25th May 2005 07:01
De La Rue PLC25 May 2005 DE LA RUE PLC PRELIMINARY STATEMENT Year to 26 March 2005 KEY FINANCIALS 2004/ 2003/ Change 2005 2004 £m £mSales 643.2 682.5 -5.8%Profit before tax, exceptional items andgoodwill amortisation* 66.5 58.7 +13.3%Profit before tax 49.4 22.5Headline earnings per share* 26.0p 24.2p +7.4%Earnings per share 17.9p 6.8pNet cash flow 65.4 32.9Net cash at end of period 106.5 41.1Dividends per share 15.3p 14.2p 7.7%*before exceptional charges of £15.7m (2003/2004 : £33.7m) and goodwillamortisation of £1.4m (2003/2004 : £2.5m) HIGHLIGHTS * Good trading performance in Currency, underpinned by a strong opening order book, favourable work mix and high levels of overspill throughout the year. * Operational and strategic rationalisation in Cash Systems and Security Products making good progress. * Net cash flow of £65.4m (2003/2004 : £32.9m), particularly enhanced by planned reductions in inventory and debtors. * Increase in the final dividend of 8.2 per cent to 10.6 pence per share, bringing the full year dividend to 15.3 pence per share, an increase of 7.7 per cent in the year (2003/2004 : 14.2p). * Intended return of capital of approximately £70m through a special dividend, equivalent to 38.0 pence per share accompanied by a corresponding share consolidation. Nicholas Brookes, Chairman of De La Rue plc, commented: "I am pleased to report an excellent full year performance in which management'sfocus on improving operational productivity resulted in a strong net cashinflow. Another strong year in the Currency division, together with the benefitsderived from the reorganisation programmes across the Group, were key featuresof the results. We continue to implement our strategy of concentrating resourceson our core activities, addressing under-performing businesses and putting inplace the foundations for delivering improved productivity, competitiveness andshareholder value. "The Board has announced its intention to pay a special dividend ofapproximately £70m accompanied by a share consolidation. We believe thecombination of immediate reward together with progressive dividend growth is aclear demonstration of our commitment to shareholder value. "Our key management focus going forward is to ensure that the operationalchanges we have initiated are successfully implemented to yield their fullpotential. The Group has good visibility for first half orders, particularly inthe Currency activities although as previously anticipated we do not expect arepeat in 2005/2006 of all the favourable conditions we saw in Currency during2004/2005. We remain confident of the outlook for the year." For further information, please contact: Leo Quinn Group Chief Executive +44 (0)1256 605303Stephen King Group Finance Director +44 (0)1256 605303Mark Fearon Group Head of Corporate Affairs +44 (0)1256 605303Richard Mountain Financial Dynamics +44 (0) 207 269 7291 25 May 2005 Summary of Results De La Rue is pleased to report a strong performance for the year ended 26 March2005. Underlying profit before tax* increased by £7.8m to £66.5m (2003/2004 :£58.7m). Overall the Group's trading performance was strong with underlyingoperating profits of £54.6m an increase of £5.3m compared with last year (2003/2004 : £49.3m). This excellent performance was achieved notwithstanding a £9.1madverse impact from foreign exchange (translation and transaction effects), inparticular related to the increased weakness of the US Dollar, throughout theyear. After charging exceptional items and goodwill amortisation, profit beforetax was £49.4m (2003/2004 : £22.5m). Headline earnings per share* increased by 7.4 per cent from 24.2p to 26.0preflecting the improved trading performance. Basic earnings per share were 17.9pcompared with 6.8p in 2003/2004 and includes the benefit from the disposalduring the year of discontinued activities. An excellent performance in both Currency and Security Products activitiescontributed to the strong operating result in the Security Paper and Printdivision, where underlying operating profits (before exceptional income of £1.2mand a goodwill amortisation credit of £0.5m) were up 7.5 per cent to £45.6m.This reflected the benefit of Currency orders delayed from the second half ofthe previous year, (when the majority of the Iraq order was processed), animproved work mix and continued high levels of overspill activity throughout theyear. The successful implementation of the rationalisation programme in theSecurity Print business, initiated last year and completed in the second half ofthe current year, coupled with strong volumes of authentication labels andfiscal stamps, also contributed to an improved performance in the SecurityProducts business. In Cash Systems, underlying operating profits (before exceptional items of£25.8m and goodwill amortisation of £1.9m) of £9.2m were slightly ahead of lastyear, despite an adverse foreign exchange impact of £4.1m compared to 2003/2004.In December 2004, we announced a major reorganisation of the division, aimed atlowering the cost base and establishing a clear focus on improving manufacturingproductivity. We are making good progress in implementing these actions. Cash generation was again strong with net cash inflow from operating activitiesof £96.1m(2003/2004 : £92.1m). This particularly reflected