UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For MAY 17, 2005
BUNZL PLC
(Exact name of Registrant as specified in its charter)
ENGLAND
(Jurisdiction of incorporation or organisation)
110 Park Street, London W1K 6NX
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F..X.. Form 40-F.....
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act
of 1934.)
Yes ..... No ..X..
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): )
NOT APPLICABLE
INDEX
Description
1. Press release dated May 17, 2005 - Filtrona Demerger
PART I OF III
Bunzl plc 17 May 2005
Proposals to demerge Filtrona plc on 6 June 2005
Bunzl plc ("Bunzl"), the international distribution and outsourcing Group,
announces that it is posting documents to its shareholders today proposing the
Demerger and public listing of Filtrona plc ("Filtrona"), the international,
market leading speciality plastic and fibre products supplier.
A Bunzl Extraordinary General Meeting to approve the Demerger is scheduled for 2
June. If the Demerger is approved by shareholders, Filtrona is expected to start
trading as a separate company on 6 June.
As a result of the Demerger Bunzl shareholders will continue to hold their
shares in Bunzl and will receive a direct pro rata interest in Filtrona.
Filtrona is an international, market leading speciality plastic and fibre
products supplier. It is a business area of Bunzl which, by concentrating on
niche international markets, has been able to establish and develop strong
positions in chosen product categories. Filtrona is segmented into Plastic
Technologies and Fibre Technologies, each contributing similar levels of profits
to Bunzl. Plastic Technologies produces, sources and distributes protection and
finishing products, self-adhesive tear tape and certain security products, as
well as proprietary and customised plastic extrusions and packaging items for
consumer products. Fibre Technologies focuses on the production and supply of
special filters for cigarettes and bonded fibre products such as reservoirs and
wicks for writing instruments and printers, household products and medical
diagnostic devices.
Filtrona will be chaired by Jeff Harris. Its Chief Executive will be Mark Harper
who has headed Filtrona under Bunzl since 1996, and who will resign from the
Bunzl Board following shareholder approval of the Demerger. Steve Dryden will be
Finance Director of Filtrona, a position he has held within the Bunzl Group
since 2002. Paul Drechsler, Adrian Auer and Paul Heiden have been appointed as
non-executive Directors of Filtrona.
Filtrona will be listed on the London Stock Exchange and is expected to be
classified within the FTSE Support Services sector and be a constituent company
of the FTSE250 Index.
Following the Demerger, Bunzl will be a focused, international valued-added
distribution and outsourcing Group with operations in North America, Europe and
Australasia. Bunzl will be a leading supplier of a range of products, including
outsourced food packaging, disposable supplies and cleaning and safety products
for supermarkets, redistributors, caterers, food processors, hotels, contract
cleaners, non-food retail and other industrial users.
Commenting on today's announcement, Anthony Habgood, Chairman of Bunzl, said:
"This demerger is a logical next step in the development of Bunzl. Both Bunzl
and Filtrona have strong international market positions in their chosen areas of
focus and a history of good growth and consistently high returns. Both are
well-balanced companies with opportunities to continue to grow and have the
management and financial strength to succeed. "
Also commenting on today's announcement, Mark Harper, Chief Executive of
Filtrona, said:
"All of us within Filtrona are excited at the prospect of becoming a strong,
independent public company. Filtrona is an international, market leading
speciality plastic and fibre products supplier and as such is well positioned to
continue its track record of success."
Enquiries
Bunzl plc Tel: 020 7495 4950
Anthony Habgood, Chairman
David Williams, Finance Director
Filtrona plc Tel: 01908 359100
Mark Harper, Chief Executive
Steve Dryden, Finance Director
JPMorgan Cazenove Tel: 020 7588 2828
Julian Cazalet
Nick Garrett
Robert Constant
Finsbury Tel: 020 7251 3801
Roland Rudd
Morgan Bone
This announcement shall not constitute or form any part of any offer or
invitation to subscribe for, underwrite or otherwise acquire, or any
solicitation of any offer to purchase or subscribe for, any shares in Filtrona
plc ("Filtrona" or the "Company"). This announcement (or any part of it) shall
not form the basis of, or be relied on in connection with, any contract to
purchase or subscribe for any shares in Filtrona or any commitment whatsoever.
This announcement (i) does not constitute listing particulars, within the
meaning of section 79 of the Financial Services and Markets Act 2000 ("FSMA");
(ii) does not, and does not purport to, comply with the provisions of the said
section 79 or of the Listing Rules made by the UK Listing Authority pursuant to
section 74 of FSMA (the "Listing Rules"); and (iii) does not contain all of the
information required to be contained in listing particulars published in
accordance with the aforementioned provisions. You are referred to the Listing
Particulars to be published by the Company on 17 May 2005 for a description of
the Company, the businesses of the Filtrona group of companies (the "Group") and
certain risk factors relevant to the group.
This announcement contains various forward-looking statements regarding events
and trends that are subject to risk and uncertainties that could cause the
actual results and financial position of the company to differ materially from
the information presented herein. Forward-looking statements include information
concerning possible and assumed future results of the company's operations,
earnings, economic conditions affecting the industries in which the company
operates and demand and other aspects of the group's businesses. When used in
this announcement the words "estimate", "project", "intend", "anticipate",
"believe", "expect", "should", and similar expressions, as they relate to the
company or its management, are intended to identify such forward-looking
statements, which speak only as of the date hereof. Filtrona undertakes no
obligation to update publicly or revise any of the forward-looking statements,
whether as a result of new information, future events or otherwise save in
respect of any requirement under English statutory law or the listing rules.
The distribution of this announcement in certain jurisdictions may be restricted
by law, and persons into whose possession this announcement comes should inform
themselves about, and observe, any such restrictions. Any failure to comply with
these restrictions may constitute a violation of the laws of any such
jurisdiction.
The Filtrona shares to be distributed in connection with the demerger will not
be, and are not required to be, registered with the SEC under the US Securities
Act or any US state securities law. Neither the SEC nor any US State Securities
Commission has approved or disapproved the Filtrona shares or passed comment or
opinion upon the accuracy or adequacy of this announcement. Any representation
to the contrary is a criminal offence in the United States.
JPMorgan Cazenove Limited ("JPMorgan Cazenove"), which is regulated in the UK
by the Financial Services Authority, is acting exclusively for Bunzl plc and
Filtrona plc and no one else in relation to the Demerger and Admission and will
not be responsible to anyone other than Bunzl plc and Filtrona plc for providing
the protections afforded to its customers or for providing advice in relation to
the Demerger and Admission.
PART II OF III
Bunzl plc
Proposed Demerger of Filtrona plc
Introduction
On 28 February 2005 Bunzl announced that it had decided it was the right time to
demerge its successful Filtrona organisation from its growing and highly
profitable Outsourcing Services business. Bunzl announces that documentation
will today be sent to Bunzl Shareholders confirming full details of the proposed
Demerger and separate listing of Filtrona plc ("Filtrona" or the "Company").
The Demerger will establish Filtrona as a separately listed company. Bunzl will
continue to be listed on the Official List and the London Stock Exchange's
market for listed securities.
The Filtrona Shares are expected to commence trading on the London Stock
Exchange and admitted to the Official List on 6 June 2005.
It is expected that, initially, both Bunzl and Filtrona will be constituents of
the FTSE 250 Index. Bunzl will remain in and Filtrona will be part of the
Support Services sector.
The Demerger is to be effected by Bunzl declaring a special dividend equal to
the book value of Bunzl's shareholding in Filtrona International Limited, the
intermediate holding company of the Filtrona Group. This special dividend will
be satisfied on Demerger by the allotment and issue by Filtrona of Filtrona
Shares to Bunzl Shareholders on the Bunzl share register at the Demerger record
date on the basis of one Filtrona Share for each Bunzl Share held. This
requires, amongst other things, the approval of Bunzl Shareholders by ordinary
resolution at the Extraordinary General Meeting of the Company, to be held on 2
June 2005.
Immediately after the Demerger is effective, and upon admission of the Filtrona
Shares to the Official List of the UK Listing Authority, the share capital of
Filtrona will be consolidated on the basis of one consolidated Filtrona Share
for every two non-consolidated Filtrona Shares and the share capital of Bunzl
will be consolidated on the basis of seven consolidated Bunzl Shares for every
nine non-consolidated Bunzl Shares.
Overall, as a result of the Demerger and the share consolidations described
above, Bunzl Shareholders will receive:
14 consolidated Bunzl Shares and 9 consolidated Filtrona Shares
for every 18 non-consolidated Bunzl Shares held at the Demerger record date
In addition, shortly after the Demerger and the Filtrona share consolidation, it
is proposed that the capital of Filtrona will be reduced in order to create
distributable reserves in Filtrona. The reduction of capital was approved by a
special resolution of the current Filtrona Shareholders on 13 May 2005, and is
subject to the approval of the Court.
Background to and reasons for the Demerger
Since 1991 the structure of Bunzl has been simplified by selling businesses with
weaker returns and relatively poor competitive positions and reinvesting the
proceeds from these disposals to grow businesses where it has superior returns,
good international competitive positions and the potential to grow. The pursuit
of this strategy has resulted in Bunzl having two business streams, Outsourcing
Services and Filtrona, both of which have these features but which have little
or no commercial overlap between them. The Bunzl Board has therefore decided to
separate these two fundamentally different component parts by demerging the
Filtrona Business from Bunzl. Filtrona plc, the holding company of the demerged
Filtrona Business, will be an independent public company, while Bunzl will
become a simpler organisation concentrating on the Outsourcing Services business
stream. As such Bunzl will be a focused, international, value-added distribution
and outsourcing Group.
The Bunzl Board believes that the Demerger will benefit Bunzl Shareholders as
the separate businesses will be able to:
- focus on their own strategic objectives and develop appropriate
organisations, structures and procedures to achieve these objectives;
- retain, motivate and recruit key personnel more effectively;
- develop appropriate capital structures and dividend policies; and
- develop their own focused investor base and access capital markets
independently.
