REG - De La Rue PLC - 2023/24 half year results
19/12/2023 07:00
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RNS Number : 2770X De La Rue PLC 19 December 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, the
inside information is now considered to be in the public domain.
19 December 2023
De La Rue plc
2023/24 half year results
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the "Company")
announces its half year results for the six months ended 30 September 2023
(the "period", "H1 24" or "half-year"). The comparative period was the six
months ended 24 September 2022 ("H1 23").
Highlights
· Adjusted operating profit of £7.9m (H1 23: £9.3m) ahead of previous
guidance of breakeven. IFRS operating loss narrowed to £3.4m (H1 23:
£12.6m).
· Authentication revenue rose 5.7% to £48.1m (H1 23: £45.5m).
· Currency revenue reduced 2.6% to £113.4m (H1 23: £116.4m).
· Net debt of £82m (H1 23: £82.4m) in line with the October 2023
trading statement and ahead of previous guidance of £100m; Operating cash
inflow of £15.4m (H1 23: outflow of £2.8m).
· Banking facilities extended to July 2025; RCF limit reduced to £235m
(from £250m).
· Pension situation improved and contributions reduced:
o Deficit per actuarial valuation now £78m (versus previous remaining
contributions of £84.7m)
o Deficit repair contributions moratorium continues for FY24; thereafter
contributions reduced to £8m annually from FY25-FY27, saving £28m over that
period; FY28-FY31 contributions then increase to clear deficit by December
2030 (from March 2029)
· Currency order book increased over 100% since September 2023 period
end, to £219.8m, with very high win rate since beginning of FY24, in a
recovering market.
· Multi-year Authentication contract extension secured on improved
terms; in latter stages of settling a further significant GRS contract
extension.
· Authentication guidance of £100m revenue for FY24 reiterated.
· The above underpins the Board's reiteration of full year guidance:
adjusted operating profit of early £20m range and net debt in the mid £90m
range.
Financial highlights
H1 24 H1 23 Change
£m £m %
Revenue 161.5 164.3 (1.7)
Authentication 48.1 45.5 5.7
Currency 113.4 116.4 (2.6)
Identity Solutions - 2.4 n/a
Gross profit 40.2 41.8 (3.8)
Adjusted operating profit*(1) 7.9 9.3 (15.1)
IFRS operating loss (3.4) (12.6) 73.0
Loss before taxation (16.8) (15.9) (5.7)
Adjusted basic EPS*(2) (p) (2.6)p 2.0p (230.0)
IFRS basic EPS (p) (6.2)p (12.6)p 50.8
H1 23 £m FY23 £m Change %
Net 82.0 82.4 (0.5)
debt(3)
Footnotes:
* These are non-IFRS measures. The definition and reconciliation of adjusted
operating profit and adjusted basic EPS can be found in non-IFRS financial
measures section of this Interim Statement.
(1. ) Adjusted operating expenses and adjusted operating profit
excludes pre-tax exceptional items of £10.8m (H1 23: £21.4m) and pre-tax
amortisation of acquired intangible assets £0.5m (H1 23: £0.5m).
(2. ) Adjusted basic EPS excludes post-tax exceptional items of
£6.7m (H1 23: £28.1m) and post-tax amortisation of acquired intangible
assets £0.4m (H1 23: £0.4m).
(3. ) The definition of net debt can be found in note 8 to the
financial statements.
(4. ) All of the above are reported for continuing operations.
Clive Vacher, CEO of De La Rue, commented:
"De La Rue's robust performance in the first half reflects the important
actions that we have taken since 2020 to make the company resilient to
changing market conditions. These actions have allowed us to navigate a
downturn over the past 18 months, particularly in Currency, and I am pleased
that the market is now showing signs of continuing recovery. We have doubled
the Currency order book since September 2023 and are exhibiting a high win
rate, with more opportunities in the pipeline.
"Authentication continues on its path to £100m in revenue for the full
financial year. We have secured a significant multi-year contract extension,
and we are in the late stages of securing another contract extension in GRS.
Our Australian passport programme continues apace and is a significant driver
of growth this year.
"We continue to focus on the financial progress of the company. In the half
year, we demonstrated improved operating cash flow versus H1 FY23 and, as
announced in our October trading statement, significantly improved net debt
versus previous guidance. We have extended our banking facilities to July 2025
and are comfortable to reduce the size of facility.
"With a new pension deficit valuation of £78m, we have been able to work with
the Pension Trustee on an amended schedule of contributions, that saves the
company £28m cash contributions between FY25 and FY27. The schedule now runs
to December 2030, a modest extension from March 2029, but still a number of
years ahead of scheme maturity.
"The progress reported today underpins the Board's full year guidance of
adjusted operating profit in the low £20m range, and net debt in the mid
£90m range."
Clive Whiley, Chairman of De La Rue, added:
"Upon my appointment as Chairman in May this year, it soon became clear that
De La Rue was struggling to balance conflicting stakeholder objectives,
alongside associated professional fees which were suffocating the nascent
recovery emanating from the foundations laid by the Turnaround Plan initiated
in 2020, Making a continuation of the deterioration in the market rating
almost inevitable.
"Since then I have sought to provide aircover to allow the reinforced
executive management team to complete an in-depth review of the fundamentals
of De La Rue's business, designed to arm the Board with the information
necessary to gauge the core strategic strengths of the Group, of which there
are many.
"The interim results released this morning represent demonstrable progress
with adjusted operating profit ahead of guidance, lower net debt, pension
deficit repair contributions reduced by £28m over the next three years,
significantly enhanced contract win rates and renewed confidence within the
management team.
"Accordingly, I would like to thank our core lenders, pension trustees,
shareholders and employees alike for their ongoing support to enable us to
complete this strategic review. The Board is determined to utilise today's
market update as a springboard to optimise the underlying intrinsic value of
the business, for the benefit of all stakeholders, on which the company will
provide an update before 31 May 2024."
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
Dean Moore Interim Chief Financial Officer
Louise Rich Head of Investor Relations
Brunswick + 44 (0) 207 404 5959
Stuart Donnelly
Ed Brown
A presentation to investors and analysts, including a live webcast will be
held today at 09:00 am and will be available via our website at
https://www.delarue.com (https://www.delarue.com/) or on
https://brrmedia.news/DLAR_HY (https://brrmedia.news/DLAR_HY) . This will be
available for playback after the event.
About De La Rue
Established 210 years ago, De La Rue is trusted by governments, central banks,
and international brands, providing digital and physical solutions that
protect their supply chains and cash cycles from counterfeiting and illicit
trade.
With operations in five continents, customers in 140 countries and solutions
that include advanced track and trace software, security document design,
banknotes, brand protection labels, tax stamps, security features and passport
bio-data pages, De La Rue brings unparalleled knowledge and expertise to its
partnerships and projects.
Our core focus areas are:
- Authentication: leveraging advanced digital software solutions and security
labels to protect revenues and reputations from the impacts of illicit trade,
counterfeiting, and identity theft.
- Currency: designing and manufacturing highly secure banknotes and banknote
components that are optimised for security, manufacturability, cash cycle
efficacy and public engagement.
The security and trust derived from our solutions pave the way for robust
economies and flourishing societies. This is underpinned by a significant
Environmental, Social, and Governance commitment that is evidenced by
accolades such as the ISO 14001 certification and a consistent ranking in the
top tier of the Financial Times European Climate Leaders list.
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 cases, 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 document 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.
BUSINESS UPDATE
De La Rue achieved an adjusted operating profit of £7.9m (H1 23: £9.3m) in
the first half, ahead of guidance, helped by a better-than-expected mix within
Currency and strong sales coupled with strong cost control in Authentication.
Though adjusted operating profit was lower than the comparative period last
year, the IFRS operating loss of £3.4m (H1 23: £12.6m) was much reduced
thanks to reduced exceptional charges.
The work we have done and continue to do, to reshape the business and remove
cost, has created more efficient and agile operations. It has allowed us to
begin to rebuild the order book in Currency, winning a high proportion of the
tenders for which we have bid and to conclude a three-year contract renewal
with an important customer on improved terms within Authentication. At the
same time, we have seen an improved cash flow across the business.
We have also announced today that we have secured an extension to our banking
facilities and improved terms for the schedule of contributions to repair the
deficit within the legacy defined benefit pension scheme. These build on the
15-month pension deficit repair moratorium and the banking covenant relaxation
that we announced at the time of our full year results and reduce cash
outflows through to the end of FY27 by an additional £28m. While we have more
to do, these actions put the business on a firmer financial footing for the
future.
FY24 to date has seen much activity across the business, including further
streamlining and improving operational efficiency, seeking out new customers,
extending relationships with existing customers and the improvements to our
financing situation referenced above. We have restructured our UK sites,
completed the wind-down in Kenya and moved the expansion of our Malta
operations towards completion.
These have all required much hard work from employees across De La Rue. I
would like to thank the team for all their efforts during the financial year
so far, and for those yet to come as we work to achieve our goals for the
remainder of FY24 and beyond.
