De La Rue Plc Preliminary Statement Year to 29 March 2008

News Release: 22 May 2008

KEY FINANCIALS

HIGHLIGHTS

• Revenue up 9.6% to £753.6m
• Profit before tax and exceptionals up 21.2% to £124.1m
• Operating profit margin up 2.1 percentage points to 15.2%
• Headline earnings per share up 32.3% to 58.1p
• Strong operating cash flow of £124.0m, and closing net cash of £106.7m
• Final dividend increase of 12.1% to 14.87p, making a total of 21.4p for the year
• Strategic review conclusions, including capital return and dividend increase

Nicholas Brookes, Chairman of De La Rue plc, commented:

“I am pleased to report another strong year of trading across all our activities, showing once again the firm foundation on which the Group now stands.

“In addition, we today set out the conclusions of the strategic review initiated last November. This has assessed both the optimum structure of the Group, and the appropriate balance sheet capitalisation and dividend policy of that structure.

“We enter 2008/2009 with the order books in both divisions at a four year high. In Currency, this is expected to result in the business continuing to operate throughout the current year at the high levels of capacity experienced in 2007/2008. Thus, despite the more uncertain financial environment, we remain confident in the outlook for the year ahead.”

SUMMARY OF GROUP RESULTS

De La Rue reports another excellent performance for the year ended 29 March 2008. All key performance indicators again showed strong year-on-year improvements, demonstrating the success across the Group in implementing its strategy.

Revenue increased by £66.1m or 9.6 per cent to £753.6m (2006/2007: £687.5m) and operating profit of £114.7m represented an increase of £24.3m or 26.9 per cent compared with last year (2006/2007: £90.4m). Profit before tax and exceptionals increased by £21.7m or 21.2 per cent to £124.1m (2006/2007: £102.4m). Headline earnings per share increased by 32.3 per cent to 58.1p (2006/2007: 43.9p) reflecting the improved trading performance and the benefits of the share consolidation carried out in conjunction with the special dividend payment last year. Basic earnings per share were 57.8p compared with 43.9p in 2006/2007 representing an increase of 31.7 per cent.

In Security Paper and Print, strong banknote volumes (up 13.4 per cent on 2006/2007) and paper volumes (up 19.2 per cent on 2006/2007) were reflected in another excellent full year result with the business once again operating at near capacity levels throughout the year. In Cash Systems, both equipment and service volumes remained in line with our expectations, notwithstanding the more uncertain financial environment. We were particularly pleased to see a strong second half-year and increasing order book for the division in these circumstances. Overall Group operating profit margins were 2.1 percentage points higher at 15.2 per cent (2006/2007: 13.1 per cent).

Cash generation was again strong with operating cash flow of £124.0m (2006/2007: £144.5m). This reflected both higher profits and strong working capital management. Growth in trade working capital reflected the high trading activity in the Currency operations, together with a small reduction in advance payments, following the exceptional inflow in 2006/2007. The Group ended the year with net cash on the balance sheet of £106.7m (2006/2007 net cash: £137.3m) following returns to shareholders of £109.6m, comprising £105.4m in respect of dividends and the ongoing share buy back programme (£4.2m).

STRATEGIC REVIEW

The strategic review initiated at the end of 2007 by the Board of De La Rue concluded that:

