29th Nov 2005 07:01
De La Rue PLC29 November 2005 INTERIM STATEMENT SIX MONTHS TO 24 SEPTEMBER 2005 KEY FINANCIALS Half Year Half Year Change 2005/2006 2004/2005 £m £mContinuing Operations Sales 290.7 309.8 -6.2% Profit before tax and exceptional items* 30.6 28.8 +6.3% Profit before tax 27.6 15.7 +75.8% Group headline earnings per share* 11.8p 10.6p +11.3%Group earnings per share 10.6p 3.6pGroup cash inflow from operating activities 46.5 40.8 +14.0%Net cash at end of period 61.6 61.6Dividends per share 5.2p 4.7p +10.6% * before exceptional charges of £3.0m (2004/2005: £13.1m) HIGHLIGHTS • Profit before tax and exceptional items from continuing operations was up 6.3 per cent to £30.6m* (2004/2005: £28.8m), primarily arising from restructuring benefits and productivity improvements which more than offset a return to more historic banknote volumes. • Operating margins improved by 1.6 per cent to 9.4 per cent (2004/ 2005: 7.8 per cent). • Strong cash generation. Net cash inflow from operating activities of £46.5m (2004/2005 £40.8m) aided by good working capital management. • £67.8m capital return completed on 1 August 2005 through a special dividend accompanied by a corresponding share consolidation. • Increase in the interim dividend of 10.6 per cent to 5.2p per share. • As a result of the continued strong funding position of the Company, the Board is announcing today plans to use surplus cash, within its existing authority, to purchase the Company's own shares for cancellation. Nicholas Brookes, Chairman of De La Rue plc commented: "De La Rue is seeing the continuing benefits of our strategy of concentratingresources on our core activities, addressing under-performing businesses anddelivering improved productivity and competitiveness. During the first half,margins improved in both our operating divisions and cash inflow from operatingactivities was ahead of the same period last year. It is also pleasing thatbenefits from restructuring, productivity improvements and the elimination ofloss making activities have more than offset a return to more historic banknotevolumes during the first half." "As a result of De La Rue's continued strong funding position, the Board isannouncing today plans to use surplus cash, within its existing authority, topurchase the Company's own shares for cancellation. "As previously indicated, trading in the second half is not expected to benefitfrom the high levels of banknote overspill and favourable customer mixexperienced in the second half of 2004/2005. However, given the strong firsthalf, good visibility in our principal markets and the benefits from ongoingrestructuring activities, the Board's expectations for the year as a wholeremain unchanged." For further information, please contact: Leo Quinn Group Chief Executive +44 (0)1256 605303Stephen King Group Finance Director +44 (0)1256 605307Mark Fearon Group Head of Corporate Affairs +44 (0)1256 605303Richard Mountain Financial Dynamics +44 (0) 207 269 7291 29 November 2005 GROUP RESULTS De La Rue is pleased to report a strong performance for the half year ended 24September 2005. Profit before tax and exceptional items from continuingoperations was up 6.3 per cent to £30.6m* (2004/2005: £28.8m). The result wasachieved from a combination of a more favourable customer mix and the benefitsfrom restructuring activities and productivity improvements currently beingimplemented across the Group. This more than offset a return of banknote volumesto more historical levels in the first half, following exceptional volumes inthe corresponding period last year. After charging exceptional items, profitbefore tax on continuing activities was £27.6m (2004/2005: £15.7m). The Group also benefited from the elimination of losses from the disposal ofSequoia Voting Systems (2004/2005: first half loss of £2.7m) which was sold inMarch last year. Headline earnings per share increased by 11.3 per cent to 11.8p. Basic earningsper share were 10.6p compared with 3.6p last year. Cash flow remains a key strength of the Group. Net cash inflow from operatingactivities of £46.5m represented a further improvement on the performanceachieved in the first half of last year (2004/2005: £40.8m) and reflectedincreased profits and improvements in working capital. The Group ended the halfyear with net cash of £61.6m, compared with net cash of £106.5m at the start ofthe year. This was achieved despite payment in the first half of the specialdividend and the 2004/2005 final dividend which together totalled £86.9m. * before exceptional charges of £3.0m (2004/2005: £13.1m) RETURNS TO SHAREHOLDERS Interim Dividend In line with the Board's continued confidence in the cash generationcharacteristics of the business, an interim dividend of 5.2p, representing anincrease of 10.6 per cent on the interim 2004/2005, will be paid on 18 January2006 to shareholders on the register on 16 December 2005. Share Buy Back As a consequence of the Group's strong funding position the Board has decided touse the existing authorities granted to it at the 2005 Extraordinary GeneralMeeting (EGM) to use surplus cash to purchase the Company's own shares forcancellation. The upper limit of the Board's existing authority is 14.99 percent of issued capital. The exact amount and timing of purchases will bedependent on market conditions and ongoing cash generation. Special Dividend De La Rue completed the return of £67.8m to shareholders on 1 August 2005,equivalent to 38.0p per share, through a special dividend accompanied by acorresponding share consolidation. The capital return was consistent with theBoard's strategy to return surplus cash to shareholders. OPERATING REVIEWS Security Paper and Print 2005/06 2004/05 2004/05 Half Year Half Year Full Year £m £m £m -------- ---------- ----------Sales 149.7 167.8 317.9Underlying operating profit* 21.1 21.2 45.4Operating Profit Margin 14.1% 12.6% 14.3% * before exceptional income of £0.4m (2004/2005 : income of £0.4m). Underlying operating profits for the Security Paper and Print division of £21.1mwere in line with last year (2004/2005: £21.2m)*. During the first half banknote volumes decreased by 25 per cent (2004/2005:increase of 42 per cent), in part reflecting lower overspill levels at 21 percent compared to 28 per cent from the corresponding period last year. This waspartially offset by margin improvements arising from more favourable customermix, principally in banknote paper and Security Threads, together withproductivity improvements. In addition, authentication labels, fiscal stamps and passports performed wellduring the first half where the division continued to benefit from a focus onhigher margin products and a lower cost base achieved through the restructuringactions completed last year. Cash Systems 2005/06 2004/05 2004/05 Half Year Half Year Full Year £m £m £m -------- ---------- ----------Sales 141.0 142.0 302.2Underlying operating profit* 6.2 2.9 9.4Operating Profit Margin 4.4% 2.0% 3.1% *before exceptional items of £3.4m (2004/2005: £13.5m) In Cash Systems, first half revenues of £141.0m were in line with last year andunderlying operating profits of £6.2m* were ahead of last year (2004/2005:£2.9m). Foreign exchange effects were £2.2m favourable on sales and £0.7madverse on operating profits. Improved trading margins included £2m savings fromrestructuring and the one-off benefit of £0.6m from the settlement of anoutstanding customer dispute, previously fully provided. Teller Cash Recycler volumes were up on the same period last year drivenprincipally by continued growth in North America. This offset the decline ofvolumes of the mature Teller Cash Dispensers market, particularly in Europe. TheSorter business continued to be affected by the competitive environment and ourfocus remains on achieving operational improvements and targeting the emergingmarkets in Russia, India and China. The OEM (ATM mechanisms) and DesktopProducts businesses had a good first half, benefiting from the pull forward oforders associated with outsourcing of manufacturing to China. Restructuring Update In Cash Systems, the major focus continues to be the implementation of themanufacturing rationalisation outlined in December 2004. Closure of both thePortsmouth (UK) and Eskilstuna (Sweden) manufacturing facilities and associatedrelocation of manufacturing to lower cost economies is on schedule. We continueto adopt a cautious approach in the execution of the programme to ensurecontinuity of supply of products to our customers. We expect to complete theclosure of the Portsmouth facility by the end of 2005/2006 and Eskilstuna duringthe first half of 2006/2007. As previously announced, these actions will result in annualised cost savings ofapproximately £9m by the end of 2006/2007 from total restructuring costs of£18.5m, in line with our previously announced expectations. Of the totalheadcount reduction of 480 arising from these actions, to date 230 people haveleft the business. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) De La Rue plc is today publishing its results under IFRS for the half year ended24 September 2005. All comparatives have been restated. A full report, whichcontains detailed explanations of the IFRS and UK GAAP numbers and discusses theimpact of the adoption of IFRS on De La Rue, was published in July 2005 and isavailable on the Company's web site, www.delarue.com. The notes to the attachedfinancial statements reconcile the previously reported UK GAAP results to therestated position in accordance with IFRS for the opening balance sheet at 27March 2004, the unaudited results for the six months ended 25 September 2004under IFRS as well as the unaudited financial position for the year ended 26March 2005. As outlined in the report, the adoption of IFRS in the Group accounts representsan accounting change only and will not affect the operations or cash flows ofthe Group. The principal areas of impact are in relation to Pensions accounting(IAS 19), Research and Development costs (IAS 38) and share option accounting(IFRS 2). The Group has adopted IAS 39 (Financial Instruments: Recognition andMeasurement) from 27 March 2005 and adjustments to prior periods do not includeany effects of that standard. The Group accounts for pensions in accordance with IAS 19 as set out in theattached note of accounting policies. The charge to operating profit in respectof the UK pension scheme for the first half of 2005/2006 was £4.8m (2004/2005:£5.4m). In addition, under IAS 19 there is a finance charge of £0.7m arisingfrom the interest on liabilities less the expected return on assets (2004/2005:£0.8m credit). The pension deficit, net of deferred tax asset, recorded underIAS 19 at the half year was £92.6m (March 2005: £84.7m). The increase wasprimarily due to a change in the discount rate from 5.5 per cent to 5 per centin line with the movement of the AA corporate bond rate. ASSOCIATES Profit from associates after tax was at the same level as the last half year at£2.9m in the period. The main associated company is Camelot, the UK lotteryoperator. INTEREST The Group's net interest income of £1.1m (2004/2005: £1.0m) reflected the strongcash position. In addition a charge of £0.7m has been made for the pensionscheme as noted above (2004/2005: £0.8m credit). TAXATION The underlying effective tax rate excluding exceptional items was 29.4 per cent(2004/2005 full year: 26.4 per cent). This increase in the effective rate arisesfrom a combination of changes to the country origin of profits and the releaselast year of tax provisions relating to settlement of prior year issues. Weexpect that, in the absence of unforeseen events, the tax rate for the full yearwill remain at a similar level. EXCEPTIONAL ITEMS £mReorganisation costs - Cash Systems (4.2)Income from investment previously impaired 0.4Income from disposal of investment 0.8 ----------Exceptional pre-tax costs (3.0) Reorganisation costs in Cash Systems relate to the fundamental restructuring ofthe business which commenced during 2004/2005. A charge of £14.3m was taken inthe second half of 2004/2005 with a further charge of £4.2m booked in the firsthalf of 2005/2006. Income from investments relates to a £0.4m loan repayment from the Group'sassociate holding in Valora. Profit from disposal of investments arises from the sale of the Group's stake ina small distributor in South Africa. CASH FLOW The net cash inflow from operating activities in the first half was £46.5m (2004/2005: £40.8m) as a result of the rise in operating profits and the successfuldrive to reduce working capital. The positive working capital flows wereprimarily due to an increase in advance payments and improved trade creditorterms. This was offset in part by expected higher inventory levels due to oursupply chain strategy in relation to a build up of buffer stocks as aconsequence of the restructuring activities in Cash Systems. Inventory levelsshould reduce as these activities are completed. Capital expenditure of £9.7mwas £1.0m higher than last year (2004/2005: £8.7m). After payment in the first half of the special dividend (£67.8m) and the 2004/2005 final dividend (£19.1m), closing net cash was £61.6m compared with £106.5mat last year end. OUTLOOK As previously indicated, trading in the second half is not expected to benefitfrom the high levels of banknote overspill and favourable customer mixexperienced in the second half of 2004/2005. However, given the strong firsthalf, good visibility in our principal markets and the benefits from ongoingrestructuring activities, the Board's expectations for the year as a wholeremain unchanged. -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 6,200 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 athttp://www.newscast.co.uk/ (+44 (0) 207 608 1000). 4. De La Rue Financial Calendar: 2005/2006Ex-dividend date 14 December 2005Record date 16 December 2005Payment of 2005 interim dividend 18 January 20062005/2006 Year End 25 March 2006 INTERIM STATEMENT SIX MONTHS TO 24 SEPTEMBER 2005 GROUP INCOME STATEMENT - UNAUDITEDFOR THE HALF YEAR ENDED 24 SEPTEMBER 2005 2005/06 2004/05 2004/05 Half Half Full Year Year YearNotes £m £m £m Continuing operations ---------- ---------- ---------- 4 Revenue 290.7 309.8 620.1 ---------- ---------- ---------- Operating profit before exceptional 27.3 24.1 54.8 items ---------- ---------- ---------- 6 - Exceptional costs (4.2) (13.5) (25.0) 6 - Income from investments 1.2 0.4 0.4 ---------- ---------- ---------- (3.0) (13.1) (24.6)--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- 4 Operating profit from continuing 24.3 11.0 30.2 operations Share of profits of associated companies 2.9 2.9 6.4 after taxation ---------- ---------- ---------- Profit on continuing activities before 27.2 13.9 36.6 finance costs --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Interest expense (1.6) (1.7) (3.2) Interest income 2.7 2.7 5.7 Retirement benefit obligation net finance (0.7) 0.8 1.5 cost ---------- ---------- ---------- 0.4 1.8 4.0--------------------------------------------- ---------- ---------- ---------- Profit on continuing activities before 27.6 15.7 40.6 taxation Taxation (8.1) (6.7) (12.9)--------------------------------------------- ---------- ---------- ---------- Profit from continuing operations 19.5 9.0 27.7--------------------------------------------- ---------- ---------- ---------- 5 Discontinued operations - (1.8) 6.9--------------------------------------------- ---------- ---------- ---------- Profit for the period 19.5 7.2 34.6--------------------------------------------- ---------- ---------- ---------- Profit attributable to minority 0.9 0.8 1.6 interests Profit attributable to equity 18.6 6.4 33.0 shareholders --------------------------------------------- ---------- ---------- ---------- --------------------------------------------- ---------- ---------- ---------- 19.5 7.2 34.6--------------------------------------------- ---------- ---------- ---------- 7 Basic earnings per ordinary share 10.6p 3.6p 18.5p Diluted earnings per ordinary share 10.6p 3.6p 18.4p The directors propose a dividend of 5.2p per share for the half year ended 24 September 2005 which will utilise an estimated £8.5m 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 25 March 2006. GROUP BALANCE SHEET - UNAUDITED AT 24 SEPTEMBER 2005 2005/06 2004/05 2004/05 Half Half Full Year Year Year £m £m £mASSETSNon-current assetsProperty, plant and equipment 144.0 155.3 148.7Intangible assets 23.8 22.9 24.0Investments: Associates 12.8 13.5 14.0 Other investments 0.4 0.2 0.3Deferred tax assets 55.8 54.7 53.5Other receivables 1.4 0.5 1.1----------------------------- ---------- ---------- ----------- 238.2 247.1 241.6----------------------------- ---------- ---------- -----------Current assetsDeferred tax assets 2.0 4.5 3.6Inventories 81.0 96.5 73.8Trade and other receivables 91.6 95.5 88.7Derivative financial instruments 2.6 - -Cash and cash equivalents 374.3 101.9 140.7----------------------------- ---------- ---------- ----------- 551.5 298.4 306.8----------------------------- ---------- ---------- -----------Total assets 789.7 545.5 548.4----------------------------- ---------- ---------- ----------- LIABILITIESCurrent LiabilitiesTrade and other payables (164.7) (164.6) (152.1)Current tax liabilities (10.4) (12.9) (10.7)Borrowings (295.3) (5.3) (17.8)Derivative financial instruments (4.2) - -Other creditors (17.3) (16.4) (14.2)Provisions for liabilities and charges (26.8) (25.3) (24.0)----------------------------- ---------- ---------- ----------- (518.7) (224.5) (218.8) Non-current liabilitiesLong term borrowings (17.4) (35.0) (16.4)Deferred tax liabilities (1.3) (1.4) (1.4)Other non-current liabilities (17.3) (11.0) (12.8)Defined benefit pension deficit (129.3) (109.3) (119.9)----------------------------- ---------- ---------- ----------- (165.3) (156.7) (150.5)Total liabilities (684.0) (381.2) (369.3)----------------------------- ---------- ---------- ----------- ----------------------------- ---------- ---------- -----------NET ASSETS 105.7 164.3 179.1----------------------------- ---------- ---------- ----------- EQUITYCapital and reserves attributable to equityholdersCalled up share capital 46.2 45.8 46.1Share premium account 19.0 14.8 17.0Revaluation reserve 1.8 1.8 1.8Capital redemption reserve 3.5 3.5 3.5Fair value and other reserves (1.4) - -Cumulative translation adjustment 2.7 2.1 3.4Other reserve (83.8) (83.8) (83.8)Retained earnings 113.7 175.9 187.4----------------------------- ---------- ---------- -----------Total shareholders' funds 101.7 160.1 175.4Equity minority interests 4.0 4.2 3.7----------------------------- ---------- ---------- -----------Total equity 105.7 164.3 179.1----------------------------- ---------- ---------- ----------- GROUP CASH FLOW STATEMENT - UNAUDITEDFOR THE HALF YEAR ENDED 24 SEPTEMBER 2005 2005/06 2004/05 2004/05 Half Half Full Year Year YearNotes £m £m £m --------------------------------------- ---------- ---------- ----------- Cash flows from operating activities 9 Cash generated from operations 46.5 40.8 98.7 Tax paid (0.8) (3.7) (7.6) --------------------------------------- ---------- ---------- ----------- Net cash inflow from operating 45.7 37.1 91.1 activities --------------------------------------- ---------- ---------- ----------- Cash flows from investing activities Disposal of subsidiary undertaking - - 7.2 Proceeds from sale of investment 0.8 - - Acquisition of minority interests - - (2.2) Purchases of property, plant and (9.7) (8.7) (20.5) equipment (PPE) & software intangibles Development assets capitalised (0.2) (1.3) (2.6) Proceeds from sale of PPE 1.7 6.9 7.1 Income from investments 0.4 0.4 0.4 Interest received 2.3 2.4 5.7 Interest paid (1.9) (1.6) (3.1) Dividends received 4.2 2.7 5.6 --------------------------------------- ---------- ---------- ----------- Net cash inflow/(outflow) from investing (2.4) 0.8 (2.4) activities --------------------------------------- ---------- ---------- ----------- Net cash inflow before financing 43.3 37.9 88.7 activities --------------------------------------- ---------- ---------- ----------- Cash flows from financing activities Proceeds from issue of share capital 2.1 0.2 2.7 Increase in borrowings 2.4 0.1 3.1 Finance lease principal payments (2.1) (2.2) (4.3) Repayment of borrowings (1.1) (3.9) (23.1) Dividends paid to shareholders (86.9) (17.4) (25.8) Dividends paid to minority interests (0.9) (0.3) (0.5) --------------------------------------- ---------- ---------- ----------- Net cash outflow from financing (86.5) (23.5) (47.9) activities --------------------------------------- ---------- ---------- ----------- Net increase in cash and cash equivalents (43.2) 14.4 40.8 in the period Cash and cash equivalents at the 126.3 84.5 84.5 beginning of the period Exchange rate effects (2.0) 0.6 1.0 --------------------------------------- ---------- ---------- ----------- Cash and cash equivalents at the end of 81.1 99.5 126.3 the period --------------------------------------- ---------- ---------- ----------- Cash and cash equivalents consists of: Cash and cash equivalents 374.3 101.9 140.7 Overdrafts (293.2) (2.4) (14.4) --------------------------------------- ---------- ---------- ----------- 81.1 99.5 126.3 --------------------------------------- ---------- ---------- ----------- GROUP STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE - UNAUDITEDFOR THE HALF YEAR ENDED 24 SEPTEMBER 2005 2005/06 2004/05 2004/05 Half Half Full Year Year Year £m £m £m --------------------------------------- ---------- ---------- ----------- Exchange differences (0.7) 2.1 3.4 Actuarial loss on retirement benefit (8.2) (11.4) (22.1) obligations Tax on actuarial loss on retirement 2.5 3.7 6.7 benefit obligations Cash flow hedges (1.8) - - Tax on share options 0.2 0.1 0.2 --------------------------------------- ---------- ---------- ----------- Net loss recognised directly in equity (8.0) (5.5) (11.8) Profit for the financial period 19.5 7.2 34.6 Restatement for the effects of IAS 32 and (0.2) - - IAS 39 --------------------------------------- ---------- ---------- ----------- Total recognised income and expense for 11.3 1.7 22.8 the period --------------------------------------- ---------- ---------- ----------- NOTES TO THE INTERIM STATEMENT - UNAUDITED 1 BASIS OF PRESENTATION The unaudited financial information for the half years ending 24 September 2005and 25 September 2004, and for the full year ending 26 March 2005, has beenprepared in accordance with the accounting policies as set out in note 2. Thesepolicies reflect the International Financial Reporting Standards andinterpretations that are expected to be in effect and endorsed by the EU for theyear ended 25 March 2006. However, these standards are subject to ongoing reviewand may, therefore, be subject to change either due to the process of EUendorsement, as new or revised standards are issued by the IASB or asinterpretations develop and change. The policies assume that the amendments toIAS 19 'Employee Benefit' published in December 2004 by the InternationalAccounting Standards Board, allowing actuarial gains and losses to be recognisedin full through reserves, will be endorsed by the EU. 2 ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of this interimfinancial information are set out below. These policies have been consistentlyapplied to all the periods presented, unless otherwise stated. The consolidated accounts have been prepared under the historical costconvention with the exception of certain items which are measured at fair valueas disclosed in the accounting policies below. Transitional arrangements The consolidated financial