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Preliminary Results 28 May 2003

Preliminary Results 28 May 2003. Ian Much Group Chief Executive. Stephen King Group Finance Director. Trading Summary. Disappointing Results Operating profits from continuing operations of £37.5m down from £77.6m in 2001/02

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Preliminary Results 28 May 2003

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  1. Preliminary Results 28 May 2003

  2. Ian Much Group Chief Executive

  3. Stephen King Group Finance Director

  4. Trading Summary Disappointing Results • Operating profits from continuing operations of £37.5m down from £77.6m in 2001/02 • Profit before tax £48.1m*, in line with our February trading statement, but down from £90.6m** last year • Poor performance reflects: • sharply worsening economic markets in Europe • disruption to reordering cycles following significant euro changeover benefit in 2001/02 • Increasing worldwide political uncertainty * Before exceptional charge of £49.2m and goodwill amortisation of £3.6m 2002/03 ** Before exceptional gain of £13.1m and goodwill amortisation of £2.8m 2001/02

  5. Trading Summary However, balance sheet remains strong • £72.7m of free cashflow* generated (2001/02 £81.6m*) • Returned a total of £71.3m to shareholders through a combination of three dividends and the share buy back programme • Closing net cash position £8.2m, ahead of recent expectations • Final dividend maintained at 9.2p (full year dividend 13.6p up 1.5% on last year) * Before dividends from associates, exceptional cashflows, capital expenditure, acquisitions, dividend and share buy back costs

  6. Taking Action • closure of Singapore site - completed • annualised cost savings £3.0m, of which £1m benefit achieved in 2002/03 • reduction in European cost base • annualised cost savings circa £7.0m • manufacturing review; closure of High Wycombe site – on track for completion June 2003 (loss of 350 staff) • divisional costs reduced • annualised cost savings circa £7.0m of which £2m benefit achieved in 2002/03 • strategic review of activities • Currency • Cash Systems • Global Services(inc Security Products)

  7. Financial Summary 2002/03 2001/02 £m £m Sales Continuing operations 536.6 641.7 Acquisitions 46.1 - Discontinued operations - 9.5 582.7 651.2 Operating profit* Continuing operations 37.5 77.6 Acquisitions 0.5 - Discontinued operations - (1.4) 38.0 76.2 Profit before tax, exceptional items and goodwill amortisation 48.1 90.6 Earnings per share* 18.9 34.4 Dividend per share 13.6p 13.4p Net cash 8.2 50.0 * Before exceptional charge of £49.2m (2001/02 - £13.1m gain), and goodwill amortisation of £3.6m (2001/02 £2.8m)

  8. Security Paper and Print 2002/03 2001/02 £m £m SalesContinuing operations 211.0 226.8 Acquisitions 2.8 -213.8 226.8 Operating profitContinuing operations 30.5* 41.1 Acquisitions (0.1) - 30.4 41.1 Margins (%) 14.2% 18.1% *Before exceptional charge of £19.9m and goodwill amortisation credit of £0.2m • Sales from continuing operations down £15.8m (or 6.9%) to £211.0m and operating profits* down £10.6m to £30.5m • Currency business in line with expectations at beginning of year – good banknote performance offsetting weaker paper markets • Closing order book slightly ahead of previous year • Majority of underlying operating profit reduction from Security Products’ activities - volumes reduction; reorganisation of manufacturing base including closure of High Wycombe

  9. Cash Systems 2002/03 2001/02 £m £m SalesContinuing operations 292.8 370.5 Acquisitions 18.1 -310.9 370.5 Operating profitContinuing operations 8.4* 36.0 Acquisitions 3.2 - 11.6 36.0 Margins (%) 3.7% 9.7% *Before exceptional items of £10.5m and goodwill amortisation of £3.3m • Sales from continuing operations down 21% and operating profits down £27.6m to £8.4m • Good contribution from Papelaco acquisition, increased total operating profit to £11.6m • Profit reduction due to • sharply worsening economic markets in Europe • disruption to reordering cycles following on from significant euro changeover benefit in 2001/02 • increasing worldwide political uncertainty • Service, OEM, Retail businesses in line with expectations at beginning of year

  10. Global Services 2002/03 2001/02 £m £m SalesContinuing operations 34.7 48.1 Acquisitions 25.2 - 59.9 48.1 Operating (loss)/ profit Continuing operations (1.4)* 0.5 Acquisitions (2.6) - (4.0) 0.5 *Before exceptional charge of £2.8m and goodwill amortisation of £0.5m • Poor year – Identity and Holographics suffering reduced volumes and delayed orders • Sales from continuing operations down £13.4m to £34.7m and an operating loss of £1.4m reported • Acquisition of Sequoia completed • partial year, with losses in post acquisition period following good profitability in previous 6 months • Exeter, USA ballot printing facility to close in 2003/2004, as anticipated in acquisition plan - 60 redundancies – annualised cost saving circa £1m

  11. Associates 2002/03 2001/02 £m £m Profit before interest and tax 9.2 11.8 • Main associate is Camelot, UK national lottery operator, following disposal of 50% shareholding in De La Rue Giori • Profits down in first half, as expected • New licence conditions • Shareholding decreased to 20% from 26.67% • Contribution per 100p down from 1.0p to 0.5p