Pension scheme
In view of recent changes in interest rates and other actuarial assumptions,
we commissioned a fresh actuarial valuation of our historic defined benefit
pension scheme (the 'Scheme') as at September 2023. This has resulted in the
deficit being valued at £78m, as compared with the outstanding total of
future deficit repair contributions previously agreed of £84.7m.
On 18 December 2023, we reached agreement with the Scheme Trustee to pay
deficit repair contributions in accordance with a revised schedule. We will
recommence deficit repair contributions in July 2024 as previously agreed, but
at a significantly lower level, namely £8m per annum to the end of FY27, with
the outstanding amount thereafter spread over the period to December 2030,
which is after the next periodic actuarial valuation is due.
This revised deficit repair contribution schedule provides De La Rue with a
significantly improved cash flow profile, reducing cash outflows by £28m over
the period to the end of FY27. The actions we have taken since 2020 in
reprofiling the pension deficit repair contributions will have saved the Group
over £90m in cash outflows by the end of FY27, while improving the safeguards
to the Scheme and its members with additional security and 'pari passu'
treatment with the banking facility providers.
Banking facilities
Today we also announce that we have reached agreement with our banking
syndicate so that our principal facilities now extend to July 2025.
The extension has been granted with the same interest rate schedule that was
agreed in June 2023. The interest rates and covenant limits remain
unchanged, other than a downwards adjustment in the liquidity headroom
covenant to reflect the cancellation of £15m of the revolving credit facility
as explained below. Further details of the revised banking arrangements can
also be found within the Financial Review below, under 'Banking facilities'.
Looking ahead, we are evaluating various options to refinance our debt
facilities for a longer horizon, allowing us to move away from a repeated
cycle of short-term facility extensions.
Net debt and cash
At the end of September 2023, our net debt stood at £82.0m (FY23: £82.4m),
significantly lower than our previous guidance.
Our focus on strong control of working capital, reducing inventory and seeking
prompt payment from our customers generated an operating cash inflow of
£15.4m (H1 23: £2.8m outflow). This was after taking account of the final
£7.5m payment for settlement of the termination of the Portals Paper
agreement which took place at the beginning of this financial year.
Our net debt position at the end of the first half also benefitted from
improving the matching of capital expenditure with the timing of grant
receipts in Malta. We will continue with these and other initiatives in the
second half and into FY25.
Our improved cash flow performance has enabled us to offer to our bank
syndicate the cancellation of £15m of the revolving credit facility
previously in place that is now surplus to our requirements.
Authentication
Our Authentication division generated an adjusted operating profit of £6.5m
(H1 23: £4.9m) from revenue up 5.7% to £48.1m (H1 23: £45.5m). The ID
business saw a robust performance with strong sales from the polycarbonate bio
data page produced for the new 'R series' Australian passport among others.
These data pages incorporate a range of security features in a technically
advanced highly secure, multi-layered polycarbonate plastic and allow
Australian citizens to benefit from one of the most advanced and secure travel
documents. Brand benefitted from the new customers that we referenced in our
full year results. Microsoft related sales have stabilised in H1 24, but we
have not yet seen any significant recovery, reflecting the continued subdued
state of PC sales globally.
Authentication has recently seen the renewal of a three-year contract with a
key customer on improved terms. Negotiations on another significant contract
are in their later, detailed stage. These build on the GRS contract extensions
in the EU, Cameroon and Sudan announced at the end of FY23, de-risking our
future revenue pipeline.
Recent additional investment in sales and marketing capability is bearing
fruit, with a number of leads being pursued in each area of the business. In
GRS the market continues to grow steadily, and we are seeing several tenders
or RFQ's for new contracts, together with larger contract values to cover
additional products to be incorporated into existing schemes.
Currency
Our Currency division delivered an adjusted operating profit of £1.4m (H1 23:
£4.3m) in its traditionally weaker first half from marginally lower revenue
of £113.4m (H1 23: £116.4m) compared with the same period last year. A mix
of completed work within banknotes with a higher margin than had been expected
led to an improved profit outturn versus expectations at the start of the
financial year.
While the industry-wide post pandemic downturn continued to impact the
business in the period, the division is now seeing some recovery, albeit from
a low base. While the overall market remains unpredictable, our conversion
rate of bids to orders since the beginning of this financial year has been
excellent. In FY24 to date we have won substantial multi-year orders in
Africa, the Middle East and in Asia. The work we have done over the last few
years in making the business more competitive and agile, by for example,
replacing Portals as our sole provider of banknote paper with a panel of
suppliers and focusing on an efficient manufacturing footprint, has helped us
to attain this high conversion rate.
At the same time market data continues to reflect an underlying demand for
fresh banknotes. Our latest view of the global growth of cash in circulation
is around 5% per annum, with growth in some of our core markets increasing at
a rate significantly ahead of this.
At the end of September our total order book stood at £105.4m (25 March 2023:
£136.8m) and the 12-month order book at £65.8m (25 March 2023: £131.7m).
The timing of tenders has been such that several significant orders have been
closed recently. At December, the total order book stood at £219.8m.
As well as focusing on winning tenders to print banknotes, we also continue to
seek opportunities to incorporate our security features and SAFEGUARD®
polymer substrate into the specifications. Furthermore, our extensive security
features portfolio and polymer substrate provide opportunities to grow sales
to state printing works, which typically represent countries that require a
larger volume of banknotes.
Malta
The expansion of our Malta facilities is moving forward, with the
Authentication space due to be completed by end of this financial year and the
Currency facilities completed during FY25.
When complete, the new facilities will substantially increase our capacity
within Authentication and add significantly to our Currency capabilities
within Malta.
Responsible business
Undertaking our business in an ethical and sustainable manner is core to the
De La Rue culture and underpins all that we do. We were therefore delighted
that our most recent annual assessment by sustainability agency Ecovadis
resulted in a 5% improvement in our overall score, a rating in the 91(st)
percentile and a silver medal. De La Rue scored particularly highly in the
theme area of ethics.
Outlook
Within Currency, our order book for the remainder of FY24 is now largely
de-risked. Our operations team are now working hard to fulfil these orders and
deliver full year operating profit expectations for the business.
Authentication remains on track to hit its £100m revenue target for the
full year, though at an operating profit level has a strong prior year
comparative in the second half to outperform.
We recognise that the outturn for H1 24 has been better from both an operating
profit and a net debt perspective than we set out at the time of our full year
results in June 2023. However, a number of significant operational
uncertainties still remain in both divisions.
As a result, we reiterate the profit guidance previously given, namely that we
expect adjusted operating profit for FY24 to be in the low £20m.
In relation to net debt, as we set out in our pre close statement in early
October, given the various initiatives in relation to cash underway, we expect
net debt for the full year FY24 to be in the mid £90m range.
Clive Vacher
Chief Executive Officer
FINANCIAL REVIEW
To provide increased clarity on the underlying performance of our business, we
have reported 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. Further details on non-IFRS financial measures
can be found later in this document.
100% of Group revenue for H1 24 of £161.5m (H1 23: £164.3m) originated from
our ongoing operating divisions of Currency and Authentication.
Together Currency and Authentication delivered adjusted operating profit of
£7.9m (H1 23: profit £9.3m), a fall of £1.4m (15.1%) period-on-period. This
largely reflects lower revenue from the Currency division, adverse mix and a
slight increase in operating expenses. The legacy Identity Solutions business
generated an adjusted operating result of £nil in the current financial year
with no remaining activity (H1 23: £0.1m profit).
At an IFRS operating profit level, the Group saw a small net loss of £3.4m,
much less than the equivalent period last year, which saw a loss of £12.6m
after the exceptional cost of the termination of the agreement with Portals
Paper.
Authentication
The Authentication division leverages advanced digital software solutions and
security labels to protect revenues and reputations from the impacts of
illicit trade, counterfeiting, and identity theft.
H1 24 H1 23 Change
£m £m
Revenue 48.1 45.5 5.7%
Gross profit 17.9 15.7 14.0%
Adjusted controllable operating profit* 11.6 9.4 23.4%
Adjusted operating profit* 6.5 4.9 32.7%
Operating profit 5.8 3.9 48.7%
% %
Gross profit margin 37.2 34.5 270 bps
Adjusted controllable operating profit margin* 24.1 20.7 340 bps
Adjusted operating profit margin* 13.5 10.8 270 bps
*Non-IFRS measure
When compared with prior period, the most substantial increase in H1 24
Authentication revenue was due to the increase in ID sales, notably data pages
for the Australian passport. Brand benefitted from sales from new contracts
announced at the full year. Microsoft related sales faced a strong prior year
comparative in the first quarter. The monthly run rate has stabilised, but
we have not yet seen any significant recovery, reflecting the continued
subdued state of PC sales globally. The loss of revenue in Kenya and from HMRC
in FY23, together with a muted overall performance in GRS, moderated overall
sales growth in the division.
Gross profit margin rose 270 basis points, when compared with the prior
period, reflecting the mix in sales and good manufacturing yields.
Exceptionally strong cost control led to no increase in divisional operating
expenses, which, combined with the higher revenue, led to adjusted
controllable operating profit rising 23.4% to £11.6m (H1 23: £9.4m).