statements for the year ended 25 March 2006 will bethe group's first full IFRS statements. The date of transition to IFRS is 27March 2004. Comparative information at 26 March 2005 and for the year then endedand for the period ended 25 September 2004 has been restated under IFRS, withthe exception of IAS 32 and IAS 39. These two standards, which cover therecognition, measurement, disclosure and presentation of financial instruments,have been applied prospectively from 27 March 2005. Prior to this date,financial instruments have been accounted for under UK generally acceptedaccounting principles. In addition to the exemption taken not to apply IAS 32 and 39 retrospectivelybefore 27 March 2005, the Group has taken the following optional exemptionscontained in IFRS 1 'First-time Adoption of International Financial ReportingStandards' in preparing the group's balance sheet on transition to IFRS: • IFRS 3 'Business Combinations' has been applied prospectively from 27 March 2004 and consequently, acquisitions prior to the date of transition to IFRS have not been restated. • Cumulative translation differences on net investments in foreign subsidiaries have been set at zero at the date of transition to IFRS. • The group's policy for share-based payments has been applied to options granted after 7 November 2002 and not vested by 1 January 2005. The group has chosen to adopt early the amendment to IAS 19 'Employee Benefits'issued by the IASB on 16 December 2004 which permits the recognition of annualactuarial gains and losses in full outside of the income statement in thestatement of recognised income and expense. The reconciliations of total equity and reserves and income from UK GAAP to IFRSas required by IFRS 1 are set out in note 13 to this report. Basis of consolidation The results of all of the subsidiaries of the Company have been fullyconsolidated. The majority of these subsidiaries and the material associatedcompanies prepare their interim financial information to 24 September except forcertain associated companies and one subsidiary whose year end is 30 June. Inthe case of the subsidiary, whose financial statements are made up to 30 June,results for the period to 24 September 2005 have been fully consolidated. Theresults of businesses acquired are included from the effective date ofacquisition and the results of businesses sold are included up to the date ofdisposal. Associated companies An associated company is one in which the Group has a long term investment andis in a position to exercise significant influence over the company in which theinvestment is made. The Group's share of the profits less losses of associated companies is includedin the consolidated profit and loss account. Its interest in their net assets isincluded as an investment in the consolidated balance sheet at the Group's shareof the net assets at acquisition plus the Group's share of retained profits. Foreign currencies Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the functional currency). The consolidated financial statementsare presented in sterling, which is De La Rue plc's functional andpresentational currency. In individual entities, transactions in foreign currencies are translated intothe functional currency at the rates of exchange prevailing at the dates of theindividual transactions. Monetary assets and liabilities denominated in foreigncurrencies are subsequently retranslated at the rate of exchange ruling at thebalance sheet date. Such exchange differences are recorded within general andadministrative costs within the income statement.All exchange differences are taken to the income statement, except those arisingon long term foreign currency borrowings used to finance or hedge foreigncurrency investments which on consolidation are taken directly to shareholders'equity. The assets and liabilities of subsidiaries denominated in foreign currencies aretranslated into sterling at rates of exchange ruling at the balance sheet date.Income statements of overseas subsidiaries are taken directly to equity via thecumulative translation adjustment. On disposal of a subsidiary such amounts arerecycled to the income statement. As permitted by IFRS 1, the balance on thecumulative translation adjustment on retranslation of subsidiaries net assetshas been set to zero at the date of transition to IFRS. RevenueGroup turnover represents sales to external customers of manufactured productsand services which fall within the Group's ordinary trading activities. Thisexcludes VAT and other sales taxes. Revenue is recognised in the income statement to the extent that it is probablethat the economic benefits associated with the transaction will flow into theGroup and the amount can be reliably measured. In practise this means thatrevenue is recognised when goods or services are supplied to external customersin accordance with the terms of sale. When goods are supplied, this is when the significant risks and rewards ofownership are transferred to the buyer. Intangible assets All intangible assets, except goodwill, are stated at cost less accumulatedamortisation and any impairment losses. Goodwill is not amortised and is statedat cost less any accumulated impairment losses. Goodwill Goodwill represents the excess of the cost of acquisition of a businesscombination over the Group's share of the fair value of identifiable net assetsof the business acquired at the date of acquisition. After initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. At the date of acquisition the goodwill is allocated to cashgenerating units for the purpose of impairment testing and is tested at leastannually for impairment. Gains and losses on the disposal of a business include the carrying amount ofgoodwill relating to the business sold except for goodwill deducted fromshareholders' equity. Goodwill arising on the acquisition of subsidiaries ispresented in goodwill and goodwill arising on the acquisition of associates ispresented in investments in associates. Internally generated goodwill is notrecognised as an asset. Goodwill arising on acquisitions before 27 March 2004 (the date of transition toIFRS) has been retained at the previous UK GAAP amounts subject to being testedfor impairment at that date. Development costs Expenditure incurred in the development of products or enhancements iscapitalised as an intangible asset only when the future economic benefitsexpected to arise are deemed probable and the costs can be reliably measured.Development costs not meeting these criteria are expensed in the incomestatement as incurred. Capitalised development costs are amortised on a straightline basis over their estimated useful economic lives once the product orenhancement is available for use. Product research costs are written off asincurred. Other intangible assets Intangible assets purchased separately, such as software licences that do notform an integral part of related hardware, are capitalised at cost and amortisedover their useful economic life. Distribution rights are amortised over their useful economic lives as determinedby the life of the products to which they relate. Property, plant and equipment Property, plant and equipment are stated at cost or valuation, less accumulateddepreciation and any accumulated impairment losses. No depreciation is providedon freehold land. Freehold and long leasehold buildings are depreciated overtheir estimated useful economic lives of 50 years. Other leasehold interests aredepreciated over the lesser of the unexpired period of the lease and 50 years. Along leasehold is defined as one in which the remaining term of the lease ismore than 50 years. The Group's policy is to write off the cost or valuation of all other plant andequipment evenly over their estimated remaining useful life at rates which varybetween eight per cent and 50 per cent per annum. The principal annual rates ofdepreciation used are 10 per cent on plant and machinery, 10 per cent onfixtures and fittings, and 33 per cent on tooling and computer equipment. Nodepreciation is provided for assets in the course of construction. Residual values and useful lives are reviewed at least at each financial yearend. Asset impairment Assets that are subject to amortisation are reviewed for impairment wheneverevents or circumstances indicate that the carrying value may not be recoverable.In addition, goodwill is tested at least annually for impairment. An impairmentloss is recognised for the amount by which the asset's carrying value exceedsits recoverable amount, the latter being the higher of the assets fair valueless costs to sell and value in use. Value in use calculations are performedusing cash flow projections for the asset (or group of assets where cash flowsare not identifiable to specific assets), discounted at a rate which reflectsthe asset specific risks and the time value of money. Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are initially recognised as property, plant andequipment at an amount equal to the fair value of the leased asset or, if lower,the present value of minimum lease payments at the inception of the lease, andthen depreciated over their useful economic lives. Lease payments areapportioned between repayment of capital and interest. The capital element offuture lease payments is included in the balance sheet as a liability. Interestis charged to the income statement so as to achieve a constant rate of intereston the remaining balance of the liability. Rentals payable under operating leases are charged to the income statement on astraight line basis over the lease term. Operating lease incentives arerecognised as a reduction in the rental expense over the lease term. Taxation The tax expense included in the income statement comprises current and deferredtax. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted by the balance sheet date. Tax is recognised in the income statement except to the extent that it relatesto items recognised directly in equity, in which case it is recognised inequity. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes.Deferred tax is measured using tax rates that have been enacted or substantivelyenacted by the balance sheet date and that are expected to apply when the assetis realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thatfuture taxable profits will be available against which the temporary differencecan be utilised. Deferred tax is provided on temporary differences arising on investments insubsidiaries, associates and joint ventures, except where the Group is able tocontrol the timing of the reversal of the temporary difference and it isprobable that the temporary difference will not reverse in the foreseeablefuture. Inventories Stocks and work in progress are valued at the lower of cost, including relevantproduction overheads, and net realisable value. Employment benefits Pensions The Group operates a number of retirement benefit schemes. The major schemes are defined benefit pension funds with assets held separatelyfrom the Group. The cost of providing benefits under each scheme is determinedusing the projected unit credit actuarial valuation method. The current service cost and gains and losses on settlements and curtailmentsare included in operating costs in the consolidated income statement. Pastservice costs are similarly included where the benefits have vested, otherwisethey are amortised on a straight-line basis over the vesting period. Theexpected return on assets of funded defined benefit pension schemes and theimputed interest on pension scheme liabilities comprise the pension element ofthe net finance cost/income in the income statement. Differences between the actual and expected return on assets, changes in theretirement benefit obligation due to experience and changes in actuarialassumptions are included in the statement of recognised income and expense infull in the period in which they arise. The liability recognised on the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation less thefair value of the scheme assets at the balance sheet date. The Group's contributions to defined contribution plans are charged to theincome statement in the period to which the contributions relate. Share based paymentsThe Group operates various equity settled and cash settled option schemes. Forequity settled share options, the services received from employees are measuredby reference to the fair value of the share options. The fair value iscalculated at grant date and recognised in the consolidated income statement,together with a corresponding increase in shareholders' equity, on a straightline basis over the vesting period, based on an estimate of the numbers ofoptions that will actually vest. Vesting conditions, other than market basedconditions, are not taken into account when estimating the fair value. For cashsettled share options, the services received from employees are measured at thefair value of the liability and recognised in the consolidated income statementon a straight line basis over the vesting period. The fair value of theliability is re-measured at each reporting date and at the date of settlementwith changes in fair value recognised in the consolidated income statement. IFRS2 "Share-based payment" has been applied to equity settled share options grantedafter 7 November 2002 not yet vested at 1 January 2005 and to outstanding cashsettled share options as at 1 January 2005. Share option schemes The Group's Employee Share Ownership Plan ("ESOP") is a separately administeredtrust. Liabilities of the ESOP are guaranteed by the Company and the assets ofthe ESOP mainly comprise shares in the Company. The own shares held by the trust are shown as a reduction in Shareholders'funds. The shares will be held at historical rates until such time as they aredisposed of. Any profit or loss on the disposal of own shares is treated as amovement in reserves rather than as a profit and loss item. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and inhand, short term deposits and other short term liquid investments, with originalmaturities of 3 months or less and bank overdrafts. Provisions Provisions are recognised when the Group has a present obligation in respect ofa past event, it is more likely than not that an outflow of resources will berequired to settle the obligation and where the amount can be reliablyestimated. Provisions are discounted where the time value of money is consideredmaterial. Exceptional itemsItems which are both material by size and/or by nature and non-recurring arepresented as exceptional items within their relevant consolidated incomestatement category. The separate reporting of exceptional items charged tooperating profit helps provide a better indication of the Group's underlyingbusiness performance. Events which may give rise to the classification of itemsas exceptional include gains or losses on the disposal of businesses,restructuring of businesses and asset impairments. DividendsFinal dividends proposed by the Board of Directors and unpaid at the year endare not recognised in the financial statements until they have been approved bythe shareholders at the Annual General Meeting and paid. Interim dividends arerecognised in the period that they are paid. Derivative financial instruments (IFRS accounting policies applicable from 28March 2005)The Group uses derivative financial instruments such as foreign currencycontracts to hedge risks associated with foreign currency fluctuations. Suchderivative financial instruments are measured at fair value. The gains or losseson remeasurement are taken to the income statement except where the derivativeis designated as a cash flow hedge. The fair value of a derivative financialinstrument represents the difference between the value of