Filtrona plc

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Filtrona plc

Avebury House
201–249 Avebury Boulevard
Milton Keynes, MK9 1AU
United Kingdom
Telephone: (44 1908) 359100
Fax: (44 1908) 359120
Web site: http://www.filtrona.com

Public Company
Incorporated: 2005
Employees: 5,200
Sales: BP 544.2 million ($837.9 million) (2006)
Stock Exchanges: London
Ticker Symbol: FLTR
NAIC: 326113 Unsupported Plastics Film and Sheet (Except Packaging) Manufacturing; 325991 Custom Compounding of Purchased Resin

Filtrona plc is one of the world’s leading producers of specialty plastics and fiber products. While Filtrona is perhaps best known for its position as the largest cigarette filter manufacturer in the world, the company has built up a wide range of both plastics and fiber technologies. In addition to its cigarette filter production, Filtrona’s Fiber Technologies division is also the world’s leading producer of bonded fibers, used in the manufacture of ballpoint pens and other writing instruments, as well as in air freshener devices, medical components, and other applications.

Through Brazilian subsidiary Globalpack, the Fiber Technologies division oversees Filtrona’s plastic packaging operations. The Fiber Technologies division produced 46 percent of Filtrona’s total revenues of BP 544 million ($838 million) in 2006. Despite the higher profile of Filtrona’s fiber, and especially cigarette filter operations, Filtrona’s Plastics Technologies division has grown into the company’s largest by taking on the manufacture of an extraordinary range of often overlooked applications, including protection and finishing products; coated and security products; and plastic profile and sheet products.

Filtrona manufactures, for example, the plastic balls used in roll-on deodorants, as well as the plastic strips used for sliding doors. The company is also the leading producer of tearaway tape products, used for such packaging applications as the wrappers for cigarette packages, and the like. The company also produces a range of packaging products providing promotion, antifraud, track and trace, and other applications. Filtrona’s operations span 37 factories, four research & development offices, and 33 logistics facilities in 23 countries. North America accounts for more than 40 percent of company sales, while its European home base adds just over 35 percent sales. The company has also posted strong gains elsewhere, particularly in the Asian markets and in the Middle East. Formerly part of Bunzl plc, Filtrona was spun off as an independent, publicly listed company in 2005. Mark Harper serves as Filtrona’s chief executive officer.

FROM HABERDASHERY TO FIBERS IN THE 19TH CENTURY

The present-day Filtrona plc traced its origins to a haberdashery opened by Moritz Bunzl in the city of Bratislava in 1854. The business, originally known as Emanuel Biach’s, became Bunzl & Biach under Bunzl’s three sons, after moving to Vienna in 1883. By then, Bunzl & Biach had moved into the rag trade, which led the family into developing businesses producing textiles, as well as pulp and paper, with the opening of the company’s first paper mill at Ortmann in 1888. By the beginning of World War I, Bunzl & Biach had become a major company with operations throughout the Austro-Hungarian Empire.

The company’s move into cigarette filter production came in the 1920s, when Boris Aivaz, who had invented the device, using crepe paper, approached it. Bunzl & Biach agreed to allow Aivaz to develop his idea at the company’s Ortmann factory, and by 1927 had perfected the first production filter. Through the next decade, Bunzl & Biach developed an international market for its filters, with sales to some 15 countries. Nonetheless, the filters remained a sideline to the company’s main operations.

The rise of the Nazi Party and the impending annexation of Austria by Germany forced the Jewish Bunzl family to make preparations to flee Austria in the late 1930s. The company transferred its headquarters to Switzerland and established a subsidiary in London. When the new Nazi government seized the family’s Austrian assets, the family left the country. Most of the family emigrated to the United Kingdom, although another branch left Austria for the United States.

Forced to rebuild from nothing, the Bunzls, then led by Hugo, George, and Martin Bunzl, founded a new company, Tissue Papers Ltd. in 1940. That business started out producing tissue and crepe paper; by the end of the decade, the company had launched production of cigarette filters as well. Growth remained limited during the war years, but by the end of the war the company had developed the basis for its expansion. This was given a major boost when the Bunzl family regained control of their Austrian assets in 1946. The family then used its London base as the international hub for sales of Bunzl & Biach’s pulp and paper. By 1952, the British firm had taken on a new name, Bunzl Pulp & Paper Ltd.

While operating as a sales office for the Austrian company, Bunzl Pulp & Paper continued to build its own manufacturing capacity. Cigarette filter production became an increasingly important part of the group’s operations, particularly as filter-tipped cigarettes became fashionable in the postwar period. Bunzl responded to the growing international demand by adding new manufacturing facilities in South Africa in 1952. In 1954, the American branch of the Bunzl family joined in, forming American Filtrona Corporation. While there was a degree of cross-shareholding between the U.S. and British branches of the Bunzl families, each company remained independent of the other.

