Final Results
De La Rue PLC
29 May 2002
2002 PRELIMINARY STATEMENT
Year to 30 March 2002
HIGHLIGHTS
* Profit before taxation* and exceptional items up 15.7% at £90.6m.
* Strong cash generation with £88.3m of cash inflow from operating
activities. Net cash position ahead of last year at £50.0m, an increase of
£13.9m.
* Excellent performance from Cash Systems with operating profits up £19.0m to
£36.0m, and division hits 10% margin target for the year (excluding
acquisitions).
* Security Paper and Print operating profits down £9.3m to £41.1m. Solid
performance from Currency division but results depressed by previously
flagged absence of large Indian paper contract. Security Products
results disappointed and preliminary actions taken have resulted in 90
redundancies at a cost of circa £1.3m.
* Global Services has reversed the losses of the first half despite costs of
£1.1m incurred on the rationalisation of Interclear operation and
management structure.
* Headline earnings per share of 34.4p, up 3.5p or 11.3% on last year.
* Recommended 7.0% increase in the final dividend to 9.2p.
* As a result of the strong funding position the Company plans to use its
existing authority to purchase for cancellation up to 10% of issued share
capital.
Sir Brandon Gough, Chairman of De La Rue plc, commented on the results:
'Our results for the year ended 30 March 2002 show good progress with Cash
Systems, in particular, performing strongly. The full benefits of the
reorganisation of the Cash Systems division, initiated by the Board in 1999, are
now coming through and our target for the division of £400m revenue for the
2003/2004 financial year underlines the Board's confidence in its future growth
prospects.
'Our core businesses are performing well, with the emphasis clearly on growth,
and we are also turning our attention to making operational improvements within
our Security Products business, which has had a disappointing year. Looking to
the future, our underlying business remains strong, particularly Cash Systems,
but any earnings progress for 2002/03 will be modest as the results will not
benefit from the exceptional level of euro related business we secured this year
and the contribution from Camelot, under the terms of the second lottery
licence, will decline.'
* before goodwill amortisation of £2.8m charged to operating profits
For further information please contact:
Paul Hollingworth Finance Director +44 (0)1256 605307
Mark Fearon Head of Corporate Affairs +44 (0)1256 605303
Stephen Breslin Brunswick +44 (0)20 7404 5959
29 May 2002
Group Results
De La Rue is pleased to report another strong performance for the year ended 30
March 2002, showing substantial improvements in sales and operating profits,
which underlines the continued progress in the revitalisation of De La Rue.
Profits before tax* and exceptional items increased by £12.3m to £90.6m and
overall trading performance was strong with operating profit from continuing
operations of £77.6m, up £9.2m compared to last year despite £2.4m of redundancy
costs and asset write-offs incurred in our Security Products' and Global
Services' operations. The main driver behind this increase has been a dramatic
improvement in the operating performance of Cash Systems where sales were up
£108.1m to £370.5m with operating profits up £19.0m to £36.0m. Compared with
last year, headline earnings per share increased by 11.3% to 34.4p.
As indicated a year ago, the absence of India banknote paper orders within our
Currency business has impacted profits in the Security Paper and Print division
despite a stronger second half, underpinned by a buoyant banknote business. The
performance of our non-banknote Security Products business was a major
disappointment and we are undertaking a review of manufacturing operations to
improve the operational performance of the business. It is pleasing to report a
turnaround in the loss making position of Global Services since the half year
with the division reporting a modest profit of £0.5m for the year.
Cash flow continues to be a key strength with £88.3m being generated by
operations during the period, and the overall net cash position was £50.0m,
£13.9m ahead of last year despite £57.6m being spent on acquisitions during the
year.
Dividend
Subject to shareholders' approval, the Board is recommending an increased final
dividend of 9.2p per share, up 7.0% on last year's, which will be paid on 9
August 2002 to shareholders on the register on 12 July 2002. This will give a
total dividend for the year of 13.4p, an overall increase of 6.3% on last year.
Next year the timing of the interim dividend payment will be brought forward
from April to January to spread payments more equally over the year. As a
result, subject to unforeseen circumstances, the Company will be making three
dividend payments in the year ending 29 March 2003.
Share Buy Back
As a consequence of the strong funding position (net cash at the year end of
£50.0m) the Board has decided to use, where appropriate, the existing
authorities granted to it at the 2001 Annual General Meeting (AGM) to acquire
for cancellation up to 10% of the issued share capital in the market place. The
Board will be seeking to renew this authority at the AGM on 17 July 2002. The
Board believes that after taking into account the cash balance currently in the
business and committed facilities available to the Company of just over £200m, a
share repurchase programme will not restrict the Company's ability to grow the
business both organically and by acquisition. The exact amount and timing of
purchases is dependent on market conditions and other factors.
* before goodwill amortisation of £2.8m charged to operating profits
Business Development
Much work has already been undertaken in identifying the broad focus for the
Group's activities in the future, which will enable us to grow our core
businesses. In addition, our aim is to also maintain a common focus to our
operations through leveraging our competencies in secure transactions. Over the
past year the emphasis has moved to exploiting a number of opportunities which
have presented themselves within Cash Systems. We believe that there are
significant opportunities to grow the Cash Systems division further through
expanding its geographical reach and introducing new products that match the
markets' requirements. Underpinning this expansion is a continued commitment to
growing our Customer Services business, which accounts for almost 30% of
divisional revenues. This commitment to growth has been underlined this year by
our investment of £57.6m on acquisitions within the division.