The Bunzl Board believes that shareholder value will be created through the
Demerger and that Filtrona and Bunzl will be strong businesses in their own
right, with good returns and good international competitive positions, and will
prosper as separate listed entities.
Information on Filtrona
Summary description of Filtrona
General
Filtrona is an international, market leading speciality plastic and fibre
products supplier. It is a business area of Bunzl which, by concentrating on
niche international markets, has been able to establish and develop strong
positions in chosen product categories. Filtrona is segmented into Plastic
Technologies and Fibre Technologies, each contributing similar levels of profits
to the Bunzl Group. Plastic Technologies produces, sources and distributes
protection and finishing products, self-adhesive tear tape and certain security
products, as well as proprietary and customised plastic extrusions and packaging
items for consumer products. Fibre Technologies focuses on the production and
supply of special filters for cigarettes and bonded fibre products such as
reservoirs and wicks for writing instruments and printers, household products
and medical diagnostic devices. Filtrona believes that many of the markets and
segments within which it operates have the desirable combination of good growth
potential and robust defensive qualities.
Across these niche international markets, Filtrona has a number of market
leading blue chip customers including Altria (Philip Morris), Boeing, British
American Tobacco, Carlsberg, General Electric, General Motors, Hewlett Packard,
Nestle, Newell Rubbermaid, Reckitt Benckiser and Unilever. Filtrona's emphasis
on innovation, quality and service underpins these long standing customer
relationships.
Filtrona is a well invested global business, headquartered in the UK, with 40
manufacturing facilities, 32 distribution outlets and sales offices and three
research facilities spread across 22 countries in the Americas, Europe and Asia.
Filtrona employs some 5,200 people and its senior management comprises an
international team of nine individuals who have an average experience in the
business of nearly 10 years.
In 2004, under UK GAAP, Filtrona generated annual sales of GBP477.5 million
(2003: GBP452.6 million), EBITDA of GBP74.3 million (2003: GBP71.3 million) and
operating profit before goodwill amortisation of GBP54.2 million (after an
allocation of Bunzl corporate costs) (2003: GBP51.1 million). Plastic
Technologies generated sales of GBP241.5 million (2003: GBP224.1 million) and
operating profit before goodwill amortisation of GBP33.8 million (2003: GBP28.6
million) with an EBITA margin of 14%. Fibre Technologies generated sales of
GBP236.0 million (2003: GBP228.5 million) and operating profit before goodwill
amortisation of GBP27.8 million (2003: GBP31.1 million) with an EBITA margin of
12%. Of the total sales in 2004, approximately 43% originated from Europe, 39%
from North America and 18% from the rest of the world. As at 31 December 2004
Filtrona had net operating assets of GBP261.2 million and net debt of GBP120
million.
Application has been made for the Filtrona Shares to be admitted to the Official
List and to the London Stock Exchange's market for listed securities. Filtrona
is to be classified within the FTSE Support Services sector and is expected to
be a constituent of the FTSE 250 Index.
Plastic Technologies
Plastic Technologies produces, sources and distributes protection and finishing
products, self-adhesive tear tape and certain security products as well as
proprietary and customised plastic extrusions and packaging items for consumer
products.
Filtrona is a market leader in the substantial fragmented protection and
finishing market supplying plastic caps and plugs for protecting and finishing
industrial threads, pipes, flanges and tubes as well as parts to protect,
restrain or insulate wires or electrical components. A broad product offering,
sophisticated marketing and IT infrastructure, combined with an expanding
international supply and distribution network, underpins its strengths in these
low cost but critical components.
Filtrona is the global market leader in self-adhesive tear tape, which is used
for the easy opening of fast moving consumer goods packaging ( e.g. cigarettes
and biscuits) as well as brand communication and security. The materials and
printing technology, together with its international production and distribution
capability, are the key sources of differentiation in a market where trends
towards sophisticated value-added tapes for brand promotion, security and
traceability are driving both volume and value growth.
Filtrona is also a supplier of extruded thermoplastic profiles, sheet and
special tubing for a wide range of applications such as lighting, fencing,
transportation, point of sale displays, refrigeration, medical supplies and
traffic control. It is a market leader in the US and, through its Enitor
business in the Netherlands, in Europe in its chosen product categories, where
in these highly fragmented markets it benefits from economies of scale and broad
distribution capability.
In addition Plastic Technologies, through Globalpack, is a market leading
producer and supplier of packaging items for toiletries and cosmetics in the
Brazilian market. Based in Brazil it supplies containers, closures and, through
its joint venture Euro-Matic Filtrona, roll-on balls to the market leading
producers of deodorant and cosmetic products.
Fibre Technologies
Fibre Technologies focuses on the production and supply of special filters for
cigarettes and bonded fibre products such as reservoirs and wicks for writing
instruments and printers, household products and medical diagnostic devices.
In the niche special filters market, Filtrona is the independent global market
leader. Filtrona expects that the increasing trend towards potentially reduced
exposure products (PREPs), lower tar levels driven by legislation and higher
value differentiated cigarettes will underpin strong growth in the special
filters market.
Filtrona has utilised the bonded fibre capillary technology applied in the
production of cigarette filters to develop enhanced manufacturing techniques for
writing instrument ink reservoirs in which Filtrona is also now the global
market leader. Bonded fibre technology has a wide variety of current and
potential applications and Filtrona has a growing share of the medical
diagnostic wick and reservoir market. It also supplies the wicks used in
household fragrance products and is actively developing other commercial
applications from this technology.
Strengths
Track record of profitable, cash generative growth
Filtrona's long term sales growth has been strong, with an average annual sales
growth over the past 10 years of 11% (12% at constant exchange rates). This has
been driven by strong organic growth, which over the last 10 years has averaged
5% per annum (based on separately identifiable businesses) on a constant
exchange rate basis, supplemented by a series of strategic acquisitions.
Filtrona has achieved consistent double-digit EBITA margins during this 10 year
period (11.4% for the year ended 31 December 2004 under UK GAAP). Filtrona
believes that its commitment to customer service, technology leadership and
geographic reach underpin this sustained margin and sales growth.
The business also has a strong track record of converting earnings into cash.
Over the last three years Filtrona's cash conversion rate has averaged 73%
despite significant investment in the business, particularly in 2004.
Favourable industry trends
Growth in demand for many of Filtrona's products and services is further
enhanced by certain market dynamics.
In Plastic Technologies, the tear tape market is experiencing an increasing
trend towards more sophisticated value-added tapes for brand promotion, security
and traceability. Filtrona is well positioned to benefit from this trend both as
the global market leader for self-adhesive tear tape and with its materials and
printing technology. The trend towards supplier consolidation (i.e. the move by
large businesses to reduce the number of suppliers which they use) within
industrial markets is expected by Filtrona to continue to play to the strengths
of the protection and finishing products business, which offers a wide and
expanding product range. This trend is also likely to benefit Filtrona's
extrusion business with its multi-site manufacturing capability. In Brazil
roll-on deodorant products continue to take market share from more traditional
packaging formats.
In Fibre Technologies there is an increasing trend within the cigarette industry
towards utilising special filters, as major multi-nationals focus on key brands
with a special filter which provide differentiation from their competition.
Special filters, where Filtrona is the global market leading independent
manufacturer, are estimated by Filtrona currently to represent 12% of the total
cigarette filter market. Special filter volumes are expected by Filtrona to grow
faster than the overall cigarette market as demand for lower tar levels
continues to rise and as PREPs are introduced into the market. Investment in
research and development has given Filtrona market leading capillary expertise
which has driven product innovation in each of its key product lines. The
development of the writing instrument market in Asia is accelerating and
Filtrona is well positioned to serve this market from its new facility in Ningbo
(near Shanghai), China.
Strong niche international market positions
Filtrona has strong positions within each of its niche markets, borne out by its
world leading position in protection and finishing products, self-adhesive tear
tape, special filters and certain bonded fibre components. The plastic profile
and sheet market is significantly more fragmented but, within the US and the
Netherlands where it is active, Filtrona is a leading supplier in its principal
served markets. Through Globalpack, Filtrona has a strong market position in
Brazil in packaging for the toiletries and cosmetics markets.
These leading positions within niche markets have enabled Filtrona to deliver
high added value with excellent service from a position of being a low cost
producer, thereby delivering attractive margins over a long period. Filtrona
believes that high levels of customer service, innovation and technology
leadership, rapidly developing IT and distribution infrastructure and investment
in capabilities and people are key sources of differentiation.
Long term blue chip customer relationships
Filtrona has developed its business by maintaining a close relationship with a
portfolio of blue chip customers who are successful market leaders within their
respective markets. The high standards of service and supply demanded by such
customers have helped to drive continuous improvement throughout Filtrona.
Filtrona enjoys long standing and strong customer relationships and manages
large customers via a key account management structure. This enables customers'
organisations to be accessed at different levels, thereby ensuring that Filtrona
better understands and responds to their needs. Filtrona's senior management has
developed and maintains close relationships with corresponding senior management
in Filtrona's customers' businesses.
Well invested global infrastructure
Filtrona has a strong capital investment policy and has a well invested and
efficient production, sourcing and supply infrastructure. This ensures not only
the high product quality that customers demand but also the levels of service
and geographic reach that provide an important differentiator compared with
competitors. Filtrona has effectively leveraged individual locations by offering
sister businesses the opportunity to use the existing infrastructure and
management to exploit new opportunities in a fast and cost effective manner.
In Richmond (Virginia), Sao Paulo (Brazil), Bangalore (India) and Surabaya
(Indonesia), existing Fibre Technologies locations have provided a base to
accelerate the growth of the tear tape business. In Brazil Filtrona's protection
and finishing products business outsources local requirements to Globalpack and
in China Filtrona's protection and finishing products representative office is
based at the fibre products facility in Ningbo. The experience of managing the
extrusion facility in Monterrey (Mexico) has helped to facilitate a rapid and
smooth start up of the new special filters facility there.
