Final Results

De La Rue PLC 23 May 2000 PRELIMINARY STATEMENT Year to 1 April 2000 HIGHLIGHTS * Operating profits from continuing operations** up £17.9m at £55.2m * Profit before taxation and exceptional items up 31.3% at £75.0m * Headline earnings per share** of 26.5p, up 41% on comparable period * Increase of £50.5m in net cashflow from operating activities * £103.7m returned to shareholders on 7 February 2000 after disposal of Card activities for £200m on 1 October 1999 * Net debt last year end of £126.3m turned into net cash of £2.1m * Benefits of the business reorganisation coming through as planned (** before reorganisation and arbitration costs) Brandon Gough, Chairman of De La Rue plc, commented on the results: 'I am pleased to report that our results for the year ended 1 April 2000 show a dramatic improvement on the previous period and, importantly, reflect the benefits of the reorganisation of our Banknote and Cash Systems businesses. This year has seen a significant reshaping of the De La Rue Group including the disposal of our Card activities for £200m (of which £103.7m was returned to shareholders) and the launch of a new division based around customer solutions. The new division, called Global Services, was formally launched on 2 April 2000. At De La Rue we believe that we are well placed to provide a broad range of secure transaction solutions and services to our customers. I am confident that with our strong balance sheet, strengthened management team and revitalised operations, De La Rue is well placed to continue its forward momentum.' Enquiries De La Rue plc Paul Hollingworth, Finance Director 01256 605303 Mark Fearon (press) 01256 605303 Pager number: 0765 428 4191 Brunswick Susan Gilchrist 020 7404 5959 2000 PRELIMINARY STATEMENT Group Results & Key Achievements Our full year results for the year ended 1 April 2000 show a dramatic improvement on the previous period and, importantly, reflect the benefits of the reorganisation of our Banknote and Cash Systems businesses. The reorganisation of our banknote business resulted in printing capacity being reduced, costs cut and our sales and marketing strategy revitalised, all of which has resulted in better margins. The reorganisation of the Cash Systems division saw a lowering of the cost base, including a rationalisation of sites, and a focus on those products and geographical areas which are most profitable. Operating profit from continuing activities (before reorganisation and arbitration costs) was up £17.9m on the comparable period at £55.2m. The successful reorganisation of our banknote business and turnaround in the operating performance of Cash Systems are the main drivers behind this increase in profitability. Profit before tax and exceptional items was £75.0m, a £17.9m improvement on last year's results. As a result, headline earnings per share (before reorganisation and arbitration costs) were up 41% at 26.5p. This year has been one of substantial change and we have taken significant steps in re-positioning De La Rue to concentrate on future growth opportunities. The main achievements have been: * Creation of a more focused organisation following the Card activities disposal. * Recovery in Currency margins. * Return to profitability with more to come next year from Cash Systems. * Excellent cash generation with an inflow on working capital for the first time since 1994. * Business is now more customer facing with increased emphasis on services and solutions. * Overhaul of the top management team which has seen 75% of the top 60 management positions changed. * Strong balance sheet which provides us with an excellent platform to exploit future growth opportunities. * Re-orientation of the Group towards sustainable sales growth, particularly in Cash Systems and the new Global Services division. Dividend Subject to shareholders' approval, the Board is recommending an unchanged final dividend of 8.0p per share which will be paid on 14 August 2000 to shareholders on the register on 14 July 2000. This will give a total dividend for the year of 12.0p, the same as last year. Board Changes Lord Wright and Brian Birkenhead will retire from the Board at the conclusion of our AGM and I would like to thank them for their valued contribution and support over the years. We welcomed Paul Hollingworth to the Board on the 1 August 1999 as Finance Director. Paul had previously been Finance Director of English China Clays plc and VP Finance of Textron Turfcare and Finance Director of Ransomes plc. In April 2000 we also announced the appointment of two new non-executive Directors, Michael Jeffries, Chief Executive of WS Atkins plc, and Keith Hodgkinson, Chief Executive of Chloride Group plc. Both bring to the Board a well rounded mix of business and management experience and we look forward to their contributions. Business Development This year has seen a significant reshaping of the Group, including the disposal of our Card activities for £200m (of which £103.7m was returned to shareholders), and the launch of a new division based around customer solutions. The new division, called Global Services, has been accounted for separately since 2 April 2000. We are now moving into the next phase of the Group's development. The success of the reorganisation and the strength of our financial position provide the base for concentrating on growth opportunities both organically and through acquisition. This transition will take time but we are already making progress: we have recently won several significant contracts within our Global Services division and in April of this year completed two acquisitions with Cash Systems purchasing the cash handling activities of Ascom Autelca AG and Global Services purchasing InterClear, a small digital security business. InterClear Acquisition and e-Business Strategy Security, and the ability to authenticate identity and verify that transactions have been securely routed across the internet, will be one of the major growth areas in e-commerce. At De La Rue we believe that our core brand values of security, integrity and trust and our experience of working with Governments, Central Banks and major financial institutions puts us in a strong position to exploit this opportunity. The acquisition of InterClear by Global Services is a small but significant step towards realising our strategy in this area. One of the first steps we are taking is for InterClear to secure De La Rue's internal communications network using their Public Key Infrastructure methodology. This will also serve as an excellent reference site for InterClear in marketing to potential customers. We are developing our e-business strategy and approach. We have identified many opportunities in both the cost and revenue enhancement areas, both internally and externally, which are well suited to e-commerce and we are now prioritising these opportunities. The objectives are to reduce transaction costs, improve productivity and provide enhanced levels of customer service and sales. Two initial internal areas of focus are in e-enabling our Group technology and purchasing resource. Cross-divisional Links Whilst the Group is structured along divisional lines there are many business links between our various operations which are not properly reflected by our reporting structure. One of the keys to future success for De La Rue will be to ensure we maximise cross-divisional selling opportunities and resource. We have appointed a key accounts director who reports directly to the Chief Executive and we will also be working over the coming year to ensure that the Group structure reflects a more co-ordinated approach. This will properly recognise the way in which we should be doing business with our customers and will fully utilise our resources. Cash Systems 2000 1999 change £m £m £m Sales (continuing operations) 257.3 268.2 (10.9) Operating profit/(loss) (continuing operations before reorganisation costs) 4.4 (5.8) 10.2 Reorganisation costs (19.2) (25.9) During the year we have taken fundamental action to recover a dire trading position within Cash Systems. The profit of £4.0m recorded in the second half was a significant change from the past history of losses and we expect to see this trend continue in the current financial year. The division has been restructured into three operational business streams, announced last year, which has resulted in a lower cost base whilst ensuring focus on those products and geographical areas which are most profitable. The recent acquisition of the cash handling activities of Ascom Autelca AG , completed in April, represents a significant step in the rebuilding of Cash Systems as we move the emphasis away from the recent restructuring exercises towards generating sales growth in the future. De La Rue sees the continued use of cash, and the potential for more efficient processing, as ongoing opportunities. During the year, Cash Systems has sought, where appropriate, to supplement existing product ranges with outsourced products and technology partnerships. This strategy has been adopted as we seek to offer our customers market leading end-to-end solutions in line with their cash handling requirements. It is clear that De La Rue cannot always offer the market leading solution in all of its operations and where this is the case we will seek alternative supply. Reorganisation Update The reorganisation plan is proceeding well and is largely complete. During the year we announced the disposal of two non-core German businesses, Plan Object and Alarm Systems and a number of site closures where we have refocused or redeployed resources. As anticipated, the restructuring exercise has cost £45m with £19m booked in 2000. The main benefits of the reorganisation will come through in the current financial year and we believe we are on track to exit the year with operating margins at a running rate in excess of 10%, excluding acquisitions. During the last year we have seen the launch of several new products across all three business streams, and wide customer acceptance of our new Original Equipment Manufacture (OEM) platform for ATM machines. It is pleasing to report that new product sales, as a percentage of total product sales, were 20% compared with 14% for the previous year. Branch Cash Solutions In February 2000, we announced the appointment of Germain Roesch as managing director. Germain has considerable industry experience gained from running Cash Systems operations in Europe. For Branch Cash Solutions, a move to open plan branch layouts and increased productivity of branch staff are the main drivers for automating cash dispensing and depositing transactions as traditional bank branches are remodelled and relocated. In February 2000, we announced the purchase of the international cash handling activities of Ascom Autelca AG. The Ascom cash handling operation manufactures a range of note recycling and coin self-service equipment including the market leading Twin Safe