the outstandingcontracts at their contracted rates and a valuation calculated using the forwardrates of exchange prevailing at the balance sheet date. For cash flow hedges that meet the conditions for hedge accounting, the portionof the gains or losses on the hedging instrument that are determined to be aneffective hedge are recognised directly in shareholders' equity and theineffective portion is recognised in the income statement. When the hedgedforecast transaction/firm commitment results in the recognition of anon-financial asset or liability then, at the time the asset or liability isrecognised, the associated gains or losses that had previously been recognisedin shareholders' equity are included in the initial measurement of theacquisition cost or other carrying amount of the asset or liability. For allother cash flow hedges, the gains or losses that are recognised in shareholders'equity are transferred to the income statement in the same period in which thehedged forecast transaction/firm commitment affects the income statement. Hedge accounting is discontinued when the hedging instrument is sold,terminated, exercised or no longer qualifies for hedge accounting. At that pointin time any cumulative gains or losses on the hedging instrument which have beenrecognised in shareholders' equity are kept in shareholders' equity until theforecast transaction occurs. If a hedged transaction is no longer expected tooccur, the cumulative gains or losses that have been recognised in shareholders'equity are transferred to the income statement for the year. For derivatives that do not qualify for hedge accounting, any gains or lossesarising from changes in fair value are taken directly to the income statement. Embedded derivatives An embedded derivative is a component of a hybrid (combined) instrument thatalso includes a non-derivative host contract-with the effect that some of thecash flows of the combined instrument vary in a way similar to a stand-alonederivative. An embedded derivative causes some or all of the cash flows thatotherwise would be required by the contract to be modified according to aspecified interest rate, financial instrument price, commodity price, foreignexchange rate, index of prices or rates, credit rating or credit index, or othervariable, provided in the case of a non-financial variable that the variable isnot specific to a party to the contract. To the extent embedded derivatives arenot considered closely related to the host contract they are recognised at fairvalue through the income statement. From time to time, the company enters into sales and purchase contractsdenominated in a currency that is neither the functional currency of theCompany, the functional currency of the customer/supplier or a currency that isnot deemed to be a commonly used currency of the country in which the customer/supplier is based. Where there are uninvoiced amounts of firm commitments onsuch contracts, a derivative is recognised at fair value through the incomestatement. The movement in the fair value of the derivative asset or liabilityis recognised in the income statement under general and administrative costs. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITEDFOR THE HALF YEAR ENDED 24 SEPTEMBER 2005 Note Attributable to Equity Shareholders 3 Share Treasury Share Revalua- Capital Fair Cumulative Other Profit capital shares premium tion redemption value transla- reserve & £m £m account reserve reserve and tion £m loss £m £m £m other adjust- account reserve ment £m £m £m Balance at 45.8 (19.1) 14.6 1.8 3.5 - - (83.8) 213.1 28 March 2004 ------ ------ ------ ------ ------ ------ ------- ------ ------- Exchange - - - - - - 2.1 - - differences Actuarial - - - - - - - - (11.4) loss on retirement benefit obligations Tax on - - - - - - - - 3.7 actuarial loss on retirement benefit obligations Tax on share - - - - - - - - 0.1 options ------ ------ ------ ------ ------ ------ ------- ------ ------- Net - - - - - - 2.1 - (7.6) profit/(loss) recognised directly in equity Profit for - - - - - - - - 6.4 the period ------ ------ ------ ------ ------ ------ ------- ------ ------- Total income - - - - - - 2.1 - (1.2) recognised for the period Share - - 0.2 - - - - - - capital issued Employee share scheme - value of - - - - - - - - 0.6 services provided Dividend - - - - - - - - (17.5) ------ ------ ------ ------ ------ ------ ------- ------ ------- Balance at 45.8 (19.1) 14.8 1.8 3.5 - 2.1 (83.8) 195.0 25 September 2004 ------ ------ ------ ------ ------ ------ ------- ------ ------- Balance at 45.8 (19.1) 14.8 1.8 3.5 - 2.1 (83.8) 195.0 26 September 2004 ------ ------ ------ ------ ------ ------ ------- ------ ------- Exchange - - - - - - 1.3 - - differences Actuarial - - - - - - - - (10.7) loss on retirement benefit obligations Tax on - - - - - - - - 3.0 actuarial loss on retirement benefit obligations Tax on share - - - - - - - - 0.1 options ------ ------ ------ ------ ------ ------ ------- ------ ------- Net - - - - - - 1.3 - (7.6) profit/(loss) recognised directly in equity Profit for - - - - - - - - 26.6 the period ------ ------ ------ ------ ------ ------ ------- ------ ------- Total income - - - - - - 1.3 - 19.0 recognised for the period Share 0.3 - 2.2 - - - - - - capital issued Employee share scheme - value of - - - - - - - - 0.8 services provided Dividend - - - - - - - - (8.3) ------ ------ ------ ------ ------ ------ ------- ------ ------- Balance at 46.1 (19.1) 17.0 1.8 3.5 - 3.4 (83.8) 206.5 26 March 2005 Adoption of - - - - - 0.4 - - (0.6) IAS 32 and IAS 39 ------ ------ ------ ------ ------ ------ ------- ------ ------- Balance at 46.1 (19.1) 17.0 1.8 3.5 0.4 3.4 (83.8) 205.9 27 March 2005 ------ ------ ------ ------ ------ ------ ------- ------ ------- Exchange - - - - - - (0.7) - - differences Actuarial - - - - - - - - (8.2) loss on retirement benefit obligations Tax on - - - - - - - - 2.5 actuarial loss on retirement benefit obligations Tax on share - - - - - - - - 0.2 options Fair value gains/(losses) )net of tax: - cash flow - - - - - (1.8) - - - hedges ------ ------ ------ ------ ------ ------ ------- ------ ------- Net - - - - - (1.8) (0.7) - (5.5) profit/(loss) recognised directly in equity Profit for - - - - - - - - 18.6 the period ------ ------ ------ ------ ------ ------ ------- ------ ------- Total income - - - - - (1.8) (0.7) - 13.1 recognised for the period Share 0.1 - 2.0 - - - - - - capital issued Employee share scheme: - value of - - - - - - - - 0.7 services provided Dividend - - - - - - - - (86.9) ------ ------ ------ ------ ------ ------ ------- ------ ------- Balance at 46.2 (19.1) 19.0 1.8 3.5 (1.4) 2.7 (83.8) 132.8 24 September 2005 ------ ------ ------ ------ ------ ------ ------- ------ ------- Note Minority Total interest equity 3 £m £m Balance at 28 March 2004 3.8 179.7 ------- ------- Exchange differences - 2.1 Actuarial loss on retirement benefit obligations - (11.4) Tax on actuarial loss on retirement benefit obligations - 3.7 Tax on share options - 0.1 ------- ------- Net profit/(loss) recognised directly in equity - (5.5) Profit for the period 0.8 7.2 ------- ------- Total income recognised for the period 0.8 1.7 Share capital issued - 0.2 Employee share scheme - value of services provided - 0.6 Dividend (0.4) (17.9) ------- ------- Balance at 25 September 2004 4.2 164.3 ------- ------- Balance at 26 September 2004 4.2 164.3 Exchange differences - 1.3 ------- ------- Actuarial loss on retirement benefit obligations - (10.7) Tax on actuarial loss on retirement benefit obligations - 3.0 Tax on share options - 0.1 ------- ------- Net profit/(loss) recognised directly in equity - (6.3) Profit for the period 0.8 27.4 ------- ------- Total income recognised for the period 0.8 21.1 Share capital issued - 2.5 Employee share scheme - value of services provided - 0.8 Dividend (1.3) (9.6) ------- ------- Balance at 26 March 2005 3.7 179.1 