REG - Filtrona plc - RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2011

Wed Feb 22, 2012 2:01am EST

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RNS Number : 8619X
Filtrona plc
22 February 2012
 



For immediate release                                                                                                                                                22 February 2012

 

 

FILTRONA PLC

("the Company")

 

 A leading international supplier of speciality plastic, fibre and foam products

 

RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2011

 

FY 2011: A STRONG START TO VISION 2015 STRATEGY

FURTHER GROWTH TARGETED IN 2012

 

FY 2011 highlights:

·     Revenue up 11% at constant FX (like-for-like1 +8%), with growth across all divisions.

·     Adjusted operating profit2 up 14% (constant FX).

·     Adjusted operating margin2 expansion of 40bps (constant FX) to 15.6%, +30bps at actual FX.

·     Adjusted EPS2,3 ahead 21% (constant FX) to 25.1p.

·     Adjusted operating cash flow up +24% to £93m: net working capital improvement to 13.1% of revenue, down 110bps (constant FX).

·     Net debt of £145m (FY 2010: £91m), increased predominantly due to £89m acquisition spend on Reid Supply and Richco, Inc.

·     17% increase in the full year dividend to 10.5p per share.

·     Successful organisational changes implemented to underpin Vision 2015 objectives.

Results at a glance:


FY 2011

 

FY 2010

 

% change

Actual FX

% change

Constant FX

Revenue

£540.7m

£489.6m

+10%

+11%

Operating profit - adjusted2

£84.5m

£75.0m

+13%

+14%

Profit before tax - adjusted2

£76.2m

£64.6m

+18%

+19%

Net income - adjusted2, 3

£53.0m

£44.6m

+19%

+20%

Earnings per share - adjusted2, 3

25.1p

21.0p

+20%

+21%

Dividend per share

  10.5p

9.0p

+17%

n/a






Operating profit

£72.6m

£72.0m

+1%

+2%

Net income3

£42.4m

£42.5m

-

+1%

Basic earnings per share3

20.0p

20.0p

-

+2%

1 Adjusted to exclude the impact of acquisitions, disposals and foreign exchange

2 Before intangible amortisation and exceptional operating items

3 Continuing operations



Commenting on today's results, Colin Day, Chief Executive said:

 

"Filtrona delivered a strong, broad-based performance in 2011, with like-for-like revenue growth of 8% and significant margin improvement and cash flow generation.  These results were supported by further improvements in our product and technical offering and continued expansion of our geographic footprint, behind a strengthened organisation and more focused go-to-market effort.      

 

Filtrona is well-positioned to deliver further balanced growth in 2012 and to continue to make progress towards its Vision 2015 objectives of at least mid single-digit like-for-like revenue growth and double-digit adjusted EPS growth at constant exchange." 

 

Basis of Preparation

 

The term "constant FX" describes the performance of the business on a comparable basis, after adjusting for the impact of foreign exchange.

 

The term "like-for-like" ("LFL") describes the performance of the business on a comparable basis, adjusting for the impact of acquisitions, disposals and foreign exchange.  The FY 2011 results include the results of BP Labels (acquired on 26 February 2010), Stera Tape (acquired on 22 November 2010), Reid Supply ("Reid", acquired on 6 September 2011), Richco, Inc. ("Richco", acquired on 21 December 2011) and FractureCode (divested 28 July 2011).

 

The term "adjusted" excludes the impact of intangible amortisation and exceptional operating items, less any associated tax relief.  In FY 2011, intangible amortisation was £3.7m (FY 2010: £3.0m), and there was an exceptional pre-tax charge of £8.2m (FY 2010: £nil) mainly relating to integration costs and fees arising from the acquisitions of Reid and Richco, and other net costs arising from further reconfiguration of the Company.

 

Operating Review

 

FY 2011 revenue was 10.4% ahead of the prior year (+11.1% at constant FX) to £540.7m, with LFL growth of 8.0% coming from both a product and geographic perspective.  In terms of product, the Company continued to broaden its offering to reach new end-markets and stepped up innovations to customers.  In terms of geography, penetration was increased in existing markets, and there was further investment with a particular focus on faster-growing economies. 

 

The gross margin rose 80bps (at both constant and actual FX) to 35.7%, benefiting from successful pricing programmes to mitigate input cost increases, ongoing operational improvement initiatives and a positive product mix.

 

On an adjusted basis, operating profit was ahead 12.7% (+13.9% at constant FX) at £84.5m, equating to a 30bps uplift in the margin to 15.6% (+40 bps at constant FX).  Operating profit as reported was £72.6m, 0.8% higher than last year (+2.0% at constant FX) owing to an exceptional pre-tax charge of £8.2m mainly relating to the acquisition and integration of Reid and Richco, and to further reconfiguration of the Company. 

 

Net finance expense was lower at £8.3m (FY 2010: £10.4m), due to strong operating cash flow generation, lower fee amortisation and a higher pension credit.  The effective tax rate on profit before tax (before exceptional operating items) reduced to 30% (FY 2010: 31%).

 



On an adjusted basis, net income was up 18.8% (+20.4% at constant FX) and earnings per share growth was 19.5% (+21.3% at constant FX) to 25.1p.  On a reported basis net income was £42.4m, a decrease of -0.2% (+1.2% at constant FX), with earnings per share unchanged versus FY 2010 at 20.0p (+1.5% at constant FX).

 

Operating Review

 

Summary growth in revenue by division

 

% growth

LFL

Acquisitions / Disposals

Foreign Exchange

Total Reported






Protection & Finishing Products

+16.4%

+11.1%

-1.2%

+26.3%

Porous Technologies

+5.6%

-

-1.3%

+4.3%

Coated & Security Products

+5.5%

+1.0%

+0.4%

+6.9%

Filter Products

+4.2%

-

-0.6%

+3.6%

Total Company

+8.0%

+3.1%

-0.7%

+10.4%

 

The following review is given at constant exchange rates and on an adjusted basis, unless otherwise stated.

 

Protection & Finishing Products

 


FY 2011

£m

% growth

Actual FX

% growth

Constant FX





Revenue

163.0

+26.3%

+27.5%

Operating profit

37.8

+31.3%

+32.6%

Operating margin

23.2%

+90bps

+90bps

 

Revenue increased 27.5% to £163.0m, with like-for-like growth of 16.4% driven by range developments and continued improvements in marketing effectiveness.  The results were boosted by the inclusion of a full year contribution from Stera Tape, as well as four months from Reid.

 

The Component Distribution businesses of Moss, Skiffy and Alliance each delivered record levels of revenue, and broad-based growth across geographies and key end market sectors.  The move to larger distribution warehousing operations in Brazil and Poland supported the performance and presence in these emerging markets, while revenue from Moss China more than doubled during the year.  Alliance Express Albany was opened in the second half of 2011, and the Duraco operations established in China and Los Angeles both performed well.  The integration of Stera Tape proceeded in line with expectations, and the launch of Stera Tape products in the US has been completed.

 

Following a strong performance in 2010, MSI delivered another record result in 2011.  The new facility build in Houston, US remains on track to be operational by the second quarter of 2012.      

 



Continued focus on efficient marketing investment and activity, particularly the increasing use of electronic marketing media, delivered strong lead indicators versus the prior year: marketing responses were up 12.4%, and the number of live accounts at the end of 2011 increased to over 120,000 partially boosted by the acquisition of Reid and Richco.  Revenue from higher margin proprietary products, as opposed to custom parts, increased to 74% (on a comparable basis, excluding Reid) from 71%.  To support the future growth of the division, the focus on driving the e-commerce strategy was successfully reinforced during the year.

 

Adjusted operating profit grew 32.6% to £37.8m, for a 90bps uplift in the margin.  This improvement reflected both operational leverage from the strong revenue growth, as well as operating and process efficiencies and a continued positive mix effect from moving the business further into higher margin standard parts, partially offset by the dilutive impact of Reid and Stera Tape. 

 

The acquisition of Reid was completed on 6 September, since when the trading performance and the integration of the business have both progressed in line with expectations.  On 21 December, the acquisition of Richco was completed for a sum of US$110m: there was no impact from Richco on the trading result of the division in FY 2011. 