teller cash recycler (TCR). For the 12 months ended 31 December 1999, it had an estimated turnover of CHF 70m (£26.4m) and recorded an operating loss of CHF 5m (£1.9m) before interest. With the launch of their flagship Twin Safe Two model, we expect the business to break even in 2001 and thereafter to be capable of generating 10% plus operating margins. The acquisition enhances the existing product range, service networks and geographical spread, particularly in Europe. OEM We are also pleased to report strong growth in our OEM business which makes dispensing mechanisms for ATM machines. The business, which accounts for over 20% of divisional sales, has concentrated on consolidating the product range to a single, modern platform with the launch of several new variants and strengthening relationships with partners, who increasingly use De La Rue to provide them with new market entry and support services. Cash Processing Cash Processing has made progress in the year with the modernisation of the product range and its integration with a range of software tools for the forecasting and optimisation of cash. In February, we were pleased to announce the appointment of Jonathan Ward, who was previously director of sales in the Currency division, as managing director of the Cash Processing business stream. In July, we launched the 6000 Series banknote sorter which is designed to assist customers with improving the efficiency of their cash centre operations. In addition, we launched the updated 3700e aimed at smaller central banks, commercial banks and cash in transit sectors. Desktop Products The Desktop Products business has concentrated on reducing its cost base, enhancing the quality and breadth of the product range, and developing and managing the third party supplier and distribution network. We have also implemented a number of cost reduction programmes designed to reduce overheads and product cost, as well as to enable better management of stocks and debtors. Customer Services During the year we have placed considerable emphasis on the service element of our product offering, through focusing on this as a separate profit centre, which has also benefited the business. The customer services operation supports each of the three business streams and ensures that we provide a consistent level of service and support, both to end-users and to our distribution partners. The business now accounts for over 20% of divisional sales. Security Paper and Print 2000 1999 change £m £m £m Sales 263.3 263.5 (0.2) (continuing operations) Operating profits 50.8 43.1 7.7 (continuing operations before reorganisation costs) Banknotes The reorganisation of our Currency business, announced in April 1998, was largely completed by the first half of the year and the benefits have shown through in increased profitability. The focus on achieving a better quality mix of business has seen an increase in average banknote prices which has further improved profitability in the second half. Our strategy is to apply our technical knowledge and expertise in focusing on the higher added value part of the market which produces better returns. Our customers are increasingly facing emerging threats from counterfeiting due to the pace of technological change and the greater accessibility to increasingly sophisticated tools, such as colour copiers, scanners and printers. In response, we have invested in developing the latest banknote technology such as wide threads, holographic devices and iridescent features to provide solutions for our customers. Valora, the joint venture with the Bank of Portugal for the production of euro banknotes, as announced last year, has developed well during the year and is now in production, ready for issue of the new banknotes. Papermaking At Portals, which produces cotton-based banknote paper, overall volumes fell by around 19% compared to last year as we pursued a value not volume-driven strategy. Prices achieved were better than expected which partly offset the impact on profits. It was encouraging to note that average selling prices rose during the year, as a result of greater use of added-value features such as wide threads. During 1999 we invested approximately £3m in the next generation of automated finishing and inspection equipment. Sales of supplies in support of the State Printing Works were £2.2m. Security Products The non-banknote security printing business continued to make good progress. In February 2000, we announced the appointment of Dr Jon Marx as managing director of the business. Jon has considerable operational experience running large international manufacturing operations most recently as a main board director of Low & Bonar. The UK printing operations (in High Wycombe, Dunstable and Peterborough) had a good year and increased profits. The performance at Dunstable was particularly strong and we received the Queen's Award for Enterprise in April 2000. The US printing business based in Dulles (which mainly manufactures travellers cheques) also reported an improved performance. Production volumes for our Bathford pulp based security paper business were at capacity for a second year running. De La Rue Tapes, which produces security threads for banknotes and other security documents, had another satisfactory year and has now initiated a £4m investment in a new high security facility to increase capacity as a result of demand. Despite many of our businesses operating in apparently mature markets we still see a