Preliminary Statement - Year To 30 March 2002

News Release : 29 May 2002

HIGHLIGHTS

Sir Brandon Gough, Chairman of De La Rue plc, commented on the results:

- Our results for the year ended 30 March 2002 show good progress with Cash Systems, in particular, performing strongly. The full benefits of the reorganisation of the Cash Systems division, initiated by the Board in 1999, are now coming through and our target for the division of £400m revenue for the 2003/2004 financial year underlines the Board' confidence in its future growth prospects.

- Our core businesses are performing well, with the emphasis clearly on growth, and we are also turning our attention to making operational improvements within our Security Products business, which has had a disappointing year. Looking to the future, our underlying business remains strong, particularly Cash Systems, but any earnings progress for 2002/03 will be modest as the results will not benefit from the exceptional level of euro related business we secured this year and the contribution from Camelot, under the terms of the second lottery licence, will decline.

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29 May 2002

Group Results

De La Rue is pleased to report another strong performance for the year ended 30 March 2002, showing substantial improvements in sales and operating profits, which underlines the continued progress in the revitalisation of De La Rue. Profits before tax* and exceptional items increased by £12.3m to £90.6m and overall trading performance was strong with operating profit from continuing operations of £77.6m, up £9.2m compared to last year despite £2.4m of redundancy costs and asset write-offs incurred in our Security Products' and Global Services' operations. The main driver behind this increase has been a dramatic improvement in the operating performance of Cash Systems where sales were up £108.1m to £370.5m with operating profits up £19.0m to £36.0m. Compared with last year, headline earnings per share increased by 11.3% to 34.4p.

As indicated a year ago, the absence of India banknote paper orders within our Currency business has impacted profits in the Security Paper and Print division despite a stronger second half, underpinned by a buoyant banknote business. The performance of our non-banknote Security Products business was a major disappointment and we are undertaking a review of manufacturing operations to improve the operational performance of the business. It is pleasing to report a turnaround in the loss making position of Global Services since the half year with the division reporting a modest profit of £0.5m for the year.

Cash flow continues to be a key strength with £88.3m being generated by operations during the period, and the overall net cash position was £50.0m, £13.9m ahead of last year despite £57.6m being spent on acquisitions during the year.

Dividend

Subject to shareholders' approval, the Board is recommending an increased final dividend of 9.2p per share, up 7.0% on last year's, which will be paid on 9 August 2002 to shareholders on the register on 12 July 2002. This will give a total dividend for the year of 13.4p, an overall increase of 6.3% on last year. Next year the timing of the interim dividend payment will be brought forward from April to January to spread payments more equally over the year. As a result, subject to unforeseen circumstances, the Company will be making three dividend payments in the year ending 29 March 2003.

Share Buy Back

As a consequence of the strong funding position (net cash at the year end of £50.0m) the Board has decided to use, where appropriate, the existing authorities granted to it at the 2001 Annual General Meeting (AGM) to acquire for cancellation up to 10% of the issued share capital in the market place. The Board will be seeking to renew this authority at the AGM on 17 July 2002. The Board believes that after taking into account the cash balance currently in the business and committed facilities available to the Company of just over £200m, a share repurchase programme will not restrict the Company's ability to grow the business both organically and by acquisition. The exact amount and timing of purchases is dependent on market conditions and other factors.

Business Development

Much work has already been undertaken in identifying the broad focus for the Group's activities in the future, which will enable us to grow our core businesses. In addition, our aim is to also maintain a common focus to our operations through leveraging our competencies in secure transactions. Over the past year the emphasis has moved to exploiting a number of opportunities which have presented themselves within Cash Systems. We believe that there are significant opportunities to grow the Cash Systems division further through expanding its geographical reach and introducing new products that match the markets' requirements. Underpinning this expansion is a continued commitment to growing our Customer Services business, which accounts for almost 30% of divisional revenues. This commitment to growth has been underlined this year by our investment of £57.6m on acquisitions within the division.