 

Porous Technologies

 


FY 2011

£m

% growth

Actual FX

% growth

Constant FX





Revenue

77.9

+4.3%

+5.6%

Operating profit

18.4

+4.0%

+5.7%

Operating margin

23.6%

-10bps

Unchanged

 

Revenue increased 5.6% to £77.9m and operating profit rose 5.7% to £18.4m, with the operating margin unchanged. 

 

Revenue growth of 40% in printer systems (c.30% of divisional revenue) was driven by next generation platform launches by global OEM accounts.  Healthcare (c.20% of divisional revenue) was up 3%, with an underlying improvement of 8% being partially offset by the strong prior year comparative relating to the H1N1 'flu epidemic.

 

The writing instruments business (c.30% of divisional revenue) was down 8% as result of lower consumption of branded products.  Household products and personal care (together c.10% of divisional revenue) declined by 3% compared to prior year, largely due to inventory de-stocking by a key customer.

 

The remaining c.10% of divisional revenue comprises a number of other markets, plus the supply of a sophisticated filter product, manufactured at the Porous Technologies Reinbek, Germany facility and sold internally to the Filter Products division. Excluding revenue from this line of business, revenue from the core technologies, products and markets of the Porous Technologies division was up 7%.

 

Higher raw materials costs were successfully offset through waste reduction, efficiency projects and process / automation conversions.

 

In 2011, the division continued its successful track record of converting its intellectual property and manufacturing know-how into commercial success.  A number of technologies were introduced during the year across end markets, and the commercial expansion of products using porous plastics is ahead of expectations. 

 

A number of operational initiatives were successfully completed during the year, including initiating a new commercial site in Singapore and the transfer of production capacity and equipment for pregnancy test wicks to China.  There was also further capacity expansion at the St. Charles, Michigan foam site for Medical Woundcare products, at Reinbek to enable European manufacture of Printer Systems products for the global customer base, and at Richmond for porous plastics.

 

Coated & Security Products

 


FY 2011

£m

% growth

Actual FX

% growth

Constant FX





Revenue

98.2

+6.9%

+6.5%

Operating profit

15.4

+4.8%

+5.5%

Operating margin

15.7%

-30bps

-10bps

 

Revenue increased 6.5% to £98.2m.  Adjusting for the contribution from the BP Labels business acquired in February 2010 and the divestment of FractureCode in July 2011, LFL growth was 5.5%.  Operating profit increased 5.5% to £15.4m.

 

Tear tape revenue increased 8%, driven by a strong performance from wide-width message tapes and a new opening solution in the US food market.  Growth in Labels (+23%) came particularly in tobacco, and included the incremental impact of the BP Labels business (now known as Payne Cardiff). 

 

Revenue from the Payne authentication system was ahead 29%, and the business gained the Queen's Award for Enterprise in the Innovation category for the successful development and commercialisation of this proprietary technology.

 

Enitor delivered an improved result boosted by successful new business development, with revenue growth and operating margin expansion.

 

A continued focus on efficiency improvements helped to mitigate the margin impact of the loss of the UK Passport contract.

 

Driven by investment in machinery and capability for volume badge production, the division succeeded in securing the opportunity to provide the next generation Blue Badge in the UK.  As part of the new scheme, a secure card is printed and mailed to registered disabled users, to evidence their entitlement to free parking.  In addition, further investments were made at the Banbury site during 2011, expanding the authentication technologies' manufacturing capability.

 

Following a strategic review of the division's track and trace activities, the FractureCode business was divested.

 

Filter Products

 


FY 2011

£m

% growth

Actual FX

% growth

Constant FX

 

Revenue

 

208.0

 

+3.6%

 

+4.2%

Operating profit

24.5

+3.4%

+3.8%

Operating margin

11.8%

Unchanged

Unchanged

 

Revenue increased 4.2% to £208.0m and operating profit was up 3.8% to £24.5m, with the operating margin unchanged at 11.8%.  Underlying volumes increased 2% versus the prior year, with growth coming particularly in Asia and Europe, and with both the multinational and independent customers.

 

Revenue growth was supported by an increased number of successful new product launches, development initiatives and wider service offerings versus 2010.  In filters, a number of premium variants were introduced including flavour capsules and super slim combinations, as well as three new roll your own ("RYO") products.  There was also a strong increase in the level of sample and joint development activities and intellectual property commercialisation, with a positive contribution from all three development sites.  Overall, the division performed well, increasing its customers and doubling the number of accreditations during the year, as well as further extending packaging services for the RYO market.

 

Higher raw material and other input costs were successfully mitigated by continued productivity improvements, quality enhancement, and cost reduction initiatives implemented in 2010. 

 

In order to be better-positioned to service the growing Asian market and to take advantage of new business opportunities, the Filter Products' head office was relocated to Singapore and the Filthai operation in Thailand moved to a new, custom-built facility in Bangkok.  In FY 2011, Asia accounted for 54% of volumes (FY 2010: 48%).  In addition, the site at Greensboro, North Carolina was expanded, increasing both capacity and operational capability.  As a result of this expansion in North America, the facility in Monterrey, Mexico was closed.  During the year, there was a fire at the Paraguay facility, but no disruption in the supply to customers was incurred.

 

Financial Review

 

Foreign exchange rates.  Movements in exchange rates relative to sterling affect actual results as reported.  The constant exchange rate basis adjusts the comparative to exclude such movements, to show the underlying growth of the Company.

 

The principal exchange rates for Filtrona in FY 2011 were:

 


Average

Closing


FY 2011

FY 2010

FY 2011

FY 2010

 

US$:£

 

1.60

 

1.55

 

1.55

 

1.57

€:£

1.15

1.17

1.20

1.17

 

Re-translating at FY 2011 average exchange rates reduces the prior year revenue and adjusted operating profit by £2.9m and £0.8m respectively.

 

Net finance expense.  Net finance expense was £8.3m, a £2.1m decrease versus FY 2010, which is broken down as follows:



 

£m

FY 2011

FY 2010

 

Net interest charge on net debt

 

8.6

 

9.1

Amortisation of bank fees

0.8

2.5

IAS 19 (Revised) pension finance credit

(1.2)

(0.6)

Other

0.1

(0.6)

Total net interest

8.3

10.4

Positive numbers represent net finance expense, negative numbers reflect net finance income

 

Tax.  The effective tax rate on profit before tax (before exceptional operating items) was 30.4% (FY 2010: 31.0%).

 

Net working capital.  Net working capital is defined as "Inventories plus Trade & Other Receivables less Trade & Other Payables, adjusted to exclude Deferred Consideration Receivable / Payable, Interest Accruals / Capital Payables and Other Normalising Items ("Adjustments")".

 

£m

FY 2011

FY 2010

 

Inventories

 

66.4

 

59.1

Trade & other receivables

85.4

76.0

Trade & other payables

(91.2)

(63.6)

Adjustments

10.5

(1.5)

Net working capital

71.1

70.0

 

The net working capital/revenue ratio was 13.1% (FY 2010: 14.2%, at constant FX).

 

Cash flow.  Operating cash flow increased 23.8% to £92.7m.  Free cash flow of £53.7m was up 32.6%.

 

£m

FY 2011

FY 2010

Change

 

Operating profit - adjusted

 

84.5

 

75.0

 

+12.7%

   Depreciation

20.7

20.4


   Share option expense/other movements

6.4

3.4


   Change in working capital

7.9

(5.1)


   Net capital expenditure

(26.8)

(18.8)


Operating cash flow - adjusted

92.7

74.9

+23.8%

   Tax

(21.6)

(16.3)


   Net interest paid

(9.1)

(8.0)


   Pension obligations

(8.3)

(10.1)


Free cash flow

53.7

40.5

+32.6%

 

Net debt.  Net debt at the end of the period was £144.9m, an increase of £54.1m from 1 January 2011, with strong cash flow generation being offset by higher dividend payments and the acquisitions of Reid and Richco during the year.



