Last checked at 1 Mar 2006 07:01
Filtrona plc01 March 2006 1 March 2006 Filtrona plc Preliminary Results for year ended 31 December 2005 Filtrona plc, the international, market leading, speciality plastic and fibreproducts supplier, today announces annual results for the year ended 31 December2005. • Sales were £513.7m (2004: £477.5m) up 7.6%. • Operating profit before intangible amortisation and demerger expense was £57.8m (2004: £48.1m) up 8.7% after excluding non-recurring IFRS adjustments. • Profit before tax was £50.0m (2004: £45.7m) up 9.4%. • Adjusted earnings per share were 15.0p (2004: 14.0p) up 7.1%. • Full year dividend of 6.4p providing an increase of 8.5% compared with the notional dividend for 2004. Commenting on today's announcement, Jeff Harris, Chairman of Filtrona said: "These are a very good maiden set of full year results for Filtrona and reflectthe underlying strength of the Company's market positions within itsinternational niche markets in both plastic and fibre technologies." Enquiries Filtrona plc FinsburyMark Harper, Chief Executive Morgan BoneSteve Dryden, Finance Director Gordon Simpson Tel: 01908 359100 Tel: 020 7251 3801 Chairman's Statement Welcome to the first Filtrona plc preliminary results following the 6 June 2005listing of the Company on the London Stock Exchange. Overview I am pleased to report Filtrona has delivered strong results. These wereachieved in a year which saw substantial organisational change associated withour transition to an independent public company. The performance reflects asound start following the demerger, and continues the Company's record ofconsistent organic growth. Filtrona has a well invested and efficient production, sourcing and supplyinfrastructure. Continued investment in research, technology and productionfacilities is key to preserving our competitive advantage. In order to meet theincreasing demands of customers for service and supply chain efficiencies, wehave expanded and adapted our international manufacturing footprint to drivedown the costs of production and to improve service. Filtrona focuses its resources on those international markets with good growthpotential where it can secure competitive advantage. This strategy, and thecapture of new customers and business in our principal activities, demonstratesour focus on organic development and gives the Board confidence that Filtronawill continue its track record of steady, cash generative growth. Results Summary Sales were £513.7m (2004: £477.5m) an increase of 7.6%, with sales growthaccelerating in the second half of the year. Operating profit before intangibleamortisation and demerger expense was £57.8m (2004: £48.1m) up 8.7% afterexcluding non-recurring IFRS adjustments. Profit before tax was £50.0m (2004:£45.7m) an increase of 9.4%. At 31 December 2005, net debt was £120.2m. Adjustedearnings per share, after excluding intangible amortisation and demergerexpense, were 15.0p (2004: 14.0p) up 7.1%. Our key business ratios have strengthened over those of last year with increasedcash generation and improvements in operating margins, return on capitalemployed and employee productivity. Acquisitions In December the Company increased its share in the FractureCode joint venturefrom 50% to 80% which gives us management control of this important business.This move reflects our confidence in the future commercial development ofFractureCode's patented track and trace technology. Dividend Subject to shareholder approval at the Annual General Meeting, the Board isrecommending a final dividend of 4.27p per share, which, if approved, will makea total dividend of 6.4p for the full year. The final dividend will be paid on28 April 2006 to shareholders on the register at 10 March 2006 with anex-dividend date of 8 March 2006. Employees The key factor behind the delivery of these successful results is the commitmentof our employees throughout the world. As I meet more of my colleagues, I amhugely impressed by their determination to deliver consistently high service andquality levels to our customers, whilst seeking innovation in our products andimproving productivity. All that hard work has been demonstrated in ouroperational progress and in these results. As Filtrona looks to generate sustained international growth in accordance withits strategic objectives, the Company is committed to further developing thesubstantial potential of its current employees and attracting high calibrepeople to strengthen the businesses further. On behalf of the Board and the shareholders, I would like to take thisopportunity to thank all Filtrona employees for their efforts throughout 2005. Board The Board has met eight times during the year and undertaken site visits toseveral facilities. The Board intends to continue with visits to key businessesto meet with operating management. I would like to take this opportunity to thank Paul Heiden for his tremendousassistance to the Board both during and after the demerger. Paul will retirefrom the Board at the Annual General Meeting in April and the search for hisreplacement is well advanced. Prospects Having successfully completed the demerger in June, I am pleased to report thatFiltrona has delivered a robust set of results in its first period as anindependent public company. The Company has continued to invest well ahead ofdepreciation to drive further growth. The market segments within which Filtronaoperates display favourable characteristics, providing a positive environmentwithin which the Company can continue to grow. With a sustained focus on innovation, delivery of superior customer value,supply chain optimisation and investment in our people and physicalinfrastructure, the Board has confidence that Filtrona will continue itspositive development. Jeff HarrisChairman1 March 2006 Operating Review Filtrona is an international, market leading, speciality plastic and fibreproducts supplier with activities segmented into Plastic Technologies and FibreTechnologies. Plastic Technologies produces, sources and distributes protection and finishingproducts, self-adhesive tear tape and security products as well as proprietaryand customised plastic extrusions and packaging items for consumer products. Fibre Technologies focuses on the production and supply of special filters forcigarettes and bonded fibre products such as reservoirs and wicks for writinginstruments and printers, household products and medical devices. Filtrona has performed well in 2005 with headline sales up 7.6% to £513.7m(2004: £477.5m) and operating profit before intangible amortisation and demergerexpense of £57.8m (2004: £48.1m) up 8.7% after excluding non-recurring IFRSadjustments. PLASTIC TECHNOLOGIES Plastic Technologies had a very successful year with headline sales up 13.2% to£273.3m (2004: £241.5m) and operating profit before intangible amortisation up13.3% to £37.6m (2004: £33.2m). The operating margin at 13.8% was 10 basispoints up on 2004. The 2004 Skiffy acquisition contributed £2.3m of the salesgrowth and pricing to recover raw material cost increases accounted for afurther £9m. Underlying like-for-like operating profits excluding acquisitionimpact increased by 11.2%. Protection and Finishing Products achieved strong growth. The Moss businesscontinued to increase its market share in Continental Europe and to hold sharein the more challenging UK market. Progress in Eastern Europe was particularlyencouraging. The capacity of the warehouse operation in Poland was doubled andthe performance of the new distribution business at Brno, in the Czech Republic,met our expectations. As a result of the growth in Continental Europe, the NorthEuropean distribution hub in Germany is being further expanded in 2006 toenhance stock availability and service levels. The resources at the Mossrepresentative office in Ningbo, China were increased to support the greaterlevel of sourcing activity for both tooling and finished products. Investmentsin new tooling will continue to drive down unit production costs in 2006. The Skiffy business continued to develop successfully as investments in rangeexpansion, productivity improvement and marketing programmes drove both goodorganic growth and enhanced margins. Skiffy's website, www.skiffy.com, has beenfurther developed, and is now the preferred order method for a substantialproportion of the customer base. Skiffy has exceeded the expectations which wehad upon acquisition of the business in 2004. The Alliance Plastics business in the US progressed well with domestic marketshare gains more than offsetting the weakness in the automotive sector.Investments in machinery and tooling expanded the product range and lowered unitproduction costs. The Alliance Express distribution network performedparticularly well due to an extensive marketing programme. The Alliance nationaldistribution operation in Sao Paulo, Brazil continued to grow and new machineshave been installed to expand local production. The MSI oil country tubular goods thread protector business had a strong yearsupported by continued investment in range development and a thriving oil andgas drilling sector. The production facilities in both Houston, Texas and VeraCruz, Mexico were upgraded during the year to improve productivity and productquality, and a new IT system was successfully installed at the Houston facility. Coated and Security Products continued to benefit from increased volumes ofprinted tear tapes for brand promotion and brand security applications. Duringthe year, the coated and security businesses were combined in a marketrepositioning exercise under the 'Payne' name which has growing brand equity inthe tear tape, document authentication, personal identification and brandprotection markets. Tear tape sales grew as more customers recognised its value as a flexible, costeffective means of delivering on-pack consumer communication and productauthentication. In the tobacco industry, the migration of customers to highervalue printed tapes continued and, in consumer goods, business was secured withan important FMCG brand owner utilising digitally printed tear tapes withindividual item numbering for a major instant win consumer promotion. Payne'sprint capability was further enhanced as the new six station printer came onstream successfully at the Richmond, US facility. This investment has stimulatedgreater interest in printed tear tape within the North American market. The Payne document authentication and personal identification businessescontinued to grow and to enter new markets. The development of gravure printcapability for passport laminates has led to the capture of business for a highsecurity film laminate on the next generation UK passport. We were pleased towin this contract against tough competition and this segment offers furthergrowth opportunities internationally. Personal identification continued to grow well in both the local government andcommercial sectors. New business generated by the change in UK licensing lawsand a contract to supply UK magistrates with identification cards are evidenceof the continued health of this market niche. At the end of the year, the Company increased its stake in the FractureCodejoint venture from 50% to 80%. The transaction enables Filtrona to acquire theremaining 20% and thus own 100% of FractureCode by no later than the end of2012. The FractureCode development programme continued to progress well and ourinitial customer has ordered equipment for installation in a secondmanufacturing facility. The FractureCode technology will be launched to thegeneral market progressively during 2006. The Plastic Profile and Sheet business achieved good results both in NorthAmerica and Europe. The North American organisation was restructured generatingboth internal efficiencies and cost benefits. The Monterrey facility in Mexicoagain achieved rapid sales growth assisted by the migration of manufacturingactivity from the US to Mexico and an expansion of the facility is plannedduring 2006. The chosen key market sectors have delivered good growth during the year. Salesof point of purchase products were buoyant in both geographies and, in the US,this has been assisted by a change of distribution policy. Sales have continuedto grow in the medical market due to the introduction of new products and thecapture of new customers. Both extrusion and assembly capacity have beenincreased to cope with the increased demand for high pressure tubing products.In the transportation market, business was helped by a buoyant