To further underline our confidence in the growth potential that exists within Cash Systems we have set an objective of £400m revenue for the year ending 2003/2004 and we are confident of achieving this with an operating margin better than 10%.

In addition to the opportunities that are emerging within Cash Systems we remain committed to investment in growth within Global Services, although we now believe this will take more time to cultivate.

Security Products Manufacturing Review

The recent poor operating performance of Security Products, the non-banknote side of Security Paper and Print, has highlighted the need for us to reappraise its operations with a view to improving the focus and competitiveness of the business. Many of the markets served are mature, competitive and fragmented and the business serves geographically diverse, multiple customer groups often requiring entirely bespoke solutions. In response, we have initiated a strategic review of our manufacturing operations in Security Products to better align the manufacturing cost base with business requirements both from the aspect of capacity and capability. We intend to make sure that we continue to manufacture only where we can do so cost effectively and where we can provide customers with a clearly differentiated product offering. Local actions to increase efficiencies and improve operating performance have recently taken place at our High Wycombe (UK) and Dulles (USA) sites. These initiatives have resulted in the loss of 70 jobs at High Wycombe and 20 at Dulles. We expect to be able to announce the results of the wider strategic review by the time of the interim results in late November.

The Euro

The launch of the new euro currency on 1 January 2002 presented a significant opportunity for many of De La Rue's businesses, benefiting Group revenues in 2001/02 by about 9%. In Cash Systems, as well as providing cash processing products, our service and support teams across Europe successfully upgraded more than 20,000 machines and shipped more than 120,000 replacement ATM cassettes before the end of December. In the month after the launch of the currency it also dealt with more than 30,000 customer queries and made 20,000 service visits. Our Currency division also performed exceptionally well, successfully delivering a substantial order from the European Central Bank in just four months. The euro projects were a major management and logistical challenge for our customers and it is pleasing to be able to report that De La Rue successfully delivered on its commitments to them.

Acquisitions

During the year Group expenditure on acquisitions was £57.6m (including debt acquired) all within Cash Systems. There were several bolt-on acquisitions including ATS Money Systems Inc., a US based cash handling organisation for the retail market, and Ascom's cash handling service businesses in Belgium and Switzerland. In May 2001, Cash Systems also acquired, for $55m, Currency Systems International Inc. (CSI), the US based manufacturer of large sorting equipment and software. More recently, in March 2002, the division announced the acquisition of the banking automation business of Papelaco, a leading manufacturer of self-service banking technology based principally in Portugal and Spain. The purchase consideration is €26m (£16m) with a further payment of up to €10.5m (£6.5m) dependant on certain performance criteria being met, linked to sales and margin growth. Completion is subject to regulatory approval.

Disposals

In October 2001, we announced the disposal of our Transaction Services business to alphyra group plc which resulted in a pre-tax exceptional gain of £1.5m. As announced in May 2001 we completed the CHF 50m (£20m) disposal of our 50% shareholding in De La Rue Giori SA, the leading supplier of currency printing presses, to Koenig & Bauer AG, the German manufacturer of printing presses. In addition, De La Rue also reached a settlement of the arbitration claim with M. Roberto Giori, Chairman of De La Rue Giori and Dynavest Holding & Cie SCA, the other shareholder. The net cost of settling the arbitration claim was £5.9m compared to the original claim of £125m. On 28 March 2002 we announced the disposal of our entire stake in Koenig & Bauer AG for a gross consideration of £13.7m (proceeds received in April) resulting in a pre-tax exceptional gain of £9.5m.

Board and Management Changes

In September 2001, we announced the appointment of Dr Philip Nolan as a non-executive director of the Company. Dr Nolan, 48, is Chief Executive of Eircom, the Irish telecoms network. He was previously the CEO of Lattice Group plc which was demerged from BG Group plc in October 2000.