To further underline our confidence in the growth potential that exists within
Cash Systems we have set an objective of £400m revenue for the year ending 2003/
2004 and we are confident of achieving this with an operating margin better than
10%.
In addition to the opportunities that are emerging within Cash Systems we remain
committed to investment in growth within Global Services, although we now
believe this will take more time to cultivate.
Security Products Manufacturing Review
The recent poor operating performance of Security Products, the non-banknote
side of Security Paper and Print, has highlighted the need for us to reappraise
its operations with a view to improving the focus and competitiveness of the
business. Many of the markets served are mature, competitive and fragmented and
the business serves geographically diverse, multiple customer groups often
requiring entirely bespoke solutions. In response, we have initiated a
strategic review of our manufacturing operations in Security Products to better
align the manufacturing cost base with business requirements both from the
aspect of capacity and capability. We intend to make sure that we continue to
manufacture only where we can do so cost effectively and where we can provide
customers with a clearly differentiated product offering. Local actions to
increase efficiencies and improve operating performance have recently taken
place at our High Wycombe (UK) and Dulles (USA) sites. These initiatives have
resulted in the loss of 70 jobs at High Wycombe and 20 at Dulles. We expect to
be able to announce the results of the wider strategic review by the time of the
interim results in late November.
The Euro
The launch of the new euro currency on 1 January 2002 presented a significant
opportunity for many of De La Rue's businesses, benefiting Group revenues in
2001/02 by about 9%. In Cash Systems, as well as providing cash processing
products, our service and support teams across Europe successfully upgraded more
than 20,000 machines and shipped more than 120,000 replacement ATM cassettes
before the end of December. In the month after the launch of the currency it
also dealt with more than 30,000 customer queries and made 20,000 service
visits. Our Currency division also performed exceptionally well, successfully
delivering a substantial order from the European Central Bank in just four
months. The euro projects were a major management and logistical challenge for
our customers and it is pleasing to be able to report that De La Rue
successfully delivered on its commitments to them.
Acquisitions
During the year Group expenditure on acquisitions was £57.6m (including debt
acquired) all within Cash Systems. There were several bolt-on acquisitions
including ATS Money Systems Inc., a US based cash handling organisation for the
retail market, and Ascom's cash handling service businesses in Belgium and
Switzerland. In May 2001, Cash Systems also acquired, for $55m, Currency
Systems International Inc. (CSI), the US based manufacturer of large sorting
equipment and software. More recently, in March 2002, the division announced
the acquisition of the banking automation business of Papelaco, a leading
manufacturer of self-service banking technology based principally in Portugal
and Spain. The purchase consideration is €26m (£16m) with a further payment of
up to €10.5m (£6.5m) dependant on certain performance criteria being met, linked
to sales and margin growth. Completion is subject to regulatory approval.
Disposals
In October 2001, we announced the disposal of our Transaction Services business
to alphyra group plc which resulted in a pre-tax exceptional gain of £1.5m. As
announced in May 2001 we completed the CHF 50m (£20m) disposal of our 50%
shareholding in De La Rue Giori SA, the leading supplier of currency printing
presses, to Koenig & Bauer AG, the German manufacturer of printing presses. In
addition, De La Rue also reached a settlement of the arbitration claim with M.
Roberto Giori, Chairman of De La Rue Giori and Dynavest Holding & Cie SCA, the
other shareholder. The net cost of settling the arbitration claim was £5.9m
compared to the original claim of £125m. On 28 March 2002 we announced the
disposal of our entire stake in Koenig & Bauer AG for a gross consideration of
£13.7m (proceeds received in April) resulting in a pre-tax exceptional gain of
£9.5m.
Board and Management Changes
In September 2001, we announced the appointment of Dr Philip Nolan as a
non-executive director of the Company. Dr Nolan, 48, is Chief Executive of
Eircom, the Irish telecoms network. He was previously the CEO of Lattice Group
plc which was demerged from BG Group plc in October 2000.
In April 2002, we announced that Paul Hollingworth, Group Finance Director,
would be leaving the Group at the end of June to take up the position of Finance
Director with BPB plc. We would like to thank Paul for his substantial
contribution to the Group and wish him every success in his new role at BPB plc.
We are actively recruiting a replacement.
Pietro Armanini, 59, managing director of Cash Systems has, over the past three
years, overseen the successful transformation of the business. We are pleased
to announce that Pietro has agreed to stay on at De La Rue for a further year
and will now leave the Company on 31 March 2003 when he will be succeeded by
Germain Roesch, currently managing director of Cash Systems' Financial
Institutions (FI) business.
Extracts from the Operational reviews
CASH SYSTEMS 2002 2001 change
£m £m £m
Sales
Continuing operations 319.5 262.4
Acquisitions 51.0 -
370.5 262.4 +108.1
Operating profit*
Continuing operations 32.6 17.0
Acquisitions 3.4 -
36.0 17.0 +19.0
* before goodwill amortisation of £2.2m and re-organisation costs of £3.8m
The profit of £36.0m for the year was a substantial improvement on the £17.0m
recorded in 2000/2001. The division has had an excellent year with revenue
increasing from £262.4m to £370.5m whilst at the same time it was able to meet
its margin objective (excluding acquisitions) of 10% for the 2001/2002 financial
year. The quality of the result shows through in cash generation which was very
strong.
The launch of the euro in January 2002 represented a significant opportunity in
the year providing an estimated benefit for the division of approximately 8% of
sales. Excluding the impact of the euro we estimate underlying sales growth was
10%.
