27th Nov 2007 07:00
De La Rue PLC27 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 98.9Dividends 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'sindividual businesses by driving both innovation and productivity continues tobuild 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 caseof Security Paper and Print, extending through the first half of next year.Consequently, given the strength of the order book in Currency and the benefitsof continuing to operate at high levels of productivity and capacity, we expectsecond half performance in Security Paper and Print to be significantly ahead ofthe corresponding period last year. Cash Systems continues to trade in line withexpectations. "These results demonstrate the achievements of the first phase in our programmeto build substantially improved shareholder returns. Consequently, the Board isinitiating a strategic review to define the next phase of the Group'sdevelopment, including an assessment of the Group's structure, the appropriatebalance sheet capitalisation and dividend policy. The Board would expect toupdate the market on this strategic review at the full year results in May2008." For further information, please contact: Leo Quinn Group Chief Executive +44 (0)1256 605303Stephen King Group Finance Director +44 (0)1256 605307Mark Fearon Head of Corporate Affairs +44 (0)1256 605303Andrew 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 ended29 September 2007. The increases in revenue, margins and operationalefficiencies demonstrate the progress the Group has made in implementing itsstrategy. 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 anincrease 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 percent to 24.9p (see note 6 to the financial statements). Basic earnings per sharewere 22.9p compared with 18.5p last year. As in 2006/2007, there were noexceptional charges in the period. In Security Print and Paper, year on year revenue and margin improvement weredriven by a strong opening order book with high overspill content and continuingexceptional levels of banknote demand during the first half. Further progress inmargins in Cash Systems, underpinned by improvements to the supply chain, wasreflected in the excellent operating performance of the division, despite aweakness in the US Dollar and an increasingly competitive market. Overall Groupoperating 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 tradingactivity, particularly in Security Paper and Print, and the phasing of shipmentsbetween the first and second half. Advance payments have remained athistorically high levels during the period. Consequently, we remain confident inthe 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 thesecond 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 183.5 170.2 354.5Operating profit 34.7 28.7 61.7Operating 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 centahead 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 alarge overspill order in the first quarter of last year, when volumes were up by26.4 per cent. As a consequence, overspill levels in the first half were lowerat 8 per cent compared to 25 per cent in the corresponding period. Banknotepaper 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 Currencyremains very strong, providing full visibility for the second half of the yearand into the first half of 2008/2009. The Security Products and Identity Systems businesses also continued to performwell. We continue to focus on authentication labels, fiscal stamps and passportswhich all contributed to improved results. As previously announced, our newePassport manufacturing facility in Malta is on track to be operational duringthe 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 acquiredby the joint venture partner Smurfit Kappa, the European paper and packaginggroup. It operates a number of security printing contracts principally with theIrish 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 161.6 158.2 333.0Operating profit 14.2 10.7 28.7Operating 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 USDollar, which had a £5.1m adverse effect on sales and £1.2m adverse on operatingprofits. Teller Automation volumes were up on the same period last year reflecting thenew 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 andperformance in our offering to the customer. The Sorter business had an excellent first half and continues to benefit fromtargeting markets in Russia, North America and China. The OEM (ATM mechanisms)business had a strong first half benefiting from increased volumes, inparticular arising from increased sales into China. Desktop Products had anexcellent first half reflecting continued geographical expansion and new productintroductions, with encouraging sales of our new EV86 Series(TM) (banknotecounter) launched in the second half of last year. In November, we introducedanother new product to market, Nvision(TM) a multi-currency banknote counter andfitness sorter and we have been encouraged by our customers' response to theproduct. Nvision has a fitness processing speed of up to 1000 notes per minuteand 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 aninterim dividend of 6.53p, representing an increase of 12 per cent on theinterim 2006/2007, will be paid on 16 January 2008 to shareholders on theregister on 14 December 2007. Share Buy Back In the first half the Company acquired 0.6 million shares under the currentshare buy back programme at a cost of £4.2m, bringing the total number of sharesacquired 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 nextAGM. The