  12. Earnings per share 2002/03 2001/02 p p As calculated under FRS14 (4.3) 40.7 Profit on disposal of discontinued operations - (0.7) Profit on sale of investments- (12.0) Loss in impairment of investment 0.7 - (Loss)/Profit on disposal of fixed assets 0.2 (0.1) Amortisation of goodwill - continuing 1.7 1.5 - exceptional (CSI) 8.7 - _____________________ Headline earnings per share as defined by the IIMR 7.0 29.4 Reorganisation costs 11.9 5.0 Headline earnings per share before reorganisation costs 18.9 34.4

  13. Cashflow / Net Debt 2002/03 2001/02 £m £m Net free cashflow 72.781.6 Exceptional cashflows (16.7) (3.9) Capital expenditure (21.3) (22.0) Equity dividends paid (33.3) (24.1) Share buy back / own shares (38.0) (14.9) Acquisitions and disposals (33.4) (50.8) Sale of investments 15.9 13.3 Associate dividends received 9.0 28.3 Share capital issued 1.1 6.4 Exchange 2.2 - Cash (outflow)/inflow (41.8) 13.9 Net cash 8.2 50.0 Net interest: Group 0.5 (0.4) Associates 0.4 3.0

  14. Exceptional Items Cash Non Total Cash £m £m £m Reorganisation Security Products (inc. Global Services) (12.7) (5.9) (18.6) Cash Systems (8.5) (2.0) (10.5) Sequoia (2.8) - (2.8) (24.0) (7.9) (31.9) CSI goodwill write-off - (16.0) (16.0) Loss on impairment of investment in JV - (1.3) (1.3) _________________________ Exceptional pre-tax costs(24.0) (25.2) (49.2) 2002/03 11.3 2003/04 12.7

  15. Pensions • Full implementation of FRS17 deferred (announced Sept 2002) • Net charge to P&L under SSAP 24 for UK share was £1.9m (FRS17: £2.4m) • Amortising surplus following last triennial valuation in April 2002 • 2002/2003 impact was credit to P&L of £6.1m • Triennial review due later this year - deficit expected - amortisation credit eliminated • Underlying regular pension cost under SSAP 24 of £8.0m may also increase in light of depressed levels of equity markets • Adverse impact on 2003/04 likely to be £7m-£8m. Need to await outcome of triennial review due September 2003

  16. 11.50 HIGH 11.0311/06/01 Swedish Krona to US Dollar 11.00 10.50 10.00 9.50 9.00 8.50 LOW 8.35 07/0/3/03 8.00 A M J J A S O N D J F M A M J J A S O N D J F M 2001 2002 2003 Foreign Exchange Exchange Rate(WMR) Source: DATASTREAM

  17. Ian Much Group Chief Executive

  18. Situation analysis • Several key markets affected by worsening macro economic conditions • Increased concerns about global security added to market weakness But…. • Actions in place to improve cost effectiveness and efficiency • Lower cost base will ensure De La Rue well placed whenever markets improve • Strong balance sheet backed by underlying cash generation

  19. Cash Systems Current issues • Division holding market share • Cost base (particularly in Eurozone) too high for current market conditions • Financial Institutions not been able to grow new markets fast enough to offset downturn in Spain and Germany • Currency Systems significantly under-performing - both market and structural issues

  20. Cash Systems • Actions • Cost reduction • Germany • Spain • Currency Systems • Manufacturing • Push development of newer FI markets • USA • Central/ Southern Europe • China • Russia • Latin America

  21. Cash Systems Financial Institutions – revenue trend GBPm

  22. Cash Systems • 2003/2004 focus • Delivery of cost reduction programme on schedule • Exploit potential of Papelaco acquisition • Opportunities to extend self service offering in most developed markets • Retail opportunities • Successful trials in USA and UK with major retailers – business still in start up mode • Service • Acquired three small service operations in 2002/2003

  23. Currency • Banknote business continues to perform strongly • Market increasingly looking to sophisticated anti-counterfeit solutions to counter increasing threats from technology • Rigorous approach to cost base, e.g. Singapore • Acquired Bank of England banknote printing operations in April 2003 • Paper business outlook improving • Expect return to historical ordering patterns in 2003/2004 • Knock on effect for Currency components businesses

  24. Global Services (including Security Products) • Management • Peter Cosgrove appointed in March 2003 to lead Security Products and Global Services • Reorganisation of manufacturing operations on track • Capacity reduced through closure of High Wycombe • On track for site closure in June 2003 - 225 redundancies to date, balance on closure • Cost savings in Security Products and Global Services c. £7m in 2003/2004 • Completion by September 2003

  25. Global Services (including Security Products) • Action taken to reduce cost base • Strategic Review underway • Examining long term attractiveness of constituent businesses • Update in November 2003 • Development of Sequoia business in line with expectations, on acquisition

  26. Summary • Focus on core technologies and skills • Actions underway to reduce cost base • Strengthened management team • Strong balance sheet

  27. Outlook • Underlying tough market conditions continue in 2003/2004 • Priority to complete cost cutting exercises in Cash Systems and Global Services to underpin profitability • Currency business solid • Papermaking business returning to production levels closer to capacity • Banknote printing overspill order levels returning to long term average levels • Adverse impact from foreign exchange and pensions • Underlying performance therefore expected to show some improvement as cost reduction exercises are delivered

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