Preliminary Results Year to 31 March 2007
News Release : 22 May 2007
HIGHLIGHTS
- Revenue up 12.6% to £687.5m
- Profit before tax and exceptionals up 34.4% to £102.4m
- Margins up 1.7 percentage points to 13.1%
- Headline earnings per share up 39.8% to 43.9p
- Continued strong cash generation at £144.5m, net cash at £137.3m
- Dividend increase of 12.4% to 19.1p
- Special dividend announced today of 46.5p per share (£75m)
- UK Pension Scheme review completed
KEY FINANCIALS
|
2006/2007
£m |
2005/2006
£m |
Change
% |
Revenue |
687.5 |
610.8 |
12.6% |
Profit before tax and exceptional items* |
102.4 |
76.2 |
34.4% |
Profit before tax |
102.4 |
73.7 |
38.9% |
|
|
|
|
Headline earnings per share* |
43.9p |
31.4p |
39.8% |
Basic earnings per share |
43.9p |
30.2p |
45.4% |
Operating cash flow |
144.5 |
106.7 |
35.4% |
Net cash at end of year |
137.3 |
91.6 |
|
Dividend per share |
19.1p |
17.0p |
12.4% |
*before net exceptional charges of £nil (2005/2006 : £2.5m) Nicholas Brookes, Chairman of De La Rue plc, commented:
“Ongoing operational and margin improvements, together with buoyant market demand, contributed to the Group’s excellent results in 2006/2007.
“The Group’s strong balance sheet and the cash generative nature of the core operations provide the opportunity to continue our strategy of returning surplus cash flow to shareholders, while investing appropriately for growth in our core businesses. In line with this strategy, the Board has announced today its intention to return approximately £75m to shareholders, by way of a special dividend equivalent to 46.5p per share, accompanied by a share consolidation.
“We enter 2007/2008 with a strong order backlog in both operating divisions providing a solid platform for the year ahead. Cash Systems will continue to benefit from the supply chain improvements completed last year which should help us address the increasingly competitive environment in the US market. The strong order book in Currency is expected to result in the business running throughout 2007/2008 at the high levels of capacity experienced in the second half of 2006/2007.”
For further information, please contact:
Leo Quinn |
Chief Executive |
+44 (0)1256 605303 |
Stephen King |
Finance Director |
+44 (0)1256 605303 |
Mark Fearon |
Head of Corporate Affairs |
+44 (0)1256 605303 |
Richard Mountain |
Financial Dynamics |
+44 (0) 207 269 7121 |
22 May 2007
SUMMARY OF GROUP RESULTS
De La Rue is pleased to report another strong performance for the year ended 31 March 2007, with all key performance indicators showing good improvements over 2005/2006. This reflected further margin and operational efficiency improvements which demonstrate the significant progress the Group continues to make in implementing its strategy. Furthermore there was continued revenue growth in the Cash Systems division during the second half as our investments in new products, sales capability and geographical expansion show through in the results.
Sales increased by £76.7m or 12.6 per cent to £687.5m (2005/2006 : £610.8m) and underlying profit before tax* increased by £26.2m or 34.4 per cent to £102.4m (2005/2006 : £76.2m). Operating profits* of £90.4m represented an increase of £21.0m or 30.3 per cent compared with last year (2005/2006 : £69.4m). Headline earnings per share* increased by 39.8 per cent to 43.9p (2005/2006 : 31.4p) reflecting the improved trading performance. Basic earnings per share were 43.9p compared with 30.2p in 2005/2006 representing an increase of 45.4 per cent.
In Security Paper and Print, strong banknote volumes (up 19.5 per cent on 2005/2006) and paper volumes (up 3.6 per cent on 2005/2006) produced another excellent full year result with the business operating at near capacity levels throughout the second half. In Cash Systems the first full year of benefits of the restructuring actions, taken previously, and continued strong growth in US Teller Automation resulted in further margin improvements. Overall Group operating margins were 1.7 percentage points higher at 13.1 per cent (2005/2006 : 11.4 per cent).
Cash generation was again strong with operating cash flow of £144.5m representing the fourth successive year on year increase (2005/2006 : £106.7m). This reflected both higher profits and strong working capital management, the latter enhanced by an exceptionally high level of customer advance payments of £76.8m, significantly reflecting a large receipt from a single customer in the last week of the financial year. Following payments in total of £28.3m in respect of dividends and the ongoing share buy back programme (£29.2m), the Group ended the year with net cash on the balance sheet of £137.3m (2005/2006 net cash : £91.6m).
*before net exceptional charges of £nil (2005/2006 : £2.5m)
Extracts from the Operational Review
SECURITY PAPER AND PRINT |
2006/2007
£m |
2005/2006
£m |
Change
% |
Sales |
354.5 |
318.4 |
+11.3% |
Underlying operating profit* |
61.7 |
51.0 |
+21.0% |
* before exceptional income of £nil (2005/2006 : income of £0.9m) A significant driver behind the improved divisional result was the Currency activities which had another excellent year, with the banknote business operating at near capacity levels in the second half. Overall, banknote volumes increased by 19.5 per cent (2005/2006 : decrease of 11.4 per cent) over the prior year, attaining a level even higher than that achieved in the Iraq contract year in 2003/2004. This was partly offset by a less favourable work mix compared to the corresponding period last year with an average contribution per 1000 notes down 12.6 per cent. The higher overall volumes partly reflected increased overspill which was 26 per cent of the total compared to 17 per cent in the corresponding period last year. In particular, the second half overspill levels were more than double the comparative period. In addition, banknote paper volumes rose by 3.6 per cent (2005/2006 : increase of 5%) partly driven by the strong print order book. Looking forward the order book in Currency remains strong, providing good visibility for the majority of 2007/2008.
The Security Products and Identity Systems businesses also performed well driven principally by strong demand for authentication labels and a strong increase in passport orders. De La Rue’s strength is in machine readable passports and we are now expanding our capability to offer ePassports. As a consequence, we are investing in a new dedicated ePassport manufacturing facility in Malta, which is expected to be completed in the last quarter of 2007/2008.
CASH SYSTEMS |
2006/2007
£m |
2005/2006
£m |
Change
% |
Sales |
333.0 |
292.4 |
+13.9% |
Underlying operating profit* |
28.7 |
18.4 |
+56.0% |
*before net exceptional charges of £nil (2005/2006: £3.4m) In Cash Systems, revenues of £333.0m grew by 13.9 per cent (2005/2006 : £292.4m) and underlying operating profits of £28.7m were strongly ahead of last year (2005/2006 : £18.4m) reflecting both the full benefits of restructuring actions and increased sales volumes through the fixed cost base. The adverse impact of foreign exchange during the year of £1.5m was significantly mitigated by the outsourcing of component parts to US$ based Chinese manufacturing. Trading margins improved by 2.3 percentage points, to 8.6 per cent, compared with 6.3 per cent last year.
Teller automation volumes were significantly up on the same period last year driven principally by continued growth in North America, now the largest single market for our products. However, competition is increasing in the Teller Automation segment. Over the past two years we have invested in expanding the sales force in our growth regions and training our sales force in all regions. In October, De La Rue launched its new teller cash recycling solution, the VERTERA™. Building directly on De La Rue’s leading cash recycler, the highly acclaimed TCR Twin Safe®, VERTERA™ offers significantly enhanced detection features, including fitness sorting capabilities, increased performance and reliability – meeting the increasing demand for a smaller footprint machine.
The Sorter business had an improved year with double digit volume growth in both large and medium sized sorters. The OEM (ATM mechanisms) and Desktop Products showed strong volume growth in products partially offset by some price erosion. Both businesses benefited from a lower manufacturing cost base during the second half, reflecting the benefits of our continued outsourcing of production capacity to China. During the year the DTP business also launched the EV 86-Series which is the next generation banknote counter to the 2600 series. The product has been well received by our customers.
RETURNS TO SHAREHOLDERS
Final Dividend
The Board is recommending an increased final dividend of 13.27p per share, subject to shareholders’ approval. This will be paid on 3 August 2007 to shareholders on the register on 13 July 2007. Together with the increased interim dividend paid in January 2007, this will give a total dividend for the year of 19.1p, an overall increase of 12.4 per cent on last year.
Share Buy Back
The Board announced at the interim results in November 2005 its intention to use the existing authorities granted to it at the 2005 Extraordinary General Meeting (EGM) to use surplus cash to purchase the Company’s own shares for cancellation. The upper limit of the Board’s existing authority is 14.99 per cent of issued capital. During the year Company acquired 4.9 million shares under the share buy back programme at a cost of £29.2m, bringing the total number of shares acquired since the commencement of the programme, in December 2005, to 6.5 million at a cost of £37.0m. The Board expects to continue this programme, funded with surplus cash and will seek shareholder approval to renew its existing authority at the AGM. The exact amount and timing of future purchases will be dependent on market conditions and ongoing cash generation.
Special Dividend
The Board has also announced today its intention to return approximately £75m to shareholders, equivalent to 46.5 pence per share, through a special dividend accompanied by a share consolidation. The capital return is consistent with the Board's strategy to return surplus cash to shareholders and follows the special dividend paid in August 2005 of £68.3m, equivalent to 38.0p per share. The Board also intends to seek shareholder approval for the renewal of its existing general authority to make market purchases of shares.
The special dividend will be accompanied by a share consolidation which will reduce the number of De La Rue shares in issue by approximately 6.7 per cent, on a basis of 14 new shares for every 15 presently held and assist in maintaining the comparability with historic earnings and dividend per share and with historic share prices. The payment of the special dividend is dependent on the approval of the consolidation at the AGM on 26 July 2007.
UK PENSION SCHEME
Funding
The Group’s last formal (triennial) funding valuation of the Company’s defined benefit pension Scheme took place on 6 April 2006 and identified the Scheme to have a funding deficit of £56m (6 April 2003 : £(39)m). The deficit has arisen primarily as a result of significant increases in life expectancy and reduced discount rates on liabilities.
In April 2004, the Final Salary Section was closed to new entrants with new employees joining the De La Rue Retirement Plan which is a combination of a 1/100ths accrual Final Salary section and a defined contribution arrangement.
Coincident with this valuation, De La Rue entered into consultation with members with a view to making changes to the structure of the Scheme and benefits going forward from April 2007. This consultation has now been completed and the following changes have now been agreed and will be implemented from 1 June 2007.
- Normal Retirement Age
An increase in the Normal Retirement Age (NRA) of members from 62 to 65 and a removal of the discretionary right to retire at 60 without actuarial reduction. Retirement before the new NRA will now result in a 5% per annum reduction in members’ pension. - Contribution Rates
An increase in member contributions of 1.0% per annum equivalent to £0.4m, achieved through two 0.5% increases, effective 1 June 2007 and 1 June 2008. - Mortality Risk
Members to fund 100% of future cost of increases in life expectancy of active members. This will be implemented through an ongoing adjustment to the pension accrual rate to adjust for any additional life expectancy increase.
The Group has also agreed with the Trustee to pay down this deficit over a period of six years, subject to reassessment of the existence of the deficit at the next triennial valuation, and the first payment of £7.0m was made into the Scheme in March 2007.
Overall, the Group feels these changes fairly reflect a more appropriate sharing of the costs and risks associated with the continued provision of a Final Salary (Defined Benefit) Section.
IAS 19 Accounting
The valuation under IAS 19 principles indicates a scheme deficit after tax at 31 March 2007 of £72.7m (March 2006 : £80.5m). The charge to operating profits in respect of the UK Pension Scheme for 2006/2007 was £9.8m (2005/2006 : £9.1m). In addition, under IAS 19 there is a finance credit of £1.8m arising from the difference between the expected return on assets and the interest on liabilities (2005/2006 : £1.8m charge). This amount is included with the Group interest income in the profit and loss account.
Associates
The main associated company is Camelot, the UK lottery operator. Profit from associates after tax was lower at £6.6m (2005/2006 : £6.8m) reflecting bid preparation costs for the third lottery licence running from 2009 to 2019. Dividends received from associates of £6.2m were lower than last year's income of £8.1m, due to a one-off payment in the prior year. The successful bidder for the third lottery licence is expected to be announced by the National Lottery Commission in Summer 2007.
