Interim Results

De La Rue PLC 27 November 2007 INTERIM STATEMENT SIX MONTHS TO 29 SEPTEMBER 2007 HIGHLIGHTS • Sales up 5.1 per cent, profit before tax up 22.6 per cent and headline earnings per share up 34.6 per cent* • Group operating profit margin up 2.2 percentage points to 14.2 per cent • Interim dividend increase of 12 per cent to 6.53 per share • Closing net cash of £43.3m after capital returns of £99.8m in the first half through ordinary and special dividends and share buy back programme • Review of the Group's strategy and financial structure going forward • Security Paper and Print second half performance will be significantly ahead of last year KEY FINANCIALS Half Year Half Year Change 2007/2008 2006/2007 £m £m Sales 345.1 328.4 +5.1% Profit before tax 53.8 43.9 +22.6% Headline earnings per share* 24.9p 18.5p +34.6% Basic earnings per share 22.9p 18.5p +23.8% Operating cash flow 30.6 51.2 -40.2% Net cash at end of period 43.3 98.9 Dividends per share 6.53p 5.83p +12.0% (*See note 6 to the financial statements) Nicholas Brookes, Chairman of De La Rue plc commented: 'This is an excellent set of results. Our strategy of strengthening De La Rue's individual businesses by driving both innovation and productivity continues to build shareholder value. 'The Group continues to have a strong order backlog in both operating divisions, providing a solid platform for both the current financial year, and in the case of Security Paper and Print, extending through the first half of next year. Consequently, given the strength of the order book in Currency and the benefits of continuing to operate at high levels of productivity and capacity, we expect second half performance in Security Paper and Print to be significantly ahead of the corresponding period last year. Cash Systems continues to trade in line with expectations. 'These results demonstrate the achievements of the first phase in our programme to build substantially improved shareholder returns. Consequently, the Board is initiating a strategic review to define the next phase of the Group's development, including an assessment of the Group's structure, the appropriate balance sheet capitalisation and dividend policy. The Board would expect to update the market on this strategic review at the full year results in May 2008.' For further information, please contact: Leo Quinn Group Chief Executive +44 (0)1256 605303 Stephen King Group Finance Director +44 (0)1256 605307 Mark Fearon Head of Corporate Affairs +44 (0)1256 605303 Andrew Lorenz Financial Dynamics +44 (0) 207 269 7291 27 November 2007 INTERIM STATEMENT De La Rue is pleased to report an excellent performance for the half year ended 29 September 2007. The increases in revenue, margins and operational efficiencies demonstrate the progress the Group has made in implementing its strategy. Revenue was up 5.1 per cent to £345.1m in the first half (2006/2007: £328.4m). Group operating profits of £48.9m (2006/2007: £39.4m) represented an increase of £9.5m or 24.1 per cent while profit before tax rose 22.6 per cent to £53.8m (2006/2007: £43.9m). Headline earnings per share increased by 34.6 per cent to 24.9p (see note 6 to the financial statements). Basic earnings per share were 22.9p compared with 18.5p last year. As in 2006/2007, there were no exceptional charges in the period. In Security Print and Paper, year on year revenue and margin improvement were driven by a strong opening order book with high overspill content and continuing exceptional levels of banknote demand during the first half. Further progress in margins in Cash Systems, underpinned by improvements to the supply chain, was reflected in the excellent operating performance of the division, despite a weakness in the US Dollar and an increasingly competitive market. Overall Group operating margins were 2.2 percentage points higher at 14.2 per cent (2006/2007: 12.0 per cent). Cash generated from operations in the first half was £30.6m (2006/2007: £51.2m). Increased working capital in the period reflected both the increased trading activity, particularly in Security Paper and Print, and the phasing of shipments between the first and second half. Advance payments have remained at historically high levels during the period. Consequently, we remain confident in the Group's cash generation for the year as a whole. The Group ended the half year with net cash of £43.3m, compared with net cash of £137.3m at the start of the year. The reduction included the payment of the second special dividend (£74.4m) in August 2007. OPERATING REVIEWS Security Paper and Print ---------- ---------- ---------- 2007/2008 2006/2007 2006/07 Half Year Half Year Full Year £m £m £m ---------- ---------- ---------- Sales 183.5 170.2 354.5 Operating profit 34.7 28.7 61.7 Operating profit margin 18.9% 16.9% 17.4% In Security Paper and Print, first half sales grew strongly by 7.8 per cent to £183.5m (2006/2007: £170.2m) and operating profits of £34.7m were 20.9 per cent ahead of last year (2006/2007: £28.7m). First half banknote volumes were broadly flat compared to the first half of 2006 /2007, reflecting the phasing of scheduled shipments and the incidence of a large overspill order in the first quarter of last year, when volumes were up by 26.4 per cent. As a consequence, overspill levels in the first half were lower at 8 per cent compared to 25 per cent in the corresponding period. Banknote paper volumes increased by 10.6 per cent (2006/2007: increase of 13.3 per cent) driven by the excellent print order book. Overall, the order