aircraftrefurbishment sector and the increase in new aircraft builds should providepositive future growth opportunities. Our Dutch extrusion business, Enitor, has continued to develop its exportactivity, particularly to the UK, with important new projects in theconservatory and cable trunking markets. Business growth has generated the needfor a factory extension which is scheduled for completion in the summer of 2006. Globalpack, our Brazilian Consumer Packaging business, encountered tough tradingconditions through most of the year but, encouragingly, demonstrated a markedimprovement in the last quarter. The business secured a number of new projectsduring the year for tubes, bottles, closures and roll-on balls. Volumes in ourroll-on ball joint venture remained particularly strong and a new productionline was commissioned in February 2006. Each of the Plastic Technologies businesses experienced very rapid increases inraw material prices during the second half of the year. Appropriate pricingaction has been taken to recover these cost movements and our success in thisendeavour is a reflection of Filtrona's strong niche market positions. FIBRE TECHNOLOGIES Sales in Fibre Technologies were up 1.9% to £240.4m (2004: £236.0m). Operatingprofit before intangible amortisation was £26.9m (2004: £23.9m) down by 1.8%after excluding non-recurring IFRS adjustments . Operating margins fell by 40basis points to 11.2% from 11.6%. Encouragingly, sales momentum was regained inthe second half of 2005 with sales up 5.3% on the same period last year. Cigarette Filters total volumes were in line with last year. Special filtersvolume growth was encouraging at 6.6% driven by market growth and the capture ofnew outsourced volumes. Monoacetate filter volumes fell by 8.3%. The marginbenefit of this mix improvement was reduced by a combination of start up andrestructuring costs which held back the growth of operating profits. Lower totalfilter volumes in Europe were more than offset by good growth of volumes in theAmericas and Asia where selling prices are lower. European volumes fell due to the impact of previous self-manufacture decisionsby a key customer in Russia and Italy but improved in the second half of theyear with the additional outsourced volumes secured with another key customer.As a result of the overall volume weakness in Europe, the high costmanufacturing facility in Crissier, Switzerland was closed during the summer.The first customer was captured for Filtrona's active patch technology and amajor European producer is also planning a new product launch using thistechnology. Sales to the European Roll Your Own and Make Your Own sectors grewwell during the year and, although monoacetate filters currently dominate thecigarette market in Europe, there is increasing development activity involvingspecial filters. Volumes in the Americas increased due to good growth in Latin America and theadditional volumes secured for production at the new facility in Monterrey,Mexico where further machinery has been installed progressively throughout theyear. In the US and Venezuela, new five year supply contracts were agreed withimportant customers. In the US market, the major producers continue to developand test market new products with special filters, and Filtrona is well placedto take advantage of any forthcoming launches. Asian volumes continued to progress and the Indonesian facility upgradeprogramme was completed at the end of the year. The transfer of a major trancheof business from the Jarrow facility in the UK to Indonesia has begun. The evolution of Filtrona's manufacturing footprint to lower cost areas of theworld, combined with the development of new innovative filter products, iscreating a positive market environment for the filters business. Fibertec, our Bonded Fibre Components business, experienced stronger demand forhousehold products in the second half of the year. Agreements were reached witha number of significant customers for the renewal or establishment of multi-yearsupply agreements. At our Reinbek plant in Germany the transfer out of thecigarette filters business and the softer market conditions for householdproducts experienced in the first half resulted in a headcount reductionprogramme. The Ningbo facility in China started up successfully and is already benefitingfrom new business won in the Asian market. Customer approvals of productproduced in Ningbo are taking place progressively and customer orders in theregional market are now being satisfied with significantly shorter lead times. The innovation programme at the R&D centre in Richmond in the US continues toprovide good results with new products and processes and related intellectualproperty. A new bonded fibre product for a medicine dispensing system wascommercialised and important new projects in inkjet printing components andblood separation technology continue to progress towards commercialisation in2006. Mark HarperChief Executive1 March 2006 Consolidated income statementfor the year ended 31 December 2005 Note 2005 2004 £m £m________________________________________________________________________________ Revenue 1 513.7 477.5________________________________________________________________________________Operating profit before intangible amortisation anddemerger expense 57.8 48.1Intangible amortisation (0.8) (0.5)Demerger expense (1.0) -________________________________________________________________________________Operating profit 1,2 56.0 47.6Finance income 3 5.6 0.9Finance expense 3 (11.6) (2.8)________________________________________________________________________________Profit before tax 50.0 45.7Income tax expense 4 (17.0) (14.0)________________________________________________________________________________Profit for the year 33.0 31.7________________________________________________________________________________ Attributable to:Equity holders of Filtrona 31.6 30.5Minority interests 1.4 1.2________________________________________________________________________________Profit for the year 33.0 31.7________________________________________________________________________________ Earnings per share attributable to equity holders ofFiltrona:Basic 6 14.4p 13.9p________________________________________________________________________________Diluted 6 14.4p 13.9p________________________________________________________________________________ Consolidated balance sheetat 31 December 2005 Note 2005 2004 £m £m________________________________________________________________________________AssetsProperty, plant and equipment 7 180.5 152.5Intangible assets 8 63.0 57.6Deferred tax assets 15 1.6 0.2________________________________________________________________________________Total non-current assets 245.1 210.3 Inventories 9 59.8 53.3Income tax receivable 1.6 0.5Trade and other receivables 10 85.6 78.0Derivative assets 14 0.1 -Cash and cash equivalents 11 30.7 31.3________________________________________________________________________________Total current assets 177.8 163.1________________________________________________________________________________Total assets 422.9 373.4________________________________________________________________________________ EquityIssued capital 18 54.8 274.1Capital redemption reserve 19 0.1 -Other reserve 19 (132.8) (132.8)Translation reserve 19 5.3 (1.6)Retained earnings 19 197.3 (28.7)________________________________________________________________________________Attributable to equity holders of Filtrona 124.7 111.0Minority interests 19 5.6 3.9________________________________________________________________________________Total equity 130.3 114.9________________________________________________________________________________ LiabilitiesInterest bearing loans and borrowings 13 145.2 148.6Retirement benefit obligations 17 35.8 -Other payables 13 2.1 3.1Provisions 16 2.5 3.7Deferred tax liabilities 15 11.4 18.6________________________________________________________________________________Total non-current liabilities 197.0 174.0 Bank overdrafts 11 5.0 1.6Interest bearing loans and borrowings 13 0.7 1.1Derivative liabilities 14 0.8 -Income tax payable 15.2 11.3Trade and other payables 12 68.9 68.6Provisions 16 5.0 1.9________________________________________________________________________________Total current liabilities 95.6 84.5________________________________________________________________________________Total liabilities 292.6 258.5________________________________________________________________________________Total equity and liabilities 422.9 373.4________________________________________________________________________________ Consolidated statement of cash flowsfor the year ended 31 December 2005 Note 2005 2004 £m £m________________________________________________________________________________Operating activitiesProfit before tax 50.0 45.7Adjustments for: Net finance expense 6.0 1.9 Intangible amortisation 0.8 0.5 Depreciation 22.1 20.1 Share option expense 1.1 1.1 Impairment of property, plant and equipment - 2.3 Other items 1.1 2.5Increase in inventories (2.2) (5.7)Increase in trade and other receivables (4.7) (8.5)Increase in trade and other payables 2.1 4.8Acquisition of employee trust shares (1.0) -Other cash movements (4.6) (0.6)Income tax paid (13.8) (13.2)________________________________________________________________________________Net cash inflow from operating activities 56.9 50.9________________________________________________________________________________ Investing activitiesInterest received 1.2 0.8Acquisition of property, plant and equipment (38.2) (34.8)Proceeds from sale of property, plant and equipment 0.9 1.4Acquisition of businesses net of cash acquired 22 (4.6) (22.5)Other investing cash flows (0.4) (0.9)________________________________________________________________________________Net cash outflow from investing activities (41.1) (56.0)________________________________________________________________________________ Financing activitiesInterest paid (6.7) (2.8)Dividends paid to former parent company - (34.3)Dividends paid to equity holders (4.7) -(Repayments of)/proceeds from short term loans (0.6) 0.2Proceeds from/(repayments of) long term loans 133.7 (0.1)Capital contributions from former parent company 4.2 11.7(Repayments to)/proceeds from former parent company (147.0) 37.2________________________________________________________________________________Net cash (outflow)/inflow from financing activities (21.1) 11.9________________________________________________________________________________ Net (decrease)/increase in cash and cash equivalents (5.3) 6.8________________________________________________________________________________ Net cash and cash equivalents at the beginning of theyear 29.7 22.5Net (decrease)/increase in cash and cash equivalents (5.3) 6.8Net effect of currency translation on cash and cashequivalents 1.3 0.4________________________________________________________________________________Net cash and cash equivalents at the end of the year 11 25.7 29.7________________________________________________________________________________ Consolidated statement of recognised income and expensefor the year ended 31 December 2005 2005 2004 £m £m________________________________________________________________________________Recognition of defined benefit pension schemes on demerger: Actuarial loss (34.7) - Deferred tax credit on actuarial loss 10.5 -Actuarial loss on defined benefit pension schemes sincedemerger (2.0) -Deferred tax credit on actuarial loss on defined benefitpension schemes since demerger 0.7 -Movement on cash flow hedge (0.1) -Foreign exchange translation differences 7.4 (1.7)________________________________________________________________________________Income and expense recognised directly in equity (18.2) (1.7)Profit for the year 33.0 31.7________________________________________________________________________________Total recognised income and expense for the year 14.8 30.0Adoption of IAS 32 and IAS 39 0.1 -________________________________________________________________________________ 14.9 30.0________________________________________________________________________________ Attributable to:Equity holders of Filtrona 12.9 28.9Minority interests 1.9 1.1________________________________________________________________________________Total recognised income and expense 14.8 30.0________________________________________________________________________________ Accounting policies a Basis of preparation The consolidated financial statements have been prepared and approved by theDirectors in accordance with International Financial Reporting Standards asadopted by the EU ('IFRS'). Filtrona plc's 2005 Annual Report will be despatched to shareholders at the endof March 2006. The financial information set out does not constitute theCompany's statutory accounts for the year ended 31 December 2005 but is derivedfrom those accounts. Statutory accounts for 2005 will be delivered to theRegistrar of Companies following the Company's Annual General Meeting which willbe held on 26 April 2006. The auditor has reported on those accounts; theirreports were unqualified and did not contain statements under Section 237 (2) or(3) of the Companies Act 1985. On 6 June 2005 the Filtrona business was demerged from Bunzl plc ('Bunzl' or'former parent company') and the ordinary shares of Filtrona plc ('Filtrona' orthe 'Company') were listed on the London Stock Exchange. Prior to the demergerthe Filtrona businesses were reorganised under Filtrona International Limitedunder the common control of Bunzl (outside the scope of IFRS 3: Businesscombinations ('IFRS 3')) and have been presented as if Filtrona had alwaysexisted independently for the purposes of the comparatives. The demerger waseffected by the payment of a dividend in specie by Bunzl and has been accountedfor as if it were a reverse acquisition. The financial statements are prepared on a historical cost basis except forderivative financial instruments which are stated at fair value. This isFiltrona's first annual report and therefore the adoption of IFRS does notimpact on any previously reported financial position. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised and future periods if relevant. The preparation of financial statements that conform with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofincome and expense during the reporting period. Although these estimates arebased on management's best knowledge of the amount, event or actions, actualresults may ultimately differ from those estimates. As part of the demerger process, Listing Particulars were issued which includedan Accountants' Report presenting financial information for the Filtronabusinesses for the year ended 31 December 2004 prepared as if Filtrona hadalways existed independently. This information has been used as the basis of thecomparative information in this report, with adjustments made for pensionaccounting as required by IAS 19 (revised). The accounting policies used in the preparation of these financial statementsare detailed below. These policies have been consistently applied to all periodspresented except for those relating to the classification and measurement offinancial instruments. b International Financial Reporting Standards I IFRS 1 IFRS 1: First-time adoption of International Financial Reporting Standards('IFRS 1') permits certain exemptions from the full requirements of IFRS in thetransition period. Filtrona has taken the following exemptions: (i) Business combinationsFiltrona has chosen not to retrospectively apply IFRS 3 to business combinationsthat occurred before the date of transition to IFRS. (ii) Financial instrumentsFiltrona, in its comparative information for the period ended 31 December 2004,has taken advantage of the exemption not to present financial informationcompliant with IAS 32: Financial instruments: disclosure and presentation andIAS 39: Financial instruments: recognition and measurement. Consequently, therestatement of the opening consolidated balance sheet at 1 January 2004, theresults for the year ended 31 December 2004 and the consolidated balance sheetat 31 December 2004 have been prepared using the accounting policies forfinancial instruments previously adopted under UK GAAP. The result of theadoption of IAS 39 on 1 January 2005 was the recognition of a derivative assetof £0.1m. (iii) Cumulative translation differencesFiltrona has adopted the exemption in IFRS 1 allowing cumulative translationdifferences to be reset to zero at the transition date. (iv) Fair value or revaluation at deemed costFiltrona has adopted the exemption to restate revalued items of property, plantand equipment as being held at deemed cost at the date of transition. Filtrona has elected not to adopt the following exemption: (i) Share-based paymentsFiltrona has not adopted the exemption to apply IFRS 2: Share-based payments('IFRS 2') only to awards made after 7 November 2002. Instead a fullretrospective approach has been followed on all awards granted but not fullyvested at the date of transition. II Impairment Goodwill was tested for impairment at 1 January 2004, the date of transition toIFRS, even though no indication of impairment existed. c Basis of consolidation (i) SubsidiariesSubsidiaries are entities controlled by Filtrona. Control exists when Filtronahas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity to obtain economic benefit from its activities. Thefinancial statements of subsidiaries are included in the financial statementsfrom the date that control commences until the date that control ceases. (ii) Joint venturesJoint ventures are accounted for using the equity method of accounting. A jointventure is an entity in which Filtrona has a long-term interest and exercisesjoint control. Under the equity method Filtrona's share of the aggregate assetsand liabilities is included in the balance sheet and Filtrona's share ofoperating profit, finance and income tax expense of the joint venture isincluded in the income statement. (iii) Transactions eliminated on consolidationIntragroup balances and any unrealised gains and losses or income and expensearising from intragroup transactions, are eliminated in preparing the financialstatements. d Foreign currency (i) Foreign currency transactionsTransactions in foreign currencies are recorded at the rate of exchange at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are translated into sterling at theexchange rate ruling at that date and recognised in the income statement unlesshedging criteria apply. (ii) Financial statements of foreign operationsThe assets and liabilities of foreign operations, including intangible assetsarising on consolidation, are translated at the exchange rate ruling at thebalance sheet date. The revenues and expenses of foreign operations aretranslated at average exchange rates. Exchange differences arising onretranslation are recognised directly in the translation reserve. (iii) Net investment in foreign operationsExchange differences since 1 January 2004, the date of transition to IFRS,arising from the translation of the net investment in foreign operations, andrelated hedges are taken to the translation reserve and released to the incomestatement upon disposal. Differences arising prior to 1 January 2004 areincluded in retained earnings. e Financial instruments Filtrona has taken the exemption granted by IFRS 1 not to apply IAS 32 and IAS39 to the comparative figures in the 2005 financial statements. The financialstatements for the year ended 31 December 2004 have been prepared using theaccounting policies previously applied under UK GAAP for financial instrumentswhereby the fair values of financial instruments was not recognised. Theaccounting policies described here for financial instruments are applicable from1 January 2005. Under IAS 39, financial instruments are measured initially at fair value. Thesubsequent measurement depends on the classification of the financialinstrument. Loans and receivables and other financial liabilities (excludingderivatives) are held at amortised cost, unless they are included in a hedgeaccounting relationship. Filtrona uses derivative financial instruments to hedge its exposure to foreignexchange and interest rate risks arising from operational, financing andinvestment activities. In accordance with its treasury policy, Filtrona does nothold or issue derivative financial instruments for trading purposes. However,derivatives that do not qualify for hedge accounting are accounted for astrading instruments. (i) Cash flow hedgesWhere a derivative is designated as a cash flow hedge, the change in fair valueis recognised in equity, to the extent that it is effective and the ineffectiveportion is recognised in the income statement. Where the underlying transactionresults in a financial asset, accumulated gains and losses are recognised in theincome statement in the same period as the hedged item. Where the hedged itemresults in a non-financial asset, the accumulated gains and losses previouslyrecognised in equity, are included in the initial carrying value of the asset.In 2004 cash flow hedges were disclosed but not recognised in the financialstatements. (ii) Fair value hedgeWhere a derivative financial instrument is used to hedge the foreign exchangeexposure of a monetary asset or liability, no hedge accounting is applied andany gain or loss on the hedging instrument is recognised in the incomestatement. In 2004 financial assets and liabilities, where hedged, were valuedusing the contracted rate. (iii) Hedge of net investment in foreign operationsThe gain or loss on an instrument used to hedge a net investment in a foreignoperation that is deemed effective is recognised in equity. Any ineffectiveportion is recognised in the income statement. f Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand impairment losses. Previously revalued properties were treated as being heldat deemed cost upon transition to IFRS. Where parts of an item of property, plant and equipment or other assets havedifferent useful lives, they are accounted for as separate items. The carryingvalues of property, plant and equipment and other assets are periodicallyreviewed for impairment when events or changes in circumstances indicate thatthe carrying values may not be recoverable. g Depreciation Property, plant and equipment are depreciated over their estimated remaininguseful lives at the following annual rates applied to book value: Freehold land Not depreciatedBuildings 2% or life of lease if shorterPlant and machinery 7 - 20%Fixtures, fittings and equipment 10 - 33% The assets' useful lives are reviewed, and adjusted if appropriate, at eachbalance sheet date. h Leases Where Filtrona has substantially all the risks and rewards of ownership of anasset subject to a lease, the lease is treated as a finance lease. All otherleases are treated as operating leases and the rentals expensed to the incomestatement on a straight line basis. Lease incentives are amortised in the incomestatement over the life of the lease. i Intangible assets (i) GoodwillGoodwill is stated at cost less any impairment losses. Acquisitions are accounted for using the purchase method. For acquisitions thathave occurred since 1 January 2004 goodwill represents the difference betweenthe cost and fair value of identifiable assets acquired. For acquisitions madebefore 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 developmentResearch costs are expensed to the income statement in the year in which theyare incurred. Development costs relating to new products are capitalised if the new product istechnically and commercially feasible. Other development costs are recognised inthe income statement and expensed as incurred. (iii) Customer listsCustomer lists are identified on acquisition of businesses and valued usingdiscounted cash flows based on historic customer attrition rates. Amortisationis expensed in the income statement on a straight line basis over the estimateduseful economic life, a period of up to 25 years. j Impairment All assets, except inventories and deferred tax assets, are reviewed annually todetermine whether there is any indication of impairment. If an indicationexists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or itscash generating unit exceeds its recoverable amount, being the greater of valuein use and net selling price, and is recognised in the income statement. Valuein use is estimated future cash flows discounted using a pre-tax discount rate. k Inventories Inventories are valued at the lower of cost (on a first in, first out basis) andnet realisable value. For work-in-progress and finished goods, cost includes anappropriate proportion of labour and overheads. l Cash and cash equivalents Cash and cash equivalents comprise cash balances and fixed term investmentswhose maturities are three months or less from the date of acquisition. Bankoverdrafts repayable on demand and that form an integral part of Filtrona's cashmanagement are included as part of cash and cash equivalents in the statement ofcash flows. m Trade and other receivables Trade and other receivables are stated at cost less impairment losses. n Income tax Filtrona's income tax expense in 2004 benefited from its membership of Bunzl taxgroups in different tax jurisdictions. In 2005, the income tax expense incurredby Filtrona only reflects reliefs and charges relevant to Filtrona tax groups. Income tax in the income statement comprises current and deferred tax. Incometax is recognised in the income statement except to the extent that it relatesto items recognised in equity. Current tax is the expected tax payable on the taxable income for the year usingtax rates enacted or substantially enacted at the balance sheet date and anyadjustment to tax payable in prior years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences arising between the tax bases and the carrying amounts inthe financial statements. The following temporary differences are not providedfor: goodwill not deductible for tax purposes, the initial recognition of assetsor liabilities that affect neither accounting nor taxable profit, anddifferences relating to investments in subsidiaries to the extent that they willnot reverse in the foreseeable future. Deferred tax is determined using taxrates that are expected to apply when the related deferred tax asset/liabilityis settled. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profit will be available against which the asset can be utilised.Deferred tax assets are reduced to the extent that it is no longer probable thatthe related tax benefit will be realised. o Revenue Revenue from the sale of goods is recognised in the income statement when thesignificant risks and rewards of ownership have been transferred to the buyer.No revenue is recognised if there are significant uncertainties regardingrecovery of the consideration due, associated expenses or the possible return ofgoods. p Interest income and expense Interest income and expense is recognised in the income statement as it accrues. Funding balances between Filtrona and Bunzl are described as 'former parentcompany financing' within non-current liabilities, reflecting the debttransferred from Bunzl to Filtrona on demerger. Interest on the former parentcompany financing is calculated at an interest rate reflecting the effectivefinance expense that Bunzl incurred during the year ended 31 December 2004.Filtrona's finance expense shown in these financial statements reflectsFiltrona's actual interest expense for the year ended 31 December 2005 includinginterest paid to Bunzl up to the date of demerger. q Segment reporting A segment is a distinguishable component of Filtrona that is engaged inproviding products (business segment), or in providing products within aparticular economic environment (geographical segment), which is subject torisks and rewards that are different from those of other segments. Filtrona for operational and financial reporting purposes identifies twobusiness segments which are characterised by shared technology and raw materialinputs and are subject to risks and rewards that are different from each other. r Employee benefits (i) Defined contribution schemesObligations for contributions to defined contribution pension schemes areexpensed to the income statement as incurred. (ii) Defined benefit schemesThe significant pension schemes in Europe and the US have been accounted for ona defined benefit basis under IAS 19 (revised). Under IAS 19 (revised) Filtronahas to account for defined benefit pension charges up to the period of demergeron a defined contribution basis and on a defined benefit basis thereafter.Accordingly Filtrona has recognised the retirement benefit obligation of £34.7mat demerger in the consolidated statement of recognised income and expense.Actuarial gains and losses that have arisen subsequently were recognised in fullin the statement of recognised income and expense. The net obligations in respect of defined benefit pension schemes are calculatedseparately for each scheme by estimating the amount of future benefit thatemployees have earned in return for their service in the current and priorperiods, that benefit is discounted to determine its present value, and the fairvalue of any scheme assets is deducted. The discount rate is the yield at thebalance sheet date on AA credit rated bonds that have maturity datesapproximating to the terms of Filtrona's obligations. The calculation isperformed by a qualified actuary using the projected unit credit method. The amounts charged to operating profit are the current service cost, pastservice cost and gains and losses on settlement and curtailments. The expectedincrease in the present value of scheme liabilities is included within financeexpense and the expected return on scheme assets is included within financeincome. s Share-based payments Filtrona operates equity settled, share-based compensation plans. A charge ismade in the income statement based on the fair value of options using theBlack-Scholes model with a corresponding increase in equity. The fair value ismeasured at grant date and spread over the expected period between grant andexercise of the options. The amount recognised as an expense will be adjusted toreflect the actual number of shares that vest. The expense for share-based payments prior to demerger was the charge allocatedby Filtrona's former parent company based on the participation of Filtronaemployees in schemes that it operated. t Provisions A provision is recognised when there is a legal or constructive obligation as aresult of a past event and it is probable that a measurable outflow of economicresources will be required to settle the obligation. u Net debt Filtrona's definition of net debt is defined as cash and cash equivalents, netof interest bearing loans and borrowings. v Dividends Dividends are recognised as a liability in the period in which they aredeclared. Notesfor the year ended 31 December 2005 1. Segment analysis Filtrona comprises the following business segments: Plastic Technologies - produces, sources and distributes protection andfinishing products, self-adhesive tear tape and certain security products aswell as proprietary and customised plastic extrusions and packaging items forconsumer products. Fibre Technologies - focuses on the production and supply of special filters forcigarettes and bonded fibre products such as reservoirs and wicks for writinginstruments and printers, household products and medical diagnostic devices. Business segments 2005______________________________________________________________________________________ Plastic Fibre Central Filtrona Technologies Technologies Services+ £m £m £m £m______________________________________________________________________________________Revenue 273.3 240.4 - 513.7Operating profit/(loss)before intangibleamortisation anddemerger expense 37.6 26.9 (6.7) 57.8Intangible amortisation (0.7) (0.1) - (0.8)Demerger expense - - (1.0) (1.0)______________________________________________________________________________________Operating profit/(loss) 36.9 26.8 (7.7) 56.0______________________________________________________________________________________ Segment assets 180.1 143.1 4.5 327.7Intangible assets 59.7 3.3 - 63.0Unallocated items 32.2 32.2______________________________________________________________________________________Total assets 239.8 146.4 36.7 422.9______________________________________________________________________________________Segment liabilities 35.4 32.7 9.1 77.2Unallocated items 215.4 215.4______________________________________________________________________________________Total liabilities 35.4 32.7 224.5 292.6______________________________________________________________________________________ Other segment itemsCapital expenditure 21.6 16.4 0.2 38.2Depreciation 13.3 8.5 0.3 22.1Closing number of employees 2,873 2,340 33 5,246Average number of employees 2,953 2,270 30 5,253 2004______________________________________________________________________________________ £m £m £m £m______________________________________________________________________________________Revenue 241.5 236.0 - 477.5Operating profit/(loss)before intangible amortisation 33.2 23.9 (9.0) 48.1Intangible amortisation (0.4) (0.1) - (0.5)______________________________________________________________________________________Operating profit/(loss) 32.8 23.8 (9.0) 47.6______________________________________________________________________________________Segment assets 154.5 126.0 4.3 284.8Intangible assets 54.0 3.6 - 57.6Unallocated items 31.0 31.0______________________________________________________________________________________Total assets 208.5 129.6 35.3 373.4______________________________________________________________________________________Segment liabilities 29.4 34.0 12.0 75.4Unallocated items 183.1 183.1______________________________________________________________________________________Total liabilities 29.4 34.0 195.1 258.5______________________________________________________________________________________ Other segment itemsCapital expenditure 15.8 18.9 0.1 34.8Depreciation 12.3 7.6 0.2 20.1Closing number of employees 2,952 2,202 26 5,180Average number of employees 2,966 2,180 24 5,170 + Central Services includes group accounts, tax, treasury, legal, internalaudit, corporate development, human resources, information technology and otherservices provided centrally to support the business segments. Inter segment sales are not significant in either year. Net finance expense of£6.0m (2004: £1.9m) and income tax expense of £17.0m (2004: £14.0m) cannot bemeaningfully allocated by segment. The majority of unallocated liabilitiesrelate to interest bearing loans and borrowings, retirement benefit obligations,deferred tax liabilities, bank overdrafts and income tax payable. Geographical segments 2005______________________________________________________________________________________ Revenue (by Segment assets Intangible Capital destination) assets expenditure £m £m £m £m______________________________________________________________________________________Europe 183.7 124.5 40.7 16.7North America 215.5 133.1 21.9 14.2Rest of the world 114.5 70.1 0.4 7.3______________________________________________________________________________________ 513.7 327.7 63.0 38.2Unallocated items - 32.2 - -______________________________________________________________________________________ 513.7 359.9 63.0 38.2______________________________________________________________________________________ 2004 £m £m £m £m______________________________________________________________________________________Europe 191.5 127.2 37.6 12.3North America 178.5 108.6 19.5 16.8Rest of the world 107.5 49.0 0.5 5.7______________________________________________________________________________________ 477.5 284.8 57.6 34.8Unallocated items - 31.0 - -______________________________________________________________________________________ 477.5 315.8 57.6 34.8______________________________________________________________________________________ All segments are continuing operations. 