In April 2002, we announced that Paul Hollingworth, Group Finance Director, would be leaving the Group at the end of June to take up the position of Finance Director with BPB plc. We would like to thank Paul for his substantial contribution to the Group and wish him every success in his new role at BPB plc. We are actively recruiting a replacement.

Pietro Armanini, 59, managing director of Cash Systems has, over the past three years, overseen the successful transformation of the business. We are pleased to announce that Pietro has agreed to stay on at De La Rue for a further year and will now leave the Company on 31 March 2003 when he will be succeeded by Germain Roesch, currently managing director of Cash Systems’ Financial Institutions (FI) business.

Extracts from the Operational reviews

The profit of £36.0m for the year was a substantial improvement on the £17.0m recorded in 2000/2001. The division has had an excellent year with revenue increasing from £262.4m to £370.5m whilst at the same time it was able to meet its margin objective (excluding acquisitions) of 10% for the 2001/2002 financial year. The quality of the result shows through in cash generation which was very strong.

The launch of the euro in January 2002 represented a significant opportunity in the year providing an estimated benefit for the division of approximately 8% of sales. Excluding the impact of the euro we estimate underlying sales growth was 10%.

Branch Cash Solutions

Branch Cash Solutions' (BCS) performance has again been excellent this year and the business continues to thrive in all regions. Orders and sales for both Teller Cash Dispensers (TCD) and Teller Cash Recyclers were again encouraging and ahead of last year. Most importantly these recycler sales have not eroded sales of our TCD range, with sales increasing. During the first half, BCS also benefited from increased revenue via the new sales and distribution networks in Switzerland and Belgium, and in particular from sales of Twinsafe units. These businesses were acquired from Ascom Autelca AG in May 2001 and are now bedded in.

In March 2002, we announced the acquisition of the banking automation business of Papelaco, a leading manufacturer of self-service banking technology, based principally in Portugal and Spain. We are acquiring the business as part of our strategy to offer customers a complete cash handling solution for their bank branches. Completion is subject to regulatory approval.

Currency Systems

Much emphasis this year has been on the integration of Currency Systems International (CSI), the US based provider of wholesale cash processing systems and software, with our own cash processing business. Whilst the acquisition of CSI got off to a slow start, overall the combined operation performed satisfactorily with sales improving in the second half. We appointed Jonathan Ward, managing director of De La Rue's existing Cash Processing business to lead the combined operation and the integration and savings plans are progressing well. To date, we have announced the senior management team; integrated the sales and marketing organisations; finalised the product integration and development plans; and refocused the manufacturing base. It has been necessary to rationalise the cost base as part of this process resulting in the closure of seven offices and the loss of 110 jobs, about 20% of the original workforce.

We completed the review of our manufacturing operations during the second half and as a result have decided to relocate production of the 6000 large sorter, currently manufactured at Portsmouth in the UK, to Dallas later this year. In addition, we have finalised the combined product range successfully integrating our best in class technologies throughout our offerings. The total pre-tax cost of the integration is estimated at £5.1m, of which £3.6m has been incurred in 2001/02 and has been shown as an exceptional item (out of a total £3.8m charge).

The new year has got off to a good start with orders received for large sorters and currently the order book reflects four months' production.

OEM

The Original Equipment Manufacture (OEM) business, which makes dispensing mechanisms for ATM machines, had a good second half with performance in line with expectations. Sales of euro cassettes were strong with over 120,000 cassettes shipped to customers in the run up to the euro launch. In March 2002, we announced a ten-year technology agreement with Itautec Philco, the technology division of Itasa, Brazil's second largest private group specialising in financial, insurance and industrial activities. Under the technology agreement De La Rue licenses technology to allow Itautec to manufacture De La Rue's NMD 100 cash dispenser platform in Brazil.

Desktop Products

The Desktop Products business has had an extremely successful year and performed considerably ahead of expectations. Strong euro sales were supplemented by increased revenue in a number of the business's more traditional markets. A number of improvements in the cost base and the launch of a new range of note and coin sorters, including a euro ready platform, provide a strong base for future success.

