TIDMDLAR
RNS Number : 3632E
De La Rue PLC
29 June 2023
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated by the
Market Abuse Regulation (EU) No.596/2014, as it forms part of UK
law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").
Upon the publication of this announcement, this inside information
is now considered to be in the public domain
29 June 2023
De La Rue plc
FY23 full year results and reiteration of FY24 outlook
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the
"Company") announces its full year results for the year ended 25
March 2023 (the "period", "FY23" or "full year"). The comparative
period was the 12 months ended 26 March 2022 ("FY22"). In addition,
the Company provides an update on current trading and outlook for
FY24.
Key Highlights
- Revenue for FY23 of GBP349.7m (FY22: GBP375.1m)
- Adjusted operating profit of GBP27.8m (FY22: GBP36.4m), in
line with guidance provided in April
- IFRS operating loss-for continuing operations of GBP29.6m
(FY22 profit of GBP24.2m), reflecting exceptional charges of
GBP47.1m (FY22: GBP5.7m), of which GBP29.7m are non-cash
charges.
- FY23 end-of-year net debt at GBP83.1m; in line with
expectations (GBP88-92m) after early-April final Portals exit
payment
- FY23 net operating cash inflow increased 44% to GBP23.8m (FY22: GBP16.5m).
- Market activity in Currency is showing encouraging signs of
recovery, with strong bid activity, a positive win rate, and the
significant majority of FY24 banknote print volume already under
confirmed award
- Authentication on track to exceed GBP100m in revenue for FY24,
demonstrating good growth versus FY23 (GBP91.7m)
- As a result, the Company reiterates its guidance for FY24
adjusted operating profit in the low GBP20m range, albeit with H1
trading expected to be broadly break-even at adjusted operating
profit level, due to timing of Currency recovery
- Net debt expected to be around GBP100m by year end and half year
- Successfully renegotiated the Company's facilities with its
lenders, leading to a significant relaxation of both interest cover
and gearing covenant ratios, and the addition of a liquidity
measure
- Agreement reached with the Pension Trustee to defer GBP18.75m
of deficit repair contributions originally due over the 15 months
from April 2023, with the substantive majority (GBP16.25m-GBP17.5m)
deferred to the FY26-FY29 timeframe. This significantly improves
the cash position for the Company over the next few years
- No 'material uncertainty' with respect to going concern in the accounts
Clive Vacher, CEO of De La Rue commented:
"Following a significant downturn in Currency demand over the
past 18 months, we have witnessed encouraging signs of recovery
with strong bid activity, a positive win rate, and the significant
majority of FY24 banknote print volume already contracted.
"In addition, Authentication is on track for significant revenue
growth in the current financial year.
"The actions we have taken over the past few months have built
on the essential operational improvements made in the last three
years and played a vital role in stabilising the Company. These
include renegotiating terms with our lenders, leading to covenant
relaxation, and agreeing a substantial deferral to our pension
deficit repair contributions.
"Importantly, there is now no 'material uncertainty' with
respect to De La Rue's continuation as a going concern in the FY23
full-year accounts. This gives us a stable platform for future
trading.
"Together with my management team, I will continue the
development of De La Rue and further strengthen the market position
of the Company."
Clive Whiley, Chairman of De La Rue added:
"Since I joined the Board and took office as Chairman on 18 May
2023, I have immersed myself in the business and have a clear
understanding of the principal challenges facing the Company. My
background gives me unique experience in managing companies through
existential crises and it is my conviction that the fundamentals of
De La Rue's business remain sound.
"We are approaching the challenges facing the Company with
vigour and I am confident that today's announcement, which
highlights support from our core lenders, pension trustees and
other stakeholders will enable a focus upon the significant market
opportunities from a stable platform.
"Whilst we are operating in volatile times, with rapid and
significant changes in the business environment and the markets in
which we compete, I have been impressed by the commitment of our
people which will be critical as we reposition ourselves for future
growth."
Financial summary
FY23 FY22 Change
GBPm GBPm %
------------- -------------------- -------- ------ -------
Revenue 349.7 375.1 -6.8
Authentication 91.7 90.3 +1.6
Currency 254.6 280.9 -9.4
Identity Solutions 3.4 3.9 -12.8
Adjusted operating profit*(1) 27.8 36.4 -23.6
IFRS operating (loss)/ profit-
continuing operations (20.3) 29.7 n/a
IFRS (loss)/profit before tax-
continuing operations (29.6) 24.2 n/a
Adjusted basic EPS*(2) (p) (1.5) 13.0p n/a
IFRS basic EPS (p) (28.6)p 10.6p n/a
----------------------------------- -------- ------ -------
FY23 FY22 Change
GBPm GBPm %
------------- -------------------- -------- ------ -------
Net debt(3) 83.1 71.4 +16.4
----------------------------------- -------- ------ -------
- Adjusted operating profit of GBP27.8m (FY22: GBP36.4m) reduced
year on year due to weak market demand in Currency and lower global
PC sales affecting Brand sales within Authentication.
- Authentication:
o Revenue rose modestly, benefitting from:
-- Government Revenue Solutions ("GRS") coming on stream in
Bahrain, Qatar and Oman.
-- A full year of contribution from polycarbonate data pages
manufactured for the new Australian passport.
o Offsetting this were:
-- Lower PC sales globally, impacting sales to Microsoft.
-- The end of the HMRC contract and a falling away of Covid
vaccine brand protection seals.
- Currency: saw a 9.4% decrease in revenue. This was the result
of an industry-wide downturn in activity as Central Banks used
stocks built up during the Covid pandemic. Market recovery was also
delayed, due to the global economic downturn and lower access to
foreign exchange reserves and devaluation of currencies in some
core markets. As we ended the year, the market has shown some
encouraging signs of recovery.
- Strong supply chain management mitigated much of the cost
risks identified at the beginning of the year:
o Tenders undertaken since the termination of the agreement with
Portals for paper supply have validated that the anticipated cost
savings can be achieved
- Pre-tax exceptional charges of GBP47.1m (FY22: GBP5.7m) included:
o GBP17.0m (FY22: GBPnil) terminating the long-term supply
agreement with Portals Paper
o GBP12.6m (FY22: GBPnil) redundancy charges and asset
impairments associated with the wind down of activity in Kenya
o GBP8.5m (FY22: GBP1.8m) of other site relocation and
restructuring costs
o GBP8.5m (FY22: GBP3.1m) non-cash charge, recognising credit
loss provision on securities held in the Portals group
- Of GBP47.1m of FY23 pre-tax exceptional charges:
o GBP17.4m were paid in FY23
o GBP9.4m are due to be paid in FY24
o GBP20.3m relate to non-cash asset impairments
- Net debt of GBP83.1m (FY22: GBP71.4m) favourable to guidance,
as final payment for Portals termination was paid in April.
o In line with guidance, once this payment is taken into
account.
- Operating activities provided GBP24.8m of net cash inflow (FY22: GBP18.3m net inflow).
In these results, we report on the financial performance of the
Authentication and Currency divisions, together with the legacy
activity of the Identity Solutions division. To provide insight
into the underlying performance of our business, we have reported
revenue, gross margin and operating loss on an IFRS and an adjusted
basis for the Group. We have also reported gross profit, adjusted
operating profit and adjusted controllable operating profit for the
divisions. The Non-IFRS financial measures section of this
statement provides definitions of these Non-IFRS financial measures
and their reconciliation to the equivalent IFRS measure.
Footnotes:
* These are non-IFRS measures. The definition and reconciliation
of adjusted operating profit and adjusted basic EPS can be found in
the Non-IFRS financial measures section of this Full Year Results
announcement.
1. Adjusted operating profit excludes pre-tax exceptional items
of GBP47.1m (FY22: GBP5.7m) and pre-tax amortisation of acquired
intangible assets GBP1.0m (FY22: GBP1.0m).
2. Adjusted basic EPS excludes post-tax exceptional items of
GBP52.2m (FY 22: GBP3.9m) and post-tax amortisation of acquired
intangible assets GBP0.7m (FY22: GBP0.7m).
3. The definition of net debt can be found in note 9 to the
financial statements.
The person responsible for the release of this announcement on
behalf of De La Rue for the purposes of MAR is Jon Messent (Company
Secretary).
Enquiries
De La Rue plc +44 (0) 7990 337707
Clive Vacher Chief Executive Officer
Rob Harding Chief Financial Officer
Louise Rich Head of Investor Relations
Brunswick +44 (0)207 404 5959
Stuart Donnelly
Ed Brown
A briefing to analysts will take place at 9:00 am on 29 June
2023, which is accessible via webcast on www.delarue.com.
For the live webcast, please register at
www.delarue.com/investors/results-and-reports where a replay will
also be available subsequently.
About De La Rue
De La Rue plc's purpose is to secure trust between people,
businesses and governments. As a trusted partner of governments,
central banks and commercial organisations seeking to secure their
global supply chains and cash cycles, De La Rue provides highly
secure physical and digital solutions that underpin the integrity
of economies and trade.
De La Rue's Currency division provides market-leading end-to-end
currency solutions, from finished banknotes to secure polymer
substrate and banknote security features to over half the central
banks and issuing authorities around the world.
Our Authentication division protects revenues and reputations
through the provision of physical and digital solutions to
governments and commercial organisations. We also manufacture ID
security components.
At 25 March 2023, De La Rue had over 1,800 employees who work
with organisations in more than 140 countries, leveraging the
Group's manufacturing facilities in the UK, USA, Malta and Sri
Lanka.
De La Rue's shares are traded on the London Stock Exchange
(LSE:DLAR). De La Rue plc's LEI code is
213800DH741LZWIJXP78. For further information please visit www.delarue.com .
Cautionary note regarding forward-looking statements
Certain statements contained in this document relate to the
future and constitute 'forward-looking statements'. These
forward-looking statements include all matters that are not
historical facts. In some case, these forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "anticipates",
"expects", "intends", "plans", "may", "will", "could", "shall",
"risk", "aims", "predicts", "continues", "assumes", "positioned" or
"should" or, in each case, their negative or other variations or
comparable terminology. They appear in a number of places
throughout this document and include statements regarding the
intentions, beliefs or current expectations of the Directors, De La
Rue or the Group concerning, amongst other things, the results of
operations, financial condition, liquidity, prospects, growth,
strategies and dividend policy of De La Rue and the industry in
which it operates.
By their nature, forward-looking statements are not guarantees
or predictions of future performance and involve known and unknown
risks, uncertainties, assumptions and other factors, many of which
are beyond the Group's control, and which may cause the Group's
actual results of operations, financial condition, liquidity,
dividend policy and the development of the industry and business
sectors in which the Group operates to differ materially from those
suggested by the forward-looking statements contained in this
document. In addition, even if the Group's actual results of
operations, financial condition and the development of the business
sectors in which it operates are consistent with the
forward-looking statements contained in this document, those
results or developments may not be indicative of results or
developments in subsequent periods.
Past performance cannot be relied upon as a guide to future
performance and should not be taken as a representation or
assurance that trends or activities underlying past performance
will continue in the future. Accordingly, readers of this documents
are cautioned not to place undue reliance on these forward-looking
statements.
Other than as required by English law, none of the Company, its
Directors, officers, advisers or any other person gives any
representation, assurance or guarantee that the occurrence of the
events expressed or implied in any forward-looking statements in
this document will actually occur, in part or in whole.
Additionally, statements of the intentions of the Board and/or
Directors reflect the present intentions of the Board and/or
Directors, respectively, as at the date of this document, and may
be subject to change as the composition of the Company's Board of
Directors alters, or as circumstances require.
The forward-looking statements contained in this document speak
only as at the date of this document. Except as required by the
UK's Financial Conduct Authority, the London Stock Exchange or
applicable law (including as may be required by the UK Listing
Rules and/or the Disclosure Guidance and Transparency Rules), De La
Rue expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained in this document to reflect any change in the Group's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
CEO review
Following a significant downturn in Currency demand over the
past 18 months, there are encouraging signs of recovery. In
addition, our Authentication division is on track for significant
revenue growth in FY24.
The actions we have taken over the past few months, implementing
a range of initiatives about which we provide further detail below,
have stabilised the Company. Specifically, we have renegotiated
terms with our lenders, leading to covenant relaxation, and agreed
a substantial deferral to our pension deficit repair
contributions.
These factors have allowed us to remove the 'material
uncertainty' cited at the Interims in November 2022, and to
reiterate our guidance for adjusted operating profit for the
current year (FY24).
We set out below more detail on these recent initiatives,
together with narrative on the results for FY23, where adjusted
operating profit and net debt for the FY23 were in line with
guidance previously given in April 2023.
In FY23 the Currency division was profitable at the adjusted
operating profit level, generating GBP13.6m despite the low levels
of demand across the industry. This compares with GBP19.5m in FY22,
but demonstrates a continuation of our commitment, made in FY20,
that the Currency division will be profitable at this level during
downturns, breaking the historical cycle of losses during market
lows.
Amended bank facilities
Following extensive negotiations with our banking syndicate, we
have agreed revised terms, which include substantial relaxations of
the covenant ratios to which we have hitherto been subject. This
reflects the reality of the higher interest rate environment in
which we now find ourselves, given recent increases in base rates,
which rose 350bp over the course of FY23 and, with inflation still
at high levels, the prospect of further increases still to
come.
We would like to thank our lenders for their understanding and
pragmatism in reaching this revised agreement, recognising the
challenging competitive and global economic environment in which we
are operating.
For the remainder of the term of the loan, which runs to 1
January 2025, the interest covenant ratio to which De La Rue is
subject has been relaxed to a minimum of 1.0 times from its current
minimum of 3.0 times. The limit on the gearing covenant ratio is
relaxed to a maximum of 4.0 times until March 2024 and then 3.6
times for the remaining life of the facility. For comparison, at
the end of FY23 our interest cover ratio stood at 3.03 and our
gearing ratio at 2.21.
An additional liquidity covenant will be introduced, requiring
De La Rue to maintain 'headroom' of at least GBP25m on its GBP175m
facilities.
The new facility is subject to a 1% arrangement fee, reduced to
0.5% if the facilities are refinanced prior to 31 December 2023. It
is payable on the earlier of 1 January 2025 or the refinancing of
the facility. However, the margin that we pay at any particular
gearing ratio will not be changing, other than recognising
additional rachets given the higher ceiling this ratio now has.
Further details of the terms of the new facility are given
within the Financial Review section of this statement.
We remain focused on generating free cash flow to reduce the
average level of debt.
Deferral of pension deficit reduction contributions
We have also successfully concluded negotiations with the
Trustee of the De La Rue Pension Fund, overseen by the Pensions
Regulator, to defer GBP18.75m of deficit reduction
contributions.
The Trustee has agreed that we will defer our deficit reduction
contributions of GBP3.75m per quarter from that due on 5 April
2023, up to and including the payment that was due on 5 April 2024,
less an amount equivalent to the arrangement fee agreed with our
lenders on the covenant package, due on or after 5 April 2024.
During the second quarter of FY25, deficit reduction contributions
will recommence at the rate of GBP3.75m per quarter. 'Catch up'
payments, to put the Scheme in funds for the sum deferred, will
start from July 2025 and will continue from FY26 to FY29.
The next actuarial valuation of the scheme is due based on the
funding position as of April 2024.
This deferral significantly eases the short-term cash outflow
for the business and builds upon the actions previously taken, such
as the March 2022 agreement with the Pension Scheme Trustees to
lower cash payments that fund the pension deficit. After the
deferral expires, cash payments to repair the pension deficit will
still be GBP9.5m per annum lower than they would have been without
this March 2022 agreement.
Going concern
The agreements with our banking syndicate and the pension fund
trustee are key elements in the Directors' assessment of going
concern, which has concluded that there is no material uncertainty
with respect to going concern. A full description of the process
and judgements made in reaching this conclusion is set in the Basis
of Preparation set out below.
Divisional performance
We set out below more detail on the trading during FY23 and
since year end within each division of the business.
Authentication
In FY23, the Authentication division produced an adjusted
operating profit of GBP14.3m (FY22: GBP16.3m) on revenue of
GBP91.7m (FY22: GBP90.3m).
In FY23, the division benefited from significant revenue from
the contract to supply ID data pages for the new Australian
passport. The division also onboarded new GRS schemes in Bahrain,
Oman and Qatar, with all three schemes generating revenue from the
first half of FY23.
With these three latest schemes on board, De La Rue now runs
Framework Convention for Tobacco Control (FCTC) compliant schemes
across all countries that have implemented a scheme in the Gulf
Cooperation Council ('GCC') area (totalling five out of the six
countries in the bloc), a 100% win rate. Our other Government
Revenue Solutions contracts performed as expected.
In the Brand segment our business with Microsoft was impacted by
the fall in PC sales globally, with International Data Corporation
(IDC) noting a 16.5% year on year fall in PC demand/shipments in
2022, and a 29% drop in the first calendar quarter of 2023,
compared to the same quarter in 2022.
Adjusted operating profit was impacted by sales mix, and the
division also attracted a greater proportion of central overheads,
having generated a greater proportion of Group revenue in the
year.
The arrival of Dave Sharratt as the Managing Director,
Authentication in September 2022 has reinvigorated and refocused
marketing and sales efforts within the division. The immediate
focus in GRS is now on expanding the offering in territories where
we already have arrangements in place, to cover other excisable
goods, with e-cigarettes, sweetened juices, mobile phones and
beauty products all being discussed as additional product types.
Three GCC countries have already committed to cover soft drinks. In
addition, we have recently secured multi-year GRS contract renewals
with countries across Europe and Africa, securing our existing
revenue for future years.
Within GRS, the World Health Organization has been pushing
signatories of their FCTC for compliance by the promised dates (for
example at the Meeting of the Parties in October 2022). Linked to
this, our level of pre-sales activity is increasing: we are in
direct conversation with multiple countries in our focus regions of
Africa and the Middle East who have expressed an intention to
tender for Digital Tax Stamp solutions within the next 18 months.
Our win rate for tenders in this space since 2020 is over 50%.
In Brand protection we are targeting expansion of the customer
base, with investment in the sales force and implementation of a
partner model to boost opportunities. This approach is already
bearing fruit, with three-year contracts recently agreed with a
multinational pharmaceutical company and a wholesale parts
manufacturer. A strong pipeline of further opportunities is being
explored.
Our ID business secured a significant boost during FY23 when we
agreed an extension to the contract to manufacture data pages for
Australian passports from five to 10 years, out to 2032, building
on our success to date in fulfilling the needs of the Australian
Passport Office ("APO").
Based on that commitment, we have invested in a second line to
produce polycarbonate data pages for ID documents in Malta. This is
now fully operational, with available capacity initially earmarked
to allow the APO to build up buffer stocks.
The commissioning of the ID data page second line is the first
fully-implemented part of our Malta expansion. The remaining
expansion for the Authentication division will considerably
increase our capacity for printing tax stamps and is expected to be
fully operational by the second half of FY24.
Our software capabilities, with our DLR Certify(TM) and
Traceology(R) systems allow end-to-end track and tracing of De La
Rue authenticated products. These form a significant part of our
Authentication offering. Shortly after Dave Sharratt joined De La
Rue, he requested a thorough review of our software development
operation. Following this review we have mothballed two projects,
resulting in a GBP2.9m exceptional write down. However, this has
allowed our team to focus on the core business and our strategic
direction allows concentration on the areas that give us the
greatest future return.
Currency
The Currency division in FY23 saw revenues fall to GBP254.6m
(FY22: GBP280.9m) and saw an adjusted operating profit of GBP13.6m
(FY22: GBP19.5m).
Currency was impacted by the downturn in activity in the wake of
the Covid pandemic when central banks stocked up with currency, and
subsequently the global economic slowdown. This is an industry-wide
trend, as evidenced by recent public statements made by a number of
competitor companies. This is also evidenced by our win rate on
bids, which remains at the same high level as it has been since we
implemented the initial changes back in FY20 and FY21. The amount
of cash in circulation continues to rise, growing 5.3% between 2021
and 2022, indicating that central banks have been working down the
banknote inventory buffer they built in response to the Covid
pandemic.