2. Net operating expenses 2005 2004 £m £m________________________________________________________________________________Changes in inventories of finished goods and work inprogress (0.1) 0.4Raw materials and consumables 232.0 208.9Personnel expenses (note 5) 124.8 121.1Depreciation and other amounts written off property, plantand equipment 22.1 22.4Amortisation and other amounts written off intangible assets 0.8 0.5Demerger expense 1.0 -Hire of plant and machinery - rentals payable underoperating leases 0.5 0.5Other operating expenses 76.6 76.1________________________________________________________________________________Net operating expenses 457.7 429.9________________________________________________________________________________ Auditor's remuneration Note 2005 2004 £m £m________________________________________________________________________________Statutory audit of the Group 0.8 0.6________________________________________________________________________________ Services other than statutory audit: Further assurance services i 0.1 0.2 Tax services ii 0.2 0.3 Other services - -________________________________________________________________________________ iii 0.3 0.5________________________________________________________________________________ Notei Fees for further assurance services related principally to the review of the interim financial statements for the period ended 30 June 2005, and transition to IFRS reporting. In 2004, further assurance services related to acquisition due diligence.ii Tax services relate to fees paid for tax compliance services and tax advice.iii 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 entirely of independent Non-executive Directors, reviews and approves the level and type of non-audit work which the auditor performs, including the fees paid for such work, thus ensuring that their objectivity and independence is not compromised. £0.3m (2004: £0.2m) of the total fees for further assurance and taxation services were charged in the UK. 3. Net finance expense 2005 2004 £m £m________________________________________________________________________________Finance incomeBank deposits 1.1 0.8Other finance income 0.1 0.1Expected return on pension scheme assets 4.4 -________________________________________________________________________________ 5.6 0.9________________________________________________________________________________ Finance expenseLoans and overdrafts (5.4) -Former parent company financing (1.7) (2.8)Other finance expense (0.1) -Interest on pension scheme liabilities (4.4) -________________________________________________________________________________ (11.6) (2.8)________________________________________________________________________________Net finance expense (6.0) (1.9)________________________________________________________________________________ 4. Income tax expense 2005 2004 £m £m________________________________________________________________________________Components of tax expenseCurrent tax 16.9 18.8Prior years' tax (1.2) (2.9)Double tax relief (0.2) (0.6)Deferred tax (note 15) 1.4 (1.3)Taxes on equity items 0.1 -________________________________________________________________________________Income tax expense 17.0 14.0________________________________________________________________________________ Income tax expense in the UK is £1.1m (2004: £1.2m). Factors affecting tax expense for the year Filtrona operates across the world and is subject to income tax in manydifferent jurisdictions. Filtrona calculates its average expected tax rate as aweighted average of the national corporate income tax rates in the taxjurisdictions in which it operates. 2005 2004 £m £m________________________________________________________________________________Profit before income tax 50.0 45.7Tax at weighted average 16.0 14.8Effects of: Permanent disallowables 0.2 0.8 Overseas state and local tax 0.5 1.1 Unrelieved tax losses 1.8 0.5 Prior year adjustments (1.2) (2.9)Other items (0.3) (0.3)________________________________________________________________________________Income tax expense 17.0 14.0________________________________________________________________________________ 5. Personnel expenses 2005 2004 £m £m________________________________________________________________________________Wages and salaries 105.2 101.2Social security expense 13.1 11.8Pension expense (note 17) 5.4 7.0Share option expense 1.1 1.1________________________________________________________________________________ 124.8 121.1________________________________________________________________________________ 6. Earnings per share 2005 2004 £m £m________________________________________________________________________________Earnings attributable to ordinary shareholders of Filtrona 31.6 30.5Adjustment* 1.2 0.3________________________________________________________________________________Adjusted earnings 32.8 30.8________________________________________________________________________________ Basic weighted average ordinary shares in issue (million)# 219.1 219.3Dilutive effect of employee share option plans (million) 0.8 -________________________________________________________________________________Diluted weighted average ordinary shares (million) 219.9 219.3________________________________________________________________________________ Basic earnings per share 14.4p 13.9pAdjustment* 0.6p 0.1p________________________________________________________________________________Adjusted earnings per share 15.0p 14.0p________________________________________________________________________________Diluted basic earnings per share 14.4p 13.9p________________________________________________________________________________ Adjusted earnings per share is provided to reflect the underlying earningsperformance of Filtrona. * The adjustment relates to intangible amortisation and demerger expense less tax relief thereon.# The number of ordinary shares issued on demerger has been used as the weighted average number for the period prior to demerger. 7. Property, plant and equipment 2005________________________________________________________________________________ Land and Plant and Fixtures, Total buildings machinery fittings and equipment £m £m £m £m________________________________________________________________________________CostBeginning of year 46.5 230.5 36.0 313.0Additions 8.8 25.2 4.2 38.2Disposals (0.4) (5.9) (0.8) (7.1)Currencytranslation 4.3 17.3 1.5 23.1________________________________________________________________________________End of year 59.2 267.1 40.9 367.2________________________________________________________________________________ DepreciationBeginning of year 10.8 126.6 23.1 160.5Expense in year 1.3 17.4 3.4 22.1Disposals (0.2) (5.6) (0.7) (6.5)Currencytranslation 0.8 8.9 0.9 10.6________________________________________________________________________________End of year 12.7 147.3 26.7 186.7________________________________________________________________________________ Net book valueat end of year 46.5 119.8 14.2 180.5________________________________________________________________________________ 2004________________________________________________________________________________ Land and Plant and Fixtures, Total buildings machinery fittings and equipment £m £m £m £m________________________________________________________________________________CostBeginning of year 45.1 214.1 36.1 295.3Acquisitions 1.7 3.0 0.2 4.9Additions 2.7 28.0 4.1 34.8Disposals (1.2) (7.6) (2.1) (10.9)Currencytranslation (1.8) (7.0) (2.3) (11.1)________________________________________________________________________________End of year 46.5 230.5 36.0 313.0________________________________________________________________________________ DepreciationBeginning of year 8.7 120.6 22.8 152.1Expense in year 1.4 15.6 3.1 20.1Impairment 1.3 1.0 - 2.3Disposals (0.2) (7.2) (2.0) (9.4)Currencytranslation (0.4) (3.4) (0.8) (4.6)________________________________________________________________________________End of year 10.8 126.6 23.1 160.5________________________________________________________________________________ Net book valueat end of year 35.7 103.9 12.9 152.5________________________________________________________________________________ 8. Intangible assets 2005________________________________________________________________________________ Goodwill Customer lists Total £m £m £m________________________________________________________________________________CostBeginning of year 46.9 21.9 68.8Acquisitions (note 22) 5.1 - 5.1Currency translation 2.5 (0.9) 1.6________________________________________________________________________________End of year 54.5 21.0 75.5________________________________________________________________________________ AmortisationBeginning of year 10.7 0.5 11.2Expense in year - 0.8 0.8Currency translation 0.5 - 0.5________________________________________________________________________________End of year 11.2 1.3 12.5________________________________________________________________________________ Net book value at end of year 43.3 19.7 63.0________________________________________________________________________________ 2004________________________________________________________________________________ Goodwill Customer lists Total £m £m £m________________________________________________________________________________CostBeginning of year 48.2 - 48.2Acquisitions (note 22) - 21.1 21.1Currency translation (1.3) 0.8 (0.5)________________________________________________________________________________End of year 46.9 21.9 68.8________________________________________________________________________________ AmortisationBeginning of year 11.1 - 11.1Expense in year - 0.5 0.5Currency translation (0.4) - (0.4)________________________________________________________________________________End of year 10.7 0.5 11.2________________________________________________________________________________ Net book value at end of year 36.2 21.4 57.6________________________________________________________________________________ 9. Inventories 2005 2004 £m £m________________________________________________________________________________Raw materials and consumables 25.7 21.3Work-in-progress 3.0 2.7Finished goods and goods for resale 31.1 29.3________________________________________________________________________________ 59.8 53.3________________________________________________________________________________ Inventories held at net realisable value and amounts recognised as income fromthe reversal of write downs were not significant. 10. Trade and other receivables 2005 2004 £m £m________________________________________________________________________________Trade receivables 71.3 64.2Other receivables 7.1 8.5Prepayments and accrued income 7.2 5.3________________________________________________________________________________ 85.6 78.0________________________________________________________________________________ Trade receivables are stated after provision for doubtful debtsof: 3.1 3.2________________________________________________________________________________ 11. Cash and cash equivalents 2005 2004 £m £m________________________________________________________________________________Bank balances 29.7 29.6Short term bank deposits not repayable on demand 1.0 1.7________________________________________________________________________________Cash and cash equivalents 30.7 31.3Bank overdrafts (5.0) (1.6)________________________________________________________________________________Cash and cash equivalents in the statement of cash flows 25.7 29.7________________________________________________________________________________ Interest rates on short term cash deposits not repayable on demand are set forperiods ranging from one day to three months. Of the £30.7m (2004: £31.3m) cashand cash equivalents, 12% (2004: 22%) were denominated in sterling, 16% (2004:10%) were denominated in US dollars, 24% (2004: 32%) were denominated in euroand 48% (2004: 36%) were denominated in other currencies. 12. Trade and other payables 2005 2004 £m £m________________________________________________________________________________Trade payables 39.5 34.7Other tax and social security contributions 2.8 2.1Other payables 7.2 16.3Accruals and deferred income 19.4 15.5________________________________________________________________________________ 68.9 68.6________________________________________________________________________________ 13. Interest bearing loans and borrowings 2005 2004 £m £m________________________________________________________________________________Non-current liabilitiesUnsecured bank loans 145.2 0.3Former parent company financing - 148.3________________________________________________________________________________ 145.2 148.6________________________________________________________________________________ Current liabilitiesUnsecured bank loans 0.1 -Unsecured non-bank loan 0.6 1.1________________________________________________________________________________ 0.7 1.1________________________________________________________________________________ Terms and debt repayment schedule 2005________________________________________________________________________________ < 1 yr 1 - 2 yrs 2 - 5 yrs Total £m £m £m £m________________________________________________________________________________Unsecured bank loans 0.1 0.1 145.1 145.3Unsecured non-bank loan 0.6 - - 0.6________________________________________________________________________________ 0.7 0.1 145.1 145.9________________________________________________________________________________ All debt due for repayment in 2 to 5 years must be repaid no later than 2010. 