reductions in inventory anddebtors, partly offset by a reduction from last year's high level, of customeradvance payments. The Group ended the year with net cash on the balance sheet of£106.5m compared with net cash of £41.1m last year. *before exceptional charges of £15.7m (2003/2004 : £33.7m) and goodwillamortisation of £1.4m (2003/2004 : £2.5m) Returns to Shareholders Subject to shareholders' approval, the Board is recommending an increased finaldividend of 10.6p per share**, which will be paid on 5 August 2005 toshareholders on the register on 8 July 2005. Together with the increased interimdividend paid in January 2005, this will give a total dividend for the year of15.3p, an overall increase of 7.7 per cent on last year. The Board has also announced today its intention to return approximately £70m toshareholders, equivalent to 38.0 pence per share, through a special dividendaccompanied by a share consolidation. The capital return is consistent with theBoard's stated strategy to return surplus cash to shareholders. The Board alsointends to seek shareholder approval for the renewal of its existing generalauthority to make market purchases of shares. *\* The final dividend will be paid on the issued share capital before anyconsolidation arising from the special dividend. In order to maintain comparability with historic earnings and dividend per shareand with historic share prices, the special dividend will be accompanied by ashare consolidation which will reduce the number of De La Rue shares in issue by10 per cent, on a basis of 9 new shares for every 10 presently held. The paymentof the special dividend is dependent on the approval of the consolidation at anExtraordinary General Meeting which will be held immediately after the AnnualGeneral Meeting on 28 July 2005. We believe this combination of immediate reward and progressive dividend growthis a clear demonstration of our commitment to shareholder value. Group Strategy As we outlined at the interim results, the broad focus of De La Rue's activitiesgoing forward will be on those products and services, for which we can establishor maintain and build a strong competitive position. Our programme foroperational and strategic rationalisation, announced at the interim results, ismaking good progress. We believe that by driving operational efficiency thisprovides the best route to deliver improved shareholder value. The Group'sstrong cash generative characteristics and ungeared balance sheet also give theBoard scope to return surplus cash flow to shareholders through a combination ofprogressive dividends, and where appropriate, capital returns. The keymanagement focus for 2005/2006 is to ensure that the operational changes we haveinitiated are successfully implemented to yield their full potential. * Security Paper and Print In Security Paper and Print our focus remains on maintaining our market share inCurrency and sustaining our competitive advantage through an increasedinvestment in R&D. In addition, we continue to drive productivity within thedivision through investment in automation. During the year, we finalised the restructuring of the Security Productsactivities with the closure of the Peterborough and Byfleet sites and therelated exit from low margin businesses, including UK personal cheques, exportstamps and UK vouchers. At the same time we have increased our investment insales and marketing for authentication labels, passports and fiscal stamps,further leveraging our core intellectual property. * Cash Systems In Cash Systems, we are implementing the restructuring actions outlined inDecember 2004. We have removed the divisional infrastructure and reorganised thedivision into focused Strategic Business Units, each with its own budget anddirect accountability to the CEO. These comprise: Branch Teller Automation,Sorters; Original Equipment Manufacture (OEM) and Desktop Products. The plannedclosure of the Portsmouth manufacturing facility and relocation of associatedmanufacturing to lower cost economies is progressing well and we are on courseto close the site by the end of 2005/2006. We intend to close the Eskilstuna OEMmanufacturing site in Sweden and outsource assembly to a strategic partner inChina. Consultation with the workforce of 139 has commenced and the site isplanned for closure by the end of 2005/2006. Action has also been taken to restructure our Portuguese ATM business followingthe anticipated loss of a significant portion of service revenue. A newmanagement team is in place and, as a consequence of the actions taken, weexpect the business to trade profitably in 2005/2006. The costs associated withthese actions are included in the charges below. It is now anticipated that these actions will result in annualised cost savingsof approximately £9m by the end of 2006/2007, £1.0m more than previouslyexpected. Total restructuring costs of £17.9m are anticipated, in line with ourpreviously announced expectations. We have achieved £1.5m savings in the currentyear from these initiatives, which is expected to increase to an annualised runrate of £5m in 2005/2006, increasing to an annualised run rate of £9m in 2006/2007. Including the proposed closure of Eskilstuna, we are now targeting a totalheadcount reduction of 480 from these actions. During the year 180 people leftthe