book in Currency remains very strong, providing full visibility for the second half of the year and into the first half of 2008/2009. The Security Products and Identity Systems businesses also continued to perform well. We continue to focus on authentication labels, fiscal stamps and passports which all contributed to improved results. As previously announced, our new ePassport manufacturing facility in Malta is on track to be operational during the last quarter of 2007/2008. In November 2007, De La Rue disposed of its shareholding in De La Rue Smurfit, its Irish security printing joint venture operation. The business was acquired by the joint venture partner Smurfit Kappa, the European paper and packaging group. It operates a number of security printing contracts principally with the Irish market. Gross assets at completion were estimated at £3.0m. Cash Systems ---------- ---------- ---------- 2007/08 2006/07 2006/07 Half Year Half Year Full Year £m £m £m ---------- ---------- ---------- Sales 161.6 158.2 333.0 Operating profit 14.2 10.7 28.7 Operating profit margin 8.8% 6.8% 8.6% In Cash Systems, first half sales of £161.6m grew by 2.1 per cent (2006/2007: £158.2m) and operating profits of £14.2m were 32.7 per cent ahead of last year (2006/2007: £10.7m). This was achieved despite the continuing weakness of the US Dollar, which had a £5.1m adverse effect on sales and £1.2m adverse on operating profits. Teller Automation volumes were up on the same period last year reflecting the new product introduction of the VERTERA(TM) Teller Cash Recycler machine, and the QuickChange(TM) coin sorting machine, both launched in the second half of 2006/2007. The Teller Automation sector remains competitive and we are seeing signs of a lengthening of decision making cycles in North America. Our focus remains on driving productivity, as well as raising the level of innovation and performance in our offering to the customer. The Sorter business had an excellent first half and continues to benefit from targeting markets in Russia, North America and China. The OEM (ATM mechanisms) business had a strong first half benefiting from increased volumes, in particular arising from increased sales into China. Desktop Products had an excellent first half reflecting continued geographical expansion and new product introductions, with encouraging sales of our new EV86 Series(TM) (banknote counter) launched in the second half of last year. In November, we introduced another new product to market, Nvision(TM) a multi-currency banknote counter and fitness sorter and we have been encouraged by our customers' response to the product. Nvision has a fitness processing speed of up to 1000 notes per minute and is compliant with the European Central Bank's Banknote Recycling Framework, new legislation which will become effective in 2008. RETURNS TO SHAREHOLDERS Interim Dividend In line with the Board's continued confidence in the Group's prospects an interim dividend of 6.53p, representing an increase of 12 per cent on the interim 2006/2007, will be paid on 16 January 2008 to shareholders on the register on 14 December 2007. Share Buy Back In the first half the Company acquired 0.6 million shares under the current share buy back programme at a cost of £4.2m, bringing the total number of shares acquired since its commencement in December 2005, to 7.2 million at a cost of £41.2m. The Board expects to continue this programme funded with surplus cash, and will seek shareholder approval to renew its existing authority at the next AGM. The exact amount and timing of future purchases will be dependent on market conditions and ongoing cash generation. UK PENSION SCHEME The charge to operating profit in respect of the UK Pension Scheme for the first half of 2007/2008 was £6.1m (2006/2006: £4.7m). In addition under IAS 19 there is a finance credit of £0.3m arising from the expected return on assets less the interest on liabilities (2006/2007 : credit of £0.8m). The pension deficit, net of deferred tax, recorded under IAS 19 at the half year was £52.8m (March 2007: £75.7m). Following the last formal (triennial) valuation of the defined benefit Pension Scheme in March 2006, which identified a funding deficit of £56m, the Company agreed with the Trustee to pay down this deficit over a period of 6 years. The first payment of £7.0m was made in March 2007 and a subsequent payment of £4.9m was made during the first half of 2007/2008. ASSOCIATES Profit from associates after tax was higher than last half year at £2.9m (2006/ 2007: £2.2m) reflecting primarily timing differences in marketing spend. The main associated company is Camelot, the UK lottery operator. De La Rue was pleased that in August Camelot won the bid for the third lottery licence which will run from 2009 to 2019. During the period the Group made a £10.0m subscription of redeemable shares in Camelot in order to fund the investment programme for the third licence. INTEREST The Group's net interest income of £1.7m (2006/2007: £1.5m) reflected the strong cash position. In addition a credit of £0.3m has arisen from the pension scheme (2006/2007: £0.8m). TAXATION The underlying effective tax rate was 28.0 per cent (2006/2007 full year: 29.9 per cent). The underlying effective rate excludes a one-off charge of £3.1m which has been made in the first half to incorporate the impact on deferred tax assets of a reduction in the German statutory tax rate. CASH FLOW Cash generated from operations in the first half was £30.6m (2006/2007: £51.2m). Increased working capital