 


£m

 

Net debt as at 1 January 2011

 

90.8

   Free cash flow

(53.7)

   Dividends

19.1

   Acquisitions/disposals

86.6

   Foreign exchange

1.0

   Other

1.1

Net debt as at 31 December 2011

144.9

 

The Company's financial ratios remain strong.  The ratio of net debt to EBITDA as at 31 December 2011 was 1.4x (31 December 2010: 0.9x) and interest cover was 9.3x (31 December 2010: 7.1x).

 

Balance sheet.  At the end of 2011, the Company had shareholders' funds of £207.0m (2010: £187.8m), an increase of 10.2%.  Net debt was £144.9m (2010: £90.8m) and total capital employed in the business was £358.3m (2010: £288.2m).

 

This finances non-current assets of £362.5m (2010: £267.7m), of which £168.1m (2010: £156.1m) is tangible fixed assets, the remainder being intangible assets, deferred tax assets and other receivables.  The Company has net working capital of £71.1m (2010: £70.0m), current provisions of £12.8m (2010: £2.9m) and long-term liabilities other than borrowings of £41.3m (2010: £33.3m).

 

Pensions.  As at 31 December 2011, the Company's IAS 19 (Revised) gross pension liability was £24.0m (FY 2010: £17.6m) with a net liability of £16.6m (FY 2010: £12.4m) after accounting for a deferred tax asset of £7.4m (FY 2010: £5.2m).  The deficit has been calculated after updating the asset values and certain assumptions as at 31 December 2011.

 

Dividends.  The Board of Directors recommends a final dividend of 7.2 pence per share (2010: 6.0 pence), an increase of 20%.  This takes the FY 2011 dividend to 10.5 pence per share (+16.7% versus FY 2010).

 

Board appointment.  Colin Day was appointed to the Board as Chief Executive, with effect from 1 April 2011.  Mark Harper stood down from the Board on 14 April 2011 and retired from the Company in May 2011.

 

Treasury policy and controls.  Filtrona has a centralised treasury department to control external borrowings and manage exchange rate risk.  Treasury policies are approved by the Board and cover the nature of the exposure to be hedged, the types of financial investments that may be employed and the criteria for investing and borrowing cash.  The Company uses derivatives only to manage foreign currency and interest rate risk arising from underlying business activities.  No transactions of a speculative nature are undertaken.  The department is subject to 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 geographical presence and suitable credit rating.  Filtrona monitors the credit ratings of its counterparties and credit exposure to each counterparty.

 



Foreign exchange risk.  The majority of Filtrona's net assets are in currencies other than sterling.  The Company's normal policy is to limit the transaction exposure and the resulting impact on shareholders' funds by borrowing in those currencies in which the Company has significant net assets.  As at 31 December 2011, Filtrona's US dollar-denominated assets were approximately 59% hedged by its US dollar-denominated borrowings, while its euro-denominated assets were approximately 92% hedged by its euro-denominated borrowings.

 

The Company does not hedge the translation effect of exchange rate movements on the income statement.

 

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, the Company's policy is to hedge the exposures as soon as they are committed using forward foreign exchange contracts.

 

2012 Outlook

 

Filtrona is well-positioned to deliver further balanced growth in 2012 and to continue to make progress towards its Vision 2015 objectives of at least mid single-digit like-for-like revenue growth and double-digit adjusted EPS growth at constant exchange.  

 

Vision 2015

 

Filtrona's Vision 2015 strategy seeks to maximise shareholder value through the delivery of balanced profitable growth in both its existing and future opportunity markets and technologies.  The strategy also calls for strong conversion of profit into cash and a progressive dividend policy.  The Company looks to complement this balanced organic growth with value-adding acquisitions.    

 

Enquiries

 

 Filtrona plc

Steve Crummett, Group Finance Director

Joanna Speed, Corporate Affairs Director

Tel: 01908 359100

Buchanan

Richard Oldworth

Jeremy Garcia

Catherine Breen

Tel: 020 7466 5000

 Presentation

 

1.    A copy of these results is available on www.filtrona.com

2.    A live webcast of today's presentation of these results to investors and analysts will start at 09:00 (UK time) on www.filtrona.com/webcasts.aspx

 



Cautionary forward-looking statement

 

These results contain forward-looking statements based on current expectations and assumptions.  Various known and unknown risks, uncertainties and other factors may cause actual results to differ from any future results or developments expressed or implied from the forward-looking statements.  Each forward-looking statement speaks only as of the date of this document.  The Company accepts no obligation to revise or update these forward-looking statements publicly or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

Notes to Editors 

 

Filtrona plc is a leading international supplier of speciality plastic, fibre and foam products. Further information can be found on the website www.filtrona.com.

 

Protection & Finishing Products

A global market leading supplier of protection and finishing products, manufacturing and distributing plastic injection moulded, vinyl dip moulded, and metal items as well as pressure sensitive tapes. The division has 60 operating units in 21 countries serving a very broad industrial base of customers with a rapid supply of primarily plastic products for protection and finishing applications in industries such as hydraulics, pneumatics, oil and gas, electrical controls, point of purchase and tubular metal products.

 

Porous Technologies

A global market leading developer and manufacturer of custom fluid handling components, engineered from a portfolio of technologies that includes bonded fibre, polyurethane foam, and porous plastic.  Representing leading innovations used in healthcare, consumer and industrial applications, its enabling components are found in a wide range of products from medical diagnostics tests to advanced wound care pads, inkjet printer cartridges, writing instruments and air fresheners.  Customers in 56 countries are served from four manufacturing facilities with research and development centres supporting the division globally.

 

Coated & Security Products

The global market leading producer of high quality self-adhesive tear tape and a growing supplier of labels, products and technologies for the consumer packaging, identity and valuable documents markets. Customers in over 100 countries are served from facilities operating in six countries. The division also includes plastic profile extrusion activities in The Netherlands.

 

Filter Products

The only global independent cigarette filter supplier.  The nine worldwide locations, including a UK-based research facility and three regional development centres provide a flexible infrastructure strategically positioned to serve the tobacco industry.  The division supplies a wide range of value adding high quality innovative filters, packaging solutions to the roll your own sector and analytical laboratory services for ingredient measurement for the industry.

 

 



Consolidated Income Statement

for the year ended 31 December 2011

                                                                  



2011


2010


Note

£m


£m






Revenue

2

540.7


489.6






Operating profit before intangible amortisation and exceptional operating items


84.5


75.0

Intangible amortisation


(3.7)


(3.0)

Exceptional operating items


(8.2)


-

Operating profit

2,3

72.6


72.0

Finance income

4

12.2


12.0

Finance expense

4

(20.5)


(22.4)

Profit before tax


64.3


61.6

Income tax expense


(21.9)


(19.1)

Profit from continuing operations


42.4


42.5

Profit from discontinued operations

11

1.9


6.8

Profit for the year


44.3


49.3






Attributable to:





Equity holders of Filtrona plc


43.1


47.7

Non-controlling interests


1.2


1.6

Profit for the year


44.3


49.3






Earnings per share attributable to equity holders of Filtrona plc:





Basic

5

20.9p


23.3p

Diluted

5

20.2p


22.9p






Earnings per share from continuing operations attributable to equity holders of Filtrona plc:





Basic

5

20.0p


20.0p

Diluted

5

19.3p


19.6p

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

 



2011


2010


Note

£m


£m






Profit for the year


44.3


49.3






Other comprehensive income





Actuarial losses on defined benefit pension schemes

8

(15.6)


(5.0)

Deferred tax credit on actuarial losses on defined benefit pension schemes


4.8


1.3

Effective portion of changes in fair value of cash flow hedges:





Net change in fair value of cash flow hedges transferred to the income statement


0.4


0.7

      Effective portion of changes in fair value of cash flow hedges


1.3


(0.3)

Foreign exchange translation differences:





      Attributable to equity holders of Filtrona plc:





      Arising on translation of foreign operations


(2.2)


2.9

      Arising on effective net investment hedges


0.2


2.7

      Income tax charge on effective net investment hedges


(0.1)