We entered FY24 with the total order book at GBP153.6m (25 March
2022: GBP170.8m) and the 12-month order book at GBP136.3m (25 March
2022: GBP163.5m). There are now encouraging signs that the market
is recovering, with strong bid activity, a continuing positive win
rate, and the substantial majority of FY24 banknote print orders
already awarded. These include recent wins, especially in Africa,
the Middle East and Asia, that have been received since the end of
FY23.
In 2020 we made a clear pledge to transform Currency, so that it
is profitable on an adjusted operating profit basis even in
downturns. While it is accepted that Currency has fallen short of
expectations in recent times, the results of this division bear out
that pledge. In FY20, the Currency division demonstrated an
adjusted operating loss of GBP9.4m. In the three subsequent years,
FY21 to FY23, the division's adjusted operating profits have been
GBP16.2m, GBP19.5m and GBP13.6m respectively. This includes the
severe downturn in FY23, from which the market is beginning to
recover. De La Rue has significantly enhanced its competitiveness,
refining its manufacturing footprint and cost base, and is well
positioned for when the market returns. The termination of the
long-term supply agreement for banknote paper with Portals in July
2022, eliminating GBP119m in commitments for a cash payment of
GBP16.7m, represented a further step in our transformation. We give
more detail on this, and progress on paper tendering, below. The
recently completed wind down of the Kenyan facility further
right-sizes our manufacturing facilities, focusing on those with
the greatest capability, while maintaining De La Rue's position as
the number 1 commercial printer of banknotes worldwide.
The expansion of our Malta site, where our new Currency
operations will progressively come online from the first half of
FY25, further refines that operational flexibility.
Cost base
We made substantial progress during the year in limiting supply
chain headwinds, in a period which saw a step change in global
rates of inflation. We used a combination of dual sourcing,
tendering and robust negotiation to maintain a competitive raw
material price base. Our UK energy costs are fixed to at least
September 2024, providing us with a good degree of forward cost
visibility.
The termination of the contract with Portals Paper to supply
banknote paper in July 2022 marked another step in our journey to
resolve the legacy issues that have impacted the efficiency of the
business. We have since qualified multiple additional suppliers and
validated the predicted future cost savings.
Kenya
As referenced above, in January 2023, the Group determined that,
owing to current market demand, and no expectation of new banknote
orders from the Central Bank of Kenya for a considerable period, De
La Rue Kenya (a joint venture with the Government of Kenya) would
suspend banknote printing operations in the country. Furthermore,
operations in our Authentication division in Kenya have been wound
down.
As a result of the review of the business in Kenya, an
exceptional charge of GBP12.6m (FY22: GBPnil) was made in FY23.
This included redundancy charges of GBP5.5m, property, plant and
equipment asset impairments of GBP4.9m, and inventory impairments
of GBP2.0m.
Malta
The substantial expansion to our Malta facility is progressing
well. An additional line producing ID data pages is now fully
operational and the remaining additional Authentication space
should be completed in the second half of FY24. The Currency
facilities, including a new vault, should be ready in FY25.
When complete, the new facilities will substantially increase
our capacity within Authentication and add significantly to our
Currency capabilities within Malta.
Outlook
As noted above, despite the low order book going into FY24,
there are encouraging signs that the Currency market is recovering.
We expect revenue in the Authentication division to exceed GBP100m
for the first time in FY24, driven by existing contracts, including
the full year impact of the Qatar, Bahrain and Oman GRS programmes,
and a substantial increase in demand from the Australian passport
programme.
On 12 April 2023, De La Rue announced that the Board expected
full year adjusted operating profit for FY24 to be in the low
GBP20m range. Trading for the first two months of FY24 has been in
line with this and it remains the Board's expectation for the full
year, albeit with H1 being broadly break-even at Group level due to
the timing of the recovery in Currency orders.
Over the last three years, we have taken decisive steps to
restructure the business, driving efficiencies and innovation, and
reducing costs. In FY24, we are continuing this journey, including
making the final payment for the Portals exit, thereby finally
closing out another major legacy issue. This year, we expect net
debt to rise to around GBP100m by both the half year and the year
end.
Conclusion
I would like to express my thanks to my colleagues throughout
the Group, who have remained focused and resilient through
significant changes in the business, and through a historically low
demand period in Currency. As we go forward, we will redouble our
efforts to develop the Company, with a strong operational plan, now
underpinned by the amendment to the banking arrangement, a deferral
of immediate pension contributions, and a going concern assessment
that has not identified any 'material uncertainty'.
FY23 has been a challenging year for the Company and its
stakeholders. We remain resolute in our determination to build on
the ongoing transformation actions and create a positive
future.
Clive Vacher
Chief Executive Officer
Financial review
In FY23 we contended with reduced revenue, an adverse sales mix
and inflationary headwinds. We have worked hard to implement cost
savings which have helped to mitigate this impact.
To provide increased insight into the underlying performance of
our business, we have reported revenue, gross profit and operating
profit on an IFRS and adjusted basis, together with adjusted EBITDA
and adjusted controllable operating profit (adjusted operating
profit before enabling function cost allocation), for both ongoing
operating divisions.
Over 99% of Group revenue for FY23 of GBP349.7m (FY22:
GBP375.1m) originated from our ongoing operating divisions of
Currency and Authentication.
Together Currency and Authentication delivered adjusted
operating profit of GBP27.9m (FY22: GBP35.8m), a fall of GBP7.9m
year-on-year. This largely reflects lower revenue from the Currency
division, adverse mix and a slight increase in operating expenses.
Identity Solutions generated an adjusted operating loss of just
GBP0.1m in the current financial year with minimal remaining
activity (FY22: GBP0.6m profit).
Authentication
FY23 FY22 Change
GBPm GBPm
----------------------------------------- ----- ----- -------
Revenue 91.7 90.3 +1.6%
Gross profit 34.0 34.5 -1.4%
Adjusted controllable operating profit* 23.0 23.7 -3.0%
Adjusted operating profit* 14.3 16.3 -12.3%
Operating profit 5.4 15.1 -64.2%
----------------------------------------- ----- ----- -------
% %
----------------------------------------- ----- ----- -------
Gross profit margin 37.1 38.2 110bps
Adjusted controllable operating profit
margin* 25.1 26.2 110bps
Adjusted operating profit margin* 15.6 18.1 250bps
----------------------------------------- ----- ----- -------
* Non-IFRS measure
Our Authentication division protects revenues and reputations
through the provision of physical and digital solutions to
governments and commercial organisations. We also manufacture ID
security components.
During FY23 our existing Government Revenue Solutions contracts
have performed as expected and revenue benefited from contracts in
Bahrain, Oman and Qatar coming on-stream during the year. This was
offset by the HMRC contract ending as expected in the first
quarter.
In addition, our ID business has grown strongly with our
contract with Note Printing Australia (NPA) meeting scheduled
volumes during FY23, securing sufficient semi-conductors despite
general supply shortages of these components. The NPA contract
reached full production volumes shortly after the year end on the
newly commissioned additional production line in Malta.
In contrast, our Brand business saw lower than expected sales,
with Microsoft particularly impacted during the year by the fall in
PC sales globally, with International Data Corporation (IDC), a
well-respected industry observer, noting a 16.5% year-on-year fall
in PC demand/ shipments in 2022, and a 29% drop in the first
calendar quarter of 2023, compared to the same quarter in 2022.
The supply of Covid-19 vaccine brand protection seals, strong in
FY22, also fell away due to a change in strategic focus by the
customer.
Overall, these movements led to revenue for the year of GBP91.7m
(FY22: GBP90.3m), a slight increase over last year.
Gross profit fell slightly in both absolute and margin terms
with gross profit margin falling by 110 basis points to 37.1%
(FY22: 38.2%), impacted by sales mix despite careful cost
control.
Adjusted operating profit in Authentication fell 12.3% to
GBP14.3m (FY22: GBP16.3m), mostly driven by a less profitable mix
of sales this year, a rise in depreciation on capitalised software
development costs and a greater proportion of enabling costs being
allocated to the Authentication division, given the higher
percentage of revenue it contributed to the overall business.
Adjusted profit before controllable costs also fell slightly,
down 3.0% to GBP23.0m (FY22: GBP23.7m), hit by an adverse sales
mix. On an IFRS basis, operating profit of GBP5.4m (FY22: GBP15.1m)
was impacted by lower underlying profits and exceptional costs,
relating to asset impairment and restructuring costs, that were
GBP7.7m higher than prior year.
Currency
FY23 FY22 Change
GBPm GBPm
----------------------------------------- ------- ------ --------
Revenue 254.6 280.9 -9.4%
Gross profit 58.2 63.2 -7.9%
Adjusted controllable operating profit* 37.6 42.5 -11.5%
Adjusted operating profit* 13.6 19.5 -30.3%
Operating (loss)/profit (24.8) 15.0 n/a
----------------------------------------- ------- ------ --------
% %
----------------------------------------- ------- ------ --------
Gross profit margin 22.9 22.5 +40bps
Adjusted controllable operating profit
margin* 14.8 15.1 -30bps
Adjusted operating profit margin* 5.3 6.9 -160bps
----------------------------------------- ------- ------ --------
* Non-IFRS measure
De La Rue's Currency division provides market-leading end-to-end
currency solutions, from finished banknotes to secure polymer
substrate and banknote security features to over half the central
banks and issuing authorities around the world.
Revenue of GBP254.6m in FY23 (FY22: GBP280.9m) for the Currency
division was down 9.4% on the previous year. The fall in revenue
was mostly due to lower banknote volumes, with a fall in polymer
substrate volumes seen as well.
The post Covid-19 lull in demand, exacerbated and extended by
global macroeconomic uncertainty, continued throughout FY23. It is
evident that this slowdown has been experienced across the Currency
manufacturing industry, as several of our competitors in this area
have commented publicly that they have seen similar declines. We
believe much of this is linked to banknote inventory movements by
central banks following the Covid-19 pandemic. Volumes of banknotes
in circulation continue to increase.
The demand for banknotes has recently been at low levels. As at
25 March 2023, the De La Rue Currency division's total order book
stood at GBP136.8m (26 March 2022: GBP170.8m), a lower level at
this time of year than in any of the last five years. The 12-month
order book as at 25 March 2023 stood at GBP131.7m (26 March 2022:
GBP163.5m).
There are encouraging signs that the market is recovering, with
a number of substantial new tenders underway since the year end,
but the timing of this recovery remains uncertain. As of 16 June
2023, we had secured the substantial majority of the planned FY24
revenue.
Strong cost control and operational efficiency, together with
the benefits of the Portals agreement termination, meant that the
gross profit margin rose slightly to 22.9% (FY22: 22.5%), though,
given the fall in revenue, gross profit fell 7.9% in absolute terms
to GBP58.2m (FY22: GBP63.2m).
Adjusted operating profit in the Currency division fell 30.3% to
GBP13.6m (FY22: GBP19.5m), impacted mostly by the fall in revenue
but also partly by the rise in enabling function costs in absolute
terms, despite a smaller proportion of those overall costs being
allocated to the division. Further detail about enabling function
costs is given below.
On an IFRS basis, the division moved into an operating loss of
GBP24.8m (FY22: profit of GBP15.0m) with GBP38.4m of exceptional
costs attributed to the division (FY22: GBP4.5m), comprising
GBP17.0m of costs relating to the termination of the agreement with
Portals Paper, GBP8.5m of credit loss provision on Portals loan
notes and GBP12.9m of restructuring and relocation costs.
Putting aside the impact of exceptional items and the divisional
allocation of costs incurred centrally by enabling functions,
discussed below, we also saw a slight fall in adjusted controllable
operating profit to GBP37.6m (FY22: GBP42.5m) driven by the fall in
revenue, though amid a background of cost inflation, controllable
operating profit margin fell only slightly to 14.8% (FY22:
15.1%).
Identity solutions
As noted above, the legacy Identity Solutions business saw
minimal activity in FY23 with an operating loss of just GBP0.1m
(FY22: operating profit of GBP0.6m).
Enabling function costs
In FY23 enabling function costs of GBP32.7m (FY22: GBP30.4m)
rose by 7.6% and represented 9.4% of Group revenue (FY22: 8.1%).
The rise in enabling function costs came from the non-recurrence of
various credits received last year, a reclassification of entity
costs previously deemed discontinued, IBRN (incurred but not
recorded) insurance claims covering the risk that a claim maybe
made in the future related to cyber security and audit fee
increases.
Exceptional items
Exceptional items during the period constituted a net charge of
GBP47.1m (FY22: GBP5.7m) before tax.
Exceptional charges included:
- GBP17.0m (FY22: GBPnil) relating to the payments agreed to
terminate the long-term supply agreement with Portals Paper as
noted above and explained in the first half results.
- GBP12.6m (FY22: GBPnil) in relation to redundancy charges and
asset impairments associated with the wind down of activity in our
Kenyan operations. Of this, GBP6.9m relates to fixed asset and
inventory impairments which are non-cash items.
- GBP2.9m (FY22: GBPnil) impairment of capitalised product
development costs within Authentication in relation to two
programmes on which work was mothballed during FY23.
- GBP1.4m (FY22: GBPnil) impairment of software assets relating
to the Currency where future revenue relating to these assets are
minimal.
- GBP4.2m (FY22: GBP1.8m) of other site relocation and
restructuring expenses incurred in connection with cost out
initiatives designed to right-size both divisions for future
operations.
- GBP8.5m (FY22: GBP3.1m) recognition of credit loss provision
on other financial assets. Other financial assets comprise
securities held in the Portals International Limited group which
were received as part of the consideration for the paper disposal
in 2018, together with accrued interest. In accordance with IFRS 9,
management has assessed the recoverability of the carrying value of
these financial assets and recorded an expected credit loss
provision of GBP8.5m in exceptional items. The net amount remaining
on the balance sheet for other financial assets was GBPnil (FY22:
GBP7.4m). This provision will not impact our efforts to work with
the Portals Group companies to recover these investments.
- GBP0.5m (FY22: GBP0.4m) in relation to legal fees incurred on
rectification of certain discrepancies identified in the pension
Scheme rules net of amounts recovered.
Tax related to exceptional items amounted to GBP5.1m (FY22: tax
credit of GBP1.8m). As well as the tax impact of the items detailed
above, it included GBP4.0m (FY22: GBP1.5m) of charge related to the
derecognition of a deferred tax asset relating to the pension
scheme and GBP6.1m (FY22: nil) relating to the expected utilisation
of tax credits in Malta, which are expected to be surrendered for
capital grants against future capital expenditure there.
The policy for exceptional items described in the Annual Report
and Accounts is used when calculating our financial covenants as
agreed with our lenders.
Finance charge
The Group's net interest charge was GBP9.3m (FY22: GBP5.5m).
This included interest income of GBP1.2m (FY22: GBP0.9m), interest
expense of GBP11.6m (FY22: GBP6.2m) and retirement benefit finance
income of GBP1.1m (FY22: expense of GBP0.2m).
Interest income of GBP1.2m (FY22: GBP0.9m) included interest
accrued on loan notes and preference shares held in the Portals
International Limited Group of GBP1.1m (FY22: GBP0.8m). Interest
received on loan notes and preference shares is excluded from the
Group's covenant calculations.
Interest expense included interest on bank loans of GBP7.2m
(FY22: GBP3.1m), interest on lease liabilities of GBP0.5m (FY22:
GBP0.6m), net charges relating to the November 2022 debt
modification of GBP0.7m (FY22: GBPnil) and other including
amortisation of finance arrangement fees of GBP3.2m (FY22:
GBP2.5m). The increase in bank loan interest paid in FY23 was
largely attributable to the rises in Bank of England base rates
which moved from 0.75% to 4.25% over the period and now stand at
5.0%.
The IAS 19 related finance cost, which represents the difference
between the interest on pension liabilities and assets, was a
credit of GBP1.1m (FY22: GBP0.2m charge). The credit in the year
was due to the opening IAS 19 pension valuation in being a surplus
of GBP29.8m.
The net charges relating to the debt modification of GBP0.7m
(FY22: GBPnil) relate to a loss in carrying value of the banking
facilities incurred when they were modified in November 2022, net
of the amortisation of this loss over the period. The transaction
costs will be amortised over the period of the loan.
Taxation
The effective tax rate on continuing operations before
exceptional items and the amortisation of acquired intangibles was
123.2% (FY22: 11.0%). This includes the impact of provisions
against deferred tax asset balances, changes in uncertain tax
provisions and the impact of tax rate changes in Sri Lanka; the
underlying effective tax rate excluding these items was 24.9%
(FY22:19.4%).
Including the impact of exceptional items and the amortisation
of acquired intangibles, the total tax charge in the consolidated
income statement for the year was GBP27.6m (FY22: GBP1.4m).
The net tax charge relating to exceptional items in the period
was GBP5.1m (FY22: tax credit GBP1.8m). A tax credit of GBP0.3m
(FY22: tax credit GBP0.3m) was recorded in respect of the
amortisation of acquired intangibles.
The Group paid tax of GBP1.0m in FY23 (FY22: GBP1.8m).
The underlying effective tax rate for FY24 on continuing
operations before exceptional items and amortisation of acquired
intangibles is expected to be between 70-80%. This appears
disproportionately high due to the impact of expected corporate
interest restrictions in the UK.
Earnings per share
The basic weighted average number of shares for earnings per
share ('EPS') purposes was 195.4m (FY22: GBP195.2m).
Adjusted basic loss per share was 1.5p (FY22: EPS of 13.0p),
reflecting the fall in adjusted basic earnings. IFRS basic loss per
share from continuing operations was 28.6p (FY22: EPS of 10.6p)
reflecting a basic loss of GBP55.9m (FY22: earnings of
GBP20.7m).
Cash flow and borrowing
Cash flow from operating activities was a net cash inflow of
GBP23.8m (FY22: GBP16.5m inflow), generated after taking into
account:
- GBP29.6m loss before tax (FY22: GBP25.1m profit)
- GBP9.3m of net finance expense (FY22: GBP5.5m)
- GBP20.0m of depreciation and amortisation (FY22: GBP18.6m)
- GBP18.3m net working capital inflow (FY22: GBP17.2m outflow). This included:
o GBP0.5m decrease in inventory (FY22: decrease GBP3.4m);
o GBP6.0m decrease in trade and other receivable and contract
assets (FY22: decrease GBP22.6m) mainly due to timing of cash
collections on certain material customer contracts; and
o GBP11.8m increase in trade and other payables and contract
liabilities (FY22: GBP43.2m decrease), including the final
settlement payment of GBP7.5m relating to Portals Paper being
accrued at year end but not paid until April 2023.
- GBP16.5m of pension fund contributions of (FY22: GBP16.4m)
including amounts related to administrative costs of running the
scheme
- GBP13.9m of non-cash provisions within exceptional items
(FY22: GBP3.0m), namely GBP5.4m (FY22: GBP0.1m credit) of asset
impairments and GBP8.5m (FY22: GBP3.1m) of credit loss provision on
Portals loan notes
The cash outflow from investing activities was GBP20.8m (FY22:
GBP25.8m) driven by capital expenditure of GBP21.4m (FY22:
GBP26.9m) as the Turnaround Plan investment nears completion and we
continue to invest in the capabilities of our software-based
products. Capital expenditure is stated after cash receipt from
grants received of GBP4.2m (FY22: GBP1.5m), largely relating to the
construction of our expanded facility in Malta.
The cash inflow from financing activities was GBP12.6m (FY22:
GBP7.7m), including GBP27.0m net draw down of borrowing (FY22: draw
down of GBP17.0m), GBP10.3m (FY22: GBP6.2m) of interest payments
and GBP2.4m (FY22: GBP2.2m) of IFRS 16 lease liability payments.
Debt issue costs of GBP0.9m (FY22: GBPnil) were also paid on the
amendment and extension of the banking facilities agreed in
November 2022.