business. * Sale of Sequoia Voting Systems During the second half, we also successfully completed the sale of the SequoiaVoting Systems business for a consideration of £8.7m (US$16m) resulting in anexceptional gain of £6.0m. Trading losses during this final year of ownershipwere lower than expected reflecting significantly reduced costs, the unwindingof stock levels and the earlier than anticipated sale. * Improving Productivity Improving operational productivity is central to achieving our strategy. Duringthe year, we engaged the entire organisation in the Group's objectives, puttingin place clear actions and a methodology to drive improved operationalperformance across all our businesses. We believe that in doing so we willunlock the potential to deliver higher levels of customer satisfaction and,ultimately, better financial returns. The Group's strong cash flow is an indication of the benefits of these focusedactions. A working capital reduction of £27.4m, and in particular lower levelsof inventory across all our operating businesses, were a direct result of ourdrive for productivity improvement. Board Changes As previously announced, Nicholas Brookes succeeded Sir Brandon Gough asnon-executive Chairman after the Annual General Meeting on 22 July 2004. LeoQuinn was appointed as Group Chief Executive on 31 May 2004. In addition,Michael Jeffries became Chairman of the Remuneration Committee and the Company'ssenior independent non-executive director on 22 July 2004. Sir Jeremy Greenstockalso joined the Board on 1 March 2005 as a non-executive director. Sir Jeremy,61, is one of Britain's foremost diplomats, with a distinguished career spanning35 years in a variety of high profile roles. His wealth of experience and highinternational standing will prove invaluable to De La Rue. Associates Profit from associates before interest and tax were lower at £9.4m (2003/2004 :£10m). The main associated company is Camelot, the UK lottery operator whichreported an improved sales performance on the previous year, reflecting theintroduction of new games and sales channels. Dividends received from associatesof £5.6m were lower than last year's income of £7.2m. Profits and dividends werelower as a result of one-off income in the previous year. Interest Charge The Group's net interest income was £2.5m which was £3.1m higher than theprevious year and reflected the Group's strong cash generation throughout theyear. Taxation Excluding exceptional items and goodwill amortisation, the underlying effectivetax rate was28.0 per cent (2003/2004 : 26.2 per cent). Exceptional Items A summary of the main cash costs and non cash charges are set out below: Cash Non Cash Total £m £m £mReorganisation costs - Cash Systems 14.3 - 14.3Reorganisation costs - Security Products - (0.8) (0.8)Income from investment previously impaired (0.4) - (0.4)Portuguese ATM business goodwill impairment - 11.5 11.5Profit on disposal of discontinued operations (6.0) (2.9) (8.9) ------- ------- -------Exceptional pre-tax costs 7.9 7.8 15.7 ------- ------- ------- Reorganisation costs in Cash Systems relate to the restructuring announced atthe interim results.A charge of £14.3m has been taken in 2004/2005 with the final element of £3.6mto be charged in 2005/2006 in line with the requirements of accountingstandards. The goodwill impairment of £11.5m relates to the Portuguese ATM business,acquired from Papelaco in 2002, which was written off in the first half. Thisarose from the loss of a significant amount of business from a key customer.Steps have now been taken to return the business to profitable trading in 2005/2006 and the costs associated with these actions are included in therestructuring costs outlined above. Profit on disposal relates primarily to the disposal of Sequoia Voting Systemsin March 2005. Cash Flow and Borrowings During the year net cash inflow from operating activities was £96.1m comparedwith £92.1m in 2003/2004. This included a significant cash inflow from inventoryand debtors, partially offset by a reduction in advance payments. Capitalexpenditure of £20.5m was lower than last year due to phasing of expenditurebetween periods with the average of the last two years in line with depreciationand our expectations. During the first half the Company completed the disposal of the freehold of itsHigh Wycombe facility in the UK. This follows the previously announcedrestructuring of manufacturing facilities in Security Products, after which thecompany ceased production at the site last year. The sale of the Sequoia Votingbusiness was completed in the second half for proceeds of US$16m (£8.7m) ofwhich US$2m (£1.1m) is deferred until 30 June 2006. Total proceeds from assetdisposals were £12.1m in cash. The overall net cash flow was positive at £65.4m (2003/2004 : £32.9m), resultingin closing net cash of £106.5m at the year end compared with net cash of £41.1mat the start of the year. Foreign Exchange Principal exchange rates used in translating the Group's results------------- --------- -------- -------- -------- -------- --------£ 2004/ 2005 2003/ 2004 2002/ 2003 2005 2004 2003 Average Year end Average Year end Average Year End------------- --------- -------- -------- -------- -------- -------- US dollar 1.84 1.87 1.69 1.81 1.54 1.57Euro 1.47 1.44 1.44 1.50 1.56 1.46Swedish Krona 13.35 