Experienced, stable management team
Filtrona's senior management comprises an international team of nine individuals
who have an average experience in the Filtrona Business of nearly 10 years.
Senior management combines strong manufacturing process and product development
know-how with a detailed knowledge of customers' needs and hence excellent
levels of service. The senior management team is supported by motivated and
enthusiastic employees, which is evidenced by the low levels of staff turnover
within the businesses.
Track record of successful acquisitions
Filtrona's management has extensive experience of integrating acquisitions. Over
the last five years, Filtrona has acquired 15 businesses, and has spent GBP60
million (GBP55 million in Plastic Technologies, GBP5 million in Fibre
Technologies) on acquisitions which have extended the global footprint,
broadened the product offering within its chosen markets or provided access to
key customers and leveraged Filtrona's low cost product supply base.
Filtrona is highly selective in the acquisitions it makes, focusing on high
levels of returns. The consistently high level of return on capital employed
that Filtrona has maintained, which has averaged 26% over the last three years,
is indicative of Filtrona's ability to drive value from selective acquisitions.
Well positioned for future growth
Filtrona is well positioned for future growth. Key drivers of growth are
expected to be:
- continued development of product lines in protection and finishing
products and in plastic profile and sheet manufacturing;
- continued growth of brand promotion, security and track and trace
opportunities;
- commercialisation of bonded fibre developments;
- new packaging formats at Globalpack driven by product innovation;
- the development of more sophisticated filter products for PREPs
leading to further special filter manufacturing outsourcing decisions by
tobacco manufacturers;
- continued growth of high value-added bonded non-woven fibre products;
- the recently built manufacturing facilities in lower cost locations
coming fully on stream; and
- the emergence of Asia as a demand generator and source.
Strategy
Filtrona has pursued a consistent strategy of focusing its resources on niche
international markets where it has, or can develop, a significant competitive
advantage and which have good growth potential. The operations are strongly cash
generative and have allowed complementary acquisitions to be funded out of
internally generated cash.
Following the Demerger the Filtrona management team will continue this strategy
independently, focusing on building Filtrona's core activities and achieving
sustainable, profitable growth through organic investment and acquisitions,
while maintaining its market leading positions and strong customer
relationships.
The Filtrona business strategy is to continue to pursue the following:
- enhancement of competitive position in each line of business;
- expansion and adaptation of the global footprint;
- reduction of production costs;
- improvement of service and supply chain efficiency; and
- enhancement of the business through selective acquisitions.
Financial information
The table below summarises the trading record of Filtrona for the three years
ended 31 December 2004.
IFRS UK GAAP UK GAAP UK GAAP
2004 2004 2003 2002
GBPm GBPm GBPm GBPm
Sales 477.5 477.5 452.6 442.4
Operating profit (Note 1) 49.6 54.2 51.1 48.0
Profit on ordinary activities before
taxation 47.3 49.4 45.7 41.2
Trading cash flow (Note 2) 30.7 30.7 44.4 36.4
Cash conversion rate 62% 57% 87% 76%
Capital employed 209.4 209.4 193.6 197.0
Return on capital employed 23.7% 25.9% 26.4% 24.4%
Notes
1 Operating profit is stated before charging interest, taxation and goodwill/
intangible amortisation
2 Trading cash flow is net cash inflow from operating activities less net cash
outflow for capital expenditure
Financial commentary
Sales grew in 2004 and 2003 under UK GAAP by 5.5% and 2.3% respectively. At
constant exchange rates sales growth for 2004 and 2003 was 12.2% and 5.6%
respectively.
Under UK GAAP operating profit before goodwill amortisation grew by 6.1% and
6.5% in 2004 and 2003 respectively. At constant exchange rates, growth for 2004
and 2003 was 14.6% and 11.3% respectively.
Accounting under IFRS reduced 2004 reported profit on ordinary activities before
taxation by a combination of recurring and non-recurring adjustments which total
GBP2.1 million. Recurring adjustments were the expensing of share options and
the non-amortisation of goodwill and the amortisation of other intangible
assets. Expensed share option costs were GBP1.1 million in 2004 and the
amortisation charge reduced from GBP3.0 million under UK GAAP to GBP0.5 million
under IFRS.
Non-recurring IFRS charges in 2004 were:
(i) the reduction in the carrying value of the manufacturing
facility in Germany. Under UK GAAP the GBP1.3 million charge was
permitted to be offset against this facility's revaluation reserve (under
IFRS it is charged tothe income statement); and
(ii) GBP2.2 million of fair value adjustments which were recognised
in goodwill under UK GAAP have been charged to the income statement under
IFRS.
Terms of the Demerger
The Demerger is to be effected by Bunzl declaring a special dividend equal to
the book value of Bunzl's shareholding in Filtrona International Limited, the
intermediate holding company of the Filtrona Group. This special dividend will
be satisfied on Demerger by the allotment and issue by Filtrona of Filtrona
Shares to the Bunzl Shareholders on the Bunzl share register at the demerger
record date on the basis of one Filtrona Share for each Bunzl Share held. This
requires, among other things, the approval of Bunzl Shareholders by ordinary
resolution at the Extraordinary General Meeting to be held on 2 June 2005.
Immediately after the Demerger is effective, and upon Admission, the share
capital of Filtrona will be consolidated on the basis of one consolidated
Filtrona Share for every two non-consolidated Filtrona Shares and the share
capital of Bunzl will be consolidated on the basis of seven consolidated Bunzl
shares for every nine non-consolidated Bunzl Shares.
Overall, as a result of the Demerger and the share consolidations described
above, Bunzl Shareholders will receive:
14 consolidated Bunzl Shares and 9 consolidated Filtrona Shares
for every 18 non-consolidated Bunzl Shares held at the Demerger record date
In addition, shortly after the Demerger and the Filtrona share consolidation, it
is proposed that the capital of Filtrona will be reduced. This will create
distributable reserves in Filtrona.
The Filtrona Shares and the consolidated Bunzl Shares are expected to commence
trading on the London Stock Exchange and to be admitted to the Official List on
6 June 2005.
Filtrona Board
The Filtrona Board consists of the Chairman, Chief Executive, Finance Director
and three non-executive Directors as follows:
Jeff Harris (aged 57) - Chairman
Mr Harris was appointed Chairman of Filtrona on 12 May 2005. He was Chairman of
Alliance Unichem plc from 2001 to 2005, having previously been Finance Director
of UniChem plc since 1986, Chief Executive since 1992 and Chief Executive of the
enlarged Alliance UniChem plc since 1997. He is also a non-executive director
Associated British Foods plc, Anzag AG and Bunzl.
Mark Harper (aged 49) - Chief Executive
Mr Harper joined Filtrona in 1986 and held a number of general management
positions, including Managing Director of Moss Plastic Parts in Europe and
President of Alliance Plastics in the US, before being appointed Managing
Director of Filtrona in 1996. He was appointed to the Bunzl Board in 2004. On
the Demerger becoming effective he will cease to be a director of Bunzl.
Steve Dryden (aged 37) - Finance Director
Mr Dryden was appointed Finance Director of Filtrona in 2002 and prior to that
was Finance Director of a group of the Plastic Technologies businesses between
1999 and 2002 and Moss Plastic Parts between 1996 and 1998. Prior to joining
Filtrona he worked in various finance positions in Rolls-Royce plc.
Paul Drechsler (aged 49) - non-executive Director
Mr Drechsler was appointed as a non-executive Director of Filtrona on 12 May
2005 and is the senior independent non-executive Director. He is Chief Executive
of Wates Group, having been appointed in 2004. Prior to this, he spent 25 years
at Imperial Chemical Industries plc where his experience included positions in
Brazil, the Netherlands and the US and Chairmanship of the ICI pension fund. He
was appointed to the ICI board as an executive director in 1999.
Adrian Auer (aged 56) - non-executive Director
Mr Auer was appointed as a non-executive Director of Filtrona on 12 May 2005. He
was Group Finance Director of RMC plc from 2002 to 2005 and at Taylor Woodrow
plc from 2000 to 2002. He was previously Finance Director of Admiral plc and
SWALEC (South Wales Electricity). He is currently a non-executive director of
Bespak plc and Foseco plc and is the non-executive Chairman of Readymix plc.
Paul Heiden (aged 48) - non-executive Director
Mr Heiden was appointed a non-executive Director at Filtrona on 12 May 2005. He
has been the Chief Executive of FKI plc since 2003. Previously with Hanson plc,
he moved to Rolls-Royce plc in 1992, becoming the director responsible for its
Industrial Businesses in 1997, and Finance Director in 1999. He will resign from
the Bunzl Board on the Demerger becoming effective, having been a non-executive
director since 1998.
Filtrona current trading and prospects
In 2004 Filtrona again showed its strength as a global supplier of speciality
products with excellent increases in sales and operating profit at constant
exchange rates. The increases in the second half of 2004 were greater than those
in the first and Filtrona has continued to trade strongly in 2005.
Filtrona expects Plastics Technologies to continue to grow as investments in
marketing programmes, distribution infrastructure and new plant and equipment
enhance its competitive position and capability.
In Fibre Technologies Filtrona expects growth to continue as new facilities in
Mexico and China come fully on stream and sustained investment in research and
development delivers new products and applications.
Filtrona's position as a leading supplier in the niche markets it serves and
continued investment in lowering unit cost, improving service and supply chain
efficiency, and in developing new products give Filtrona confidence that it will
sustain its positive development. As a result the Filtrona Board is confident in
the financial and trading prospects of Filtrona for the current financial year.
Filtrona dividends
Had the Demerger been effective throughout the year ended 31 December 2004, in
the absence of unforeseen circumstances and taking into account the terms of the
Demerger and the Filtrona Share Consolidation, the Filtrona Board would have
recommended total dividends for the year ended 31 December 2004 of 5.9 pence per
consolidated Filtrona Share.