As a result of the cash flow items referred to, Group net debt
increased from GBP71.4m at 26 March 2022 to GBP83.1m at 25 March
2023.
The Group had Bank facilities of GBP275.0m including a Revolving
Credit Facility (RCF) cash drawdown component of up to GBP175.0m
and bond and guarantee facilities of a minimum of GBP100.0m, with a
maturity date of 1 January 2025 following an extension signed in
November 2022.
The GBP100m of bond and guarantee facilities provided guarantees
or bonds to participate in tenders and function as back up to
contracts, where the customers require a guarantee as part of their
procurement process. In addition, the facilities underpin some
advance payments from customers. The Group considers the provision
of such bonds to be in its ordinary course of business.
At year end the RCF cash component stood at GBP175.0m and the
bond and guarantee component stood at GBP100.0m.
As at 25 March 2023, the Group, as part of the GBP175.0m RCF
cash component, has a total of undrawn committed borrowing
facilities, all maturing in more than one year, of GBP53.0m (26
March 2022: GBP55.0m in more than one year). The amount of loans
drawn at 25 March 2023 on the GBP175.0m RCF cash component was
GBP122.0m (26 March 2022: GBP95.0m). As at 25 March 2023 guarantees
of GBP52.1m (26 March 2022: GBP55.6m) were used from the GBP100.0m
guarantee facility. The accrued interest in relation to cash
drawdowns outstanding at 25 March 2023 was GBP0.3m (26 March 2022:
GBPnil).
During FY23 the financial covenants required that the ratio of
EBIT to net interest payable will not be less than three times and
the net debt to EBITDA ratio will not exceed three times. At the
period end the specific covenant tests were as follows: EBIT/net
interest payable of 3.03 times, net debt/EBITDA of 2.21 times. The
covenant tests use earlier accounting standards and exclude
adjustments including IFRS 16.
On 29 June 2023 the Group reached agreement with its lenders to
significantly relax its financial covenants as outlined in the 'CEO
review' above. In addition to amending the interest cover and net
leverage ratio, the Company has also agreed to maintain a minimum
liquidity ratio of GBP25m. The minimum liquidity ratio is defined
as available cash and the undrawn portion of the available RCF. The
ratio is tested monthly but on a weekly basis covering a 13-week
historic, actuals and a 13-week forward basis, effective from I
July 2023. The Group must ensure liquidity must not drop below the
GBP25m level in any two week consecutive period either looking
historically or forward.
Furthermore, the Group has granted fixed and floating security
over certain material assets of the Group and has cancelled
GBP25.0m of the GBP100.0m bond and guarantee line. The Group now
has access to GBP75.0m of bond and guarantee lines.
Pension scheme
As well as focusing on operational performance, the Group
continues to look proactively to minimise future cash outflows,
particularly in the immediate future .
To conserve cash, we have agreed with the Pension Scheme Trustee
to defer GBP18.75m of deficit reduction contributions. We will
defer our deficit reduction contributions of GBP3.75m per quarter
from that due on 5 April 2023, up to and including the payment that
was due on 5 April 2024, less an amount equivalent to the
arrangement fee agreed with our lenders on the covenant package,
due on or after 5 April 2024. During the second quarter of FY25,
deficit reduction contributions will recommence at the rate of
GBP3.75m per quarter. 'Catch up' payments, to put the Scheme in
funds for the sum deferred, will start from July 2025 and will
continue through FY26 to FY29.
In order to preserve and support the position of the scheme,
with the support of the lenders, the scheme will be provided with
security on a pari passu basis together with the lenders, as well
as an enhanced information sharing protocol to ensure ongoing
communication between the Group and the Trustee remains
comprehensive.
On 24 May 2022, the Trustees of the Main Scheme entered into a
partial pensioner buy-in contract for a proportion of pension
members. In return for a premium paid from the Scheme's assets,
from the date of the buy-in, payments will be made to the Scheme
that match the benefit payments to those Scheme members covered
under the buy-in contract. The premium paid to the insurer was
GBP319.0m. As at 25 March 2023, the value of the buy-in contract
was GBP220.6m. The impact of the partial pensioner buy-in has been
recognised as a loss on the scheme assets within the comprehensive
statement of income. This buy-in reduces the overall future
volatility of the pension fund by fixing the liabilities of a
subset of pensioners.
The valuation of the Group's UK defined benefit pension scheme
(the "Scheme") on an IAS 19 basis at 25 March 2023 is a net
liability of GBP51.3m (26 March 2022: net surplus GBP31.6m). The
movement in the IAS 19 valuation from a net surplus at 26 March
2022 was mainly as a result of losses on assets, as well as
inflation experience on liabilities (due to actual inflation being
higher than assumed). This was partially offset by gains on the
Scheme's liabilities as a result of changes to the actuarial
assumption - the discount rate assumption increased from 2.85% to
4.70% - and changes to the mortality assumption resulting in lower
expectations on future life expectancy of members.
The charge to adjusted operating profit in respect of the Scheme
in the period was GBP1.6m (FY22: GBP1.8m). Under IAS 19 there was a
finance credit of GBP1.1m (FY22: GBP0.2m charge) arising from the
difference between the interest cost on liabilities and the
interest income on scheme assets.
Capital structure
At 25 March 2023 the Group had net assets of GBP35.0m (26 March
2022: GBP161.8m).
The movement year-on-year included:
FY23 FY22
GBPm GBPm
------------------------------------------------- -------- --------
Opening net assets 161.8 111.4
(Loss)/Profit for the year (57.2) 23.7
Remeasurement (loss)/gain on retirement benefit
obligations (100.3) 35.7
Tax related to remeasurement of net defined
benefit liability 24.2 (8.8)
Other movements in other comprehensive income 5.5 (0.9)
Employee share scheme charges 1.9 1.7
Other (0.9) (1.0)
Closing net assets 35.0 161.8
------------------------------------------------- -------- ------
DIRECTORS' REPORT
Principal risks and uncertainties
Throughout its global operations De La Rue faces various risks,
both internal and external, which could have a material impact on
the Group's performance. The Group manages the risks inherent in
its operations in order to mitigate exposure to all forms of risks,
where practical, and to transfer risk to insurers where
applicable.
The Group analyses the risks that it faces under the following
broad headings: strategic risks (technological revolution, strategy
implementation, changes to the market environment and economic
conditions), operational risks, legal/regulatory, information risks
and financial risks (currency risk, credit risk, liquidity risk,
interest rate risk and commodity price risk).
The principal risks and uncertainties are reviewed at least
quarterly and updated. Currently they include:
-- bribery and corruption;
-- quality management and delivery failure;
-- macroeconomic and geopolitical environment;
-- loss of key site or process;
-- sustainability and climate change;
-- loss of key talent;
-- breach of information security;
-- supply chain failure;
-- breach of security - product security;
-- failure of a key supplier to deliver;
-- sanctions; and
-- banking facilities.
Full details of the above risk will be included in the FY23
Annual Report and Accounts.
Going Concern
Please refer to the financial statements section "2. Basis of
preparation and accounting policies.
A copy of the 2022 Annual Report is available at www.delarue.com
or on request from the Company's registered office at De La Rue
House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.
Related Party Transactions
Details of the related party transactions that have taken place
in the year are provided in note 28 to the Financial Statements.
None of these have materially affected the financial position or
the performance of the Group during that period, and there have
been no changes during FY23 in the related party transactions
described in the FY22 annual report that could materially affect
the financial position or performance of the Group.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge:
-- The preliminary financial information, which has been
prepared in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company on a
consolidated and individual basis; and
-- The preliminary announcement includes a fair summary of the
development and performance of the business and the position of the
Company on a consolidated and individual basis, together with a
description of the principal risks that it faces.
The Board of Directors of De La Rue plc at 26 March 2022 and
their respective responsibilities can be found on pages 52 and 53
of the De La Rue plc Annual Report 2022. There have been the
following changes since that date:
-- Resignation of Maria de Cunha
-- Resignation of Kevin Loosemore
-- Resignation of Catherine Ashton
-- Appointment of Mark Hoad
-- Appointment of Clive Whiley
-- Appointment of Dean Moore
For and on behalf of the Board
Clive Whiley
Chairman
Consolidated income statement - for the period ended 25 March
2023
2023 2022
Notes GBPm GBPm
----------------------------------------------------------- ----- -------- -------
Revenue from customer contracts 3 349.7 375.1
Cost of sales (257.6) (277.5)
----------------------------------------------------------- ----- -------- -------
Gross Profit 92.1 97.6
Adjusted operating expenses (64.3) (61.2)
----------------------------------------------------------- ----- -------- -------
Adjusted operating profit 27.8 36.4
----------------------------------------------------------- ----- -------- -------
Adjusted Items(1) :
Amortisation of acquired intangibles (1.0) (1.0)
Net exceptional items - expected credit loss 4 (8.5) (3.1)
Net exceptional items - other 4 (38.6) (2.6)
----------------------------------------------------------- ----- -------- -------
Net exceptional items - Total 4 (47.1) (5.7)
Operating (loss)/profit (20.3) 29.7
Interest income 1.2 0.9
Interest expense (11.6) (6.2)
Net retirement benefit obligation finance income/(expense) 1.1 (0.2)
----------------------------------------------------------- ----- -------- -------
Net finance expense (9.3) (5.5)
(Loss)/Profit before taxation from continuing operations (29.6) 24.2
Taxation 5 (27.6) (1.3)
----------------------------------------------------------- ----- -------- -------
(Loss)/Profit for the year from continuing operations (57.2) 22.9
Profit from discontinued operations - 0.8
----------------------------------------------------------- ----- -------- -------
(Loss)/Profit for the year (57.2) 23.7
----------------------------------------------------------- ----- -------- -------
Attributable to:
Owners of the parent (55.9) 21.5
Non-controlling interests 13 (1.3) 2.2
----------------------------------------------------------- ----- -------- -------
(Loss)/Profit for the year (57.2) 23.7
----------------------------------------------------------- ----- -------- -------
Earnings per ordinary share
Basic 6
Basic EPS continuing operations (28.6)p 10.6p
Basic EPS discontinued operations - 0.4p
----------------------------------------------------------- ----- -------- -------
Total Basic EPS (28.6)p 11.0p
----------------------------------------------------------- ----- -------- -------
Diluted 6
Diluted EPS continuing operations (28.6)p 10.5p
Diluted EPS discontinued operations - 0.4p
----------------------------------------------------------- ----- -------- -------
Total Diluted EPS (28.6)p 10.9p
----------------------------------------------------------- ----- -------- -------
Note: (1) For adjusting Items, the cash flow Impact of
exceptional Items can be found in note 4 and there was no cash flow
impact for the amortisation of acquired Intangible assets.
Consolidated statement of comprehensive income
for the period ended 25 March 2023
2023 2 022
Notes GBPm GBPm
-------------------------------------------------------------------------------------------- ----- -------- -----
(Loss)/Profit for the year (57.2) 23.7
-------------------------------------------------------------------------------------------- ----- -------- -----
Other comprehensive income
Items that are not reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on retirement benefit obligations 10 (100.3) 35.7
Tax related to remeasurement of net defined benefit liability 24.2 (8.8)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations 5.0 (1.5)
Foreign currency translation differences for foreign operations - non-controlling interests - 0.1
Change in fair value of cash flow hedges (1.0) (0.6)
Change in fair value of cash flow hedges transferred to profit or loss 1.7 0.8
Tax related to cash flow hedge movements (0.1) 0.1
Tax related to components of other comprehensive income (0.1) 0.2
-------------------------------------------------------------------------------------------- ----- -------- -----
Other comprehensive (loss)/income for the year, net of tax (70.6) 26.0
-------------------------------------------------------------------------------------------- ----- -------- -----
Total comprehensive (loss)/income for the year (127.8) 49.7
-------------------------------------------------------------------------------------------- ----- -------- -----
Comprehensive income for the year attributable to:
Equity shareholders of the Company (126.5) 47.4
Non-controlling interests (1.3) 2.3
-------------------------------------------------------------------------------------------- ----- -------- -----
(127.8) 49.7
-------------------------------------------------------------------------------------------- ----- -------- -----
Consolidated balance sheet
at 25 March 2023
2023 2022
- Notes GBPm GBPm
--------------------------------------- ----- -------- -------
ASSETS
Non-current assets
Property, plant and equipment 97.1 102.7
Intangible assets 39.3 37.5
Right-of-use assets 12.1 12.9
Long-term pension assets 10 - 31.6
Other financial assets 7 - 7.4
Deferred tax assets 18.3 11.2
Derivative financial assets - 0.1
--------------------------------------- ----- -------- -------
166.8 203.4
--------------------------------------- ----- -------- -------
Current assets
Inventories 49.3 50.1
Trade and other receivables 70.7 89.0
Contract assets 18.9 8.0
Current tax assets 0.2 0.4
Derivative financial assets 2.4 3.3
Cash and cash equivalents 9 40.3 24.3
--------------------------------------- ----- -------- -------
181.8 175.1
--------------------------------------- ----- -------- -------
Total assets 348.6 378.5
--------------------------------------- ----- -------- -------
LIABILITIES
Current liabilities
Trade and other payables (92.1) (80.0)
Current tax liabilities (23.2) (13.9)
Derivative financial liabilities (1.9) (4.8)
Lease liabilities (3.0) (2.7)
Provisions for liabilities and charges (6.0) (5.9)
--------------------------------------- ----- -------- -------
(126.2) (107.3)
--------------------------------------- ----- -------- -------
Non-current liabilities
Borrowings 9 (118.4) (92.6)
Retirement benefit obligations 10 (54.7) (1.8)
Deferred tax liabilities (2.8) (2.4)
Lease liabilities (10.3) (11.5)
Other non-current liabilities (1.2) (1.1)
--------------------------------------- ----- -------- -------
(187.4) (109.4)
--------------------------------------- ----- -------- -------
Total liabilities (313.6) (216.7)
--------------------------------------- ----- -------- -------
Net assets 35.0 161.8
--------------------------------------- ----- -------- -------
Consolidated balance sheet
at 25 March 2023
2023 2022
Notes GBPm GBPm
--------------------------------------------------------- ----- ------- ------
EQUITY
Share capital 88.8 88.8
Share premium account 42.2 42.2
Capital redemption reserve 5.9 5.9
Hedge reserve 0.1 (0.5)
Cumulative translation adjustment 9.2 4.2
Other reserve (83.8) (31.9)
Retained earnings (43.3) 35.1
--------------------------------------------------------- ----- ------- ------
Total equity attributable to shareholders of the Company 19.1 143.8
--------------------------------------------------------- ----- ------- ------
Non-controlling interests 13 15.9 18.0
--------------------------------------------------------- ----- ------- ------
Total equity 35.0 161.8
--------------------------------------------------------- ----- ------- ------
Approved by the Board on 29 June 2023.
Clive Vacher Rob Harding
Chief Executive Officer Chief Financial Officer
Registered number: 3834125
Consolidated statement of changes in equity
for the period ended 25 March 2023
Attributable to Non-controlling Total
equity shareholders Interests equity
--------------------------------- ---------------------------------------------------------------------- --------------- -------
Share Capital Cumulative
Share premium redemption Hedge translation Other Retained
capital account reserve reserve adjustment reserve earnings
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Balance at 27 March
2021 88.8 42.2 5.9 (0.8) 5.7 (31.9) (14.9) 16.4 111.4
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Profit for the year - - - - - - 21.5 2.2 23.7
Other comprehensive
income for the year,
net of tax - - - 0.3 (1.5) - 27.1 0.1 26.0
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Total comprehensive
income for the year - - - 0.3 (1.5) - 48.6 2.3 49.7
Transactions with
owners of the Company
recognised directly
in equity:
Share capital issued - - - - - - - 0.2 0.2
Employee share scheme:
* value of services provided - - - - - - 1.7 - 1.7
Tax on income and
expenses recognised
directly in equity - - - - - - (0.3) - (0.3)
Dividends paid - - - - - - - (0.9) (0.9)
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Balance at 26 March
2022 88.8 42.2 5.9 (0.5) 4.2 (31.9) 35.1 18.0 161.8
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Loss for the year - - - - - - (55.9) (1.3) (57.2)
Other comprehensive
income for the year,
net of tax - - - 0.6 5.0 - (76.2) - (70.6)
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Total comprehensive
income for the year - - - 0.6 5.0 - (132.1) (1.3) (127.8)
Reclassification
between reserves - - - - - (51.9) 51.9 - -
Transactions with
Owners of the Company
recognised directly
in equity:
Share Capital issued - - - - - - - - -
Employee share Scheme
* value of service provided - - - - - - 1.9 - 1.9
Tax on income and
expenses recognised
directly in equity - - - - - - (0.5) - (0.5)
Dividends paid - - - - - - - (0.8) (0.8)
Other - unclaimed
dividends - - - - - - 0.4 - 0.4
Balance at 25 March
2023 88.8 42.2 5.9 0.1 9.2 (83.8) (43.3) 15.9 35.0
--------------------------------- ------- ------- ---------- ------- ----------- ------- --------- --------------- ---------
Notes:
Share premium account - This reserve arises from the issuance of
shares for consideration in excess of their nominal value.
Capital redemption reserve - This reserve represents the nominal
value of shares redeemed by the Company.
Hedge reserve - This reserve records the portion of any gain or
loss on hedging instruments that are determined to be effective
cash flow hedges. When the hedged transaction occurs, the gain or
loss on the hedging instrument is transferred out of equity to the
income statement. If a forecast transaction is no longer expected
to occur, the gain or loss on the related hedging instrument
previously recognised in equity is transferred to the income
statement.
Cumulative translation adjustment (CTA) - This reserve records
cumulative exchange differences arising from the translation of the
financial statements of foreign entities since transition to IFRS.
Upon disposal of foreign operations, the related accumulated
exchange differences are recycled to the income statement. This
reserve also records the effect of hedging net investments in
foreign operations.
Other reserves - On 1 February 2000, the Company issued and
credited as fully paid 191,646,873 ordinary shares of 25p each and
paid cash of GBP103.7m to acquire the issued share capital of De La
Rue plc (now De La Rue Holdings Limited), following the approval of
a High Court Scheme of Arrangement. In exchange for every 20
ordinary shares in De La Rue plc, shareholders received 17 ordinary
shares plus 920p in cash. The other reserve of GBP83.8m arose as a
result of this transaction and is a permanent adjustment to the
consolidated financial statements.
On 17 June 2020 the Group announced that it would issue new
ordinary shares via a "cash box" structure to raise gross proceeds
of GBP100m, in order to provide the Company and its management with
operational and financial flexibility to implement De La Rue's
turnaround plan, which was first announced by the Company earlier
in the year. The cashbox completed on 7 July 2020 and consisted of
a firm placing, placing and open offer. The Group issued 90.9m new
ordinary shares each with a nominal value of 44 152/175p, at a
price of 110p per share (giving gross proceeds of GBP100m). A "cash
box" structure was used in such a way that merger relief was
available under Companies Act 2006, section 612 and thus no share
premium needed to be recorded and instead an 'other reserve' of
GBP51.9m was recorded, increasing other reserves from a deficit of
GBP83.8m to a deficit of GBP31.9m. This section applies to shares
which are issued to acquire non-equity shares (such as the
Preference Shares) issued as part of the same arrangement.
The Group recorded share capital equal to the aggregate nominal
value of the ordinary shares issued (GBP40.8m) and merger reserve
equal to the difference between the total proceeds net of costs and
share capital. As the cash proceeds received by De La Rue plc where
loaned via intercompany account to a subsidiary company to enable a
substantial repayment of the RCF, the increase to other reserves of
GBP51.9m was treated as an unrealised profit. In the current year
the Group recorded an impairment of the intercompany loan. As a
matter of generally accepted accounting practice, a profit
previously regarded as unrealised becomes realised when there is a
loss recognised on the write-down for depreciation, amortisation,
diminution in value or impairment of the related asset. Therefore,
on the basis, the GBP51.9m previously treated as unrealised within
Other Reserves is now treated as a realised amount, and has
therefore been reclassified from "Other Reserves" to "Retained
earnings" as at 25 March 2023.