• As these results demonstrate, the strategy implemented since 2004 has created two market-leading divisions, each with strong management teams, reinvigorated product offerings and excellent prospects.
• De La Rue’s historic strength has been its relationships with Central Banks and governments through Security Paper and Print (SPPD) and these remain core to its success.
• Cash Systems has been developed significantly in the last four years and is now a strong business in its own right, serving the retail/commercial banking sector.
• The two divisions are distinct entities operationally and there is little opportunity for synergies. They also serve different customer bases, the exception being Cash Processing Systems (CPS) which develops and supplies banknote sorters and cash optimisation software, largely to Central Banks. CPS is integral to the Currency offering and will become part of that business.
• Subject to achieving appropriate value, the Board has therefore decided to explore the sale of Cash Systems, excluding CPS, as one possible route to crystallise shareholder value. Discussions are ongoing which may or may not lead to a sale. Cash Systems is performing well and the Board will only recommend its sale to shareholders if terms are agreed which reflect its quality and future prospects, and the strength of its customer relationships.
• The Group’s holding in Camelot, the UK national lottery operator, is an investment offering excellent future value and will be retained.
• The financial strength of the Group now provides the Board with the confidence to increase the level of distribution to shareholders by means of the following proposals:
  • a new dividend policy, which will take effect in respect of the year ending 28 March 2009, for a dividend cover of approximately 1.75 times, based on the underlying earnings for the year. The Board intends to maintain a progressive dividend policy and is prepared to consider different levels of dividend cover as a result of any short term fluctuations in earning
  • a return of £160 million to shareholders by way of a special dividend using the surplus cash in hand, appropriately adjusted for advance payments from customers, and a new debt facility that has been arranged.
  • if Cash Systems is sold, a further return to shareholders of the net proceeds.

Going forward, the Group will continue to monitor the shape of the balance sheet and, where appropriate, consider future returns of surplus cash.

Extracts from the Business Review

The improved divisional result was driven principally by Currency’s activities which had another excellent year, with the banknote business operating at near capacity levels throughout the year following our investment to refresh printing assets in the division. Overall, banknote volumes increased by 13.4 per cent (2006/2007: increase of 19.5 per cent) over the prior year. There was a more favourable work mix compared to the corresponding period last year with an average contribution per 1000 notes up 4.7 per cent (2006/07 down 12.6 per cent). The higher overall volumes partly reflected increased overspill which was 29 per cent of the total compared to 26 per cent in the corresponding period last year. In addition, banknote paper volumes rose by 19.2 per cent (2006/2007: increase of 3.6 per cent) partly driven by the strong print order book. Looking forward, the order book in Currency remains strong, providing good visibility for the majority of 2008/2009.

The Security Products and Identity Systems businesses also performed well, driven in part by demand for authentication labels, with our contract with a leading software vendor recently renewed for a multi-year term, and an increase in passport orders. De La Rue’s strength is in machine readable passports and the investment in a new dedicated ePassport manufacturing facility in Malta was completed in the last quarter of 2007/2008.

In Cash Systems, revenues of £345.0m grew by 3.6 per cent (2006/2007: £333.0m) and operating profits of £35.1m were ahead of last year (2006/2007: £28.7m) reflecting the benefits of new products, improved mix and our continuing high levels of investment in international expansion. Operating profit margin improved by 1.6 percentage points, to 10.2 per cent, compared with 8.6 per cent last year, reflecting the continued focus on the efficiency of the supply chain and productivity.

Bank Teller Automation enjoyed a positive year, with profit increasing over last year. The OEM (ATM mechanisms) and Desktop Products (DTP) businesses showed strong volume growth. During the year DTP launched its NVision (2-pocket note counter) and Quickchange (coin sorting) products into the euro zone to extend the scope of its markets, and built on the Evolution product launched last year. Cash Processing Solutions continued to make good progress in volume growth.

RETURNS TO SHAREHOLDERS

Final Dividend

The Board is recommending an increased final dividend of 14.87p per share, subject to shareholders’ approval. This will be paid on 1 August 2008 to shareholders on the register on 11 July 2008. Together with the increased interim dividend paid in January 2008, this will give a total dividend for the year of 21.4p, an overall increase of 12.0 per cent on last year.

Share Buy Back

During the year the Company acquired 610,000 shares under the share buy back programme at a cost of £4.2m, bringing the total number of shares acquired since the commencement of the programme, in December 2005, to 7.2 million at a cost of £41.2m.