Adjusted operating profit was up 32.7% to £6.5m (H1 23: £4.9m) despite the
division being allocated a higher proportion of central overheads, given its
proportionally higher revenue for the period. As most of the exceptional costs
recorded in both this period and in the comparative period last year related
to the Currency division rather than Authentication and amortisation was at
the same level as last year, most of the increase in profit fed through to the
IFRS operating profit level, which rose 48.7% to £5.8m (H1 23: £3.9m).
Currency
The Currency division designs and manufactures highly secure banknotes and
banknote components that are optimised for security, manufacturability, cash
cycle efficacy and public engagement.
H1 24 H1 23 Change
£m £m
Revenue 113.4 116.4 (2.6)%
Gross profit 22.3 25.8 (13.6)%
Adjusted controllable operating profit* 14.1 15.7 (10.2)%
Adjusted operating profit* 1.4 4.3 (67.4)%
Operating loss (5.5) (16.5) 66.7%
% %
Gross profit margin 19.7 22.2 (250) bps
Adjusted controllable operating profit margin* 12.4 13.5 (110) bps
Adjusted operating profit margin* 1.2 3.7 (250) bps
*Non-IFRS measure
Our Currency division remained profitable at the adjusted operating profit
level during its traditionally weaker first half, delivering an adjusted
operating profit of £1.4m (H1 23: £4.3m) from marginally lower revenue of
£113.4m (H1 23: £116.4m). Revenue from banknotes was broadly flat on the
comparative period last year, security features revenue was marginally higher
and polymer was generally subdued.
Gross profit fell 13.6% to £22.3m (H1 23: £25.8m) with the mix of sales
adversely affecting margin when compared with the prior period.
The ongoing remaining costs of the Gateshead and Kenya facilities were
reallocated to enabling function costs at the start of FY24, which benefitted
controllable operating costs within the division. This, together with strong
cost control, led adjusted controllable operating profit to fall just 10.2% to
£14.1m (H1 23: £15.7m).
£6.9m (H1 23: £20.8m) of exceptional costs of right sizing the business for
future operations led the division into an operating loss of £5.5m (H1 23:
loss of £16.5m) on an IFRS basis. This included restructuring in the UK,
together with some further costs in relation to the wind down in Kenya. In the
equivalent period last year, a much larger divisional IFRS operating loss was
recorded, given that £16.8m relating to the termination of the Portals Paper
agreement was charged to the division as an exceptional charge.
Identity solutions
As noted above, the legacy Identity Solutions business saw no activity in H1
24 with an operating result of £nil (H1 23: operating profit of £0.1m).
Enabling function costs
In H1 24 enabling function costs of £17.8m (H1 23: £15.9m) rose by 11.9% and
represented 11.0% of Group revenue (H1 23: 9.7%).
The rise in enabling function costs is mostly due to increased professional
fees together with the reallocation of the remaining ongoing costs of the
Gateshead and Kenya facilities into enabling functions from the beginning of
FY24. This allows for greater focus in the central management of these
projects. Most activity at Gateshead has now ceased and we are working to
relocate the remaining functions as soon as practicable.
Exceptional items
Exceptional items during the period constituted a net charge of £10.8m (H1
23: £21.4m) before tax.
Exceptional charges before tax included:
H1 24 H1 23
£m £m
Site relocation and restructuring costs 7.9 2.1
Costs in relation to pension payment deferment and banking refinancing 3.0 -
Credit loss provision/write back on Portals loan notes (0.3) 2.5
Pension underpin costs 0.2 -
Termination costs related to the Portals Paper agreement - 16.8
10.8 21.4
£7.9m (H1 23: £2.1m) exceptional site relocation and restructuring costs
comprised:
- £6.5m (H1 23: £nil) charge for redundancy and legal fees (£3.2m)
(Currency and Authentication) and property, plant and equipment impairments
(£3.3m) (Currency) were made in relation to restructuring initiatives in both
divisions to right size the divisions for future operations.
- A further £1.3m (H1 23: £nil) in relation to the wind down of our
operations in Kenya announced in January 2023. This included redundancy
charges of £0.2m, property, plant and equipment asset impairments of £1.1m
and other costs of £0.1m, offset by £0.1m of proceeds from the sale of
previously impaired inventory.
- £0.1m (H1 23: £0.3m) 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 £0.1m, of relocating assets to
different Group manufacturing locations. This relocation of assets will
continue into H2 24 as the Group continues its expansion of the manufacturing
facilities in Malta.
- In addition, H1 23 included £1.8m of charges relating to other cost
out initiatives, including the initial Turnaround Plan restructuring of our
central enabling functions, selling and commercial functions were also
included within site relocation and restructuring costs.
Costs associated with pension payment deferment and the banking refinancing
amounted to £3.0m (H1 23: £nil) in the period. This included the following
legal and professional advisor costs:
- £1.3m relating to amendments to the schedule of deficit repair
contributions as explained in 'Pension scheme' below.
- £1.7m relating to the amendment and restatement of the terms of the
revolving facility agreement on 29 June 2023, as detailed in 'Banking
facilities' below.
Pension underpin costs of £0.2m (H1 23: £nil) 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.
During H1 24, a net credit loss provision release of £0.3m (H1 23: £2.5m
charge) was reported on the loan notes held in Portals International Limited
where an unexpected cash repayment was received on the loan notes from Portals
International Limited during the period.
Tax related to exceptional items amounted to a £4.1m tax credit (H1 23: tax
charge of £6.7m). Included within exceptional tax items is a tax credit of
£2.1m relating to the release of a provision in relation to uncertain tax
positions. This relates to the expiry of an indemnity period in May 2023,
following the Cash Processing Solutions Limited business sale in May 2016.
The cash flow impact of exceptional items in H1 24 was a £14.6m outflow (H1
23: £0.9m outflow) which included the final £7.5m payments to Portals Paper
Limited, £4.7m relating to site relocation and restructuring costs, £2.5m of
costs associated with pension payment deferment and banking refinancing and
£0.2m relating to pension underpin costs, offset by the £0.3m received in
relation to Portals Loan notes (other financial assets).
Finance charge
The Group's net interest charge was £13.4m (H1 23: £3.3m). This included
interest income of £0.1m (H1 23: £0.6m), interest expense of £12.2m (H1 23:
£4.4m) and retirement benefit finance expense of £1.3m (H1 23: income of
£0.5m).
Interest income of £0.1m (H1 23: £0.6m) included interest accrued on loan
notes and preference shares held in the Portals International Limited Group of
£nil (H1 23: £0.5m). Interest receivable on loan notes and preference shares
is excluded from the Group's covenant calculations.
Interest expense comprised:
H1 24 H1 23
£m £m
Bank loan interest 5.9 3.0
Lease liability interest 0.2 0.3
Charges relating to June 2023 debt modification 3.8 -
Other, including amortisation of finance arrangement fees 2.3 1.1
12.2 4.4
The increase in bank loan interest paid in H1 24 was largely attributable to
the rises in Bank of England base rates. In H1 24 these moved from 4.25% to
5.25% over the period. By comparison in H1 23 these moved from 0.75% to 2.25%.
The net charges relating to the debt modification of £3.8m (H1 23: £nil)
relate to the changes in existing banking facilities, treated as a
non-substantial modification under IFRS 9 'Financial Instruments'. The
modification loss and its subsequent amortisation are non-cash items. See note
4 for further information.
The IAS 19 related finance cost, which represents the difference between the
interest on pension liabilities and assets, was an expense of £1.3m (H1 23:
£0.5m income). The charge in the period was due to the opening IAS 19 pension
valuation in being a deficit of £54.7m.
Taxation
The total tax credit in respect of continuing operations for the first half
was £5.6m (H1 23: tax charge £7.9m) and comprised:
- £1.4m credit (H1 23: £1.3m charge) on adjusted loss after interest
expense;
- £0.1m credit (H1 23: £0.1m credit) on the amortisation of acquired
intangibles; and
- £4.1m credit (H1 23: £6.7m charge) on exceptional items, which is
described in more detail in under 'Exceptional items' above.
Earnings per share
The basic weighted average number of shares for earnings per share ('EPS')
purposes was 195.6m (H1 23: 195.3m).
Adjusted basic loss per share was (2.6)p (H1 23: EPS of 2.0p), reflecting the
fall in adjusted basic earnings from £3.9m in H1 23 to a loss of £5.1m in H1
24.
IFRS basic loss per share from continuing operations was 6.2p (H1 23: 12.6p)
reflecting a basic loss of £12.2m (H1 23: loss of £24.6m).
Cash flow
The conservation and generation of cash within the business has been an area
of stringent focus over the period. Net working capital improved by £11.5m as
we concentrated on reducing inventory levels and on prompt payment from our
customers. We reduced our net capital expenditure outflow in Malta by seeking
timely receipt of associated grant income and kept careful control over
software development spend. This focus on strong cash control is continuing in
the second half.
More detail on the movements within our cash flows for the period are set out
below.