Branch Cash Solutions
Branch Cash Solutions' (BCS) performance has again been excellent this year and
the business continues to thrive in all regions. Orders and sales for both
Teller Cash Dispensers (TCD) and Teller Cash Recyclers were again encouraging
and ahead of last year. Most importantly these recycler sales have not eroded
sales of our TCD range, with sales increasing. During the first half, BCS also
benefited from increased revenue via the new sales and distribution networks in
Switzerland and Belgium, and in particular from sales of Twinsafe units. These
businesses were acquired from Ascom Autelca AG in May 2001 and are now bedded
in.
In March 2002, we announced the acquisition of the banking automation business
of Papelaco, a leading manufacturer of self-service banking technology, based
principally in Portugal and Spain. We are acquiring the business as part of our
strategy to offer customers a complete cash handling solution for their bank
branches. Completion is subject to regulatory approval.
Currency Systems
Much emphasis this year has been on the integration of Currency Systems
International (CSI), the US based provider of wholesale cash processing systems
and software, with our own cash processing business. Whilst the acquisition of
CSI got off to a slow start, overall the combined operation performed
satisfactorily with sales improving in the second half. We appointed Jonathan
Ward, managing director of De La Rue's existing Cash Processing business to lead
the combined operation and the integration and savings plans are progressing
well. To date, we have announced the senior management team; integrated the
sales and marketing organisations; finalised the product integration and
development plans; and refocused the manufacturing base. It has been necessary
to rationalise the cost base as part of this process resulting in the closure of
seven offices and the loss of 110 jobs, about 20% of the original workforce.
We completed the review of our manufacturing operations during the second half
and as a result have decided to relocate production of the 6000 large sorter,
currently manufactured at Portsmouth in the UK, to Dallas later this year. In
addition, we have finalised the combined product range successfully integrating
our best in class technologies throughout our offerings. The total pre-tax cost
of the integration is estimated at £5.1m, of which £3.6m has been incurred in
2001/02 and has been shown as an exceptional item (out of a total £3.8m charge).
The new year has got off to a good start with orders received for large sorters
and currently the order book reflects four months' production.
OEM
The Original Equipment Manufacture (OEM) business, which makes dispensing
mechanisms for ATM machines, had a good second half with performance in line
with expectations. Sales of euro cassettes were strong with over 120,000
cassettes shipped to customers in the run up to the euro launch. In March 2002,
we announced a ten-year technology agreement with Itautec Philco, the technology
division of Itausa, Brazil's second largest private group specialising in
financial, insurance and industrial activities. Under the technology agreement
De La Rue licenses technology to allow Itautec to manufacture De La Rue's NMD
100 cash dispenser platform in Brazil.
Desktop Products
The Desktop Products business has had an extremely successful year and performed
considerably ahead of expectations. Strong euro sales were supplemented by
increased revenue in a number of the business's more traditional markets. A
number of improvements in the cost base and the launch of a new range of note
and coin sorters, including a euro ready platform, provide a strong base for
future success.
Customer Service
The division's Customer Service business, which continues to be a key component
of Cash Systems' strategy, performed strongly with good underlying sales growth
and now accounts for 30% of total sales and employs a worldwide network of some
1,600 service personnel. In August 2001 we acquired the service business of the
Canadian company Haliburton & White and have further expanded our geographic
network and invested in our operational capability. We see an increasing number
of opportunities to expand our service operations further through bolt on
acquisitions and geographical expansion.
Market Facing Organisation Structure
The business stream organisational structure has been successful in returning
the division to profitability through clear focus and accountability. However,
in the long term we realise that the market dynamics are changing with different
segments and geographical regions requiring different solutions. Therefore,
following discussion with our customers, we have decided to refocus Cash Systems
predominantly on three market facing business units with effect from the start
of the 2002/03 year. These are:
Financial Institutions - will provide solutions to manage and support cash and
other value transactions for retail financial institutions (mainly commercial
banks).
Currency Systems - will address central banks and commercial cash centres and
cash in transit companies, assisting them to optimise their internal cash
logistics.
Retail Payment Solutions - will address all markets outside of the financial
area, focusing on the retail sector, but also serving markets such as gaming,
vending and transportation.
The three streams will be supported by a central product supply business, whilst
OEM will continue to be managed as a separate revenue stream. The Customer
Services business will continue to serve the customers of all the business units
to ensure we maximise the strategic and operational opportunities that exist
worldwide and across the market facing businesses.
SECURITY PAPER AND PRINT 2002 2001 change
£m £m £m
Sales 226.8 212.8 +14.0
Operating profit* 41.1 50.4 -9.3
* before re-organisation costs of £7.3m
Banknotes
The banknote printing business has performed strongly and we have again
concentrated on achieving a better quality mix of business. One of the
highlights of the year has been the successful fulfilment of an overspill order
from the European Central Bank. The contracts to print around 500m euro
banknotes were completed by our Gateshead banknote printing plant ahead of
schedule. Cash generation has again been excellent with operating cash flow in
excess of operating profits. Valora, our joint venture with the Banco de
Portugal for the production of euro banknotes, also successfully completed its
first phase of production ahead of the launch of new banknotes in January 2002.
Demand for the latest technology in anti-counterfeit features is still a key
driver in the market. The proliferation of colour copying, scanning and
printing technologies means that we continue to develop anti counterfeit
solutions such as wide threads, holographic devices and iridescent features for
our customers. During the year we launched StarChromeTM a colour changing
thread available at greater widths than was previously the case. The feature
builds upon De La Rue's Starwide(R) and Cleartext(R) machine readable
holographic thread technology and offers high security particularly against
digital reproduction. The current order book for banknotes is strong, with over
six months' visibility, but there will be a slow down in shipments in the first
quarter because of the unusually large number of new designs which , inevitably,
take longer to process.