13.13 13.19 13.87 14.26 13.43------------- --------- -------- -------- -------- -------- -------- $Swedish Krona 7.26 7.02 7.80 7.66 9.26 8.55------------- --------- -------- -------- -------- -------- -------- When managing foreign exchange transactional risk, protection is taken in theforeign exchange markets whenever a business has a firm expectation ofconfirming a sale or purchase in a non-domestic currency unless it isimpractical or uneconomical to do so. Translation of overseas earnings is nothedged. For the year ended 26 March 2005 adverse foreign exchange impacted theGroup profits by £9.1m. Based on our budgeted exchange rates we expect furtheradverse impacts on 2005/2006 of approximately £7.0m. UK Pension Scheme The Group accounts for pensions in accordance with SSAP24, having deferred theintroduction of FRS17 (Retirement Benefits) in accordance with the transitionalmeasures set out by the Accounting Standards Board. The charge to the profit andloss account in respect of the UK pension scheme for 2004/2005 was £10.4m (2003/2004 : £9.9m). Extracts from the Operational Reviews SECURITY PAPER AND PRINT 2004/2005 2003/2004 Change £m £m £mSales 317.9 340.3 (22.4)Underlying operating profit* 45.6 42.4 3.2 *before exceptional income of £1.2m (2003/2004 : £10.0m charge) and amortisationof negative goodwill of £0.5m (2003/2004 : £0.5m) Currency The Currency business had another excellent year, despite reduced volumes inboth banknote printing and paper, following the completion of the exceptionalIraq order in 2003/04. Banknote printing volumes were down 8 per cent (2003/2004: increase of 14%), the reduction having been significantly mitigated by thebenefit of high backlog orders, improved work mix and a high level of overspill.Banknote paper volumes were down 15 per cent (2003/20004 : increase of 38%), butbenefited from both improved manufacturing efficiency and increased orders forhigh specification paper, requiring more sophisticated banknote threads. Theformer Bank of England works at Debden continued to perform in line with ourexpectations. The Currency business ended the year with a strong order book which providesgood visibility for the first half year. Security Products The Security Products business, in particular, performed well. Completion of itsmanufacturing rationalisation in the second half, the exit from unprofitableactivities and the volume benefits of increased sales and marketing investmentin authentication labels, fiscal stamps and passports all contributed toimproved results. CASH SYSTEMS 2004/2005 2003/2004 Change £m £m £mSales 302.2 302.6 (0.4)Underlying operating profit* 9.2 8.8 0.4 * before exceptional items of £25.8m (2003/2004 : £11.3m) and goodwillamortisation of £1.9m (2003/2004 : £2.6m) Cash Systems' full year revenues of £302.2m were ahead of last year, excludingadverse translational exchange differences of £10.7m. Underlying operatingprofits of £9.2m were in line with our expectations and 4.5 per cent ahead oflast year's result, primarily driven by savings from the ongoing cost reductionprogrammes. This was achieved despite significantly adverse foreign exchangeimpacts, in particular relating to transaction differences between the US$ andthe Swedish Krona, of approximately £4.1m. Operating cash flow was strong andsubstantially ahead of last year, driven by favourable working capitalmanagement. Teller automation revenues continue to be the major driver of product sales andservice revenues in the division. Volumes for Teller Cash Dispensers declinedthroughout the mature continental European markets. However, we saw volumegrowth in the Teller Cash Recycler markets in both Europe and North America,despite increased competition from new entrants. The North American market,where our products are well suited, continues to be the principal focus forgrowth. During the year both the USA and Canada grew in line with ourexpectations, and as we continue to see potential for further penetration inthese markets going forward, we will be increasing our marketing investment. Sorter volumes were significantly down on last year in what is becoming anincreasingly competitive environment. The unit's new management team is activelyworking to reduce the cost base of the business, while maintaining productdevelopment, in order to capitalise particularly on growth from emerging marketssuch as India, Russia and Brazil. The business remains a core part of ourCurrency offering to Central Banks. The OEM and Desktop Products businesses performed in line with our expectationsfor these mature businesses. Our focus continues to be to drive productivityimprovements and lower our structural cost base in order to deliver products atcompetitive prices. Sequoia Voting Systems Following the strategic review in December 2004, we announced our intention toexit the business by the year end and this was done through the sale of thebusiness to Smartmatic Corporation, a US based device networking and electionsystems company. The business had revenues of £23.1m (2003/2004 : £44.2m) andmade an operating loss of £0.2m in the year (2003/2004 : £(1.9)m). International Financial Reporting Standards (IFRS) These are the final set of results which the Group will report under UK GAAP. The Group will be reporting under IFRS for the year ended 25 March 