De La Rue plc Preliminary Sta

RNS Number : 4616M

De La Rue PLC

25 May 2010

 



DE LA RUE PLC PRELIMINARY STATEMENT

YEAR TO 27 MARCH 2010

 

KEY FINANCIALS

(Continuing Group - excluding the disposed business of Cash Systems but including Cash Processing Solutions)

	2009/2010 £m	2008/2009 £m	Movement %
Revenue	561.1	502.4	12%
Operating profit *	109.2	96.5	13%
Profit before tax and exceptional items	104.1	105.0	-1%
Profit before tax	96.6	96.1	1%
Headline earnings per share *	76.2p	57.0p	34%
Basic earnings per share from continuing operations	71.0p	50.9p	39%
Dividend per share	42.3p	41.1p	3%

HEADLINES

·    Group operating profit margin* remains strong at 19.5%,  underpinned by productivity, mix and foreign exchange benefits

·    Strong operating cash flow of £116m

·    Final dividend increase to 28.2p, making a total of 42.3p for the year, an increase of 3 per cent

·    Secured £400m UK passport contract for delivery over 10 years

·    Sale of Camelot investment, subject to National Lottery Commission approval

·    Share buy back announced

*	Operating profit and headline EPS are reported for continuing operations and before exceptional items of £7.5m in 2009/2010 and £8.9m in 2008/2009

Nicholas Brookes, Chairman of De La Rue plc, commented:

"The Group had an excellent year, with Currency delivering an outstanding performance due to strong demand and a high quality mix of work.  These results underline the Board's rationale for creating a more focused Group and demonstrate   De La Rue's resilience in the uncertain economic environment.  We will continue to focus on our core strengths whilst driving long term growth, profitability and cash generation.

"As indicated in March, the Board believes that 2010/2011 banknote volumes should remain at similar levels to 2009/2010 but with a greater than normal weighting towards the second half.  Pension charges will be £3m higher than the prior year.

"The strong margin mix in Currency will not be repeated in the current financial year.  It is expected that this will be offset by productivity gains, by cost reduction, especially in Cash Processing Solutions, and by improved trading in other parts of the business."

For further information, please contact:

James Hussey	Chief Executive	[phone]
Simon Webb	Group Finance Director	[phone]
Clare Lloyd Williams	Group Communications Manager	[phone]
Richard Mountain	Financial Dynamics	[phone]

24 May 2010

SUMMARY OF GROUP RESULTS 

De La Rue reports an excellent performance for the year ended 27 March 2010.  Revenues grew by 12 per cent to £561.1m (2008/2009: £502.4m) and operating profit before exceptional items rose by 13 per cent to £109.2m(2008/2009: £96.5m).  Operating profit margins (before exceptional items) were 19.5 per cent (2008/2009: 19.2 per cent), reflecting benefits from productivity improvements, customer mix and foreign exchange.  Overall for the Group, movement in the value of sterling against the euro and US dollar contributed £27m to revenue and £7m to operating profit (2008/2009: £25m and £6m respectively).

Profit before tax and exceptional items decreased by 1 per cent to £104.1m (2008/2009: £105.0m) due to the increased interest charges arising from the return of capital in 2008 and lower income from associates.  Headline earnings per share increased by 34 per cent to 76.2p (2008/2009: 57.0p) mainly reflecting the benefits of the previous share consolidation.  Basic earnings per share from continuing operations were 71.0p compared with 50.9p in 2008/2009, representing an increase of 39 per cent.

Operating cash flow was £116.1m (2008/2009: £69.4m). Management of working capital remains a strength of the Group as demonstrated by the improved working capital ratios. Advance payments of £44.0m (2008/2009: £39.6m) benefited from some large receipts immediately prior to the year-end.    The Group ended the year with net debt of £11.0m (2008/2009: £33.1m).

DIVIDENDS

The Board is recommending a final dividend of 28.2p per share (2008/2009: 27.4p per share), subject to shareholders' approval.  This will be paid on 5 August 2010 to shareholders on the register on 9 July 2010.  Together with the interim dividend paid in January 2010, this will give a total dividend for the year of 42.3p (2008/2009: 41.1p per share).

Overall, this equates to an uplift of 3 per cent in the level of ordinary dividend and reflects the previously announced policy.

STRATEGY

De La Rue intends to build on its position as a world leader in the banknote market to become the premier provider of currency, security and authentication of payment and identity transactions for central banks, governments and international corporations globally.

Over the past twelve months De La Rue has secured key contracts and profitable growth in challenging economic conditions.  It continues to implement a strongly integrated strategy, leveraging its customer relationships and investments in technology and assets to drive continuous improvement in performance and sustainable long term growth.  Increased productivity remains a key focus for managing short term market variability and delivered a £7m benefit during the period.

BOARD CHANGES

As previously announced, the year has seen a number of changes to the Board. 