Following the Demerger Filtrona will pursue a progressive dividend policy that
will seek to provide growth in dividends per share while maintaining appropriate
levels of dividend cover. It is expected that Filtrona will declare its first
interim dividend at the time of its interim results, which will be announced on
30 August 2005, taking account of the performance of the Filtrona Business
during the first half of 2005.
Post-Demerger Bunzl
Following the Demerger Bunzl will be a focused, international, value-added
distribution and outsourcing Group with operations in North America, Europe and
Australasia. Bunzl will be a leading supplier of a range of products, including
outsourced food packaging, disposable supplies and cleaning and safety products
for supermarkets, redistributors, caterers, food processors, hotels, contract
cleaners, non-food retail and other industrial users.
Bunzl's management team has a strong record of producing consistent, long term
sales and profits growth, with a high return on operating capital across the
Outsourcing Services business. Outsourcing Services' distribution capability,
extensive product offering and cost advantages have enabled Bunzl to grow in
line with its customers' expansion and to increase market share. Organic growth
has been further complemented by acquisitions to increase market presence in
established markets and develop Bunzl's service offering in new and developing
markets.
Following the Demerger, on a pro forma basis under IFRS, Bunzl would have
reported sales of GBP2,438.5 million and operating profit before intangible
amortisation of GBP173.8 million for the year ended 31 December 2004, with net
assets of GBP382.1 million and net debt of GBP306.5 million at 31 December 2004.
Bunzl current trading and prospects
Growth in sales and operating profit in Outsourcing Services increased during
2004 with second half growth being greater than that in the first half. Renewed
momentum in the US during the fourth quarter and the impact of achieving scale
advantage across Europe and Australasia have continued during 2005.
North America is expected to continue to grow as a result of renewed momentum in
acquisition activity and increased sales to higher growth areas such as
redistribution, food processors, convenience stores and the jan/san market.
Generally firm product prices, as a result of higher commodity input prices to
suppliers, should prevent growth being eroded by deflation, certainly in the
immediate future.
In Europe and Australasia growth is expected to continue as recent acquisitions
are integrated into the business. Future acquisition activity is expected to
expand Bunzl's geographic coverage and deepen its participation in existing
markets. The cost savings and efficiency gains associated with Bunzl's increased
scale should continue to deliver benefits.
Bunzl's strong focused competitive position in its international markets and its
ability to enhance growth through acquisitions give it confidence that it will
maintain its momentum and continue its positive development. As a result the
Bunzl Board is confident in the financial and trading prospects of Bunzl for the
current financial year.
Bunzl dividends
The Bunzl Board intends to declare an interim dividend at the time of Bunzl's
interim results on 30 August 2005 in respect of the six months ending 30 June
2005, having regard to the performance of the Outsourcing Services business.
Bunzl Board changes
On 28 February 2005 the Company announced that the Bunzl Board will appoint
Christoph Sander as Chief Executive of Bunzl on completion of the Demerger.
Anthony Habgood will remain as Chairman. The role of Deputy Chairman will cease
to exist on completion of the Demerger and Pat Dyer, currently Deputy Chairman,
will retire from the Bunzl Board at the end of 2005. Mark Harper and Paul
Heiden, who will join the Filtrona Board as Chief Executive and non-executive
director respectively, will resign from the Bunzl Board on completion of the
Demerger. The Bunzl Board will then constitute a Chairman, a Chief Executive and
two other executive Directors, four existing independent non-executive
Directors, of which Jeff Harris will continue to act as the senior independent
director and, in addition, Pat Dyer, who will continue to serve as a
non-executive director until the year end. Jeff Harris will also become Chairman
of Filtrona.
Extraordinary General Meeting
The documents to be posted to shareholders contain notice of an Extraordinary
General Meeting of Bunzl for 10.00 a.m. on 2 June 2005, to be held at One
Bunhill Row, London EC1Y 8YY.
At the Extraordinary General Meeting ordinary resolutions will be proposed:
(i) to approve the Demerger and the declaration of a special
dividend in order to give effect to the Demerger;
(ii) to approve the Bunzl share consolidation
(iii) to authorise the Bunzl Directors to implement the Demerger
and the Bunzl share consolidation; and
(iv) to update the Bunzl Directors' authority in relation to the
purchase by Bunzl of its own shares
Timetable 2005
Extraordinary General Meeting of Bunzl 10.00 a.m. on 2 June
Latest time and date for transfers of Bunzl Shares to be 9.00 p.m. on 3 June
registered in order for the transferee to be registered at
the Demerger record date
Demerger record date 7.00 a.m. on 6 June
Expected effective date of Demerger, share consolidations, 8.00 a.m. on 6 June
admission and commencement of dealings in Filtrona Shares
and consolidated Bunzl Shares on the London Stock Exchange
and crediting of Filtrona Shares and consolidated Bunzl
Shares to CREST accounts
Analysts' meeting
There will be a presentation to analysts at 11.15 a.m. today at JPMorgan
Cazenove, 20 Moorgate, London, EC2R 6DA. Coffee will be served from 10.45 a.m.
Enquiries
Bunzl plc Tel: 020 7495 4950
Anthony Habgood, Chairman
David Williams, Finance Director
Filtrona plc Tel: 01908 359100
Mark Harper, Chief Executive
Steve Dryden, Finance Director
JPMorgan Cazenove Tel: 020 7588 2828
Julian Cazalet
Nick Garrett
Robert Constant
Finsbury Tel: 020 7251 3801
Roland Rudd
Morgan Bone
This announcement shall not constitute or form any part of any offer or
invitation to subscribe for, underwrite or otherwise acquire, or any
solicitation of any offer to purchase or subscribe for, any shares in Filtrona
plc ("Filtrona" or the "Company"). This announcement (or any part of it) shall
not form the basis of, or be relied on in connection with, any contract to
purchase or subscribe for any shares in Filtrona or any commitment whatsoever.
This announcement (i) does not constitute listing particulars, within the
meaning of section 79 of the Financial Services and Markets Act 2000 ("FSMA");
(ii) does not, and does not purport to, comply with the provisions of the said
section 79 or of the Listing Rules made by the UK Listing Authority pursuant to
section 74 of FSMA (the "Listing Rules"); and (iii) does not contain all of the
information required to be contained in listing particulars published in
accordance with the aforementioned provisions. You are referred to the Listing
Particulars to be published by the Company on 17 May 2005 for a description of
the Company, the businesses of the Filtrona group of companies (the "Group") and
certain risk factors relevant to the group.
This announcement contains various forward-looking statements regarding events
and trends that are subject to risk and uncertainties that could cause the
actual results and financial position of the company to differ materially from
the information presented herein. Forward-looking statements include information
concerning possible and assumed future results of the company's operations,
earnings, economic conditions affecting the industries in which the company
operates and demand and other aspects of the group's businesses. When used in
this announcement the words "estimate", "project", "intend", "anticipate",
"believe", "expect", "should", and similar expressions, as they relate to the
company or its management, are intended to identify such forward-looking
statements, which speak only as of the date hereof. Filtrona undertakes no
obligation to update publicly or revise any of the forward-looking statements,
whether as a result of new information, future events or otherwise save in
respect of any requirement under English statutory law or the listing rules.
The distribution of this announcement in certain jurisdictions may be restricted
by law, and persons into whose possession this announcement comes should inform
themselves about, and observe, any such restrictions. Any failure to comply with
these restrictions may constitute a violation of the laws of any such
jurisdiction.
The Filtrona shares to be distributed in connection with the demerger will not
be, and are not required to be, registered with the SEC under the US Securities
Act or any US state securities law. Neither the SEC nor any US State Securities
Commission has approved or disapproved the Filtrona shares or passed comment or
opinion upon the accuracy or adequacy of this announcement. Any representation
to the contrary is a criminal offence in the United States.
JPMorgan Cazenove Limited (''JPMorgan Cazenove''), which is regulated in the UK
by the Financial Services Authority, is acting exclusively for Bunzl plc and
Filtrona plc and no one else in relation to the Demerger and Admission and will
not be responsible to anyone other than Bunzl plc and Filtrona plc for providing
the protections afforded to its customers or for providing advice in relation to
the Demerger and Admission.
PART III OF III
The following is a more detailed description of the Filtrona business:
INFORMATION ON FILTRONA
1. Overview
Filtrona is a business area of Bunzl plc, a UK listed, FTSE 100 Support Services
company with a market capitalisation of approximately GBP2.3 billion. It is an
international, market leading speciality plastic and fibre products supplier
which is segmented into Plastic Technologies and Fibre Technologies, each
contributing similar levels of profits to Bunzl. Plastic Technologies produces,
sources and distributes protection and finishing products, self-adhesive tear
tape and certain security products as well as proprietary and customised plastic
extrusions and packaging items for consumer products. Fibre Technologies focuses
on the production and supply of special filters for cigarettes and bonded fibre
products such as reservoirs and wicks for writing instruments and printers,
household products and medical diagnostic devices. Filtrona believes that many
of the markets and segments within which it operates have the desirable
combination of good growth potential and robust defensive qualities.
Across these niche international markets, Filtrona has a number of market
leading blue chip customers including Altria (Philip Morris), Boeing, British
American Tobacco, Carlsberg, General Electric, General Motors, Hewlett Packard,
Nestle, Newell Rubbermaid, Reckitt Benckiser and Unilever. Filtrona's emphasis
on value addition through innovation, quality and service underpins these long
standing customer relationships.
Filtrona is a well invested global business, headquartered in the UK, with 40
manufacturing facilities, 32 distribution outlets and sales offices and three
research facilities, spread across 22 countries in the Americas, Europe and
Asia. Filtrona employs some 5,200 people and its international senior management
team comprises nine individuals who have an average experience in the business
of nearly 10 years.