(1.0)

      Attributable to non-controlling interests


(0.7)


0.9



(11.9)


2.2






Total comprehensive income


32.4


51.5






Attributable to:





Equity holders of Filtrona plc


31.9


49.0

Non-controlling interests


0.5


2.5

Total comprehensive income


32.4


51.5

 

 

Consolidated Balance Sheet

at 31 December 2011

 



2011


 

2010


Note

£m


£m

Assets





Property, plant and equipment

6

168.1


156.1

Intangible assets

7

185.5


107.3

Deferred tax assets


8.9


1.4

Other receivables


-


2.9

Total non-current assets


362.5


267.7

Inventories


66.4


59.1

Income tax receivable


7.0


4.2

Trade and other receivables


85.4


73.1

Derivative assets


1.2


0.4

Cash and cash equivalents


35.8


40.0

Total current assets


195.8


176.8


558.3


444.5






Equity





Issued capital


54.8


54.8

Capital redemption reserve


0.1


0.1

Other reserve


(132.8)


(132.8)

Cash flow hedging reserve


1.1


(0.6)

Translation reserve


15.5


17.6

Retained earnings


268.3


248.7

Attributable to equity holders of Filtrona plc


207.0


187.8

Non-controlling interests


6.4


9.6


213.4


197.4






Liabilities





Interest bearing loans and borrowings


177.3


116.8

Derivative liabilities


-


0.5

Retirement benefit obligations

8

24.0


17.6

Income tax payable


-


4.5

Provisions


2.2


1.2

Deferred tax liabilities


15.1


9.5

Total non-current liabilities


218.6


150.1

Interest bearing loans and borrowings


3.4


14.0

Derivative liabilities


0.5


2.0

Income tax payable


18.4


14.5

Trade and other payables


91.2


63.6

Provisions


12.8


2.9

Total current liabilities


126.3


97.0

Total liabilities


344.9


247.1

Total equity and liabilities


558.3


444.5



 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2011

 


2011


Issued capital

Capital redemption reserve

Other reserve

Cash flow hedging reserve

Translation reserve

Retained earnings

Non-controlling interests

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

At 1 January 2011

54.8

0.1

(132.8)

(0.6)

17.6

248.7

9.6

197.4

Profit for the year






43.1

1.2

44.3

Other comprehensive income/(loss) for the year




1.7

(2.1)

(10.8)

(0.7)

(11.9)

Acquisition of non-controlling interests






(0.4)

(0.7)

(1.1)

Purchase of employee trust shares






(8.2)


(8.2)

Share options exercised






7.1


7.1

Share option expense






3.0


3.0

Tax relating to share-based incentives






4.9


4.9

Dividends paid






(19.1)

(3.0)

(22.1)

At 31 December 2011

54.8

0.1

(132.8)

1.1

15.5

268.3

6.4

213.4

 

 


2010


Issued capital

Capital redemption reserve

Other reserve

Cash flow hedging reserve

Translation reserve

Retained earnings

Non-controlling interests

Total equity


£m

£m

£m

£m

£m

£m

£m

£m

At 1 January 2010

54.8

0.1

(132.8)

(1.0)

13.0

219.6

7.4

161.1

Profit for the year






47.7

1.6

49.3

Other comprehensive income/(loss) for the year




0.4

4.6

(3.7)

0.9

2.2

Purchase of employee trust shares






(1.1)


(1.1)

Share option expense






 2.8


2.8

Dividends paid






(16.6)

(0.3)

(16.9)

At 31 December 2010

54.8

0.1

(132.8)

(0.6)

17.6

248.7

9.6

197.4

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2011

 



 

2011


 

2010


Note

£m


£m

Operating activities





Profit for the year from continuing operations


42.4


42.5

Adjustments for:





Income tax expense


21.9


19.1

Net finance expense

4

8.3


10.4

Intangible amortisation


3.7


3.0

Exceptional operating items

3

8.2


-

Depreciation


20.7


20.4

Share option expense


3.0


2.8

Other movements


3.4


0.6

Increase in inventories


(2.0)


(5.5)

Increase in trade and other receivables


(2.7)


(3.9)

Increase in trade and other payables


12.6


4.3

Cash inflow/(outflow) in respect of exceptional operating items


4.9


(1.3)

Purchase of employee trust shares


(8.2)


(1.1)

Additional pension contributions


(8.3)


(10.1)

Other provisions utilised in the year


-


(0.5)

Cash inflow from operating activities


107.9


80.7

Income tax paid


(21.6)


(16.3)

Net cash inflow from operating activities


86.3


64.4






Investing activities





Interest received


0.2


0.2

Acquisition of property, plant and equipment


(27.0)


(20.1)

Proceeds from sale of property, plant and equipment


0.2


1.3

Acquisition of businesses net of cash acquired

10

(89.0)


(12.0)

Proceeds from sale of businesses


2.6


10.9

Income tax paid on sale of businesses


(0.2)


(3.2)

Net cash outflow from investing activities


(113.2)


(22.9)






Financing activities





Interest paid


(9.3)


(8.2)

Dividends paid to equity holders


(19.1)


(16.6)

Dividends paid to non-controlling interests


(3.0)


(0.3)

Acquisition of non-controlling interests


(1.1)


-

Repayments of short-term loans


(14.4)


-

Proceeds from short-term loans


3.2


0.2

Repayment of long-term loans


(16.6)


(117.2)

Proceeds from long-term loans


76.8


104.3

Proceeds from sale of employee trust shares


7.1


-

Net cash inflow/(outflow) from financing activities


23.6


(37.8)






Net (decrease)/increase in cash and cash equivalents

9

(3.3)


3.7






Net cash and cash equivalents at the beginning of the year


40.0


32.0

Net(decrease)/increase in cash and cash equivalents


(3.3)


3.7

Net effect of currency translation on cash and cash equivalents


(0.9)


4.3

Net cash and cash equivalents at the end of the year

9

35.8


40.0

 

 

1.             Accounting Policies

 

The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union ('EU') in accordance with EU law (IAS Regulation EC 1606/2002) ('adopted IFRS') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The financial statements are prepared under the historical cost convention except for derivatives which are stated at fair value and retirement benefit obligations which are valued in accordance with IAS 19 (Revised): Employee benefits.

 

The 2011 Annual Report will be despatched to shareholders during March 2012. The financial information set out herein does not constitute the Company's statutory accounts for the year ended 31 December 2011 but is derived from those accounts and the accompanying Directors' report. Statutory accounts for 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 24 April 2012. The auditors have reported on those accounts and their report was unqualified.

 

 

2.             Segment analysis

 

In accordance with IFRS 8, Filtrona has determined its operating segments based upon the information reported to the Group Management Committee. These segments are as follows:

 

Protection & Finishing Products is a global market leading supplier of protection and finishing products, manufacturing and distributing plastic injection moulded, vinyl dip moulded,  and metal items as well as pressure sensitive tapes. The division has 60 operating units in 21 countries serving a very broad industrial base of customers with a rapid supply of primarily plastic products for protection and finishing applications in industries such as hydraulics, pneumatics, oil and gas, electrical controls, point of purchase and tubular metal products.

Porous Technologies is a global market leading developer and manufacturer of custom fluid handling components, engineered from a portfolio of technologies that includes bonded fibre, polyurethane foam, and porous plastic.  Representing leading innovations used in healthcare, consumer and industrial applications, its enabling components are found in a wide range of products from medical diagnostics tests to advanced wound care pads, inkjet printer cartridges, writing instruments and air fresheners.  Customers in 56 countries are served from four manufacturing facilities with research and development centres supporting the division globally.

Coated & Security Products is the global market leading producer of high quality self-adhesive tear tape and a growing supplier of labels, products and technologies for the consumer packaging, identity and valuable documents markets. Customers in over 100 countries are served from facilities operating in six countries. The division also includes plastic profile extrusion activities in The Netherlands.

Filter Products is the only global independent cigarette filter supplier.  The nine worldwide locations, including a UK-based research facility and three regional development centres provide a flexible infrastructure strategically positioned to serve the tobacco industry.  The division supplies a wide range of value adding high quality innovative filters, packaging solutions to the roll your own sector and analytical laboratory services for ingredient measurement for the industry.

 

 


2011


Protection & Finishing Products

Porous Techno-

logies

Coated & Security Products

Filter Products

Elimin-

ations

Central Services1

Continuing operations

Discontinued operations

Total


£m

£m

£m

£m

£m

£m

£m

£m

£m

External revenue

163.0

71.5

98.2

208.0

-

-

540.7

-

540.7

Intersegment revenue

-

6.4

-

-

(6.4)

-

-

-

-

 

Total revenue

163.0

77.9

98.2

208.0

(6.4)

-

540.7

-

540.7

 

Operating profit/(loss) before intangible amortisation and exceptional operating items

37.8

18.4

15.4

24.5

-

(11.6)

84.5

-

84.5

Intangible amortisation

(2.7)

(0.8)

(0.2)

-

-

-

(3.7)

-

(3.7)

Exceptional operating items

(6.3)

(1.2)

(1.9)

1.2

-

-

(8.2)

-

(8.2)

Operating profit/(loss)

28.8

16.4

13.3

25.7

-

(11.6)

72.6

-

72.6

Segment assets

118.0

50.0

53.3

95.3

-

3.5

320.1

-

320.1

Intangible assets

149.5

18.5

17.5

-

-

-

185.5

-

185.5

Unallocated items






52.7

52.7


52.7

Total assets

267.5

68.5

70.8

95.3

-

56.2

558.3

-

558.3

Segment liabilities

41.9

9.1

9.9

32.9

-

10.0

103.8

2.4

106.2

Unallocated items






238.7

238.7


238.7

Total liabilities

41.9

9.1

9.9

32.9

-

248.7

342.5

2.4

344.9

Other segment items










Capital expenditure

12.5

2.3

2.8

9.1

-

0.3

27.0

-

27.0

Impairment to property, plant and equipment

1.7

-

-

4.1

-

-

5.8

-

5.8

Depreciation

5.8

2.9

4.6

7.3

-

0.1

20.7

-

20.7

Average number of employees

1,020

458

575

1,261

-

28

3,342

-

3,342

 

1 Central Services includes group finance, tax, treasury, legal, group assurance, human resources, information technology, corporate development, corporate affairs and other services provided centrally to support the operating segments

 



 

 










2010


Protection & Finishing Products

Porous Techno-

logies

Coated & Security Products

Filter Products

Elimin-

ations

Central Services1

Continuing operations

Discontinued operations

Total

 


£m

£m

£m

£m

£m

£m

£m

£m

£m

 

External revenue

129.1

67.9

91.9

200.7

-

-

489.6

-

489.6

 

Intersegment revenue

-

6.8

-

-

(6.8)

-

-

-

-

 

Total revenue

129.1

74.7

91.9

200.7

(6.8)

-

489.6

-

489.6

 

Operating profit/(loss) before intangible amortisation

28.8

17.7

14.7

23.7

-

(9.9)

75.0

-

75.0

 

Intangible amortisation

(1.9)

(0.9)

(0.1)

(0.1)

-

-

(3.0)

-

(3.0)

 

Operating profit/(loss)

26.9

16.8

14.6

23.6

-

(9.9)

72.0

-

72.0

 

Segment assets

77.7

51.1

56.2

99.1

-

7.1

291.2

-

291.2

 

Intangible assets

70.1

19.2

18.0

-

-

-

107.3

-

107.3

 

Unallocated items






46.0

46.0


46.0

 

Total assets

147.8

70.3

74.2

99.1

-

53.1

444.5

-

444.5

 

Segment liabilities

18.3

7.0

8.2

22.9

-

8.6

65.0

2.7

67.7

 

Unallocated items






179.4

179.4


179.4

 

Total liabilities

18.3

7.0

8.2

22.9

-

188.0

244.4

2.7

247.1

 

Other segment items










 

Capital expenditure

6.8

3.8

2.1

7.4

-

-

20.1

-

20.1

 

Impairment to property, plant and equipment

-

-

-

1.5

-

-

1.5

-

1.5

 

Depreciation

5.3

3.0

4.7

7.3

-

0.1

20.4

-

20.4

 

Average number of employees

800

455

577

1,355

-

26

3,213

-

3,213

 

 

1 Central Services includes group finance, tax, treasury, legal, group assurance, human resources, information technology, corporate development and other services provided centrally to support the operating segments

 

 

3.             Exceptional operating items



2011



£m

Acquisition fees1


2.8

Integration costs2


2.4

Other3


3.0



8.2

 

1 Transaction costs incurred during the year in respect of the acquisition of Richco and Reid Supply

2 Integration costs in respect of Richco and Reid Supply incurred in the period 

3 Includes profit arising on insurance proceeds received net of associated costs of £4.6m, the loss on disposal of the Group's shares in FractureCode Corporation ApS of £1.9m and reorganisation costs within certain of the Group's segments 

 

 

4.             Net finance expense

 


2011


2010


£m


£m

Finance income




Bank deposits

0.1


0.1

Other finance income

0.1


0.6

Expected return on pension scheme assets

12.0


11.3


12.2


12.0





Finance expense




Interest on loans and overdrafts

(8.7)


(9.2)

Amortisation of bank facility fees

(0.8)


(2.5)

Other finance expense

(0.2)


-

Interest on pension scheme liabilities

(10.8)


(10.7)


(20.5)


(22.4)

Net finance expense

(8.3)


(10.4)

 

 

5.             Earnings per share

 


2011


2010


£m


£m

Continuing operations




Earnings attributable to equity holders of Filtrona plc

41.2


40.9

Adjustments




Intangible amortisation

3.7


3.0

Exceptional operating items

8.2


-


11.9


3.0

Tax relief on adjustments

(1.3)


(0.9)

Adjusted earnings

51.8


43.0





Discontinued operations




Earnings attributable to equity holders of Filtrona plc

1.9


6.8





Basic weighted average ordinary shares in issue (m)

206.3


204.9

Dilutive effect of employee share option plans (m)

7.0


4.2

Diluted weighted average ordinary shares (m)

213.3


209.1





Continuing operations




Basic earnings per share

20.0p


20.0p

Adjustment

5.1p


1.0p

Adjusted earnings per share

25.1p


21.0p

Diluted basic earnings per share

19.3p


19.6p

Diluted adjusted earnings per share

24.3p


20.6p





Discontinued operations




Basic earnings per share

0.9p


3.3p

Diluted basic earnings per share

0.9p


3.3p

 

The basic weighted average number of ordinary shares in issue excludes shares held in treasury and shares held by an employee benefit trust.

 

 

6.             Property, plant and equipment

 


2011


Land and buildings


Plant and machinery


Fixtures, fittings and equipment


Total


£m


£m


£m


£m

Cost








Beginning of year

72.4


270.3


43.7


386.4

Acquisitions

2.5


4.0


1.2


7.7

Additions

9.1


19.5


4.1


32.7

Disposals

(1.4)


(27.0)


(6.4)


(34.8)

Currency translation

0.2


(4.1)


(0.4)


(4.3)

End of year

82.8


262.7


42.2


387.7









Depreciation








Beginning of year

19.8


177.2


33.3


230.3

Expense in year

2.1


15.4


3.2


20.7

Disposals

(1.0)


(26.8)


(6.3)


(34.1)

Impairments

3.0


1.9


0.9


5.8

Reclassification

-


1.3


(1.3)


-

Currency translation

(0.1)


(2.7)


(0.3)


(3.1)

End of year

23.8


166.3


29.5


219.6









Net book value at end of year

59.0


96.4


12.7


168.1

 

The impairments during 2011 and 2010 related to plant and machinery and land and buildings that have been assessed as non-recoverable through on-going use in the Group and are expected to have no value on disposal. The impairment charge of £5.8m made during 2011 has been recognised within exceptional operating items and relates to the integration of acquisitions and reorganisation within certain of the Group's segments.