Simon Webb will step down from the Board as Group Finance Director on 31 May 2010.  Philip Nolan and Keith Hodgkinson stepped down as non-executive Directors in July 2009 and December 2009 respectively. The Board wishes to thank all three Directors for their contribution to De La Rue.

The Board is pleased to welcome three new Directors.  Colin Child will join the Board on 1 June 2010 as Group Finance Director, bringing a wealth of financial and management experience with large international companies.

Sir Julian Horn-Smith joined as non-executive Director on 1 September 2009 with an impressive track record at senior level in major global companies including Vodafone.  Victoria Jarman joined as non-executive Director on 22 April 2010.  She has worked closely with the Boards of major FTSE companies and businesses advising them on a variety of strategic options.

OPERATING REVIEWS

CURRENCY	2009/2010 £m	2008/2009 £m
Revenue Underlying growth on prior year*	411.2 +13%	348.6
Operating profit Operating profit margin	95.3 23.2%	82.8 23.7%

*excluding impact of exchange

Currency produced an outstanding performance in 2009/2010 due to a combination of strong demand for its products and a high quality mix. Its manufacturing units operated at very high levels of capacity utilisation throughout the year.  Further investment has been made during the year to enhance the capability of the print factory in Sri Lanka.

Banknote volumes increased by 2 per cent year on year. The operating profit margins continued to benefit from volume increases, high specification work and productivity improvements, assisted by the further weakness of sterling exchange rates against the euro and the US dollar.

Banknote paper production again reflected strong capacity utilisation as output rose by 4 per cent driven by ongoing increases in productivity from capital investment in earlier years and a systematic approach to process improvement.

The Currency order book continues to provide good visibility for 2010/2011 and supports the expectation of consistent year on year volumes.

CASH PROCESSING SOLUTIONS (CPS)	2009/2010 £m	2008/2009 £m
Revenue	56.9	66.0
Underlying growth on prior year*	-19%
Operating (loss)/profit** Operating profit margin**	(3.5) -6.2%	0.4 0.6%

*excluding impact of exchange

**before exceptional items

CPS continued to experience difficult trading as purchases of sorters were deferred; nevertheless the business was cash generative for the year (before exceptional items).  Management has made good progress in its actions to focus the business more effectively on its key customer segments, especially central banks, and to rationalise the product and manufacturing base in order to lower the breakeven point.  This restructuring is on track and has resulted in exceptional costs of £4.8m, as announced last September, with a payback expected within two years.

SECURITY PRODUCTS	2009/2010 £m	2008/2009 £m
Revenue	74.9	69.7
Underlying growth on prior year*	1%
Operating profit Operating profit margin	14.8 19.8%	11.0 15.8%

*excluding impact of exchange

The Security Products business delivered a strong performance, achieving increases in government revenues, brand licensing and high-margin internal components sales against a backdrop of a difficult economic environment in its markets.  

Operating profit growth was driven by continued productivity improvements, cost control and foreign exchange movements.

The business is well positioned in the niche markets in which it operates, providing proven, effective and robust solutions to meet a variety of customer needs.  In addition it continues to benefit from increased collaboration with other Group entities via internal component sales and sharing of Group technology.

IDENTITY SYSTEMS (IDS)	2009/2010 £m	2008/2009 £m
Revenue	32.0	30.4
Underlying growth on prior year*	0%
Operating profit Operating profit margin	2.6 8.1%	2.3 7.6%

*excluding impact of exchange

IDS' results reflect its continued development of offerings in eID and ePassports as well as ongoing sales of non-chipped solutions.  The new ePassport factory in Malta reached full operational status in the year positioning the business well for further expansion into eSystems as well as existing machine readable documents.

The award of the UK passport contract in June 2009 clearly demonstrates IDS' ability to leverage De La Rue's customer understanding, reputation and technology offerings in high growth identity markets.

Preparation for the implementation of the UK passport contract is on schedule for sales to commence in the second half of 2010/11.  At the present time, the precise volume requirement for passport deliveries in 2010/11 is subject to final confirmation by the customer.

ASSOCIATES

Profit from associates after tax was £6.3m (2008/2009: £8.9m) representing the contribution from Camelot, the UK lottery operator.  This reduction was anticipated following the grant of the third lottery licence with effect from 1 February 2009.

As previously announced, De La Rue is to dispose of its shareholding in Camelot for approximately £77.8m to the Ontario Teachers Pension Plan, subject to the approval of the National Lottery Commission.  The proceeds, which are expected to be tax-free, will be used to reduce the pension fund deficit by £35m as well as returning surplus cash to shareholders via a share buy back.

The investment in Camelot is shown as an asset held for sale in the balance sheet as at 27 March 2010.  As a result there will be no further income from this associate shown in the 2010/2011 income statement.