Cash flow from operating activities was a net cash inflow of £15.4m (H1 23:
£2.8m outflow), generated after adjusting the £16.8m loss before tax (H1 23:
£15.7m loss) for:
- £13.4m of net finance expense (H1 23: £4.0m)
- £9.0m of depreciation and amortisation (H1 23: £9.7m)
- £4.4m of asset impairment (H1 23: £nil)
- £2.8m decrease in provisions (H1 23: £0.7m decrease)
- £11.5m net working capital inflow (H1 23: £6.2m inflow) including:
o £9.6m decrease in inventory (H1 23: £2.5m increase);
o £20.8m decrease in trade and other receivable and contract assets (H1 23:
£10.8m increase) mainly due to timing of cash collections on certain material
customer contracts; and
o £18.9m decrease in trade and other payables and contract liabilities (H1
23: £19.5m increase), due to the timing of supplier payments and the final
payment in relation to the Portals termination agreement, paid just after the
FY23 period end.
- tax payments of £1.2m (H1 23: £0.3m).
The cash outflow from investing activities of £2.2m (H1 23: £7.4m outflow)
included:
- capital expenditure on property, plant and equipment, after cash
receipts from grants, of £0.8m (H1 23: £2.5m), largely relating to the
construction of our expanded facility in Malta.
- capital expenditure on software intangibles and development assets
of £2.1m (H1 23: £5.3m).
- proceeds of £0.3m received from the partial settlement of Portals
Loan notes.
The cash outflow from financing activities was £19.6m (H1 23: inflow
£11.0m), included:
- £7.0m net repayment of borrowings (H1 23: draw down of £16.5m),
- £8.3m (H1 23: £4.4m) of interest payments,
- £3.0m (H1 23: £nil) of debt issue cost payments relating to the
amendment of the banking facilities in June 2023, and
- £1.3m (H1 23: £1.1m) of IFRS 16 lease liability payments.
The net decrease in cash and cash equivalents in the period was £6.4m (H1 23:
£0.8 increase).
As a result of the cash flow items referred to, Group net debt decreased from
£82.4m at 25 March 2023 to £82.0m at 30 September 2023.
Net debt
The analysis below provides a reconciliation between the opening and closing
positions for liabilities arising from financing activities together with
movements in cash and cash equivalents:
At 25 Cash Foreign exchange and other At 30 September 2023
March flow
2023
£m £m £m £m
Gross Borrowings (122.7) 7.0 - (115.7)
Cash and cash equivalents 40.3 (6.4) (0.2) 33.7
Net debt (82.4) 0.6 (0.2) (82.0)
Net debt is presented excluding unamortised pre-paid borrowing fees of £4.7m
(FY23: £5.0m), loss on debt modification of £4.5m (FY23: £0.7m) and £12.2m
(FY23: £13.3m) of lease liabilities.
Banking facilities
On 29 June 2023 the Company signed a range 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' agents and
security agent, a debenture between the Company, certain other Group companies
and the banks' security agent and 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.
Under the June amendment and restatement agreement, the banking facilities
expiration on the 1 January 2025 remained unchanged, whilst there were also
changes to:
- margins: with new interest rates introduced for net debt to EBITDA
ratios over 2.5.
- changes in daily interest rates: to SONIA daily rates.
The following changes were made to the Group covenant financial covenants and
spread levels from 1 July 2023:
- 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 that agreement, namely 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 was defined as "available cash and undrawn RCF greater than or equal
to £25m", although this reduced to £20m if £5m or more of cash collateral
was 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
The covenant tests use earlier accounting standards, excluding adjustments for
IFRS 16. Net debt for covenants excludes unamortised pre-paid borrowing fees
and the net loss on debt modification.
Covenant test results as at 30 September 2023:
Test Requirement Actual at 30 September 2023
EBIT to net interest payable More than or equal to 1.0 2.16
Net debt to EBITDA Less than or equal to 4.0 2.38
Minimum liquidity at 30 September 2023 was in excess of the £25m limit
required under the covenant tests.
As explained above under 'Finance charges', the June 2023 change in existing
banking facilities is treated as a non-substantial modification under IFRS 9
'Financial Instruments'.
At 30 September 2023 the Group had Bank facilities of £250.0m (FY23:
£275.0m) including an RCF cash drawn component of up to £175.0m (FY23:
£175.0m) and bond and guarantee facilities of a maximum of £75.0m (FY23:
£100.0m), which were due to mature on 1 January 2025.
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.
At 30 September 2023, the Group had a total of undrawn RCF committed borrowing
facilities, all maturing in more than one year, of £60.0m (25 March 2023:
£53.0m, all maturing in more than one year). The amount of loans drawn on the
£175.0m RCF cash component was £115.0m as at 30 September 2023 (25 March
2023: £112.0m). The accrued interest in relation to cash drawdowns
outstanding as at 30 September 2023 was £0.4m (25 March 2023: £0.3m).
Guarantees of £46.0m (26 March 2023: £52.1m) were drawn at 30 September 2023
using the £75.0m guarantee facility. The bond and guarantee facilities
provide 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.
On 18 December 2023 the Group entered into a new agreement with its banking
syndicate to extend its banking facilities to July 2025. From this date the
Group will have Bank facilities of £235m including an RCF cash drawn
component of up to £160m (a reduction of £15m) and bond and guarantee
facilities of a maximum of £75m. The covenant tests described above will
continue to apply to the facilities, other than the liquidity covenant where
the minimum headroom is now defined as "available cash and undrawn RCF greater
than or equal to £10m", to reflect the £15m reduction in RCF. In addition an
arrangement fee is due, equal to 1% of the facility, which will reduce to 0.5%
if the facility is refinanced before 30 June 2024.
Pension scheme
The Company has not paid any deficit repair contributions to the Scheme over
the period to 30 September 2023. On 3 April 2023, the Company and the Trustee
agreed to defer the deficit repair contribution due, payable on 5 April 2023,
to 26 May 2023. Subsequently, on 25 May 2023 the Company and the Trustee
agreed to defer the deficit contribution due on 26 May 2023 to 5 July 2023. In
June 2023, the Company and the Trustee agreed to defer all the deficit repair
contributions due to recommence from 5 July 2023 and a new Recovery Plan was
then agreed between the Company and the Trustee which deferred all deficit
repair contributions until July 2024. Under the Recovery Plan, the amount
deferred, totalling £18.75m, would be paid to the Scheme, from FY26 to FY29.
An actuarial valuation of the Scheme has been undertaken as at 30 September
2023. This showed a Scheme deficit of £78m. As a result of this new
valuation, on 18 December 2023, the Company and the Scheme Trustee agreed a
new schedule to fund the deficit. The funding moratorium until July 2024 as
previously agreed will be retained, with the only payment being £1.25m due
under the June 2023 Recovery Plan. This will be followed by deficit repair
contributions from the Company of £8m per annum to the end of FY27, followed
by higher contributions that at no time exceed £16m per annum and which run
until December 2030 or until the Scheme becomes fully funded.
The next periodic actuarial valuation will be as at the end of September 2026,
with the Scheme Trustee undertaking to provide the results of this valuation
by January 2027, ahead of any increase in contribution from £8m per annum.
The valuation of the Scheme on an IAS 19 basis at 30 September 2023 is a net
liability of £60.5m (25 March 2023: net liability of £54.7m).
The charge to the adjusted operating profit in respect of the Scheme in the
period was £0.6m (H1 23: £0.8m). Under IAS 19 there was a finance charge of
£1.3m (H1 23: finance credit of £0.5m) arising from the difference between
the interest cost on liabilities and the interest income on scheme assets.
Capital structure
At 30 September 2023 the Group had net assets of £4.2m (25 March 2023:
£22.6m restated).
In the prior period (FY23) deferred tax assets were incorrectly reported,
being overstated by £12.4m. This has had an impact in the second half of FY23
only and has no impact on H1 23 or earlier reported periods. Neither does it
have any cash impact on the Group.
The prior year revision is a technical accounting point whereby the Company
has incorrectly treated a taxable timing difference as a permanent timing
difference, the error is in relation to external interest expense which is
restricted to 30% of EBITDA. The company has claimed, and intends to continue
to claim and carry forward, the amounts arising from the interest restriction
for use against future profits.
Further information can be found in the Basis of Preparation section below.
The movement during the period included:
£m
Opening net assets - 25 March 2023 - as reported 35.0
Prior year revision (12.4)
Opening net assets - 25 March 2023 - restated 22.6
Loss for the period (11.2)
Remeasurement loss on retirement benefit obligations (4.5)
Tax related to remeasurement of net defined benefit liability (1.7)
Other movements in other comprehensive income (1.0)
Foreign exchange movements (1.1)
Employee share scheme charges 0.8
Share capital issued 0.3
Closing net assets - 30 September 2023 4.2
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 and
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 and updated at least
quarterly. Currently we expect the key risks for the remaining six months of
the financial year to include:
- bribery and corruption;
- quality management and delivery failure;
- macroeconomic and geo-political environment;
- loss of a key site or process;
- sustainability and climate change;
- loss of key talent;
- breach of information security;
- supply chain failure;
- breach of security - product security;
- sanctions; and
- banking facilities.