Consolidated cash flow statement
for the period ended 25 March 2023
2023 2022
GBPm GBPm
---------------------------------------------------------------------------------------------- ---------- ------
Cash flows from operating activities
(Loss)/profit before tax - continuing operations (29.6) 24.2
P rofit before tax - discontinued operations - 0.9
----------------------------------------------------------------------------------------------- ---------- ------
(29.6) 25.1
Adjustments for:
Finance income and expense 9.3 5.5
Depreciation of property, plant and equipment 12.5 12.0
Depreciation of right-of-use assets 2.2 2.3
Amortisation of intangible assets 5.3 4.3
Gain on sale of property plant and equipment (0.1) (0.5)
Impairment/(impairment reversal) of property, plant and equipment included within exceptional
items 5.4 (0.1)
Impairment of intangible assets included within exceptional items 4.3 -
Share based payment expense 1.9 1.8
Pension Recovery Plan and administration cost payments(1) (16.5) (16.4)
Increase/(decrease) in provisions 0.1 (3.7)
Non-cash credit loss provision - other financial assets 8.5 3.1
Non-cash credit loss provision - other (0.3) (0.2)
Other non-cash movements 3.5 2.3
----------------------------------------------------------------------------------------------- ---------- ------
Cash generated from operations before working capital 6.5 35.5
Changes in working capital:
Decrease in inventory 0.5 3.4
Decrease in trade and other receivables and contract assets 6.0 22.6
Increase/(Decrease) in trade and other payables and contract liabilities 11.8 (43.2)
----------------------------------------------------------------------------------------------- ---------- ------
18.3 (17.2)
Cash generated from operating activities 24.8 18.3
----------------------------------------------------------------------------------------------- ---------- ------
Notes
(1) The GBP16.5m (FY22: GBP16.4m) of pension payments includes
GBP15.0m (FY2 2: GBP15.0m) payable under the Recovery Plan, agreed
in May 2020, and a further GBP1.5m (FY22: GBP1.4m) relating to
payments made by the Group towards the administration costs of
running the scheme.
Consolidated cash flow statement
for the period ended 25 March 2023
2023 2022
GBPm GBPm
-------------------------------------------------------------------- ------- ------
Cash generated from operating activities 24.8 18.3
Net tax paid (1.0) (1.8)
--------------------------------------------------------------------- ------- ------
Net cash flows from operating activities 23.8 16.5
--------------------------------------------------------------------- ------- ------
Cash flows from investing activities
Purchase of loan notes - (0.9)
Purchases of property, plant and equipment - gross (15.2) (19.6)
Purchases of property, plant and equipment - grants received 4.2 1.5
--------------------------------------------------------------------- ------- ------
Purchases of property, plant and equipment - net(1) (11.0) (18.1)
Purchase of software intangibles and development assets capitalised (10.4) (8.8)
Proceeds from sale of property, plant and equipment 0.4 1.9
Receipt of research and development tax credit - 0.1
Interest received 0.2 -
--------------------------------------------------------------------- ------- ------
Net cash flows from investing activities (20.8) (25.8)
--------------------------------------------------------------------- ------- ------
Net cash flows before financing activities 3.0 (9.3)
--------------------------------------------------------------------- ------- ------
Cash flows from financing activities
Net draw down of borrowings 27.0 17.0
Payment of debt issue costs (0.9) -
Lease liability payments (2.4) (2.2)
Interest paid (10.3) (6.2)
Dividends paid to non-controlling interests (0.8) (0.9)
--------------------------------------------------------------------- ------- ------
Net cash flows from financing activities 12.6 7.7
--------------------------------------------------------------------- ------- ------
Net increase/(decrease) in cash and cash equivalents in the year 15.6 (1.6)
Cash and cash equivalents at the beginning of the year 24.3 25.7
Exchange rate effects 0.4 0.2
--------------------------------------------------------------------- ------- ------
Cash and cash equivalents at the end of the year 40.3 24.3
--------------------------------------------------------------------- ------- ------
Cash and cash equivalents consist of:
Cash at bank and in hand 26.5 20.3
Short term deposits 13.8 4.0
40.3 24.3
-------------------------------------------------------------------- ------- ------
Notes:
(1) Additions to property, plant and equipment in the year were
GBP11.2m (FY22: GBP16.5m). Purchases of property, plant and
equipment includes capital expenditure creditors of GBP0.5m (FY22:
GBP1.6m) and excludes GBP0.7m (FY22: GBPnil) of grants not yet
received.
1 General information
De La Rue plc (the Company) is a public limited company
incorporated and domiciled in the United Kingdom, whose shares are
publicly traded on the London Stock Exchange. The registered office
is located at De La Rue House, Jays Close, Viables, Basingstoke,
Hampshire, RG22 4BS.
De La Rue plc and its subsidiaries (together "Group") has two
principal segments Currency and Authentication. In Currency we
design, manufacture and deliver bank notes, polymer substrate and
security features around the world. In Authentication, we supply
products and services to governments and Brands to assure tax
revenues and authenticate goods as genuine. In addition, there is a
third segment, Identity Solutions, which includes minimal non-core
activities.
The financial statements have been prepared as at 25 March 2023,
being the last Saturday in March. The comparatives for the FY22
financial period are for the period ended 26 March 2022.
The consolidated financial statements of the Company for the
period ended 25 March 2023 were authorised for issuance by the
board of Directors on 29 June 2023.
2 Basis of preparation and accounting policies
STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared on
the going concern basis and using the historical cost convention,
modified for certain items carried at fair value, as stated in the
Group's accounting policies.
The financial information set out above does not constitute the
Group's statutory accounts for the periods ended 25 March 2023 or
26 March 2022. Statutory accounts for the periods ended 26 March
2022 have been delivered to the registrar of companies and those
for the period ended 25 March 2023 will be delivered in due course.
The auditor has reported on the accounts for the periods ended 25
March 2023 and 26 March 2022. Their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter without
qualifying their report and (iii) did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006.
Refer to the Going Concern Statement below for further details
of the Director's Going Concern Statement.
The consolidated financial statements of the Company for the
period ended 25 March 2023 have been prepared in accordance with
UK-adopted International Accounting Standards ('IFRS') in
accordance with the requirements of the Companies Act 2006. IFRS
includes standards issued by the International Accounting Standards
Board ('IASB') that are endorsed for use in the UK.
The consolidated financial statements are prepared on a going
concern basis under the historical cost convention with the
exception of certain items which are measured at fair value as
disclosed in the accounting policies below.
The preparation of financial statements in accordance with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed below in ' 'V Critical
accounting estimates, assumptions and judgements'.
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below or have
been incorporated with the relevant notes to the accounts where
appropriate. These policies have been consistently applied to all
the periods presented, unless otherwise stated.
CLIMATE CHANGE
In preparing the Consolidated Financial Statements management
has considered the impact of climate change and the actions that
the Group will take in order to fulfill its sustainability strategy
and satisfy its commitment to become carbon neutral from its own
operations by 2030. This includes the estimates around future cash
flows used in impairment assessments of the carrying value of
goodwill and intangible assets in De La Rue Authentication Inc,
recoverability of deferred tax assets and the useful economic life
of plant and equipment, especially assets which are power-intensive
and expected to be replaced.
This is within the context of the disclosures included in
Strategic Report, including those made in accordance with the
recommendation of the Taskforce on Climate-related Financial
Disclosures this year. These considerations did not have a material
impact on the financial reporting judgements and estimates.
GOING CONCERN
Background and relevant facts
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out earlier in this document, within the CEO Review. In
addition, note 8 below includes the Group's objectives, policies
and processes for financial risk management, details of its
financial instruments and hedging activities and its exposure to
credit risk, liquidity risk and commodity pricing risk. The
financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described within the Financial Review
above.
Following the interim results for the period ended 24 September
2022 there has been a difficult period of trading and rising market
interest rates, meaning the Group forecast that they would breach
financial covenants in their going concern period to 29 June 2024.
As a result, they entered into extensive negotiations with the
pension trustee and the Group's banking syndicate. A deferral
letter from the trustee was signed on 28 June 2023 agreeing to
deferral of deficit repair contributions as set out in the
paragraph below and an amended facility agreement for the Group's
financing facilities was signed on 29 June 2023, which includes a
relaxation of the financial covenant ratios along with the
introduction of a new minimum liquidity requirement.
Deferral of deficit repair contributions
The Group has successfully concluded negotiations with the
Trustee of the De La Rue Pension Fund to defer GBP17.5m of the
GBP18.75m of deficit repair contributions that was targeted in the
Group's April trading update.
The Trustee has agreed to defer the Group's deficit repair
contributions of GBP3.75m per quarter from that due on 5 April 2023
up to and including that payment that was due on 5 April 2024. From
July 2024, deficit repair contributions will recommence at the
previously agreed GBP3.75m per quarter. 'Catch up' payments for the
GBP18.75m of deferred payments will start from FY26 and will
continue through to FY29.
This deferral significantly eases the short term cash flow
burden on the business and has been incorporated into all
modelling.
Amended Facility Agreement
Under the amended facility agreement, which was executed by all
parties on the 29 June 2023, the Group continues to have access to
a revolving credit facility ('RCF') of GBP250m that expires on 1st
January 2025, which allows the drawing down of cash up to the level
of GBP175m and the use of bonds and guarantees up to the level of
GBP75m. The amendment to the debt agreement reduces the available
facility by GBP25m from GBP275m to GBP250m, with the cash draw-down
component remaining unchanged and the use of the bonding and
guarantee lines reduced to GBP75m from the prior GBP100m level.
The continued access to these borrowing facilities is subject to
quarterly covenant tests which look back over a rolling 12-month
period. In each covenant test in FY23 the Group has met its
covenant ratios on the historical covenant quarterly levels. At 25
March 2023, EBIT/net interest payable was 3.0 times and Net
debt/EBITDA was 2.2 times with net debt of GBP83.1m and bonding and
guarantees in place totalling GBP52m. The Group is additionally in
compliance with all covenant requirements at 29 June 2023.
The quarterly covenant levels (which will continue to be tested
on a 12-month rolling basis) have been revised from the first
testing period at 1 July 2023 (Q1 FY24). These are now subject to
monthly minimum liquidity testing and quarterly covenant tests from
this date. The terms include consideration of future options for
the group, provision of further non-financial deliverables and
milestones that the banks will monitor, and these are fully within
management's control.
From 1 July 2023, the revised financial covenants and spread
levels were as follows:
-- EBIT/net interest payable more than or equal to 1.0 times, (3.0 times previously)
-- Net debt/EBITDA less than or equal to 4.0 times until the Q4
2024 testing point, reducing to less than or equal to 3.6 times
from Q1 FY25 through to the end of the current agreement to 1
January 2025 (3.0 times previously).
-- Minimum Liquidity testing monthly, testing at each weekend
point on a 4-week historical basis and 13 week forward looking
basis. The minimum liquidity is defined as "available cash and
undrawn RCF greater than or equal to GBP25m", although reduces to
GBP20m if GBP5m or more of cash collateral is in place to fulfil
guarantee or bonding requirements (new test)
-- Increases in spread rates on the leverage ratio as a result of the relaxation of levels:
Leverage (consolidated net debt to EBITDA) Margin (% per annum)
------------------------------------------- --------------------
Greater than 3.5:1 4.35
Greater than 3.0:1 and less than or equal
to 3.5:1 4.15
Greater than 2.5:1 and less than or equal
to 3.0:1 3.95
------------------------------------------- --------------------
In order to determine the appropriate basis of preparation for
the financial statements for the year ended 25 March 2023 the
Directors must consider whether the Group can continue in
operational existence for a period until 29 June 2024 taking into
account the above liquidity and covenant requirements.
Testing assumptions and headroom level
The Group has prepared and reviewed profit and cash flow
forecasts which cover a period up to 29 June 2024 (Q1 FY25), the
going concern period, and this includes the following quarters: Q1,
Q2, Q3, Q4 FY24 & Q1 FY25 as well as monthly liquidity testing
points throughout this period.
Management's assessment is that a period of 12 months to 29 June
2024 is an appropriate going concern period for the following
reasons:
-- A 12-month period is consistent with De La Rue modelling and
approach over a number of years, which in prior periods has also
included a facility termination shortly after the going concern
period (such as in FY22).
-- The Directors have considered events after the end of this
period, including the re-financing requirement for the RCF which is
at 1 January 2025, which is considered further below
Base case assumptions and headroom
The base case forecasts over the going concern period have been
built taking into consideration the uncertainty around the timing
of the Currency market recovery. Revenue growth in Authentication
to over GBP100m is expected to be driven from the annualisation of
contracts already won in prior periods. The base financials over
the going concern period reflect further restructuring and
refinancing costs that have already been initiated. This will help
to right size the business for the current demand with any ramp up
required over the going concern period to be carefully managed in
line with pipeline capacity requirements and orders to avoid
significant negative fluctuations vs base plans.
The Group entered FY24 with the Currency total order book at
GBP153.6m (26 March 2022: GBP170.8m) and the 12-month order book at
GBP136.3m (26 March 2022: GBP163.5m). The win rate of over 70%
since 2020 on Currency bids remains high. By 16 June 2023, over 80%
of the Currency business plans revenues for FY24 are secured, with
key wins in Asia providing a solid foundation for expectations for
the year.
The Group's base case modelling shows headroom on all covenant
thresholds and the minimum liquidity requirement across the
period.
Severe yet plausible downsides and headroom
The downside modelling produced has factored in the Directors'
assessment of events that could occur in a "severe yet plausible
downside" scenario. The risks modelled are directly linked to the
Risk Committee "principal risks". The most significant material
risks modelled were as follows;
Risk 3 Macroeconomic and geo-political risk
-- Authentication new wins and implementations are not achieved
in the timescales modelled in the base case. In the severe yet
plausible downside scenario 100% of revenues with new customers
have been excluded.
Risk 10 Banking Facilities
-- Following the recent interest rate rises, the Group will be
paying an interest rate on its facilities of approximately 8.5%
based on the current SONIA rate of 5% and the applicable margin.
Based on the base case numbers in FY24, the combined rate would
need to reach c16% before a breach in the interest covenant would
be triggered, with an implied SONIA rate of 9.2%. Whilst management
had used 5.3% as their interest rate in a severe but plausible
scenario, based on the stress testing procedures described above,
they have assessed the risk of a breach triggered by rising
interest rates as remote given the current SONIA rate applicable is
5%, the sensitivity, and that these sensitised rates would need to
apply for the entire FY24 period.
Risk 11 Kenya taxation and exit strategy
-- Cash outflow assumed over and above the base case, which
includes acceleration of outflows for site exit and legal
settlements.
Risk 13 Currency pipeline
-- Volumes and budget margins not achieved as forecasted in the
going concern period. For currency pipeline downside risks
modelled, margins have been determined using the average production
cost as opposed to using the facilities with the lowest production
costs where there is modelled capacity. As at 25 March 2023,
Currency total order book at GBP153.6m ( 26 March 2022: GBP170.8m)
and the 12-month order book at GBP136.3m (26 March 2022:
GBP163.5m). By 16 June 2023, over 80% of the Currency business plan
revenues for FY24 are secured, with key wins in Asia providing a
foundation for expectations for the year.
-- As a result of the new liquidity testing requirement, the
Directors also considered historical monthly working capital swings
over the last three years as well as weekly cash outflow averages
to ensure that adequate considerations have been made to capture
"in month" working capital swings that the Group can see given the
volatility of working capital in the Currency business in
particular. A GBP20m working capital outflow was demonstrated to be
suitable for a plausible severe downside to apply monthly to
liquidity testing, assuming no mitigation at all on liquidity at
any given testing period.
If all of these modelled downside risks were to materialise in
the Going Concern period, the Group would still meet its required
covenant ratios and liquidity requirements.
There remains headroom against all covenant thresholds in a
"severe yet plausible" downside scenario across the going concern
period.
Minimum Liquidity testing monthly
Company modelling of the severe but plausible downside
(including taking into account working capital swings and potential
cash collateral requirements) also shows headroom to the liquidity
requirement throughout the period, with further controllable
mitigations such as reduction in discretionary capex that could be
applied.
The level of reduction that would be required to breach the
liquidity covenant is considered to be remote by management on the
basis that in the tightest observable period of the severe but
plausible downside scenario in GBP27m and GBP17m if taking into
account working capital swings and potential cash collateral
requirements. This assessment excludes the potential further
mitigations available.
Stress-Testing
Under the base case modelling, EBIT and EBITDA would need to
drop by GBP10m (46 %) and GBP11m (27%) respectively, or liquidity
would need to drop GBP30m from the lowest point, for any breach to
occur. In the severe but plausible scenario modelling, EBIT and
EBITDA would need to drop by GBP6m (32%) and GBP6m (15%)
respectively, or liquidity would need to drop GBP27m from the
lowest point (GBP17m including a negative working capital swing of
GBP20m and cash collateralisation savings of GBP10m), for any
breach to occur. Management concluded that a breach is remote given
that:
-- Trading to the end of P2 indicates the Group is on-track to
deliver the FY24 budget from an EBIT and EBITDA perspective. The
Group has experienced working capital drag which has led to Net
Debt levels being worse than those forecast in the base case
scenario. The working capital drags are in line with those modelled
in the severe but plausible downside scenario and the Group has
seen positive movements to recover working capital in P3.
-- Liquidity stress testing excluded controllable mitigating
actions (as described above) that management could employ and still
showed headroom.
-- Management are comfortable that any non-financial conditions
and reporting requirements can be achieved. The Directors have
assumed that the current revolving credit facility remains in place
with the same covenant requirements through to its current expiry
date (1 January 2025), which is beyond the end of the period
reviewed for Going Concern purposes. The Directors have concluded
that the Group will either renew the facility thereafter or have
sufficient time to agree an alternative source of finance from 1
January 2025 onwards.
Other Requirements
As referred to earlier, there are a number of additional
requirements under the recently amended facility agreement and
pensions Trustee arrangements that include conventional enhanced
monitoring measures and progress on the development of future
options. Progress has already been made on ensuring that the right
processes are in place to be able to meet the non-financial
conditions and terms agreed with the lenders, and the Directors are
confident that all of these additional conditions and terms will be
met in the timeframe required.
Reasonable prospects beyond the going concern period
The Directors have also considered the pension trustee's and the
lenders' on-going support for the business given that further
refinancing discussions are likely to occur over the going concern
period with the current facility due to terminate on 1st January
2025. Specifically, an extension by November 2023 is necessary to
have adequate facility duration for going concern purposes at FY24
Half Year.
Management has concluded that there are realistic prospects for
refinancing to occur ahead of facility termination as a result
of:
-- Lenders have continued to support the Group through an
amended facility agreement. This was signed on 29 June 2023, and
the covenants (financial and non-financial) were set to levels that
allows the Group to continue to meet its covenant in a severe but
plausible downside scenario. The Directors see no reason that the
lender's support will not continue given the level of relaxation of
covenants that has been agreed.
-- As stated above, prior to the 30 September 2023 Half-Year
announcement in November 2023, the Group will have to agree an
extension with its existing lenders for the facility that comes to
end on 1 January 2025. Discussions will commence over the coming
months with the banks on the future options open to the Group, and
subject to the Group achieving specific financial and non-financial
milestones that the Directors are confident in achieving. To
maximise stakeholder value for all parties, the lenders would need
to provide the business with continued support through the Currency
market recovery and continued growth in the Authentication
division. It is the Directors' judgement that based on the current
support of the lenders the extension will be achieved.
-- In the event the current lenders were not supportive of an
extension to the facility at FY24 Half Year, the Group would
consider and implement alternative financing options at that time.
The directors continue to assess these alternative financing
options, including but not limited to: alternative lenders;
alternative finance vehicles; equity injections; and/or the sale of
trade and assets. However, the Directors are confident this
scenario won't manifest given its confidence in refinancing and
extending the facility at FY24 Half Year.