INTEREST

The Group's net interest charge was £5.1m (2008/2009: income £1.4m), which reflects the debt taken on in connection with the return of capital in 2008.  In addition the IAS19 related finance item, arising from the difference between the interest on liabilities and the expected return on assets rose to £6.3m (2008/2009: £1.8m) as a result of lower expected returns on the reduced market valuation of pension assets at the 2008/2009 year end.

EXCEPTIONAL ITEMS AND DISCONTINUED OPERATIONS

In accordance with the basis of preparation outlined in note 1, the following exceptional items are included within the income statement.

	2009/2010	2008/2009
	£m	£m
Reorganisation of central operations	-	(8.9)
Legacy overseas indirect tax	(2.7)	-
CPS reorganisation	(4.8)	-
Exceptional items - continuing operations	(7.5)	(8.9)
Exceptional items - tax	2.4	0.9
Profit from discontinued operations	-	296.5

Exceptional charges of £7.5m in the period reflect the resolution of a legacy overseas indirect tax issue and the reorganisation of CPS, the latter expected to have a payback within two years.  Reorganisation costs principally covered redundancy charges and rationalisation of products and site capabilities. These charges gave rise to a related tax credit of £1.0m. In addition £1.4m of tax credit arose when the tax treatment of some prior year exceptional items was determined.

During 2008/2009, De La Rue announced its intention to reduce central costs by approximately 50 per cent following the disposal of Cash Systems. This programme was completed ahead of schedule.  Central reorganisation costs relating to this programme principally covered redundancy, separation costs and site rationalisation charges. 

The Group completed the sale of its Cash Systems activities on 1 September 2008.  Profit from discontinued operations (after tax) was £296.5m, which included £12.6m (after tax) from the trading of the discontinued activities for the five months to 1 September 2008.

TAXATION

The tax charge for the year was £26.2m (2008/2009: £28.5m).  The effective tax rate pre exceptional items, was 27.5 per cent, broadly in line with the previous year's rate.  The effective tax rate excluding associate income (shown post-tax) would have been 29 per cent.   A credit of £2.4m arises on the exceptional charges noted above.

CASH FLOW AND BORROWINGS

Operating cash flow was £116.1m (2008/2009: £69.4m) with a strong cash conversion* of 99% (2008/2009: 98%).

Management of working capital remains a strength of the Group as demonstrated by the improvement in stock days to 47 (2008/2009: 58) and debtor days to 34 (2008/2009: 39). Advance payments of £44.0m (2008/2009: £39.6m) benefited from some large receipts immediately prior to the year-end. 

Capital expenditure of £33.1m (2008/2009: £29.3m) was higher than depreciation, reflecting the investment programme directed at enhancing the future capability of the business, including the preparation for delivery of the UK passport contract.

The Group ended the year with net debt of £11.0m (2008/2009: £33.1m).

During the year, the Group negotiated a new borrowing facility running to September 2013.  Key financial covenants on this facility are unchanged and require that the interest cover be greater than four times, and the net debt to EBITDA ratio be less than three times.

* Cash conversion equals operating cash flow excluding exceptional items, special pension contributions and the movement in advance payments, less capital expenditure, divided by operating profit

UK PENSION SCHEME

Pension Deficit and Funding

The Group's last formal (triennial) funding valuation of its UK defined benefit pension scheme took place on 5 April 2009 and identified the scheme had a deficit of £204m (5 April 2006: £56m deficit). The deficit increased despite special contributions of £51m over the three years prior to April 2009, primarily as a result of a fall in asset values following the financial crisis and continued improvements in life expectancy.

In April 2006, the Group agreed with the Trustee to make additional special contributions of £12m per annum until 2012 or until the deficit was cleared, if sooner. Following the completion of the latest triennial valuation and in addition to the one-off contribution resulting from the Camelot sale (£35m), agreement has been reached with the Trustee to increase the annual funding plan to £15m per annum (commencing in 2010/2011 and running for approximately 11 years) with a 4 per cent annual increment.

During 2009/2010, special funding payments of £17m were made to the Group pension fund, comprising the scheduled contribution of £12m and an early payment of part of the 2010/2011 contribution for reasons of tax efficiency. 

Pension Scheme Changes

After a consultation process with members the following agreed changes to the pension scheme will be implemented: 

·    A new defined contribution scheme, open to all employees, to be created from the summer of 2010

·    The Final Salary and Retirement Plan defined benefit schemes to be closed to future accrual for all employees with effect from 1 April 2013 

Closing the defined benefit scheme will result in a one off exceptional benefit in the income statement for 2010/2011 of c£16m and a reduction in the deficit of c£20m.

IAS 19 Accounting

The valuation of the UK Pension scheme under IAS 19 principles indicates a scheme deficit pre-tax at 27 March 2010 of £124.8m (March 2009: £67.5m). This significant increase in deficit during the period has mainly arisen due to the reduction, from 6.8 per cent to 5.8 per cent, in the bond discount rate used to value the scheme liabilities.  This is partly offset by the increased asset values from the market low point in March 2009 and the Group's ongoing regular contributions.  The charge to operating profits in respect of the UK Pension Scheme for 2009/2010 was £4.5m (2008/2009: £5.8m).  In addition, under IAS 19 there was a finance charge of £6.3m arising from the difference between the expected return on assets and the interest on liabilities (2008/2009: £1.8m). 