2006,starting with the interim results to September 2005. A thorough review of allrelevant standards has been undertaken in order to assess the likely impact, andthe restatement of the results for 2004/2005 is nearing completion. A fullcommunication of this restatement will be presented in July. To aid understanding of the transition to IFRS, a summary of the key areas ofimpact are set out below. These IFRS adjustments are unaudited and may change asthe Group finalises its analysis of the effect of IFRS. The adoption of IFRS in the Group accounts represents an accounting change onlyand will not affect the operations or cash flows of the Group. The Group has adopted IAS39 (Financial Instruments : Recognition andMeasurement) from 27 March 2005 and adjustments to prior periods will notinclude any effects of that standard. The principal areas of impact are: Profit and Loss Account * Accounting for share options (IFRS2) - requires a charge to be recognised based on the fair value of each share option grant, which is likelyto lead to an additional charge of approximately £1.8m to operating profits.* Research and development costs (IAS38) - development costs will becapitalised provided certain criteria are met leading to a small net credit tooperating profits, after increased amortisation.* Pensions (IAS 19) - no significant change to the operating profitcharge. The total charge will now include an operating charge and a financecharge (within interest) the latter representing the difference between theexpected return on assets and the interest on scheme liabilities. This elementwill be hard to predict. Experience gains and losses will be charged or creditedto SORIE (Statement of Recognised Income & Expenses).* Goodwill (IAS38) - goodwill will no longer be amortised through theProfit and Loss account but an annual impairment review needs to be carried out.Amortisation of goodwill included in the results for 2004/2005 was £1.4m.* Associates (IAS28) - the Group's share of profits from associatesmust now be shown after tax within the Group's profit before tax, rather thanshowing the tax charge of associates within the Group's overall taxation charge.The tax charge on associate profits in 2004/2005 was £3.0m The impact will be toreduce the disclosed profit before tax, with no change to profit after tax. Balance Sheet * Pensions (IAS19) - the deficit will be recognised on the balancesheet leading to a reduction in net assets of approximately £65m.* Dividends (IAS10) - dividends proposed after the balance sheet dateare not accrued under IFRS but accounted for when declared. This has a one-offimpact of increasing net assets by the final dividend of approximately £19m.* Financial Instruments (IAS 39) - our internal procedures have beenchanged and we expect to account for all significant currency hedges under'hedge accounting'. There are some embedded derivatives within Currency divisionand some increased volatility potential, but these are not expected to have amaterial impact on results or net assets. Overall, the transition to IFRS is not expected to have a material impact onGroup earnings. Outlook The Group has good visibility for first half orders, particularly in theCurrency activities although as previously anticipated we do not expect a repeatin 2005/2006 of all the favourable conditions we saw in Currency during 2004/2005. We remain confident of the outlook for the year. -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 ofsecurity documents such as passports, fiscal stamps, travellers cheques andauthentication labels. The Company is a leading provider of cash handlingequipment and software solutions to banks and retailers worldwide, helping themto reduce the cost of handling cash. De La Rue employs over 6,200 people across31 countries and has an ongoing turnover of approximately £650m. De La Rue is amember of the FTSE 250. Its ordinary shares are listed with the UK ListingAuthority and trade on the market for listed securities on the London StockExchange under the symbol DLAR. For further information visit De La Rue'swebsite at www.delarue.com. 2. A presentation to analysts will take place at 9:00am today at The LondonStock 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 6 July 2005Record date 8 July 2005Annual Report issued 17 June 2005IFRS Announcement 13 July 2005Annual General Meeting 28 July 2005Payment of 2004 final dividend 5 August 20052005 Interim Results 29 November 2005 GROUP PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 26 MARCH 2005 Notes 2005 2005 2005 2004 2004 2004 £m £m £m £m £m £m Before Exceptional Before Exceptional Exceptionals Items Total Exceptionals Items Total Turnover Continuing 620.1 620.1 638.3 638.3 operations Discontinued operations 23.1 23.1 44.2 44.2 ------------------ -------- ------- ------ -------- ------- ------- 1 643.2 643.2 682.5 682.5 ------------------ -------- ------- ------ -------- ------- ------- Operating profit Continuing operations 54.8 54.8 51.2 51.2 Reorganisation costs (13.5) (13.5) (15.2) (15.2) -------- ------- ------ -------- ------- ------- Income from investments previously impaired 0.4 0.4 - - -------- ------- ------ -------- ------- ------- 54.8 (13.1) 41.7 51.2 (15.2) 36.0 Discontinued operations (0.2) (0.2) (1.9) (1.9) ------------------ -------- ------- ------ -------- ------- ------- Operating profit 54.6 (13.1) 41.5 49.3 (15.2) 34.1 before goodwill amortisation Goodwill amortisation (1.4) (11.5) (12.9) (2.5) (18.7) (21.2) ------------------ -------- ------- ------ -------- ------- ------- 1,2 Group operating 53.2 (24.6) 28.6 46.8 (33.9) 12.9 profit Share of operating 9.4 9.4 10.0 10.0 profits of associated companies ----------------- -------- ------- ------ -------- ------- ------- Total operating profit 62.6 (24.6) 38.0 56.8 (33.9) 22.9 -------- ------- ------ -------- ------- ------- Profit on the disposal - 8.9 8.9 - - - of discontinued operations Profit on disposal - - - 0.2 0.2 of fixed assets -------- ------- ------ -------- ------- ------- Non-operating items - 8.9 8.9 - 0.2 0.2 ----------------- -------- ------- ------ -------- ------- ------- Profit on ordinary 62.6 (15.7) 46.9 56.8 (33.7) 23.1 activities before interest Net interest: Group 2.5 2.5 (0.6) (0.6) ----------------- -------- ------- ------ -------- ------- ------- Profit on ordinary 65.1 (15.7) 49.4 56.2 (33.7) 22.5 activities before taxation 3 Tax on profit on (18.4) 2.5 (15.9) (15.0) 5.0 (10.0) ordinary -------- ------- ------ -------- ------- ------- activities ----------------- Profit on ordinary 46.7 (13.2) 33.5 41.2 (28.7) 12.5 activities after taxation Equity minority interests (1.6) (1.6) (0.4) (0.4) ----------------- -------- ------- ------ -------- ------- ------- Profit for the 45.1 (13.2) 31.9 40.8 (28.7) 12.1 financial year Dividends (27.4) (27.4) (24.8) (24.8) ----------------- -------- ------- ------ -------- ------- ------- Transferred to/ (from) reserves 17.7 (13.2) 4.5 16.0 (28.7) (12.7) ----------------- -------- ------- ------ -------- ------- ------- 4 Earnings per 25.3p (7.4)p 17.9p 23.0p (16.2)p 6.8p ordinary share 4 Diluted earnings 25.2p (7.4)p 17.8p 23.0p (16.2)p 6.8p per ordinary share 4 Headline earnings 26.0p (6.2)p 19.8p 24.2p (5.8)p 18.4p per ordinary share Dividends per ordinary share 15.3p 14.2p ----------------- -------- ------- ------ -------- ------- ------- A reconciliation between earnings per share, as calculated according toFinancial Reporting Standard No 14 "Earnings per Share" (FRS 14) issued by theAccounting Standards Board, earnings per share, as calculated according to thedefinition of headline earnings in Statement of Investment practice No 1 "TheDefinition of Headline Earnings" issued by the Institute of InvestmentManagement and Research, and headline earnings per share as disclosed above isshown in note 4. GROUP BALANCE SHEET AT 26 MARCH 2005 2005 2004 £m £m Fixed assets Intangible assets 15.4 28.2Tangible assets 154.6 164.4Investments: Associates 14.0 13.2 Other investments 0.3 0.2------------------------------------------ ------- -------- 184.3 206.0------------------------------------------ ------- --------Current assets Stocks 73.8 99.7Debtors 89.8 116.6Deferred taxation 30.8 33.1Cash at bank and in hand 140.7 85.5------------------------------------------ ------- -------- 335.1 334.9Creditors: amounts falling due within one year Short term borrowings (17.8) (8.3)Other creditors (194.2) (214.5)------------------------------------------ ------- --------Net current assets 123.1 112.1------------------------------------------ ------- -------- Total assets less current liabilities 307.4 318.1 Creditors: amounts falling due after more than one year Long term borrowings (16.4) (36.1)Other creditors (12.8) (13.6)Provisions for liabilities and charges (49.8) (50.8)------------------------------------------ ------- -------- 228.4 217.6------------------------------------------ ------- --------Capital and reserves Called up share capital 46.1 45.8Share Premium 17.0 14.6Revaluation reserve 1.8 1.8Capital redemption reserve 3.5 3.5Other reserve (83.8) (83.8)Profit and loss account 240.1 232.2------------------------------------------ ------- --------Equity Shareholders' funds 224.7 214.1 Equity minority interests 3.7 3.5------------------------------------------ ------- -------- 228.4 217.6------------------------------------------ ------- -------- GROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 26 MARCH 2005 Notes 2005 2004 £m £m-------------------------------------- -------- ------- 5a Net cash inflow from operating activities 96.1 92.1 Dividends received from associated companies 5.6 7.25b Returns on investments and servicing of finance 2.1 (1.5) Taxation (7.6) (11.2)5c Capital expenditure and financial investment (13.0) (31.8)5d Acquisitions and disposals 5.0 (5.1) Equity dividends paid (25.8) (24.1) -------------------------------------- -------- ------- Net cash inflow before use of liquid resources and 62.4 25.6 financing5e Management of liquid resources (42.9) (30.3)5f Financing (21.6) 7.6 -------------------------------------- -------- ------- (Decrease)/increase in cash in the period (2.1) 2.9 -------------------------------------- -------- ------- Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the period (2.1) 2.9 Cash outflow from increase in liquid resources 42.9 30.3 Cash outflow/(inflow) from decrease/(increase) in debt 24.3 (5.1) -------------------------------------- -------- ------- Change in net funds resulting from cash flows 65.1 28.1 Translation difference 0.3 4.8 -------------------------------------- -------- ------- Movement in net funds in the period 