The Directors have therefore assessed that the Group will either
renew the facility or have sufficient time to agree an alternative
source of finance. The costs of refinancing are included in the
base case.
Conclusion
The base and severe but plausible forecasts show headroom above
the covenant levels agreed with the lenders and support the
position that the Group will be able to operate within its
available banking facilities and covenants throughout the going
concern period to 29 June 2024.
Accordingly, the Directors are satisfied that the Group is able
to manage its business risks and to continue in operational
existence for the going concern period. Accordingly, the Directors
continue to adopt the going concern basis in preparing the
Consolidated Financial Statements.
A copy of the 2022 Annual Report is available at www.delarue.com
or on request from the Company's registered office at De La Rue
House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.
COVID-19
The Annual Report for the period ended 27 March 2021 included an
assessment of the potential impact of COVID-19 on the financial
position of the Group as at 27 March 2021. The Group put in place
plans and measures in order to enable the business to maintain
normal operations, to the extent possible, against the backdrop of
the evolving situation. The Group implemented actions to mitigate
the impact of COVID-19, including steps to protect our employees in
line with guidance from governments. The Board believed that the
Group's operations would continue to experience only limited
disruption due to the impact of the COVID-19 pandemic. The
directors still consider this assessment to be appropriate for the
25 March 2023 financial statements based on the current
position.
New Standards, interpretations and amendments adopted by the
Group
Other than as described below, the accounting policies adopted
in the preparation of these consolidated financial statements are
consistent with those applied by the Group in its consolidated
financial statements as at, and for the period ended, 26 March
2022, apart from standards, amendments to or interpretations of
published standards adopted during the year.
During the period, the following new and amended IFRS became
effective for the Group. The Group has not early adopted any
standard, interpretation or amendment that has been issued but is
not yet effective. The impacts of applying these policies are not
considered material.
Several amendments apply for the first time in FY23, but do not
have an impact on these consolidated financial statements of the
Group.
Effective for periods commencing after 1 January 2022:
- Amendments to IFRS 3 "Business Combinations" - Reference to
the Conceptual Framework. The amendments are intended to update a
reference to the Conceptual Framework without significantly
changing the requirements of IFRS 3. The amendments will promote
consistency in financial reporting and avoid potential confusion
from having more than one version of the Conceptual Framework.
- Amendments to IAS 16 "Property, plant and equipment" -
Proceeds before intended use. The amendment prohibits entities from
deducting from the cost of an item of property and equipment any
proceeds of the sale of items produced while bringing that asset to
the location and condition necessary for it to be capable of
operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the costs of
producing those items, in profit or loss.
- Amendments to IAS 37 "Provisions, Contingent assets and
liabilities" - Onerous Contracts - Costs of Fulfilling a Contract.
These amendments specify which costs an entity needs to include
when assessing whether a contract is onerous or loss-making. The
amendments apply a 'directly related cost approach'. The costs that
relate directly to a contract to provide goods or services include
both incremental costs (e.g., the costs of direct labour and
materials) and an allocation of costs directly related to contract
activities (e.g., depreciation of equipment used to fulfil the
contract as well as costs of contract management and supervision).
General and administrative costs do not relate directly to a
contract and are excluded unless they are explicitly chargeable to
the counterparty under the contract.
- Amendments to IFRS 9 "Financial Instruments" - Fees in the '10
per cent' test for derecognition of financial liabilities. The
amendment clarifies the fees that an entity includes when assessing
whether the terms of a new or modified financial liability are
substantially different from the terms of the original financial
liability. These fees include only those paid or received between
the borrower and the lender, including fees paid or received by
either the borrower or lender on the other's behalf.
Effective for periods commencing after 1 January 2023:
- Amendments to IAS 8 "Accounting policies, changes in
accounting estimates and errors" - Definition of Accounting
Estimates - The amendments clarify the distinction between changes
in accounting estimates and changes in accounting policies and the
correction of errors. Also, they clarify how entities use
measurement techniques and inputs to develop accounting
estimates.
- Amendments to IAS 1 "Presentation of financial statements" -
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2 - The amendments aim to help entities provide
accounting policy disclosures that are more useful by: replacing
the requirement for entities to disclose their 'significant'
accounting policies with a requirement to disclose their 'material'
accounting policies and adding guidance on how entities apply the
concept of materiality in making decisions about accounting policy
disclosures.
- Amendments to IAS 12 "Income Taxes" - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction - The
amendment narrows the scope of the initial recognition exception
under IAS 12 so that it no longer applies to transactions that give
rise to equal taxable and deductible temporary differences.
Effective for periods commencing after 1 January 2024, all
subject to UK endorsement:
- Amendments to IFRS 16 "Leases" - Lease liabilities in a sale
and leaseback - This amendment to IFRS 16 specifies the
requirements that a seller-lessee uses in measuring the lease
liability arising in a sale and leaseback transaction, to ensure
the seller-lessee does not recognise any amount of the gain or loss
that relates to the right of use it retains.
- Amendments to IAS 1 "Presentation of financial statements" -
Classification of Liabilities as Current or Non-current. The
amendments clarify: what is meant by a right to defer settlement;
that a right to defer must exist at the end of the reporting
period; that classification is unaffected by the likelihood that an
entity will exercise its deferral right and that only if an
embedded derivative in a convertible liability is itself an equity
instrument, would the terms of a liability not impact its
classification.
Other amendments in IFRS 1("First time adoption"), IAS 41
("Agriculture") are not applicable to the Group. IFRS 17
("Insurance contracts") is under review by management and the
impact, if any, is still to be quantified.
The impact of the amendments and interpretations listed above
are not expected to a have a material impact on the Consolidated
Financial Statements.
Critical accounting estimates, assumptions and judgements
Management has discussed with the Audit Committee the
development, selection and disclosure of the Group's critical
accounting policies and estimates and the application of these
policies and estimates. Management is required to exercise
significant judgement in the application of these policies.
Estimates are made in many areas and the outcome may differ from
that calculated.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are set out in "B. Critical accounting estimates" below.
Other accounting estimates that are not considered to have a
significant risk of causing a material adjustment with the next
financial year but which the Group would like to draw attention to
due to judgements or longer-term estimates are set out in "C. Other
areas of accounting estimates" below.
A Critical accounting judgements
1. Determination of lease term
Management has made certain judgements on lease terms based on
the Group's current expectations of whether break or renewal
options will be taken. In arriving at these judgements, management
has considered its current business plans including the locations
in which it wants to operate in addition to the impact of any
cost-out programmes it is considering.
2. Revenue recognition and cut-off
Customer contracts will often include specific terms that impact
the timing of revenue recognition. The timing of the transfer of
control varies depending on the individual terms of the sales
agreement.
For sales of products the transfer usually occurs on loading the
goods onto the relevant carrier, however the point at which control
passes may be later if the contract includes customer acceptance
clauses or control passes on arrival at the customer location.
Control will also pass if the customer requests that goods are held
in storage until required. Specific consideration is needed at year
end to ensure revenue is recorded within the appropriate financial
year.
This judgement is particularly important in the Currency
division due to the material nature of certain contracts which may
ship near to a reporting period end. Management has carefully
reviewed material customer contracts with particular focus on those
shipping in the last quarter of the financial period to ensure
revenue has been recorded in the correct year.
3. Revenue recognition and determination of whether an
enforceable right to payment exists
For certain customer contracts, revenue is recognised over time
in accordance with IFRS 15, as the Group has an enforceable right
to payment.
Determination of whether the Group had an enforceable right to
payment requires careful analysis of the legal terms and conditions
included within the customer contract and consideration of
applicable laws and customary legal practice in the territory under
which contract is enforceable.
External legal advice is obtained if considered necessary to
allow management to make this assessment. Management has carefully
reviewed material contracts relating to revenue recognised in the
period to determine if an enforceable right to payment exists which
results in revenue being recorded 'over-time' rather than 'point in
time'.
In FY23 the Group has had customer contracts where revenue is
recognised 'over-time' in the Currency and Authentication
divisions.
4. Classification of exceptional items
The Directors consider items of income and expenditure which are
material by size and/or by nature and not representative of normal
business activities should be disclosed separately in the financial
statements so as to help provide an indication of the Group's
underlying business performance. The Directors label these items
collectively as 'exceptional items'. Determining which transactions
are to be considered exceptional in nature is often a subjective
matter.
However, circumstances that the Directors believe would give
rise to exceptional items for separate disclosure would include:
gains or losses on the disposal of businesses, curtailments on
defined benefit pension arrangements or changes to the pension
scheme liability which are considered to be of a permanent nature
and non-recurring fees relating to the management of historical
scheme issues; restructuring of businesses; asset impairments and
costs associated with the acquisition and integration of business
combinations.
All exceptional items are included in the appropriate income
statement category to which they relate.
5. Replacement of Savings Related Share Option Scheme granted
During the year the Group granted a Save As You Earn share
option grant ("SAYE"). Management judged the new grant as a
replacement award for two SAYE grants which are due to vest in FY24
and FY25 that were cancelled by employees at the time of the new
grant and applied modification accounting rather than cancellation
accounting.
To account for the replacement grant on modification basis, the
following factors were considered by the management:
a. The new share options are with the same participants as the cancelled options .
The modification basis of accounting was used, where a given
participant applied for options under the 2022 invitation and that
same person issued an instruction to Equiniti (the administrators
of De La Rue's Sharesave plan) to cancel one or more of their
existing savings contracts in the period between (1) the date on
which the invitation was launched to participants and (2) the date
on which the options were granted. Any cancellation instructions
given by a 2022 applicant outside of this time window is not
treated as linked to the cancelled award. Similarly, any
cancellation of options by an employee who does not apply for 2022
options is not treated under the modification basis.
b. The transactions to issue and cancel the options are part of the same arrangement.
As explained in point a above, the management are able to point
to a decision taken by the participant during a short time window
in relation to demonstrate the linkage between their application
for new 2022 options and their instructions to Equiniti to
terminate the savings contracts entered into in the 2020 and/or
2021 invitations.
c. The cancellation of the options would not have occurred
unless the new options were issued.
The management has carefully considered the correlation of
cancellations and new subscriptions and the close proximity in time
between cancelling and applying for options in the 2022 invitation
and made judgement that there is a strong indication of a
connection.
d. Management identified the FY23 SAYE grant as a replacement grant
The Remuneration Committee set no limit (subject to HMRC limit
of GBP500) on the monthly saving for the FY23 grant. In comparison
the previous grants in FY21 and FY22 had a maximum limit set by the
Company. On management's recommendation, the Remuneration Committee
agreed to approach the 2022 invitation as a replacement for the
2020 and 2021 options. On this basis, the Committee decided not to
apply any arbitrary caps to monthly savings amounts or shares under
option (both of which have been done in recent years) or to invoke
a rule which counts any cancelled awards by employees towards their
monthly limit of GBP500. The latter is included in the plan rules
specifically as a tool to mitigate cancellations of options, where
the company does not want this to occur.
The scheme documents and the internal newsflash were
substantially amended from previous years, to make employees aware
of the difference in the option prices from 2020 and 2021 to
2022/23, and that they are able to cancel their previous savings
contracts/options and apply for new options in the 2022/23
invitation.
Applying modification accounting results in GBP0.3m lower
share-based payment expense compared with cancellation accounting
in FY23. The impact on future periods assuming a forfeiture rate of
10% is:
FY23 FY24 FY25 FY26
Accounting type applied GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- --------
Modified accounting 1,147.3 566.7 325.5 167.4
Cancellation accounting 1,420.9 421.4 282.4 173.3
Additional expense versus modified
accounting 273.6 (145.3) (43.1) 5.9
----------------------------------- -------- -------- -------- --------
6. Accounting for the extension of the factory site in Malta
On 9 September 2021 the Group signed an Agreement with Malta
Enterprise ("ME") where ME finances the construction, civil works
and M&E installations to be carried out at the premises located
in Malta. The premises included land, the demolition of an existing
building and a rebuild to the Group's specifications. On 14
September 2021 the Company signed a lease for the premises for an
initial term of 20 years. The Group is managing the construction of
the new buildings for the lessor to the pre-agreed
specifications.
Management have made a judgement as to whether the Company has
control of the site during the construction period. If the Group
has the right to control the use of the identified asset for only a
portion of the term of the contract, the contract contains a lease
for that portion of the term. In order to control the asset, the
lessee must have the right to obtain substantially all of the
economic benefits from the use of the asset and the right to direct
the use of the asset. It was determined that control exists only
after the build is completed and site becomes available for use.
Management considers that given the building was under construction
at the year-end date and therefore there were no economic benefits
as the asset was not ready for use at that time.
As per the agreement, there are three separate units with
different start-up dates. Therefore, the lease will be recognised
as these units become operational. The lease costs will be
allocated to the division to which they relate to based on area.
However, if the cost relates to the total site, then it is divided
based on the percentage split of the area, with 27% of the total
sqm occupied by Authentication and 73% by Currency. The first block
is currently scheduled to be completed in H2 FY24. Therefore,
management have concluded that no lease should be recognised in
FY23. The lease will be recognised when the building becomes
available for use.
B Critical accounting estimates
1. Recoverability of other financial assets
Other financial assets comprise securities interests held in
companies in the Portals International Limited group following the
Portals paper business disposal in 2018. In addition, a further
amount of GBP0.9m of loan notes were subscribed for pursuant to a
pre-emptive offer in November 2021 to enable Portals to undertake a
business combination. The Group also purchased cotton banknote
paper under the Relationship Agreement (' RA'), until its
termination in July 2022.
Management has carefully assessed the recoverability of the
other financial assets on the balance sheet as at 25 March 2023
based on information available to them determining that an expected
credit loss provision of GBP8.5m is required which will fully
impair these other financial assets. Management has considered the
following factors in making this determination:
1) The public announcements from the Portals group relating to
the wind down of the Overton paper mill and its sale of assets.
2) The latest available financial position of Portals
International Limited group as presented in its 2022 consolidated
financial statements including significant losses for the period
and a net liabilities position.
3) The announcement of the sale of the Fedrigoni business to IN Groupe in May 2023.
This provision accounts for the risk that the full amounts due
will not be recovered rather than the instruments being credit
impaired.
Management notes that if factors change again in the future,
this may alter the judgements made resulting in a revision to the
value of expected credit loss provision to be recognised.
2 .. Recoverability assessment and impairment charges related to
plant and machinery and capitalised product development costs
In January 2023, the Group announced that owing to current
market demand, and no expectation of new bank note orders from the
Central Bank of Kenya for at least the next 12 months, De La Rue
Kenya (a joint venture with the Government of Kenya) has suspended
banknote printing operations in the country. In addition,
operations in our Authentication division are also in the process
of winding down. As a result of the review of the business in Kenya
an exceptional charge of GBP12.6m (FY22: GBPnil) was made in the
year including redundancy charges of GBP5.5m, property, plant and
equipment asset impairments of GBP4.9m, inventory impairments of
GBP2.0m and other costs of GBP0.2m. There is not expected to be any
recoverable value relating to these assets.
In addition, an impairment charge of GBP2.9m (FY22: GBPnil) was
made in the year in relation to capitalised product development
costs. A review was carried out as part of the Authentication
business right-sizing programme of ongoing development projects and
their suitability for further divisional growth and the product
portfolio. As a result, two programs were terminated and associated
capitalised costs were impaired.
In FY22 the Group ceased banknote printing at its Gateshead site
and as a result the Group had a material value of plant and
machinery for which an impairment was required. Management has, in
FY23, made a judgement on what its future plans are for the
expansion in certain other locations based on future business needs
and concluded that for the remaining assets in Gateshead not
impaired in the prior period, their value could be supported based
on their anticipated ongoing use after a period of relocation to
another site for usage there.
3. Post-retirement benefit obligations
Pension costs within the income statement and the pension
obligations/assets as stated in the balance sheet are both
dependent upon a number of assumptions chosen by management with
advice from professional actuaries. These include the rate used to
discount future liabilities, the expected longevity for current and
future pensioners and estimates of future rates of inflation. The
discount rate is the interest rate that should be used to determine
the present value of estimated future cash outflows expected to be
required to settle the pension obligations.
The Group engages the services of professional actuaries to
assist with calculating the pension liability.
4. Determination of the incremental Valuation date of certain
fund assets in the UK defined benefit pension scheme
The UK defined benefit pension scheme assets are made up of a
number of separate funds. For the majority of these funds
valuations have been available as at the Group's year end of 25
March 2023. However, the Multi Asset Credit and Secured Finance
funds held by the UK Pension Scheme are valued on a monthly basis
only at calendar month ends.
It was agreed to determine the IAS 19 position as at 25 March
2023 for these funds that they would be calculated by rolling
forward the fund value at 28 February 2023, using suitable market
indices.
The UK Multi Asset Credit and Secured Finance funds account for
approximately GBP61m and GBP139m of the pension assets respectively
(FY22: GBP63m and GBP143m respectively). During the period from 28
February to 25 March, based on the movement in relevant market
indices, we have estimated that the value of the funds have
decreased by GBP4.4m. The total UK pension scheme assets value is
GBP678.2m. This GBP4.4m decrease includes GBP3.9m relates to the
updated third-party valuation data as at the year-end date and the
remaining GBP0.5m is based on day-to-day market volatility of high
yield market indices. A 0.1% change in these market indices would
result in a GBP0.6m increase in the pension scheme assets.
The potential impact has been estimated by observing what were
considered to be the most relevant comparable indices to establish
the level of day-to-day volatility in the market.
The Multi Asset Credit funds are largely composed of
sub-investment grade corporate debt and the most relevant indices
were determined to be those which measure the return on high yield
corporate bonds. The Secured Finance fund is composed of a wide
range of corporate debt. Management has therefore made the
judgement that valuing the pension assets using the 28 February
2023 valuation for these funds and rolling forward to 25 March 2023
is reasonable given there is no practical way of obtaining a better
estimate.
5. Tax
The Group is subject to income taxes in numerous jurisdictions
and significant judgement is required in determining the worldwide
provision for those taxes. The level of current and deferred tax
recognised is dependent on subjective judgements as to the outcome
of decisions to be made by the tax authorities in the various tax
jurisdictions around the world in which the Group operates.
It is necessary to consider which deferred tax assets should be
recognised based on an assessment of the extent to which they are
regarded as recoverable, which involves assessment of the future
trading prospects of individual statutory entities, the nature and
level of any deferred tax liabilities from other items in the
accounts such as pension positions, and overseas tax credits that
are carried forward for utilisation in future periods, including
some that have been allocated to Governmental authorities as part
of investment projects.
The actual outcome may vary from that anticipated. Where the
final tax outcomes differ from the amounts initially recorded,
there will be impacts upon income tax and deferred tax provisions
and on the income statement in the period in which such
determination is made.
The Group has current tax provisions recorded within current tax
liabilities, in respect of uncertain tax positions. In accordance
with IFRIC 23, tax provisions are recognised for uncertain tax
positions where it is considered probable that the position in the
filed tax return will not be sustained and there will be a future
outflow of funds to a taxing authority. Tax provisions are measured
either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the
sum of the probability-weighted amounts in a range of possible
outcomes) depending on management's judgement on how the
uncertainty may be resolved.
The Group is disputing tax assessments received in certain
countries in which the Group operates. These tax assessments have
been subject to court ruling both in favour of the Group and also
against the Group. The rulings are subject to ongoing appeal
processes. The Group has increased the relevant tax provisions and
is fully provided where necessary as required by the relevant
accounting standards. The disputed tax assessments are subject to
ongoing dialogue with the relevant tax authorities to reach a
settlement without the requirement to continue in a protracted
legal process.