In 2004 under UK GAAP, Filtrona generated annual sales of GBP477.5 million
(2003: GBP452.6 million), EBITDA of GBP74.3 million (2003: GBP71.3 million) and
operating profit before goodwill amortisation of GBP54.2 million (after
allocation of Bunzl corporate costs) (2003: GBP51.1 million). Plastic
Technologies generated sales of GBP241.5 million (2003: GBP224.1 million) and
operating profit before goodwill amortisation of GBP33.8 million (2003: GBP28.6
million) with an EBITA margin of 14%. Fibre Technologies generated sales of
GBP236.0 million (2003: GBP228.5 million) and operating profit before goodwill
amortisation of GBP27.8 million (2003: GBP31.1 million) with an EBITA margin of
12%. Of the total sales in 2004, approximately 43% originated from Europe, 39%
from North America and 18% from the rest of the world. As at 31 December 2004,
Filtrona had net operating assets of GBP261.2 million and net debt of GBP120.0
million.
2. History
Filtrona's strong competitive position has been developed over the last 10 years
through significant investment in new global production and service
capabilities. Significant new facilities have been established in China (Plastic
and Fibre Technologies), India (Plastic Technologies), Mexico (Plastic and Fibre
Technologies), the US (Plastic and Fibre Technologies) and Venezuela (Fibre
Technologies) ensuring that Filtrona is better able to supply its multi-national
customers and target growth from developing economies. Joint ventures have also
provided the filters business with access to the growing markets of the Middle
East and central Asia and, more recently, joint ventures have been established
in Plastic Technologies relating to the supply of roll-on deodorant balls in
Brazil and patented track and trace technology in coated and security products.
A number of complementary niche businesses have also been acquired enhancing
Filtrona's product offering and geographical reach, including:
(i) the entry in 1996 into the self-adhesive tear tape market
through the acquisition of Payne for debt free consideration of GBP43.2
million;
(ii) the addition of significant extra filter and bonded fibre
technology and capacity in the US by the acquisition of American
Filtrona Corporation in 1997 for GBP83.1 million (net of cash). This
acquisition also added a significant extrusion business in the US to
Filtrona's existing Plastic Technologies business and united the
Filtrona brand name, which had not previously been available for use by
Bunzl in the US;
(iii) the acquisition in 1998 of Enitor, a leading Dutch extruder
with annual sales prior to acquisition of EUR16 million;
(iv) the purchase in 2000 of Davidson Plastics, a profile extrusion
operation located in the US which had annual sales prior to acquisition
of US$22 million, and Pexco, a specialist medical tubing extruder, which
had annual sales prior to acquisition of US$7 million;
(v) the acquisition in 2003 of Baumgartner Fibertec, a Swiss
based business engaged in the development, manufacture and supply of
cigarette filters and capillary reservoirs which, prior to acquisition,
had annual sales of CHF40 million; and
(vi) the purchase in 2004 for GBP19.2 million (debt free) of the
Skiffy Group, based in the Netherlands, which provided expertise in the
manufacture and supply of small nylon parts for protection and finishing
applications and a significant additional number of potential new
customers for the existing Plastic Technologies product range.
3. Products and end markets
3.1 Protection and finishing
(a) Products
Filtrona's protection and finishing products business is an international
sourcing and supply group, sourcing a wide range of products and tooling,
particularly from Asia, to supplement its own production of injection moulded
and dip moulded vinyl products for general protection, electrical, fastening and
finishing applications. It operates in Europe through its Moss Plastic Parts and
Skiffy brand names, and in the US through Alliance Plastics and Moulding
Specialists.
These predominantly plastic components are low value but are critical to
customers delivering their final product. Filtrona's position as a leading
supplier in this fragmented substantial market is based on excellent service and
a broad product offering.
Production facilities are located in the UK, the Netherlands, Mexico, the US and
Brazil, with some 300 injection moulding machines. Filtrona has a broad
industrial customer base, with over 59,000 customers in Europe and the Americas,
including a large number of blue chip customers such as Carlsberg, General
Motors and Parker Hannifin. No one customer represents more than 3% of turnover.
(b) Markets
Protection and finishing products include plugs and caps for holes, threads,
corners, pipes and flanges which are used to protect customers' products during
transit, processing and finishing. The market for such products is fragmented,
with end users including the automotive, general engineering, white goods,
pneumatics, hydraulics and oil and gas industries.
The products within the electrical range protect, space, restrain, insulate and
position wires for a number of end markets, including capital goods, automotive,
white goods and lighting. Fasteners include nylon rivets, latches, clips,
washers, spacers and bushes and are also used in similar end markets.
Finishing components are used for adding functionality and completing tubular
and extruded products. Typical applications include office or school furniture,
hospital equipment, commercial catering equipment, machinery and cabinets.
The market for protection and finishing products is highly fragmented with many
smaller competitors based in North America and Europe. Filtrona believes that
none of these competitors can offer either the range or international supply
capability of Filtrona.
(c) Sources of differentiation
The breadth of the customer base is a key strength of the business. Filtrona
believes few competitors have the scale and supply chain competence to service
economically so many customers with such an extensive range and that its
distribution network, advanced IT systems and logistics capability provide real
differentiation in the protection and finishing market.
Filtrona believes that, given the critical nature of these low cost components,
the breadth of product offering and quality of service are also key
differentiators. Filtrona's wide product range and quality of service are
supported by an extensive library of approximately 20,000 moulds, catalogues in
nine languages, 35,000 SKUs and a global logistics and manufacturing capability.
Filtrona also uses sophisticated business to business marketing techniques to
drive high rates of new customer acquisition.
(d) Growth drivers
Management is pursuing growth through continued investment in supply chain
logistics and IT, as well as extending geographic coverage and the range of
products offered. Filtrona's sourcing capability is growing rapidly for both
finished products and tooling and a new representative office has just been
established in China, located at the Filtrona Fibertec Ningbo facility.
Furthermore, given the fragmentation of the market, Filtrona believes there is
ample scope for further selective value enhancing acquisitions.
3.2 Coated and security
(a) Products
Filtrona, under the brands Payne, Morane and Laminex, provides self-adhesive
tear tape, coated film products and identity systems, cards and accessories. It
has locations in the UK, US, Brazil, Germany, France, Spain, India, Indonesia
and Singapore. Filtrona is in the process of consolidating the brands under the
name of Payne. Filtrona also has a joint venture which owns patented technology
for individual item level track and trace, otherwise known as ''pack DNA''.
Filtrona has pioneered the tear tape industry move away from wax tear tape to
self-adhesive tape, which offers more efficient processing to its customers.
Filtrona is now the global market leader in self-adhesive tear tape for easy
opening, brand communication and security applications. Filtrona supplied over
29 million kilometres of tear tape in 2004 and has strong relationships with
blue chip customers including Altria (Philip Morris), British American Tobacco,
Kraft, Nestle and United Biscuits.
Through its brand Morane (to be rebranded as Payne Coated Film Products),
Filtrona supplies coated film products for encapsulation, lamination, industrial
and document security applications. Over the last 30 years, Filtrona has been
supplying the film to create unique national identity cards, national voting
cards and printed security passports for governments and agencies worldwide.
Under the Laminex brand (to be rebranded Payne Security), Filtrona supplies
identity systems, cards and accessories for security, health and safety and
promotional use.
Filtrona believes that FractureCode (its joint venture based in Denmark), which
is currently undergoing a major trial with a leading blue chip consumer products
company, is expected to become a high growth business. FractureCode has the
potential to add value where customers require identification of items to an
individual item level for track and trace and security applications.
(b) Markets
Tear tape is a product which allows consumers to open product packaging easily.
It also provides a promotional medium for marketing to consumers and can carry
various anti-counterfeit features.
The tear tape market is split between wax tear tape and self-adhesive tear tape.
Wax tear tape requires the tape to be passed through a molten wax bath before
being applied to the packaging medium. Self-adhesive tear tape requires no wax
to adhere to the packaging, is faster to apply and results in lower machine
downtime compared with the wax alternative.
The higher volume tear tape customers are to be found in the tobacco industry,
which has recognised the easy opening ability of tear tape. Certain customers
have taken advantage of the use of tear tape as a brand promotion tool and as a
medium to carry anti-counterfeit security measures effectively.
Further market growth is dependent upon Filtrona persuading fast moving consumer
goods customers (who specify the type of packaging for their product) of the
benefits that tear tape can bring to their products.
A variety of other products form the balance of the coated and security product
portfolio. Items range from plastic sheet for laminating documents and simple
PVC cards to higher value-added security documents and card identification
systems.
Filtrona expects the market for individual item identification to grow rapidly,
as is evidenced by the growth in RFID (radio frequency identification) chip
applications. FractureCode is an individual item system which does not involve
the high cost of an electronic chip and can be printed onto standard product
packaging, including tear tape, labels and cartons.
In the tear tape market Filtrona's competitors are principally suppliers to the
tobacco industry.
Competition in coated film products comes from a variety of European and US
based manufacturers, with low priced competition from Korea and China.
(c) Sources of differentiation
Within the tear tape market, Filtrona seeks to differentiate itself from the
competition through technology, innovation and its global supply infrastructure.
Since pioneering self-adhesive tear tape, Filtrona has sought to maintain its
technological advantage over the competition, both in terms of materials and
processes. Recent innovations include the development of printing technology
that significantly improves brand security and customer communication. Filtrona
believes that the FractureCode track and trace technology is unique and can also
be integrated into tear tape and other packaging media to provide further added
value to customers.
Filtrona's global infrastructure provides a low cost, flexible source of supply
as well as penetration into higher growth emerging markets.
As a leading UK supplier of coated films for document encapsulation, the Morane
business is highly regarded for its high quality, comprehensive range and
excellent service level. Laminex is well regarded for its robust software and
its highly efficient identity card bureau service.
(d) Growth drivers
Filtrona expects the self-adhesive tear tape market to grow over the next few
years, driven by enhanced usage for easy opening in consumer goods applications
outside the tobacco industry, particularly in the US, and for enhanced brand
protection and security within the tobacco industry. Filtrona is well positioned
to benefit from this trend, not only as the market leader with an international
presence, but also through its combination of proprietary materials and printing
technology. Developments in digital print technology will also open up
opportunities for the printing of unique sequential numbers or codes onto tear
tape which can be used for consumer promotions.