65.4 32.9 Net funds at start of period 41.1 8.2 -------------------------------------- -------- ------- Net funds at end of period 106.5 41.1 -------------------------------------- -------- ------- Analysis of net funds Cash 40.3 28.0 Liquid resources 100.4 57.5 Overdrafts (14.4) (1.0) Other debt due within one year (3.4) (7.3) Other debt due after one year (16.4) (36.1) -------------------------------------- -------- ------- Net funds at end of period 106.5 41.1 -------------------------------------- -------- ------- GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFOR THE YEAR ENDED 26 MARCH 2005 2005 2004 £m £m Profit for the financial year: Group 25.5 5.0 Associates 6.4 7.1 -------- -------- 31.9 12.1Currency translation differences on foreign currencynet investments 3.4 (0.5)------------------------------------------ -------- --------Total recognised gains for the year 35.3 11.6------------------------------------------ -------- -------- There is no material difference between the reported profit shown in theconsolidated profit and loss account and the profit for the relevant periodsrestated on an historical cost basis. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFOR THE YEAR ENDED 26 MARCH 2005 2005 2004 £m £m Profit for the financial year 31.9 12.1Dividends (27.4) (24.8)---------------------------------------- -------- -------- 4.5 (12.7)Share capital issued 2.7 2.5Currency translation differences on foreign currency netinvestments 3.4 (0.5)---------------------------------------- -------- --------Net increase/(decrease) in shareholders' funds 10.6 (10.7)Opening shareholders' funds 214.1 224.8---------------------------------------- -------- --------Closing shareholders' funds 224.7 214.1---------------------------------------- -------- -------- NOTES TO THE PRELIMINARY STATEMENT 1 SEGMENTAL ANALYSIS 2005 2005 2005 2004 2004 2004 Turnover Profit Net Turnover Profit Net before tax assets before tax assets Continuing £m £m £m £m £m £m operations - before exceptionals Cash Systems 302.2 9.2 19.0 302.6 8.8 72.1 Security Paper & 317.9 45.6 91.7 340.3 42.4 94.6 Print Less inter-segment - (4.6) sales -------- ------- ------- -------- ------- ------ 620.1 54.8 110.7 638.3 51.2 166.7 -------- ------- ------- -------- ------- ------ Discontinued operations Voting Systems 23.1 (0.2) - 44.2 (1.9) (0.6) -------- ------- ------- -------- ------- ------ 643.2 54.6 110.7 682.5 49.3 166.1 Exceptional costs Cash Systems (14.3) (5.2) Security Paper & 1.2 (10.0) Print -------- ------- ------- -------- ------- ------ - (13.1) - (15.2) - -------- ------- ------- -------- ------- ------ Goodwill amortisation Cash Systems (13.4) (8.7) Security Paper & Print 0.5 0.5 -------- ------- ------- -------- ------- ------ Voting Systems - (13.0) -------- ------- ------- -------- ------- ------ - (12.9) - - (21.2) - -------- ------- ------- -------- ------- ------ 643.2 28.6 110.7 682.5 12.9 166.1 -------- ------- ------- -------- ------- ------ Associated companies 9.4 14.1 10.0 13.2 (analysed below) Non-operating 8.9 0.2 items Net interest 2.5 (0.6) including ------- ------- associates Profit before 49.4 22.5 taxation ------- ------- Unallocated net (2.9) (2.8) assets ------- ------ Capital employed 121.9 176.5 Net funds 106.5 41.1 ------- ------ Net assets 228.4 217.6 -------------------- -------- ------- ------- -------- ------- ------ Geographical area by operation United Kingdom and 380.4 13.5 43.5 406.1 9.7 58.1 Ireland Rest of Europe 247.9 7.3 31.9 232.8 20.7 61.7 The Americas 142.5 3.2 21.8 161.8 (18.3) 30.8 Rest of world 47.3 4.6 13.5 39.3 0.8 15.5 Less inter-area (174.9) (157.5) sales -------- ------- ------- -------- ------- ------ 643.2 28.6 110.7 682.5 12.9 166.1 -------------------- -------- ------- ------- -------- ------- ------ The profit before tax in 2005 is shown after exceptional costs of £13.1m (2004:£15.2m) comprising UK and Ireland £6.1m (2004: £9.5m), Rest of Europe £5.1m(2004: £4.3m), Americas £1.9m (2004: £1.4m), Rest of World £Nil (2004: £Nil). Inter-area sales of £174.9m (2004: £157.5m) comprise: UK & Ireland £59.9m (2004:£53.1m), Rest of Europe £90.2m (2004: £67.7m), Americas £11.7m (2004: £19.3m),Rest of World £13.1m (2004: £17.4m).------------------- -------- ------- ------- -------- ------- ------Geographical area bydestinationUnited Kingdom and Ireland 70.0 83.1Rest of Europe 182.2 179.0The Americas 176.7 178.9Rest of world 214.3 241.5 -------- -------- 643.2 682.5------------------- -------- ------- ------- -------- ------- ------Associated companies are analysed asfollows:Security Paper and Print - 0.1 - -UK lottery 9.4 14.0 10.0 13.2 ------- ------- ------- ------ 9.4 14.1 10.0 13.2 ------- ------- ------- ------Geographical area by operationUnited Kingdom and Ireland 9.4 14.0 10.0 13.2Rest of Europe - (0.1) - (0.1)Rest of world - 0.2 - 0.1 ------- ------- ------- ------ 9.4 14.1 10.0 13.2------------------- -------- ------- ------- -------- ------- ------ The Group's cash and borrowings are managed centrally and therefore interest isnot attributable to individual classes of business or geographical segments. Unallocated net assets and liabilities, which consist of assets and liabilitiesrelating to non-divisional operations, are controlled centrally and cannot beallocated meaningfully to individual classes of business or geographicalsegments. 