ASSOCIATES

The main associated company is Camelot, the UK lottery operator. Profit from associates after tax was higher at £7.1m (2006/2007: £6.6m) and dividends received from associates of £7.7m were higher than last year's £6.2m. During the year Camelot won the third lottery licence, which runs from 2009 to 2019.

INTEREST

The Group's net interest income was £2.0m, which was £1.6m lower than the previous year. In addition, there was a credit of £0.3m in respect of IAS19 pensions mentioned below (2006/2007: £1.8m credit).

TAXATION

The underlying effective tax rate excluding one-off items was 28.4 per cent (2006/2007: 29.9 per cent), the decrease reflecting the continued improvement in the Group’s tax position. In addition, there was a one-off charge of £3.1m arising from the impact on deferred tax assets of a reduction in the German tax rate.

EXCEPTIONAL ITEMS

Exceptional items comprise £1.7m gain on the sale of the Group’s Valora investment and £0.9m profit from the sale of its 50 per cent stake in De La Rue Smurfit.

CASH FLOW AND BORROWINGS

During the year, operating cash flow was £124.0m compared with £144.5m in 2006/2007. Working capital rose due to the increase in sales, but more efficient management of cash was reflected in better ratios. Advance payments were slightly lower than last year at £72.8m (2006/2007: £76.8m), but continue at exceptional levels. Capital expenditure of £22.3m was lower than depreciation, reflecting the phasing of expenditure between years in the Currency business.

After payment of the 2006/2007 final dividend (£21.2m), the 2007/2008 interim dividend (£9.8m ), a second special dividend of £74.4m paid in August 2007, and £4.2m in respect of the ongoing share buy back programme, closing net cash was £106.7m compared with £137.3m last year end.

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 that the Scheme had a funding deficit of £56m. Thereafter the Group agreed to make additional special contributions of £12m per annum for five years to 2011, or until the deficit is cleared if sooner. The second of those special contributions has now been made.

IAS 19 Accounting

The valuation of the UK Pension Scheme under IAS 19 principles indicates a scheme deficit after tax at 29 March 2008 of £14.9m (March 2007: £72.7m). This significant reduction in deficit during the year has arisen despite the volatile markets and reflects a combination of the significantly raised AA bond yields used to discount liabilities and the benefit of the Group’s special contributions. The charge to operating profits in respect of the UK Pension Scheme for 2007/2008 was £10.0m (2006/2007 : £9.8m). In addition, under IAS 19 there was a finance credit of £0.3m arising from the difference between the expected return on assets and the interest on liabilities (2006/2007: £1.8m credit). This amount is included with the Group interest income in the profit and loss account.

Outlook

We enter 2008/2009 with the order books in both divisions at a four year high. In Currency, this is expected to result in the business continuing to operate throughout the current year at the high levels of capacity experienced in 2007/2008. Thus, despite the more uncertain financial environment, we remain confident in the outlook for the year ahead.

-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 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.
2. A presentation to analysts will take place at 9:00am today at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.
3. High resolution photographs are available to the media free of charge at http://www.newscast.co.uk/ (+44 (0) 207 608 1000).
4. Foreign Exchange Principal exchange rates used in translating the Group's results:
   
   

   £	2007/2008		2006/2007
   	Avg	Year End	Avg	Year End
   US dollar	2.01	1.99	1.89	1.96
   Euro	1.42	1.26	1.47	1.47
   Swedish Krona	13.18	11.85	13.59	13.76
   $
   Swedish Krona	6.56	5.95	7.19	7.02

   
   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 29 March 2008 adverse foreign exchange impacted the Group profits by £3.9m mostly arising from transaction exposure.
5. De La Rue Financial Calendar:
   

   2008/2009
   Ex-dividend date	9 July 2008
   Record date (Ordinary Dividend)	11 July 2008
   Annual General Meeting	24 July 2008
   Payment of 2007/08 final dividend	1 August 2008
   2008/09 Interim Results	26 November 2008

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