The increasing focus on document security (e.g. drivers' licences, visas and
passports) will enable the coated film products business to continue to develop
value-added applications and Filtrona expects the identity card market to
continue its growth path.
Filtrona believes that FractureCode is a new product and that the market has
potential for strong growth.
3.3 Plastic profile and sheet
(a) Products
Filtrona is a leading supplier in the US and the Netherlands of extruded
thermoplastic profiles, sheet and speciality tubes in its chosen product
categories. The products are proprietary and custom made to exacting customer
standards and are used for a wide range of applications such as lighting,
fencing, transportation, point of sale displays, refrigeration, medical
supplies, aerospace, and traffic control.
(b) Markets
Lighting products include thermoplastic lens wraps and sheet for fluorescent
tube lighting for commercial, industrial and public sector applications.
Filtrona is a leading supplier of these items in the US and Mexico.
Transportation products are made for aerospace and automotive customers. For
example Filtrona's extruded profiles can be found inside the passenger cabins on
many of Boeing's commercial aeroplanes. Filtrona also supplies extrusions which
help in the positioning of passenger safety restraint systems. This market is
growing as car manufacturers are increasingly offering multiple airbags as
standard on their vehicles.
Filtrona is the leading US supplier of inserts for chain link fencing. This
market has displayed growth assisted by the added emphasis on securing premises
under the homeland security programme. Filtrona's national supply capability is
critical to success in this market.
In the medical sector, Filtrona is an extruder of high quality medical tubes
used in surgical procedures. Filtrona's customers are increasingly requiring
extra value-added features to be supplied along with the standard extruded
medical tubing. This includes secondary coiling, banding, solvent bonding and
packaging, which Filtrona is well placed to supply, both technically and
geographically.
Filtrona supplies the point of sale products that are used in store to hold the
pricing information in place on the shelf and also delivers the high response
levels expected by retailers to support their promotional campaigns. In the
point of sale sector, major retailers are re-branding and updating their images
and stores with the trend moving towards the opening of more ''super-centre''
type locations. Filtrona conducted a survey in September 2003 which estimated
the size of this market for all plastic purchases at US$5.0 billion in the US.
In both the US and the Netherlands, Filtrona has a particularly strong position
in the scanning profile market where the expertise in multiple polymer extrusion
is critical to success.
Filtrona's chosen markets are fragmented. The profile market, which represents
over 90% of sales, is highly fragmented and is made up of much smaller local
suppliers.
(c) Sources of differentiation
Filtrona benefits from economies of scale compared with its smaller, more local
competitors, both in terms of its cost base and in terms of service, exemplified
by its multi-point supply. In addition, investment in sophisticated IT systems
enables it to manage its business and its customer relationships efficiently.
Filtrona has built up relationships with key blue chip customers in this market,
including Boeing, General Electric, Hussman and Wal-Mart.
(d) Growth drivers
Management are driving growth through focusing on development of proprietary
niche products and technologies in growing segments such as transportation,
medical supplies and point of sale displays.
3.4 Consumer packaging
(a) Products
In its consumer packaging business, Globalpack, Filtrona has a market leading
position in the Brazilian market as a producer of packaging for toiletries and
cosmetic items. Based in Sao Paulo, Globalpack supplies containers, tubes,
closures and, through its joint venture Euro-Matic Filtrona, roll-on balls to
the market leading producers of deodorant and cosmetic products.
(b) Markets
Globalpack serves blue chip customers such as Avon, Johnson & Johnson, Natura
and Unilever and has a unique position derived from the high level of innovative
solutions provided to its customers. Globalpack supplies packaging using a range
of processes including injection moulding, blow moulding, extrusion and printing
and, as such, offers a full service range to its principal customers.
Globalpack, through Euro-Matic Filtrona, is the market leading supplier of
roll-on deodorant balls in Brazil. This joint venture, combined with
Globalpack's capability in producing bottles, housings and caps, has positioned
it as the leading supplier of roll-on deodorant packaging in the Brazilian
market.
The principal competitors to Globalpack are privately owned Brazilian companies
and divisions of larger packaging groups.
(c) Sources of differentiation
Globalpack is the only Brazilian supplier with the capability to produce a full
roll-on deodorant packaging set (i.e. container, ball, housing and cap). It has
a full print capability for the decoration of tubes and containers and is known
for innovation and quality.
(d) Growth drivers
The Brazilian cosmetics and toiletries market continues to expand with
consumers' disposable incomes. Globalpack will continue to drive growth through
the innovative new packaging formats it is able to offer the blue chip cosmetics
and toiletries suppliers, both in Brazil and in the surrounding region.
3.5 Cigarette filters
(a) Products
Filtrona produces a wide range of filters from monoacetate to multi-segment
special filters with novel mouthpieces and sophisticated adsorbent materials.
Filtrona's special filters provide its customers with an opportunity to
differentiate their products in the market relative to its competitors.
Fibre Technologies, with over 50 years of experience in the industry, is the
largest independent producer of special filters for the cigarette market. It
supplies cigarette filters to, among others, the top four global cigarette
manufacturers, Altria (Philip Morris), British American Tobacco, Imperial
Tobacco and Japan Tobacco International, which together represent some 44% of
the cigarette market.
Filtrona has a relatively low share of the monoacetate market, as the larger
tobacco companies tend to self-manufacture. Filtrona supplies cigarette filters
into this market where multi-national customers require additional capacity or
flexible production runs and to smaller independent cigarette manufacturers who
do not wish to add complexity to their business. However, Filtrona believes the
key area of differential advantage in its business is the supply of special
filters.
Cigarette filter specifications are individual to brands, blends and
manufacturers and are created to fulfil identified market niches. Filtrona's
strategically positioned, well invested manufacturing facilities in 14 locations
around the world ensure that filters are delivered in a timely and cost
effective way to fulfil customer needs.
(b) Markets
The market for cigarette filters includes monoacetate filters and special
filters.
Monoacetate filters are manufactured from paper wrapped cellulose acetate tow.
Cellulose acetate tow is a white, virtually tasteless filling material which is
bonded with a plasticiser.
In special filters, additives like carbon or menthol are combined with a
monoacetate filter to change the taste of the cigarette smoke and the
performance of the filters. Multiple filter sections can be combined together,
with additives, to form a multi-segment filter, or the monoacetate filter can
itself be modified to alter performance of the filter.
Filtrona estimates that standard monoacetate filters account for approximately
88% of the cigarette filters market, with special filters accounting for the
remaining 12%. The special filters share has grown from 11.7% of filtered
cigarettes in 2003 to 12.2% in 2004.
The principal competition for Filtrona is from cigarette companies choosing to
manufacture their filters in-house. Filtrona believes that its expertise,
technology, innovation, low cost production footprint and high quality customer
service offers an advantage over self-manufacture of special filters and this
has been recognised by the major tobacco manufacturers who source from it. While
occasionally some volume is taken back in-house by its customers, historically
Filtrona has been able to offset these movements through new outsourced business
from within its current customer base.
(c) Sources of differentiation
A global footprint is an important source of differentiation within the special
filters market. Filtrona has operations in 14 locations spread across the world,
with two in the US, one in Mexico, three in South America, four in Europe and
four in the Middle East and Asia. This provides a low cost, flexible source of
supply as well as important penetration into the higher growth emerging markets.
Technology, innovation and manufacturing flexibility are also important
differentiators in the cigarette filters market. Filtrona's commitment to
research and innovation is underlined by the operation of the Technology Centre
in the UK. The Technology Centre was designed to bring together laboratory
services, product development, materials testing and process engineering in one
facility. Together these disciplines help Filtrona to research and source the
best available materials and develop filter production techniques for use in its
plants throughout the world.
(d) Growth drivers
Filtrona's multi-national tobacco customers require Filtrona to supply special
filters to support their brands in their chosen end use markets, but
particularly in Russia, Japan, South Korea and Venezuela, where special filters
have either a leading or rapidly growing market share. Filtrona provides a
flexible service that can support the strong growth profile that a successful
brand requires.
Filtrona customers also recognise the expertise that Filtrona has in the supply
of special filters and are increasingly looking to outsource production in
return for a simplification of their business and a reduction in their total
costs.
Cigarettes with multi-segment filters are expected to account for a growing
share of the future cigarette market. Filtrona is ideally placed to offer such
filters to its global customer base and Filtrona believes that this represents a
significant future opportunity.
3.6 Bonded fibres
(a) Products
Filtrona, under the Fibertec brand, supplies bonded fibre structures for use as
functional components in consumer and industrial products including those shown
in the table below. The facilities for the bonded fibre products are located in
Richmond, Virginia (US), Reinbek (Germany) and Ningbo (China), although the
markets for these products are global.
Filtrona believes that it is the market leader in its primary market of bonded
fibre ink reservoirs for high quality roller ball and fine liner pens, markers
and highlighters. From this base Filtrona has expanded into wicking, filtration
and absorptive components for medical devices, absorptive media and ink transfer
wicks for inkjet printers, ink cartridges and other imprinting machines. It is
also growing strongly in household product applications for bonded fibres, such
as air fresheners and insect repellents.
The table below shows some of the applications for Filtrona's core competence of
capillary transfer science, as well as the key products for which Filtrona
supplies components.
Product categories Applications
Writing instruments Roller ball pens
Fine liner pens
Markers
Highlighters
Printing systems Ink transfer wicks for inkjet printers
Cartridges for inkjet printers
Other imprinting machines
Medical devices Diagnostics - detection of disease and conditions
Life Sciences - bench top research in DNA/RNA
Biotechnology - downstream processing
Medical - directly treating or managing conditions
Household products Air fresheners (bathroom, aromatherapy, cars)
Insecticide/repellent dispensing (electrically heated)
(b) Technology
Capillary transfer science is the basis for many of the performance features and
product functions of Filtrona's bonded fibre products. Capillary action is the
means by which fluid moves through porous channels within a medium due to
surface tension.