The development, by Eastman Kodak, of a new cellulose acetate-based fiber, which proved easier and less expensive to produce than paper-based filters, while also serving as a more effective filter, provided a new boost for the market. Bunzl, recognizing the potential for the new material, quickly adapted its production process, and began manufacturing the new filter type in 1954. Demand for the new filters soared, particularly as the first health concerns about the use of tobacco had begun to surface. The use of filters became more and more encouraged, and by the end of the 1950s had become the norm in the tobacco industry. While still a small company at the time, Bunzl invested strongly in developing its production capacity—an investment that enabled the company to position itself as the world’s leading filter manufacturer. Bunzl came to dominate many of its markets. In the United Kingdom, for example, the company controlled a near-monopoly on the production of filters. Fueling the group’s investment was its decision to go public in 1957, listing 30 percent of its stock on the London Stock Exchange.

COMPANY PERSPECTIVES

Filtrona will focus on the development of innovative and value added products; deliver world class quality and service; continue to develop strong relationships with customers, partners and suppliers; continue to reduce product costs; develop a co-operative working environment where employees are committed, involved and recognised for their contribution; and thereby grow profitably.

SPECIALTY PACKAGING IN THE EIGHTIES

Bunzl’s Filtrona cigarette filters business remained the group’s core product through the 1960s, as the company expanded its manufacturing operations into several European markets, as well as Australia, South Africa, and India. Together with American Filtrona, the company’s filter production extended into North and South America as well. By the late 1960s, as the recognition of the dangers posed by smoking became more widely accepted, the future growth of the filters market appeared limited. Bunzl had begun preparing for the coming dip in the market, extending its expertise in handling cellulose acetate into the packaging industry. By the end of the decade, the company had businesses producing self-adhesive labels and packaging tapes, as well as plastic tubes, films, and bags. Nonetheless, cigarette filters remained the company’s largest and most profitable operation into the beginning of the 1970s.

Bunzl, which had been operating as a subsidiary of the Bunzl & Biach, had by then grown into the larger of the two businesses. As a result, and as part of Bunzl’s effort to reduce its reliance on cigarette filters, the company took over its parent company in 1970. The merger gave Bunzl four primary divisions: packaging, plastics, and its two largest divisions, paper and filters. By the middle of the decade, however, the company faced difficulties in both of its largest divisions. Cheaper imports from Eastern Europe placed the Austrian paper mills under pressure. At the same time, the declining cigarette market had led a number of major manufacturers—including Bunzl’s largest customer, Imperial Tobacco—to launch their own filter production.

Bunzl scrambled to find new profit centers, making a disappointing entry into data processing during the decade. By the end of the 1970s, however, the company was forced to shed these and other operations—including its Bunzl & Biach paper manufacturing wing, which was sold in 1980. While filters remained at the core of the company’s operations, and continued to account for up to 70 percent of its profits, Bunzl focused on developing its plastics and packaging businesses.

The future Filtrona began to take shape during the 1980s, as Bunzl successfully extended its range of operations to include a wide variety of specialty packaging and plastics-based niche products. Among the company’s new targets was the development of operations producing and supplying specialty packaging for the processed foods and supermarket sectors. The acquisitions of Jersey Paper and PCI/Mac-Pak in the early 1980s helped the company gain major inroads in these fast-growing markets. The company also extended its filter fiber expertise, becoming a major producer of such niche items as the filter wicks for ballpoint pens. The strategy helped the company reduce its reliance on cigarette filters, which dropped back to just 20 percent of group profits by the middle of the 1980s.

Having grown its sales by more than 500 percent between 1980 and 1985, Bunzl launched a still more ambitious expansion strategy. Over the next several years, the company spent more than BP 400 million ($600 million) acquiring some 70 companies. Along the way, the company diversified into a wide variety of areas, including building materials, restaurant and food service, graphic arts supplies, and especially outsourcing services. If at the beginning of the 1990s Bunzl was forced to rein in its expansion, selling off many of its diversified operations, outsourcing services, focused on the supply of disposable food packaging materials to supermarkets, restaurants and the like, represented a significant new growth area for the company. The strong growth of Bunzl’s outsourcing services division through the 1990s and into the 2000s finally led the group to split up its operations, spinning off its fiber and plastics technologies into a new publicly listed company, Filtrona.

FILTRONA SPINOFF IN 2005

Filtrona had itself grown strongly through the 1990s and into the next century. The division, which had severed its shareholding ties with American Filtrona in the early 1980s, made an entry into the U.S. cigarette filters market, establishing a factory in the United States in 1993. That business grew strongly through the decade, to the point where the company responded to the tobacco industry’s demands that it build a second factory in order to guarantee supply.