 

 

7.             Intangible assets

 




2011


2010

Goodwill



£m


£m

Beginning of year



58.9


53.0

Acquisitions



27.4


5.8

Currency translation



0.1


0.1

End of year



86.4


58.9







Customer relationships






Cost






Beginning of year



54.8


49.2

Acquisitions



48.8


5.9

Currency translation



0.4


(0.3)

End of year



104.0


54.8







Amortisation






Beginning of year



11.7


9.3

Expense in year



2.9


2.4

Currency translation



(0.1)


-

End of year



14.5


11.7







Net book value at end of year



89.5


43.1

Net book value at beginning of year



43.1


39.9







Other






Cost






Beginning of year



6.6


5.9

Acquisitions



4.9


0.5

Currency translation



0.2


0.2

End of year



11.7


6.6







Amortisation






Beginning of year



1.3


0.7

Expense in year



0.8


0.6

Currency translation



-


-

End of year



2.1


1.3







Net book value at end of year



9.6


5.3

Net book value at beginning of year



5.3


5.2







Total net book value of intangible assets at end of year



185.5


107.3

 

Other intangible assets principally comprise trade names acquired with Richco and Reid Supply and developed technology acquired with Lendell.

 

 

8.             Employee benefits

 

Post-retirement benefits

The amounts included in the consolidated financial statements are as follows:

 


 

2011


 

2010

£m


£m

Amounts expensed against operating profit




Defined contribution schemes

2.2


1.8

Defined benefit schemes

1.9


1.8

Total operating expense

4.1


3.6





Amounts included as finance (income)/expense




Expected return on scheme assets

(12.0)


(11.3)

10.8


10.7

Net financial income

(1.2)


(0.6)





Amounts recognised in the consolidated statement of comprehensive income




Actual return less expected return on scheme assets

(3.5)


5.7

Impact of changes in assumptions relating to the present value of scheme liabilities

(12.1)


(10.7)

Actuarial loss

(15.6)


(5.0)

 

The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 (Revised) were:

 


2011


2010


Europe


US


Europe


US

Increase in salaries (pre-2010) 1

3.50%


3.00%


4.20%


3.00%

Increase in salaries (post-2010) 1

3.00%


3.00%


3.00%


3.00%

Increase in pensions (pre-2010) 1

3.20%


n/a2


3.60%


n/a2

Increase in pensions (post-2010) 1

2.00%


n/a2


2.95%


n/a2

Discount rate

4.70%


4.60%


5.40%


5.30%

Inflation rate

2.50%


n/a2


3.60%


n/a2

Expected return on scheme assets

5.00%


7.10%


6.20%


7.80%

 

1 For service prior to April 2010, pension at retirement is linked to salary at retirement.  For service after April 2010, pension is linked to salary at April 2010 with annual increases capped at 3%.

2 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:

 




2011




2010


Europe


US


Europe


US

Male retiring today at age 65

20.8


19.1


20.8


18.5

Female retiring today at age 65

23.5


21.0


23.5


20.7

Male retiring in 20 years at age 65

22.8


19.1


22.8


18.5

Female retiring in 20 years at age 65

25.5


21.0


25.5


20.7

 

 

Movement in fair value of scheme assets/ (liabilities) during the year

 


2011


2010


Scheme assets

Scheme liabilities

Total


Scheme assets

Scheme liabilities

Total


£m

£m

£m


£m

£m

£m

Beginning of year

187.2

(204.8)

(17.6)


158.7

(181.3)

(22.6)

Service cost

-

(1.9)

(1.9)


-

(1.8)

(1.8)

Employer contributions

10.2

-

10.2


11.9

-

11.9

Employee contributions

0.5

(0.5)

-


0.6

(0.6)

-

Actuarial gains/(losses)

(3.5)

(12.1)

(15.6)


5.7

(10.7)

(5.0)

Finance income/(expense)

12.0

(10.8)

1.2


11.3

(10.7)

0.6

Benefits paid

(7.4)

7.4

-


(8.6)

8.6

-

Currency translation and other

(0.2)

(0.1)

(0.3)


7.6

(8.3)

(0.7)

End of year

198.8

(222.8)

(24.0)


187.2

(204.8)

(17.6)

 

 


2011


2010


% of scheme

assets/

liabilities

 

 

£m


% of scheme

assets/

liabilities

 

 

£m

Experience gains and losses






Difference between actual and expected return on scheme assets

(1.9)

(3.5)


3.6

5.7

Net actuarial losses recognised in the statement of comprehensive income

7.6

(15.6)


2.8

(5.0)

 

Sensitivity

For the significant assumptions used in determining post-retirement costs and liabilities, the following sensitivity analysis gives the estimate of the impact on the income statement and balance sheet for the year ended 31 December 2011.

 


Scheme liabilities

Annual service cost


Europe

US

Total


 

 

Europe

 

 

US

Total


£m

£m

£m


£m

£m

£m

0.5% decrease in the discount rate

13.4

3.9

17.3


0.3

0.1

0.4

1.0% increase in the rate of inflation

11.9

n/a

11.9


-

-

-

1 year increase in life expectancy

2.9

1.3

4.2


-

-

-









0.5% increase in the discount rate

(11.7)

(3.5)

(15.2)


(0.1)

(0.1)

(0.2)

1.0% decrease in the rate of inflation

(9.5)

n/a

(9.5)


-

-

-

 

 

9.             Analysis of net debt

 


1 Jan 2011

Cash flow

Exchange movements

Non-cash movements

31 Dec 2011


£m

£m

£m

£m

£m

Cash at bank and in hand

31.7

-

(0.7)

-

31.0

Short-term bank deposits and investments

8.3

(3.3)

(0.2)

-

4.8

Cash and cash equivalents in the statement of cash flows

40.0

(3.3)

(0.9)

-

35.8

Debt due within one year

(14.0)

11.2

(0.4)

(0.2)

(3.4)

Debt due after one year

(116.8)

(60.2)

0.3

(0.6)

(177.3)

Net debt

(90.8)

(52.3)

(1.0)

(0.8)

(144.9)

The non-cash movement is the amortisation of prepaid bank facility fees and movement of debt due after one year to debt due within one year.

 

 

10.           Acquisitions

 

On 6 September 2011, Filtrona acquired the assets and business of Reid Supply Company ("Reid Supply"). Reid Supply, based in Michigan, US, is a leading distributor of standard industrial components, including hardware, handles, clamps and fasteners, to a vast range of markets and customers via a catalogue. The business is highly complementary to Filtrona's Protection & Finishing Products division.

 

Reid Supply contributed £7.7m to revenue and £0.5m to operating profit before intangible amortisation in the period from acquisition to 31 December 2011. Related acquisition expenses of £0.7m were recognised in the income statement in exceptional operating items.

 

On 21 December 2011, Filtrona acquired the entire issued share capital of Richco, Inc. ("Richco") from family and employee shareholders of the acquired company. Richco, based in Illinois, US, is a leading international designer, manufacturer and distributor of engineered plastic and elastomeric solutions for fastening and cable management applications in diverse and growing end markets and will be reported within Filtrona's Protection & Finishing Products division. 

 

Richco has been incorporated into Filtrona's results based upon its balance sheet as at 21 December 2011 and accordingly contributed £nil to revenue and an operating profit of £nil in the period from acquisition to 31 December 2011. Related acquisition expenses of £2.1m were recognised in the income statement in exceptional operating items.

 

On acquisition the assets and liabilities of both businesses 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.

 

A summary of the acquisition of Reid Supply is detailed below:

 

 

 


Book value at acquisition

Revaluation

Fair value of assets acquired



£m

£m

£m

Deferred tax


-

0.2

0.2

Property, plant and equipment


0.7

(0.2)

0.5

Inventories


3.9

(0.1)

3.8

Receivables


2.9

(0.1)

2.8

Cash and cash equivalents


(0.1)

-

(0.1)

Provisions


-

(0.1)

(0.1)

Payables


(1.4)

(0.2)

(1.6)



6.0

(0.5)

5.5

Customer relationships




9.4

Other intangible assets




1.8

Goodwill




2.7

Consideration




19.4

Satisfied by:





Initial cash consideration




18.2

Deferred contingent consideration




1.2



Cash consideration



18.2       

Cash and cash equivalents acquired



0.1       

Net cash outflow in respect of the acquisitions

18.3           

 

Property, plant and equipment, inventories, receivables, provisions and payables were all reassessed to their fair value.