Adoption of IAS 32 and IAS 39 - (0.2) ------- ------- Balance at 27 March 2005 3.7 178.9 ------- ------- Exchange differences - (0.7) Actuarial loss on retirement benefit obligations - (8.2) Tax on actuarial loss on retirement benefit obligations - 2.5 Tax on share options - 0.2 Fair value gains/(losses) net of tax: - - cash flow hedges - (1.8) ------- ------- Net profit/(loss) recognised directly in equity - (8.0) Profit for the period 0.9 19.5 ------- ------- Total income recognised for the period 0.9 11.5 Share capital issued - 2.1 Employee share scheme: - value of services provided - 0.7 Dividend (0.6) (87.5) ------- ------- Balance at 24 September 2005 4.0 105.7 ------- ------- 4 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. Segmental analysis 2005/ 2004/ 2004/ 06 05 05 Half Half Full Year Year year £m £m £m Turnover by class of business -------- -------- -------- Continuing operations Cash Systems 141.0 142.0 302.2 Security Paper 149.7 167.8 317.9 and Print -------- -------- -------- 290.7 309.8 620.1 --------------------------------- -------- -------- -------- Operating profit/(loss) by class of business -------- -------- -------- Continuing operations Cash Systems 6.2 2.9 9.4 Security Paper 21.1 21.2 45.4 and Print -------- -------- -------- 27.3 24.1 54.8 --------------------------------- -------- -------- -------- Exceptional items -------- -------- -------- Reorganisation costs Cash Systems (4.2) (2.0) (14.3) Security Paper - - 0.8 and Print -------- -------- -------- (4.2) (2.0) (13.5) Income from disposal of Cash Systems 0.8 investments Income from investments Security Paper 0.4 0.4 0.4 previously impaired and Print Goodwill impairment Cash Systems - (11.5) (11.5) --------------------------------- -------- -------- -------- (3.0) (13.1) (24.6) --------------------------------- -------- -------- -------- 24.3 11.0 30.2 -------- -------- -------- Turnover by geographical area of operation United Kingdom and Ireland 164.6 198.4 380.4 Rest of Europe 103.3 116.3 247.9 The Americas 61.7 57.8 119.4 Rest of world 26.6 22.8 47.3 Less inter-area sales (65.5) (85.5) (174.9) --------------------------------- -------- -------- -------- 290.7 309.8 620.1 -------- -------- -------- Operating profit by geographical area of operation United Kingdom and Ireland 2.2 6.8 13.0 Rest of Europe 10.3 2.0 8.8 The Americas 5.5 0.5 3.8 Rest of world 6.3 1.7 4.6 --------------------------------- -------- -------- -------- 24.3 11.0 30.2 -------- -------- -------- Turnover by geographical area of destination United Kingdom and Ireland 37.5 35.4 70.0 Rest of Europe 87.7 88.3 182.2 The Americas 62.8 72.6 153.6 Rest of world 102.7 113.5 214.3 --------------------------------- -------- -------- -------- 290.7 309.8 620.1 -------- -------- -------- 5 Discontinued operations. The Group's investment in Sequoia Voting Systems Inc was disposed of in March 2005. 2005/ 2004/ 2004/ 06 05 05 Half Half Full Year Year year £m £m £m Turnover - Voting Systems - 8.5 23.1 -------- -------- -------- Operating profit - Voting Systems - (2.7) (0.2) Profit on disposal - Voting Systems - - 6.0 Warranty provisions no longer required on - - 2.9 businesses previously disposed Taxation on discounted activities - 0.9 (1.8) --------------------------------- -------- -------- -------- - (1.8) 6.9 -------- -------- -------- 6 Exceptional items 2005/ 2004/ 2004/ 06 05 05 Half Half Full Year Year year £m £m £m Continuing operations Reorganisation costs - Cash Systems (4.2) (2.0) (14.3) - Security Products - - 0.8 Income from investments previously impaired 0.4 0.4 0.4 Profit on disposal of investments 0.8 - - Goodwill impairment - (11.5) (11.5) --------------------------------- -------- -------- -------- (3.0) (13.1) (24.6) --------------------------------- -------- -------- -------- Discontinued operations Profit on disposal of Sequoia Voting Systems - - 6.0 Warranty provisions no longer required on - - 2.9 businesses previously disposed --------------------------------- -------- -------- -------- - - 8.9 --------------------------------- -------- -------- -------- Reorganisation costs in Cash Systems relate to the fundamental restructuring ofthe business which commenced during 2004/05. Income from investments arises from loan repayments from the Group's associateholding in Valora. Profit from disposal of investments arises from the sale of the Group's stake ina small distributor in South Africa. As a result of reassessment of future prospects, the carrying value of thegoodwill relating to De La Rue Systems - Automatizacao SA was impaired by anexceptional charge of £11.5m during the first half of 2004/05. 7 Earnings per share 2005/06 2004/05 2004/05 Half Year Half Year Full year pence per pence per pence per share share share ------------------------------- -------- -------- -------- Basic earnings per share 10.6 3.6 18.5 Diluted earnings 10.6 3.6 18.4 Headline earning per share 11.8 10.6 25.9 --------------------------------- -------- -------- -------- Earnings per share are based on the profit for the period attributable toordinary shareholders of £18.6m (2004/05: £6.4m) as shown in the Group incomestatement. The weighted average number of ordinary shares used in thecalculations is 174,774,959 (2003/04: 178,051,608) for basic earnings per shareand 176,329,061 (2004/05: 179,190,699) for diluted earnings per share afteradjusting for dilutive share options. Reconciliation of earnings per share Basic earnings per share 10.6 3.6 18.5 Income from investment previously impaired (0.2) (0.2) (0.2) Profit on disposal of investments (0.4) - - Profit on disposal of discontinued operations - - (5.0) Impairment of goodwill - 6.4 6.4 Reorganisation costs 1.8 0.8 6.2 --------------------------------- -------- -------- -------- Headline earnings per share before items above 11.8 10.6 25.9 --------------------------------- -------- -------- -------- 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. 8 Equity dividends 2005/ 2004/ 2004/ 06 05 05 Half Half Full Year Year year £m £m £m ----------------------------------------------- -------- -------- -------- Final dividend for the year ended 26 March 2005 19.1 - - of 10.6p paid on 5/8/2005 Special dividend of 38.0p paid on 5/8/2005 67.8 - - Final dividend for the year ended 27 March 2004 - 17.5 17.5 of 9.8p paid on 6/8/2004 Interim dividend for the period ended 25 - - 8.3 September 2004 of 4.7p paid on 19/1/2005 ----------------------------------------------- -------- -------- -------- 86.9 17.5 25.8 ----------------------------------------------- -------- -------- -------- In accordance with IFRS the interim dividend has not been accrued in theseinterim consolidated financial statements. 9a Notes to Group cash flow statement 2005/06 2004/05 2004/05 Half Half Full Year Year year £m £m £m Cash generated from operations Profit before tax 27.6 13.0 49.3 Adjustments for: Finance income and expense (0.4) (1.8) (4.0) Depreciation and amortisation 13.6 13.2 28.6 Goodwill impairment - 11.5 11.5 (Increase)/decrease in stocks (6.7) 3.5 25.5 (Increase)/decrease in debtors (6.5) 14.6 22.7 Increase/(decrease) in creditors 22.0 (7.2) (20.7) Increase/(decrease) in reorganisation 1.0 (2.8) (0.9) provisions Profit on the disposal of discontinued - - (8.9) operations Share of income from associates after tax (2.9) (2.9) (6.4) Income from investments (1.2) (0.4) (0.4) Other non-cash movements - 0.1 2.4 --------------------------------- -------- -------- -------- Cash generated from operations 46.5 40.8 98.7 --------------------------------- -------- -------- -------- 9b Notes to Group cash flow statement 2005/06 2004/05 2004/05 Half Year Half Year Full year £m £m £m Advisory of net cash Cash and cash equivalents 374.3 101.9 140.7 Borrowings due within one year (295.3) (5.3) (17.8) Borrowings due after one year (17.4) (35.0) (16.4) --------------------------------- -------- -------- -------- Net cash at end of period 61.6 61.6 106.5 --------------------------------- -------- -------- -------- 10 This financial information does not constitute the Group's statutory accountswithin the meaning of s240 of the Companies Act 1985. 