large number of opportunities for sales growth particularly as we shift the emphasis to security solutions. The businesses which are transferring to the new Global Services division have also performed well. De La Rue Holographics continued to make good progress and we were particularly pleased to achieve euro security accreditation status following an inspection of our facilities by the European Central Bank. This will enable us to have direct involvement in the production of holograms for the euro banknotes. Our Brand Protection business continues to develop well, with new anti-counterfeit solutions for leading brands in the luxury goods, drinks, sportswear and consumer goods sectors. Global Services Division The new division began trading on 2 April 2000 under the name Global Services. The division is based at our corporate headquarters in Basingstoke and its focus is in three main areas of activity: related services to core customers, brand protection services and digital and identity services. As previously announced, five existing De La Rue businesses formed the nucleus of Global Services at its launch. These are Identity Systems, Holographics, Brand Protection, Transaction Services and Royal Mint Services and the operations transferred for financial reporting purposes from 2 April. In October 1999, Christopher Chadwick joined the Company as managing director of the division. Christopher, 47, was previously managing director of Guardian Direct. Throughout the year we have achieved a number of successes and this underlines the business rationale of the division. * In January, Identity Systems announced a complete passport solution for the Mexican government to provide a flexible, integrated document authorisation, management and issuing system. * Recently, One 2 One, Vodafone and Orange have selected De La Rue Transaction Services' Pay Zone solution as one of a small number of partners to provide a nationwide service for the electronic top up of prepay mobile phones. * Brand Protection secured a contract with a leading apparel manufacturer to provide an anti-counterfeit solution. * Holographics has received security accreditation status from the European Central Bank enabling it to be involved in production of the new euro currency which is being introduced in some member states on 1 January 2002. * In March, we announced the acquisition of InterClear which represented a small but significant step in the development of our digital security business. For the year ended 1 April 2000, the results of those businesses transferring to Global Services are reported under the Security Paper and Print division. However, in order to assist understanding we have provided some key financial data below for the businesses that form the nucleus of Global Services from 2 April 2000. Turnover for the division for the year ended 1 April, on a proforma basis, was £50.5m up £4.0m or 8.6% on the previous year. Operating profits for the year ended 1 April 2000 were £5.1m. For the new financial year we will be making net revenue investments totalling £5m to develop the InterClear digital security offering, expand the transaction services network, develop our Identity Systems business and build up our divisional infrastructure. This investment is vital if we are to grow the business profitably in the future. Associates The share of operating profits from Camelot declined £3.2m to £10.8m. The fall in profits was expected as Camelot approaches the end of the current licence period and marketing expenditure is increased. The Post Office has joined the Camelot consortium which has re-tendered for the 2001-2007 lottery licence, the results of which are expected during June 2000. The actual licence to run the current lottery ends on 30 September 2001. The new lottery bid, if successful, will reduce the shareholders' return from each 100p collected from around 1.0p to just under 0.5p. The impact on overall profitability will of course depend on actual lottery ticket sales levels should Camelot be successful in retaining the lottery licence. Operating profits from other associates, principally De La Rue Giori (Giori), were down £8.8m at £3.9m. As mentioned at the interims, trading in the second half for Giori was poor as a result of a downturn in world demand following major investments over recent years from many of the major state printing works. The start of the new year continues to be difficult and Giori is now making investments to put the business on a sounder strategic footing, but this will depress profits this year. We continue to work closely with Giori management and shareholders to improve the performance and prospects of the business. We will continue to defend ourselves vigorously against the claim brought by the other shareholders in Giori against De La Rue and have raised an exceptional provision of £2.0m to cover legal and arbitration fees likely to be incurred in rebutting the claim. Interest The net interest charge reduced from £6.0m to £nil as a result of lower average borrowings. Borrowings are down because of improved cash flow from operations and disposal proceeds from our Card activities. Taxation Excluding exceptional items, the underlying tax rate was 23% the same as last year's effective rate. The reason for the low effective tax is the utilisation of surplus ACT previously written off and availability of assessable losses and other timing differences. The utilisation of these tax balances will help to keep the