2 OPERATING COSTS EXCLUDING AMORTISATION OF GOODWILL 2005 2004 £m £m Cost of sales Continuing operations 419.2 428.4 Reorganisation costs 13.5 13.0 ---------- ---------- 432.7 441.4 Discontinued operations 12.6 31.5 ---------- ---------- 445.3 472.9 ---------- ---------- Distribution costs Continuing operations 29.4 21.4 Discontinued operations 0.2 ---------- ---------- 29.4 21.6 ---------- ---------- Administration and other expenses Continuing operations 116.7 137.3 Reorganisation costs - 2.2 Income from investments previously impaired (0.4) - ---------- ---------- 116.3 139.5 Discontinued operations 10.7 14.4 ---------- ---------- 127.0 153.9----------------------------------- ---------- ---------- 601.7 648.4----------------------------------- ---------- ---------- 3 TAXATION 2005 2004 £m £m Tax on profit on ordinary activities United Kingdom Current tax Corporation tax at 30% (2004: 30%) 5.0 6.5 Adjustments in respect of prior years - (4.0) ---------- ---------- 5.0 2.5 Double taxation relief (0.2) (0.5) ---------- ---------- 4.8 2.0 ---------- ---------- Overseas tax 5.1 3.2 Adjustments in respect of prior years 1.3 0.3 ---------- ---------- 6.4 3.5 ---------- ---------- Tax on share of associates 2.6 2.9 ---------- ---------- 13.8 8.4 ---------- ---------- Deferred tax Origination and reversal of timing difference 4.2 0.4 Adjustments in respect of prior years (2.5) 1.2 Tax on share of associates 0.4 - ---------- ---------- 2.1 1.6 ---------- ---------- Total tax charge 15.9 10.0 ---------- ---------- The net exceptional tax credit included within the above totalled £2.5m of which£2.5m is included within deferred tax (2004: £5.0m credit, of which £2.3m wasincluded within deferred tax). The current tax charge for the year is lower than the standard rate of taxationin the UK of 30% (2004: higher). A summary reconciliation is shown below. 2005 2004 £m £m Profit on ordinary activities before tax 49.4 22.5----------------------------------- ---------- ----------Expected tax charge at 30% 14.8 6.8Rate adjustments relating to overseas profits (2.3) (1.6)Overseas dividends 0.1 1.5Disallowables & other items (0.1) 5.4Adjustments in respect of prior years 1.3 (3.7)----------------------------------- ---------- ----------Current tax charge 13.8 8.4----------------------------------- ---------- ---------- 4 EARNINGS PER SHARE 2005 2004 ----------------------------------- ---------- ---------- Basic 17.9p 6.8p Diluted 17.8p 6.8p ----------------------------------- ---------- ---------- Earnings per share are based on the profit for the year attributable to ordinaryshareholders of £31.9m (2004: profit of £12.1m) as shown in the Group profit andloss account. The weighted average number of ordinary shares used in thecalculations is 178,325,990 (2004: 177,032,098) for basic earnings per share and179,400,038 (2004: 177,453,669) for diluted earnings per share after adjustingfor share options.-------------------------------------- -------- ---------- pence pence per perReconciliation of earnings per share share share-------------------------------------- -------- ---------- As calculated under FRS 14 17.9 6.8Income from investments previously impaired (0.2) -Profit on the disposal of discontinued operations (5.0) -Profit on the disposal of fixed assets and assets held forresale - (0.1)Amortisation of goodwill 7.1 11.7-------------------------------------- -------- ----------Earnings per share as defined by the IIMR 19.8 18.4Reorganisation costs 6.2 5.8-------------------------------------- -------- ----------Headline earnings per share before items shown above 26.0 24.2-------------------------------------- -------- ---------- The Institute of Investment Management and Research (IIMR) has publishedStatement of Investment Practice No. 1 entitled "The Definition of HeadlineEarnings". The IIMR earnings per share shown above have been calculatedaccording to the definition set out in the IIMR's statement. The reconcilingitems between earnings per share as calculated according to FRS 14 and headlineearnings per share include the underlying tax effects. The directors are of the opinion that the publication of the IIMR's earningsfigure and the headline earnings is useful to readers of interim statements andannual accounts as they give a more meaningful indication of underlying businessperformance. 5 NOTES TO GROUP CASH FLOW STATEMENT 2005 2004 £m £m a Reconciliation of operating profit to net cash inflow from operating activities Operating profit 28.6 12.9 Depreciation and amortisation 40.0 45.3 Decrease/(increase) in stocks 25.5 (3.8) Decrease in debtors 22.7 10.2 (Decrease)/increase in creditors (20.8) 30.0 Decrease in reorganisation provisions (0.9) (2.5) Other items 1.0 - ------------------------------------- -------- ---------- Net cash inflow from operating activities 96.1 92.1 ------------------------------------- -------- ----------b Returns on investments and servicing of finance Interest received 5.7 2.0 Interest paid (3.1) (2.4) Dividends paid to minority shareholders (0.5) (1.1) ------------------------------------- -------- ---------- Net cash inflow/(outflow) from returns on investments 2.1 (1.5) and servicing of finance -------- ----------Related Shares:
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