The principal risks remain in line with the Annual Report and Accounts for
FY23, however, the Group continues to monitor and work to mitigate headwinds
in commodity and energy costs and challenges in the supply chain.
The Group has not experienced any specific impact from the war in Ukraine and
the Israel-Hamas war, other than the global economic conditions.
Going concern
Going concern assessments are included with the Basis of Preparation section
of these Interim Financial Statements. These Interim Financial Statements do
not contain the adjustments that would result if the company was unable to
continue as a going concern.
A copy of the 2023 Annual Report is available at www.delarue.com
(http://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 first
six months of the current financial year are provided in note 12 to the
Condensed Consolidated Interim 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 the first six months
of the financial year in the related party transactions described in the last
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 Condensed Consolidated Interim Financial Statements, which have
been prepared in accordance with UK adopted IAS 34 'Interim Financial
Reporting', give a true and fair view of the assets, liabilities, financial
position and profit of the Company and the undertakings included in the
consolidation as a whole;
- the interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the Condensed Consolidated Interim
Financial Statements; and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes during the first
six months of the financial year in the related party transactions described
in the last annual report that could materially affect the financial position
or performance of the entity.
The Board of Directors of De La Rue plc at 25 March 2023 and their respective
responsibilities can be found on pages 72 and 73 of the De La Rue plc Annual
Report 2023. Since the year end there have been the following changes to the
Board:
- Kevin Loosemore, Non-Executive Chairman resigned - 1 May 2023
- Clive Whiley, Non-Executive Chairman appointed - 18 May 2023
- Catherine Ashton, Independent Non-Executive Director resigned - 12
June 2023
- Dean Moore, Independent Non-Executive Director appointed - 26 June
2023 and as Interim Chief Financial Officer - 4 August 2023
- Rob Harding, Chief Financial Officer resigned - 28 July 2023
- Margaret Rice-Jones, Independent Non-Executive Director resigned - 7
September 2023
- Brian Small, Independent Non-Executive Director appointed - 8
September 2023
For and on behalf of the Board
Clive Whiley
Chairman
19 December 2023
INDEPENDENT REVIEW REPORT TO DE LA RUE PLC
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2023 which comprises the Group condensed consolidated interim income
statement, the Group condensed consolidated interim statement of comprehensive
income/(loss), the Group condensed consolidated interim balance sheet, the
Group condensed consolidated interim statement of changes in equity, the Group
condensed consolidated interim statement of cash flows, and the notes to the
condensed consolidated interim financial statements. We have read the other
information contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern (including the
material uncertainty set out in Note 1) and using the going concern basis of
accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Reading
19 December 2023
GROUP CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT - UNAUDITED
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2023
H1 24 H1 23
Note £m £m
Revenue from customer contracts 2 161.5 164.3
Cost of sales (121.3) (122.5)
Gross Profit 40.2 41.8
Adjusted operating expenses (32.3) (32.5)
Adjusted operating profit 7.9 9.3
Adjusted items(1):
- Amortisation of acquired intangible assets (0.5) (0.5)
- Net exceptional items - expected credit loss 3 0.3 (2.5)
- Net exceptional items 3 (11.1) (18.9)
- Net exceptional items - Total 3 (10.8) (21.4)
Operating loss (3.4) (12.6)
Interest income 0.1 0.6
Interest expense (12.2) (4.4)
Net retirement benefit obligation finance (charge)/income (1.3) 0.5
Net finance expense 4 (13.4) (3.3)
Loss before taxation from continuing operations (16.8) (15.9)
Taxation 5 5.6 (7.9)
Loss for the period from continuing operations (11.2) (23.8)
Profit from discontinued operations - 0.2
Loss for the period (11.2) (23.6)
Attributable to:
- Owners of the parent (12.2) (24.4)
- Non-controlling interests 11 1.0 0.8
Loss for the period (11.2) (23.6)
Earnings per ordinary share
Basic
Basic EPS continuing operations 6 (6.2)p (12.6)p
Basic EPS discontinued operations 6 - 0.1p
Total Basic earnings per share 6 (6.2)p (12.5)p
Diluted
Diluted EPS continuing operations 6 (6.2)p (12.6)p
Diluted EPS discontinued operations 6 - 0.1p
Total Diluted earnings per share 6 (6.2)p (12.5)p
(1) For adjusting items, the cash flow impact of exceptional items can be
found in note 3 and there was no cash flow impact for the amortisation of
acquired intangible assets.
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
- UNAUDITED
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2023
H1 24 H1 23
£m £m
Loss for the financial period (11.2) (23.6)
Other comprehensive (expense)/income:
Items that are not reclassified subsequently to income statement:
Re-measurement losses on retirement benefit obligations (note 9) (4.5) (74.0)
Tax related to remeasurement of net defined benefit liability (1.7) 16.9
(6.2) (57.1)
Items that may be reclassified subsequently to income statement:
Foreign currency translation difference for foreign operations (1.8) 7.0
Foreign currency translation difference for foreign operations - 0.7 0.6
non-controlling interests
Change in fair value of cash flow hedges (1.2) (1.9)
Change in fair value of cash flow hedges transferred to income statement (0.1) 0.8
Tax related to cash flow hedge movements 0.3 0.4
(1.0) (0.7)
Other comprehensive loss for the period, net of tax (8.3) (50.2)
Total comprehensive loss for the period (19.5) (73.8)
Total comprehensive income/(loss) for the period attributable to:
Equity shareholders of the Company (20.1) (75.2)
Non-controlling interests 0.6 1.4
(19.5) (73.8)
GROUP CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
AT 30 SEPTEMBER 2023
H1 24 FY23
(unaudited) (audited)
Note restated*
£m £m
ASSETS
Non-current assets
Property, plant and equipment 87.4 97.1
Intangible assets 38.4 39.3
Right-of use assets 11.1 12.1
Deferred tax assets 7.5 5.9
144.4 154.4
Current assets
Inventories 39.9 49.3
Trade and other receivables 58.9 70.7
Contract assets 13.9 18.9
Current tax assets - 0.2
Derivative financial instruments 7 1.2 2.4
Cash and cash equivalents 33.7 40.3
147.6 181.8
Total assets 292.0 336.2
LIABILITIES
Current liabilities
Trade and other payables (70.8) (92.1)
Current tax liabilities (19.2) (23.2)
Derivative financial liabilities 7 (2.6) (1.9)
Lease liabilities (3.0) (3.0)
Provisions for liabilities and charges 10 (3.2) (6.0)
(98.8) (126.2)
Non-current liabilities
Borrowings (115.5) (118.4)
Retirement benefit obligations 9 (60.5) (54.7)
Deferred tax liabilities (2.6) (2.8)
Lease liabilities (9.2) (10.3)
Other non-current liabilities (1.2) (1.2)
(189.0) (187.4)
Total liabilities (287.8) (313.6)
Net assets 4.2 22.6
EQUITY
Share capital 89.0 88.8
Share premium account 42.3 42.2
Capital redemption reserve 5.9 5.9
Hedge reserve (0.9) 0.1
Cumulative translation adjustment 7.4 9.2
Other reserves (83.8) (83.8)
Retained earnings (73.3) (55.7)
Total equity attributable to shareholders of the Company (13.4) 6.7
Non-controlling interests 11 17.6 15.9
Total Equity 4.2 22.6
*The Group Consolidated Balance Sheet for FY23 has been restated as described
in the Basis of preparation below.
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY -
UNAUDITED
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2023
Attributable to equity shareholders Non- Total
controlling equity
interests
Share Share Capital Hedge Cumulative Other Retained
capital premium redemption reserve translation reserves reserves
account reserve adjustment
£m £m £m £m £m £m £m £m £m
Balance at 26 March 2022 88.8 42.2 5.9 (0.5) 4.2 (31.9) 35.1 18.0 161.8
(Loss)/profit for the period - - - - - - (24.4) 0.8 (23.6)
Other comprehensive income for the period, net of tax
- - - (0.7) 7.0 - (57.1) 0.6 (50.2)
Total comprehensive income - - - (0.7) 7.0 - (81.5) 1.4 (73.8)
Transactions with owners of the Company recognised directly in equity:
Employee share scheme - value of services provided - - - - - - 1.0 - 1.0
Share capital issued - 0.1 - - - - - - 0.1
Other - unclaimed dividends - - - - - - 0.3 - 0.3
Balance at 24 September 2022 88.8 42.3 5.9 (1.2) 11.2 (31.9) (45.1) 19.4 89.4
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 period - - - - - - (55.9) (1.3) (57.2)
Other comprehensive income for the year, net of tax - as reported
- - - 0.6 5.0 - (76.2) - (70.6)
Prior year revision - - - - - - (12.4) - (12.4)
Other comprehensive income for the year, net of tax - restated - - - 0.6 5.0 - (88.6) - (83.0)
Total comprehensive income - - - 0.6 5.0 - (144.5) (1.3) (140.2)
Reclassification between reserves - - - - - (51.9) 51.9 - -
Transactions with owners of the Company recognised directly in equity:
Employee share scheme - value of services 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) (55.7) 15.9 22.6
(Loss)/profit for the period - - - - - - (12.2) 1.0 (11.2)
Other comprehensive income for the period, net of tax
- - - (1.0) (1.8) - (6.2) 0.7 (8.3)
Total comprehensive income - - - (1.0) (1.8) - (18.4) 1.7 (19.5)
Transactions with owners of the Company recognised directly in equity:
Employee share scheme - value of services provided - - - - - - 0.8 - 0.8
Share capital issued 0.2 0.1 - - - - - - 0.3
Balance at 30 September 2023 89.0 42.3 5.9 (0.9) 7.4 (83.8) (73.3) 17.6 4.2
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
(Continued) - UNAUDITED
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2023
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 £103.7m 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 £83.8m 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 £100m, 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 £100m). 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 £51.9m was recorded, increasing other reserves from a
deficit of £83.8m to a deficit of £31.9m. 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 (£40.8m) 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 were loaned via intercompany account to a
subsidiary company to enable a substantial repayment of the RCF, the increase
to other reserves of £51.9m was treated as an unrealised profit. In the year
ended 25 March 2023, the Company 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 this basis, the
£51.9m 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.
