De La Rue Regulatory News (DLAR)

16 Jun 2008 07:42

The announcement for De La Rue PLC issued today at 07:00 under RNS No 7375W, under the headline Disposal, has been re-released as the text was incomplete

De La Rue Plc

16 June 2008

DE LA RUE PLC ("DE LA RUE" or the "GROUP")

PROPOSED DISPOSAL OF CASH SYSTEMS

De La Rue today announces that it has entered into a conditional agreement for the sale of its Cash Systems business (excluding those activities relating to banknote sorters, the Cash Processing Solutions Division ("CPS")) to The Carlyle Group for a cash consideration of £360 million on a cash and debt free basis, subject to adjustment for a normalised level of working capital. The Disposal, which is conditional on, amongst other things, the approval of De La Rue's shareholders and the receipt of certain regulatory approvals, is expected to complete before the end of September 2008.

Following completion of the Disposal, it is intended to return approximately £460 million of capital to shareholders, equivalent to 305 pence per share. This total includes the £160 million return of capital previously announced with the preliminary results on 22 May 2008, which will now be returned as part of the return of capital and not via a special dividend.

De La Rue Chairman, Nicholas Brookes, said: "This announcement completes an important step in implementing the strategic review we initiated last November. 

"The disposal of Cash Systems, in the more uncertain economic environment, reflects the quality of the business that we have built since 2004 and crystallises its value for our shareholders. We wish the business well under its new ownership.

"Going forward, the Group has a high quality business in Security Paper and Print, capable of providing Governments, Banks and international corporations with the highest levels of customer service to sustain strong growth in shareholder value."

Following completion of the Disposal, De La Rue intends to build on its position as a world leading manufacturer and supplier of banknote printing and banknote paper and to become the premier supplier to Central Banks, Governments and international corporations globally of security features and authentication systems and products used in payment and identity transactions. 

1. Background

As announced on 22 May 2008, the conclusions of the strategic review initiated by De La Rue in November 2007 were as follows:

* References to "Cash Systems" hereinafter are to Cash Systems excluding CPS

2. Information on Cash Systems

Cash Systems is a leading provider of cash handling technology solutions focused on authenticating, counting and sorting banknotes. Cash Systems comprises three operating divisions:

In the year ended 29 March 2008, the CPS Division reported revenue of £58.4 million and operating profit before allocated overheads of £1.0 million.

3. Principal terms of the Disposal

Under the terms of the Sale and Purchase Agreement, De La Rue has agreed to sell Cash Systems for a cash consideration of £360 million on a cash and debt free basis, subject to adjustment for a normalised level of working capital. 

The Disposal is conditional, amongst other things, on the approval of shareholders and on the receipt of certain regulatory approvals and is expected to complete before the end of September 2008. If shareholders do not approve the Disposal, De La Rue has agreed to pay The Carlyle Group a break fee of up to £3.6 million in circumstances where Cash Systems is sold to a third party within 12 months. 

4. The Retained Group

Future strategy

Following completion of the Disposal, De La Rue intends to build on its position as a world leading manufacturer and supplier of banknote printing and banknote paper and to become the premier supplier to Central Banks, Governments and international corporations globally of security features and authentication systems and products used in payment and identity transactions. By focusing on security printing and authentication, the Board believes that De La Rue will deliver higher margins and continue to be highly cash generative. The strategy will be to deliver value by leveraging existing customer relationships, continuing to drive productivity improvement and developing intellectual property to exploit adjacent market opportunities.

The Board believes that through this strategy, De La Rue will be able to provide shareholders with superior returns. The Board also anticipates that the growth in the demand for security products will provide opportunities for De La Rue to develop its brand protection and identity products activities.