OUTLOOK

As indicated in March, the Board believes that 2010/2011 banknote volumes should remain at similar levels to 2009/2010 but with a greater than normal weighting towards the second half.  Pension charges will be £3m higher than the prior year.

The strong margin mix in Currency will not be repeated in the current financial year.  It is expected that this will be offset by productivity gains, by cost reduction, especially in Cash Processing Solutions, and by improved trading in other parts of the business.   

-ends-

Notes to Editors

1	De La Rue is the world's largest commercial security printer and papermaker, involved in the production of over 150 national currencies and a wide range of security documents such as passports, authentication labels and fiscal stamps. The Company is also a leading provider of cash sorting equipment and software solutions to central banks, helping them to reduce the cost of handling cash.   De La Rue also pioneers new technologies in government identity solutions for national identification, driver's licence and passport issuing schemes. De La Rue employs approximately 4,000 people worldwide and is a member of the FTSE250. For further information visit De La Rue's website at www.delarue.com
2	A presentation to analysts will take place at 9:00am on 25 May 2010 at JP Morgan Cazenove, 20 Moorgate, London, EC2R 6DA.
3	High resolution photographs are available to the media free of charge at http://www.newscast.co.uk/  ([phone]).
4	Foreign Exchange Principal exchange rates used in translating the Group's results:
		2009/2010		2008/2009
		Avg	Year End	Avg	Year End
	US dollar	1.58	1.49	1.73	1.43
	euro	1.13	1.11	1.21	1.08
5	De La Rue Financial Calendar : 2010/2011
	Ex-dividend date		7 July 2010
	Record date (ordinary dividend)		9 July 2010
	Annual General Meeting		22 July 2010
	Payment of 2009/10 final dividend		5 August 2010
	2010/11 Interim Results		23 November 2010

 

GROUP INCOME STATEMENT For the year ended 27 March 2010
	Notes	2010 £m	2009 £m
Continuing operations
Revenue		561.1	502.4
Operating expenses		(451.9)	(405.9)
Operating profit before exceptional items		109.2	96.5
Exceptional items - operating	3	(7.5)	(8.9)
Operating profit		101.7	87.6
Share of profits of associated companies after taxation		6.3	8.9
Profit before interest and taxation		108.0	96.5
Interest income		0.3	7.8
Interest expense		(5.4)	(6.4)
Retirement benefit obligation finance income		26.4	33.3
Retirement benefit obligation finance cost		(32.7)	(35.1)
Net finance cost		(11.4)	(0.4)
Profit before taxation		96.6	96.1
Taxation	4	(26.2)	(28.5)
Profit for the year from continuing operations		70.4	67.6
Discontinued operations
Profit for the year from discontinued operations		-	296.5
Profit for the year		70.4	364.1
Profit attributable to equity shareholders of the Company		69.9	363.0
Profit attributable to minority interests		0.5	1.1
		70.4	364.1

Earnings per share attributable to the Company's equity holders
From continuing operations
Basic	5	71.0p	50.9p
Diluted	5	70.5p	50.4p
From discontinued operations
Basic	5	-	226.8p
Diluted	5	-	224.6p
On profit for the year
Basic	5	71.0p	277.7p
Diluted	5	70.5p	275.0p

 

GROUP STATEMENT OF COMPREHENSIVE INCOME For the year ended 27 March 2010
	Notes	2010 £m	2009 £m
Profit for the financial year		70.4	364.1
Other comprehensive income
Foreign currency translation differences for foreign operations		0.1	3.6
Actuarial losses on retirement benefit obligations		(72.3)	(75.0)
Effective portion of changes in fair value of cash flow hedges, net of amounts recycled to the income statement		6.6	(13.0)
Income tax relating to components of other comprehensive income		21.4	24.7
Foreign exchange recycled to the income statement on disposal of subsidiary undertakings		-	(13.3)
Other comprehensive income for the year, net of tax		(44.2)	(73.0)
Comprehensive income for the year		26.2	291.1
Comprehensive income for the year attributable to:
Equity shareholders of the Company		25.7	290.0
Minority interests		0.5	1.1
		26.2	291.1

 

GROUP BALANCE SHEET At 27 March 2010
	Notes	2010 £m	2009 £m
ASSETS
Non-current assets
Property, plant and equipment		165.6	148.3
Intangible assets		19.3	18.3
Investments in associates and joint ventures		0.1	21.1
Deferred tax assets		36.5	29.3
Derivative financial instruments		0.8	11.6
		222.3	228.6
Current assets
Inventories		61.0	65.3
Trade and other receivables		76.5	82.5
Current tax assets		3.9	0.4
Derivative financial instruments		20.4	23.3
Cash and cash equivalents		41.6	58.5
Non-current assets held for sale		20.5	-
		223.9	230.0
Total assets		446.2	458.6
LIABILITIES
Current liabilities
Borrowings		(51.7)	(40.1)
Trade and other payables		(164.2)	(158.5)
Current tax liabilities		(34.5)	(40.4)
Derivative financial instruments		(24.7)	(27.7)
Provisions for other liabilities and charges		(26.1)	(32.5)
		(301.2)	(299.2)
Non-current liabilities
Borrowings		(0.9)	(51.5)
Retirement benefit obligations		(127.1)	(69.7)
Deferred tax liabilities		(0.3)	-
Derivative financial instruments		(2.1)	(14.3)
Other non-current liabilities		(5.1)	(3.3)
		(135.5)	(138.8)
Total liabilities		(436.7)	(438.0)
Net assets		9.5	20.6
EQUITY
Share capital		45.5	45.0
Share premium account		28.4	26.5
Capital redemption reserve		5.9	5.9
Hedge reserve		(3.9)	(8.6)
Cumulative translation adjustment		3.8	3.7
Other reserves		(83.8)	(83.8)
Retained earnings		10.4	29.0
Total equity attributable to shareholders of the Company		6.3	17.7
Minority interests		3.2	2.9
Total equity		9.5	20.6

 

GROUP STATEMENT OF CHANGES IN EQUITY For the year ended 27 March 2010
	Attributable to equity shareholders							Minority interest	Total equity
	Share capital £m	Share premium account £m	Capital redemption reserve £m	Hedge reserve £m	Cumulative translation adjustment £m	Other reserve £m	Retained earnings £m	£m	£m
Balance at 29 March 2008	44.6	22.5	5.5	0.7	13.4	(83.8)	210.3	2.3	215.5
Comprehensive income for the year	-	-	-	(9.3)	(9.7)	-	309.0	1.1	291.1
Share capital issued	0.8	4.0	-	-	-	-	-	-	4.8
Purchase of shares for cancellation	(0.4)	-	0.4	-	-	-	(119.3)	-	(119.3)
Allocation of treasury shares	-	-	-	-	-	-	2.2	-	2.2
Employee share scheme:
- value of services provided	-	-	-	-	-	-	2.8	-	2.8
Income tax on income and expenses recognised directly in equity	-	-	-	-	-	-	0.7	-	0.7
Dividends paid	-	-	-	-	-	-	(376.7)	(0.5)	(377.2)
Balance at 28 March 2009	45.0	26.5	5.9	(8.6)	3.7	(83.8)	29.0	2.9	20.6
Comprehensive income for the year	-	-	-	4.7	0.1	-	20.9	0.5	26.2
Share capital issued	0.5	1.9	-	-	-	-	-	-	2.4
Employee share scheme:
- value of services provided	-	-	-	-	-	-	1.5	-	1.5
Income tax on income and expenses recognised directly in equity	-	-	-	-	-	-	(0.1)	-	(0.1)
Dividends paid	-	-	-	-	-	-	(40.9)	(0.2)	(41.1)
Balance at 27 March 2010	45.5	28.4	5.9	(3.9)	3.8	(83.8)	10.4	3.2	9.5

 

 

