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1
De La Rue plc
Strong Fundamentals 2011 Results24 May 2011
© De La Rue plc 2010© De La Rue 2011
2
2011 Results
AGENDA
• Group Headlines• Financial Results• De La Rue and its Markets• Improvement Plan• Outlook
3
Group Headlines
Revenue
402
467502
561
464
0
100
200
300
400
500
600
2007 2008 2009 2010 2011
Operating Profit
61
79
97109
40
0
20
40
60
80
100
120(17%) (63%)UK Passport Launch and Camelot sale
£m
EPS: (5%)DPS: HELD
2007 2008 2009 2010 2011
£m
Earnings per Share Dividend per share
Headline Earnings and Dividend per shareImprovement Plan
33
42
57
67
2419 21
41 42 42
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011
• Operating Profit >£100m within 3 years
• Build on fundamental strengths• Address opportunities p/
shar
e
4
Financial Results
Colin ChildGroup Finance Director
5
2010/11 Financial Results
(17%)561.1463.9Revenue
(5%)71.0p67.6pBasic earnings per share
Change
(11.4)(7.1)Finance expense
6.3-Income from associates
(7.5)39.5Exceptional items
(25%)96.672.8Profit before tax
42.3p
76.2p
109.2
2010£m
-42.3pDividend
(69%)24.0pHeadline earnings per share
(63%)40.4Operating profit*
2011£m
* Before exceptional items
Paper (tonnes)
Print (notes)
Volume
(36%)
(24%)
Change20102011
7.8bn5.9bn
15,5009,900
6
2010 2011: Revenue
32
62
57
410
2010£m
63Identity Systems
55Security Products
58Cash Processing Solutions
288Currency
2011£m
Business Units*
402
467502
561
464
0
100
200
300
400
500
600
2007 2008 2009 2010 2011
(17%)
£m
2010 2011
*After eliminations
Revenue 2010
Currency Cash Processing Solutions
Security Products
Identity Systems
Revenue 2011
£m
561 (122)
1 (7)31 464
7
2010 2011: Operating Profit*
2
15
(3)
95
2010£m
2Identity Systems
9Security Products
1Cash Processing Solutions
28Currency
2011£m
Business Units
61
79
97
109
40
0
20
40
60
80
100
120 (63%)
* Before exceptional items
2007 2008 2009 2010 2011
£m
2010 2011
Profit*2010
Productionissues
Currency SecurityProducts
Profit*2011
£m4 (6) 400(30)
109 (27)
(40)
Cash Processing Solutions
Identity Systems
8
Exceptional Items
(7.5)39.5Total exceptional items
2010£m
2011£m
-16.0Curtailment gain on closure of pension scheme
-(29.0)Paper production quality issues
-(2.6)Corporate costs
-55.1Gain on sale of Camelot investment
(4.8)-CPS reorganisation
(2.7)-Legacy overseas indirect tax
9
Operating Cash Flow
116.1(20.3)Cash flow from operating activities
2010£m
2011£m
109.240.4Operating profit before exceptional items
23.024.4Depreciation
11.0(29.4)Working Capital
(17.0)(7.5)Pension fund Contribution
(10.1)(13.2)Other
116.114.7Operating cash flow before special pension contribution
-(35.0)One off special pension fund contribution
10
Net Debt
6.375.4Sale of investment in Camelot / Associate income
(33.1)(30.7)Capital expenditure
(11.0)(31.2)Closing net debt
2010£m
2011£m
(33.1)(11.0)Opening net debt
116.1(20.3)Cash flow from operating activities
(24.3)1.2Tax and interest
(40.6)(42.1)Dividends
(2.3)(3.7)Other
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De La Rue and its Markets
Tim CobboldChief Executive
12
De La Rue and its Markets
Currency• Banknote paper, security features• Design, origination and printing of
banknotes
Cash Processing Solutions
Security Products
Identity Systems
• High speed sorting machines• Service: maintenance and spares• Cash management solutions
• Design, origination and printing of secure products
• Tax stamp and authentication solutions
• Design, origination and printing of identity documents
• Personalisation solutions
13
Importance of Currency
3
6
2
7
Number of manufacturing sites
Identity Systems
Security Products
Cash Processing Solutions
Currency
Business Units
Revenue Operating Profit Operating Margin
15%17%
19% 19%
9%
0%
5%
10%
15%
20%
25%
2007 2008 2009 2010 2011
100
200
300
400
500
600
02007 2008 2009 2010 2011
£m
(17%)