Customer Service

The division's Customer Service business, which continues to be a key component of Cash Systems' strategy, performed strongly with good underlying sales growth and now accounts for 30% of total sales and employs a worldwide network of some 1,600 service personnel. In August 2001 we acquired the service business of the Canadian company Haliburton & White and have further expanded our geographic network and invested in our operational capability. We see an increasing number of opportunities to expand our service operations further through bolt on acquisitions and geographical expansion.

Market Facing Organisation Structure

The business stream organisational structure has been successful in returning the division to profitability through clear focus and accountability. However, in the long term we realise that the market dynamics are changing with different segments and geographical regions requiring different solutions. Therefore, following discussion with our customers, we have decided to refocus Cash Systems predominantly on three market facing business units with effect from the start of the 2002/03 year. These are:

Financial Institutions - will provide solutions to manage and support cash and other value transactions for retail financial institutions (mainly commercial banks).

Currency Systems - will address central banks and commercial cash centres and cash in transit companies, assisting them to optimise their internal cash logistics.

Retail Payment Solutions - will address all markets outside of the financial area, focusing on the retail sector, but also serving markets such as gaming, vending and transportation.

The three streams will be supported by a central product supply business, whilst OEM will continue to be managed as a separate revenue stream. The Customer Services business will continue to serve the customers of all the business units to ensure we maximise the strategic and operational opportunities that exist worldwide and across the market facing businesses.

Banknotes

The banknote printing business has performed strongly and we have again concentrated on achieving a better quality mix of business. One of the highlights of the year has been the successful fulfilment of an overspill order from the European Central Bank. The contracts to print around 500m euro banknotes were completed by our Gateshead banknote printing plant ahead of schedule. Cash generation has again been excellent with operating cash flow in excess of operating profits. Valora, our joint venture with the Banco de Portugal for the production of euro banknotes, also successfully completed its first phase of production ahead of the launch of new banknotes in January 2002.

Demand for the latest technology in anti-counterfeit features is still a key driver in the market. The proliferation of colour copying, scanning and printing technologies means that we continue to develop anti counterfeit solutions such as wide threads, holographic devices and iridescent features for our customers. During the year we launched StarChrome™ a colour changing thread available at greater widths than was previously the case. The feature builds upon De La Rue's Starwide® and Cleartext® machine readable holographic thread technology and offers high security particularly against digital reproduction. The current order book for banknotes is strong, with over six months' visibility, but there will be a slow down in shipments in the first quarter because of the unusually large number of new designs which , inevitably, take longer to process.

Papermaking

The current strength in the banknote order book is offsetting the continued weakness of the papermaking business. The main reason remains the absence of the India banknote paper order which, in 2000/2001, accounted for about 15% of banknote paper volumes. We expect India to start tendering for paper during 2002 and their paper requirements to return to normal patterns in 2003/2004. However, elsewhere the papermaking business has had a satisfactory year with volumes, ex India, up on the previous year. During the year, sales of Platinum™, our durable paper alternative to polymer banknotes, have again been encouraging.

Currency Manufacturing Strategy

In March 2002, we announced the difficult decision to close our banknote printing facility in Singapore. This followed a comprehensive review of our global banknote printing operations, which highlighted major advances in efficiency and flexibility that had been achieved in all our plants over the last three years. As a result of the review we decided to focus our printing operations in our other four factories in the United Kingdom, Malta, Sri Lanka and Kenya. By re-organising these locations, four factories will be able to produce the same volume of banknotes as were previously produced by five plants while continuing to provide our worldwide customer base with the highest levels of service and flexibility that they expect and receive from De La Rue.

The estimated cost of closure, which was expensed in 2001/2002, is £7.3m (pre-tax) of which around £3.0m is non-cash. The re-organisation, involving the transfer of capital equipment from Singapore and some additional resourcing at the remaining sites to handle their increased throughput, is well under way and is expected to be completed by the end of December 2002. As a result the main financial benefits of the move will only be felt in the 2003/2004 financial year.