11 The statutory accounts for the year ended 26 March 2005 have been deliveredto the Registrar of Companies. The report of the auditors on those accounts wasunqualified and did not contain a statement under either section 237(2) or 237(3) of the Companies Act 1985. 12 This interim statement was approved by the Board on 28 November 2005 and isbeing posted to all shareholders. Copies are available from the CompanySecretary, De La Rue plc, De La Rue House, Jays Close, Viables, Basingstoke,Hampshire, RG22 4BS. 13 TRANSITION FROM UK GAAP TO IFRS Presented below are the reconciliations of profit for the year ended 26 March2005 and for the half year to 25 September 2004 between the previously publishedUK GAAP results and IFRS as required by IFRS 1. Also presented are thereconciliations of equity as at the date of transition (28 March 2004), 25September 2004 and 26 March 2005, again as required by IFRS 1. For explanationsof the nature of the reconciling items, refer to the IFRS restatementinformation issued on 13 July 2005 (available on the De La Rue website). Sincepublication of that document a further adjustment to recognise an increase inthe IAS 19 pension deficit has been made in relation to death in servicebenefits. The impact of this change is to increase the net pension deficitpreviously disclosed by £5.7m at 26 March 2005 and by £5.8m at 25 September 2004and 28 March 2004 Total equity and reserves 26 Mar 25 Sep 28 Mar 2005 2004 2004 £'m £'m £'m-------------------------------------------- ------- ------ ------- Total equity and reserved under UK GAAP 228.4 217.1 217.6Adjustments to conform to IFRSAdditional pension deficit (66.4) (59.4) (52.2)Other employee benefits (2.2) (2.0) (2.4)Capitalisation of development costs 6.6 6.2 5.5Share based payments - - -Property, plant and equipment (2.7) (2.7) (2.7)Goodwill (0.6) (1.3) (2.0)Dividends 19.0 8.4 17.7Taxation (3.0) (2.3) (1.8)Other - 0.3 --------------------------------------------- ------- ------ -------Total equity and reserves under IFRS 179.1 164.3 179.7-------------------------------------------- ------- ------ ------- Profit for the period Year ended Year ended 26 Mar 25 Sep 2005 2004 £'m £'m-------------------------------------------- ------- -------Profit for the period under UK GAAP 33.5 5.7Adjustments to conform to IFRSPension costs - IAS 19 1.9 1.0Other employee benefits (0.1) 0.3Capitalisation of development costs 1.1 0.7Share based payments (1.4) (0.6)Goodwill 1.4 0.7Taxation on above (1.8) (0.8)Other - 0.2-------------------------------------------- ------- -------Profit for the period under IFRS 34.6 7.2-------------------------------------------- ------- ------- Under IAS 7 'Cash Flow Statements', movements in cash and cash equivalents arereconciled; under UK GAAP the statement reconciles cash only. The change to theIAS 7 approach makes no difference to the levels of free cash generated by theGroup. 14 RECONCILIATION OF THE CONSOLIDATED BALANCE SHEET AT 27 MARCH 2005 ON ADOPTION OF IAS 32 AND IAS 39 Impact of adoption of IAS 32 and IAS 39 Under Foreign Forward Embedded Cash Under IFRS exchange foreign derivatives offset IFRS at swaps exchange at 26/3/05 contracts £m £m 27/3/05 £m £m £m £m ----------------------- ------- ------- ------- -------- ------ ------- ASSETS Non-current assets Property, plant and 148.7 148.7 equipment Intangible assets 24.0 24.0 Investments: Associates 14.0 14.0 Other 0.3 0.3 investments Deferred tax assets 53.5 53.5 Other receivables 1.1 1.1 ----------------------- ------- ------- ------- -------- ------ ------- 241.6 - - - - 241.6 ----------------------- ------- ------- ------- -------- ------ ------- Current assets Deferred tax assets 3.6 3.6 Inventories 73.8 73.8 Trade and other 88.7 (0.3) 88.4 receivables Derivative financial - 2.1 0.5 2.6 instruments Cash and cash 140.7 237.2 377.9 equivalents ----------------------- ------- ------- ------- -------- ------ ------- 306.8 - 1.8 0.5 237.2 546.3 Total assets 548.4 - 1.8 0.5 237.2 787.9 ----------------------- ------- ------- ------- -------- ------ ------- LIABILITIES Current liabilities Trade and other payables (152.1) (152.1) Current tax liabilities (10.7) (10.7) Borrowings (17.8) (237.2) (255.0) Derivative financial - (0.5) (1.1) (0.2) (1.8) instruments Other creditors (14.2) (0.7) (14.9) Provisions for liabilities (24.0) (24.0) and charges ----------------------- ------- ------- ------- -------- ------ ------- (218.8) (0.5) (1.8) (0.2) (237.2) (458.5) Non-current liabilities Long term borrowings (16.4) (16.4) Deferred tax liabilities (1.4) (1.4) Other non-current (12.8) (12.8) liabilities Defined benefit pension (119.9) (119.9) deficit ----------------------- ------- ------- ------- -------- ------ ------- (150.5) - - - - (150.5) Total liabilities (369.3) (0.5) (1.8) (0.2) (237.2) (609.0) ----------------------- ------- ------- ------- -------- ------ ------- NET ASSETS 179.1 (0.5) - 0.3 - 178.9 ----------------------- ------- ------- ------- -------- ------ ------- EQUITY Capital and reserves attributable to equity holders Called up share capital 46.1 - - - - 46.1 Share premium accounts 17.0 17.0 Revaluation reserve 1.8 1.8 Capital redemption 3.5 3.5 reserve Fair value and other - (0.5) 1.0 (0.1) 0.4 reserves Cumulative translation 3.4 3.4 adjustment Other reserve (83.8) (83.8) Retained earnings 187.4 (1.0) 0.4 186.8 ----------------------- ------- ------- ------- -------- ------ ------- Total shareholders' 175.4 (0.5) - 0.3 175.2 funds Equity minority 3.7 3.7 interests ----------------------- ------- ------- ------- -------- ------ ------- Total equity 179.1 (0.5) - 0.3 - 178.9 ----------------------- ------- ------- ------- -------- ------ ------- 14 RECONCILIATION OF THE CONSOLIDATED BALANCE SHEET AT 27 MARCH 2005 ON ADOPTIONOF IAS 32 AND IAS 39 (continued) An explanation of the impact of the principal differences and adjustmentsresulting from the adoption of IAS 32 and IAS 39 as they apply to De La Rue'sbalance sheet at 27 March 2005 is set out below. Foreign exchange swapsUnder UK GAAP, cross currency swaps were recognised at the rates of exchangeruling at the balance sheet date together with accrued interest. Under IAS 39,the fair value of foreign exchange swaps is recognised. The impact of the above is a reduction in net assets of £0.5m. Forward foreign exchange contractsUnder UK GAAP forward foreign exchange contracts were generally only recognisedon settlement. Under IAS 39, the fair value of all foreign exchange contracts isrecognised. On adoption of IAS 39, forward foreign exchange contracts with a net fair valueof £1m have been recognised on the balance sheet, increasing net assetsaccordingly by £1.0m. In addition, £1.0m of closing exchange rate to forward exchange rate adjustmentsmade under UK GAAP have been reversed to comply with IAS 39. The impact of thisis a decrease in net assets of £1.0m Embedded derivativesUnder UK GAAP, embedded derivatives were not recognised. Under IAS 39, the fairvalue of embedded derivatives not closely related to their host contracts isrecognised. A net embedded derivative financial asset of £0.3m has been recognised as at 27March 2005. Cash offsetUnder UK GAAP, cash and overdraft balances maintained in notional pooling cashmanagement arrangements with banks were offset so that only the net amounts wereshown in the consolidated balance sheet. Under IAS 32, the requirements to showa net balance presentation also include the intention to settle all suchbalances on a net basis. As a result, cash and cash equivalents and borrowingsboth increase by £237.2m, with no effect on net assets. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
De La Rue