Interest
The Group's net interest income was £3.6m, which was £1.8m higher than the previous year. In addition the IAS 19 related finance item, arising from the difference between the expected return on assets and the interest on liabilities, is included here and was a credit of £1.8m compared with a charge of £1.8m the previous year.
Taxation
The underlying effective tax rate excluding exceptional items was 29.9 per cent (2005/2006 : 29.4 per cent), the increase reflecting the mix of taxable profits from overseas activities and the elimination of tax losses in the USA.
Cash Flow and Borrowings
During the year operating cash flow was £144.5m compared with £106.7m in 2005/2006 reflecting the rise in operating profits and the continued drive to reduce working capital across the Group. This was also further enhanced by continued high levels of advance payments, which totalled £76.8m at March 2007. Capital expenditure of £29.7m was higher than depreciation reflecting the investment in a new banknote printing press in Malta.
After payment of the 2005/2006 final dividend (£19.0m), the 2006/2007 interim dividend (£9.3m) and £29.2m in respect of the ongoing share buy back programme, closing net cash was £137.3m compared with £91.6m at last year end.
Foreign Exchange
Principal exchange rates used in translating the Group's results:
£ |
2006/2007 |
2007 |
2005/2006 |
2006 |
|
Average |
Year End |
Average |
Year end |
|
|
|
|
|
US dollar |
1.89 |
1.96 |
1.79 |
1.74 |
Euro |
1.47 |
1.47 |
1.46 |
1.45 |
Swedish Krona |
13.59 |
13.76 |
13.69 |
13.58 |
$ |
|
|
|
|
Swedish Krona |
7.19 |
7.02 |
7.65 |
7.80 |
When managing foreign exchange transactional risk, protection is taken in the foreign exchange markets whenever a business has a firm expectation of confirming a sale or purchase in a non-domestic currency unless it is impractical or uneconomical to do so. Translation of overseas earnings is not hedged. For the year ended 31 March 2007 adverse foreign exchange impacted the Group profits by £4.2m mostly arising from transaction exposure.
CHANGES TO THE BOARD
Michael Jeffries will resign as a non-executive Director with effect from the end of the Annual General Meeting on 26 July 2007. He will be succeeded as senior independent non-executive Director by Keith Hodgkinson, the Chairman of the Audit Committee and by Gill Rider as Chairman of the Remuneration Committee. The Board would like to thank Mike for his significant contribution over the past seven years.
Gill Rider was appointed to the Board on 22 June 2006 as a non-executive Director. Gill is Director General, Leadership and People Strategy in the Cabinet Office. She started her career with Accenture in 1979 in various roles before being appointed global Chief Leadership Officer in 2002.
Warren East was appointed to the Board on 9 January 2007 as a non-executive Director. Warren is Chief Executive of ARM Holdings plc, the developer and licensor of microprocessors, having joined in 1994. Mr East previously worked for Texas Instruments Inc in a variety of roles in the semiconductor and telecom products divisions.
Outlook
We enter 2007/2008 with a strong order backlog in both operating divisions providing a solid platform for the year ahead. Cash Systems will continue to benefit from the supply chain improvements completed last year which will help us address the increasingly competitive environment in the US market. The strong order book in Currency is expected to result in the business running throughout 2007/2008 at the high levels of capacity experienced in the second half of 2006/2007.
-ends-
Notes to Editors
De La Rue is the world’s largest commercial security printer and papermaker, involved in the production of over 150 national currencies and a wide range of security documents such as passports, authentication labels and fiscal stamps. The Company is also pioneering new technologies worldwide in government identity solutions for national identification, drivers licence and passport issuing schemes. Employing over 6,000 people across 31 countries, it is also a leading provider of cash handling equipment and software solutions to banks and retailers worldwide, helping them to reduce the cost of handling cash.
A presentation to analysts will take place at 9:00am today at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.
High resolution photographs are available to the media free of charge at http://www.newscast.co.uk/ (+44 (0) 207 608 1000).
- De La Rue Financial Calendar:
2007/2008 |
Ex-dividend date |
11 July 2007 |
Record date (Ordinary Dividend) |
13 July 2007 |
Annual General Meeting |
26 July 2007 |
Payment of 2006/2007 final dividend and Special Dividend |
3 August 2007 |
| 2007/2008 Interim Results |
27 November 2007 |