in the period reflected both the increased trading activity, particularly in Security Paper and Print, and the phasing of shipments between the first and second half. Advance payments have remained at historically high levels during the period. A funding payment of £4.9m was made to the UK Pension Scheme as outlined above. Capital expenditure of £9.2m was in line with last year (2006/2007: £9.2m). We remain confident in the Group's cash generation for the year as a whole. After payment in the first half of the 2006/2007 final dividend (£21.2m), the special dividend (£74.4m) announced at the Preliminary Results, as well as £4.2m of share buy backs, closing net cash was £43.3m compared with £137.3m at March 2007. STRATEGIC REVIEW Following our strategic review in November 2004, we focused the De La Rue organisation on substantially improving shareholder value and strengthening its foundation for the future. The strategy was based on: * Modest revenue growth * Profit improvement through cost reduction and productivity improvement * Increased cash generation * Improved returns to shareholders We have been pleased with the progress the Group has made over the last three years in implementing the first phase of this strategy. As the results for the six months to the 29 September 2007 demonstrate, both the Security Paper and Print and the Cash Systems divisions are well placed in their markets. Since 2003/2004, Group margins have doubled from c.7 per cent to c.14 per cent and the cash conversion rate continues to be strong. During this period, the Group's strong balance sheet and a focus on cash generation in our core operations has enabled De La Rue to return surplus cash flow to shareholders, while continuing to invest appropriately for organic growth. Over the period the Group has returned £287m to shareholders through a combination of ordinary and special dividends and share buy backs. This equates to a return of 109 per cent of Group operating profits over the period. These results demonstrate the achievements of the first phase in our programme to build substantially improved shareholder returns. Consequently, the Board is initiating a strategic review to define the next phase of the Group's development, including an assessment of the Group's structure, the appropriate balance sheet capitalisation and dividend policy. The Board would expect to update the market on this strategic review at the full year results in May 2008. OUTLOOK The Group continues to have a strong order backlog in both operating divisions, providing a solid platform for both the current financial year, and in the case of Security Paper and Print, extending through the first half of next year. Consequently, given the strength of the order book in Currency and the benefits of continuing to operate at high levels of productivity and capacity, we expect second half performance in Security Paper and Print to be significantly ahead of the corresponding period last year. Cash Systems continues to trade in line with expectations. -ends- Notes to Editors: 1. De La Rue is the world's largest commercial security printer and papermaker, involved in the production of over 150 national currencies and a wide range of security documents such as passports, authentication labels and fiscal stamps. The Company is also pioneering new technologies worldwide in government identity solutions for national identification, drivers licence and passport issuing schemes. Employing over 6,000 people across 31 countries, it is also a leading provider of cash handling equipment and software solutions to banks and retailers worldwide, helping them to reduce the cost of handling cash. 2. A presentation to analysts will take place at 9:00am today at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS 3. High resolution photographs are available to the media free of charge at http://www.newscast.co.uk/ (+44 (0) 207 608 1000). 4. De La Rue Financial Calendar: 2007/2008 Ex-dividend date 12 December 2007 Record date 14 December 2007 Payment of 2007 interim dividend 16 January 2008 Financial Year End 29 March 2008 Responsibility Statement We confirm that to the best of our knowledge: • the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; • the interim management report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. The Board The Board of Directors that served during the six months to 29 September2007 and their respective responsibilities can be found on pages 32 and 33 of the De La Rue plc Annual Report 2007. Mr Michael Jeffries resigned as a non-Executive Director on 26 July 2007. By order of the Board 26 November 2007 Independent review report to De La Rue plc Introduction We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 29 September 2007 which comprises Group condensed consolidated interim income statement, Group condensed consolidated interim balance sheet, Group condensed consolidated interim cash flow statement, Group condensed consolidated interim statement of recognised income and expense and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ('the DTR') of the UK's Financial Services Authority ('the UK FSA'). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 29 September is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA. KPMG Audit Plc Chartered Accountants London 26 November 2007 GROUP CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT - UNAUDITED FOR THE HALF YEAR ENDED 29 SEPTEMBER 2007 2007/08 2006/07 2006/07 Half Year Half Year Full Year Notes £m £m £m Sales 4 345.1 328.4 687.5 Operating expenses (296.2) (289.0) (597.1) ___________________________________________________________________________ ______________________________ Operating profit 4 48.9 39.4 90.4 Share of profits of associated companies after taxation 2.9 2.2 6.6 ______________________________ Profit before finance costs 51.8 41.6 97.0 ___________________________________________________________________________ ______________________________ Interest income 2.8 2.0 5.1 Interest expense (1.1) (0.5) (1.5) Retirement benefit obligation finance income 17.1 16.3 32.4 Retirement benefit obligation finance cost (16.8) (15.5) (30.6) ______________________________ 2.0 2.3 5.4 ___________________________________________________________________________ Profit before taxation 53.8 43.9 102.4 Taxation - UK 5 (4.5) (3.4) (11.1) - Overseas 5 (13.7) (9.7) (19.5) ___________________________________________________________________________ ___________________________________________________________________________ Profit for the period 35.6 30.8 71.8 ___________________________________________________________________________ Profit attributable to equity shareholders of the Company 35.4 29.7 70.2 Profit attributable to minority interests 0.2 1.1 1.6 ___________________________________________________________________________ 35.6 30.8 71.8 ___________________________________________________________________________ =========================================================================== Basic earnings per ordinary share 6 22.9p 18.5p 43.9p Diluted earnings per ordinary share 6 22.4p 18.0p 42.9p =========================================================================== The directors propose a dividend of 6.53p per share for the half year ended 29 September 2007 which will utilise £9.7m of shareholders' funds. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders' equity as an appropriation of retained earnings in the year ending 29 March 2008. GROUP CONDENSED CONSOLIDATED INTERIM BALANCE SHEET - UNAUDITED AS AT 29 SEPTEMBER 2007 2007/08 2006/07 2006/07 Half Year Half Year Full Year Notes £m £m £m ASSETS Non-current assets Property, plant and equipment 139.6 134.1 139.4 Intangible assets 31.6 29.2 30.3 Investments in associates and joint ventures 21.3 10.8 13.1 Available for sale financial assets 0.4 0.5 0.4 Deferred tax assets 38.2 54.4 51.4 Other receivables 0.1 - 0.2 Derivative financial instruments 0.4 0.3 0.3 _____________________________________________________________________________ 231.6 229.3 235.1 _____________________________________________________________________________ Current assets Inventories 100.3 83.1 87.5 Trade and other receivables 118.5 107.2 97.0 Current tax assets 0.2 0.6 1.4 Derivative financial instruments 5.4 1.4 1.0 Cash and cash equivalents 66.0 336.8 149.1 _____________________________________________________________________________ 290.4 529.1 336.0 _____________________________________________________________________________ Total assets 522.0 758.4 571.1 _____________________________________________________________________________ LIABILITIES Current Liabilities Borrowings (11.9) (227.2) (1.7) Trade and other payables (241.7) (200.0) (238.7) Current tax liabilities (27.0) (35.1) (24.9) Derivative financial instruments (2.8) (1.5) (1.5) Provisions for liabilities and charges (16.8) (18.9) (17.8) _____________________________________________________________________________ (300.2) (482.7) (284.6) Non-current liabilities Borrowings (10.8) (10.7) (10.1) Retirement benefit obligations 9 (75.2) (112.8) (108.1) Deferred tax liabilities (3.6) (0.6) (2.1) Derivative financial instruments (0.4) - (0.3) Other non-current liabilities (2.9) (7.8) (1.0) _____________________________________________________________________________ (92.9) (131.9) (121.6) Total liabilities (393.1) (614.6) (406.2) _____________________________________________________________________________ _____________________________________________________________________________ Net assets 128.9 143.8 164.9 ============================================================================= EQUITY Ordinary share capital 3 44.5 45.2 44.7 Share premium account 3 21.6 20.6 21.4 Capital redemption reserve 3 5.5 4.6 5.3 Fair value reserve 3 1.8 (0.1) (0.6) Cumulative translation adjustment 3 0.5 1.2 (0.7) Other reserves 3 (83.8) (83.8) (83.8) Retained earnings 3 133.6 151.5 173.6 _____________________________________________________________________________ Total equity attributable to shareholders of the Company 123.7 139.2 159.9 Minority interests 3 5.2 4.6 5.0 _____________________________________________________________________________ Total equity 128.9 143.8 164.9 ============================================================================= GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS - UNAUDITED FOR THE HALF YEAR ENDED 29 SEPTEMBER 2007 2007/08 2006/07 2006/07 Half Year Half Year Full Year Notes £m £m £m _____________________________________________________________________________ Cash flows from operating activities Profit before tax 53.8 43.9 102.4 Adjustments for: Finance income and expense (2.0) (2.3) (5.4) Depreciation and amortisation 15.4 11.3 26.9 Increase in inventories (12.3) (13.3) (18.6) Increase in trade and other receivables (24.2) (15.0) (2.3) Increase in trade and other payables 3.6 28.0 54.7 Decrease in reorganisation provisions (0.4) (2.3) (3.6) Special pension fund contribution (4.9) - (7.0) Profit/loss on disposal of fixed assets (0.2) 1.4 1.0 Share of income from associates after tax (2.9) (2.2) (6.6) Other non-cash movements 4.7 1.7 3.0 _____________________________________________________________________________ Cash generated from operations 30.6 51.2 144.5 Tax paid (11.3) (9.6) (28.2) _____________________________________________________________________________ Net cash flows from operating activities 19.3 41.6 116.3 ============================================================================= Cash flows from investing activities Disposal of subsidiary undertaking - 1.0 1.0 Investment in associates (10.0) - - Purchases of property, plant and equipment (PPE) & software intangibles (9.2) (9.2) (29.7) Development assets capitalised (3.7) (1.8) (4.1) Proceeds from sale of PPE 0.2 0.2 0.7 Interest received 2.8 2.1 5.2 Interest paid (0.5) (0.3) (1.0) Dividends received from associates 4.7 4.0 6.2 _____________________________________________________________________________ Net cash flows from investing activities (15.7) (4.0) (21.7) _____________________________________________________________________________ Net cash inflow before financing activities 3.6 37.6 94.6 _____________________________________________________________________________ Cash flows from financing activities Proceeds from issue of share capital 3.4 2.9 7.1 Own share purchases (4.2) (13.5) (29.2) Proceeds from borrowing 2.3 - - Repayment of borrowings - (2.1) (1.5) Finance lease principal payments (2.5) (1.7) (3.6) Dividends paid to shareholders (95.6) (19.0) (28.3) Dividends paid to minority interests - (0.3) (0.4) _____________________________________________________________________________ Net cash flows from financing activities (96.6) (33.7) (55.9) _____________________________________________________________________________ Net (decrease)/increase in cash and cash equivalents in the period (93.0) 3.9 38.7 Cash and cash equivalents at the beginning of the year 149.0 107.8 107.8 Exchange rate effects (0.9) (0.1) 2.5 _____________________________________________________________________________ Cash and cash equivalents at the end of the period 8 55.1 111.6 149.0 _____________________________________________________________________________ Cash and cash equivalents consist of: Cash at bank and in hand 43.8 272.2 40.3 Short term bank deposits 22.2 64.6 108.8 Bank overdrafts (10.9) (225.2) (0.1) _____________________________________________________________________________ 8 55.1 111.6 149.0 ============================================================================= GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE - UNAUDITED FOR THE HALF YEAR ENDED 29 SEPTEMBER 2007 2007/08 2006/07 2006/07 Half Year Half Year Full Year £m £m £m _____________________________________________________________________________ Exchange differences 1.2 (1.0) (2.9) Actuarial gain on retirement benefit obligations 29.7 6.0 3.5 Tax on actuarial gains on retirement benefit obligations (9.9) (1.8) (1.0) Cash flow hedges 2.9 0.7 - Tax on cash flow hedges (0.7) (0.2) - Net investment hedge 0.2 (0.1) (0.1) Current tax on share options (0.2) 0.2 0.7 Deferred tax on share options - 1.3 4.3 _____________________________________________________________________________ Net gain recognised directly in equity 23.2 5.1 4.5 Profit for the financial period 35.6 30.8 71.8 _____________________________________________________________________________ Total recognised income and expense for the period 58.8 35.9 76.3 ============================================================================= Total recognised income and expense for the period attributable to: Equity shareholders of the Company 58.6 34.8 74.7 Minority interests 0.2 1.1 1.6 _____________________________________________________________________________ 58.8 35.9 76.3 ============================================================================= NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS - UNAUDITED 1 Basis of Presentation and Accounting Policies The Interim Statement 2007/08 is the condensed consolidated financial information of the Company and its subsidiaries (together referred to as the 'Group') and the Group's interests in associates and jointly controlled entities as at and for the half year ended 29 September 2007. It has been prepared in accordance with the Disclosures and Transparency Rules of the UK's Financial Services Authority and the requirements of IAS34 Interim Financial Reporting as adopted by the European Union. The accounts have been prepared as at 29 September 2007, being the last Saturday in September. The comparatives for the 2007 financial year are for the half year ended 30 September 2006 and the full year ended 31 March 2007. The Interim Statement 2007/08 does not constitute financial statements as defined in section 240 of the Companies Act 1985 and does not include all of the information and disclosures required for the full annual financial statements. It should be read in conjunction with the Annual Report 2007 which is available on request from the Company's registered office at De La Rue House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS or at www.delarue.com. The Interim Statement 2007/08 was approved by the Board of Directors on 26 November 2007. The financial information contained in this Interim Statement in respect of the year ended 31 March 2007 has been extracted from the Annual Report 2007 which has been filed with the Registrar of Companies. The auditors report on these financial statements was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The half yearly results for the current and comparative periods are unaudited. The auditors have carried out a review of the Interim Statement 2007/08. The condensed consolidated financial statements in this Interim Statement have been prepared using accounting policies and methods of computation consistent with those set out in the Annual Report 2007 which are prepared in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRS'). 