Papermaking
The current strength in the banknote order book is offsetting the continued
weakness of the papermaking business. The main reason remains the absence of
the India banknote paper order which, in 2000/2001, accounted for about 15% of
banknote paper volumes. We expect India to start tendering for paper during
2002 and their paper requirements to return to normal patterns in 2003/2004.
However, elsewhere the papermaking business has had a satisfactory year with
volumes, ex India, up on the previous year. During the year, sales of Platinum
TM, our durable paper alternative to polymer banknotes, have again been
encouraging.
Currency Manufacturing Strategy
In March 2002, we announced the difficult decision to close our banknote
printing facility in Singapore. This followed a comprehensive review of our
global banknote printing operations, which highlighted major advances in
efficiency and flexibility that had been achieved in all our plants over the
last three years. As a result of the review we decided to focus our printing
operations in our other four factories in the United Kingdom, Malta, Sri Lanka
and Kenya. By re-organising these locations, four factories will be able to
produce the same volume of banknotes as were previously produced by five plants
while continuing to provide our worldwide customer base with the highest levels
of service and flexibility that they expect and receive from De La Rue.
The estimated cost of closure, which was expensed in 2001/2002, is £7.3m
(pre-tax) of which around £3.0m is non-cash. The re-organisation, involving the
transfer of capital equipment from Singapore and some additional resourcing at
the remaining sites to handle their increased throughput, is well under way and
is expected to be completed by the end of December 2002. As a result the main
financial benefits of the move will only be felt in the 2003/2004 financial
year.
Security Products
As discussed earlier, performance in the non-banknote security printing business
was disappointing with results down substantially on last year although this did
include a £1.3m rationalisation cost (mainly redundancies at High Wycombe). In
response we have initiated a manufacturing review, which we believe will start
to deliver operational improvements in the 2002/2003 financial year, as well as
improve the focus and competitiveness of the business going forward.
Operational focus for the security print factories has been strengthened by the
appointment during last year of an overall Manufacturing Director.
In the UK, performance at our three print manufacturing facilities has been
mixed. Our High Wycombe site in particular has given us cause for concern and
we have already taken action to improve the operational performance of the
business, which is currently loss making. Elsewhere in the UK, our
Peterborough site performed more in line with our expectations and demand at our
Dunstable facility was well ahead of last year. At Bathford, our pulp-based
security paper facility volumes were similar to last year and the business
performed in line with our expectations.
In the USA, our Dulles travellers cheque facility had a disappointing year,
compounded by the late delivery of new automated equipment. Performance at De
La Rue Tapes, which produces security threads for banknotes was particularly
disappointing. The business' move to a new modern facility caused some
short-term disruption and projected sales of euro thread to currency
manufacturers were affected.
GLOBAL SERVICES 2002 2001 change
£m £m £m
Sales 48.1 47.9 +0.2
Operating profit* 0.5 1.0 -0.5
* before goodwill amortisation of £0.6m
The division had a very poor start to the year and we announced a disappointing
first half loss of £2.7m at our interim results. It was pleasing to reverse
Global Services' first half losses despite incurring £1.1m of rationalisation
costs. Overall, however, we still have much to achieve if we are to realise the
opportunities that exist to expand the business to its full potential.
Our Identity Systems business has performed well under the new organisation
structure and has secured several new contracts. One of the more direct
repercussions of the September 11 terrorist attacks is the continuing concern
about the need for governments to provide a secure means of identification for
their citizens. De La Rue is well positioned to advise our government customers
in this area and longer term we see excellent potential for growing our Identity
Systems business. During the year the business won a major contract to supply
passports and national identity cards for Chile (sales value of US$23m over 8
years). Under the contract De La Rue will supply approximately 13 million
identity cards and nearly one million digitally in-filled passports, which will
be distributed from over 300 sites across the country. In addition the Mexico
passport issuing systems contract was extended for five years following the
successful initial two year roll out contract.
Progress in our Brand Protection business, however, has been slower and during
the year the business faced difficult trading conditions. While there was some
success in securing further small scale or pilot projects we have yet to convert
many of these into larger ongoing projects. Development was hindered by the
events post September 11 as many brand owners themselves have faced difficult
trading environments.
Our Holographics business had a strong second half, which compensated for a
disappointing first half. While we have enjoyed a strong order book on the
banknote side of the business, production delays during the first half, related
to the supply of optically variable devices to the banknote sector, held back
the business' progression this year. It is pleasing that we were able to
deliver against these orders in the second half.
In February 2002, we decided to cease offering a commercialised Public Key
Infrastructure (PKI) service, through our Interclear subsidiary. De La Rue
acquired the business in 1999 for £1m with a view to developing a commercialised
PKI solution for our customers. Unfortunately, uptake of these services was not
as we would have hoped and as a result we made 20 people redundant from
Interclear.
In October 2001, we disposed of our Transaction Services activities to alphyra
group plc, a leading European provider of electronic transaction services and
facilities. Transaction Services operated a network of payment terminals
located in convenience retail locations supporting pre-payments for utility
bills and mobile phone electronic top-up. De La Rue sold the business because
there was limited strategic and technical overlap between Transaction Services
and the rest of De La Rue's businesses.
Associates
Following the disposal of our stake in De La Rue Giori the main associate is
Camelot, the UK lottery operator. Profit before tax and exceptionals from
associates rose by £2.2m to £14.8m mainly because of the absence of losses
incurred by De La Rue Giori in the first half last year. De La Rue's share of
operating profits (before exceptional items) from Camelot was higher than last
year at £14.7m (2000/2001: £13.9m).