2004________________________________________________________________________________ < 1 yr 1 - 2 yrs 2 - 5 yrs Total £m £m £m £m________________________________________________________________________________Unsecured bank loans - 0.1 0.2 0.3Unsecured non-bank loan 1.1 - - 1.1________________________________________________________________________________ 1.1 0.1 0.2 1.4________________________________________________________________________________Former parent company financing 148.3 ________ 149.7 ________ The former parent company financing did not have defined repayment terms. At 31 December 2005, the majority of Filtrona's interest bearing loans andborrowings were at floating rates of interest set with reference to LIBOR forperiods ranging from 7 days to 3 months. With effect from 24 February 2006, $35mand €30m of net debt was protected from adverse movements in interest rates withinterest rate caps for a period of 21 months. Also on 24 February 2006 theinterest rate on $40m of net debt was effectively fixed at 5.1775% with interestrate swaps for a period of two years. In 2004, the interest expense on former parent company financing was calculatedat an interest rate reflecting the effective interest expense that Bunzlincurred during that year. After taking into account foreign exchange swaps, the currency and interest rateprofile of Filtrona's financial assets and liabilities is as follows: 2005________________________________________________________________________________ Floating rate Non-interest Impact of Total bearing foreign exchange swaps £m £m £m £m________________________________________________________________________________AssetsSterling 3.5 22.3 - 25.8US dollar 4.9 30.2 - 35.1Euro 7.5 11.7 - 19.2Other 14.8 23.1 - 37.9________________________________________________________________________________ 30.7 87.3 - 118.0________________________________________________________________________________ LiabilitiesSterling 37.9 27.4 (78.1) (12.8)US dollar 111.7 35.7 20.2 167.6Euro 0.3 9.1 58.6 68.0Other 1.0 14.1 - 15.1________________________________________________________________________________ 150.9 86.3 0.7 237.9________________________________________________________________________________ £2.1m of Filtrona's non-interest bearing financial liabilities are due forpayment in one to two years. Filtrona's available undrawn committed facilities at 31 December were: 2005 £m________________________________________________________________________________Expiring within one year -Expiring after one but within two years -Expiring after two years 70.0________________________________________________________________________________ 70.0________________________________________________________________________________ Any loans drawn on these facilities would bear interest at floating rates withreference to LIBOR for the period of the loan. Prior to demerger, Filtrona did not have any committed facilities as itstreasury operations were managed by the former parent company. 14. Derivative instruments Assets Liabilities_____________________________________________________________________________________ Fair values Contractual Fair values Contractual or notional or notional amounts amounts £m £m £m £m_____________________________________________________________________________________At 31 December 2005Fair value hedgesForwardforeignexchangecontracts 0.1 4.9 (0.1) 9.6Cash flow hedgesForwardforeignexchangecontracts - 0.8 - 0.8Hedges of net investmentsCross currencyswaps - 14.6 (0.7) 64.2_____________________________________________________________________________________ 0.1 20.3 (0.8) 74.6_____________________________________________________________________________________ The fair value of derivative assets in 2004 was £0.1m. The fair values of other financial assets and liabilities are not significantlydifferent from their carrying amounts in 2005 and 2004. Fair values of forward foreign exchange contracts and cross currency swaps havebeen calculated at year end exchange rates compared to contracted rates. The net fair value gains on open forward foreign exchange contracts that hedgeforeign currency risk of anticipated future sales and purchases will betransferred to the income statement when the forecast sales and purchases occurover the next 12 months. Filtrona has US dollar denominated borrowings and US dollar and euro currencyswaps which it has designated as hedges of its net investments in subsidiaryundertakings. The exchange losses of £11.3m on these borrowings and the lossesof £0.1m on the US dollar currency swaps and gains of £0.3m on euro currencyswaps have been recognised in reserves. 15. Deferred tax Deferred tax assets and liabilities are attributable to the following: 2005 2004__________________________________________________________________________________________________ Assets Liabilities Net Assets Liabilities Net £m £m £m £m £m £m__________________________________________________________________________________________________Property,plant andequipment (0.7) 13.2 12.5 (0.3) 11.7 11.4Intangibleassets - 5.1 5.1 - 5.5 5.5Employeebenefits (11.4) - (11.4) (0.4) - (0.4)Other (4.6) 8.2 3.6 (4.1) 6.0 1.9__________________________________________________________________________________________________Tax(assets)/liabilities (16.7) 26.5 9.8 (4.8) 23.2 18.4Set off of tax 15.1 (15.1) - 4.6 (4.6) -__________________________________________________________________________________________________Net tax(assets)/liabilities (1.6) 11.4 9.8 (0.2) 18.6 18.4__________________________________________________________________________________________________ Movements in temporary differences in the year: 2005 2004 £m £m________________________________________________________________________________Beginning of year 18.4 14.2Charge/(credit) to the income statement in respect ofcurrent 1.4 (1.3)year (note 4)Charge to the income statement in respect of prior years 1.4 -Recognition of defined benefit pension schemes on demerger (10.5) -Credit to reserves on movements of defined benefit pensionschemes (0.3) -Acquisitions - 5.6Currency translation (0.6) (0.1)________________________________________________________________________________End of year 9.8 18.4________________________________________________________________________________ Deferred tax has been accounted for in respect of future remittances of theaccumulated reserves of overseas subsidiary undertakings only to the extent thatsuch distributions are accrued as receivable. Deferred income tax liabilitieshave not been established for the withholding tax and other tax that would bepayable on the unremitted earnings of overseas subsidiaries, as such amounts arecurrently regarded as permanently reinvested. A deferred tax asset of £0.7m hasnot been recognised in respect of capital losses as the realisation of thisdeferred tax asset is not considered probable. 16. Provisions 2005 2004 £m £m________________________________________________________________________________MovementsBeginning of year 5.6 4.0Expensed in the income statement 2.5 2.3Acquisitions - 0.2Reclassified from other payables 3.1 -Utilised (3.8) (0.6)Currency translation 0.1 (0.3)________________________________________________________________________________End of year 7.5 5.6________________________________________________________________________________ Non-current 2.5 3.7Current 5.0 1.9________________________________________________________________________________ 7.5 5.6________________________________________________________________________________ Provisions relate primarily to vacant properties, employees' compensationclaims, legal claims and environmental clean up expenses and are expected to beutilised in the near future. 17. Employee benefits For the period prior to demerger Filtrona employees were members of the formerparent company's defined benefit and defined contribution pension schemes. Theliabilities and assets of these schemes have been transferred to successorFiltrona schemes. Liabilities were actuarially allocated between Filtrona andthe former parent company and scheme assets were split in the same proportion asliabilities.Under IAS 19 (revised) Filtrona has to account for defined benefit pension costsup to the period of demerger on a defined contribution basis and on a definedbenefit basis thereafter. Accordingly Filtrona has recognised the retirementbenefit obligation of £34.7m at demerger in the consolidated statement ofrecognised income and expense. Trustees administer the schemes and the assets are held independently fromFiltrona. Pension costs of the defined benefit schemes are assessed in accordance with theadvice of independent professionally qualified actuaries. Full triennialactuarial valuations were carried out on the principal European defined benefitschemes in April 2003 and annual actuarial valuations are performed on theprincipal US defined benefit schemes. The assets and liabilities of the definedbenefit schemes have been updated to the balance sheet date from the most recentactuarial valuations taking account of the investment returns achieved by theschemes and the level of contributions. Contributions to all schemes are determined in line with actuarial advice, localconditions and practices. Defined benefit contributions in 2006 are expected tobe £4.2m, which consists of payments to fund future service accruals andcontributions to amortise the deficit in respect of past service. The amounts included in the consolidated financial statements in respect ofarrangements in Europe and the US are as follows: 2005 2004 £m £m________________________________________________________________________________Amounts charged to operating profitDefined contribution schemes 3.6 7.0Defined benefit schemes:Service cost 1.8 -________________________________________________________________________________Total operating expense (note 5) 5.4 7.0________________________________________________________________________________ Amounts included as finance (income)/expenseExpected return on scheme assets (4.4) -Interest on scheme liabilities 4.4 -________________________________________________________________________________Net financial return - -________________________________________________________________________________ 2005 2004 £m £m________________________________________________________________________________Amounts recognised in the statement of recognised income andexpenseRecognition of actuarial losses on demerger (34.7) -Actual return less expected return on scheme assets 5.7 -Impact of changes in assumptions relating to the present valueof scheme liabilities (7.7) -________________________________________________________________________________Actuarial loss (36.7) -________________________________________________________________________________ The principal assumptions used by the independent qualified actuaries for thepurposes of IAS 19 (revised) were: 2005________________________________________________________________________________ Europe USRate of increase in salaries 3.75% 3.00%Rate of increase in pensions 2.75% n/aDiscount rate 4.75% 5.50%Inflation rate 2.75% n/aExpected return on scheme assets 5.90% 8.30% The assumptions used by the actuaries are the estimates chosen from a range ofpossible actuarial assumptions which, due to the timescale covered, may not beborne out in practice. The fair value of scheme assets, which are not intended to be realised in theshort term and may be subject to significant change before they are realised,and the present value of the scheme liabilities, which are derived from cashflow projections over long periods and are therefore inherently uncertain, are: 2005________________________________________________________________________________ Long term rate Europe Long term rate US Total of return of return £m £m £m________________________________________________________________________________Equities 6.80% 64.7 9.75% 18.8 83.5Bonds 4.45% 12.5 5.75% 10.2 22.7Gilts 3.80% 18.1 - 18.1Other - 4.50% 0.1 0.1________________________________________________________________________________Fair value of scheme assets 95.3 29.1 124.4Present valueof scheme liabilities (123.3) (36.9) (160.2)________________________________________________________________________________Retirementbenefitobligations (28.0) (7.8) (35.8)________________________________________________________________________________ Movement in fair value of scheme assets/(liabilities) during the year 2005________________________________________________________________________________ Scheme assets