   36.0         1.2    33.5
Acquisition of employee 
trust shares                                                                       (1.2)                          (1.2)
Share option expense                                                                           1.2                 1.2
Dividends paid                                                                               (14.3)       (0.8)  (15.1)
-----------------------------------------------------------------------------------------------------------------------
At 31 December 2006                         0.1       (132.8)          1.6         (2.2)     221.2         6.0    93.9
=======================================================================================================================

Employee trust shares are ordinary shares of the Company held in an employee
benefit trust. The purpose of this trust is to hold shares in the Company for
subsequent transfer to Executive Directors and employees relating to options
granted and awards made in respect of market purchase shares under the Company's
share-based incentive plans. The assets, liabilities and expenditure of the
trust have been incorporated in this financial information. At 31 December 2007
the trust held 1,557,107 (2006: 872,166) shares, upon which dividends have been
waived, with an aggregate nominal value of £0.4m (2006: £0.2m) and market value
of £3.2m (2006: £2.3m). During 2007, 13,664,604 ordinary shares with a nominal
value of £3.4m were purchased into treasury at a cost of £30.6m. This represents
6.2% 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 part
of the demerger from Bunzl plc and represents the difference between Filtrona
plc's share capital and Filtrona International Ltd's share capital and share
premium on 6 June 2005 and is not distributable.

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          23.1
Short-term bank deposits repayable on demand                  2.5        (2.0)        0.2           0.7
Short-term bank deposits not repayable on demand              2.4        (2.4)          -             -
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                    20.7         2.6         0.5          23.8
Bank overdrafts                                              (1.0)        0.8           -          (0.2)
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents in the statement of cash flows     19.7         3.4         0.5          23.6
Debt 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 leases
At 31 December Filtrona had the following commitments under non-cancellable operating leases:

                                                                                     2007          2006
                                                                                       £m            £m
--------------------------------------------------------------------------------------------------------
Payable within one year                                                               1.4           1.6
Payable between one and five years                                                    3.1           4.5
Payable after five years                                                              3.5           4.4
--------------------------------------------------------------------------------------------------------
                                                                                      8.0          10.5
========================================================================================================

Other commitments
In December 2005 Filtrona entered into an agreement that could lead to the
purchase of the remaining 20% of FractureCode Corporation ApS sometime between
March 2009 and December 2012. The consideration payable for the remaining 20% of
shares is dependent on various profit related targets with a minimum
consideration 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 foam
products for protection and finishing applications in a broad array of served
markets including point of purchase products and white goods.

Duraco contributed £9.7m to revenue and £2.3m to operating profit before
intangible amortisation and restructuring costs in 2007.

In May 2006 Filtrona purchased certain assets and the business of the CSL
Digital Print division of CORGI Services Limited and, concurrently, entered into
a five year agreement with CORGI Group Limited for the exclusive supply of
registered gas installer identity cards.

On acquisition the assets and liabilities of the businesses acquired were
adjusted to reflect their fair values to Filtrona. The fair value adjustments
are provisional and subject to finalisation for up to one year from the date of
acquisition.

The principal fair value adjustments are as follows:

In 2007:

The adjustment to property, plant and equipment reflects the open market value
of the freehold property.

The adjustment to inventories and receivables reflects the impact of applying
Filtrona group accounting policies to these items.

The adjustment to deferred tax reflects the asset arising from a temporary
difference between the accounting and tax base of property, plant and equipment.

The adjustment to provisions includes amounts relating to the reassessment of
potential 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              -             3.0
Inventories                                          1.2             -           (0.2)            1.0
Receivables                                          2.1             -           (0.1)            2.0
Deferred tax                                           -           0.3              -             0.3
Payables                                            (0.9)            -              -            (0.9)
Provisions                                             -          (0.2)             -            (0.2)
------------------------------------------------------------------------------------------------------
                                                     3.8           1.7           (0.3)            5.2
Customer relationships (note 9)                                                                  14.1
Goodwill (note 9)                                                                                12.4
------------------------------------------------------------------------------------------------------
Consideration                                                                                    31.7
Satisfied by:
Cash consideration                                                                               30.4
Acquisition expenses settled in cash                                                              1.1
Accrued acquisition expenses                                                                      0.2
======================================================================================================
The net cash outflow in the period in respect of the acquisition of Duraco comprised:
Cash consideration                                                                               30.4
Acquisition 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 unique
revenue synergy opportunities available to Filtrona through the integration of
the business. Due to its nature this asset cannot be individually identified nor
reliably 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                                              0.1
Trade and other receivables                                                0.1
Provisions                                                                (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 Brazilian
consumer packaging business, to the Itavema Group for a total gross
consideration of £27.9m. The disposal resulted in a profit before tax of £2.7m
which 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 to
the acquirer.

The results for Globalpack are presented below:
                                                                 2007     2006
                                                                   £m       £m
================================================================================

Revenue                                                          13.6     27.1

Operating profit                                                  1.7      2.4
Finance income                                                    0.1      0.3
Finance expense                                                  (0.1)    (0.3)
--------------------------------------------------------------------------------
Profit before tax from discontinued operations                    1.7      2.4
Profit 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      1.0
Minority 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            0.9
On 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 cash
Property, plant and equipment                                             17.5
Inventories                                                                2.1
Trade and other receivables                                                6.2
Trade and other payables                                                  (4.9)
--------------------------------------------------------------------------------
Net assets disposed of other than cash and cash equivalents               20.9
================================================================================

                                                                            £m
--------------------------------------------------------------------------------
Gain on disposal of discontinued operations
Cash consideration                                                        15.4
Disposal 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                      12.9
Fair value of deferred consideration                                      10.2
Net assets disposed of less minority share                               (18.4)
Cumulative exchange gains deferred in equity                               5.0
Accrued 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 office
in Barcelona, Spain.

The disposal of High Profile in 2006 had the following effect on Filtrona's
assets and liabilities:
                                                                            £m
--------------------------------------------------------------------------------
Inventories                                                                0.3
Trade and other receivables                                                0.1
Trade and other payables                                                  (0.1)
--------------------------------------------------------------------------------
Net identifiable assets and liabilities (at date of completion)            0.3
--------------------------------------------------------------------------------
Consideration, satisfied in cash                                           0.3
================================================================================

25. Dividends
                                              Per share                  Total
                                          --------------          -------------
                                          2007     2006           2007    2006
                                             p        p             £m      £m
--------------------------------------------------------------------------------
2006 interim: paid 27 October 2006                 2.30                    5.0
2006 final: paid 4 May 2007                        4.60                   10.1
2007 interim: paid 26 October 2007        2.52                     5.4
2007 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 proposed
due 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 parties
other than with key management as disclosed in note 6. Furthermore, throughout
2007 and 2006, no Director had a personal interest in any significant
transaction of Filtrona.



                      This information is provided by RNS
            The company news service from the London Stock Exchange

END
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