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS - UNAUDITED
FOR THE HALF YEAR ENDED 30 SEPTEMBER 2023
H1 24 H1 23
£m £m
Cash flows from operating activities
Loss before tax - continuing operations (16.8) (15.9)
Profit before tax - discontinued operations - 0.2
Loss before tax - total (16.8) (15.7)
Adjustments for:
Finance income and expenses 13.4 4.0
Depreciation of property, plant and equipment 5.1 6.0
Depreciation of right-of-use assets 1.1 1.2
Amortisation of intangible assets 2.8 2.5
Gain on sale of property, plant and equipment - (0.2)
Impairment of property, plant and equipment and intangible assets and
accelerated depreciation charges (note 3)
4.4 -
Share-based payment expense 0.8 1.1
Pension Recovery Plan and administration cost payments(1) (0.9) (8.4)
Decrease in provisions (note 10) (2.8) (0.7)
Non-cash credit loss provision - other financial assets - 2.5
Non-cash credit loss provision - other - -
Other non-cash movements (2.0) (1.0)
Cash generated from/(used in) operations before working capital 5.1 (8.7)
Changes in working capital:
Decrease/(increase) in inventory 9.6 (2.5)
Decrease/(increase) in trade and other receivables and contract assets 20.8 (10.8)
(Decrease)/increase in trade and other payables(2) (18.9) 19.5
11.5 6.2
Cash generated from/(used in) from operating activities 16.6 (2.5)
Net tax paid (1.2) (0.3)
Net cash flows from operating activities 15.4 (2.8)
Cash flows from investing activities:
Purchases of property, plant and equipment - gross (6.0) (5.9)
Purchases of property, plant and equipment - grants received 5.2 3.4
Purchase of software intangibles and development assets capitalised (2.1) (5.3)
Proceeds from the sale of property, plant and equipment 0.2 0.4
Proceeds from other financial assets 0.3 -
Interest received 0.2 -
Net cash flows from investing activities (2.2) (7.4)
Net cash flows before financing activities 13.2 (10.2)
Cash flows from financing activities:
Net (repayment)/draw down of borrowings (7.0) 16.5
Payment of debt issue costs (3.0) -
Lease liability payments (1.3) (1.1)
Interest paid (8.3) (4.4)
Net cash flows from financing activities (19.6) 11.0
Net (decrease)/increase in cash and cash equivalent in the period (6.4) 0.8
Cash and cash equivalents at the beginning of the period 40.3 24.3
Exchange rate effects (0.2) 0.6
Cash and cash equivalents at the end of the period 33.7 25.7
Cash and cash equivalents consist of:
Cash at bank and in hand 33.7 25.7
( )
(1) H1 24 - the £0.9m (H1 23: £8.4m) of pension payments includes £nil (H1
23: £7.5m) payable under the Recovery Plan (note 9) and a further £0.9m (H1
23: £0.9m) relating to payments made by the Group towards the administration
costs of running the scheme.
(2) H1 23 included a £16.7m movement in accruals relating to the termination
of the Portals Relationship Agreement (note 3).
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS - UNAUDITED
1 Corporate information, basis of preparation and change to the Group's
accounting policies
Corporate Information
De La Rue plc is a public limited company, incorporated and domiciled in the
UK, whose shares are publicly traded. The registered office is located at De
La Rue House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.The 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.
These unaudited Condensed Consolidated Interim Financial Statements of De La
Rue plc and its subsidiaries ("Group") for the half-year ended 30 September
2023 were authorised for issue in accordance with a resolution of the
Directors on 19 December 2023.
These Condensed Consolidated Interim Financial Statements do not comprise
statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 25 March 2023 were approved by the
Board of Directors on 29 June 2023 and delivered to the Registrar of
Companies. The auditor has reported on the 25 March 2023 accounts; their
report was (i) unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section498 (2) or (3) of
the Companies Act 2006.
Basis of preparation
These Condensed Consolidated Interim Financial Statements for the half-year
ended 30 September 2023 have been prepared in accordance with IAS 34, "Interim
Financial Reporting" as adopted for use in the UK and should be read in
conjunction with the Annual Report and Accounts for the year ended 25 March
2023. They do not include all the information required for a complete set of
financial statements prepared in accordance with UK-International Financial
Reporting Standards. However, selected explanatory notes are included to
explain events and transactions that are significant to an understanding of
the changes in the Group's financial position and performance since the last
annual financial statements.
The annual financial statements of the Group for the year ending 30 March 2024
will be prepared in accordance with UK-adopted International Accounting
Standards ('IFRS') in accordance with the requirements of the Companies Act
2006.
Consolidated Statement of Financial Position - Prior Year Revision
In the prior period (FY23) deferred tax assets of £18.3m were incorrectly
reported. This has had an impact on H2 FY23 only and has no impact on H1 23 or
earlier reported periods.
Deferred tax assets relating to the UK Group entities were overstated by
£12.4m. This was due to an error in the forecast taxable profits used for the
purposes of calculating the UK deferred tax assets that could be recognised in
accordance with IAS 12. Specifically, forecast corporate interest restrictions
were incorrectly included within the forecast taxable profits used for
deferred tax asset recognition purposes. Under IAS 12, when assessing tax
forecasts, taxable amounts that arise from deductible temporary differences
that are expected to originate in future periods should be ignored. Even
though the corporate interest restrictions are not expected to reverse for the
foreseeable future, they are strictly a timing difference for tax purposes, so
they should not have been included in the taxable profits used for the
purposes of deferred tax asset recognition.
The adjustment has been disclosed as a restatement to the tax related to
remeasurement of net defined benefit pension liability within Other
Comprehensive Income as it relates to deferred tax assets arising from the
pension deficit balance and tax losses arising from pension deficit
contribution payments.
This adjustment concerns the recognition of deferred tax assets for accounting
purposes only and has no impact on the underlying tax attributes of the Group.
Impact on the Group Consolidated Interim Balance Sheet
FY23 Prior year FY23
As reported revision Restated
£m £m £m
Deferred Tax Asset 18.3 (12.4) 5.9
Net assets 35.0 (12.4) 22.6
Retained earnings (43.3) (12.4) (55.7)
Impact on the Group Condensed Consolidated Interim Statement of Comprehensive
Income/(Loss) in FY23:
FY23 Prior year revision FY23
As reported £m Restated
£m £m
Other comprehensive (expense)/income:
Tax related to remeasurement of net defined benefit liability 24.2 (12.4) 11.8
Total comprehensive loss for the period (127.8) (12.4) (140.2)
Impact on the Group Condensed Consolidated Interim Statement of Changes in
Equity in FY23:
Total equity
£m
Balance at 26 March 2022 161.8
Loss for the year (57.2)
Other comprehensive income/(loss) for the year - as reported (70.6)
Prior year revision (12.4)
Other comprehensive income/(loss) for the year - restated (83.0)
Total comprehensive income for the year (140.2)
Transactions with Owners of the Company recognised directly in equity
Employee share Scheme - value of service provided 1.9
Tax on income and expenses recognised directly in equity (0.5)
Dividends Paid (0.8)
Other - unclaimed dividends 0.4
Balance at 25 March 2023 22.6
Going concern
Background and relevant facts
In line with IAS 1 "Presentation of financial statements", and the FRC
guidance on "risk management, internal control and related financial and
business reporting", when assessing the Group's ability to continue as a going
concern, the Directors have taken into account all available information for a
period up to 28 December 2024, being the Going Concern period.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out on pages 1 to 10
of the Strategic Report in the FY23 Annual Report. In addition, pages 56 to 63
include the Group's objectives, policies and processes. There have been no
material changes in overall strategy to that disclosed in the 2023 Annual
Report.
Extension of banking facilities
On 18 December 2023, the Group successfully extended its existing banking
facilities by six months to 1 July 2025.