exact amount and timing of future purchases will be dependent on marketconditions and ongoing cash generation. UK PENSION SCHEME The charge to operating profit in respect of the UK Pension Scheme for the firsthalf of 2007/2008 was £6.1m (2006/2006: £4.7m). In addition under IAS 19 thereis a finance credit of £0.3m arising from the expected return on assets less theinterest on liabilities (2006/2007 : credit of £0.8m). The pension deficit, netof 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 PensionScheme in March 2006, which identified a funding deficit of £56m, the Companyagreed with the Trustee to pay down this deficit over a period of 6 years. Thefirst payment of £7.0m was made in March 2007 and a subsequent payment of £4.9mwas 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. Themain associated company is Camelot, the UK lottery operator. De La Rue waspleased that in August Camelot won the bid for the third lottery licence whichwill run from 2009 to 2019. During the period the Group made a £10.0msubscription of redeemable shares in Camelot in order to fund the investmentprogramme for the third licence. INTEREST The Group's net interest income of £1.7m (2006/2007: £1.5m) reflected the strongcash 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: 29.9per cent). The underlying effective rate excludes a one-off charge of £3.1mwhich has been made in the first half to incorporate the impact on deferred taxassets 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 tradingactivity, particularly in Security Paper and Print, and the phasing of shipmentsbetween the first and second half. Advance payments have remained athistorically high levels during the period. A funding payment of £4.9m was madeto the UK Pension Scheme as outlined above. Capital expenditure of £9.2m was inline with last year (2006/2007: £9.2m). We remain confident in the Group's cashgeneration for the year as a whole. After payment in the first half of the 2006/2007 final dividend (£21.2m), thespecial dividend (£74.4m) announced at the Preliminary Results, as well as £4.2mof share buy backs, closing net cash was £43.3m compared with £137.3m at March2007. STRATEGIC REVIEW Following our strategic review in November 2004, we focused the De La Rueorganisation on substantially improving shareholder value and strengthening itsfoundation 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 threeyears in implementing the first phase of this strategy. As the results for thesix months to the 29 September 2007 demonstrate, both the Security Paper andPrint and the Cash Systems divisions are well placed in their markets. Since2003/2004, Group margins have doubled from c.7 per cent to c.14 per cent and thecash conversion rate continues to be strong. During this period, the Group'sstrong balance sheet and a focus on cash generation in our core operations hasenabled De La Rue to return surplus cash flow to shareholders, while continuingto invest appropriately for organic growth. Over the period the Group hasreturned £287m to shareholders through a combination of ordinary and specialdividends and share buy backs. This equates to a return of 109 per cent of Groupoperating profits over the period. These results demonstrate the achievements of the first phase in our programmeto build substantially improved shareholder returns. Consequently, the Board isinitiating a strategic review to define the next phase of the Group'sdevelopment, including an assessment of the Group's structure, the appropriatebalance sheet capitalisation and dividend policy. The Board would expect toupdate 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 caseof Security Paper and Print, extending through the first half of next year.Consequently, given the strength of the order book in Currency and the benefitsof continuing to operate at high levels of productivity and capacity, we expectsecond half performance in Security Paper and Print to be significantly ahead ofthe corresponding period last year. Cash Systems continues to trade in line withexpectations. -ends- Notes to Editors: 1. De La Rue is the world's largest commercial security printerand papermaker, involved in the production of over 150 national currencies and awide range of security documents such as passports, authentication labels andfiscal stamps. The Company is also pioneering new technologies worldwide ingovernment identity solutions for national identification, drivers licence andpassport issuing schemes. Employing over 6,000 people across 31 countries, it isalso a leading provider of cash handling equipment and software solutions tobanks and retailers worldwide, helping them to reduce the cost of handling cash. 2. A presentation to analysts will take place at 9:00am todayat The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS 3. High resolution photographs are available to the media freeof charge at http://www.newscast.co.uk/ (+44 (0) 207 608 1000). 4. De La Rue Financial Calendar: 2007/2008Ex-dividend date 12 December 2007Record date 14 December 2007Payment of 2007 interim dividend 16 January 2008Financial 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 andtheir respective responsibilities can be found on pages 32 and 33 of the De LaRue plc Annual Report 2007. Mr Michael Jeffries resigned as a non-Executive Director on 26 July 2007. By order of the Board26 November 2007 Independent review report to De La Rue plc Introduction We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 29September 2007 which comprises Group condensed consolidated interim incomestatement, Group condensed consolidated interim balance sheet, Group condensedconsolidated interim cash flow statement, Group condensed consolidated interimstatement of recognised income and expense and the related explanatory notes. Wehave read the other information contained in the half-yearly financial reportand considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the Disclosureand 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 thecompany those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the company for our review work, forthis report, or for the conclusions we have reached. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the DTR of the UK FSA. As disclosed in note 1, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the EU. The condensed set offinancial statements included in this half-yearly financial report has beenprepared in accordance with IAS 34 Interim Financial Reporting as adopted by theEU. Our responsibility Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland) and consequently does notenable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 29 September is not prepared, in all materialrespects, in accordance with IAS 34 as adopted by the EU and the DTR of the UKFSA. KPMG Audit PlcChartered Accountants London26 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 29September 2007 which will utilise £9.7m of shareholders' funds. These financialstatements do not reflect this dividend payable, which will be accounted for inshareholders' equity as an appropriation of retained earnings in the year ending29 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 £mASSETSNon-current assetsProperty, plant and equipment 139.6 134.1 139.4Intangible assets 31.6 29.2 30.3Investments in associates and jointventures 21.3 10.8 13.1Available for sale financial assets 0.4 0.5 0.4Deferred tax assets 38.2 54.4 51.4Other receivables 0.1 - 0.2Derivative financial instruments 0.4 0.3 0.3_____________________________________________________________________________ 231.6 229.3 235.1_____________________________________________________________________________ Current assetsInventories 100.3 83.1 87.5Trade and other receivables 118.5 107.2 97.0Current tax assets 0.2 0.6 1.4Derivative financial instruments 5.4 1.4 1.0Cash and cash equivalents 66.0 336.8 149.1_____________________________________________________________________________ 290.4 529.1 336.0_____________________________________________________________________________Total assets 522.0 758.4 571.1_____________________________________________________________________________ LIABILITIESCurrent LiabilitiesBorrowings (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 liabilitiesBorrowings (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============================================================================= EQUITYOrdinary share capital 3 44.5 45.2 44.7Share premium account 3 21.6 20.6 21.4Capital redemption reserve 3 5.5 4.6 5.3Fair 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 toshareholders of the Company 123.7 139.2 159.9Minority 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 activitiesProfit before tax 53.8 43.9 102.4Adjustments for:Finance income and expense (2.0) (2.3) (5.4)Depreciation and amortisation 15.4 11.3 26.9Increase 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 54.7Decrease 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 1.0Share 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 51.2 144.5Tax paid (11.3) (9.6) (28.2)_____________________________________________________________________________Net cash flows from operating activities 19.3 41.6 116.3=============================================================================Cash flows from investing activitiesDisposal of subsidiary undertaking - 1.0 1.0Investment in associates (10.0) - -Purchases of property, plant and equipment (PPE) & softwareintangibles (9.2) (9.2) (29.7)Development assets capitalised (3.7) (1.8) (4.1)Proceeds from sale of PPE 0.2 0.2 0.7Interest received 2.8 2.1 5.2Interest 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 activitiesProceeds from issue of share capital 3.4 2.9 7.1Own 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 38.7Cash and cash equivalents at the beginning of the year 149.0 107.8 107.8Exchange 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 consistof:Cash at bank and in hand 43.8 272.2 40.3Short term bank deposits 22.2 64.6 108.8Bank 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 benefitobligations 29.7 6.0 3.5Tax on actuarial gains on retirementbenefit 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 0.7Deferred tax on share options - 1.3 4.3_____________________________________________________________________________Net gain recognised directly in equity 23.2 5.1 4.5Profit for the financial period 35.6 30.8 71.8_____________________________________________________________________________Total recognised income and expense forthe period 58.8 35.9 76.3=============================================================================Total recognised income and expense for theperiod attributable to: Equity shareholders of the Company 58.6 34.8 74.7Minority 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 financialinformation of the Company and its subsidiaries (together referred to as the'Group') and the Group's interests in associates and jointly controlled entitiesas at and for the half year ended 29 September 2007. It has been prepared inaccordance with the Disclosures and Transparency Rules of the UK's FinancialServices Authority and the requirements of IAS34 Interim Financial