Group's effective tax rate low and, in the absence of unforeseen events, the tax rate on profits before exceptionals for the current year will be at a similar level to 1999/2000. Reorganisation Costs The table below shows reorganisation costs incurred in 1999/2000 compared to the estimate in last year's annual accounts. Forecast Actual £m £m Cash Systems 20.0 19.2 Security Paper and Print 5.0 4.4 25.0 23.6 Cash flow 28.0 20.4 As can be seen from the above, reorganisation costs have come in £1.4m under the forecast given last year. In addition, the cash element is lower as severance costs were lower than anticipated with an increase in non-cash items because of higher inventory and other asset write-offs. The acquisition of the Ascom cash handling operations will result in integration costs of £2.5m being incurred in 2000/01. Cash flow Cash flow from operating activities increased by £50.5m over 1999, an impressive performance when one considers that cash flows for the previous year benefited from an unusual increase in prepayments from customers of £10m. Management focus on overdue debtors and slow moving stock lines were significant factors behind improved cashflow. There is still more that can be achieved in improving working capital efficiency and this will continue to be a key area of focus for the current financial year. The change in dividend payment dates last year meant that only the final dividend for 1998 was paid in 1999 whereas 2000 included both the 1999 interim and final dividends. Capital expenditure at £25.3m was more or less equal to depreciation but is likely to run above depreciation in 2000/2001 as two major capital projects are brought on stream: the conversion of a paper making machine at Overton to wide thread capability and the relocation of our Horwich Tapes factory to a new site. The net inflow on tax of £3.7m was the result of the recovery of ACT previously written off and the refund of tax with respect to utilisation of tax losses. The Group's return to profitability will see a more normal pattern of tax payments in 2000/2001 although there will be some relief from utilisation of surplus ACT. Strategic Direction The Group's strategic direction can be summarised as: * Maintain and nurture our high margin Security Paper and Print operations whilst recognising that top line growth will be limited. * Increased emphasis within Cash Systems on generating sales growth. * Invest in new business opportunities within our Global Services division which have the potential to achieve substantial sales and earnings growth for that division. * Use the strong balance sheet, where appropriate, to make acquisitions to complement organic growth. * Strengthen our cross-divisional links to serve our customer base better and utilise our resources, through developing a more cohesive operational structure. * Continue to develop our e-business strategy to improve efficiency and better meet the needs of our customers. * Continue to invest in the development, training and strengthening of the De La Rue management team to deliver on the above. Outlook Our strong balance sheet, strengthened management team and revitalised operations provide a solid platform for taking the business forward. The reorganisation of the Cash Systems division will continue to deliver benefits into the 2000/2001 financial year and we remain confident of achieving our target of exiting the current financial year with operating margins at a running rate in excess of 10% (excluding acquisitions). Within Currency the benefits of the large overspill order received in 1998/1999 will run down during the current year but prospects for the non-banknote Security Print operations are positive. We will invest up to £5m to expand our new Global Services division particularly in the areas of transaction services and digital security. Contribution from associates is expected to be down as a result of weak trading within De La Rue Giori. However, the 2000/2001 financial year will benefit from the lower number of shares in issue following the capital restructuring and the expected improvement in Cash Systems' results. Overall, therefore, De La Rue is well placed to continue its forward momentum. GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 1 APRIL 2000 Notes 2000 2000 2000 1999 1999 1999 £m £m £m £m £m £m Before Exceps Before Exceps exceps items Total exceps items Total Turnover Continuing operations 518.9 518.9 526.2 526.2 Discontinued operations 98.2 98.2 211.7 211.7 1 617.1 617.1 737.9 737.9 Operating profit Continuing operations 55.2 55.2 37.3 37.3 Reorganisation costs (23.6)(23.6) (48.5) (48.5) Arbitration and legal costs (2.0) (2.0) 55.2 (25.6) 29.6 37.3 (48.5) (11.2) 1 Discontinued operations 5.1 5.1 (0.9) (0.9) 60.3 (25.6) 34.7 36.4 (48.5) (12.1) Share of profits of associated companies 14.7 14.7 26.7 26.7 Loss on the disposal of continuing operations - - (2.1) (2.1) Profit/(loss) on the disposal of discontinued operations 56.1 56.1 (22.6) (22.6) Utilisation of provision for loss on disposal of discontinued operations - - 6.4 6.4 Profit on sale of investments 2.0 2.0 - - Profit on the part disposal of the shareholding in Camelot - - 2.3 2.3 Scheme of arrangement costs (1.1) (1.1) - - 2 Non-operating items 57.0 57.0 (16.0) (16.0) Profit/(loss) on ordinary activities before interest 75.0 31.4 106.4 63.1 (64.5) (1.4) Net interest : Group (3.0) (3.0) (8.8) (8.8) Associates 3.0 3.0 2.8 2.8 - - (6.0) (6.0) Profit/(loss) on ordinary activities