Financial Review

Consolidated income statement

The key items in the consolidated income statement are further highlighted in the sections below.

Pre-tax profit

Profit before tax, amortisation and non-recurring items from continuing operations increased by 26% to £23.4m (2010: £18.6m), reflecting a £4.8m increase in operating profits to £30.6m (2010: £25.8m). Interest costs were unchanged in total at £7.2m (2010: £7.2m) as notional interest on pension liabilities fell to £1.2m (2010: £2.3m) and borrowing costs increased to £6.0m (2010: £4.9m) as a result of higher rates following the refinancing during 2010. Statutory profit before tax was £23.4m (2010: £10.2m), with a net non-recurring credit of £5.7m (2010: £1.6m loss) offsetting a £5.7m charge for amortisation (2010: £6.8m).



Pre-tax profit*





FX movements


Underlying improvement






* Continuing operations before amortisation and non-recurring items.

Non-recurring items

A net non-recurring credit of £5.7m arose from continuing operations during the year. In February 2011, the UK pension scheme was closed to future accrual and following the changes to link statutory indexation to CPI, deferred members have been notified of the switch from RPI to CPI in calculating their future pension increases. As a result of these actions, a non-recurring credit of £6.0m has been recorded in the income statement. During the year, the Group has incurred £0.3m of set-up costs in respect of its joint venture in Saudi Arabia.

The Group also received a 25% reduction on appeal of the €12.24m fine imposed by the European Commission in 2005 for infringing Article 81 of the European Community Treaty in connection with a cartel relating to industrial bags, a market the Group exited in 1997 following the sale of its Belgian packaging business. The reimbursement, including interest and net of associated legal costs, totalled £2.2m and has been treated as a non-recurring credit within discontinued items. The reimbursement was received in December 2011.


The overall tax charge on the profit before tax was £4.2m (2010: £3.8m). The tax charge on profit from continuing operations before amortisation and non-recurring items was unchanged at £5.8m as increased profits were mitigated by a lower overall tax rate of 25% (2010: 31%). The lower rate reflects the benefit of ‘Innovation Box’ credits in the Netherlands for profits derived from innovation and includes a prior year adjustment equivalent to 2%. The underlying tax rate for 2012 is expected to be around 27%. Cash payments of £7.6m this year (2010: £3.3m) included £3.0m relating to 2007.

The Group operates internationally and is subject to tax in many differing jurisdictions. As a consequence, the Group is routinely subject to tax audits and examinations which, by their nature, can take a considerable period to conclude. Provision is made for known issues based on management’s interpretation of country specific legislation and the likely outcome of negotiation or litigation. The Group believes that it has a duty to shareholders to seek to minimise its tax burden but to do so in a manner which is consistent with its commercial objectives and meets its legal obligations and ethical standards. The Group has regard for the intention of the legislation concerned rather than just the wording itself. The Group is committed to building open relationships with tax authorities and to following a policy of full disclosure in order to effect the timely settlement of its tax affairs and to remove uncertainty in its business transactions. Where appropriate, the Group enters into consultation with tax authorities to help shape proposed legislation and future tax policy.

Applicable statutory corporate tax rates in our major operating territories were:







Czech Republic







Overall net debt increased to £85.3m from £77.9m as a result of increased capital expenditure, investment in Bonar Natpet and the restructuring of the Yarns business. Although improvements in working capital efficiency were made during the year, the percentage of trade working capital reducing from 22% last year (2009: 28%) to 21% of revenues, the amount of cash invested in working capital at year end increased by £11.1m due to both volume growth and higher prices. The Group's return on operating capital employed further improved during the year to 16.8% (2010: 15.2%). The Group also simplified its debt structure during the year settling in full all remaining debt related derivatives which amounted to £16.9m (2010: partial settlement of £9.3m).

The analysis of the Group's total external debt is as follows:





Cash and cash equivalents



Total bank debt



Net bank debt



Net derivative liabilities


Total external debt



The gearing ratio of total external debt to EBITDA was marginally better at 1.9 times (2010: 2.0 times).

Treasury management

The Group finances its operations through a mixture of shareholders’ funds, bank borrowings and operating leases. The Group operates centralised treasury management over its financial risks within a strong control environment. The Group uses various financial instruments in order to manage the exposures that arise from its operations. It is the Group's policy not to trade financial instruments or to engage in speculative transactions. All funding is properly recognised on the balance sheet. The Board has approved the treasury policy and receives regular reports on compliance. The objectives of the Group's treasury policy are summarised as follows:

To meet the liquidity requirements of the Group cost effectively. The Group aims to maintain undrawn committed facilities at a level sufficient to ensure that the Group has available funds to meet its medium-term funding needs and to minimise the level of surplus cash balances. The Group operates a conservative investment policy and short-term deposits are placed with highly-rated counterparties.