In the financial year ended 29 March 2008, the Group reported revenue of £753.6 million and operating profit (after the allocation of central overheads of £23.6 million) of £114.7 million of which the businesses to be retained contributed £467.0 million of turnover and £71.3m of operating profit (after all allocated overheads). The pro forma segmental analysis of turnover and operating profit for the financial year ended 29 March 2008 is as follows:

De La Rue also intends to continue to support its 20 per cent equity interest in Camelot, the lottery operator in the United Kingdom, which contributed an additional £7.1m to the Group's profits (after tax) for the financial year ended 29 March 2008.

As a consequence of the Disposal, the Board anticipates that significant savings can be made to the Group's central costs. In the financial year ended 29 March 2008, total central costs amounted to £23.6 million, of which £5.8 million were incurred as a direct consequence of the strategic review. The Board believes that the underlying central costs of £17.8 million in the financial year ended 29 March 2008 can be reduced by around half over the next 18 months. It is expected that non-recurring costs of £10 million will be incurred in separating the businesses and achieving these savings.

The strong cash flow characteristics of SPPD together with the Group's existing strong cash position, gives the Board confidence to propose a significant return of capital following completion of the Disposal and to implement a policy of significantly raising the level of dividend distributions for the future.

The proposed capital return

Following completion of the Disposal, the Board intends to seek shareholder approval for a capital return of approximately £460 million, equivalent to 305 pence per share. The capital return will be funded out of the net proceeds of the Disposal and from cash and existing debt facilities. This total includes the £160 million return of capital previously announced with the preliminary results on 22 May 2008, which will now be returned as part of the return of capital and not via a special dividend.

In determining the level of the intended capital return, the Board has taken into account the net proceeds of the Disposal of £330m (after transaction costs, financing costs, and the tax expected to be payable on the Disposal) and the restructuring costs referred to above. In addition, the Group has agreed to accelerate previously committed special contributions to the pension fund with an advance of £15 million. To part finance the capital return, the Group will draw down approximately £100 million under new three-year £175 million term and revolving facilities.

The Board intends that the proposed capital return will be achieved through a B share scheme combined with a share consolidation. The B share scheme will enable shareholders to elect to receive the capital return in the form of either a one-off dividend payment and/or capital receipt. A circular giving details of proposals will be posted to shareholders as soon as practicable after completion of the Disposal.

Future dividend policy and future capital returns

As announced on 22 May 2008, the Board has concluded that it is appropriate to adopt 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 the result of any short term fluctuations in earnings.

In addition to this progressive dividend policy, the Board will continue to monitor the shape of the balance sheet structure of the Group and, where appropriate, consider future returns of surplus cash to shareholders.

** Underlying earnings per share are defined as earnings adjusted to exclude any impairment charges incurred in relation to intangible assets and any exceptional items in the period.

5. Use of proceeds

Pending completion of the capital return, the net proceeds from the Disposal will be placed on deposit with a range of financial institutions. 

6. Extraordinary General Meeting

A circular containing a notice convening an extraordinary general meeting will shortly be posted to shareholders.

Enquiries to:

N M Rothschild & Sons Limited and JPMorgan Cazenove Limited, which are regulated in the United Kingdom by the Financial Services Authority, are acting exclusively for De La Rue plc and no one else in connection with the Disposal and will not be responsible to anyone other than De La Rue plc for providing the protections afforded to their customers or for giving advice in connection with the arrangements described in this announcement.

This announcement includes statements that are, or may be deemed to be "forward-looking statements". The words "believe", "anticipate", "expect", "intend", "continue", "may", "should", "shall", and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Undue reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are in many cases beyond De La Rue's control. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. De La Rue cautions investors that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity, and the development of the industry in which it operates, may differ materially from those made in or suggested by the forward-looking statements contained in this document. These forward-looking statements reflect the Directors' judgment at the date of this announcement and are not intended to give any assurances as to future results. Subject to the requirements of the Disclosure Rules and Transparency Rules and the Listing Rules, De La Rue undertakes no obligation to update these forward-looking statements, and it will not publicly release any revisions it may make to these forward-looking statements that may result from events or circumstances arising after the date of this document.

Notes to editors: