De La Rue plc

1
De La Rue plc
Interim Results 25 November 2003
2
De La Rue plc
Ian Much Chief Executive
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De La Rue plc
Stephen King Finance Director
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Trading Summary

• Underlying trading ahead of last year
• Turnover increased by 7.6 from 269.6m to
  290.1m
• Profit before tax, exceptional items and
  goodwill amortisation
• of 19.7m (2002/2003 19.6m), achieved
  despite additional pension costs of 3.7m.
  Result ahead of the Boards original
• expectations at the start of the year
• Strong cash flow performance with net cash
  inflow from operating activities of 35.0m
  (2002/2003 2.5m) in the first
• half (aided by customer prepayments). The
  Group ended the first half with net cash of
  13.9m
• Interim dividend 4.4p (2002/2003 4.4p)

before exceptional charges of 17.9m (2002/2003
18.7m) and goodwill amortisation of 1.7m
(2002/2003 1.7m)
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Trading Summary

• Strong first half in Security Paper and Print
  underpinned by higher levels of activity in
  the papermaking business and our success in
• winning the Iraq banknote contract
• Operating profits in Cash Systems ahead of our
  expectations reflecting the benefit of the
  ongoing cost reduction programmes,
• although down on last years result
• Global Services strategic review completed. An
  exit from low margin and declining product
  areas announced today. Global
• Services to cease as a separate division.

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Financial Summary

• 1st Half 1st
  Half
• 2003/04
  2002/03
• m m
• Sales
• Continuing operations 272.8
  269.6
• Acquisitions 17.3
  -
• 290.1 269.6
• Operating profit
• Continuing operations 13.0
  14.9
• Acquisitions
  1.2
  - 14.2
  14.9
• Share of profits of associated companies
  5.6 3.6
• Interest (0.1)
  1.1
• Profit before tax, exceptional items
• and goodwill amortisation
  19.7 19.6
• Earnings per share 8.1p
  7.3p
• Dividend per share 4.4p
  4.4p
• Net cash/ (debt) 13.9
  (21.0)

before exceptional charges of 17.9m (2002/2003
18.7m) and goodwill amortisation of 1.7m
(2002/2003 1.7m)
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Security Paper and Print
before exceptional items of 0.8m (2002/2003
17.7m) and goodwill amortisation credit of 0.2m
(2002/2003 nil)

• Excellent first half in Currency
• Significantly high level of activity in
  papermaking business
• Commencement of deliveries in first half
  relating to exceptional Iraq banknote contract
  (completed in second half)
• Strong order book in Currency going into
  second half in both papermaking and printing
• Continuing weak markets in Security Products
  led to poor first half performance. Some
  improvement in second half expected due to
  lower overheads. Completed closure of High
  Wycombe on schedule.

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Cash Systems
before exceptional items of 1.9m (2002/2003
1.0m) and goodwill amortisation of 1.6m
(2002/2003 1.5m)

• Revenues down as tough trading conditions seen
  in second half of 2002/2003 continued
• Better than expected operating profits
  achieved through early benefit of cost reduction
  programme
• Weakness of financial institutions markets,
  particularly in Europe continues to be partially
  offset by North American business. Strong
  Teller Cash Dispenser volumes in first half.
  Self service business formed from Papelaco
  acquisition also performed well
• Foreign Exchange - transactional loss largely
  offset by translation benefit

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Global Services
before exceptional items of 12.6m (2002/2003)
nil) and goodwill amortisation of 0.3m
(2002/2003 0.2m)

• Revenues up 19 due to inclusion of Sequoia but
  continuing poor margins
• Holographics revenues were down in the first
  half due to the timing of banknote order receipts
• particularly in the first quarter
• Identity business volumes down in installed
  base of contracts. New system sales continue
• to be deferred
• Sequoia loss making in first half due to
  continued margin pressure as a result of
  competitive
• pricing. Closure of Exeter and outsourcing
  of ballot printing facility now complete

10
Associates

• Main associated company is Camelot, the UK
  lottery operator
• Strong first half reflects phasing of marketing
  expenditure. Sales flat on last year

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Earnings per Share
The EPS of (2.2)p as calculated under FRS14 is
the 3.9m loss for the period divided by
176,792,599 shares in issue
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Cash flow / Net Debt