2 Risk and Risk Management The principal risks faced by the Group and the risk management systems and processes were described in the 2007 Annual Report, a copy of which is available at the Group website at www.delarue.com. The Interim Statement includes a commentary on primary uncertainties affecting the Group's businesses for the remaining six months of the financial year. 3 RECONCILIATION OF MOVEMENT IN CAPITAL AND RESERVES Attributable to Equity Shareholders Minority Total interest equity ______________________________________________________________________________ Share Capital Fair value Cumulative Share premium redemption and other translation Other Retained capital account reserve reserve adjustment reserve earnings £m £m £m £m £m £m £m £m £m Balance at 26 March 2006 45.9 20.6 3.9 (0.5) 2.2 (83.8) 144.2 3.8 136.3 _________________________________________________________________________________________________ Exchange differences - - - - (1.0) - - - (1.0) Actuarial gain on retirement benefit obligations - - - - - - 6.0 - 6.0 Tax on actuarial loss on retirement benefit obligations - - - - - - (1.8) - (1.8) Tax on share options - - - - - - 0.2 - 0.2 Deferred tax on share options - - - - - - 1.3 - 1.3 Cash flow hedges - - - 0.7 - - - - 0.7 Tax on cash flow hedges - - - (0.2) - - - - (0.2) Net investment hedge - - - (0.1) - - - - (0.1) _________________________________________________________________________________________________ Net gain/(loss) recognised directly in equity - - - 0.4 (1.0) - 5.7 - 5.1 Profit for the period - - - - - - 29.7 1.1 30.8 _________________________________________________________________________________________________ Total income recognised for the period - - - 0.4 (1.0) - 35.4 1.1 35.9 Share capital issued - - - - - - - - Purchase of shares for cancellation (0.7) - 0.7 - - - (13.5) - (13.5) Allocation of shares for cancellation - - - - - - 2.9 - 2.9 Employee share scheme: - value of services provided - - - - - - 1.5 - 1.5 Dividends paid - - - - - - (19.0) (0.3) (19.3) _________________________________________________________________________________________________ Balance at 30 September 2006 45.2 20.6 4.6 (0.1) 1.2 (83.8) 151.5 4.6 143.8 _________________________________________________________________________________________________ Exchange differences - - - - (1.9) - - - (1.9) Actuarial loss on retirement benefit obligations - - - - - - (2.5) - (2.5) Tax on actuarial loss on retirement benefit obligations - - - - - - 0.8 - 0.8 Tax on share options - - - - - - 0.5 - 0.5 Deferred tax on share options - - - - - - 3.0 - 3.0 Cash flow hedges - - - (0.7) - - - - (0.7) Tax on cash flow hedges - - - 0.2 - - - - 0.2 Net investment hedge - - - - - - - - - Net gain/(loss) recognised directly in equity - - - (0.5) (1.9) - 1.8 - (0.6) Profit for the period - - - - - - 40.5 0.5 41.0 _________________________________________________________________________________________________ Total income recognised for the period - - - (0.5) (1.9) - 42.3 0.5 40.4 Share capital issued 0.2 0.8 - - - - - - 1.0 Purchase of shares for cancellation (0.7) - 0.7 - - - (15.7) - (15.7) Allocation of shares for cancellation - - - - - - 3.2 - 3.2 Employee share scheme: - value of services provided - - - - - - 1.6 - 1.6 Dividends paid - - - - - - (9.3) (0.1) (9.4) _________________________________________________________________________________________________ Balance at 31 March 2007 44.7 21.4 5.3 (0.6) (0.7) (83.8) 173.6 5.0 164.9 _________________________________________________________________________________________________ Exchange differences - - - - 1.2 - - - 1.2 Actuarial gain on retirement benefit obligations - - - - - - 29.7 29.7 Tax on actuarial gain on retirement benefit obligations - - - - - - (9.9) - (9.9) Tax on share options - - - - - - (0.2) - (0.2) Deferred tax on share options - - - - - - - - - Cash flow hedges - - - 2.9 - - - - 2.9 Tax on cash flow hedges - - - (0.7) - - - - (0.7) Net investment hedge - - - 0.2 - - - - 0.2 ________________________________________________________________________________________________ Net gain recognised directly in equity - - - 2.4 1.2 - 19.6 - 23.2 Profit for the period - - - - - - 35.4 0.2 35.6 ________________________________________________________________________________________________ Total income recognised for the period - - - 2.4 1.2 - 55.0 0.2 58.8 Share capital issued - 0.2 - - - - - - 0.2 Purchase of shares for cancellation (0.2) - 0.2 - - - (4.2) - (4.2) Allocation of shares for cancellation - - - - - - 3.2 - 3.2 Employee share scheme: - value of services provided - - - - - - 1.6 - 1.6 Dividends paid - - - - - - (95.6) - (95.6) ________________________________________________________________________________________________ Balance at 29 September 2007 44.5 21.6 5.5 1.8 0.5 (83.8) 133.6 5.2 128.9 ________________________________________________________________________________________________ 4 Segmental Analysis The Group's primary reporting format is by business segment. The Group is organised on a worldwide basis into two business segments: Cash Systems and Security Paper and Print. The secondary reporting format