Currency Cash Processing SolutionsSecurity Products Identity Systems
402
467502
561
464
-20
0
20
40
60
80
100
120
2007 2008 2009 2010 2011
61
79
97109
40
£m
267
563
698
2,469
Number of employees
Identity Systems
Security Products
Cash Processing Solutions
Currency
Business Units
(63%) (10pts)
14
Currency Market - Overview
Banknotes: c150bn banknotes
13%
84% 3-6%
Commercial print marketOverspillState paper mills or State print works
Source: Estimates De La Rue
Engraved portrait
Intaglio printHologram
Watermark
Serial number
ThreadSee-ThroughMicro text
Indicative cost profiles
Paper Banknote
Paper: c150k tonnes
SPECIMENSPECIMEN
34%
50% 3-6%
13%
Commercial paper market
Paper
Ink
Others Others
Cotton
LabourLabour
Security Features
Security Features
15
Currency Market - Dynamics
Global Banknote Issuance
2008 2009 2010 20110
40
80
120
160
200
Not
es is
sued
(bn)
CAGR: 4-5%
2014
Not
es is
sued
(bn)
0
20
4060
80
100
120
140
160
2011
Market Segment Growth
Demand Capacity
Paper Demand and Capacity
0
20
40
60
80
100
2010 2011 2012 2013 2014
Not
es e
quiv
alen
t (bn
)
CAGR2011– 14
4%
4%
3%Commercial Print
Commercial Paper
State Paper Mills or SPW
Source: Estimates De La Rue
Overspill Print Market
0
1
2
3
4
5
2007 2008 2009 2010 2011
Not
es (b
n)
16
Market Leading Presence
Print: Market Share Paper: Market Share
• De La Rue involved in c150 national currencies over last 5 years• Long standing customer relationships• Differentiate through design and technology• Significant benefit from vertical integration• High barriers to entry
De La Rue
G&DCrane
Oberthur
OrellFussli
OtherDe La Rue
G&D
CraneArjo
Fabriano
Securency
Other
Source: Estimates De La Rue
17
Leading Technology
Edgestone™
Cornerstone®
Flexycoin™
Optiks™
Multitext™
Multitext™
Gemini™
Mask™
Tilt®
StarChrome®
Source: De La Rue
18
Order Intake and Order Book
Print Order Intake (indexed to Sept 08 )6 month rolling average
Source: Estimates De La Rue
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-1160
80
100
120
140
Inde
x
Value
Profitability
Currency Year End Order Book
0
20
40
60
80
100
120
140
160
180
March 2010 March 2011
£m
H1 H1
H2 H2
19
Cash Processing Solutions
Source: Estimates De La Rue
by Geography by Customer
Other
Distributor
CommercialBanks
CentralBanks
UK & IR
Rest of Europe
Americas
Rest of the World
Large
Medium
Software
Cash Processing
Other
Large Sorters
Installed Base
Shipments
Revenue
Service Market Growth Drivers
• Growth in note issuance• Move to automation• Renewal• Central bank outsourcing• Centralisation of operations
De La Rue
G&D
Toshiba
Revenue
Niche market - Steady growth - Number 2 position
De La Rue
G&D
Toshiba
20
Security printers
Security Products
Authentix, SicpaNew entrants, mainly around Track & Trace
Kalamazoo, Madras, Paragon Commercial printers
De La Rue, Enschede, G&D, Walsall Security Print
Hungarian State Print Works, PWPW
State print works
PlayersCompetitive Segment
Competitor LandscapeMarket Growth Drivers
UK & Ireland
World
Revenue Split
Rest of Europe
by Geographyby Product
Brand Licensing
Government Revenue
Financial Cards
Internal Components
Other
Rest of World
Americas
UK & Ireland
• Growing importance of indirect taxation
• Identity and financial fraud• Revenue protection• Anti-counterfeiting
Source: Estimates De La Rue
Growth opportunities - Solution development - Diverse product range
21
Identity Systems
by Geography
Rest of Europe
Americas
Rest of the World
Passport
ID card
Driving Licence
by Product
Competitor Landscape
IBM, Siemens, Thales Large IT Integrators
De La Rue, Gemalto, G&D, Sagem
ID System Integrators
Cogent, L1, VernizonPoint Solutions Providers
De La Rue, G&D, OberthurDocuments Producers
PlayersCompetitive Segment
Market growth drivers
• Cross border security• National Identity tracking and
security• Economic pressure on social
services and managing entitlements• Technology – shift to “e”