C Other long-term estimation uncertainties
1. Impairment test of Goodwill and acquired intangibles
These assets were recognised following the acquisition of De La
Rue Authentication Inc in January 2017. Management has considered
the Group's short-term and the long-term profitability for this
business and determined that the goodwill and acquired intangible
asset values are recoverable at 25 March 2023. In making this
determination, management has prepared discounted cash flows using
its forecasts for the business which include budgeted financial
performance for a 5-year period with a growth rate assumption
applied which extrapolates the business into perpetuity which are
aligned to the Group's longer-term expectations of the
Authentication division. In order to obtain further assurance as to
the recoverability of the goodwill and intangible assets,
management has prepared a range of sensitivities to model what
adverse changes would need to occur before an impairment was
required.
Management modelled the following sensitivities and concluded
that:
Sensitivity 1 (discount rate): The discount rate used for the
impairment calculation (assuming the same cash flows as in the base
impairment test) would need to increase to 19.0% before an
impairment occurred;
Sensitivity 2 (revenue growth): Forecasts used in the base
impairment calculation include strong revenue growth in FY24 to
FY25 before the growth rate reduces to 3% per year from FY26,
management has modelled a scenario of no revenue growth from FY26
and concluded that at this point no impairment would be
required;
Sensitivity 3 (loss of material customer): Management has
modelled the impact of the loss of revenue of a significant
customer from FY24, orders from which were not yet secured at the
end of FY23. Management noted that in this scenario, no impairment
was needed; and
Sensitivity 4 (profit margin reduction): The base calculation
includes 19.7% margin in FY24 with growth to a constant 24.7% from
FY25. Management has modelled the impact of margin reduction to
20.0% from FY26. Management noted that in this scenario, no
impairment was required.
Based on the base impairment forecast prepared and the
additional sensitivities referred to above, Management is confident
that no impairment of the goodwill and intangible asset balances is
required as at 25 March 2023 and therefore no impairment is
recognised. There are no reasonable possible changes in the key
assumptions (e.g. discount rate, growth rate or profit margin) that
would cause the recoverable amount to fall below the carrying
amount of the cash generating unit.
2. Onerous contract provisions
The financial statements also included a small number of onerous
contract provisions for loss making contracts. Management has
assessed these and applied judgement in determining the required
level of provisioning including how, in accordance with IAS 37, the
lowest unavoidable costs of exiting or fulfilling the contract have
been calculated.
3. Estimation of provisions
The Group holds a number of provisions relating to warranties
for defective products and contract penalties. Management has
assessed these and applied judgement in determining the value of
provisions required.
3 Segmental analysis
The continuing operations of the Group have three main operating
units: Currency, Authentication and Identity Solutions. The Board,
which is the Group's Chief Operating Decision Maker, monitors the
performance of the Group at this level and there are therefore
three reportable segments. The principal financial information
reviewed by the Board is revenue and adjusted operating profit.
The Group's segments are:
Currency - provides Banknote print, Polymer and Security
features ;
Authentication - provides the physical and digital solutions to
authenticate products through the supply chain and to provide
tracking of excisable goods to support compliance with government
regulators. Working across the commercial and government sectors
the division addresses consumer and Brand owner demand for
protection against counterfeit goods; and
Identity Solutions -includes minimal non-core activity in the
year. FY22 also included to sales under a service arrangement with
HID Corporation Limited following the sale of the International
Identity Solutions business in October 2019.
The segment note is focused on three divisions, which reflects
what has been reported to the Chief Operating Decision Maker, this
is in line with the commentary in other areas of this Annual Report
and Accounts. The commentary elsewhere in this Annual Report and
Accounts relating to the future strategy only refers to the
Currency and Authentication divisions. Inter-segmental transactions
are eliminated upon consolidation.
Total of Continuing
operations
Currency Authentication Identity Solutions Unallocated GBPm
FY23 GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Total revenue from contracts
with customers 254.6 91.7 3.4 - 349.7
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Less: inter-segment revenue - - - - -
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Revenue from contracts with
customers 254.6 91.7 3.4 - 349.7
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Cost of sales (196.4) (57.7) (3.5) - (257.6)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Gross profit 58.2 34.0 (0.1) - 92.1
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Adjusted operating expenses (44.6) (19.7) - - (64.3)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Adjusted operating profit 13.6 14.3 (0.1) - 27.8
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Adjusted items:
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Amortisation of acquired
intangible assets - (1.0) - - (1.0)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Net exceptionals (38.4) (7.9) (0.1) (0.7) (47.1)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Operating (loss)/profit (24.8) 5.4 (0.2) (0.7) (20.3)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Interest income 1.0 - 0.1 0.1 1.2
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Interest expense (0.9) (0.1) - (10.6) (11.6)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Net retirement benefit
obligation finance income - - - 1.1 1.1
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Net finance expense 0.1 (0.1) 0.1 (9.4) (9.3)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
(Loss)/profit before taxation (24.7) 5.3 (0.1) (10.1) (29.6)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Capital expenditure on
property, plant and
equipment (excluding grants
received) (7.9) (7.1) - (0.2) (15.2)
Capital expenditure on
intangible assets (2.9) (7.4) - (0.1) (10.4)
Impairment of property, plant
and equipment (3.9) (1.5) - - (5.4)
Impairment of intangible
assets (1.4) (2.9) - - (4.3)
Depreciation of property,
plant and equipment and
right-of-use-assets (11.1) (2.6) - (1.0) (14.7)
Amortisation of intangible
assets (1.3) (3.4) - (0.6) (5.3)
----------------------------- -------- -------------- ------------------ ----------- ----------------------------
Total of
Identity Continuing
Currency Authentication Solutions Unallocated operations
FY22 GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Total revenue from contracts with customers 280.9 90.3 3.9 - 375.1
Less: inter-segment revenue - - - - -
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Revenue from contracts with customers 280.9 90.3 3.9 - 375.1
Cost of sales (217.7) (55.8) (4.0) - (277.5)
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Gross profit 63.2 34.5 (0.1) - 97.6
Adjusted operating expenses (43.7) (18.2) 0.7 - (61.2)
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Adjusted operating profit 19.5 16.3 0.6 - 36.4
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Adjusted items:
- Amortisation of acquired intangible assets - (1.0) - - (1.0)
- Net exceptionals (4.5) (0.2) - (1.0) (5.7)
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Operating profit/(loss) 15.0 15.1 0.6 (1.0) 29.7
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Interest income 0.9 - - - 0.9
Interest expense (0.8) - - (5.4) (6.2)
Net retirement benefit obligation finance expense (0.1) - - (0.1) (0.2)
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Net finance expense - - - (5.5) (5.5)
Profit/(loss) before taxation 15.0 15.1 0.6 (6.5) 24.2
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Capital expenditure on property, plant and equipment
(excluding grants received) (15.7) (2.0) - (0.4) (18.1)
Capital expenditure on intangible assets (1.0) (7.7) - (0.1) (8.8)
Impairment of property, plant and equipment on
intangible assets 0.1 - - - 0.1
Depreciation of property, plant and equipment and
right-of-use-assets (10.7) (2.5) - (1.1) (14.3)
Amortisation of intangible assets (1.3) (2.3) - (0.7) (4.3)
------------------------------------------------------ -------- -------------- ---------- ----------- -----------
Total of
Identity Continuing
Currency Authentication Solutions Unallocated operations
GBPm GBPm GBPm GBPm GBPm
---------------------- -------- -------------- ---------- ----------- -----------
FY23
Segmental assets 169.9 68.5 15.8 94.4 348.6
Segmental liabilities (70.4) (14.0) (4.5) (224.7) (313.6)
---------------------- -------- -------------- ---------- ----------- -----------
FY22
Segmental assets 203.1 65.7 13.3 96.4 378.5
Segmental liabilities (53.0) (13.4) (3.1) (147.2) (216.7)
---------------------- -------- -------------- ---------- ----------- -----------
Unallocated assets principally comprise long-term pension assets
of GBPnil (FY22: GBP31.6m) deferred tax assets of GBP18.3m (FY22:
GBP11.2m), cash and cash equivalents of GBP40.3m (FY22: GBP24.3m)
and derivative financial instrument assets of GBP2.4m (FY22:
GBP3.4m) as well as current tax assets, associates and centrally
managed property, plant and equipment.
Unallocated liabilities principally comprise retirement benefit
obligations of GBP54.7m (FY22: GBP1.8m), borrowings of GBP118.4m
(FY22: GBP92.6m), current tax liabilities of GBP23.2m (FY22:
GBP13.9m) and derivative financial instrument liabilities of
GBP1.9m (FY22: GBP4.8m) as well as deferred tax liabilities and
centrally held accruals and provisions.
Revenue from contracts with customers:
Timing of revenue recognition across the Group's revenue from
contracts with customers is as follows :
Total of
Identity Continuing
Currency Authentication Solutions operations
FY23 GBPm GBPm GBPm GBPm
-------------------------------------------- -------- -------------- ---------- -----------
Timing of revenue recognition:
Point in time 217.6 78.3 3.4 299.3
Over time 37.0 13.4 - 50.4
-------------------------------------------- -------- -------------- ---------- -----------
Total revenue from contracts with customers 254.6 91.7 3.4 349.7
-------------------------------------------- -------- -------------- ---------- -----------
Total of
Identity Continuing
Currency Authentication Solutions operations
FY22 GBPm GBPm GBPm GBPm
-------------------------------------------- -------- -------------- ---------- -----------
Timing of revenue recognition:
Point in time 257.2 76.0 3.9 337.1
Over time 23.7 14.3 - 38.0
-------------------------------------------- -------- -------------- ---------- -----------
Total revenue from contracts with customers 280.9 90.3 3.9 375.1
-------------------------------------------- -------- -------------- ---------- -----------
Geographic analysis of revenue by destination
2023 2022
GBPm GBPm
----------------------- ----- -----
Middle East and Africa 145.4 196.4
Asia 39.3 44.3
UK 55.7 65.4
The Americas 24.8 28.8
Rest of Europe 71.2 37.3
Rest of world 13.3 2.9
----------------------- ----- -----
349.7 375.1
----------------------- ----- -----
Contract balances
The contract balances arising from contracts with customers are
as follows:
2023 2022
GBPm GBPm
----------------------------- ------ ------
Trade receivables 42.3 64.8
Provision for impairment (0.6) (0.8)
------------------------------ ------ ------
Net trade receivables 41.7 64.0
------------------------------ ------ ------
Contract assets 18.9 8.0
Contract liabilities (0.3) (0.3)
Payments received on account (22.7) (14.3)
------------------------------ ------ ------
Trade receivables have decreased to GBP42.3m in FY23 (FY22:
GBP64.8 m) reflecting timing of payments on certain material
customer contracts.
Contract assets have increased to GBP18.9m in FY23 (FY22: GBP8.0
m) reflecting the timing of the revenue recognition under IFRS
15.
Payments on account in FY23 have increased to GBP22.7m (FY22:
GBP14.3m) reflecting significant additions in the year of GBP21.7m
(FY22: GBP4.6m) and revenue recognised from payments on account at
the end of FY22 of GBP13.3m (FY22: utilisation of GBP28.3m).
Set out below is the amount of revenue recognised from :
2023 2022
GBPm GBPm
---------------------------------------------------------------------- ------ -----
Amounts included in contract liabilities at the beginning of the year - 1.3
Performance obligations satisfied in previous years - -
---------------------------------------------------------------------- ------ -----
Performance obligations
Information about the Group's performance obligations is
summarised in the Accounting Policies section of the Annual Report
and Accounts 2022 .
The following table shows the transaction price allocated to
remaining performance obligations for contracts with original
expected duration of more than one year. The Group has decided to
take the practical expedient provided in IFRS 15.121 not to
disclose the amount of the remaining performance obligations for
contracts with original expected duration of less than one year
.
2023 2022
GBPm GBPm
-------------------- ----- -----
Within 1 year 12.4 31.3
Between 2 - 5 years 15.5 25.8
5 years and beyond - -
-------------------- ----- -----
27.9 57.1
-------------------- ----- -----
4 Exceptional Items
Non- Non-
2023 Cash cash 2022 Cash cash
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------------------ ----- ----- ----- ----- ----- -----
Termination of Relationship Agreement with Portals Paper Limited 17.0 9.3 7.7 - - -
Site relocations and restructuring costs 21.1 7.6 13.5 1.8 2.1 (0.3)
Pension underpin costs 0.5 0.5 - 0.4 0.4 -
Foreign exchange loss on devaluation of Sri Lankan rupee - - - 0.4 - 0.4
------------------------------------------------------------------------ ----- ----- ----- ----- ----- -----
38.6 17.4 21.2 2.6 2.5 0.1
Recognition of expected credit loss provision on other financial assets 8.5 - 8.5 3.1 - 3.1
------------------------------------------------------------------------ ----- ----- ----- ----- ----- -----
Total exceptional items 47.1 17.4 29.7 5.7 2.5 3.2
Tax charge/(credit) on exceptional items 5.1 (1.8)
------------------------------------------------------------------------ ----- -----
Net exceptionals 52.2 3.9
------------------------------------------------------------------------ ----- -----
Termination of Relationship Agreement with Portals Paper
Limited
On the 26 July 2022, the Group reached a settlement to terminate
its long-term supply agreement with Portals Paper Limited
("Portals"), related to the supply of banknote, proofing and
security paper (the "Relationship Agreement" or "RA"). As a result
of this termination, GBP17.0m (FY22: GBPnil) was recorded as an
exceptional item in the period, being the agreed settlement
together with associated legal costs. This is further described
below.
Background
In March 2018, De La Rue sold the Portals paper-making business
to a private equity backed management buyout and entered into the
RA for a period of 10 years. Under this agreement, De La Rue has
purchased banknote, proofing and security paper from Portals,
subject to a minimum annual volume guarantee, and Portals has
purchased security features from De La Rue, with no guarantee of
volume.
Settlement arrangements
Under the settlement terms, De La Rue is released from all
obligations under the RA is free to purchase banknote and security
paper from any supplier worldwide. De La Rue agreed to pay Portals
the amounts due under the normal RA arrangements in respect of
confirmed orders placed up to the end of July 2022, and a total of
GBP16.7m in cash to terminate the RA.
The GBP16.7m and the associated legal costs are classed as an
exceptional charge in the period, and payments were made according
to the following schedule: GBP1.7m on or before 31 October 2022,
GBP7.5m on or before 31 December 2022 and GBP7.5m on or before 7
April 2023. The final payment was made in FY24.
With the termination of the RA, De La Rue is not liable to pay
any more volume-related shortfall payments. These payments have
averaged GBP3.3m annually for each of the past two financial years
and totalled GBP3.0m in FY23, up to the termination of the RA.
De La Rue retains its existing equity and loan note interests in
the Portals group of companies and its rights in respect of those
interests remain unaffected by this settlement.
Following the termination of the RA, De La Rue will be able to
sell all banknote security features freely to customers, through
any other paper supplier. This includes the advanced features
developed in collaboration with Portals. Strategically, this
settlement supports De La Rue's goal to convert more of its print
customers to polymer banknotes, as, in doing so, there will no
longer be volume shortfall payments.
Site relocations and restructuring costs
Site relocations and restructuring costs in FY23 of GBP21.1m
(FY22: GBP1.8m) included:
-- in January 2023, the Group announced that owing to current
market demand, and no expectation of new bank note orders from the
Central Bank of Kenya for at least the next 12 months, De La Rue
Kenya (a subsidiary with a material non-controlling interest held
by the Government of Kenya) has suspended banknote printing
operations in the country. In addition, operations in our
Authentication division are also in the process of winding down. As
a result of the review of the business in Kenya an exceptional
charge of GBP12.6m (FY22: GBPnil) was made in the year including
redundancy charges of GBP5.5m, property, plant and equipment asset
impairments of GBP4.9m, inventory impairments of GBP2.0m and other
costs of GBP0.2m. Further costs, as yet undetermined, are expected
in relation to this as the operations continue to be wound down in
FY24.
-- a GBP2.5m (FY22: GBPnil) charge for redundancy and legal fees
was made in relation to restructuring initiatives in both the
Currency (GBP1.2m) and Authentication (GBP1.3m) divisions in order
to right-size the divisions for future operations. No further costs
are expected in relation to these projects in FY24.
-- an impairment charge of GBP4.3m (FY22: GBPnil) was made in
the year in relation to capitalised product development costs and
software assets. A review was carried out as part of the
Authentication business right-sizing programme of ongoing
development projects. With the resulting restructuring initiatives,
the Group no longer had the technical and financial ability to
complete two programs. As a result, work on the two programs was
terminated and the technology mothballed with the associated
capitalised costs impaired (GBP2.9m). A further GBP1.4m of software
assets relating to the Currency business were impaired as future
revenue relating to these assets are minimal. No further costs are
expected in relation to this in FY24.
-- the recognition of GBP1.1m (FY22: GBP0.9m) of restructuring
charges related to the cessation of banknote production at our
Gateshead facility primarily relating to the costs, net of grant
income received of GBP0.1m, of relocating assets to different Group
manufacturing locations and further plant and equipment impairments
of GBP0.5m. Since this program commenced, GBP9.9m of costs have
been incurred in relation to this. As the Group continues its
expansion of the manufacturing facilities in Malta, into FY25, a
cost of approximately GBP2.1m net of any grants received, is
expected; and
-- a further GBP0.6m (FY22: GBP1.3m) of charges relating to
other cost out initiatives including the initial Turnaround Plan
restructuring of our central enabling functions, selling and
commercial functions. Since this program commenced, GBP3.4m of
costs have been incurred in relation to this. No further costs are
expected.
FY22 was offset by a reversal of GBP0.4m of asset impairments no
longer required related to cessation of banknote production at our
Gateshead facility.
Pension underpin costs
Pension underpin costs of GBP0.5m (FY22: GBP0.4m) relate to
legal fees, net of amounts recovered, incurred in the rectification
of certain discrepancies identified in the Scheme's rules. The
Directors do not consider this to have an impact on the UK defined
benefit pension liability at the current time, but they continue to
assess this.
Recognition of expected credit loss provision on other financial
assets
Other financial assets comprise securities interests held in the
Portals International Limited group which were received as part of
the consideration for the paper disposal in 2018. The amount
presented on the balance sheet within other financial assets as at
25 March 2023 includes the original principal received and accrued
interest amounts.
In accordance with IFRS 9, management has assessed the
recoverability of the carrying value on the balance sheet and
recorded an expected credit loss provision of GBP8.5m (FY22:
GBP3.1m) in relation to the original principal value of GBP7.9m
(FY22: GBP2.3m) and interest receivable of GBP0.6m (FY22: GBP0.8m)
which has been recorded in exceptional items consistent with the
original recognition as part of the loss on disposal.
Further details can be found in "Critical accounting estimates
assumptions and judgements".
Foreign exchange loss on devaluation of Sri Lankan rupee
Significant devaluation of Sri Lanka Rupee versus the British
Pound which occurred in March 2022 where the Rupee/GBP rate moved
from 265/GBP on 8 March 2022 to 342/GBP on 15 March 2022, following
the decision on 9 March 2022 by the Sri Lanka Government to free
float the exchange rate. This period of significant devaluation is
deemed an exceptional item as it is considered to be non-trading in
nature resulting from of an external event being the impact of the
exchange rate change triggered by the free-float of the exchange
rate. An amount of GBP0.4m has been included in exceptional items
in FY22.
Taxation relating to exceptional items
The overall tax charge relating to continuing exceptional items
arising in the period was GBP5.1m (FY22: tax credit GBP1.8m).
Included in the exceptional tax items is a deferred tax charge
of GBP4.0m (FY22: GBP1.5m credit) relating to the derecognition of
a deferred tax asset in relation to restricted UK tax interest
amounts that under IAS12 had to be recognised in prior years even
though the amounts are not expected to be fully utilised for the
foreseeable future. The asset was originally recognised because the
defined benefit pension was in a surplus position which led to a
deferred tax liability relating to pensions in the UK, and under
IAS any potential deferred tax assets must be recognised against
this deferred tax liability.
During FY23 the pension moved from a surplus to a deficit
position, which meant that the deferred tax asset on the UK
restricted UK tax interest amounts is no longer required to be
recognised. As the majority of the deferred tax in relation to the
pension movements is recognised directly in the Statement of
Comprehensive Income, to recognise movements in the recognition and
derecognition of this asset as an operating item would distort the
Operating Effective Tax Rate and therefore considered to be
unhelpful for users of the accounts. This movement and any future
creation or unwind of this asset is therefore considered to be an
Exceptional item for financial reporting purposes where
possible.
Exceptional items also includes a tax charge in respect of
additional expected utilisation of tax credits in Malta of GBP6.1m,
as they are expected to be surrendered for capital grants against
future capital expenditure in Malta.
The balance of GBP5.0m credit within exceptional tax items
relates to the tax impact on the exceptional costs before tax.
5 Taxation
2023 2022
GBPm GBPm
------------------------------------------------------- ----- -----
Current tax
UK corporation tax:
Current tax 11.9 3.3
- Adjustment in respect of prior years 0.1 0.2
------------------------------------------------------- ----- -----
12.0 3.5
------------------------------------------------------- ----- -----
Overseas tax charges:
Current year 2.1 1.7
Adjustment in respect of prior years (0.3) 0.2
------------------------------------------------------- ----- -----
1.8 1.9
------------------------------------------------------- ----- -----
Total current income tax charge 13.8 5.4
------------------------------------------------------- ----- -----
Deferred tax:
Origination and reversal of temporary differences,
UK 7.4 (4.1)
Origination and reversal of temporary differences,
overseas 6.4 0.1
------------------------------------------------------- ----- -----
Total deferred tax charge/(credit) 13.8 (4.0)
------------------------------------------------------- ----- -----
Total income tax charge in the consolidated income
statement 27.6 1.4
Included in:
Income tax expense reported in the consolidated
income statement in respect of continuing operations 27.6 1.3
Income tax expense/(credit) in respect of discontinued
operations - 0.1
------------------------------------------------------- ----- -----
Total income tax charge in the consolidated income
statement 27.6 1.4
------------------------------------------------------- ----- -----
Tax on continuing operations attributable to:
Ordinary activities 22.8 3.4
Amortisation of acquired intangible assets (0.3) (0.3)
Exceptional items 5.1 (1.8)
------------------------------------------------------- ----- -----
27.6 1.3
------------------------------------------------------- ----- -----
2023 2022
GBPm GBPm
-------------------------------------------------- ------ -----
Consolidated statement of comprehensive income:
On remeasurement of net defined benefit liability (24.2) 8.8
On cash flow hedges 0.1 (0.1)
On foreign exchange on quasi-equity balances 0.1 (0.2)
-------------------------------------------------- ------ -----
Income tax (credit)/charge reported within other
comprehensive income (24.0) 8.5
-------------------------------------------------- ------ -----
Consolidated statement of changes in equity:
On share options 0.5 0.3
-------------------------------------------------- ------ -----
Income tax charge reported within equity 0.5 0.3
-------------------------------------------------- ------ -----
The tax on the Group's consolidated (loss)/profit before tax
differs from the UK tax rate of 19% as follows:
2023 2022
--------------------- ---------------------------------------------- ---------------------------------------------
Before Movement on Before Movement on
exceptional acquired Exceptional exceptional acquired Exceptional
items intangibles items Total items intangibles items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ----------- ------------ ------ ----------- ----------- ------------ -----
(Loss)/profit before
tax 18.5 (1.0) (47.1) (29.6) 30.9 (1.0) (5.7) 24.2
--------------------- ----------- ----------- ------------ ------ ----------- ----------- ------------ -----
Tax calculated at UK
tax rate of 19%
(FY22: 19.0%) 3.5 (0.2) (8.9) (5.6) 5.8 (0.2) (1.1) 4.5
Effects of overseas
taxation 1.1 (0.1) 1.2 2.2 0.4 (0.1) - 0.3
Charges/(credits) not
allowable/taxable
for tax purposes 0.5 - 1.7 2.2 (1.0) - 0.1 (0.9)
Changes in uncertain
tax provisions 8.5 - - 8.5 - - - -
Tax attributes
written down/(not
previously
recognised) for
deferred tax 7.9 - 4.0 11.9 (0.1) - (0.7) (0.8)
Utilisation of tax
credits previously
recognised for
deferred tax - - 6.1 6.1 - - - -
Adjustments in
respect of prior
years (0.5) - - (0.5) 0.8 - 0.2 1.0
Impact of UK tax rate
change on deferred
tax balances 1.8 - 1.0 2.8 (2.5) - (0.3) (2.8)
--------------------- ----------- ----------- ------------ ------ ----------- ----------- ------------ -----
Tax charge/(credit) 22.8 (0.3) 5.1 27.6 3.4 (0.3) (1.8) 1.3
--------------------- ----------- ----------- ------------ ------ ----------- ----------- ------------ -----
The underlying effective tax rate excluding exceptional items
was 123.2% (FY22: 11.0%). This includes the impact of provisions
against deferred tax balances, changes in uncertain tax provisions
and the impact of tax rate changes in Sri Lanka: the underlying
effective tax rate excluding these items was 24.9% (FY22:
19.4%).
The Group is subject to income taxes in numerous jurisdictions
and significant judgement is required in determining the worldwide
provision for those taxes. The level of current and deferred tax
recognised is dependent on subjective judgements as to the outcome
of decisions to be made by the tax authorities in the various tax
jurisdictions around the world in which the Group operates. It is
necessary to consider which deferred tax assets should be
recognised based on an assessment of the extent to which they are
regarded as recoverable, which involves assessment of the future
trading prospects of individual statutory entities.
The actual outcome may vary from that anticipated. Where the
final tax outcomes differ from the amounts initially recorded,
there will be impacts upon income tax and deferred tax provisions
and on the income statement in the period in which such
determination is made.
The Group has current tax provisions recorded within current tax
liabilities, in respect of uncertain tax positions. In accordance
with IFRIC 23, tax provisions are recognised for uncertain tax
positions where it is considered probable that the position in the
filed tax return will not be sustained and there will be a future
outflow of funds to a taxing authority. Tax provisions are measured
either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the
sum of the probability weighted amounts in a range of possible
outcomes) depending on management's judgement on how the
uncertainty may be resolved.
The Group is disputing tax assessments received in certain
countries in which the Group operates. These tax assessments have
been subject to court ruling both in favour of the Group and also
against the Group. The rulings are subject to ongoing appeal
processes. The Group has increased the relevant tax provisions and
is fully provided where necessary as required by the relevant
accounting standards. The disputed tax assessments are subject to
ongoing dialogue with the relevant tax authorities to reach a
settlement without the requirement to continue in a protracted
legal process.
6 EARNINGS PER SHARE
2023 2022
pence pence
Earnings per share per share per share
---------------------------------------- ----------- -----------
Basic EPS - continuing operations (28.6) 10.6
Basic EPS - discontinued operations - 0.4
---------------------------------------- ----------- -----------
Basic EPS - total (28.6) 11.0
---------------------------------------- ----------- -----------
Diluted EPS - continuing operations(1) (28.6) 10.5
Diluted EPS - discontinued operations - 0.4
Diluted EPS - total (28.6) 10.9
---------------------------------------- ----------- -----------
Adjusted EPS
Basic EPS - continuing operations (1.5) 13.0
Diluted EPS - continuing operations (1.5) 12.8
---------------------------------------- ----------- -----------
Number of shares (m)
Weighted average number of shares 195.4 195.2
Dilutive effect of shares 0.5 2.6
---------------------------------------- ----------- -----------
195.9 197.8
---------------------------------------- ----------- -----------
(1) The Group reported a loss from continuing operations
attributable to the ordinary equity shareholders of the Company for
FY23. The Diluted EPS is reported as equal to Basic EPS, no account
can be taken of the effect of dilutive securities under IAS 33.
Reconciliations of the earnings used in the calculations are set
out below:
2023 2022
GBPm GBPm
(Loss)/Earnings for basic EPS -
Total (55.9) 21.5
Add: Earnings for basic EPS - discontinued
operations - (0.8)
--------------------------------------------- ------- ------
(Loss)/Earnings for basic EPS -
continuing operations (55.9) 20.7
Add: amortisation of acquired intangibles 1.0 1.0
Less: tax on amortisation of acquired
intangibles (0.3) (0.3)
Add: exceptional items (excluding
non-controlling interests) 47.1 5.7
Less: tax on exceptional items 5.1 (1.8)
--------------------------------------------- ------- ------
(Loss)/Earnings for adjusted EPS (3.0) 25.3
--------------------------------------------- ------- ------
7 OTHER FINANCIAL ASSETS
2023 2022
GBPm GBPm
------------------------------------------------------------------------------- ------ -----
Opening balance 7.4 8.8
Interest accrued in the period 1.1 0.8
Additional investment in loan notes in the Portals International Limited group - 0.9
Expected credit loss (reported in exceptionals) (8.5) (3.1)
Closing balance - 7.4
-------------------------------------------------------------------------------- ------ -----
Analysed as:
Fixed rate unsecured loan notes in Portals Finance 1 Limited 3.8 3.8
Preference shares in Portals International Group Limited 2.6 2.6
Fixed rate unsecured loan notes in Portals International Group Limited 0.9 0.9
B ordinary shares in Portals International Group Limited 0.2 0.2
Cumulative accrued interest 4.1 3.0
Cumulative expected credit loss (11.6) (3.1)
-------------------------------------------------------------------------------- ------ -----
- 7.4
------------------------------------------------------------------------------- ------ -----
Fixed rate unsecured loan notes in Portals Finance 1 Limited are
repayable in December 2028, bear interest at 10% per annum and
compounds annually if the interest is not paid. These are listed on
the International Stock Exchange in Guernsey.
2,563,095 cumulative redeemable preference shares of GBP0.000001
each were issued at GBP1.00 per share, have a cumulative dividend
of 10% per annum and are redeemable at any time at the discretion
of the issuer or will be redeemed in full by 31 December 2028.
Fixed rate unsecured loan notes in Portals International Group
Limited are repayable in December 2029 and interest accrues at a
rate of 15% per annum and compounds annually if the interest is not
paid. These are listed on the International Stock Exchange in
Guernsey.
In accordance with the terms of the instruments, the interest
has not been paid in the year but accrued and added to the value of
the Other Financial Asset. In FY22 an additional GBP0.9m was
invested in loan notes in the Portals International Limited
group.
Management has assessed the recoverability of the other
financial assets on the balance sheet as at 25 March 2023 and as a
result an expected credit loss was recorded in the period of
GBP8.5m. Further details on the impairment can be found in "B
Critical accounting estimates - 1. Recoverability of other
financial assets" within Accounting Policies.
8 FINANCIAL INSTRUMENTS
The fair value of financial assets and liabilities, together
with the carrying amounts shown in the balance sheet, are as
follows:
Total fair Carrying
Total fair value Carrying amount value* amount*
2023 2023 2022 2022
Fair value hierarchy GBPm GBPm GBPm GBPm
----------------------------------- --------------------- ---------------- --------------- ---------- --------
Financial assets
Trade and other receivables(1) Level 3 58.4 58.4 78.3 78.3
Contract assets Level 3 18.9 18.9 8.0 8.0
Other financial assets(2) Level 3 - - 7.2 7.2
Cash and cash equivalents Level 1 40.3 40.3 24.3 24.3
Derivative financial instruments:
- Forward exchange contracts
designated as cash flow hedges Level 2 1.2 1.2 1.3 1.3
- Foreign exchange fair value hedges
- other economic hedges Level 2 1.1 1.1 0.9 0.9
- Embedded derivatives Level 2 0.1 0.1 1.2 1.2
Total financial assets 120.0 120.0 121.2 121.2
----------------------------------------------------------- ---------------- --------------- ---------- --------
Financial liabilities
Unsecured bank loans and
overdrafts(3) Level 2 (123.4) (123.4) (95.7) (95.7)
Trade and other payables(4) Level 3 (66.1) (66.1) (62.9) (62.9)
Derivative financial instruments:
- Forward exchange contracts
designated as cash flow hedges Level 2 (1.0) (1.0) (1.8) (1.8)
- Short duration swap contracts
designated as fair value hedges Level 2 (0.1) (0.1) - -
- Foreign exchange fair value hedges
- other economic hedges Level 2 (0.4) (0.4) (2.9) (2.9)
- Embedded derivatives Level 2 (0.4) (0.4) (0.1) (0.1)
Total financial liabilities (191.4) (191.4) (163.4) (163.4)
----------------------------------------------------------- ---------------- --------------- ---------- --------
Notes:
(1) Excludes prepayments of GBP3.6m (FY22: 2.9m), RDEC of
GBP2.5m (FY22: GBP2.7m) and VAT recoverable of GBP6.2m (FY22:
GBP5.1m).
(2) FY22 excludes ordinary shares of GBP0.2m which are accounted
for as fair value through profit and loss.
(3) Excludes unamortised pre-paid loan arrangement fees of GBP5.0m (FY22: GBP3.1m).
(4) Excludes social security and other taxation amounts of
GBP3.0m (FY22: GBP2.6m), contract liabilities of GBP0.3m (FY22:
GBP0.3m) and payments on account of GBP22.7m (FY22: GBP14.3m).
(*) The prior year comparatives have been restated to correct a
prior year error by removing a VAT receivable of GBP5.1m from the
Trade and other receivables line item in accordance with the
requirements of IFRS 9. The restatement only affects the line item
mentioned and has no other impact on the consolidated financial
statements.
Trade receivables decreased to GBP42.3m compared to GBP64.8m at
FY22 reflecting timing of payments on certain material customer
contracts.
Contract assets have increased by GBP10.9m from GBP8.0m at FY22
to GBP18.9m at FY23. This relates to Currency contracts of GBP12.7m
(FY22: GBP4.9m) and Authentication contracts of GBP6.2m (FY22:
GBP3.1m).
9 ANALYSIS OF NET DEBT
The analysis below provides a reconciliation between the opening
and closing of the Group's net debt position (being the net of
borrowings and cash and cash equivalents).
At 26 March At 25 March
2022 Cash flow Foreign exchange and other 2023
GBPm GBPm GBPm GBPm
-------------------------- ----------- --------- -------------------------- -----------
Borrowings (95.7) (27.0) (0.7) (123.4)
Cash and cash equivalents 24.3 15.6 0.4 40.3
--------------------------- ----------- --------- -------------------------- -----------
Net debt (71.4) (11.4) (0.3) (83.1)
--------------------------- ----------- --------- -------------------------- -----------
At 27
March At 26
2021 Cash flow Foreign exchange and other March 2022
GBPm GBPm GBPm GBPm
-------------------------- ------ --------- -------------------------- -----------
Borrowings (78.0) (17.0) (0.7) (95.7)
Cash and cash equivalents 25.7 (1.6) 0.2 24.3
--------------------------- ------ --------- -------------------------- -----------
Net debt (52.3) (18.6) (0.5) (71.4)
--------------------------- ------ --------- -------------------------- -----------
Net debt is presented excluding unamortised pre-paid borrowing
fees of GBP5.0m (FY22: GBP3.1m) and GBP12.4m (FY22: GBP14.2m) of
lease liabilities .
The Group has Bank facilities of GBP275.0m including an RCF cash
drawdown component of up to GBP175.0m and bond and guarantee
facilities of a minimum of GBP100.0m, which currently are due to
mature in January 2025. The Group can convert (in blocks of
GBP25.0m) up to GBP50.0m of the undrawn RCF cash component to the
bond and guarantee component if required and can elect to convert
this back (again in blocks of GBP25.0m) in order to draw in cash if
the bond and guarantee component has not been sufficiently
utilised.
The drawdowns on the RCF facility are typically rolled over on
terms of between one and three months. However, as the Group has
the intention and ability to continue to roll forward the drawdowns
under the facility, the amount borrowed has been presented as
long-term.
In the second half of FY23, the Group reallocated GBP25.0m of
the bond and guarantee component to the cash component such that at
present, GBP175.0m in total is available on the RCF component, of
which GBP122.0m was drawn as at 25 March 2023. A separate borrowing
facility for financing equipment under construction is in place and
at 25 March 2023 the amount outstanding on this facility is
GBP0.7m.
As at 25 March 2023, the Group had a total of undrawn committed
borrowing facilities, all maturing in more than one year, of
GBP53.0m (26 March 2022: GBP55.0m, all maturing in more than one
year).
10 RETIREMENT BENEFIT OBLIGATIONS
The Group has pension plans, devised in accordance with local
conditions and practices in the country concerned, covering the
majority of employees. The assets of the Group's plans are
generally held in separately administered trusts or are
insured.
2023 2022
GBPm GBPm
----------------------------------------- ------- ------
UK retirement benefit (deficit)/surplus (53.1) 31.6
Overseas retirement liability (1.6) (1.8)
----------------------------------------- ------- ------
Retirement benefit (deficit)/surplus (54.7) 29.8
----------------------------------------- ------- ------
Reported in:
Non-current assets - 31.6
Non-current liabilities (54.7) (1.8)
----------------------------------------- ------- ------
(54.7) 29.8
----------------------------------------- ------- ------
The majority of the Group's retirement benefit obligations are
in the UK:
2023 2023 2023 2022 2022 2022
UK Overseas Total UK Overseas Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------- --------- ------- ------- --------- -------
Equities 3.2 - 3.2 56.3 - 56.3
Bonds 88.7 - 88.7 154.9 - 154.9
Secured/fixed income 133.0 - 133.0 456.2 - 456.2
Liability Driven Investment Fund 163.6 - 163.6 248.1 - 248.1
Multi Asset Credit 60.2 - 60.2 62.8 - 62.8
Qualifying insurance policy 220.6 - 220.6 - - -
Other 8.9 - 8.9 10.4 - 10.4
--------------------------------------- ------- --------- ------- ------- --------- -------
Fair value of scheme assets 678.2 - 678.2 988.7 - 988.7
Present value of funded obligations (727.5) - (727.5) (952.8) - (952.8)
--------------------------------------- ------- --------- ------- ------- --------- -------
Funded defined benefit pension schemes (49.3) - (49.3) 35.9 - 35.9
Present value of unfunded obligations (3.8) (1.6) (5.4) (4.3) (1.8) (6.1)
--------------------------------------- ------- --------- ------- ------- --------- -------
Net (deficit)/surplus (53.1) (1.6) (54.7) 31.6 (1.8) 29.8
--------------------------------------- ------- --------- ------- ------- --------- -------
Amounts recognised in the consolidated income statement:
2023 2023 2023 2022 2022 2022
UK Overseas Total UK Overseas Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------- ------- --------- ------- ------ --------- ------
Included in employee benefits expense:
Current service cost - - - - - -
Administrative expenses and taxes (1.6) - (1.6) (1.8) - (1.8)
Included in interest on retirement benefit obligation net
finance expense: -
Interest income on scheme assets 27.6 - 27.6 20.2 - 20.2
Interest cost on liabilities (26.5) - (26.5) (20.4) - (20.4)
-------------------------------------------------------------- ------- --------- ------- ------ --------- ------
Retirement benefit obligation net finance expense 1.1 - 1.1 (0.2) - (0.2)
-------------------------------------------------------------- ------- --------- ------- ------ --------- ------
Total recognised in the consolidated income statement (0.5) - (0.5) (2.0) - (2.0)
Return on scheme assets excluding assumed interest income (301.1) 0.4 (300.7) (51.2) - (51.2)
Remeasurement gains/(losses) on defined benefit pension
obligations 200.4 - 200.4 86.9 - 86.9
-------------------------------------------------------------- ------- --------- ------- ------ --------- ------
Amounts recognised in other comprehensive income (100.7) 0.4 (100.3) 35.7 - 35.7
-------------------------------------------------------------- ------- --------- ------- ------ --------- ------
Principal actuarial assumptions:
2023 2023 2022 2022
UK Overseas UK Overseas
% % % %
------------------- ----- --------- ----- ---------
Discount rate 4.70% - 2.85% -
CPI inflation rate 2.50% - 3.10% -
RPI inflation rate 3.00% - 3.50% -
------------------- ----- --------- ----- ---------
The financial assumptions adopted as at 25 March 2023 reflect
the duration of the scheme liabilities which has been estimated to
be broadly 14 years (FY22: broadly 15 years).