is by geographical segment. The Cash Systems division is predominantly involved in the provision of cash handling equipment and software solutions to banks and retailers worldwide. Security Paper and Print is involved in the production of national currencies and a wide range of security documents such as authentication labels and identity documents. Analysis by business segment 2007/08 2006/07 2006/07 Half Year Half Year Full year £m £m £m Sales by business segment Cash Systems 161.6 158.2 333.0 Security Paper and Print 183.5 170.2 354.5 ______________________________________________________________________________ 345.1 328.4 687.5 ============================================================================== Operating profit by business segment Cash Systems 14.2 10.7 28.7 Security Paper and 34.7 28.7 61.7 Print ______________________________________________________________________________ 48.9 39.4 90.4 ============================================================================== Analysis by geographical segment Sales by destination United Kingdom and Ireland 32.1 31.2 72.1 Rest of Europe 92.2 100.0 206.6 The Americas 77.6 80.3 160.4 Rest of world 143.2 116.9 248.4 ______________________________________________________________________________ 345.1 328.4 687.5 ============================== 5 Taxation A tax charge of 28.0% (six months to 30 September 2006: 29.9%; year to 31 March 2007: 29.9%) has been provided based on the estimated effective rate of tax for the year arising on the profits on operations after excluding a deferred tax charge of £3.1m caused by the reduction in the German tax rate enacted in July 2007. The £3.1m charge represents the reduction in the German net deferred tax assets and has been fully recognised in the income statement in the first half of the year. The total tax charge including the German tax rate impact is £18.2m. The recent change to the UK tax rate from 30% to 28% has not had a significant impact on the tax charge. 6 Earnings per share 2007/08 2006/07 2006/07 Half Year Half Year Full year pence per share pence per share pence per share ________________________________________________________________________________ Basic earnings per share 22.9 18.5 43.9 Diluted earnings 22.4 18.0 42.9 Headline earning per share 24.9 18.5 43.9 ================================================================================ Earnings per share are based on the profit for the period attributable to ordinary shareholders of £35.4m (2006/07: £29.7m) as shown in the Group condensed consolidated income statement. The weighted average number of ordinary shares used in the calculations is 154,787,381 (2006/07: 160,850,440) for basic earnings per share and 157,964,839 (2006/07: 164,918,582) for diluted earnings per share after adjusting for dilutive share options. During the year the Company paid a special dividend of £74.4m and at the same time carried out a consolidation of its share capital. These transactions were conditional on each other. They were specifically designed to achieve the same overall effect on the Company's capital structure as a buy back of shares in a way in which all shareholders could participate. Accordingly, earnings per share is presented on the basis that in substance a share buy back has occurred. ________________________________________________________________________________ Reconciliation of earnings per share Basic earnings per share 22.9 18.5 43.9 Tax charge arising from change in German statutory tax rate (see note 5) 2.0 - - ________________________________________________________________________________ Headline earnings per share before items above 24.9 18.5 43.9 ================================================================================ The Directors are of the opinion that the publication of the headline earnings is useful to readers of interim statements and annual accounts as they give a more meaningful indication of underlying business performance. 7 Equity dividends 2007/08 2006/07 2006/07 Half Year Half Year Full year £m £m £m _________________________________________________________________________ Final dividend for the year ended 31 March 2007 of 13.27p paid on 3 August 2007 21.2 - - Final dividend for the year ended 25 March 2006 of 11.8p paid on 4 August 2007 - 19.0 19.0 Interim dividend for the period ended 30 September 2006 of 5.83p paid on 17 January 2007 - - 9.3 Special dividend of 46.5p paid on 3 August 2007 74.4 - - _________________________________________________________________________ 95.6 19.0 28.3 ========================================================================= 8 Notes to the Group condensed consolidated interim statement of cash flows 2007/08 2006/07 2006/07 Half Year Half Year Full year £m £m £m Analysis of net cash Cash at bank and in hand 43.8 272.2 40.3 Short term bank deposits 22.2 64.6 108.8 Bank overdrafts (10.9) (225.2) (0.1) ________________________________________________________________________ Cash and cash equivalents 55.1 111.6 149.0 Other debt due within one year (1.0) (2.0) (1.6) Borrowings due after one year (10.8) (10.7) (10.1) ________________________________________________________________________ Net cash at end of period 43.3 98.9 137.3 ======================================================================== 9 Retirement benefit obligations The Group operates pension plans throughout the world covering the majority of employees. These plans are devised in accordance with local conditions and practices in the country concerned. The assets of the Group's plans are generally held in separately administered trusts or are insured. 