 

The adjustment to deferred tax is the tax effect of the fair value adjustments above.

 

Deferred contingent consideration of £1.2m is payable by the Group if Reid Supply exceeds a target revenue during the 12 months to 31 December 2012.

 

The book value of trade receivables acquired is stated net of impairment losses of £0.1m.

 

Included in the £2.7m of goodwill recognised above is the value of the unique revenue and cost synergies and an assembled workforce. Due to its nature this asset cannot be individually identified or measured. It is expected that most of the goodwill and other intangible assets acquired will be allowable for tax deduction in future years.

 

It is estimated that if the acquisition of Reid Supply had been completed on 1 January 2011 the contribution to 2011 Group revenue would have been £24.1m and to Group operating profit before intangible amortisation would have been £2.2m.

 

A summary of the acquisition of Richco is detailed below:

 

 

 


Book value at

acquisition

Revaluation

Fair value of assets acquired



£m

£m

£m

Property, plant and equipment


8.7

(1.5)

7.2

Inventories


4.4

(0.6)

3.8

Receivables


9.6

(0.2)

9.4

Cash and cash equivalents


7.5

-

7.5

Deferred tax


0.2

(6.6)

(6.4)

Provisions


(0.5)

(4.4)

(4.9)

Income tax payable


(0.2)

-

(0.2)

Payables


(4.9)

-

(4.9)



24.8

(13.3)

11.5

Customer relationships




39.4

Other intangible assets




3.1

Goodwill




24.2

Consideration




78.2

Satisfied by:





Cash consideration




78.2



Cash consideration



78.2      

Cash and cash equivalents acquired



(7.5)      

Net cash outflow in respect of the acquisitions

70.7          

 

The adjustment to deferred tax is the tax effect of recognising customer relationships and other intangibles and the tax effect of the fair value adjustments below.

 

Property, plant and equipment, inventories, receivables, provisions and payables were all reassessed to their fair value.

 

The book value of trade receivables acquired is stated net of impairment losses of £0.3m.

 

Included in the £24.2m of goodwill recognised above is the value of the unique revenue and cost synergies including entry into new geographic and end markets where previously Protection & Finishing Products was not present and an assembled workforce. Due to its nature this asset cannot be individually identified or measured. It is expected that approximately 35% of the goodwill and other acquired intangible assets will be allowable for tax deduction in future years.

 

It is estimated that if the acquisition of Richco had been completed on 1 January 2011 the contribution to 2011 Group revenue would have been £47.2m and to Group operating profit before intangible amortisation would have been £6.3m.

 

During 2011, Filtrona reassessed the fair value adjustments made in respect of Stera Tape which was acquired in 2010, and increased certain accruals by £0.5m.  Goodwill was increased accordingly.

 

The revenue and gross profit margin targets set in 2010 in respect of the acquisition of BP Labels were not met and as a result £0.3m was released to the income statement during the year.

 

 

11.           Disposals and discontinued operations

 

In July 2011, Filtrona disposed of its shares in FractureCode Corporation ApS ('FractureCode') to ITO Technologies ApS for consideration of £0.3m payable in two instalments in January and July 2012. The disposal resulted in a loss after tax of £1.9m and has been treated as an exceptional operating item. Cash disposed and disposal expenses were in total £0.1m.

 

In September 2011, Filtrona received £2.7m (2010: £2.7m) from the Itavema Group which represented a further instalment due in relation to the deferred consideration for the disposal on 29 June 2007 of Globalpack, its Brazilian consumer packaging business. During 2011, Filtrona released tax warranty provisions of £1.9m in respect of Globalpack and this was recognised as discontinued operations in the income statement.

 

 

12.           Dividends

 


Per share


Total


2011

2010


2011

2010


p

p


£m

£m

2010 interim: paid 29 October 2010


3.0



6.2

2010 final: paid 28 April 2011


6.0



12.3

2011 interim: paid 28 October 2011

3.3



6.8


2011 proposed final: payable 30 April 2012

      7.2



14.9



10.5

9.0


21.7

18.5

 

 

13.           Transactions with related parties

 

Other than the disposal of FractureCode, the acquisition of further shares in Filthai (see below) and the compensation of key management, Filtrona has not entered into any material transactions with related parties.  Furthermore, throughout 2011 and 2010, no Director had a personal interest in any significant transaction of Filtrona.

 

On 18 January 2011, Filtrona acquired 9.9% of the share capital of Filthai Company Limited ('Filthai') from non-controlling interests. Following the purchase of the share capital, Filtrona have increased their interest in Filthai Company Limited to 70.9% of the issued share capital. The cash consideration was £1.1m which was recorded directly to equity as acquisition of non-controlling interests.

 

 

14.           Post balance sheet events

 

On 17 February 2012, Filtrona acquired 100% of the share capital of Securit World Ltd ("Securit") for a cash consideration of £6.0m. Securit distributes desktop personal identification ("ID") card systems, providing printers, software and associated accessories.  The acquisition of UK-based Securit will add to the existing capabilities of Filtrona's Payne Security personal ID products business.

 

 

15.           Non-GAAP measures

 

Management reviews the adjusted operating profit and operating cash flow as measures of the performance of the business. Adjusted operating profit is stated before intangible amortisation and exceptional operating items which are considered not relevant to measuring the performance of the business. Operating cash flow is adjusted operating profit before depreciation, share option expense and other non-cash items, less working capital movements and net capital expenditure as shown below:


 

2011


 

2010


£m


£m

Operating profit

72.6


72.0

Intangible amortisation

3.7


3.0

Exceptional operating items

8.2


-

Adjusted operating profit

84.5


75.0

Depreciation and other amounts written off property, plant and equipment

20.7


21.9

Share option expense

3.0


2.8

Other non-cash items

3.4


(0.9)

Working capital movements

7.9


(5.1)

Net capital expenditure

(26.8)


(18.8)

Operating cash inflow

92.7


74.9

 

 

16.           Cautionary forward-looking statements

 

This Report contains forward-looking statements based on current expectations and assumptions. Various known and unknown risks, uncertainties and other factors may cause actual results to differ from any future results or developments expressed or implied from the forward looking statement. Each forward-looking statement speaks only as of the date of this document. The Company accepts no obligation to publicly revise or update these forward-looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

 

17.           Directors' responsibilities statement

 

We confirm that to the best of our knowledge

 

·      The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities and financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

 

·      This announcement includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

On behalf of the Board

 

Colin Day                               Steve Crummett

Chief Executive                     Group Finance Director

 

22 February 2012

 

Filtrona plc

Principal risks

 

Effective management of risk and opportunity is essential to the protection of Filtrona's reputation and the achievement of sustainable shareholder value.

 

The management of risk underpins the Company's strategy and underpins its Vision 2015, focusing on the challenges which arise in the international environment in which Filtrona conducts business and reflecting the Company's appetite for risk in the delivery of its business objectives.  The underlying principles are that risks are continuously monitored, associated action plans reviewed, appropriate contingencies are provisioned and that information is reported through established management control procedures.

 

The Company seeks to continuously improve its risk management processes and has developed new systems during 2011 which serve to enhance the Company's response to the risks inherent in its international business activities. 

 

Filtrona recognises that the ability to monitor, assess and respond to business risks can often provide competitive advantage. Reporting within the Group is structured so that key issues are escalated through the management team, ultimately to the Board if appropriate.  Each area of the business is required to formally and regularly review its principal areas of risk and uncertainty so that major risks are reviewed at all levels across the Group.  This is an ongoing process, ensuring that there are clear consistent procedures for monitoring, updating and implementing appropriate controls to manage identified risks.

 

Filtrona's short and long-term performance can be impacted by any number of risks and uncertainties not all of which are within the Company's control. 