before taxation 75.0 31.4 106.4 57.1 (64.5) (7.4) 3 Tax on profit/(loss) on ordinary activities (17.1) (0.6) (17.7)(13.4) 7.7 (5.7) Profit/(loss) on ordinary activities after taxation 57.9 30.8 88.7 43.7 (56.8) (13.1) Equity minority interests (1.0) (1.0) (0.9) (0.9) Profit/(loss) for the financial year 56.9 30.8 87.7 42.8 (56.8) (14.0) Dividends (including non-equity dividends) (24.3) (24.3)(27.0) (27.0) Transferred to/(from) reserves 32.6 30.8 63.4 15.8 (56.8) (41.0) 4 Earnings per ordinary share 25.9p 14.0p 39.9p 19.0p (25.2p)(6.2p) 4 Diluted earnings per ord share 25.7p 13.9p 39.6p 19.0p (25.2p)(6.2p) 4 Headline earnings per ord share 26.5p (10.7p) 15.8p 18.8p (18.7p)(0.1p) Dividends per ordinary share 12.0p 12.0p 12.0p 12.0p A reconciliation between earnings per share, as calculated according to Financial Reporting Standard No. 14 'Earnings per Share' (FRS 14) issued by the Accounting Standards Board, and headline earnings per share, as calculated according to the definition of headline earnings in Statement of Investment Practice No. 1 is shown in the following notes. 'The Definition of Headline Earnings' is issued by the Institute of Investment Management and Research. GROUP BALANCE SHEET AT 1 APRIL 2000 2000 1999 Group Group (Restated) £m £m Fixed assets Intangible assets 3.2 5.0 Tangible assets 167.4 211.9 Investments : Associates 61.0 72.7 Other investments 4.2 14.0 Own shares 6.2 - 242.0 303.6 Current assets Stocks 72.8 98.4 Debtors 107.9 176.3 Cash at bank and in hand 85.7 49.0 266.4 323.7 Creditors: amounts falling due within one year Short term borrowings (25.5) (99.6) Other creditors (199.4) (251.2) Net current assets / (liabilities) 41.5 (27.1) Total assets less current liabilities 283.5 276.5 Creditors: amounts falling due after more than one year Long term borrowings (58.1) (75.7) Other creditors (2.2) (5.9) Provisions for liabilities and charges (60.1) (61.3) 163.1 133.6 Capital and reserves Called up share capital 48.0 56.8 Share premium 0.4 - Revaluation reserve 1.8 1.8 Other reserve (83.8) 11.6 Profit and loss account 193.7 60.4 Shareholders' funds (including non-equity interests) 160.1 130.6 Equity minority interests 3.0 3.0 163.1 133.6 GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 1 APRIL 2000 Notes 2000 1999 £m £m 5a Cash inflow from operating activities 68.0 17.5 Dividends received from associated companies 20.6 21.3 5b Returns on investments and servicing of finance (5.0) (10.5) Taxation 3.7 (11.1) 5c Capital expenditure and financial investment (22.0) (26.5) 5d Acquisitions and disposals 185.9 19.5 Equity dividends paid (27.0) (10.1) Cash inflow before use of liquid resources and financing 224.2 0.1 5e Management of liquid resources (55.6) (0.1) 5f Financing (161.4) (10.2) Increase/(decrease) in cash in the period 7.2 (10.2) Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash in the period 7.2 (10.2) Cash outflow from increase in liquid resources 55.6 0.1 Cash outflow from decrease in debt 56.9 10.2 Change in net debt resulting from cash flows 119.7 0.1 Loans and finance leases disposed/(acquired) with subsidiary 3.7 (0.5) Fixed assets acquired under finance leases - (1.4) Translation difference 5.0 (3.2) Movement in net debt in the period 128.4 (5.0) Net debt at start of period (126.3) (121.3) Net funds/(debt) at end of period 2.1 (126.3) Analysis of net debt Cash 21.9 40.4 Liquid resources 63.8 8.6 Overdrafts (2.9) (28.5) Other debt due within one year (22.6) (71.1) Other debt due after one year (58.1) (75.7) Net funds/(debt) at end of period 2.1 (126.3) GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 1 APRIL 2000 2000 1999 £m £m Profit/(loss) for the financial year: Group 75.2 (36.5) Associates 12.5 22.5 87.7 (14.0) Currency translation differences on foreign currency net investments (2.8) (0.4) Total recognised gains/(losses) for the year (84.9) (14.4) There is no material difference between the reported profit shown in the consolidated profit and loss account and the profit for the relevant periods restated on an historical cost basis. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 1 APRIL 2000 2000 1999 £m £m Profit/(loss) for the financial year 87.7 (14.0) Dividends (24.3) (27.0) 63.4 (41.0) Share capital issued 0.4 - Currency translation differences on foreign currency net investments (2.8) (0.4) Goodwill: Card activities disposal 71.9 (0.2) Others 0.8 8.8 Scheme of arrangement (103.7) - Preference shares repaid (0.5) - Net increase / (reduction) in shareholders' funds (29.5) (32.8) Opening shareholders' funds 130.6 163.4 Closing shareholders' funds 160.1 130.6 In 1999 there was £0.5m of non-equity share capital included within shareholders' funds. 