Knowledge of the properties of the relevant fluid as well as the media substrate
enables Filtrona to model capillary behaviour and to design bespoke transfer
systems for a wide array of applications.
Filtrona has invested heavily in process equipment to lower the unit cost of
production and is planning to relocate some of this equipment to China to
exploit the regional market.
Bonded fibre products are highly adaptable to meet fluid transfer and storage
requirements. Selection of a given fibre composition and structure can be made
to optimise function and fit.
Bonded fibre products can provide one way or two way fluid transfer. A reservoir
for printer cartridges, for example, must be able to be quickly filled, safely
contain ink without leakage and release on demand over the product life cycle.
Bonded fibre products may also serve as wicks, transferring fluids from one
substrate to another using capillary action.
(c) Markets
In Western Europe and North America, the market for ink reservoirs is relatively
mature. However in the new developing economies in Asia and the Far East, ink
reservoirs represent a growth market in which Filtrona has a strong position.
Filtrona's assessment of the competition in the medical and household products
markets is that it stems from alternative solutions rather than alternative
fibre component suppliers.
(d) Sources of differentiation
Filtrona believes that long term investment in capillary fibre research has
yielded industry leading technology and Filtrona is recognised as a leading
innovator in the continuous bonding of fibres. Since its foundation in 1954, the
business has patented more than 60 products in the US alone. This emphasis on
focused innovation is a key differentiator in this market. Filtrona has a truly
international supply position with customers on every continent supplied from
Filtrona Fibertec's existing European and US facilities and its new Chinese
operation. Filtrona believes that no other competitor can match Filtrona
Fibertec's global reach and service level.
(e) Growth drivers
Growth is driven both through a combination of product innovation and expanding
the use of existing technologies to provide new applications such as wicks and
reservoirs for in vitro medical devices where Filtrona is now a leading
provider. The new product development pipeline contains a number of significant
products and applications in ink reservoirs, medical diagnostics, medicine
dispensing and diesel filtration.
The new Filtrona Fibertec facility in Ningbo, China offers a dual benefit of
being a low cost source of production as well as providing access to a growing
local market.
4. Joint ventures
4.1 Plastic Technologies
In 2000 Globalpack, Filtrona's consumer packaging business in Brazil,
established a joint venture with Euro-Matic, a leading international
manufacturer of plastic balls for a variety of applications, in order to
manufacture and supply roll-on deodorant balls. Combined with Globalpack's
ability to produce bottles, housings and caps, Euro-Matic Filtrona has helped
position Globalpack as the leading supplier of roll-on deodorant packaging in
the Brazilian market.
In 2002 Filtrona established a Danish based joint venture, FractureCode
Corporation with ITO Technologies, in order to develop a new technology in
conjunction with Filtrona's existing self-adhesive tear tape business Payne.
FractureCode is a patented process which can apply a unique identifying mark to
tear tape or other packaging media with a randomly printed code, which enables
customers to mark their products individually in such a way that they can be
tracked throughout the distribution chain. It can also be used as a brand
authentication device as it is very difficult to replicate. Initial trials of
FractureCode, which has not yet been used in commercial production, have been
encouraging.
4.2 Fibre Technologies
Most of Filtrona's cigarette filters businesses are wholly-owned. However the
filter businesses in Thailand, India and Jordan are operated through joint
venture companies Filthai Company Limited, ITC Filtrona Limited and Filtrona
Jordan respectively. Based in Bangkok, Filthai was established in the 1970s and
manufactures and supplies monoacetate and special filters principally to the
Thai market. ITC Filtrona was formed in 1993 in Bangalore to supply monoacetate
filters to the local Indian market. Filtrona Jordan was set up in 1995 and is
based near Amman, from where it manufactures and supplies monoacetate filters
for both the local domestic market and exports. Together these companies
accounted for less than 10% of Filtrona's total cigarette filter sales in 2004.
5. Summary financial information
5.1 Trading information
The table below summarises the trading record of Filtrona for the three years
ended 31 December 2004.
Year ended 31 December
----------------------------------------------------
IFRS UK GAAP UK GAAP UK GAAP
2004 2004 2003 2002
-------- -------- -------- --------
GBPm GBPm GBPm GBPm
By business segment
Sales:
Plastic Technologies 241.5 241.5 224.1 224.1
Fibre Technologies 236.0 236.0 228.5 218.3
-------- -------- -------- --------
Total 477.5 477.5 452.6 442.4
======== ======== ======== ========
Operating profit *
Plastic Technologies 33.2 33.8 28.6 28.2
Fibre Technologies 23.9 27.8 31.1 29.2
Corporate activities (7.5) (7.4) (8.6) (9.4)
-------- -------- -------- --------
Total 49.6 54.2 51.1 48.0
======== ======== ======== ========
By geographical origin**
Sales:
Europe 203.2 183.7 171.0
North America 187.8 193.2 202.1
Rest of the world 86.5 75.7 69.3
-------- -------- --------
Total 477.5 452.6 442.4
======== ======== ========
Operating profit *
Europe 23.2 21.8 20.8
North America 22.6 24.3 24.4
Rest of the world 15.8 13.6 12.2
Corporate activities (7.4) (8.6) (9.4)
-------- -------- --------
Total 54.2 51.1 48.0
======== ======== ========
* Before goodwill/intangible amortisation
** Disclosure not required under IAS 14
5.2 Profit and loss - by business segment
(a) Plastic Technologies
Plastic Technologies sales were flat in 2003 compared with 2002 and grew by 7.8%
in 2004 (at constant exchange rates, 4.3% and 14.7% respectively). 2004
benefited from nine months of the Skiffy acquisition. The organic sales growth
in 2004 at constant exchange rates was 11.3%.
On a UK GAAP constant exchange rates basis, operating profit before goodwill
amortisation increased by 6.3% in 2003 and increased by 25.7% in 2004. The
acquisition of the Skiffy business was projected at the time of acquisition to
contribute GBPl.8 million in 2004. Filtrona's post-acquisition focus has
improved Skiffy's profit to GBP2.3 million in 2004. Organic operating profit
before goodwill growth at constant exchange rates for Plastics Technologies on a
UK GAAP basis was 19.0% in 2004. The return on sales improved as a result of the
increased focus on current and new proprietary product ranges within Plastic
Technologies.
(b) Fibre Technologies
Fibre Technologies sales grew by 4.7% in 2003 and 3.3% in 2004 (at constant
exchange rates, 6.9% and 9.7% respectively). 2004 benefited from the full year
effect of the Baumgartner Fibertec acquisition which contributed sales of
GBP15.7 million in 2004, compared with GBP3.3 million for the three months in
2003. Excluding the impact of acquisitions, organic sales growth at constant
exchange rates was 5.2% in 2003 and 4.0% in 2004.
On a UK GAAP constant exchange rates basis operating profit before goodwill
amortisation increased by 9.0% in 2003 and fell by 4.1% in 2004. The 2004
reduction in operating profit was due to price positioning both in advance of
volume growth and lower cost manufacture as well as the Baumgartner Fibertec
business, which was loss making on purchase but achieved breakeven in 2004.
5.3 Profit and loss - by geographical origin
Both Plastic Technologies and Fibre Technologies operate throughout the world.
Sales to the rest of the world segment (i.e. excluding Europe and North
America), which include many of the lower cost manufacturing regions, have grown
as a proportion of the whole from 15.7% in 2002 to 18.1% in 2004.
5.4 Corporate activities
Corporate activities include the Filtrona business area central costs and a
proportion of Bunzl's central costs allocated on a basis reflecting the
proportion of those resources consumed by Filtrona. Filtrona believes that the
level of central costs in 2004 is representative of the resources required to
run an independent public company.
5.5 Cash flow and return on capital
Year ended 31 Decmeber
----------------------------------------------------
IFRS UK GAAP UK GAAP UK GAAP
2004 2004 2003 2002
-------- -------- -------- -------
GBPm GBPm GBPm GBPm
Operating profit (Note 1) 49.6 54.2 51.1 48.0
Trading cash flow (Note 2) 30.7 30.7 44.4 36.4
Cash conversion rate 62% 57% 87% 76%
Capital employed 209.4 209.4 193.6 197.0
Return on capital employed 23.7% 25.9% 26.4% 24.4%
Notes
1 Operating profit is stated before charging interest, taxation and
goodwill/intangible amortisation.
2 Trading cash flow is net cash inflow from operating activities less
net cash outflow for capital expenditure.
5.6 Cash flow
Under UK GAAP the cash conversion rate averaged 73% over the last three years.
In 2004 net capital expenditure increased by GBP9.1 million to be GBP13.3
million in excess of depreciation to invest in new facilities in Mexico and
China to support the exploitation of new business opportunities. Working capital
increased by GBP9.4 million in 2004 to support business growth and service
enhancements through local stock availability of existing and new products.
5.7 Return on capital
Inventory has increased throughout the period to support business growth and
service enhancements through local stock availability of existing and new
products. Debtors' average payment days increased from 47 to 49 days reflecting
longer supply chains and growth in export markets with longer payment terms.
Return on capital employed moved forward in 2002 and 2003 before dipping
slightly in 2004. This was due to price positioning in Fibre Technologies in
advance of both volume growth and lower cost manufacture, as well as the impact
of the Baumgartner Fibertec acquisition, although partially offset by strong
proprietary product growth in Plastic Technologies.
6. Strategy and execution
6.1 Overview
Filtrona's strategy is to continue to grow profitably through investing
organically and by acquisition in selected niche international markets within
Plastic Technologies and Fibre Technologies. Within each business segment it is
continually seeking to enhance its competitive position through product
innovation, strengthen its sourcing and distribution capability, expand and
adapt its global footprint to enhance its supply chain and reduce cost and
invest in IT, people and production capability to deliver superior customer
service and value.