GROUP CASH FLOW STATEMENT For the year ended 27 March 2010
	Notes	2010 £m	2009 £m
Cash flows from operating activities
Profit before tax		96.6	96.1
Adjustments for:
Finance income and expense		11.4	0.4
Depreciation and amortisation		23.0	21.3
Decrease/(increase) in inventory		4.3	(0.1)
Decrease/(increase) in trade and other receivables		16.6	(30.4)
(Decrease)/increase in trade and other payables		(9.9)	17.5
(Decrease)/increase in reorganisation provisions		(5.0)	4.4
Special pension fund contributions		(17.0)	(27.0)
Loss/(profit) on disposal of property, plant and equipment		0.9	(0.1)
Share of income from associates after tax		(6.3)	(8.9)
Other non-cash movements		1.5	(3.8)
Cash generated from continuing operations		116.1	69.4
Cash generated from discontinued operations		-	(2.2)
Tax paid - continuing operations		(21.0)	(20.5)
Tax paid - discontinued operations		-	(10.0)
Net cash flows from operating activities		95.1	36.7
Cash flows from investing activities
Disposal of subsidiary undertakings		(1.0)	333.7
Purchases of property, plant and equipment (PPE) & software intangibles - continuing operations		(33.1)	(29.3)
Purchases of property, plant and equipment (PPE) & software intangibles - discontinued operations		-	(0.7)
Development assets capitalised - continuing operations		(2.3)	(3.3)
Development assets capitalised - discontinued operations		-	(1.1)
Proceeds from sale of PPE		0.5	0.5
Loans made to associates		(0.6)	-
Dividends received from associates		6.8	10.3
Net cash flows from investing activities		(29.7)	310.1
Net cash inflow before financing activities		65.4	346.8
Cash flows from financing activities
Proceeds from issue of share capital		2.4	7.0
Return of capital		-	(119.3)
(Repayment of)/proceeds from borrowings		(32.9)	77.6
Finance lease principal payments		(3.1)	(3.9)
Interest received		0.4	7.6
Interest paid		(3.7)	(4.1)
Dividends paid to shareholders		(40.4)	(376.7)
Dividends paid to minority interests		(0.2)	(0.5)
Net cash flows from financing activities		(77.5)	(412.3)
Net decrease in cash and cash equivalents in the year		(12.1)	(65.5)
Cash and cash equivalents at the beginning of the year		50.1	116.7
Exchange rate effects		(0.2)	(1.1)
Cash and cash equivalents at the end of the year		37.8	50.1
Cash and cash equivalents consist of:
Cash at bank and in hand		35.1	43.4
Short term bank deposits		6.5	15.1
Bank overdrafts		(3.8)	(8.4)
		37.8	50.1
1 Basis of preparation and accounting policies
The preliminary announcement for the year ended 27 March 2010 has been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (collectively "IFRSs") as adopted by the European Union (EU) at 27 March 2010. Details of the accounting policies applied are those set out in  De La Rue plc's Annual Report 2009, as updated for the following changes in accounting policies:
• IAS 1 (Presentation of Financial Statements) amendments require a number of changes to the presentation of financial statements. These include a requirement to present, in a statement of changes in equity, all owner changes in equity.  All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). As a result, the Group has elected to present a consolidated income statement, a consolidated statement of comprehensive income and a consolidated statement of changes in equity.
• IFRS 7 (Financial Instruments: Disclosures) amendments expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected, on a voluntary basis, to provide comparative information for these expanded disclosures in the current year in order to aid comparability between periods.
• IFRS 8 (Operating Segments) requires segment disclosures based on the components that the Chief Operating Decision Maker (i.e. the Board) monitors in making decisions about operating matters. Such components are identified on the basis of internal reports that the Board reviews regularly in allocating resources to segments and in assessing performance. This results in a segmental analysis which is similar to that presented previously under IAS 14 (Segmental Reporting) as the Group had previously given additional voluntary disclosures of segmental information.  However, the comparatives have been restated for the effects of the different disclosure requirements of current and deferred tax assets and liabilities.
• IAS 23 (Borrowing Costs) amendments have removed the option of immediately recognising as an expense borrowing costs relating to assets that take a substantial period of time to get ready for use or sale. The revised standard requires such borrowing costs to be capitalised as part of the cost of the asset. This does not change the Group's current accounting policy.
The financial information presented in this preliminary announcement does not constitute the statutory accounts of De La Rue plc for the years ended 27 March 2010 or 28 March 2009 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies, and those for 2010 will be delivered in due course.  The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2009 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2010. These consolidated financial statements have been prepared on the going concern basis and using the historical cost convention, modified for certain items carried at fair value, as stated in the Group's accounting policies. Those items that the Group present as exceptional are items which, in the judgement of the Directors, need to be disclosed separately by virtue of their size or incidence in order to obtain a proper understanding of the financial information.

2 Segmental analysis

The Group's international operations are managed and reported internally on a divisional basis that reflects the different characteristics of each business.  These divisions have been disclosed as reportable segments because they are the components that the Board monitors regularly in making decisions about operating matters such as allocating resources to businesses and assessing performance.  The principal financial information reviewed by the Board, which is the Group's Chief Operating Decision Maker, is revenue and operating profit before exceptional items, measured on an IFRS basis. The Group's segments are:

• Currency - provides banknote paper, printed banknotes and banknote security features.

• Cash Processing Solutions - primarily focused on the production of large sorters for central banks, complementing the Currency business.

• Security Products - produces security documents, including authentication labels, travellers' cheques and fiscal stamps.

• Identity Systems - involved in the production of passports, including ePassports, together with other secure identity products.

2010	Currency	Cash Processing Solutions	Security Products	Identity Systems	Exceptional items / Discontinued operations	Total
	£m	£m	£m	£m	£m	£m
Total revenue	411.2	56.9	74.9	32.0	-	575.0
Less: Inter-segment revenue	(1.1)	-	(12.8)	-	-	(13.9)
Revenue	410.1	56.9	62.1	32.0	-	561.1
Operating profit/(loss) before exceptional items	95.3	(3.5)	14.8	2.6	-	109.2
Exceptional items - operating (note 3)	-	(7.5)	-	-	-	(7.5)
Operating profit/(loss)	95.3	(11.0)	14.8	2.6	-	101.7
Share of profits of associated companies after taxation						6.3
Net interest expense						(5.1)
Retirement benefit obligations net finance expense						(6.3)
Profit before taxation						96.6
Segment assets	194.4	39.5	24.9	30.2	-	289.0
Unallocated assets						157.2
Total assets						446.2
Segment liabilities	(120.3)	(20.9)	(13.4)	(14.6)	-	(169.2)
Unallocated liabilities						(267.5)
Total liabilities						(436.7)
Capital expenditure on property, plant and equipment	31.5	1.7	0.9	7.2	-	41.3
Capital expenditure on intangible assets	3.2	-	0.2	0.7	-	4.1
Depreciation of property, plant and equipment	14.4	2.7	2.3	0.8	-	20.2
Amortisation of intangible assets	1.5	1.0	0.1	0.2	-	2.8