Security Products

As discussed earlier, performance in the non-banknote security printing business was disappointing with results down substantially on last year although this did include a £1.3m rationalisation cost (mainly redundancies at High Wycombe). In response we have initiated a manufacturing review, which we believe will start to deliver operational improvements in the 2002/2003 financial year, as well as improve the focus and competitiveness of the business going forward. Operational focus for the security print factories has been strengthened by the appointment during last year of an overall Manufacturing Director.

In the UK, performance at our three print manufacturing facilities has been mixed. Our High Wycombe site in particular has given us cause for concern and we have already taken action to improve the operational performance of the business, which is currently loss making. Elsewhere in the UK, our Peterborough site performed more in line with our expectations and demand at our Dunstable facility was well ahead of last year. At Bathford, our pulp-based security paper facility volumes were similar to last year and the business performed in line with our expectations.

In the USA, our Dulles travellers cheque facility had a disappointing year, compounded by the late delivery of new automated equipment. Performance at De La Rue Tapes, which produces security threads for banknotes was particularly disappointing. The business' move to a new modern facility caused some short-term disruption and projected sales of euro thread to currency manufacturers were affected.

The division had a very poor start to the year and we announced a disappointing first half loss of £2.7m at our interim results. It was pleasing to reverse Global Services' first half losses despite incurring £1.1m of rationalisation costs. Overall, however, we still have much to achieve if we are to realise the opportunities that exist to expand the business to its full potential.

Our Identity Systems business has performed well under the new organisation structure and has secured several new contracts. One of the more direct repercussions of the September 11 terrorist attacks is the continuing concern about the need for governments to provide a secure means of identification for their citizens. De La Rue is well positioned to advise our government customers in this area and longer term we see excellent potential for growing our Identity Systems business. During the year the business won a major contract to supply passports and national identity cards for Chile (sales value of US$23m over 8 years). Under the contract De La Rue will supply approximately 13 million identity cards and nearly one million digitally in-filled passports, which will be distributed from over 300 sites across the country. In addition the Mexico passport issuing systems contract was extended for five years following the successful initial two year roll out contract.

Progress in our Brand Protection business, however, has been slower and during the year the business faced difficult trading conditions. While there was some success in securing further small scale or pilot projects we have yet to convert many of these into larger ongoing projects. Development was hindered by the events post September 11 as many brand owners themselves have faced difficult trading environments.

Our Holographics business had a strong second half, which compensated for a disappointing first half. While we have enjoyed a strong order book on the banknote side of the business, production delays during the first half, related to the supply of optically variable devices to the banknote sector, held back the business' progression this year. It is pleasing that we were able to deliver against these orders in the second half.

In February 2002, we decided to cease offering a commercialised Public Key Infrastructure (PKI) service, through our Interclear subsidiary. De La Rue acquired the business in 1999 for £1m with a view to developing a commercialised PKI solution for our customers. Unfortunately, uptake of these services was not as we would have hoped and as a result we made 20 people redundant from Interclear.

In October 2001, we disposed of our Transaction Services activities to alphyra group plc, a leading European provider of electronic transaction services and facilities. Transaction Services operated a network of payment terminals located in convenience retail locations supporting pre-payments for utility bills and mobile phone electronic top-up. De La Rue sold the business because there was limited strategic and technical overlap between Transaction Services and the rest of De La Rue's businesses.

Associates

Following the disposal of our stake in De La Rue Giori the main associate is Camelot, the UK lottery operator. Profit before tax and exceptionals from associates rose by £2.2m to £14.8m mainly because of the absence of losses incurred by De La Rue Giori in the first half last year. De La Rue's share of operating profits (before exceptional items) from Camelot was higher than last year at £14.7m (2000/2001: £13.9m).