Under this extension, the Group now has access to banking facilities of £235m
(down from £250m) including a Revolving Credit Facility (RCF) cash drawdown
component of up to £160.0m (down from £175m) and bond and guarantee
facilities of £75m, with a new maturity date of 1 July 2025. The reduction
in the RCF has been offset by a corresponding reduction in the existing
minimum liquidity covenant, from £25m to £10m. There were no other changes
to financial covenants or spread rates. as disclosed within "Accounting
Policies" in the Annual Report and Accounts for the year ended 25 March 2023.
There have been no new non-financial conditions imposed on the company that
are outside the company's control.
Covenants testing
The continued access to borrowing facilities described above is subject to
quarterly covenant tests which look back over a rolling 12-month period. In
addition, there is 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 £10m".
In each covenant test to date in FY24 the Group has met its covenant ratios on
the historical covenant quarterly levels as well as the historic and
forward-looking minimum liquidity tests.
The terms under the facility agreement signed in June 2023, included
consideration of future options for the group, provision of further
non-financial deliverables and milestones that the banks have monitored, and
were delivered in line with agreed deliverable dates from all parties.
The covenant terms remain:
· EBIT/net interest payable more than or equal to 1.0
times.
· 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 going concern period.
· Minimum Liquidity testing monthly, testing at each
week-end point on a four-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 £10m".
In order to determine the appropriate basis of preparation for the interim
financial statements for the period ended 30 September 2023, the Directors
must consider whether the Group can continue in operational existence for the
going concern review period to 28 December 2024, taking into account the above
liquidity headroom and covenant tests.
Testing assumptions and headroom level
The Group has prepared and reviewed profit and cashflow forecasts which cover
a period up to 28 December 2024 (Q3 FY25), being the going concern period, and
this includes the following quarters: Q3, Q4 FY24 and Q1, Q2 and Q3 FY25 as
well as monthly liquidity testing points over the period.
Management's assessment is that a period of at least 12 months to 28 December
2024 is an appropriate going concern period, given this is the first quarterly
covenant test which is greater than 12 months from the opinion date, and
because the Group have access to financing facilities through to at least 1
July 2025, at which point management have concluded there are reasonable
prospects of refinancing given ongoing support from their lenders.
Base case assumptions and headroom
The base case forecasts over the going concern period have been built taking
into consideration the timing of the Currency recovery that has been
materialising in the marketplace with order book growth and bid activity
showing positive signs of market recovery. In addition, renewals of key
Authentication contracts and annualization of contracts already won and
starting to produce in the current financial year aids confidence in the
strategic growth forecasted for that division into FY25.
The already enacted and largely completed footprint and restructuring projects
have right sized the business for the current demand. Any ramp up required
over the going concern period will be carefully managed in line with pipeline
capacity requirements and orders to avoid significant negative fluctuations
against base plans.
FY24 results to date indicate the Group is on-track to deliver the FY24
forecast from an EBIT and EBITDA perspective, with key orderbook wins secured
to deliver the in-year plan.
In Currency, the Group is seeing the beginning of the expected market
recovery. While the overall market remains unpredictable, our conversion rate
of bids to orders since the beginning of this financial year supports the base
strategic plan numbers.
The timing of tenders has been such that several significant orders have been
closed recently, which further supports the base case modelling within the
going concern period. At December 2023, the total order book stood at £219.8m
(25 March 2023: £136.8m) which supports the Currency market recovery seen as
the total order book has more than doubled since 30 September 2023 from
£105.4m.
The Group's base case modelling shows headroom on all covenant thresholds
across the going concern period.
Non-Financial milestones
In both the base and 'severe yet plausible' downside cases the Directors'
assessment of the non-financial terms remains consistent as all required
deliverables and monitoring milestones have been achieved through the going
concern period. A number of these terms were linked to an increase in monthly
monitoring with an increased obligation around information sharing with the
lenders and pension trustee, including monthly short-term cash flow (STCF)
submissions, and monthly progress updates. Management have proactively
implemented a bi-monthly 13-week cash flow process with the outturn of this
and monthly monitoring reports shared with the relevant stakeholders in line
with the amended terms from June 2023. Directors are confident that all of the
non-financial conditions and monthly monitoring will continue to be delivered
and are in the control of the Company.
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'
described on page 56 of the March 2023 annual report and the Directors note
there are no new matters which present additional 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.
• Cost inflation in the Base Case is assumed at 2.5% from FY25
onwards for UK and Malta, with revenue inflated at 50% of cost inflation
assumption. The downside modelling includes an increase in the cost inflation
rate for FY25 to be in line with the assumed base interest rate of 5.25% and
no change in revenues assumed.
• Supply chain risks are monitored regularly by the company.
Fixed price contracts are in place for utilities until September 2024 (i.e. Q2
FY25). Inflation has also already been factored in for the Base Case, as well
as an inflation related downside risk in the severe yet plausible downside
scenario, and therefore the downside risk modelled is appropriate.
Risk 10 Banking Facilities
· The Group will be paying an interest rate on its facilities
of approximately 9% based on the current SONIA rate of 5.25% and the
applicable margin. Based on the Base Case and Severe yet Plausible modelling
in FY24, the underlying SONIA rate would need to increase in excess of 2.5% to
trigger a breach in the interest covenant. Management have assessed this risk
as remote given that the current SONIA rate applicable is 5.25% and this would
need to apply for the entire going concern period. The Board have also
considered current and future market conditions to determine the risk of rate
increases beyond that level above is remote.
Risk 11 Kenya taxation and exit strategy
· Cash outflow assumed over and above the base case,
which includes acceleration of amounts to finalise in country settlements.
Risk 13 Currency pipeline
· Volumes and budget margins are not achieved as
forecasted in the going concern period, including revenue contracts not
landing and volume reductions against base plan. This represents a margin
reduction of £7.9m (15%) of total Currency margin over 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 a result of the liquidity testing requirement, the Directors also
considered historical monthly working capital swings over the last three
years. This analysis also included assessing periods where management's
conclusion was that a "material uncertainty" over going concern existed,
specifically between November 2022 and June 2023. Management also analysed
weekly cash outflow averages to ensure that adequate considerations have been
made to capture 'in quarter' working capital swings that the Group has
experienced given the volatility of working capital in the Currency business
in particular. A £15m working capital outflow, excluding non-recurring items,
was incorporated into a severe yet plausible downside to apply monthly to
liquidity testing.
The Directors noted that working capital and cash management have improved in
the business over the course of Q2 FY24, resulting in a reduction in our net
debt guidance for FY24 of £5m. The Base Case and working capital stress
modelling have not been updated to reflect these improvements which means
there are additional mitigations with regards to net debt and liquidity that
the company has at its disposal for quarterly testing dates should they be
required.
Company modelling (including taking into account working capital swings and
potential cash collateral requirements) shows headroom to the covenant
liquidity requirement throughout the going concern period, with controllable
mitigations that could be applied.
The level of reduction that would be required to breach the liquidity covenant
is considered to be remote by management, given the controllable mitigations
available.
If all of these modelled downside risks were to materialise in the Going
Concern period, the Group would still meet its required covenant ratios, after
taking into account mitigating actions, such as identified cost saving
opportunities which the Directors consider to be within the Group's control.
Stress-Testing
Under the severe yet plausible downside modelling, EBIT and EBITDA would need
to drop in the going concern period in excess of our historic forecasting
inaccuracy over the last few years for any breach to occur. On liquidity this
would need to drop in the going concern period by in excess of what the
company has experienced over the last few years (taking into account the
largest recurring monthly working capital movements), and from the lowest
point modelled in the going concern period, for any breach to occur. This is
taking into account mitigating actions within management's control.
Management have concluded that a breach is remote on the financial covenants
given:
· Trading to date, along with net debt and liquidity is
in line with the forecast indicating the Group is on-track to deliver the FY24
budget with market guidance maintained.
· Management considers that given the longer-term and
consistent nature of its Authentication contracts, the key revenue and the
corresponding EBIT/EBITDA risk is mainly in regard to the Currency division
whereby the timing of contract wins and delivery of the current orderbook in
line with the strategy has historically impacted performance against forecasts
in previous periods. The Currency order book is showing encouraging signs of
recovery, with win rates high and a number of substantial new tenders actively
underway, and key orders secured for FY24 and early FY25 forecast.
· Liquidity severe stress testing excluded mitigating
actions that management could employ and still showed headroom under stress.
Management considers the liquidity risk to be low given the current trading
performance and orderbook profile.
· Additionally, the Group is currently paying an interest
rate on its facilities of approximately 9% based on the current SONIA rate of
over 5% and the applicable margin. As previously noted, the increase in
underlying SONIA rate required to breach covenants is deemed to be remote by
management.
· Management is comfortable that any non-financial
conditions and reporting requirements have been achieved and can be maintained
throughout the going concern period.
· The current revolving credit facility expires on 1 July
2025, which is beyond the end of the period reviewed for Going Concern
purposes. The Directors have assessed that the Group will either renew the
facility or have sufficient time to agree an alternative source of finance
within a suitable timeframe prior to the expiry date, as evidenced by the
continued engagement of the lenders in agreeing the extension to 1 July 2025.