2007/08 2006/07 2006/07 Half Year Half Year Full year £m £m £m UK retirement benefit obligations (71.3) (108.6) (104.3) Overseas retirement benefit obligations (3.9) (4.2) (3.8) ______________________________________________________________________________ Retirement benefit obligations (75.2) (112.8) (108.1) Deferred tax 22.4 33.8 32.4 ______________________________________________________________________________ Net retirement benefit obligations (52.8) (79.0) (75.7) ============================================================================== The majority of the Group's retirement benefit obligations are in the UK: UK UK UK £m £m £m At 1 April 2007 / 26 March 2006 (104.3) (115.0) (115.0) Current service cost included in operating profit (6.1) (4.7) (9.8) Net finance cost 0.3 0.8 1.8 Actuarial gains and losses arising over the year 29.6 5.8 3.0 Cash contributions and benefits paid 9.2 4.5 15.7 ______________________________________________________________________________ At 29 September 2007 / 30 September 2006 / 31 March 2007 (71.3) (108.6) (104.3) ============================================================================== Amounts recognised in the consolidated balance sheet: Fair value of plan assets 536.3 504.4 524.4 Present value of funded obligations (601.8) (607.5) (622.6) ______________________________________________________________________________ Funded defined benefit pension plans (65.5) (103.1) (98.2) Present value of unfunded obligations (5.8) (5.5) (6.1) ______________________________________________________________________________ Net liability (71.3) (108.6) (104.3) ============================================================================== Amounts recognised in the consolidated income statement: Included in employee benefits expense: Current service cost (6.1) (4.7) (9.8) Included in net finance cost: Expected return on plan assets 16.8 16.0 31.8 Interest cost (16.5) (15.2) (30.0) ______________________________________________________________________________ 0.3 0.8 1.8 ______________________________________________________________________________ Total recognised in the consolidated income statement (5.8) (3.9) (8.0) ============================================================================== Actual return on plan assets 13.7 1.1 22.2 ============================================================================== Amounts recognised in the statement of recognised income and expense: Actuarial losses on plan assets (3.1) (14.9) (9.6) Actuarial gains on defined benefit pension obligations 32.7 20.7 12.6 ______________________________________________________________________________ Amounts recognised in the statement of recognised income and expense 29.6 5.8 3.0 ============================================================================== Principal actuarial assumptions: 2007/08 2006/07 2006/07 Half Year Half Year Full year UK UK UK % % % Future salary increases 4.10 3.90 4.00 Future pension increases - past service 3.30 3.00 3.20 Future pension increases - future service 3.10 2.90 3.00 Discount rate 5.70 5.00 5.30 Inflation rate 3.20 2.90 3.10 Expected return on plan assets 6.59 6.51 6.44 The expected rate of return on plan assets has been determined following advice from the plans' independent actuary and is based on the expected return on each asset class together with consideration of the long term asset strategy. The mortality assumptions used to assess the defined benefit obligation for the UK plan are based on tables issued by the Continuous Mortality Investigation Bureau. At 29 September 2007 and 31 March 2007 mortality assumptions are based on the PxA92 birth year tables multiplied by a rating of 125% and allowance for medium cohort mortality improvements in future. The resulting life expectancy for a 65 year old pensioner is 20.2 years. At 30 September 2006 mortality assumptions were based on the PxA92 birth year tables multiplied by a rating of 125% and allowance for short cohort mortality improvements in future, and the resulting life expectancy for a 65 year old pensioner was 18.6 years. 10 Related party transactions During the year the Group traded with the following associated companies: Fidink (33.3%) and Valora-Servicos de Apoio a Emissao Monitaria SA (25%). The Group's trading activities with these companies in the period comprise £2.7m for the purchase of ink and other consumables. At the balance sheet date there were creditor balances of £0.9m with these companies. Key management compensation 2007/08 2006/07 2006/07 Half Year Half Year Full Year £'000 £'000 £'000 Salaries and other short-term employee benefits 1,597.0 1,417.0 3,490.0 Termination benefits 75.6 150.6 150.6 Retirement benefits: Defined contribution 2.9 0.7 1.8 Defined benefit 208.7 371.1 640.7 Share-based payments 799.0 573.0 1,395.0 _____________________________________________________________________________ 2,683.2 2,512.4 5,678.1 ============================================================================= Key management comprises members of the Board and the Operating Board. Key management compensation includes fees of non-executive Directors, compensation for loss of office, ex-gratia payments, redundancy payments, enhanced retirement benefits and any related benefits-in-kind connected with a person leaving office or employment. This information is provided by RNS The company news service from the London Stock Exchange GUPMGMQ

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