Reporting asadopted by the European Union. The accounts have been prepared as at 29 September 2007, being the last Saturdayin September. The comparatives for the 2007 financial year are for the half yearended 30 September 2006 and the full year ended 31 March 2007. The Interim Statement 2007/08 does not constitute financial statements asdefined in section 240 of the Companies Act 1985 and does not include all of theinformation and disclosures required for the full annual financial statements.It should be read in conjunction with the Annual Report 2007 which is availableon 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 26November 2007. The financial information contained in this Interim Statement in respect of theyear ended 31 March 2007 has been extracted from the Annual Report 2007 whichhas been filed with the Registrar of Companies. The auditors report on thesefinancial statements was unqualified and did not contain a statement underSection 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 havebeen prepared using accounting policies and methods of computation consistentwith those set out in the Annual Report 2007 which are prepared in accordancewith International Financial Reporting Standards as adopted by the EU ('AdoptedIFRS'). 2 Risk and Risk Management The principal risks faced by the Group and the risk management systems andprocesses were described in the 2007 Annual Report, a copy of which is availableat the Group website at www.delarue.com. The Interim Statement includes acommentary on primary uncertainties affecting the Group's businesses for theremaining 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 _________________________________________________________________________________________________Exchangedifferences - - - - (1.0) - - - (1.0)Actuarial gain on retirement benefitobligations - - - - - - 6.0 - 6.0Tax on actuarial loss on retirementbenefit obligations - - - - - - (1.8) - (1.8)Tax on shareoptions - - - - - - 0.2 - 0.2Deferred tax on shareoptions - - - - - - 1.3 - 1.3Cash flow hedges - - - 0.7 - - - - 0.7Tax on cash flow hedges - - - (0.2) - - - - (0.2)Net investment hedge - - - (0.1) - - - - (0.1) _________________________________________________________________________________________________ Net gain/(loss)recognised directly inequity - - - 0.4 (1.0) - 5.7 - 5.1Profit for theperiod - - - - - - 29.7 1.1 30.8 _________________________________________________________________________________________________ Total incomerecognised forthe period - - - 0.4 (1.0) - 35.4 1.1 35.9Share capital issued - - - - - - - -Purchase ofshares forcancellation (0.7) - 0.7 - - - (13.5) - (13.5)Allocation ofshares forcancellation - - - - - - 2.9 - 2.9Employee sharescheme:- value of services provided - - - - - - 1.5 - 1.5Dividends paid - - - - - - (19.0) (0.3) (19.3) _________________________________________________________________________________________________ Balance at 30September 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 benefitobligations - - - - - - (2.5) - (2.5)Tax on actuarial loss on retirementbenefit obligations - - - - - - 0.8 - 0.8Tax on share options - - - - - - 0.5 - 0.5Deferred tax on shareoptions - - - - - - 3.0 - 3.0Cash flow hedges - - - (0.7) - - - - (0.7)Tax on cash flow hedges - - - 0.2 - - - - 0.2 Net investment hedge - - - - - - - - -Net gain/(loss) recognised directly inequity - - - (0.5) (1.9) - 1.8 - (0.6)Profit for the period - - - - - - 40.5 0.5 41.0 _________________________________________________________________________________________________ Total income recognisedfor the period - - - (0.5) (1.9) - 42.3 0.5 40.4Share capital issued 0.2 0.8 - - - - - - 1.0Purchase of shares forcancellation (0.7) - 0.7 - - - (15.7) - (15.7)Allocation ofshares for cancellation - - - - - - 3.2 - 3.2Employee sharescheme:- value of services provided - - - - - - 1.6 - 1.6Dividends paid - - - - - - (9.3) (0.1) (9.4) _________________________________________________________________________________________________ Balance at31 March 2007 44.7 21.4 5.3 (0.6) (0.7) (83.8) 173.6 5.0 164.9 _________________________________________________________________________________________________ Exchange differences - - - - 1.2 - - - 1.2Actuarial gain onretirement benefit obligations - - - - - - 29.7 29.7Tax on actuarialgain onretirement benefitobligations - - - - - - (9.9) - (9.9)Tax on shareoptions - - - - - - (0.2) - (0.2)Deferred tax on share options - - - - - - - - - Cash flow hedges - - - 2.9 - - - - 2.9Tax on cash flow hedges - - - (0.7) - - - - (0.7)Net investment hedge - - - 0.2 - - - - 0.2 ________________________________________________________________________________________________ Net gainrecogniseddirectly in equity - - - 2.4 1.2 - 19.6 - 23.2Profit forthe period - - - - - - 35.4 0.2 35.6 ________________________________________________________________________________________________ Total income recognisedfor the period - - - 2.4 1.2 - 55.0 0.2 58.8Share capital issued - 0.2 - - - - - - 0.2Purchase of shares forcancellation (0.2) - 0.2 - - - (4.2) - (4.2)Allocation of shares forcancellation - - - - - - 3.2 - 3.2Employee share scheme:- value of services provided - - - - - - 1.6 - 1.6Dividends paid - - - - - - (95.6) - (95.6) ________________________________________________________________________________________________ Balance at 29September 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 isorganised on a worldwide basis into two business segments: Cash Systems andSecurity Paper and Print. The secondary reporting format is by geographicalsegment. The Cash