2009	Currency	Cash Processing Solutions	Security Products	Identity Systems	Exceptional items / Discontinued operations	Total
	£m	£m	£m	£m	£m	£m
Total revenue	348.6	66.0	69.7	30.4	-	514.7
Less: Inter-segment revenue	(0.9)	-	(11.4)	-	-	(12.3)
Revenue	347.7	66.0	58.3	30.4	-	502.4
Operating profit before exceptional items	82.8	0.4	11.0	2.3	-	96.5
Exceptional items - operating (note 3)	-	-	-	-	(8.9)	(8.9)
Operating profit	82.8	0.4	11.0	2.3	(8.9)	87.6
Share of profits of associated companies after taxation						8.9
Net interest income						1.4
Retirement benefit obligations net finance expense						(1.8)
Profit before taxation						96.1
Segment assets	186.2	48.0	26.5	14.9	-	275.6
Unallocated assets						183.0
Total assets						458.6
Segment liabilities	(100.7)	(20.0)	(14.3)	(15.5)	-	(150.5)
Unallocated liabilities						(287.5)
Total liabilities						(438.0)
Capital expenditure on property, plant and equipment	22.0	3.8	2.0	0.4	0.7	28.9
Capital expenditure on intangible assets	1.2	2.6	0.1	-	1.1	5.0
Depreciation of property, plant and equipment	14.9	1.4	2.6	0.7	1.3	20.9
Amortisation of intangible assets	1.1	0.4	0.1	0.1	1.1	2.8

Unallocated assets principally comprise centrally managed property, plant and equipment, associates and other investments, deferred tax assets, current tax assets, derivative financial instrument assets and cash and cash equivalents which are used as part of the Group's financing offset arrangements. Unallocated liabilities comprise borrowings, derivative financial instrument liabilities, current and non-current tax liabilities, deferred tax liabilities, retirement benefit obligations, and centrally held accruals and provisions.

3 Exceptional items
	2010 £m	2009 £m
CPS reorganisation	(4.8)	-
Legacy overseas indirect tax	(2.7)	-
Reorganisation of central operations	-	(8.9)
Exceptional items	(7.5)	(8.9)
Exceptional items - tax	2.4	0.9

Exceptional charges of £7.5m in the period reflect the resolution of a legacy overseas indirect tax issue and the reorganisation of CPS, the latter expected to have a payback within two years. Reorganisation costs principally covered redundancy charges and rationalisation of products and site capabilities.

During 2008/2009, De La Rue announced its intention to reduce central costs by approximately 50 per cent following the disposal of Cash Systems. This programme was completed ahead of schedule. Central reorganisation costs relating to this programme principally cover redundancy, separation costs and site rationalisation charges. The exceptional charges in the year gave rise to a related tax credit of £1.0m. In addition £1.4m of tax credit arose when the tax treatment of some prior year exceptional items was determined.  In 2008 tax credits relating to exceptional items were £0.9m, with a credit of £1.9m in relation to the central reorganisation being partly offset by a £1.0m charge in respect of the phasing out of Industrial Buildings Allowances.

4 Taxation
	2010 £m	2009 £m
Consolidated income statement
Current tax
UK Corporation tax
- Current tax	14.8	11.6
- Double tax relief	-	(0.5)
- Adjustment in respect of prior years	(4.3)	0.2
	10.5	11.3
Overseas tax charges
- Current year	5.2	6.3
- Adjustment in respect of prior years	(0.7)	0.2
	4.5	6.5
Total current income tax expense	15.0	17.8
Deferred tax
UK
- Origination and reversal of temporary differences	10.8	10.5
Overseas
- Origination and reversal of temporary differences	0.4	0.2
Total deferred tax expense	11.2	10.7
Income tax expense reported in the consolidated income statement in respect of continuing operations	26.2	28.5
Income tax expense in respect of discontinued operations (note 6)	-	5.0
Total income tax expense in the consolidated income statement	26.2	33.5
Consolidated statement of comprehensive income
- On pension actuarial adjustments	(20.3)	(21.0)
- On cash flow hedges	1.9	(3.7)
- On foreign exchange on quasi-equity balances	(3.0)	-
Income tax income reported within comprehensive income	(21.4)	(24.7)
Consolidated statement of changes in equity
- On share options	0.1	(0.7)
Income tax expense/(income) reported within equity	0.1	(0.7)