Scheme Total liabilities £m £m £m________________________________________________________________________________Beginning of year - - -Recognition of defined benefitpension schemes on demerger 116.2 (150.9) (34.7)Contribution to defined benefitpension schemes by former parentcompany 1.4 - 1.4Service cost (1.8) (1.8)Contributions 3.2 (0.7) 2.5Actuarial gains/(losses) 5.7 (7.7) (2.0)Finance income/(expense) 4.4 (4.4) -Benefits paid (1.7) 1.7 -Curtailment (7.3) 7.5 0.2Changes in scheme coverage 0.3 (1.1) (0.8)Currency translation 2.2 (2.8) (0.6)________________________________________________________________________________End of year 124.4 (160.2) (35.8)________________________________________________________________________________ 2005________________________________________________________________________________ % of scheme £m assets/ liabilities________________________________________________________________________________Experience gains and lossesDifference between actual and expected return on schemeassets 4.6 5.7Net actuarial losses recognised in the statement ofrecognised income and expense (1.2) (2.0) Share-based payments Up to the date of demerger certain key management personnel and senior employeeswere entitled to participate in share option schemes of the former parentcompany. UK and some overseas employees were also able to participate in Save AsYou Earn schemes (or local equivalent) run by the former parent company. Anexpense of £0.6m (2004: £1.1m) was taken by Filtrona in respect of these schemesin accordance with IFRS 2. Since demerger Filtrona has issued its own share options and disclosure on theirfair values is given below: Share options outstanding 2005__________________________________________________________________________________________________________________ Outstanding Granted Weighted Lapsed Weighted Outstanding Weighted Exercisable at during average during average at the end average at end of beginning the year exercise the year exercise of year exercise year of year price price price__________________________________________________________________________________________________________________LTIP Part A - 2,281,608 239.5p (148,346) 239.0p 2,133,262 239.5p -LTIP Part B 'Matching' - 600,666 - - - 600,666 - -LTIP Part B 'Performance' - 570,992 - (55,645) - 515,347 - -__________________________________________________________________________________________________________________ 3,453,266 (203,991) 3,249,275 -__________________________________________________________________________________________________________________ It is Filtrona's intention to offer a sharesave scheme to its UK employees inMarch 2006. Fair value model inputs for share options outstanding 2005________________________________________________________________________________ LTIP Part A LTIP Part B LTIP Part B 'Matching' 'Performance'________________________________________________________________________________Weightedaverage fairvalue at grant 40.6p 211.9p 207.2pWeightedaverage shareprice at grant 239.5p 232.0p 232.0pWeightedaverageexercise price 239.5p - -Weightedaveragevolatility 24.0% 23.6% 23.8%Weightedaveragedividend yield 2.98% 3.07% 3.07%Weighted riskfree rate 4.12% 4.10% 4.15%Expectedemployeeretentionrates 73.7% 85.0% 85.0%Expected term 3.25 years 3.00 years 3.75 years All options have been valued using the Black-Scholes Model. Volatility has been calculated over the length of the expected term, for theperiod immediately before the grant date. The volatility of the former parentcompany's shares has been used as a proxy for Filtrona's share price volatilityin the period prior to demerger. Share based payment arrangements LTIP Part A LTIP Part B LTIP Part B 'Matching' 'Performance'________________________________________________________________________________Contractual life 3 - 10 years 3 - 6 years 3 - 6 years All options are settled with equity. 18. Share capital 2005 2004 £m £m________________________________________________________________________________Authorised: 500 million (2004: 500 million) ordinary sharesof 25p (2004: 125p) each 125.0 625.0________________________________________________________________________________Issued and fully paid ordinary shares of 25p (2004: 125p) 54.8 274.1each________________________________________________________________________________ Number of shares in issueBeginning and end of year 219,326,795 219,326,795________________________________________________________________________________ On 8 June 2005, a resolution was passed reducing the ordinary share capital by100p per share (total: £219.3m) and on 9 June 2005, this was confirmed by anOrder of the High Court. The amounts arising were used to create retainedearnings in the Company. 19. Movements on reserves 2005_______________________________________________________________________________________________________ Capital Other reserve Cash flow Translation Retained Minority Total redemption hedging reserve reserve earnings interests reserve £m £m £m £m £m £m £m_______________________________________________________________________________________________________At 1 January2005 - (132.8) - (1.6) (28.7) 3.9 (159.2)Adoption ofIAS 32 and IAS39 0.1 0.1_______________________________________________________________________________________________________At 1 January2005 restated - (132.8) 0.1 (1.6) (28.7) 3.9 (159.1)Totalrecognisedincome andexpense forthe year (0.1) 6.9 6.1 1.9 14.8Transfer toretainedearnings onreduction inshare capital 219.3 219.3Acquisition ofemployee trustshares (1.0) (1.0)Share optionexpense 1.1 1.1Dividends paid (4.7) (0.4) (5.1)Arising onacquisition 0.2 0.2Redemption of£1 preferenceshares 0.1 0.1Former parentcompany'scapitalcontribution 4.2 4.2Former parentcompany'scontributionto the definedbenefitpension schemenet ofdeferred tax 1.0 1.0_______________________________________________________________________________________________________At 31 December2005 0.1 (132.8) - 5.3 197.3 5.6 75.5_______________________________________________________________________________________________________ 2004________________________________________________________________________________________________ Capital Other Cash flow Translation Retained Minority Total redemption hedging reserve reserve earnings interests reserve reserve £m £m £m £m £m £m £m________________________________________________________________________________________________At 1 January2004 - (132.8) - - (37.7) 3.0 (167.5)Totalrecognisedincome andexpense forthe year (1.6) 30.5 1.1 30.0Share optionexpense 1.1 1.1Dividends paid (34.3) (0.2) (34.5)Former parentcompany'scapitalcontribution 11.7 11.7________________________________________________________________________________________________At 31 December2004 - (132.8) - (1.6) (28.7) 3.9 (159.2)________________________________________________________________________________________________ Employee trust shares are ordinary shares of the Company held by Filtrona in anemployee benefit trust. The principal purpose of this trust is to hold shares inthe Company for subsequent transfer to certain senior employees and ExecutiveDirectors relating to options granted and awards made in respect of marketpurchase shares under the LTIP Part A, LTIP Part B 'Matching' and LTIP Part B'Performance' option awards. The assets, liabilities and expenditure of thetrust have been incorporated in Filtrona's financial statements. At 31 December2005 the trust held 423,009 (2004: nil) shares, upon which dividends have beenwaived, with an aggregate nominal value of £0.1m (2004: £nil) and market valueof £1.2m (2004: £nil). The other reserve relates to the Group reorganisation which took place as partof the demerger and represents the difference between Filtrona plc's sharecapital and Filtrona International Limited's share capital and share premium on6 June 2005 and is not distributable. 20. Analysis of net debt Exchange 1 Jan 2005 Cash flow movements 31 Dec 2005 £m £m £m £m________________________________________________________________________________Cash at bank and in hand 24.9 (2.7) 0.4 22.6Short term bank depositsrepayable on demand 4.7 0.9 1.5 7.1Short term bank depositsnot repayable on demand 1.7 (0.7) - 1.0________________________________________________________________________________Cash and cash equivalents 31.3 (2.5) 1.9 30.7Overdrafts (1.6) (2.8) (0.6) (5.0)________________________________________________________________________________Cash and cash equivalentsin the statement of cashflows 29.7 (5.3) 1.3 25.7Debt due within one year (1.1) 0.6 (0.2) (0.7)Debt due after one year (0.3) (133.7) (11.2) (145.2)Amounts due to formerparent company (148.3) 147.0 1.3 -________________________________________________________________________________Net debt (120.0) 8.6 (8.8) (120.2)________________________________________________________________________________ 21. Operating lease commitments 2005 2004 £m £m________________________________________________________________________________At 31 December Filtrona had the following commitments undernon-cancellable operating leases: Expiring within one year 1.4 1.6 Expiring between one and five years 4.4 3.9 Expiring after five years 4.4 4.0________________________________________________________________________________ 10.2 9.5________________________________________________________________________________ 22. Acquisitions In December 2005 Filtrona purchased an additional 30% of FractureCodeCorporation ApS ('FractureCode'), taking Filtrona's share in FractureCode to80%. FractureCode was previously accounted for as a joint venture using equityaccounting. Following the purchase it is now fully consolidated and contributed£nil to operating profit before intangible amortisation in 2005. The remaining 20% of shares in FractureCode could be acquired between March 2009and December 2012. The consideration for the remaining 20% of shares isdependent on various profit related targets and is capped at a maximum of €40m. The principal acquisition made during 2004 was Skiffy, which Filtrona acquiredin March. The acquisition was accounted for under the purchase method of accounting andcontributed £2.3m to operating profit before intangible amortisation in 2004. On acquisition the assets and liabilities of the businesses acquired wereadjusted to reflect their fair values to Filtrona. The fair value adjustmentsare provisional and subject to finalisation for up to one year from the date ofacquisition. The principal fair value adjustments are as follows: In 2005: The adjustment to intangibles represents the write off of goodwill in the entityon acquisition in accordance with IAS 38: Intangible Assets. The adjustment to investment in associate and minority interest reflects thechange from equity accounting to full consolidation. In 2004: The adjustment to payables reflects their estimated settlement value. A summary of the effect of the acquisition of FractureCode in 2005 is detailedbelow: Book value at Consistency of Fair value of acquisition accounting assets acquired policy £m £m £m________________________________________________________________________________Intangibleassets 0.5 (0.5) -Trade andotherreceivables 0.7 - 0.7Trade andother payables (0.4) - (0.4)Cash and cashequivalents 0.1 - 0.1Investment inassociate - (0.5) (0.5)Minorityinterest - (0.2) (0.2)________________________________________________________________________________ 0.9 (1.2) (0.3)Goodwill 5.1________________________________________________________________________________Consideration 4.8Satisfied by:Accruedexpenses 0.1Cashconsideration 4.7________________________________________________________________________________The net cash outflow in the periodin respect of the acquisition ofFractureCode comprised:Cashconsideration 4.7Cash and cashequivalentsacquired (0.1)________________________________________________________________________________Net cashoutflow inrespect ofacquisition ofFractureCode 4.6________________________________________________________________________________ A summary of the effect of acquisitions in 2004 is detailed below: Book value at Revaluation Fair value of acquisition assets acquired £m £m £m________________________________________________________________________________Property,plant andequipment 4.9 - 4.9Inventories 1.8 - 1.8Trade andotherreceivables 2.2 - 2.2Trade andother payables (0.9) (0.7) (1.6)Cash and cashequivalents 0.9 - 0.9Income tax (0.1) - (0.1)Provisions (0.2) - (0.2)________________________________________________________________________________ 8.6 (0.7) 7.9Customer lists 21.1Deferred taxprovided oncustomer lists (5.6)________________________________________________________________________________Consideration 23.4Satisfied by:________________________________________________________________________________Cashconsideration 23.4________________________________________________________________________________The net cash outflow in the periodin respect of the acquisition ofbusinesses comprised:Cashconsideration 23.4Cash and cashequivalentsacquired (0.9)________________________________________________________________________________Net cashoutflow inrespect ofacquisition ofbusinesses 22.5________________________________________________________________________________ 23. Dividends Only the interim dividend is accounted for in the year as the right to receivethe final dividend had not passed to the holders of the ordinary shares at theyear end. Total dividends in respect of 2005 are: Per share Total 2005 2005 pence £m________________________________________________________________________________Interim paid 31 October 2005 2.13 4.7Proposed final payable 28 April 2006 4.27 9.3________________________________________________________________________________ 6.40 14.0________________________________________________________________________________ 24. Transactions with related parties Other than the acquisition of FractureCode, Filtrona has not entered into anymaterial transactions with related parties. Furthermore, throughout 2005, noDirector had a personal interest in any significant transaction of Filtrona. 