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INTERIM RESULTS1999/00
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INTERIM HEADLINES
Headline earnings per share of 11.7p up 5.4p or 86%
on comparable period
Operating profits from continuing activities up £9.7m at
£25.3m
Appointed external Managing Director to head up new
Services and Solutions business
Approximately £100m from £200m disposal proceeds
of cards activities to be returned to shareholders
Interim dividend unchanged at 4.0p per share.
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PAUL HOLLINGWORTHFinance Director
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HIGHLIGHTS1999
£m 1998
£m Change SalesContinuing operationsDiscontinued operations
Operating profit*Continuing operationsDiscontinued operations
PBT*
EPS*
Dividend
Net cash/(debt)
252.984.7
337.6
25.35.1
34.7
11.7p
4.0p
39.3
261.2109.0
370.2
15.6(3.0)
19.3
6.3p
4.0p
(133.1)
(8.3)
9.7
15.4
5.4p
-
172.4
£337.6
* Before exceptional items/reorganisation costs
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SECURITY PAPER & PRINT
1st half 1999/00
£m
1st half 1998/99
£m change
£m
Sales
Operating profit(before reorganisation costs)
121.9
24.9
125.0
18.3
(3.1)
6.6
Summary
Margins continue to rise benefiting from reorganisation actionsReorganisation largely completedHolding onto gains in banknote pricesPaper volumes down but improved mix largely offsets impact of lower salesNon banknote security products results benefiting from increased holographic usage and higher sales of Microsoft covers
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SECURITY PAPER & PRINT
70
80
90
100
110
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Y/E
2000H1
Average banknote prices (indexed from 1990)
3.7% rise
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SECURITY PAPER & PRINT
50
60
70
80
90
100
110
1995 1996 1997 1998 1999 2000H1
Net sales value per banknote Contribution per banknote
Banknote order book
Value per banknote -12 month moving averageIndex
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SECURITY PAPER & PRINT
Banknote volumes (billions of notes)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 20000
1
2
3
4
5
6
7
1st Half 2nd Half
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SECURITY PAPER & PRINT
1995 1996 1997 1998 1999 1st half
1999/00
Base
Overspill
Total
75
25
100
80
20
100
73
27
100
64
36
100
82
18
100
78
22
100
Banknote sales - segmental analysis
Percentage of total value
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SECURITY PAPER & PRINT
Sales £m
Profit £m
1st half 1998/99
Exchange effect
Banknote printingBanknote paperNon banknote security printingOthers (inc printing works)Spanish disposal*
1st half 1999/00
125.0
(0.1)
2.6(6.8)
4.6(0.4)(3.0)
121.9
18.3
-
5.9(0.4)
1.1--
24.9
* Lerchundi (Security print business)
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CASH SYSTEMS
1st half 1999/00
£m
1st half 1998/99
£m change
£m
Sales
Operating profit(before reorganisation costs)
132.5
0.4
138.6
(2.7)
(6.1)
3.1
Summary
Sales down as we focused on products and geographical areas which were most profitableNew products as a percentage of total product sales now account for 20% compared to 14% for last yearBreakeven result represents a positive shift in recent trend of resultsReorganisation on track
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CASH SYSTEMS
RESTRUCTURING PROGRESSUPDATE
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RESTRUCTURING ANNOUNCED MARCH 1999
Additional £40m P&L charge over 98/99 and 99/00
Cash element £30m
2 year pay back on cash
Progressive benefits over 2 years
500 job losses
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MANUFACTURING UNIT COST REDUCTIONS
More focused organisation and tighter management
in place
New strategic purchasing manager in place
New strategic freight partnership in place
New flexible labour partnership deal at Portsmouth
Invested to improve manufacturing processes