The second lottery licence commenced on 27 January 2002 when De La Rue's
effective shareholding decreased from 26.67% to 20%. The new lottery licence
will reduce the shareholders' potential 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.
Dividends received from associates of £28.3m were at an exceptionally high
level, mainly because Camelot has been paying out retained surpluses which arose
over the first licence period. There is a further dividend to be paid by
Camelot in June mainly relating to the first licence of which De La Rue's share
is estimated at £5.4m.
Interest Charge
The Group's net interest income was £2.6m (including interest received by
associates of £3.0m). Excluding interest received by associates, the Group net
interest charge was £0.4m, a £0.8m improvement on the same period last year
mainly as a result of interest received on tax re-payments and lower interest
rates.
Taxation
The adoption of FRS 19 has resulted in the restatement of last year's effective
tax rate upwards from 23% to 27% (both half year and full year) as well as a
credit to shareholders' funds (as at 31 March 2001) of £43.9m as a result of
bringing on balance sheet a deferred tax asset. The underlying effective tax
rate has increased from 27% to 27.6% in 2001/02. The increase in the effective
rate is mainly because of the changing geographical mix of the Group's earnings
to higher tax rate jurisdictions. The effective tax rate of 27.6% is lower than
the standard UK corporate tax rate of 30% because of tax credits in respect of
earlier years (£2.6m) and because some of the Group's activities are based in
lower rate tax regimes.
Although tax payments at £11.2m were £5.8m up on 2000/01 they were at a low
level relative to Group profits, continuing to reflect utilisation of prior
period assessable losses and good tax planning. We anticipate tax payments
moving more into line with the Group's effective tax rate over the next two to
three years.
FRS17 - Pension Charge
The Company has adopted the transitional arrangements available under FRS17 for
the year ended 30 March 2002 and will give the relevant disclosures in the notes
to the annual report and accounts.
However, it is the intention to adopt FRS17 fully for the year ending 29 March
2003. As at 30 March 2002 the estimated impact of FRS17 on the Group's balance
sheet would be to recognise a pre tax surplus of £63.6m (£44.4m after tax).
The estimated impact on the profit and loss account for the year ended
30 March 2002 would have been as follows:
£m
Operating Result
- current service cost (9.6)
Finance Charges
- expected return on assets 31.8
- interest on liabilities (21.8)
10.0
Profit before tax effect 0.4
The net credit of £0.4m under FRS17 compares to a net charge under SSAP24 for
the relevant UK pension schemes of £2.0m as recorded in the accounts for the
year ending 30 March 2002.
Exceptional Items
The net after tax exceptional gain was £15.1m (2001 gain of £6.2m). Exceptional
pre-tax costs of £11.1m were charged to operating profits and relate to the
closure of the Singapore banknote printing factory (announced on 26 March 2002)
and the costs of integrating the CSI acquisition (announced on 30 May 2001) into
the Currency Systems activity of Cash Systems. Non-operating exceptionals
resulted in a pre-tax gain of £24.2m (see note 2). The two most significant
items were the disposal of our 50% stake in De La Rue Giori (gain of £9.0m net
of arbitration costs) and the disposal of all of our shareholding in Koenig &
Bauer, the German manufacturer of printing presses (gain of £9.5m).
Cash flow and Borrowings
Cash flow continues to be a key strength with £88.3m being generated by
operations during the period, and the overall net cash position was £50.0m, a
further £13.9m ahead of last year despite £57.6m being spent on acquisitions
during the year.
Stock levels were £17.2m higher at the year end but this was mainly because of
the impact of acquisitions within Cash Systems. Following the previous year's
heavy capital programme, capital expenditure at £21.6m was £4.0m below
depreciation and for next financial year is expected to run at a similar level
to depreciation.
Outlook
Our underlying business remains strong, particularly Cash Systems, but any
earnings progress for 2002/03 will be modest as the results will not benefit
from the exceptional level of euro related business we secured this year and the
contribution from Camelot, under the terms of the second lottery licence, will
decline.
Looking to the future we continue to see good opportunities for growth within
all our businesses and in 2003/04 India is expected to return to normal paper
ordering patterns and we are confident of achieving sales of £400m in our Cash
Systems business.