1 SEGMENTAL ANALYSIS 2000 2000 2000 1999 1999 1999 T/over Profit Net T/over Profit Net bf tax assets bf tax assets Class of business £m £m £m £m £m £m Continuing operations Cash Systems 257.3 4.4 47.3 268.2 (5.8) 73.0 Security Paper and Print 263.3 50.8 103.3 263.5 43.1 100.7 Less inter-segment sales (1.7) (5.5) 518.9 55.2 150.6 526.2 37.3 173.7 Reorganisation and arbitration costs Cash Systems (19.2) (25.9) Security Paper and Print (4.4) (18.7) Head Office (3.9) Arbitration and legal costs (2.0) (25.6) (48.5) Discontinued operations Cash Systems 13.5 - (2.6) 58.9 - (4.8) Card activities 84.7 5.1 (7.0) 152.8 (0.9) 53.1 98.2 5.1 (9.6) 211.7 (0.9) 48.3 617.1 34.7 141.0 737.9 (12.1) 222.0 Associated companies (analysed below) 14.7 61.0 26.7 72.7 Non-operating items 57.0 (16.0) Net Interest including associates - (6.0) Profit before taxation 106.4 (7.4) Unallocated net liabilities (41.0) (34.8) Capital employed 161.0 259.9 Net debt 2.1 (126.3) Net assets 163.1 133.6 Geographical area by operation United Kingdom and Ireland 357.9 16.5 59.5 383.8 (34.9) 67.2 Rest of Europe 214.8 13.3 37.6 255.3 13.3 76.7 The Americas 116.9 1.1 19.5 190.5 5.7 47.0 Rest of world 59.5 3.8 24.4 51.7 3.8 31.1 Less inter-area sales (132.0) (143.4) 617.1 34.7 141.0 737.9 (12.1) 222.0 The profit before tax in 2000 is shown after reorganisation and arbitration costs of £25.6m (1999 : £48.5m) comprising UK and Ireland £15.7m (1999 : £39.2m), Rest of Europe £8.3m (1999 : £3.8m), Americas £1.5m (1999 : £5.3m), Rest of World £0.1m (1999 : £0.2m). Geographical area by destination United Kingdom and Ireland 85.8 102.9 Rest of Europe 213.7 255.0 The Americas 163.2 230.6 Rest of world 154.4 149.4 617.1 737.9 Associated companies are analysed as follows: Security Paper and Print 3.9 19.1 12.7 35.0 UK lottery 10.8 41.9 14.0 37.7 14.7 61.0 26.7 72.7 Geographical area by operation United Kingdom and Ireland 10.8 42.0 14.0 38.1 Rest of Europe 3.9 18.1 12.7 31.1 The Americas 0.6 1.5 Rest of world 0.3 2.0 14.7 61.0 26.7 72.7 The Group's cash and borrowings are managed centrally and therefore interest is not attributable to individual classes of business or geographical segments. Unallocated net liabilities, which consist of assets and liabilities relating to non-divisional operations, are controlled centrally and cannot be allocated meaningfully to individual classes of business or geographical segments. 2 NON-OPERATING ITEMS 2000 1999 £m £m Loss on the disposal of continuing operations - (2.1) Profit/(loss) on the disposal of discontinued operations 56.1 (22.6) Utilisation of provision for loss on disposal of discontinued operations - 6.4 Profit on sale of investments 2.0 - Profit on the part disposal of the shareholding in Camelot - 2.3 Scheme of arrangement costs (1.1) - 57.0 (16.0) The profit on disposal of discontinued operations of £56.1m in 2000 arose from the following: The disposal of the Card activities business which generated a profit of £57.4m after writing off goodwill of £71.9m previously eliminated against reserves; the disposal of Plan Object, which designed and manufactured bank branch furniture, generating a loss of £1.3m. The profit on the sale of investments in 2000 of £2.0m comprised a profit of £1.1m on the sale of preference shares in Cromptons, a tea bag paper manufacturing company, and a profit of £0.9m on the sale of shares in Ingenico, a terminals manufacturer. The costs of the scheme of arrangement are primarily advisors' fees. The loss on disposal of continuing operations in 1999 of £2.1m arose from the disposal of Lerchundi, the Group's security printing operations in Spain, and is stated after writing off goodwill of £0.6m previously eliminated against reserves. The loss on disposal of discontinued operations of £22.6m in 1999 arose from the following: The disposal of the terminals business which generated a loss of £16.3m after writing off goodwill of £8.2m previously eliminated against reserves. A net loss on disposal of £4.7m on the sale of the physical security businesses in the USA and Germany before utilising the £6.4m provision established in the previous year in respect of Germany. A net loss of £1.6m in respect of businesses disposed of in prior years. 3 TAXATION 2000 1999 £m £m Tax on profit on ordinary activities United Kingdom Corporation tax at 30% ( 1999 31%) 8.7 3.7 Double taxation relief (2.0) (7.9) ACT write back (2.7) (2.2) 4.0 (6.4) Overseas Taxation payable 8.0 3.0 Deferred taxation 0.9 1.8 8.9 4.8 Adjustments in respect of prior years (0.4) 0.3 Tax on share of profits of associated companies 5.2 7.0 Total taxation charge 17.7 5.7 The taxation on the net exceptional credit of £31.4m was £0.6m comprising tax credits relating to reorganisation costs of £2.1m (1999 £6.2m) and a charge of £2.7m relating to the profit on the Card activities disposal. The reason for the low tax charge was that most of the £57.4m profit on the Card activities disposal was sheltered under capital gains regimes where the high base cost of the original acquisitions served to reduce the tax payable. PRINCIPAL EXCHANGE RATES 2000 2000 1999 1999 Average Year end Average Year end US dollar 1.61 1.60 1.66 1.61 Euro 1.57 1.67 1.48 1.49 Swiss Franc 2.51 2.65 2.39 2.39 4 EARNINGS PER SHARE 2000 1999 Basic 39.9p (6.2p) Fully diluted 39.6p (6.2p) Earnings per share are based on the profit for the year attributable to ordinary shareholders of £87.7m (1999 £14.0m loss) as shown in the Group profit and loss account. The weighted average number of ordinary shares used in the calculations is 220,023,945 (1999 225,296,072) for basic earnings per share and 221,762,065 (1999 225,588,028) for diluted earnings per share after adjusting for dilutive share options. Pence Pence per per Reconciliation of earnings per share share share As calculated under FRS 14 39.9 (6.2) Loss on the disposal of continuing operations - 0.9 (Profit)/loss on the disposal of discontinued operations (24.3) 6.5 Profit on the disposal of fixed assets and assets held for resale (0.1) (0.8) Profit on sale of investments (0.9) - Profit on part disposal of the shareholding in Camelot 0.0 (1.0) Scheme of arrangement costs 0.5 - Amortisation of goodwill 0.7 0.7 Headline earnings per share as defined by the IIMR 15.8 0.1 Reorganisation and arbitration costs 10.7 18.7 Headline earnings per share before reorganisation and arbitration costs 26.5 18.8 The Institute of Investment Management and Research (IIMR) has published Statement of Investment Practice No. 1 entitled 'The Definition of Headline Earnings'. The headline earnings per share shown above have been calculated according to the definition set out in the IIMR's statement. The reconciling items between earnings per share as calculated according to FRS 14 and as calculated according to the definition of the IIMR's headline earnings include the underlying tax effects. The directors are of the opinion that the publication of the IIMR's headline earnings figure is useful to readers of interim statements and annual accounts. 