FOOD packaging supplier Bunzl saw its shares soar ten per cent yesterday as it announced plans to demerge its plastics and fibres operation.

The group said it would demerge Filtrona, which supplies products such as cigarette filters and ink reservoirs, into a separately-listed public company, allowing Bunzl to concentrate on its core distribution business.

The announcement came as the company revealed that pre-tax profits rose 11 per cent to £200.9m in the year to December 31, well ahead of analysts' expectations, following a strong performance by both sides of the business.

Chairman Anthony Habgood said the results provided an excellent backdrop to the demerger, which is subject to shareholder approval and is planned for June.

Bunzl said the proposed move would allow the two parts of the business to grow as separate entities.

Shareholders will receive shares in the demerged company and no new stock will be issued. Investors will receive the same proportion of shares in Filtrona as they presently hold in Bunzl.

Filtrona accounts for about 16 per cent of sales and nearly a quarter of operating profits. It operates from 38 plants in 14 countries, with customers ranging from small local producers to multinational manufacturers.

During the year, its sales rose 12 per cent to £477.5m, while profits grew by 13 per cent to £59.1m, despite challenging conditions caused by rising raw material costs.

Outsourcing services, whose customers include catering group Compass, Thistle hotels and supermarket chains Asda, Sainsbury's and Waitrose, saw a 16 per cent rise in operating profits to £184.8m.

The division does much of its business in North America, where it provides items such as plastic and paper packaging, carrier bags and containers.

The weakness of the US dollar reduced sales across the group by about seven per cent and profits by eight per cent. After accounting for this, group profits were three per cent higher than last year.

Bunzl expanded its European outsourcing business in May with the acquisition of cleaning and safety products distributor Pierre Le Goff for £157m.

Group sales climbed 14 per cent to £2.92bn at constant exchange rates, while the total dividend was raised ten per cent to 13.3p.

Analyst Robert Morton, at Investec Securities, said: "We believe that the demerger of Filtrona will be taken well as it will focus operations on to the group's core distribution business."