-ends-
Notes to Editors
1 An interview with CEO Ian Much can be viewed at the De La Rue
(www.delarue.com) and Cantos websites (www.cantos.com)
2 High resolution images can be downloaded from NewsCast at
www.newscast.co.uk
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 MARCH 2002
Notes 2002 2002 2002 2001 2001 2001
(restated) (restated) (restated)
£m £m £m £m £m £m
Before Exceptional Before Exceptional
Exceptionals Items Total Exceptionals Items Total
Turnover
Continuing operations 590.7 590.7 517.4 517.4
Acquisitions 51.0 51.0 -
641.7 641.7 517.4 517.4
Discontinued operations 9.5 9.5 7.4 7.4
1 651.2 651.2 524.8 524.8
Operating profit
Continuing operations 74.2 74.2 68.4 68.4
Reorganisation costs (7.3) (7.3) (0.8) (0.8)
74.2 (7.3) 66.9 68.4 (0.8) 67.6
Acquisitions 3.4 3.4 -
Reorganisation costs (3.8) (3.8) -
3.4 (3.8) (0.4) - - -
77.6 (11.1) 66.5 68.4 (0.8) 67.6
Discontinued operations (1.4) - (1.4) (1.5) - (1.5)
Operating profit/(loss) before 76.2 (11.1) 65.1 66.9 (0.8) 66.1
goodwill amortisation
Goodwill amortisation (2.8) (2.8) (0.5) (0.5)
Group operating profit/(loss) 73.4 (11.1) 62.3 66.4 (0.8) 65.6
Share of operating profits of 11.8 11.8 8.2 (3.4) 4.8
associated companies
Total operating profit/(loss) 85.2 (11.1) 74.1 74.6 (4.2) 70.4
Loss on the disposal of continuing - - (3.0) (3.0)
operations
Profit on the disposal of 1.5 1.5 - -
discontinued operations
Profit on sale of investments 22.7 22.7 - -
2 Non-operating items - 24.2 24.2 (3.0) (3.0)
Profit/(loss) on ordinary 85.2 13.1 98.3 74.6 (7.2) 67.4
activities before interest
Net
interest:: Group (0.4) (0.4) (1.2) (1.2)
Associates 3.0 3.0 4.4 4.4
2.6 2.6 3.2 3.2
Profit/(loss) on ordinary 87.8 13.1 100.9 77.8 (7.2) 70.6
activities before taxation
3 Tax on profit/(loss) on ordinary (24.2) 2.0 (22.2) (20.9) 13.4 (7.5)
activities
Profit on ordinary activities 63.6 15.1 78.7 56.9 6.2 63.1
after taxation
Equity minority interests (1.5) (1.5) (0.2) (0.2)
Profit for the financial year 62.1 15.1 77.2 56.7 6.2 62.9
Dividends (25.5) (25.5) (24.0) (24.0)
Transferred to reserves 36.6 15.1 51.7 32.7 6.2 38.9
4 Earnings per ordinary share 32.7p 8.0p 40.7p 29.8p 3.3p 33.1p
4 Diluted earnings per ordinary 32.2p 7.8p 40.0p 29.4p 3.2p 32.6p
share
4 Headline earnings per ordinary 34.4p (5.0)p 29.4p 30.9p 4.9p 35.8p
share
Dividends per ordinary share 13.4p 13.4p 12.6p 12.6p
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 'The Definition of Headline Earnings' issued by the Institute of
Investment Management and Research, is shown in note 7 of the Notes to the
Accounts.
BALANCE SHEETS
AT 30 MARCH 2002
2002 2001
Group Group
(restated)
£m £m
Fixed assets
Intangible assets 45.7 4.9
Tangible assets 167.7 177.0
Investments: Associates 17.6 43.3
Other investments 2.4 4.8
Own shares 19.8 5.6
253.2 235.6
Current assets
Stocks 97.3 80.1
Debtors 138.6 114.6
Deferred taxation 30.5 43.9
Cash at bank and in hand 87.2 89.5
353.6 328.1
Creditors: amounts falling due within one year
Short term borrowings (12.4) (27.7)
Other creditors (203.4) (206.8)
(215.8) (234.5)
Net current assets/(liabilities) 137.8 93.6
Total assets less current liabilities 391.0 329.2
Creditors: amounts falling due after more than one year
Long term (24.8) (25.7)
Other creditors (2.7) (0.7)
(27.5) (26.4)
Provisions for liabilities and charges (47.6) (45.3)
315.9 257.5
Capital and reserves
Called up share capital 48.8 48.2
Share Premium 11.5 3.3
Revaluation reserve 1.8 1.8
Other reserve (83.8) (83.8)
Profit and loss account 334.5 285.4
Shareholders' funds 312.8 254.9
Equity minority interests 3.1 2.6
315.9 257.5
Approved by the Board on 28 May 2002
Brandon Gough Chairman Paul Hollingworth Finance Director
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 MARCH 2002
Notes 2002 2002
£m
5a Net cash inflow from operating activities 88.3 68.6
Dividends received from associated companies 28.3 21.2
5b Returns on investments and servicing of finance (1.0) (1.6)
Taxation (11.2) (5.4)
5c Capital expenditure and financial investment (22.0) (20.8)
5d Acquisitions and disposals (38.0) (4.2)
Equity dividends paid (24.1) (24.1)
Net cash inflow before use of liquid resources and financing 20.3 33.7
5e Management of liquid resources 8.7 0.3
5f Financing (23.9) (31.4)
Increase in cash in the period 5.1 2.6
5g Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 5.1 2.6
Cash inflow from decrease in liquid resources (8.7) (0.3)
Cash inflow from increase in funds 30.3 34.2
Increase in funds resulting from cash flows 26.7 36.5
Loans and finance leases acquired with subsidiary (12.8) -
Translation difference - (2.5)
Movement in net funds in the period 13.9 34.0
Net funds at start of period 36.1 2.1
Net funds at end of period 50.0 36.1
Analysis of net funds
Cash 31.8 25.4
Liquid resources 55.4 64.1
Overdrafts (4.8) (3.3)
Other debt due within one year (7.6) (24.4)
Other debt due after one year (24.8) (25.7)
Net funds at end of period 50.0 36.1
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 30 MARCH 2002
2002 2001
(restated)
£m £m
Profit for the financial year: Group 66.7 60.7
Associates 10.5 2.2
77.2 62.9
Currency translation differences on foreign currency net investments (0.2) 3.0