25. Reconciliation to UK GAAP As stated in the accounting policies, these financial statements are prepared inaccordance with IFRS. Apart from in the Listing Particulars dated 17 May 2005,Filtrona has never had to prepare consolidated financial statements under UKGAAP. However, reconciliation of the consolidated balance sheets at 31 December2004 and 1 January 2004 and the consolidated income statement for the year ended31 December 2004 that would have been presented under UK GAAP is given below forinformation purposes. Consolidated balance sheet At 31 Dec 2004 At 1 Jan 2004_______________________________________________________________________________________________ Note UK Effect of IFRS IFRS UK Effect of IFRS IFRS GAAP GAAP_______________________________________________________________________________________________ £m £m £m £m £m £mAssetsProperty,plant andequipment 152.5 - 152.5 143.2 - 143.2Intangibleassets a 51.8 5.8 57.6 37.1 - 37.1Deferred taxassets c - 0.2 0.2 - 0.3 0.3_______________________________________________________________________________________________Totalnon-currentassets 204.3 6.0 210.3 180.3 0.3 180.6 Inventories 53.3 - 53.3 47.4 - 47.4Income taxreceivable 0.5 - 0.5 0.6 - 0.6Trade andotherreceivables 78.0 - 78.0 68.2 - 68.2Cash and cashequivalents 31.3 - 31.3 25.0 - 25.0_______________________________________________________________________________________________Total currentassets 163.1 - 163.1 141.2 - 141.2_______________________________________________________________________________________________Total assets 367.4 6.0 373.4 321.5 0.3 321.8_______________________________________________________________________________________________ EquityIssued capital 274.1 - 274.1 274.1 - 274.1Other reserve (132.8) - (132.8) (132.8) - (132.8)Revaluationreserve i - - - 1.3 (1.3) -Translationreserve i - (1.6) (1.6) - - -Retainedearnings i (49.1) 20.4 (28.7) (54.9) 17.2 (37.7)_______________________________________________________________________________________________Attributableto equityholders ofFiltrona 92.2 18.8 111.0 87.7 15.9 103.6Minorityinterests d 3.7 0.2 3.9 2.8 0.2 3.0_______________________________________________________________________________________________Total equity 95.9 19.0 114.9 90.5 16.1 106.6_______________________________________________________________________________________________ LiabilitiesInterestbearing loansand borrowings 148.6 - 148.6 117.5 - 117.5Retirementbenefitobligations. b 19.6 (19.6) - 17.5 (17.5) -Other payables 3.1 - 3.1 2.7 - 2.7Provisions e 5.6 (1.9) 3.7 4.0 (1.3) 2.7Deferred taxliabilities c 11.8 6.8 18.6 12.6 1.9 14.5_______________________________________________________________________________________________Totalnon-currentliabilities 188.7 (14.7) 174.0 154.3 (16.9) 137.4 Bankoverdrafts 1.6 - 1.6 2.5 - 2.5Interestbearing loansand borrowings 1.1 - 1.1 0.9 - 0.9Income taxpayable 11.3 - 11.3 9.6 - 9.6Trade andother payables d 68.8 (0.2) 68.6 63.7 (0.2) 63.5Provisions e - 1.9 1.9 - 1.3 1.3_______________________________________________________________________________________________Total currentliabilities 82.8 1.7 84.5 76.7 1.1 77.8_______________________________________________________________________________________________Totalliabilities 271.5 (13.0) 258.5 231.0 (15.8) 215.2_______________________________________________________________________________________________Total equityandliabilities 367.4 6.0 373.4 321.5 0.3 321.8_______________________________________________________________________________________________ Consolidated income statementFor the year ended 31 December 2004 2004________________________________________________________________________________ Note UK GAAP Effect of IFRS IFRS £m £m £m________________________________________________________________________________RevenueExisting businesses 470.4 - 470.4Acquisitions 7.1 - 7.1________________________________________________________________________________Total revenue 477.5 - 477.5________________________________________________________________________________Operating profit before intangibleamortisationExisting businesses f 51.9 (6.1) 45.8Acquisitions 2.3 - 2.3________________________________________________________________________________Total operating profit beforeintangible amortisation. 54.2 (6.1) 48.1Intangible amortisation a (3.0) 2.5 (0.5)________________________________________________________________________________Operating profit 51.2 (3.6) 47.6Finance income g 8.1 (7.2) 0.9Finance expense g (9.9) 7.1 (2.8)________________________________________________________________________________Profit before tax 49.4 (3.7) 45.7Income tax expense h (15.4) 1.4 (14.0)________________________________________________________________________________Profit for the year 34.0 (2.3) 31.7________________________________________________________________________________ Attributable to:Equity holders of Filtrona 32.8 (2.3) 30.5Minority interests 1.2 - 1.2________________________________________________________________________________Profit for the year 34.0 (2.3) 31.7________________________________________________________________________________ Consolidated statement of cash flows Short term bank deposits of £1.7m (1 Jan 2004: £2.8m) that are an integral partof Filtrona's cash management are reclassified as cash and cash equivalentsunder IFRS but were classified as financing cash flows under UK GAAP. There areno other material differences between the statement of cash flows presentedunder IFRS and the statement of cash flows presented under UK GAAP. Notes (a) Filtrona has applied IFRS to all business combinations that haveoccurred since 1 January 2004. Under IFRS Filtrona separately valued certainother intangible assets acquired from goodwill. As a result Filtrona recognised£21.1m as customer lists acquired in the year. Additionally under IFRS goodwillis no longer amortised but is tested annually for impairment. Customer lists arebeing amortised over their useful economic lives. Under IFRS Filtrona provided a£5.6m deferred tax liability in respect of customer lists acquired in the year.This resulted in additional intangible assets being recognised on acquisition. (b) Under IFRS Filtrona can not present defined benefit retirement benefitobligations prior to the date of demerger since IAS 19 (revised) states that acontractual agreement between the sponsoring company and its participants on howthe deficit is to be funded must exist. This reduced retirement benefitobligations net of associated deferred tax assets by £19.6m (1 Jan 2004:£17.5m). (c) Filtrona has to account for deferred tax on share option expense underIFRS and accordingly a deferred tax asset of £0.2m (1 Jan 2004: £0.3m) wasrecognised. Under UK GAAP tax was only recognised on the shares when they wereexercised. Under UK GAAP deferred tax is shown net on the consolidated balancesheet. Under IFRS the assets and liabilities are required to be shown separately(net of any allowable offsets) and therefore £0.2m (1 Jan 2004: £0.3m) wasreclassified as deferred tax assets and liabilities. (d) Under IFRS accruals cannot be made for dividends declared after thebalance sheet date. Hence dividends payable to minorities of £0.2m (1 Jan 2004:£0.2m) made after the balance sheet date were adjusted. (e) Under IFRS provisions were split between non-current and currentliabilities. (f) The following is an analysis of differences relating to operatingprofit before intangible amortisation: Note 2004 £m________________________________________________________________________________Non-recurring adjustments in Fibre TechnologiesProperty impairment (i) 1.3Asset impairment (ii) 1.0Fair value adjustments related to prior year acquisitions (ii) 1.2________________________________________________________________________________ 3.5Non-recurring adjustment in Central ServicesPension adjustment (iii) 1.5________________________________________________________________________________Non-recurring IFRS adjustments 5.0Recurring adjustmentShare option expense (iv) 1.1________________________________________________________________________________Total IFRS adjustments 6.1________________________________________________________________________________ (i) Under UK GAAP Filtrona revalued downwards a property that had previously been revalued. Under IFRS this property was held at deemed cost at 1 January 2004 and consequently the property has been impaired through the income statement.(ii) Under UK GAAP Filtrona was permitted to take fair value adjustments to goodwill for up to the end of the following financial year from the date of the acquisition. Under IFRS Filtrona is only permitted to do this for up to one year after the date of acquisition and consequently £2.2m was charged to the income statement.(iii)The impact of accounting for pension costs on a defined contribution basis under IFRS is to increase the expense by £1.5m.(iv) IFRS requires Filtrona to account for an expense for the fair value of options and other share based incentives granted to employees. (g) Under IFRS the expected return on pension scheme assets and interest onpension scheme liabilities are reversed since pension costs are not accountedfor on a defined benefit basis. (h) The principal difference to the income tax expense is the release ofdeferred tax liability in respect of the property impairment and relief for theincreased pension cost. (i) The effect of the above differences on retained earnings is as follows: 31 Dec 2004 1 Jan 2004 £m £m________________________________________________________________________________Reclassification of revaluation reserve - 1.3Reverse retirement benefit obligation net ofassociated deferred tax 19.6 17.5Deferred tax on share options 0.2 0.3Previously unprovided deferred tax on properties (1.0) (1.9)Currency movements reclassified to translationreserve 1.6 -________________________________________________________________________________ 20.4 17.2________________________________________________________________________________ (j) The effect of the non-recurring IFRS adjustments on operating profitbefore amortisation and demerger expense is: 2005 2004 £m £m________________________________________________________________________________Operating profit 57.8 48.1Non-recurring IFRS adjustments (0.1) 5.0________________________________________________________________________________ 57.7 53.1________________________________________________________________________________ This information is provided by RNS The company news service from the London Stock Exchange
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Share Price:
158.80
Bid:
158.20
Ask:
158.40
Change:
-0.80 (-0.50%)
Spread:
0.20 (0.126%)
Open:
161.00
High:
161.20
Low:
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Prev. Close:
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