The second lottery licence commenced on 27 January 2002 when De La Rue's effective shareholding decreased from 26.67% to 20%. The new lottery licence will reduce the shareholders' potential return from each 100p collected from around 1.0p to just under 0.5p. The impact on overall profitability will, of course, depend on actual lottery ticket sales levels.

Dividends received from associates of £28.3m were at an exceptionally high level, mainly because Camelot has been paying out retained surpluses which arose over the first licence period. There is a further dividend to be paid by Camelot in June mainly relating to the first licence of which De La Rue's share is estimated at £5.4m.

Interest Charge

The Group's net interest income was £2.6m (including interest received by associates of £3.0m). Excluding interest received by associates, the Group net interest charge was £0.4m, a £0.8m improvement on the same period last year mainly as a result of interest received on tax re-payments and lower interest rates.

Taxation

The adoption of FRS 19 has resulted in the restatement of last year's effective tax rate upwards from 23% to 27% (both half year and full year) as well as a credit to shareholders' funds (as at 31 March 2001) of £43.9m as a result of bringing on balance sheet a deferred tax asset. The underlying effective tax rate has increased from 27% to 27.6% in 2001/02. The increase in the effective rate is mainly because of the changing geographical mix of the Group's earnings to higher tax rate jurisdictions. The effective tax rate of 27.6% is lower than the standard UK corporate tax rate of 30% because of tax credits in respect of earlier years (£2.6m) and because some of the Group's activities are based in lower rate tax regimes.

Although tax payments at £11.2m were £5.8m up on 2000/01 they were at a low level relative to Group profits, continuing to reflect utilisation of prior period assessable losses and good tax planning. We anticipate tax payments moving more into line with the Group's effective tax rate over the next two to three years.

FRS17 - Pension Charge

The Company has adopted the transitional arrangements available under FRS17 for the year ended 30 March 2002 and will give the relevant disclosures in the notes to the annual report and accounts.

However, it is the intention to adopt FRS17 fully for the year ending 29 March 2003. As at

30 March 2002 the estimated impact of FRS17 on the Group's balance sheet would be to recognise a pre tax surplus of £63.6m (£44.4m after tax). The estimated impact on the profit and loss account for the year ended 30 March 2002 would have been as follows:

The net credit of £0.4m under FRS17 compares to a net charge under SSAP24 for the relevant UK pension schemes of £2.0m as recorded in the accounts for the year ending 30 March 2002.

Exceptional Items

The net after tax exceptional gain was £15.1m (2001 gain of £6.2m). Exceptional pre-tax costs of £11.1m were charged to operating profits and relate to the closure of the Singapore banknote printing factory (announced on 26 March 2002) and the costs of integrating the CSI acquisition (announced on 30 May 2001) into the Currency Systems activity of Cash Systems. Non-operating exceptionals resulted in a pre-tax gain of £24.2m (see note 2). The two most significant items were the disposal of our 50% stake in De La Rue Giori (gain of £9.0m net of arbitration costs) and the disposal of all of our shareholding in Koenig & Bauer, the German manufacturer of printing presses (gain of £9.5m).

Cash flow and Borrowings

Cash flow continues to be a key strength with £88.3m being generated by operations during the period, and the overall net cash position was £50.0m, a further £13.9m ahead of last year despite £57.6m being spent on acquisitions during the year.

Stock levels were £17.2m higher at the year end but this was mainly because of the impact of acquisitions within Cash Systems. Following the previous year's heavy capital programme, capital expenditure at £21.6m was £4.0m below depreciation and for next financial year is expected to run at a similar level to depreciation.

Outlook

Our underlying business remains strong, particularly Cash Systems, but any earnings progress for 2002/03 will be modest as the results will not benefit from the exceptional level of euro related business we secured this year and the contribution from Camelot, under the terms of the second lottery licence, will decline.

Looking to the future we continue to see good opportunities for growth within all our businesses and in 2003/04 India is expected to return to normal paper ordering patterns and we are confident of achieving sales of £400m in our Cash Systems business.

-ends-

Notes to Editors