Total recognised gains for the year 77.0 65.9
Prior year adjustment (Note 3) 43.9 -
Total gains recognised since last annual report 120.9 65.9
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 30 MARCH 2002
2002 2001
(restated)
£m £m
Profit for the financial year 77.2 62.9
Dividends (25.5) (24.0)
51.7 38.9
Share capital issued 8.8 3.1
Transfer to share premium (2.4) -
Currency translation differences on foreign currency net investments (0.2) 3.0
Goodwill: Cash Systems South Africa disposal - 3.8
Net increase in shareholders' funds 57.9 48.8
Opening shareholders' funds 254.9 206.1
Closing shareholders' funds 312.8 254.9
The opening shareholders' funds of £254.9m includes a prior year adjustment of
£43.9m (note 3)
1 SEGMENTAL ANALYSIS 2002 2002 2002 2001 2001 2001
Turnover Profit Net Turnover Profit Net
Before tax Assets Before tax Assets
Close of business £m £m £m £m £m £m
Continuing operations
Cash Systems 319.5 32.6 44.0 262.4 17.0 56.0
Reorganisation (0.8)
319.5 32.6 44.0 262.4 16.2 56.0
Acquisitions 51.0 3.4 63.5
Reorganisations (3.8)
51.0 (0.4) 63.5 - - -
370.5 32.2 107.5 262.4 16.2 56.0
Security Paper and Print 226.8 41.1 93.2 212.8 50.4 108.5
Reorganisation (7.3)
226.8 33.8 93.2 212.8 50.4 108.5
Global Services 48.1 0.5 21.0 47.9 1.0 14.3
Less inter-segment sales (3.7) (5.7)
641.7 66.5 221.7 517.4 67.6 178.8
Discontinued operations
Global Services 9.5 (1.4) 7.4 (1.5)
9.5 (1.4) - 7.4 (1.5) -
Goodwill amortisation
Cash Systems (2.2) (0.2)
Global Services (0.6) (0.3)
- (2.8) - - (0.5) -
651.2 62.3 221.7 524.8 65.6 178.8
Associated companies (analysed below) 11.8 17.6 4.8 43.3
Non-operating items (note 4) 24.2 (3.0)
Net Interest including associates 2.6 3.2
Profit before taxation 100.9 70.6
Unallocated net assets/(liabilities) 26.6 (0.7)
Capital employed 265.9 221.4
Net funds 50.0 36.1
Net assets 315.9 257.5
Geographical area by operation
United Kingdom and Ireland 350.5 14.7 92.0 335.2 44.2 91.8
Rest of Europe 251.5 41.9 60.2 162.5 19.4 44.3
The Americas 134.5 6.9 49.0 101.8 0.3 19.9
Rest of world 52.6 (1.2) 20.5 49.8 1.7 22.8
Less inter-area sales (137.9) - (124.5)
651.2 62.3 221.7 524.8 65.6 178.8
The profit before tax in 2002 is shown after reorganisation costs of £11.1m
(2001 : £0.8m) comprising UK and Ireland £2.7m (2001 : £Nil), Rest of Europe
£0.2m (2001 : £0.8m), Americas £0.9m (2001 : £Nil), Rest of World £7.3m (2001 :
£Nil).
Geographical area by destination
United Kingdom and Ireland 79.1 66.0
Rest of Europe 277.9 170.0
The Americas 162.6 135.2
Rest of world 131.6 153.6
651.2 524.8
Associated companies are analysed as follows
Security paper and print 0.1 1.6 (2.2) 14.9
UK lottery 11.7 16.0 7.0 28.4
11.8 17.6 4.8 43.3
Geographical area by operation
United Kingdom and Ireland 11.7 15.9 7.0 28.4
Rest of Europe 0.1 1.4 (2.7) 14.7
The Americas - - - -
Rest of world - 0.3 0.5 0.2
11.8 17.6 4.8 43.3
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 assets and 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 2002 2001
£m £m
Loss on the disposal of continuing operations - (3.0)
Profit on the disposal of discontinued operations 1.5 -
Profit on sale of investments 22.7 -
24.2 (3.0)
The profit on disposal of discontinued operations of £1.5m arose from the
disposal of the Transaction Services business to alphyra group plc on 19 October
2001.
The profit on sale of investments of £22.7m comprised:
The disposal of the Group's 50% holding in De La Rue Giori SA, a security
printing machinery manufacturer, incorporated in Switzerland. The £9.0m profit
on sale is after deducting £5.9m net costs in respect of settling the
arbitration claim brought by our joint venture partner in the business.
£9.5m for the disposal of the Group's total holding in the ordinary share
capital of Koenig and Bauer AG, an engineering company incorporated in Germany
and quoted on the Frankfurt Stock Exchange.
£4.2m for the disposal of 6.67 per cent of the Group's 26.67 per cent holding in
the ordinary share capital of Camelot Group Limited, a lottery operator
incorporated in the UK, to Consignia Enterprises Limited.
The loss on disposal of continuing operations of £3.0m in 2001 arose on disposal
of the assets of Cash Systems' South Africa business for net proceeds of £0.6m.
The loss was after charging £3.8m of goodwill to the profit and loss account.
This was written off directly to reserves when the business was originally
acquired.
3 TAXATION 2002 2001
(restated)
£m £m
Tax on profit on ordinary activities
United Kingdom
Corporation tax at 30% (2001 30%) 2.2 29.0
Double taxation relief - (7.3)
ACT write back - (6.4)
Deferred taxation 3.6 3.9
5.8 19.2
Overseas
Taxation payable 7.0 3.3
Deferred taxation 9.7 (2.3)
16.7 1.0
Total UK and Overseas 22.5 20.2
Adjustment in respect of prior years (2.6) (4.0)
Tax on share of profits of associated companies 4.3 4.7
24.2 20.9
Exceptional items (2.0) (13.4)
Total taxation charge 22.2 7.5
The exceptional tax credit of £2.0m comprises net credits of £1.3m relating to
De La Rue Giori disposal and arbitration costs, and £1.6m relating to
reorganisation costs, offset by a £0.9m charge in relation to the Koenig & Bauer
investment sale.