6.2 Enhance competitive position through innovation
Filtrona believes that its robust competitive positions will be enhanced through
the continued development of its product offering both from own manufacture and
external sources. In each of the lines of business there will continue to be
focus on product innovation and range development. In some of the businesses
this will be driven by the established research and development functions and in
others by further developing product management and sourcing functions.
Historically Filtrona has been able to use established locations within one line
of business to offer rapid, low cost market entry for other businesses through
overhead sharing. There are many examples of this within Filtrona, such as tear
tape operations in cigarette filters and bonded fibres facilities, enabling the
exploitation of new opportunities and servicing customers more quickly and cost
effectively than competitors can achieve. This approach will continue as a key
component of enhancing competitive positions rapidly.
6.3 Expand and adapt the global footprint to improve supply chain and reduce
cost
Filtrona has a comprehensive production and distribution footprint which can be
flexed to respond to customers' needs, whether they be product, cost or supply
chain driven. Filtrona has a well invested machinery base that is flexible and
relocatable. The current manufacturing locations are:
(i) Americas - Brazil, Mexico, Paraguay, US and Venezuela;
(ii) Europe - France, Germany, Italy, the Netherlands, Switzerland and the
United Kingdom; and
(iii) Middle East and Asia - India, Indonesia, Jordan, Thailand and
a recently completed facility in China.
The recent investment by the filters business in Monterrey, Mexico was assisted
by the prior experience that Filtrona had developed from the plastic profile and
sheet business that has operated there since 2000.
Similarly the recent investment in the Chinese facility is expected to
accelerate the growth not only of the bonded fibre business but also the
protection and finishing and the coated and security businesses in China.
6.4 Reduce production costs
Filtrona seeks to reduce its production costs through a combination of:
(i) standardisation of operating policies and procedures
including health and safety, environment and human resources;
(ii) standardisation of production equipment and information
systems;
(iii) continued investment in a competitive manufacturing base with
the latest high output machinery and tooling located in low unit labour
cost locations; and
(iv) a lean organisation with competent, well trained and
experienced people.
6.5 Continue to enhance supply chain capability
Filtrona seeks to achieve supply chain and service excellence to add increased
value to customers. Recent examples of this process are the opening of new
warehousing arrangements in Russia and Korea to serve cigarette filter customers
in these markets more effectively. These arrangements have not only facilitated
just-in-time supply, they have also enabled customers to reduce inventories and
to avoid the administration associated with importing products.
Filtrona will continue to build its distribution capability and geographic
spread to assist growth. The recent opening of a new protection and finishing
products distribution centre to serve the Czech Republic market follows on from
the successful establishment of a distribution centre in Poland.
IT investment will continue to play a critical role in service enhancement. The
enterprise resource planning packages in place have delivered significant
improvement from the application of new technologies in areas such as finite
scheduling and bar coding and business relationship management modules are in
the process of implementation.
6.6 Selective acquisitions
Filtrona has made a number of selective acquisitions which have either
strengthened a core competence, added geographic scale, brought new products
into the portfolio or a combination of all three. There continues to be a number
of acquisition targets which Filtrona believes could supplement its underlying
growth rate, and Filtrona plans to recruit a corporate development executive to
increase the focus on this activity.
7. Sales, marketing and purchasing
The sales, marketing and purchasing teams in Filtrona are based in the operating
businesses and report through the senior management executive. Filtrona believes
it is critical to maintain this commercial focus within each line of business.
In Plastic Technologies larger customers are served by a key account structure.
Smaller customers are reached through the marketing programme and a rapid sample
service. Ultimately they are served by efficient telesales, internet or fax
order entry.
In Fibre Technologies the relatively large size of the customers supports a key
account approach that is closely linked to product development.
Filtrona's top 10 customers represent 34% of Filtrona's sales, but the fifth
largest customer represents less than 2%. The principal area of customer
concentration is within the tobacco industry. Filtrona believes that
differentiated products and a low cost supply chain mitigate the concentration
risk.
The major element of supplier concentration again falls within the tobacco
industry and relates specifically to the suppliers of cellulose acetate tow for
cigarette filter production. This is a market served by five principal global
suppliers all of whom supply Filtrona. The top 10 suppliers to Filtrona account
for 53% of raw material purchases.
Filtrona considers that alternative sources of supply exist for all major raw
materials. These major materials include acetate tow, filter paper, polyester
yarns, polypropylene film and various readily available engineering and
commodity polymers.
8. Research and development
Filtrona's worldwide R&D centre for the cigarette filters business is based in
Jarrow in the UK and supports R&D activities on both proprietary and customer
developments. Filtrona expects that by the end of 2005 its dedicated filters R&D
team will comprise 40 personnel. R&D is undertaken to identify solutions for
producing new additives and product styles to assist customers in the selective
reduction of smoke constituents, to develop lower cost production techniques and
to develop new filter styles.
Fibertec's worldwide R&D is centred in Richmond, Virginia (US), with some
limited development work occurring in Reinbek (Germany). Fibertec's dedicated R&
D group focuses approximately 80% of its effort on customer driven projects and
20% on core technology projects. Principal research areas are in developing the
knowledge and processes in the production of non-woven bonded fibres to give
materials with different capillary transfer rates that support the identified
needs in the current and prospective customer base.
In coated and security products, the global R&D centre and print studio is
located at the Nottingham (UK) site where new print and security features are
developed. The FractureCode joint venture is responsible for its own software
and application development.
Within the other lines of business the focus is on development rather than
research. Development is driven by a combination of product marketing and
engineering, resulting in either in-house development or outsourcing of the
products concerned.
9. Further investment considerations
Filtrona's business, financial position, results of operation, growth,
strategies or dividend policy could be materially adversely affected by risks,
including any of those set out below. These risks could also have an adverse
effect on the trading price of the Filtrona Shares.
(i) Fluctuations in exchange rates
Filtrona may be adversely affected by fluctuations in exchange rates. The
consolidated results of Filtrona's operations are accounted for in pounds
sterling but the majority of Filtrona's sales are made and income earned in US
dollars and other foreign currencies. Movements in exchange rates used to
translate foreign currencies into sterling may have a significant impact on
Filtrona's reported results of operations from year to year. This has been most
noticeable recently in subsidiaries based in the US, due to the weakening of the
US dollar against sterling, and has adversely affected the consolidated results
in sterling in the 2002, 2003 and 2004 financial years.
(ii) Effective tax rate
The most recent effective tax rate for Filtrona is close to 31%. This rate is
not indicative of the future as the capital structure of Filtrona after the
Demerger will be different from the historic capital structure. The future
effective tax rate is likely to be higher and equate more closely to the
statutory tax rates of the countries in which Filtrona's principal operations
are located.
(iii) Ability to complete acquisitions and successfully integrate operations of
acquired businesses
A portion of Filtrona's historic growth has been achieved through the
acquisition of businesses. The rate of any future growth that Filtrona may
achieve may in part be dependent on making additional acquisitions. Whilst
Filtrona has in the past made and successfully integrated a number of
acquisitions, there can be no assurance that Filtrona will be able to identify,
complete and integrate successfully suitable acquisitions in the future.
(iv) Relationship with the tobacco industry
A significant part of Filtrona's business relates to the supply of cigarette
filters and tear tape to manufacturers in the tobacco industry. Accordingly the
future performance of Filtrona's cigarette filters and tear tape businesses may
be affected by changes in conditions within those sections of the tobacco
industry which they supply, such as changes in consumption of cigarettes,
changes in demand for different types of cigarette and changes in regulations
affecting cigarettes. Whilst Filtrona has no history of involvement in tobacco
related litigation, it could be adversely affected by the incidence of such
litigation. Filtrona has no reason to believe that regulation specific to the
tobacco industry is likely to cause a material adverse change in demand for its
cigarette filters and tear tape.
(v) Product liability claims
Like any other manufacturer, Filtrona faces the inherent risk of exposure to
product liability claims if the products Filtrona supplies fail to meet
specification or the required standard. Filtrona has, and Filtrona believes that
the companies it has acquired have had, product liability
insurance at levels thought to be appropriate in relation to the products
manufactured or sold by Filtrona, with the exception of cigarette filters, for
which product liability insurance, as for other cigarette components, is not
available. However, there can be no guarantee that this insurance will continue
to be available at reasonable cost or at all, or will be adequate to cover
product liability claims against Filtrona. If Filtrona does not have adequate
insurance, product liability claims and costs associated with product recalls,
including loss of business, could have a material adverse effect on Filtrona's
business, operating results and financial position. Filtrona is not and has not
been a party to or otherwise involved in any litigation in relation to its
cigarette filters.
(vi) Unfavourable economic conditions or other developments and risks in the
countries in which Filtrona operates
Filtrona's business strategy has involved and continues to involve manufacture
in low cost production locations. Filtrona may be adversely affected by
political and economic conditions in some of these production locations.
Transition towards these locations may also give rise to other execution risks
normally associated with such moves, including delays to the start of production
and the establishment of new distribution channels and other unforeseen factors.
(vii) Disruption to distribution or production facilities and information
systems
Filtrona would be adversely affected if there was a significant failure of one
or more of its major distribution or production facilities or of a major part of
its supply chain. Disruptions may be caused by industrial disputes, fire,
information systems disruption or other material business disruption. Many of
the manufacturing processes of Filtrona are carried out in more than one
location and hence Filtrona has the ability to mitigate this risk in part by
meeting production requirements with the use of alternative manufacturing sites.
(viii) Customer base
In some of Filtrona's businesses the market, and hence the customer base, is
relatively concentrated. This is true primarily of Filtrona's cigarette filter
and tear tape businesses. Should the customers of Filtrona in those businesses
decide to satisfy their requirements internally or from other suppliers, and if
Filtrona were unable to win other customer orders, this could result in a
significant loss of business and a resulting adverse effect on Filtrona's
operating results. In the cigarette filter business, there does not appear to be
a clear trend among customers as both self-manufacture and outsourcing decisions
have occurred in recent years.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUNZL PLC
Date: May 17, 2005 By:__/s/ Anthony Habgood__
Title: Chairman