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FACTORY FIXED COSTS REDUCTION
Consolidation of sites in UK and Sweden underway and on track
Headcount reduction ahead of schedule (120 heads gone to date)
Annualised savings of £3m
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PRODUCT DEVELOPMENT
Radically reviewed organisation
Undertaken ‘clean-up of pipeline’
Reduced heads by 50
Spend is in line with budget
Annualised saving of circa £4m
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CASH SYSTEMS
Product development expenditure (first half)
£m
0
2
4
6
8
10
1996 1997 1998 1999
£8.0m
£9.6m£9.3m
£7.9m
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DISTRIBUTION COMPANIES
Office closure and down-sizing
By year end we will have rationalised 8 sales offices
Not affecting business
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IT SYSTEM
MfgPro implementation at Portsmouth on track to go-live April 2000
More cost effective stand alone system implementations in several regions
On track for running cost reduction of £3m
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CURRENT STATUS OF RESTRUCTURING
At the half year achieved 436 of 500 targeted job reductions
Per Annual Report:
Total overall charge of £45.9m, of which £25.9m booked in 98/99
£20m to be incurred in current financial year
Looking to exit financial year 2000/2001 at 10% margins
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PROFIT BEFORE TAX & EXCEPTIONAL ITEMS
1999/00 Half Year
£m
1998/99 Half Year
£m Change
£m
Operating Profit
Share of profits of associates:CamelotOther (inc De La Rue Giori)
Interest
PBT
30.4
3.53.2
6.7(2.4)
34.7
12.6
6.63.4
10.0(3.3)
19.3
17.8
(3.1)(0.2)
(3.3)0.9
15.4
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EARNINGS PER SHARE
1999 1st Half
(p)
1998 1st Half
(p) Change
(p)
As calculated under FRS 14Loss on the disposal of continuing operationsProfit on the disposal of discontinued operationsProfit on disposal of fixed assets and assets held fordisposalProfit on the part disposal of the shareholding inCamelotAmortisation of goodwill
Headline earnings per share as defined by the IIMRReorganisation costs
Headline earnings per share before reorganisation costs
31.9-
(24.3)
(0.3)
-0.3
7.64.1
11.7
2.61.0
-
(0.8)
(1.0)0.3
2.14.2
6.3
29.3(1.0)
(24.3)
0.5
1.0-
5.5(0.1)
5.4
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CASHFLOW
Half Year 1999
£m
Half Year 1998
£m Change
£m
Cash outflow before items noted below
Equity dividends paidAcquisitions and disposalsDividends received from associates
Cash inflow/(outflow)
(10.5)
(27.0)194.5
3.2
160.2
(21.2)
(10.1)3.7
18.1
(9.5)
10.7
(16.9)190.8(14.9)
169.7
Normal seasonal outflow on working capitalFinal and interim dividend paid in first halfNo dividend paid by Giori Net cash of £39.3m at half year
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REPAYMENT OF CAPITAL
Cards disposal raised £200 million before costs
Return of surplus capital: tax efficient structure re-introduce gearing to the Group retains financial strength
Future dividend policy
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REPAYMENT OF CAPITAL
Proposed return of 46 pence per share (approximately £103.7 million) Scheme of arrangement:
New De La Rue “acquires” De La Rue Consolidation ratio of 17 new shares for 20 existing shares Reduction in number of shares in issue by 15%
Share repurchase authority Expected timetable:
Documentation in early December Court meeting and EGM in second week of January Dealings in new shares 1 February
Board of New De La Rue will be identical to the existing board
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CURRENT TRADING & OUTLOOK
Trading in our operations since the half year has continued in line with our expectations and above last year.
Performance of associated companies is down and second half likely to be at similar levels to first half.
Major changes that have occurred in first half are delivering shareholder value.