At 25 March 2023 mortality assumptions were based on tables
issued by Club Vita, with future improvements in line with the CMI
model, CMI_2021 (FY22: CMI_2021) with a smoothing parameter of 7.5
and a long-term future improvement trend of 1.25% per annum (FY22:
long-term rate of 1.25% per annum) and w2020 parameter of 20%
(FY22: 5%). The resulting life expectancies within retirement are
as follows:
2023 2022
------------------------------------------------- ------- ---- ----
Aged 65 retiring immediately (current pensioner) Male 21.8 22.0
Female 23.9 24.0
--------------------------------------------------------- ---- ----
Aged 50 retiring in 15 years (future pensioner) Male 22.4 22.5
Female 25.3 25.4
--------------------------------------------------------- ---- ----
On 2 March 2022, the Trustee and the Company agreed the terms
for a schedule of contributions and a recovery plan, setting out a
programme for clearing the UK Pension Scheme deficit (the "Recovery
Plan"). The last actuarial valuation of the UK Pension Scheme was
at 5 April 2021, which was based on intentionally prudent
assumptions, revealed a funding shortfall (technical provisions
minus the value of the assets) of GBP119.5m.
The GBP119.5m deficit is addressed by payments of GBP15m per
annum (payable quarterly in arrears) under the Recovery Plan
payable from the year ending 5 April 2022 until 31 March 2029.
Additional contingent contributions in exceptional circumstances
will become payable by way of an acceleration of the contributions
due in later years where:
(i) the leverage ratio (consolidated net debt: EBITDA) is equal
to or greater than 2.5x in FY23, up to a maximum of GBP4m in the
financial year and /or
(ii) the Company or any of its subsidiaries take any action
which will cause material detriment (defined in section 38 Pensions
Act 2004) to the UK Pension Scheme of GBP8m (GBP8m in FY23) over
the period up to March 2023.
On 24 May 2022, the Trustees of the Main Scheme entered into a
partial pensioner buy-in contract (qualifying insurance policy) or
a proportion of pension members. In return for a premium paid from
the Scheme's assets, from the date of the buy-in, payments will be
made to the Scheme that match the benefit payments to those Scheme
members covered under the buy-in contract. The buy-in is considered
to be a qualifying insurance policy. The premium paid to the
insurer was GBP319.0m. As at 25 March 2023, the value of the buy-in
contract was GBP220.6m. The impact of the partial pensioner buy-in
has been recognised as a loss on the scheme assets.
11 CONTINGENT ASSETS AND LIABILITES
In June 2019 De La Rue International Limited terminated its
agency agreement and sales consultancy agreement with Pastoriza
SRL, a company which provided agency and sales consultancy services
to the Group in the Dominican Republic from 2016 to 2019. Pastoriza
disputed the termination and commenced a commercial lawsuit in the
Dominican Republic for a claimed amount of approximately US$8m
(plus monthly interest) which was dismissed by the Court in
December 2020. Pastoriza appealed the decision, but the Court of
Appeal dismissed the appeal in May 2021. Pastoriza then appealed to
the Supreme Court, which also dismissed the appeal in July 2022. We
have now had confirmation from the Court that Pastoriza has not
lodged an appeal with the Constitutional Court (which would have
been the final possible forum for this litigation) and it is now
too late to do so, therefore the litigation is now at an end.
De la Rue has been made aware that the Central Bureau of
Investigation in India (CBI-I) has launched an investigation into
the conduct of Arvind Mayaram, the former Indian Finance Secretary,
in which the historical activities of De La Rue in India prior to
2016 have been implicated. The Company has not received any
official direct communication of this investigation from the CBI-I
but has learned about it from publicly available sources. De La Rue
has not served the Government of India or the Central Bank of India
in any capacity since 2016. The Company believes that there is no
merit to the allegations that relate to De La Rue and is seeking
legal advice in this regard.
The Group also provides guarantees and performance bonds which
are issued in the ordinary course of business. In the event that a
guarantee or performance bond is called, a provision may be
required subject to the particular circumstances including an
assessment of its recoverability.
12 RELATED PARTY TRANSACTIONS
During the year the Group traded on an arm's length basis with
the associated company Fidink (33.3% owned). The Group's trading
activities with Fidink in the period comprise GBP22.2m (FY22:
GBP20.3m) for the purchase of ink and other consumables on an arm's
length basis. At the balance sheet date there was GBP1.7m (FY22:
GBP4.6m) owing to this company.
The value of the Group's investment in associate is not material
and hence not disclosed on the face of the balance sheet.
Intra-group transactions between the Parent and the fully
consolidated subsidiaries or between fully consolidated
subsidiaries are eliminated on consolidation.
Directors and Key management compensation
2023 2022
Directors GBP'000 GBP'000
------------------------------------------------------ -------- --------
Aggregate emoluments 1,595 2,097
Aggregate gains made on the exercise of share options - -
1,595 2,097
------------------------------------------------------ -------- --------
2023 2022
Directors and Key management GBPm GBPm
------------------------------------------------ ----- -----
Salaries and other short term employee benefits 2.1 2.7
Retirement benefits - Defined contribution 0.1 0.1
Termination benefits 0.2 -
Share-based payments 0.1 0.8
------------------------------------------------ ----- -----
2.5 3.6
------------------------------------------------ ----- -----
Key management comprises members of the Board (including the
fees of Non-executive Directors) and the Executive Leadership Team.
Termination benefits include compensation for loss of office, ex
gratia payments, redundancy payments, enhanced retirement benefits
and any related benefits in kind connected with a person leaving
office or employment.
13 NON-CONTROLLING INTEREST
The Group has three subsidiaries with material non-controlling
interests:
-- De La Rue Buck Press Limited, whose country of incorporation is Ghana;
-- De La Rue Lanka Currency and Security Print (Private)
Limited, whose country of incorporation is Sri Lanka; and
-- De La Rue Kenya EPZ Limited, whose country of incorporation and operation is Kenya.
The accumulated non-controlling interest of the subsidiary at
the end of the reporting period is shown in the Group balance
sheet. The following table summarises the key information relating
to these subsidiaries, before intra-group eliminations .
Ghana Sri Kenya(1) Ghana Sri Kenya
Lanka Lanka
Non-controlling interest
percentage 51% 40% 40% 51% 40% 40%
------------------------------- ------ ------- --------- ------ ------- -------
2023 2023 2023 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
Non-current assets - 7.7 0.2 - 9.4 5.8
Current assets 8.9 30.5 22.8 5.8 22.6 25.1
Non-current liabilities - (0.4) - - (0.3) (0.1)
Current liabilities (5.7) (10.6) (13.7) (5.1) (3.8) (14.2)
------------------------------- ------ ------- --------- ------ ------- -------
Net assets (100%) 3.2 27.2 9.3 0.7 27.9 16.6
------------------------------- ------ ------- --------- ------ ------- -------
2023 2023 2023 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 13.8 35.0 16.8 14.3 34.4 30.5
Profit/(loss) for the
year 2.1 1.2 (7.3) 0.3 3.0 2.2
Profit/(loss) allocated
to non-controlling interest 1.1 0.5 (2.9) 0.2 1.1 0.9
Dividends declared by
non-controlling interest - 0.8 - - 0.7 0.2
Cash flows from operating
activities 2.9 8.9 0.8 (0.6) (0.6) 0.9
Cash flows from investing
activities - (0.2) (0.3) - 0.2 (0.3)
Cash flows from financing
activities - (1.9) (0.1) 0.3 (1.8) (0.5)
------------------------------- ------ ------- --------- ------ ------- -------
Net (decrease)/increase
in cash and cash equivalents 2.9 6.8 0.4 (0.3) (2.2) 0.1
------------------------------- ------ ------- --------- ------ ------- -------
Notes:
(1) In January 2023, the Group announced that it has suspended
banknote printing operations Kenya. In addition, operations in
Authentication division are also in the process of winding
down.
14 CAPITAL AND OTHER COMMITMENTS
2023 2022
GBPm GBPm
----------------------------------------------------------- ----- -----
Capital and other expenditure contracted but not provided:
Property, plant and equipment 16.4 10.6
Lease commitments 13.9 -
Other commitments - 364.2
----------------------------------------------------------- ----- -----
30.3 374.8
----------------------------------------------------------- ----- -----
Lease commitments relate to the factory site extension in Malta
where the Company has signed a lease for the premises for an
initial term of 20 years. The lease will be recognised when the
building becomes available for use.
Other commitments in the table above in FY22 were amounts in
relation to the sale of Portals De La Rue Limited to EPIRIS Fund II
on 29 March 2018. As part of the transaction, Portals De La Rue
Limited supplied paper to meet the Group's anticipated internal
requirements with pre-agreed volumes and price mechanisms until
March 2028. Based on the terms of the agreement the Group had other
commitments of approximately GBP626.9m over 10 years from the date
of sale. Management assessed that such supply arrangement all
associated commitments form a single agreement for accounting
purposes. The termination of the Relationship Agreement with
Portals in the year resulted in these commitments being
extinguished.
15 Post Balance Sheet events
On 29 June 2023 the Company entered into a number of documents
which had the effect of amending and restating the terms of the
revolving facility agreement with its lending banks and their
agents.
These documents are an amendment and restatement agreement with
the various lenders and the banks' agent and security agent, a
debenture between the Company, certain other Group companies and
the banks' security agent and an inter-creditor agreement between
the creditors. As a result of these changes, the facilities are now
secured against material assets and shares within the Group.
On the 28 June 2023 the Company entered into an agreement with
the trustees of the De La Rue Pension Scheme in relation to the
deferral of certain deficit reduction payments that were otherwise
due to be paid by the Company and other Group companies to that
scheme. In order to preserve and support the position of the
scheme, with the support of the lenders, the scheme will be
provided with security on a pari passu basis together with the
lenders, as well as an enhanced information sharing protocol to
ensure ongoing communication between the Group and the trustee
remains comprehensive.
NON IFRS MEASURES
De La Rue plc publishes certain additional information in a
non-statutory format in order to provide readers with an increased
insight into the underlying performance of the business. These
non-statutory measures are prepared on a basis excluding the impact
of exceptional items and amortisation of intangibles acquired
through business combinations, as they are not considered to be
representative of underlying business performance. The measures the
Group uses along with appropriate reconciliations to the equivalent
IFRS measures where applicable are shown in the following
tables.
The Group's policy on classification of exceptional items is
also set out below:
The Directors consider items of income and expenditure which are
material by size and/or by nature and not representative of normal
business activities should be disclosed separately in the financial
statements so as to help provide an indication of the Group's
underlying business performance. The Directors label these items
collectively as 'exceptional items'. Determining which transactions
are to be considered exceptional in nature is often a subjective
matter. However, circumstances that the Directors believe would
give rise to exceptional items for separate disclosure would
include: gains or losses on the disposal of businesses,
curtailments on defined benefit pension arrangements or changes to
the pension scheme liability which are considered to be of a
permanent nature such as the change in indexation or the GMPs, and
non-recurring fees relating to the management of historical scheme
issues, restructuring of businesses, asset impairments and costs
associated with the acquisition and integration of business
combinations. All exceptional items are included in the appropriate
income statement category to which they relate.
A Adjusted revenue
Adjusted revenue excluded "pass-through" revenue relating to
non-novated contracts following the paper and international
identity solutions business sales. There has been no "pass-through"
revenue in FY23 or FY22 and therefore this non-IFRS is no longer
used by the Group.
B Adjusted operating profit
Adjusted operating profit represents earnings from continuing
operations adjusted to exclude exceptional items and amortisation
of acquired intangible assets.
2023 2022
GBPm GBPm
-------------------------------------------------------------------- ------ -----
Operating (loss)/profit from continuing operations on an IFRS basis (20.3) 29.7
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 47.1 5.7
--------------------------------------------------------------------- ------ -----
Adjusted operating profit from continuing operations 27.8 36.4
--------------------------------------------------------------------- ------ -----
C Adjusted basic earnings per share
Adjusted earnings per share are the earnings attributable to
equity shareholders, excluding exceptional items and amortisation
of acquired intangible assets and discontinued operations divided
by the weighted average basic number of ordinary shares in issue.
It has been calculated by dividing the De La Rue plc's adjusted
operating profit from continuing operations for the period by the
weighted average basic number of ordinary shares in issue excluding
shares held in the employee share trust.
2023 2022
GBPm GBPm
(Loss)/Profit attributable to equity shareholders
of the Company (55.9) 21.5
Exclude: discontinued operations - (0.8)
--------------------------------------------------------- --------- -------
(Loss)/Profit attributable to equity shareholders
of the Company from continuing operations on an
IFRS basis (55.9) 20.7
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 47.1 5.7
Tax on amortisation of acquired intangible assets (0.3) (0.3)
Tax on exceptional items 5.1 (1.8)
--------------------------------------------------------- --------- -------
Adjusted (loss)/profit attributable to equity
shareholders of the Company from continuing operations (3.0) 25.3
--------------------------------------------------------- --------- -------
Weighted average number of ordinary shares for
basic earnings 195.4 195.2
--------------------------------------------------------- --------- -------
Continuing operations 2023 2022
pence pence
per share per
share
Basic earnings per ordinary share on an IFRS
basis (28.6) 10.6
Basic adjusted earnings per ordinary share (1.5) 13.0
---------------------------------------------- ------------ -------
D Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA represents earnings from continuing operations
before the deduction of interest, tax, depreciation, amortisation
and exceptional items.
The EBITDA margin percentage takes the applicable EBITDA figure
and divides this by the continuing revenue in the period of
GBP349.7m (FY22: GBP375.1m). The covenant test (note 14(b)) uses
earlier accounting standards and excludes adjustments for IFRS 16
and takes into account lease payments made.
2023 2022
GBPm GBPm
---------------------------------------------------------------------- ------ -----
(Loss)/Profit for the year (57.2) 23.7
Add back:
Profit on discontinued operations - (0.8)
Taxation 27.6 1.3
Net finance expenses 9.3 5.5
----------------------------------------------------------------------- ------ -----
(Loss)/Profit before interest and taxation from continuing operations (20.3) 29.7
Add back:
Depreciation of property, plant and equipment 12.5 12.0
Depreciation of right-of-use assets 2.2 2.3
Amortisation of intangible assets 5.3 4.3
----------------------------------------------------------------------- ------ -----
EBITDA (0.3) 48.3
Exceptional items 47.1 5.7
----------------------------------------------------------------------- ------ -----
Adjusted EBITDA 46.8 54.0
----------------------------------------------------------------------- ------ -----
Revenue GBPm 349.7 375.1
EBITDA margin (0.1)% 12.9%
----------------------------------------------------------------------- ------ -----
Adjusted EBITDA margin 13.4% 14.4%
----------------------------------------------------------------------- ------ -----
The adjusted EBITDA split by division was as follows:
Total
Identity Central of continuing
FY23 Currency Authentication Solutions operations
GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Operating (loss)/profit on
IFRS basis (24.8) 5.4 (0.2) (0.7) (20.3)
Add back:
Net exceptional items 38.4 7.9 0.1 0.7 47.1
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Depreciation of property, plant
and equipment and right-of-use
assets 11.1 2.5 0.1 1.0 14.7
Amortisation of intangible assets 1.3 3.4 - 0.6 5.3
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted EBITDA 26.0 19.2 - 1.6 46.8
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Identity Total
Solutions of continuing
FY22 Currency Authentication Central operations
GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----------- ----------------- ----------- ---------- ---------------
Operating profit/(loss) on IFRS
basis 15.0 15.1 0.6 (1.0) 29.7
Add back:
Net exceptional items 4.5 0.2 - 1.0 5.7
Depreciation of property, plant
and equipment and right-of-use
assets 10.7 2.5 - 1.1 14.3
Amortisation of intangible assets 1.3 2.3 - 0.7 4.3
----------------------------------- ----------- ----------------- ----------- ---------- ---------------
Adjusted EBITDA 31.5 20.1 0.6 1.8 54.0
----------------------------------- ----------- ----------------- ----------- ---------- ---------------
E Adjusted controllable operating profit by division
Adjusted controllable operating profit represents earnings from
continuing operations of the on-going divisions adjusted to exclude
exceptional items and amortisation of acquired intangible assets
and costs relating to the enabling functions such as Finance, IT
and Legal that are deemed to be attributable only to the on-going
two divisional structure model. Key reporting metrics for
monitoring the divisional performance is linked to gross profit and
controllable profit (being adjusted operating profit before the
allocation of enabling function overheads), with the enabling
functional cost base being managed as part of the overall business
key Turnaround Plan objectives.
Total
Identity Central of continuing
FY23 Currency Authentication Solutions operations
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----------- ----------------- ------------ ---------- ---------------
Operating (loss)/profit
on IFRS basis (24.8) 5.4 (0.2) (0.7) (20.3)
Amortisation of acquired
intangibles - 1.0 - - 1.0
Net exceptional items 38.4 7.9 0.1 0.7 47.1
---------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted operating profit/(loss) 13.6 14.3 (0.1) - 27.8
Enabling function overheads 24.0 8.7 - (32.7) -
---------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted controllable
operating profit/(loss) 37.6 23.0 (0.1) (32.7) 27.8
---------------------------------- ----------- ----------------- ------------ ---------- ---------------
Identity Total
Solutions of continuing
FY22 Currency Authentication Central operations
GBPm GBPm GBPm GBPm GBPm
----------------------------- ----------- ----------------- ----------- ---------- ---------------
Operating profit/(loss)
on IFRS basis 15.0 15.1 0.6 (1.0) 29.7
Amortisation of acquired
intangibles - 1.0 - - 1.0
Net exceptional items 4.5 0.2 - 1.0 5.7
----------------------------- ----------- ----------------- ----------- ---------- ---------------
Adjusted operating profit 19.5 16.3 0.6 - 36.4
Enabling function overheads 23.0 7.4 - (30.4) -
----------------------------- ----------- ----------------- ----------- ---------- ---------------
Adjusted controllable
operating profit/(loss) 42.5 23.7 0.6 (30.4) 36.4
----------------------------- ----------- ----------------- ----------- ---------- ---------------
F Return on capital employed ("ROCE")
ROCE is the ratio of the adjusted operating profit (operating
profit before amortisation of acquired intangible assets and net
exceptional items) over the average capital employed for the
current and prior year.
In 2020 the Performance share plan measures were revised and TSR
(Total Shareholder Return relative to FTSE 250 companies, measured
over three calendar years) was used in replacement of ROCE, to
align to planned growth over the three-year period of the
Turnaround Plan, so that appropriate focus is placed on the key
business imperative of restoring value to shareholders.
The ROCE measure was still applicable to PSP share awards which
vested between 2021 and 2022, with the last vesting date was in
July 2022. This non-IFRS measure is no longer used by the
Group.
2022
GBPm
---------------------------------------------------------- ------
* Property, plant and equipment 102.7
* Intangible assets 37.5
* Right-of-use assets 12.9
* Other financial assets 7.4
* Inventories 50.1
* Trade and other receivables 89.0
* Contract assets 8.0
* Derivative financial assets 3.4
* Trade and other payables (80.0)
* Derivative financial liabilities (4.8)
----------------------------------------------------------- ------
Capital Employed 226.2
----------------------------------------------------------- ------
ROCE = Adjusted operating profit/Average Capital Employed
Adjusted operating profit 36.4
Capital Employed - current year 226.2
Capital Employed - prior year 202.5
----------------------------------------------------------- ------
Average Capital Employed 214.3
----------------------------------------------------------- ------
ROCE 17.0%
----------------------------------------------------------- ------
-ENDS-_
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FR EKLBLXQLZBBK
(END) Dow Jones Newswires
June 29, 2023 02:00 ET (06:00 GMT)
Grafico Azioni De La Rue (LSE:DLAR)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni De La Rue (LSE:DLAR)
Storico
Da Giu 2023 a Giu 2024