• 2003/04 2002/03
• Half year
  Half year
• m m
• Net free cash flow 46.4 4.8
• Exceptional cash flows (11.5)
  (2.7)
• Capital expenditure (14.0)
  (7.6)
• Equity dividends paid (16.2)
  (25.4)
• Share buy back/ own shares -
  (32.4)
• Acquisitions and disposals (4.9)
  (31.4)
• Sale of investments - 14.4
• Associate dividends received 3.5 6.5
• Share capital issued 0.6 1.0
• Exchange 1.8 1.8
• Cash inflow / (outflow) 5.7
  (71.0)
• Net cash / (debt) 13.9
  (21.0)

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Exceptional Items
Cash

Non
Total

Cash

m

m

m



Reorganisation costs
Cash Systems
(1.9)

-

(1.9)

Security Products
(0.8)

-

(0.8)




Loss on disposal of fixed assets
-

(2.6)

(2.6)




Sequoia goodwill impairment
-

(12.6)

(12.6)

_________

_________

_________

Exceptional pre
tax costs
(2.7)

(15.2)

(17.9)

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Pensions

• Triennial review was assessed at 6 April 2003
• Reflects poor performance of financial markets
  during the period
• Deficit approximately 40m as expected
• Equity markets improving
• Net charge to PL under SSAP 24 in current year
  will be 9.5m
• (2002/2003 1.9m)
• Similar charge to operating profit under FRS 17
• Company now reviewing the UK pension scheme
  arrangements and discussions with key
  stakeholders under way
• At half year, SSAP 24 charge was 4.7m compared
  with 1.0m in 2002/2003

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Currency Volumes
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De La Rue plc
Ian Much Chief Executive
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Currency

• Papermaking business improving as expected
• Strong order book
• Return to market of significant overspill
  customer
• Knock-on effect for currency components
  business in second half
• Banknote business continues to perform strongly
• Iraq
• Good first half at Debden, integration
  proceeding well
• Strong order book and earnings visibility
  underpins second half
• Expect both paper and print markets to return
  to historical ordering
• patterns and volumes in 2004/2005.

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Cash Systems - Markets

• As expected, tough market conditions in financial
  institutions business continues, particularly in
  Europe
• Germany and Spain
• Partially offset elsewhere, particularly North
  America
• Papelaco self service offering continues to be
  rolled out to developed markets
• Investment in enhancing our solutions and service
  portfolio for Retail market continues
• Focus on large retailers in Europe and North
  America
• Customer Services business remains significant
  profit driver of division

19
Cash Systems - Cost Reduction

• Actions to date
• Cost reduction programme on track
• 300 redundancies announced (February 2003)
• Additional 50 identified in first half
• Of total, 250 now completed
• Balance to follow in second half
• Specific action taken to reduce cost base in
  large sorter business
• Dallas manufacturing facility
• Much more encouraging first half

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Global Services Strategic Review

• Two principal conclusions
• Cessation of Global Services division
• Exit from low margin and decliningproduct areas
  in Security Products
• Costs
• 10m restructuring charge - taken in the second
  half, substantially cash
• 12 month completion timescale
• Savings will benefit the Group by approximately
  3.0m per annum
• 12.6m goodwill in relation to Sequoia (non-cash)

21
Security Products

• UK site consolidation
• Exit from Peterborough and Byfleet
• 200 redundancies likely, subject to employee
  consultation
• Transfer of gravure equipment into Dunstable to
  support Royal Mail contract
• Consolidate all UK security printing to Dunstable
• Does not require significant transfer of
  equipment or overheads
• Flexible expansion space available
• Considerable margin synergies
• Reduced inter-plant transportation
• Increased utilisation of plant and equipment
  already at Dunstable

22
Security Products

• Security Products will focus on
• Authentication labels
• Travellers cheques
• Postage stamps (domestic supply)
• Passports
• Authentication labels contract recently secured
  with global software company
• Exit from
• UK personalised cheques
• Vouchers
• Export stamps
• Coin bags

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Global Services Strategic Review

• Security Paper and Print division will now
  comprise
• Banknote printing and papermaking
• Tapes and Holographics
• Intrinsically linked to the banknote market
• Benefits from their market presence/ reputation
• Security Products
• Principal production at Dunstable, Dulles and
  Bathford (paper)
• All constituent businesses will be profitable in
  2004/2005

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Global Services Strategic Review

• Sequoia reported within Cash Systems
• Natural fit with self service and customer
  service
• Hardware sales encouraging but competitive
  pressure affecting margins
• Expect profitable second half
• Fair value assessment accelerated to reflect new
  competitive environment resulting in 12.6m
  non-cash goodwill write-off

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Outlook

• Continuation into the second half of the
  favourable conditions that resulted in an
  improvement in underlying first half performance
  leads the Board to expect a strong second half
  result

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De La Rue plc