KEY DATES

1854:: Moritz Bunzl opens haberdashery business in Bratislava.
1883:: After entering rag trade, Bunzl family moves headquarters to Vienna, changing name to Bunzl & Biach.
1888:: Paper production is launched.
1927:: Production of paper-based cigarette filters is launched.
1940:: The Bunzls establish a new business in London, called Tissue Papers Ltd.
1954:: Bunzl Pulp & Paper launches production of cellulose acetate-based cigarette filters; founding of American Filtrona by a branch of Bunzl family.
1970:: Bunzl acquires parent company, Bunzl & Biach.
1980:: Company begins developing plastics packaging and outsourcing services operations.
1997:: Bunzl acquires American Filtrona.
2002:: Bunzl merges plastics division into Filtrona.
2005:: Spinoff of Filtrona PLC as independent company.

In the meantime, American Filtrona had been growing strongly as well, and especially by accomplishing a product diversification into specialty fiber and plastics products very similar to that achieved by Bunzl itself. By 1996, Filtrona had begun talks with its estranged U.S. relative to buy out the fibers operations of American Filtrona. Those talks failed to produce results. In 1997, the U.S.-based Bunzl family trust, which held a 46 percent stake in American Filtrona, launched an attempt to take full control of that company. When that offer failed, Bunzl moved in, offering $178 million for American Filtrona.

Bunzl also continued to build its specialty plastics technologies, a division that was given a boost through its take over of P.P. Payne Corporation. That company specialized in producing tearaway tapes, of the sort used in cellophane packaging for cigarettes and other products. Bunzl also developed a strong plastic extrusions operations, which was formed into Bunzl Extrusion in 1997. That operation was further boosted by the acquisition of the Netherlands’ Enitor in 1998. By then, however, Bunzl had increasingly begun to position itself in the outsourcing services sector, a transformation that was underscored when the company’s stock listing on the London Stock Exchange was moved from Paper & Packaging to Support Services at the end of that year.

Bunzl launched a restructuring of its operations at the beginning of the 2000s, shedding the last of its paper distribution operations. As part of this restructuring, Bunzl reorganized its plastics division—which at the time accounted for just 10 percent of total group sales—which was merged into Filtrona. At the same time, Filtrona began adding to its range of technologies. In 2000, the company acquired Davidson Plastics, based in the United States, which specialized in medical tubing extrusion. This was followed by the 2003 purchase of Switzerland’s Baumgartner Fibertec, which, like Filtrona, produced both cigarette filters and wicks for writing instruments. In 2004, Filtrona boosted its presence in the Netherlands, buying Skiffy Group, another producer of specialist and niche nylon-based plastic parts. The following year, the enlarged Filtrona was spun off from Bunzl as an independent company.

The “new” Filtrona started out with a network of 38 factories in 23 countries, with major subsidiaries including Bunzl Extrusion in the United States, Enitor in the Netherlands, Globalpack in Brazil, and Moss Plastics and Skiffy in Europe. Filtrona also boasted a world-leading plastic film division, grouped around P.P. Payne and two other subsidiaries, Morane and Laminex. The newly independent Filtrona operated from two primary divisions, fiber technologies and plastics technologies.

If the plastics technologies had initially been the smallest part of Filtrona, it grew rapidly, and by the end of 2006 represented more than 50 percent of Filtrona’s total revenues. Part of the division’s success came from the company’s investment into the development and manufacture of security and safety films and packaging materials. This investment included an 80 percent stake in the FractureCode joint venture, which developed a security code printing and packaging technology designed to prevent counterfeiting of cigarettes and other products, as well as providing highly sophisticated tracking and tracing capabilities. Filtrona’s marketleading technologies in this highly promising area promised to help the company shed its image as merely a producer of cigarette filters. Instead, Filtrona had emerged as a major manufacturer of a strong and diversified range of niche and specialty plastics and fiber-based products.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Cigarette Components Ltd.; FIL Holdings Corporation; FIL International Ltd.; Filtrona BV (Netherlands); Filtrona de Mexico S de RL de CV (Mexico); Filtrona Extrusion Inc. (United States); Filtrona Finance Ltd.; Filtrona Holdings Corporation (United States); Filtrona International GmbH (Germany); Filtrona International Ltd.; Filtrona United Kingdom Ltd.; Globalpack Ind e Comercio Ltda (Brazil); Moss Plastic Parts Ltd.; PT Filtrona Indonesia (Indonesia).

PRINCIPAL DIVISIONS

Fiber Technologies; Plastics Technologies.

PRINCIPAL COMPETITORS

Mitsubishi Chemical Corporation; Dwi Satrya Utama, PT; Eastman Kodak Company; Huntsman International LLC; Tetra Laval Group; Royal DSM N.V.; Nan Ya Plastics Corporation; Azerkimya State Company; Basell Polyolefins Company S.A./NV; Bollore Investissement.