The tax on the Group's consolidated profit before tax differs from the UK tax rate of 28 per cent as follows:
	2010			2009
	Before exceptionals £m	Exceptional items £m	Total £m	Before exceptionals £m	Exceptional items £m	Total £m
Profit before tax	104.1	(7.5)	96.6	105.0	(8.9)	96.1
Tax calculated at UK tax rate at 28%	29.1	(2.1)	27.0	29.4	(2.5)	26.9
Effects of overseas taxation	(1.9)	-	(1.9)	(1.5)	-	(1.5)
Expenses not deductible for tax purposes	2.4	1.1	3.5	3.6	0.6	4.2
Adjustment for tax on profits of associate	(1.8)	-	(1.8)	(2.5)	-	(2.5)
Adjustments in respect of prior years	0.8	(1.4)	(0.6)	0.4	-	0.4
Industrial Buildings Allowances	-	-	-	-	1.0	1.0
Tax charge	28.6	(2.4)	26.2	29.4	(0.9)	28.5
The underlying effective tax rate excluding one-off items was 27.5 per cent (2009: 28.0 per cent).  In 2009, a charge of £1.0m related to the impact on deferred tax balances of the phasing out of Industrial Buildings Allowances, included in the Finance Act 2008.

5 Earnings per share
	2010 pence per share	2009 pence per share
Total operations
Basic earnings per share	71.0	277.7
Diluted earnings per share	70.5	275.0
Continuing operations
Basic earnings per share	71.0	50.9
Diluted earnings per share	70.5	50.4
Discontinued operations
Basic earnings per share	-	226.8
Diluted earnings per share	-	224.6
Headline
Basic earnings per share	76.2	57.0
Diluted earnings per share	75.7	56.4
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the impact of all dilutive potential ordinary shares. During 2008 the Company returned cash of £460 million to shareholders and at the same time carried out a consolidation of its share capital. These transactions were conditional on each other. They were specifically designed to achieve the same overall effect on the Company's capital structure as a buy back of shares in a way in which all shareholders could participate. Accordingly, earnings per share is presented on the basis that in substance a share buy back has occurred.

The Directors are of the opinion that the publication of the headline earnings is useful to readers of annual accounts as they give an indication of underlying business performance. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

Earnings
	2010 £m	2009 £m
Earnings for basic and diluted earnings per share	69.9	363.0
Deduct: Profit for the year from discontinued operations	-	(296.5)
Earnings for basic and diluted earnings per share from continuing operations	69.9	66.5
Add: Exceptional items	7.5	8.9
Less: Tax on exceptional items	(2.4)	(1.9)
Add: Tax effect of phasing out of Industrial Buildings Allowances	-	1.0
Earnings for headline earnings per share	75.0	74.5

Weighted average number of ordinary shares
	2010 Number m	2009 Number m
For basic earnings per share	98.4	130.7
Dilutive effect of share options	0.7	1.3
For diluted earnings per share	99.1	132.0

6 Equity dividends
	2010 £m	2009 £m
Final dividend for the year ended 28 March 2009 of 27.4p paid on 31 July 2009	27.0	-
Interim dividend for the period ended 26 September 2009 of 14.1p paid on 13 January 2010	13.9	-
Final dividend for the year ended 29 March 2008 of 14.87p paid on 1 August 2008	-	22.3
B share dividend of 305.0p paid on 28 November 2008	-	340.6
Interim dividend for the period ended 27 September 2008 of 13.7p paid on 14 January 2009	-	13.8
	40.9	376.7
A final dividend per equity share of 28.2 pence has been proposed for the year ended 27 March 2010, payable on 5 August 2010. In accordance with IFRS accounting requirements this dividend has not been accrued in these consolidated financial statements.

 

7 Group cash flow statement
	2010 £m	2009 £m
Analysis of net cash
Cash at bank and in hand	35.1	43.4
Short term bank deposits	6.5	15.1
Bank overdrafts	(3.8)	(8.4)
Total cash and cash equivalents	37.8	50.1
Other debt due within one year	(47.9)	(31.7)
Borrowings due after one year	(0.9)	(51.5)
Net debt end of period	(11.0)	(33.1)

 

8 Dates

The consolidated accounts have been prepared as at 27 March 2010, being the last Saturday in March.  The comparatives for the 2008/2009 financial year are for the year ended 28 March 2009.

 

9 Statutory accounts

Statutory accounts for the year ended 27 March 2010 will be posted to shareholders on 14 June 2010 for subsequent approval at the Annual General Meeting and copies will be available from the Company Secretary at De La Rue plc, De La Rue House, Jays Close, Viables, Hampshire, RG22 4BS.

 

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END

 

 

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