5 NOTES TO GROUP CASH FLOW STATEMENT 2000 1999 £m £m a Reconciliation of operating profit to net cash inflow from operating activities Operating profit / (loss) 34.7 (12.1) Depreciation and amortisation 25.0 31.6 Decrease / (increase) in stocks 7.9 (3.6) Decrease / (increase) in debtors 13.8 (26.7) (Decrease) / increase in creditors (11.3) 22.6 (Decrease) / increase in reorganisation provisions (1.9) 5.3 Other items (0.2) 0.4 Net cash inflow from operating activities 68.0 17.5 b Returns on investments and servicing of finance Interest received 4.0 3.4 Interest paid (7.5) (12.2) Interest element of finance lease payments (0.2) (0.4) Dividends paid to minority shareholders (1.3) (1.3) Net cash outflow from returns on investments and servicing of finance (5.0) (10.5) c Capital expenditure and financial investment Purchase of intangible fixed assets (2.9) - Purchase of tangible fixed assets (25.3) (35.0) Sale of tangible fixed assets 3.2 3.4 Purchase of investments (1.4) (1.3) Sale of investments 10.6 6.4 Purchase of own shares (6.2) - Net cash outflow for capital expenditure and financial investment (22.0) (26.5) d Acquisitions and disposals Purchase of subsidiary undertakings - (7.1) Net cash acquired with subsidiary undertakings - 0.9 Sale of subsidiary undertakings 183.9 23.2 Net overdrafts/(cash) sold with subsidiary undertakings 0.8 (1.5) Sale of assets held for disposal 1.2 4.0 Net cash inflow from acquisitions and disposals 185.9 19.5 The £183.9m proceeds from the sale of subsidiary undertakings is net of a payment of £7.5m to Ingenico in relation to the disposal in 1998/99 of the Group's terminals business. e Management of liquid resources Net increase in short term deposits (55.6) (0.1) f Financing Debt due within one year: Decrease in short term borrowings (0.2) (0.2) Loans repaid (47.5) (8.4) Debt due beyond one year: Loans raised 53.1 5.6 Loans repaid (60.7) (5.1) Capital element of finance lease rental repayments (1.6) (2.1) Scheme of arrangement (103.3) - Preference shares repaid (0.5) - Scheme of arrangement costs (1.1) - Share capital issued 0.4 - Net cash outflow from financing (161.4) (10.2) NOTES 1. The consolidated accounts have been prepared as at 1 April 2000, being the nearest Saturday to 31 March 2000. The comparatives for the 1999 financial year are for the year ended 31 March 1999. 2. Following approval of a Scheme of Arrangement, the Company acquired the previous parent of the Group on 1 February 2000. The acquisition has been accounted for as a merger, the true and fair override being applied such that the fair value acquisition accounting requirements of the Companies Act 1985 have not been adopted as, in the opinion of the directors, this would not give a true and fair view as the Scheme of Arrangement, in substance, represents a change in identity of holding company rather than an acquisition of a business. Share capital and reserves comparatives in the consolidated balance sheet have been restated to reflect the nominal value of shares in issue of the Company immediately prior to the reorganisation. Differences between this amount and the previously reported capital and reserves, represent the merger difference, and have been reflected in other reserve. 3. The requirements of FRS15 - Tangible Fixed Assets and FRS16 - Current Tax were implemented during the year. Neither of these had any material effect on the Group results. 4. The Institute of Investment Management and Research (IIMR) has published Statement of Investment Practice No 1 entitled 'The Definition of Headline Earnings'. The headline earnings per ordinary share shown in this preliminary statement have been calculated according to the definition set out in the IIMR's statement. Also shown are the reconciling items between earnings per share as calculated according to FRS14 and as calculated according to the definition of the IIMR's headline earnings. 5. The financial information set out above (Group profit and loss account, Group balance sheet, Group cash flow statement, Group statement of total recognised gains and losses and notes thereto) and extracts from the financial review (set out in the following pages), do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 1 April 2000 will be posted to shareholders on 13 June 2000 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. The report of the auditors on these accounts is unqualified and does not contain a statement under either section 237(2) or 237(3) of the Companies Act 1985. Statutory accounts for the year ended 31 March 1999 have been delivered to the Registrar of Companies. 6. The results of the residual Card activities (Identity Systems and Transaction Services) have been included within Security Paper and Print Division.

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