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.
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