The effective rate remains below the UK nominal rate of 30%. A summary
reconciliation is shown below.
2002 2001
£m £m
Profit/(loss) before tax on ordinary activities 87.8 77.8
Expected tax charge at 30% 26.3 23.3
Rate adjustments relating to overseas profits (1.9) (3.1)
Overseas dividends 1.5 16.0
Disallowables & other items 0.9 2.6
Current and deferred - prior years (2.6) (11.5)
ACT written back - (6.4)
Tax charge (excluding exceptional items) 24.2 20.9
The comparative figures for the 2000/2001 full year have been restated to
reflect the effects of FRS 19, Deferred Tax as follows:
Previously Adjustment Restated
Reported
£m £m £m
Profit and Loss Account
Profit on ordinary activities before taxation 70.6 - 70.6
Tax on profit on ordinary activities (4.6) (2.9) (7.5)
Profit on ordinary activities after taxation 66.0 (2.9) 63.1
Equity minority interests (0.2) - (0.2)
Profit for the period 65.8 (2.9) 62.9
Dividends (24.0) - (24.0)
Transferred to reserves 41.8 (2.9) 38.9
Balance sheet
Current assets - Deferred taxation - 43.9 43.9
Profit and Loss Account 241.5 43.9 285.4
4 EARNINGS PER SHARE 2002 2001
(restated)
Basic 40.7p 33.1p
Fully diluted 40.0p 32.6p
Earnings per share are based on the profit for the year attributable to ordinary
shareholders of £77.2m (2001 £62.9m) as shown in the Group profit and loss
account. The weighted average number of ordinary shares used in the
calculations is 189,886,749 (2001 190,152,358) for basic earnings per share and
193,267,705 (2001 193,177,069) for diluted earnings per share after adjusting
for dilutive share options.
pence pence
per per
Reconciliation of earnings per share share share
(restated)
As calculated under FRS 14 40.7 33.1
Loss on the disposal of continuing operations - 1.6
Profit on the disposal of discontinued operations (0.7) -
Profit on sale of investments (12.0) (0.1)
Profit/(loss) on the disposal of fixed assets and
assets held for resale (0.1) 0.1
Amortisation of goodwill 1.5 1.1
Headline earnings per share as defined by the IIMR 29.4 35.8
Reorganisation costs 5.0 0.4
Share of associated company's exceptional items - 1.3
Exceptional release of tax provision - (6.6)
Headline earnings per share before items shown above 34.4 30.9
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.
PRINCIPAL EXCHANGE RATES
2002 2002 2001 2001
Average Year end Average Year end
US Dollar 1.43 1.42 1.48 1.42
Euro 1.62 1.63 1.64 1.61
Swiss Franc 2.43 2.39 2.52 2.45
5 NOTES TO GROUP CASH FLOW STATEMENT 2002 2001
£m £m
a Reconciliation of operating profit to net cash
inflow from operating activities
Operating profit 62.3 65.6
Depreciation and amortisation 29.1 24.3
Increase in stocks (8.4) (2.4)
Increase in debtors (6.5) (4.9)
Increase/(decrease) in creditors 7.8 (7.4)
Decrease in reorganisation provisions 3.4 (7.6)
Other items 0.6 1.0
Net cash inflow from operating activities 88.3 68.6
b Returns on investments and servicing of finance
Interest received 3.4 3.0
Interest paid (3.5) (4.2)
Interest element of finance lease payments - (0.1)
Dividends paid to minority shareholders (0.9) (0.3)
Net cash outflow from returns on investments and
servicing of finance (1.0) (1.6)
c Capital expenditure and financial investment
Purchase of tangible fixed assets (21.6) (27.9)
Purchase of intangible fixed assets (0.4) (0.3)
Sale of tangible fixed assets 1.6 1.8
Purchase of investments - (0.9)
Sale of investments 13.3 6.5
Purchase of own shares (14.9) -
Net cash outflow for capital expenditure and financial
investment (22.0) (20.8)
d Acquisitions and disposals
Purchase of subsidiary undertakings (44.8) (4.8)
Net cash acquired with subsidiary undertakings 0.7 0.4
Sale of subsidiary undertakings 2.8 0.2
Net cash sold with subsidiary undertakings (0.8) -
Sale of assets held for disposal 4.1 -
Net cash outflow from acquisitions and disposals (38.0) (4.2)
e Management of liquid resources
Net decrease in short term deposits 8.7 0.3
f Financing
Debt due within one year:
Decrease in short term borrowings
Loans raised - 3.6
Loans repaid (16.9) (20.5)
Debt due beyond one year:
Loans raised 24.6 1.5
Loans repaid (37.4) (18.3)
Capital element of finance lease rental repayments (0.6) (0.5)
Share capital issued 6.4 2.8
Net cash outflow from financing (23.9) (31.4)
NOTES
6 The consolidated accounts have been prepared as at 30 March 2002. The
comparatives for the 2001 financial year are for the year ended
31 March 2001.
7 This statement has been prepared in accordance with the guidelines
published by the Accounting Standards Board.
8 The 2000/01 comparatives have been re-stated to reflect FRS 19
(Deferred Taxation).
9 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
FRS 14 and as calculated according to the definition of the IIMR's
headline earnings.
10 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 30 March 2002 will be posted to
shareholders on 14 June 2002 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 2001 have been delivered to the Registrar of Companies.
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