 

The Company is subject to the general risks and uncertainties which impact on any other international business, including political instability in the countries in which the Company operates and sources raw materials, the impact of natural disasters and changes in general economic conditions, including currency and interest rate fluctuations, tax regimes and raw material costs.

 

Detailed below are the principal risks and uncertainties which the Board believes are specific to Filtrona together with the associated risk management response.  The details provided are not exhaustive and do not purport to be a complete explanation of all potentially relevant issues. There may be other risks and uncertainties which are unknown to the Board or which may not be deemed by the Board to be material at present but which could prove to be so in the future.

 

Disruption to operational sites/loss of critical assets

 

Risk

A catastrophic loss of the use of all or a portion of any of Filtrona's manufacturing or distribution facilities due to accident, labour issues, fire, weather conditions, terrorist attack, natural disaster or otherwise and whether short or long-term could adversely affect the Company's ability to meet the demands of its customers. Some of the assets maintained by the Company, such as tooling and IT systems, are critical to the manufacture and delivery of particular products.

Impact

A material disruption to operational facilities or the loss of critical assets may negatively affect the Company's:

·      production capability and asset base

·      supply chain management

·      customer relationships

·      reputation

·      revenue

·      profit

·      financial condition

Mitigation

Filtrona seeks to manage the risk of potential disruption of the supply of its customers by:

·      operating within a flexible global infrastructure

·      installing fire and other risk prevention systems

·      implementing disaster recovery and business continuity plans

·      assessing operational risks

·      maintaining insurance

 

Competitive pressures

 

Risk

Filtrona faces pressures from direct competitors as well as competition from alternative technologies.  Some of the Company's competitors may derive competitive advantage from the benefits of greater financial resources, economies of scale, additional purchasing power or lower cost bases and Filtrona may face aggressive pricing practices.

Impact

Demand for competitors' products and the development of competing technologies may result in:

·      loss of market positions

·      erosion of margins

·      intellectual property challenges

·      decline in revenue

·      decline in profitability

·      reduction in financial condition

 

Mitigation

Filtrona seeks to drive its strong competitive market positions by:

·      sustained investment in research and development to develop the quality and breadth of its product and service offering

·      exploiting its innovative and manufacturing capabilities in new technologies, products and services

·      protecting its intellectual property rights

·      expanding its international distribution, sales and marketing expertise

·      investing in both organic and acquisition growth opportunities

 

Challenges of business development

 

Risk

Filtrona has achieved the development of its business and growth through the benefit of acquisitions and the success of start-up operations. The rate of any future business development may in part be dependent on the success of additional acquisitions and new start-up operations. There can be no assurance that the Company will be able to successfully identify, complete and integrate suitable acquisitions and successfully develop and expand further start-up operations.

Impact

If Filtrona fails to meet the challenges of business development arising from acquisitions and start-up operations, the Company may experience:

·      increased costs

·      reduced profitability

·      lower growth rates

·      delay in the achievement of strategic objectives

Mitigation

Filtrona addresses the challenges presented by the development of its businesses on an international basis with:

·      experienced and skilled management

·      detailed due diligence and planning

·      project risk reviews

·      external expert advice

 

Customer concentration

 

Risk

In some of Filtrona's businesses, particularly filter products and tear tape, the customer base is relatively concentrated. Trends in certain markets, particularly within the oil and gas industry may reduce the demands for the Company's products. Should Filtrona's customers decide to satisfy their requirements internally or from other suppliers and if Filtrona was unable to secure new business this could result in a significant loss of business.

Impact

The loss of certain of Filtrona's key customers exposes the Company to:

·      reduced revenue

·      restructuring costs

·      profit decline

·      deterioration in financial condition

·      reputational damage

Mitigation

To counteract the Company's exposure to a number of key customers, Filtrona:

·      invests in innovative, high quality, value added products and services

·      develops long-term relationships with  customers at a senior level

·      seeks new markets and growth opportunities to expand the customer base

 

Raw material supply

 

Risk

The Company uses significant quantities of plastic resins which are subject to price fluctuations from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediaries from which resins are produced. Some of Filtrona's businesses are dependent on the availability of specialist raw materials or components which are incorporated into the Company's products. If there are rapid increases in resin or other raw materials prices, including energy costs, or supply shortages, the Company's revenue and profitability may be materially and adversely affected. 

Impact

If Filtrona is exposed to raw material price increases or supply shortages, the Company may suffer:

·      reduced revenue

·      increased costs

·      profit decline

·      disruption to supply

Mitigation

To counteract the Company's exposure to increases in raw material costs or supply shortages, Filtrona seeks to:

·      adopt appropriate procurement practices

·      secure longer term supply agreements

·      implement cost recovery programmes

·      ensure the availability of alternative supply options

 

Intellectual property development and protection

 

Risk

A key component to Filtrona's future success is the ability to develop new and innovative products and services. In addition to seeking patent and trademark rights applied around the world, the Company relies on unpatented proprietary know-how and trade secrets. In the event that Filtrona is unable to respond to competitive technological advances or to protect its intellectual property portfolio, the future performance of the Company may be adversely affected.  

Impact

Failure to develop and protect intellectual property rights exposes the Company to:

·      reduced revenue

·      profit decline

·      litigation

·      reputational damage

Mitigation

To counteract the Company's exposure to the erosion of its intellectual property portfolio, Filtrona:

·      invests in R&D

·      secures formal registrations of patent and trademark rights

·      adopts appropriate confidentiality and licensing practices

·      monitors potential infringements and takes appropriate enforcement actions

 

Relationship with tobacco industry

 

Risk

A significant part of Filtrona's business relates to the supply of filter products and tear tape to manufacturers in the tobacco industry. Future performance may be affected by changes in the conditions within those sections of the tobacco industry which the Company supplies, such as changes in the consumption of filter products, self-manufacture and increasingly restrictive regulations affecting the industry. Tobacco related litigation could also adversely affect Filtrona, although there is no history of the Company being involved in such claims.

Impact 

Filtrona's relationship with the tobacco industry may lead to:

·      reduced revenue

·      restructuring costs

·      profit decline

·      reputational damage

·      deterioration in financial condition

 

Mitigation

In seeking to minimise the impact of the challenges arising out of its exposure to the tobacco industry, Filtrona:

·      focuses on low cost filter production

·      invests in the research and development of innovative value added products and services

·      targets growth opportunities outside the manufacture of filter products

·      takes internal and external legal advice to manage litigation risk

 

Loss of key executives and certain employees

 

Risk

Filtrona's international operations are dependent on existing key executives and certain other employees in order to sustain, develop and grow its businesses and there can be no assurances that these employees will remain with the Company. The success of the Company will reflect its ability to retain, attract and motivate highly qualified executives and other personnel equipped to deliver on Filtrona's strategic objectives.

Impact

If Filtrona fails to retain, attract or motivate the required calibre of employees, its operational performance and financial condition may be materially impacted by the loss of:

·      experience

·      expertise

·      commercial relationships

Mitigation

In order to manage the risk of personnel change, the Company:

·      provides long-term share-based incentive plans

·      conducts management development schemes and other training programmes

·      reviews personal development and succession planning

 

Compliance risk - laws and regulations

 

Risk

Risk related to regulatory and legislative changes involve the inability of the Company to comply with current, changing or new requirements. Many of Filtrona's current business activities are subject to increasing regulation and enforcement activity by relevant authorities. As the Company moves into new markets and territories in pursuit of its strategic priorities, Filtrona is exposed to new and additional compliance risk.

Impact

Failure by the Company or its employees or others acting on its behalf to abide by the rules and regulations could result in:

·      administrative, civil or criminal liability

·      significant fines and penalties

·      suspense or debarment of the Company from trading

·      reputational damage

·      loss of commercial relationships

Mitigation

Filtrona addresses these challenges by:

·      establishing a clear compliance culture from the top down

·      risk assessments and ongoing compliance reviews

·      implementing policies and procedures

·      providing behavioural guidance and training  to all employees

·      monitoring compliance through verification procedures

 

 

 


This information is provided by RNS
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