To deliver the funding demands of the business at low cost. The Group funding requirements are largely driven by capital expenditure and acquisition activity. In September 2010, the Group borrowed €45m through a private placement with Pricoa Capital Group. The funding is unsecured and is repayable in September 2016. The coupon rate is 5.9% per annum and is fixed for the term of the loan. In December 2010, the Group refinanced its committed banking facilities. The Group now has a €130m committed loan facility with a syndicate of five leading banks. The facility is unsecured and is committed through to February 2015. The interest rate is variable: the margin over LIBOR (or, in the case of borrowings in Euro, EURIBOR) varies according to the ratio of net debt to EBITDA and is 1.9% at the current and intended range of operations.

Both the private placement and the new committed loan facility require the Group to operate with an interest cover of at least 3 times and for net debt not to exceed 3 times EBITDA on a 12-month rolling basis. For the year ended 30 November 2011, interest cover was 5.2 times (2010: 5.2 times) and net debt:EBITDA was 1.9 times (2010: 2.0 times including derivative liabilities). The medium-term aim of the Group is to operate with net debt:EBITDA of between 1.5 and 2.0 times.

To provide reasonable protection against interest rate and foreign currency volatility. The Group's strategy seeks a balance between fixed and floating rate borrowings, to achieve a reasonable effective interest rate whilst protecting the Group against material adverse changes in interest rates over the medium-term. At 30 November 2011, the Group had fixed the interest rates of £38.5m (2010: £79.4m) of debt representing 36% (2010: 89%) of its total gross external debt, the decrease in the year relating to the settlement of debt-related derivatives and the refinancing agreed in December 2010.

The Group is exposed to movements in exchange rates for both foreign currency transactions and the translation of net assets and income statements of foreign subsidiaries. The Group regards its interest in overseas subsidiary companies as long-term investments and manages its translational exposures through the matching of assets and liabilities where possible. The private placement and the bank refinancing have provided a much better matching. The matching will be reviewed regularly and appropriate risk mitigation performed where necessary. The Group has exposure to a number of foreign currencies. The most significant transactional currency exposure is Euro/US Dollar.

To develop and maintain strong and stable banking relationships. Strong working relationships are maintained with a core group of high-quality banks whose geographical span of operations closely aligns with that of the Group. Five of these banks (The Royal Bank of Scotland, Barclays Corporate, KBC, ING and Comerica Bank) participated in the new €130m loan facility.


The charges for pensions are calculated in accordance with the requirement of IAS 19 Employee Benefits. During the year the Group's UK defined benefit scheme continued to adopt a lower risk investment strategy in which the interest rate and inflation risks were more closely hedged and the exposure to equities reduced to around 22% of the scheme’s assets (2010: 25%). The UK scheme deficit has fallen to £6.1m (2010: £17.9m), principally due to non-recurring credits of £6.0m arising from the change in indexation legislation and the closure of the scheme to future accrual, and additional cash contributions from the Group of £3.0m (2010: £3.0m). The deficit in the Group's overseas schemes in Belgium, Germany and the USA was unchanged at £8.1m (2010: £8.1m).


During the year the Group has advanced £1.7m towards its 50/50 joint venture, Bonar Natpet, in Saudi Arabia with NATPET. In total, the Group's initial equity investment will be £5.4m. As noted above, non-recurring start-up costs of £0.3m have been incurred. The joint venture is expected to be operational in the final quarter of 2012. There have been no other acquisitions and no disposals in the period.

Foreign exchange rates

The key foreign exchange rates used by the Group are:

Year end











US Dollar





Accounting standards

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU. There were no changes to IFRS which significantly affected the Group's financial statements.

A summary of the applicable changes and full details of accounting policies are provided on pages 57 to 63.

Share price

During the year, the Company’s share price increased by 6% from 42.3 pence to 44.8 pence, compared to a 9% decrease in the FTSE Small Cap index. The Company’s shares ranged in price from 42.3 pence to 77.0 pence and averaged 57.4 pence during the year. The average number of shares in issue was 287.9m (2010: 287.9m).


Steve Good

7 February 2012


Mike Holt

7 February 2012


Significant progress on financial KPIs

  • A second successive year of significant profit growth
  • Return on capital close to target of 17%
  • Gearing maintained at 1.9 times and expected to reduce in the coming year
  • Further progress in working capital management; target of sub-20% trade working capital/sales expected to be met in 2012
  • Flexible funding facilities committed until at least 2015

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