Systems division is predominantly involved in the provision ofcash handling equipment and software solutions to banks and retailers worldwide.Security Paper and Print is involved in the production of national currenciesand a wide range of security documents such as authentication labels andidentity documents. Analysis by business segment 2007/08 2006/07 2006/07 Half Year Half Year Full year £m £m £mSales 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 segmentSales by destinationUnited Kingdom and Ireland 32.1 31.2 72.1Rest of Europe 92.2 100.0 206.6The Americas 77.6 80.3 160.4Rest 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 March2007: 29.9%) has been provided based on the estimated effective rate of tax forthe year arising on the profits on operations after excluding a deferred taxcharge of £3.1m caused by the reduction in the German tax rate enacted in July2007. The £3.1m charge represents the reduction in the German net deferred taxassets and has been fully recognised in the income statement in the first halfof 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 asignificant 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 toordinary shareholders of £35.4m (2006/07: £29.7m) as shown in the Groupcondensed consolidated income statement. The weighted average number of ordinaryshares used in the calculations is 154,787,381 (2006/07: 160,850,440) for basicearnings per share and 157,964,839 (2006/07: 164,918,582) for diluted earningsper share after adjusting for dilutive share options. During the year the Company paid a special dividend of £74.4m and at the sametime carried out a consolidation of its share capital. These transactions wereconditional on each other. They were specifically designed to achieve the sameoverall effect on the Company's capital structure as a buy back of shares in away in which all shareholders could participate. Accordingly, earnings per shareis 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 earningsis useful to readers of interim statements and annual accounts as they give amore 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 ofemployees. These plans are devised in accordance with local conditions andpractices in the country concerned. The assets of the Group's plans aregenerally held in separately administered trusts or are insured. 2007/08 2006/07 2006/07 Half Year Half Year Full year £m £m £mUK 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 benefitobligations are in the UK: UK UK UK £m £m £mAt 1 April 2007 / 26 March 2006 (104.3) (115.0) (115.0)Current service cost included in operatingprofit (6.1) (4.7) (9.8)Net finance cost 0.3 0.8 1.8Actuarial gains and losses arising overthe year 29.6 5.8 3.0Cash 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 balancesheet:Fair value of plan assets 536.3 504.4 524.4Present 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 incomestatement: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 31.8Interest cost (16.5) (15.2) (30.0)______________________________________________________________________________ 0.3 0.8 1.8______________________________________________________________________________Total recognised in the consolidatedincome statement (5.8) (3.9) (8.0)============================================================================== Actual return on plan assets 13.7 1.1 22.2============================================================================== Amounts recognised in the statement ofrecognised income and expense:Actuarial losses on plan assets (3.1) (14.9) (9.6)Actuarial gains on defined benefit pensionobligations 32.7 20.7 12.6______________________________________________________________________________ Amounts recognised in the statement ofrecognised 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 4.00Future pension increases - past service 3.30 3.00 3.20Future pension increases - future service 3.10 2.90 3.00Discount rate 5.70 5.00 5.30Inflation 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 advicefrom the plans' independent actuary and is based on the expected return on eachasset class together with consideration of the long term asset strategy. The mortality assumptions used to assess the defined benefit obligation for theUK plan are based on tables issued by the Continuous Mortality InvestigationBureau. At 29 September 2007 and 31 March 2007 mortality assumptions are basedon the PxA92 birth year tables multiplied by a rating of 125% and allowance formedium cohort mortality improvements in future. The resulting life expectancyfor a 65 year old pensioner is 20.2 years. At 30 September 2006 mortalityassumptions were based on the PxA92 birth year tables multiplied by a rating of125% and allowance for short cohort mortality improvements in future, and theresulting 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 £2.7mfor the purchase of ink and other consumables. At the balance sheet date therewere 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 £'000Salaries and other short-term employeebenefits 1,597.0 1,417.0 3,490.0Termination benefits 75.6 150.6 150.6Retirement benefits:Defined contribution 2.9 0.7 1.8Defined benefit 208.7 371.1 640.7Share-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. Keymanagement compensation includes fees of non-executive Directors, compensationfor loss of office, ex-gratia payments, redundancy payments, enhanced retirementbenefits and any related benefits-in-kind connected with a person leaving officeor employment. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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