Revenue Split
Source: Estimates De La Rue
Growth opportunities - Solution driven - Diverse technology
22
Locations and Spread
Sales and Manufacturing Sites
UK and Ireland 19%
Rest of Europe 13%
Americas 16%
Rest of the World
52%
Source: Estimates De La Rue
Sales by Geography
23
Improvement Plan
Tim CobboldChief Executive
24
Fundamental Strengths
• Brand and reputation• Long standing customer relationships• Strong integrated competitive position• Record of innovation• High margin, cash generative model• Good presence in niche markets• Exposure to fast growing developing markets
25
Significant Opportunities
• Focus, focus, focus• Deepen and broaden “One De La Rue”• Enhance customer relationships• Improve sales and marketing effectiveness• Exploit technological capability• Develop total supply chain
Improvement Plan• Build on fundamental strengths• Address opportunities
26
Improvement Plan
Revenue Growth
Innovation Operational ExcellenceCustomer Focus
• Product innovation
• New business models and partnerships
• Top line growth• Market share• Competitive positioning
• Standardise processes
• Talent and reward
• Best practice• Lower “cost”• Engagement
• Low “cost”• Quality• Margin
• Country and regional sales plans
• Top line growth• Margin protection• Market share
Initi
ativ
esO
utco
mes
Cost Reduction
Target: Operating Profit >£100m within 3 years
Professionalism
• Procurement• Process improvement
• Facility optimisation
27
Simplify Structure; Reshape Organisation
Cash Processing Solutions £58m
Security Products£55m
Identity Systems £63m
Currency£288m
Solutions £176mCurrency
£288m
Revenue
Finance
Human Resources
Currency
Solutions
Business Development
Business Transformation Supply Chain
Customer Focus Innovation ProfessionalismOperational Excellence
Legal and Company Secretary
28
Revenue Growth Initiatives
• Country Plans– One De La Rue basis– Develop plans and align capabilities– Pilot completed– Phased roll-out
• Product Innovation– Provide focus– Standardise processes– Evaluate and accelerate opportunities– Leverage existing portfolio of well established technology
29
Cost Reduction Initiatives – Progress to date (1/2)
• Procurement
– Phase I: £4m savings negotiated – addressable cost of £29m– Phase II: Addressable cost of £77m– Phase III: Addressable cost of £75m– Phase IV: Review of strategic suppliers
• Process Improvement
– Focus: Spoil (Waste) reduction, quality improvement, “make-ready” reduction– Specific project in Overton– Establish continuous improvement methodology
Source: Estimates De La Rue
Phasing:
13/1411/12 12/13Today
Phasing:
H2H1H2H1H2H1
I IIIII IV
13/1411/12 12/13Today H2H1H2H1H2H1
30
Cost Reduction Initiatives – Progress to date (2/2)
• Facility Optimisation
– Phase I: Site reviews; Facilities identified; Consolidation strategy defined– Phase II: Implementation
• Standardise Processes
– Phase I: Review of IT systems; Feasibility review – Phase II: Process definition– Phase III: Implementation
Phasing:
13/1411/12 12/13Today
Phasing:
H2H1H2H1H2H1
I II
13/1411/12 12/13Today H2H1H2H1H2H1
I IIIII
31
Generating Value for Shareholders
Prudent and Pragmatic Basis - Confidence in Delivery
• Exceptional costs of c£25m • Specific capital expenditure of c£20m • Predominantly in the first two years
Investment
• Revenue – Return to historic 4% growth trend• Cost Reduction – c£30m pa broadly even over 3 years• Operating profit in excess of £100m within 3 years
Target
32
Conclusion and Outlook
Current trading in line with expectations Stabilised order intake – recovery in banknote print volume Business currently well loaded
– First half solid – order coverage good– Second half order focus – pipeline good
Confidence in Improvement Plan Strong fundamentals “Self-help” initiatives Contributing to current year
33
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