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IAN MUCHChief Executive
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SECURITY PAPER & PRINT: CURRENCY
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KEY TRENDS
Concern from customers about new counterfeiting threats leading to the introduction of new features
More opportunities to link print and paper features with sorting equipment
Competitor consolidation now taking place
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OPPORTUNITIES FOR GROWTH
Indications of a slow shift towards more private sectorinvolvement in State Printing Works
However pace is dictated by political considerationsin individual territories
This presents opportunities for :
Technology sales
Facilities management contracts
Overspill printing
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QUALITY & TECHNOLOGY
Automatic inspection of banknotes during printing is now proven and reliable
Ongoing major investment programme in such equipment (eg NotaSave)
Continuing investment in security features, such as holographic foils and novel iridescent effects
Starwide holographic thread
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COST REDUCTION & EFFICIENCY
Re-allocation of equipment to maximise the use of capital assets
Ink usage reduction systems
Improved systems for worldwide production scheduling to optimise capacity utilisation
Development of an advanced batch control system to enhance physical security and reduce cost
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THE EURO
De La Rue fully involved in the origination process and production trials
Predominance of State Printing Works and paper mills
Qualifying process for tapes and holograms
Strategic investment with the Banco de Portugal in a state-of-the-art Euro production facility in Lisbon
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SECURITY PRODUCTS
Increased use of holograms, sales up 30% Microsoft® cover volumes up 24% Planned relocation of Tapes to modern facility in
second half Tapes, Thermotext® product has been well received High Wycombe operational performance still needs
improving Just won contract to supply Argos with retail gift
vouchers Brand Protection winning consultancy contracts, need
to convert into orders
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SUMMARY
Profitable ongoing business with modest growth opportunities
Leverage strong customer relationships
Continue to target top and middle end of market
Value not volume
Continuous improvement in operational efficiency
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CASH SYSTEMS
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ORGANISATION
Cash Systems division is now focused on:
•Branch Cash Solutions
•Cash Processing
•Desktop Products
•Service
•OEM
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NEW PRODUCT DEVELOPMENTS/OPPORTUNITIIES:TCR8000c PROJECT
Teller cash recycler Product definition complete Launched at recent trade
shows Good response from
customers Competitive positioning
Concurrent operation Speed and authenticity Reliability and service
TCR8000c
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6000 SERIES NOTE SORTER
Bulk cash processor Major customer launch July
1999 joint with key customers over 40 customers from 19 countries
Now installed on 3 continents Complete solution and
integration to customers’ back office systems proven
New 6000 Sorter
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BRAZIL FACILITIES MANAGEMENT CONTRACT
Building on the De La Rue reputation
A model for the future
Already working with other banks both the commercial and state sectors to examine opportunities to replicate the experience
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AFTER SALES CUSTOMER SERVICE & SUPPORT
20% of the division’s turnover
Employs one third of the workforce
Direct service operations in 15 of our direct markets
Supporting a franchised distributor network of over
200 service partners
20% of our service activity is on non De La Rue
manufactured products
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SUMMARY
The restructuring is on schedule The streams organisation has proven to function
and is ready for growth The product range has been enriched
Cash Systems is now providing solutions not only boxes
Cash Systems team is enthusiastic and very committed
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NEW SERVICES & SOLUTIONS DIVISION
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WORK BEING UNDERTAKEN
Recruited new MD, Chris Chadwick who joined on 15 November
Keith Brown heading up internal development team
We are identifying potential areas of opportunity and defining business logic
Decided on initial internal components for new division
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NEW SERVICES & SOLUTIONS DIVISION
Identity Systems
Transaction Services
Holographics
Brand Protection
Royal Mint Services
Annual sales for year ended 31 March 1999£48m
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CORE AREAS FOR NEW DIVISION
Related Servicesto Core Customers
Brand ProtectionServices
Electronic SecurityServices
ExistingCore Product
Businesses
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NEXT STEPS
Develop business plan
Complete market study
Identify existing businesses for
new division
Identify skills gap and recruit
Appoint new MD
Create new division
Consider small acquisitions
Ongoing
Autumn 1999
Autumn 1999
Autumn/end 1999
End 1999
End 1999
Early 2000
Action Timing
Done
Done
Done
Ongoing
Done
Ongoing
Ongoing
Status
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SUMMARY
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STRATEGIC FOCUS
“OPERATE IN AREAS WHERE OUR CORE VALUES ANDCAPABILITIES OF SECURITY, INTEGRITY & TRUST CAN
BE LEVERAGED PROFITABLY TO THE BENEFIT OF OUR CUSTOMERS AND WHERE WE HAVE, OR ARE ABLE TO DEVELOP, WORLD LEADING POSITIONS”
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KEY OPERATIONAL ISSUES
Complete reorganisation of Cash Systems and deliver targeted returns
Achieve substantial improvement in working capital performance
Build on strong product base with service approach
Get closer to customer base to leverage our core strengths/values
Progress on new Services & Solutions division
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INTERIM RESULTS1999/00