Accordingly, the Directors are satisfied that the Group is well placed to
manage its business risks and to continue in operational existence for the
going concern period to 28 December 2024.
Conclusion
In assessing the appropriateness of applying the going concern basis in the
preparation of the Interim financial statements the Directors have considered
the Group's liquidity and forecast cash flows taking into account severe yet
plausible outcomes over the going concern period review to 28 December 2024.
As explained above, the severe yet plausible modelling shows 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. The Directors consider any
scenario in which the Company would exhaust available liquidity or would
breach covenants to be remote for the reasons detailed above. Combined with
the recent extension to the Group's banking facilities by six months to 1 July
2025, the Directors are satisfied that the application of the going concern
basis is appropriate and that no material uncertainty exists.
A copy of the FY23 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.
Critical estimates, assumptions and judgements
In preparing these Condensed Consolidated Interim Financial Statements, the
Group has made its best estimates and judgements of certain amounts included
in the financial statements, giving due consideration to materiality. The
Group regularly reviews these estimates and updates them as required. The
Group has reviewed its critical accounting estimates, assumptions and
judgements and identified no new critical accounting estimates, assumptions
and judgements in the period.
Critical accounting estimates, assumptions and judgements set out on pages 157
to 160 of the Group's Annual Report and Accounts for the year ended 25 March
2023. These remain relevant to these Condensed Consolidated Interim Financial
Statements, in addition to the updates disclosed below.
A Critical accounting judgements
1. 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. It was determined
that control exists only after the build is completed and site becomes
operational.
As per the agreement, there are three separate units with the different
start-up dates (one for Authentication and two for Currency). Therefore, the
lease will be recognised as these units become available for use. 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 24.
2. Accounting for the change in the terms of the banking facilities
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.
A quantitative assessment was carried out where the updated terms are
considered to have been substantially modified where the net present value of
the cash flows under the updated terms, including any fees paid and discounted
using the original Effective Interest rate ("EIR") differs by at least 10 per
cent from the present value of the remaining cash flows under the original
terms. Based on the procedure performed there was a net impact of 4.64%.
Therefore, there is no substantial modification on a quantitative basis.
A qualitative review was also undertaken where all the key changes in the
updated facility were assessed. Excluding, those that had quantitative
impacts, the other changes related to covenants. The changes to the covenant
tests are not considered substantial as they are amending previously agreed
limits with the exception of the minimum liquidity testing, which is a new
test. The minimum liquidity test is not considered to be substantial.
The change in existing banking facilities is treated as a non-substantial
modification under IFRS 9 "Financial Instruments", as the refinancing did not
result in an extinguishment of debt. The difference between the amortised cost
carrying amount of the previous terms of the facility and the present value of
the updated terms of the facility, discounted using the effective interest
rate, resulted in a modification loss.
The net loss on debt modification was £3.8m, including a loss on the debt
modification in June 2023 of £4.8m offset by the subsequent amortisation of
£1.0m (including £0.2m of amortisation of the loss on debt modification
recognised in FY23 of £0.9m).
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 £0.9m 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 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 £8.5m was required
which will fully impair these other financial assets. Management 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.
The provision accounted for the risk that the full amounts due are now
considered to be credit impaired. As a result no further interest receivable
has been recognised in the period.
On 21 July 2023, the Group received a payment of £290,000 from the Portals
International Limited Group in settlement of £227,000 of loan notes plus
interest of accrued £63,000. This repayment has been recorded as a credit
within exceptional items as the impairment in the prior periods were also
reported as exceptional.
Management has reassessed the recoverability of the remaining loan notes and
note that there have been no further changes that would amend its assessment
of their recoverability. Management noted 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) suspended bank note printing operations in the country. In addition,
operations in our Authentication division were wound down in the period. As a
result of the review of the business in Kenya an exceptional charge of £12.6m
was made in FY23, including redundancy charges of £5.5m, property, plant and
equipment asset impairments of £4.9m, inventory impairments of £2.0m and
other costs of £0.2m. There is not expected to be any recoverable value
relating to these assets.
During H1 24, a further £1.1m of property, plant and equipment asset
impairments were identified relating to assets held for refurbishment in the
UK which will no longer be sent to Kenya. This has been included within
exceptional items.
In addition, a further £3.3m of property, plant and equipment asset
impairments were identified relating to assets held in UK sites where the
carrying amount was not supported by the assets recoverable amount. This has
been included within exceptional items.
3. Determination of the incremental valuation date of certain fund
assets in the UK defined benefit pension scheme
The UK defined pension scheme assets are made up of a number of separate
funds. Valuations for these funds were available as at 30 September 2023 which
is co-terminus with the Group's interim reporting date.
4. 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. Note 5 Taxation contains further details
regarding changes to recognised deferred tax assets balances as at H1 24.
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 rulings
both in favour of the Group and also against the Group. The rulings are
subject to ongoing appeal processes. The Group has fully provided for these 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.
During H1 24, uncertain tax positions were reduced from £22m at FY23 to
£18m. £2.1m of the reduction related to the expiry of an indemnity period in
May 2023, following the Cash Processing Solutions Limited business sale in May
2016. The balance of £1.9m relates to favourable movements in exchange rates
for other provisions rather than a change to the underlying provided amounts.
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 30
September 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 20.0% 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 14.2% 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 30 September
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.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of these Condensed
Consolidated Interim Financial Statements to 30 September 2023 are consistent
with those applied by the Group in its consolidated financial statements as
at, and for the period ended, 25 March 2023, as required by the Disclosure
Guidance and Transparency Rules of the UK's Financial Conduct Authority.
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.
Several amendments apply for the first time in 2023, but do not have an impact
on these Condensed Consolidated Interim Financial Statements of the Group.
Effective for periods commencing after 1 January 2023:
- Amendments to IFRS 17 "Insurance Contracts" - The overall objective of
the standard is to provide an accounting model for insurance contracts that is
more useful and consistent for insurers.
- Amendments to IAS 1 "Presentation of financial statements" -
Disclosure of material accounting policy information - 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 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 12 "Income Taxes" - covering temporary timing
differences for deferred tax on the recognition of assets and liabilities from
a single transaction. For the FY24 Consolidated Financial Statements this is
expected to impact deferred tax balances for leases where a tax deduction
arises on the payment of lease liabilities rather than on asset deprecation.
Where applicable, deferred tax balances will be recognised on lease assets and
liabilities separately rather than on a net basis. This does not have an
impact on the disclosures within these Condensed Consolidated Interim
Financial Statements. There is no impact to the opening reserves or the
current period tax charge.
- Amendments to IAS 12 "International Tax Reform Pillar Two Model Rules,
including mandatory exception in IAS 12 from recognising and disclosing
deferred tax assets and liabilities related to Pillar Two income taxes. The
Pillar Two legislation is not expected to apply to the Group as the revenue
threshold is not expected to be met.
Effective for periods commencing after 1 January 2024:
- 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.
- 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 7 "Statement of Cash Flows" and IFRS 7 "Financial
Instruments: Disclosures" - Supplier Finance Arrangements, subject to UK
endorsement - The amendments specify disclosure requirements to enhance the
current requirements, which are intended to assist users of financial
statements in understanding the effects of supplier finance arrangements on an
entity's liabilities, cash flows and exposure to liquidity risk.
Effective for periods commencing after 1 January 2025, all subject to UK
endorsement:
- Amendments to IAS 21 "The effect of changes in foreign exchange rates"
- Lack of exchangeability - The amendment specifies how an entity should
assess whether a currency is exchangeable and how it should determine a spot
exchange rate when exchangeability is lacking.
2 Segmental analysis
The continuing operations of the Group have two main operating units: Currency
and Authentication.
In the prior period, H1 23, there were three main operating units being
Currency, Authentication and Identity Solutions. In H1 23, Identity Solutions
included minimal non-core activities and primarily related to sales under a
service agreement with HID Corporation Limited following the sale of the
International Identity Solutions business in October 2019. In H1 24 these had
ceased and will no longer be presented in future periods, resulting in
comparative data only being presented.
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 physical and digital solutions to
authenticate products through the supply chain and to provide tracking of
exercisable 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
Inter-segmental transactions are eliminated upon consolidation. There is no
history of seasonality or cyclability of interim operations.
The segment note is focused on the three divisions, which reflects what has
been reported to the Chief Operating Decision Maker and this is in line with
the commentary in the front half on the financial performance. The commentary
in the front half relating to the future strategy only refers to the Currency
and Authentication divisions.
Total of Continuing operations
Identity Solutions Unallocated
H1 24 Currency Authentication Central
£m £m £m £m £m
Total revenue from contracts with customers 113.4 48.1 - - 161.5
Less: Inter-segment revenue - - - - -
Revenue from contracts with customers 113.4 48.1 - - 161.5
Cost of sales (91.1) (30.2) - - (121.3)
Gross profit 22.3 17.9 - - 40.2
Adjusted operating expenses (20.9) (11.4) - - (32.3)
Adjusted operating profit 1.4 6.5 - - 7.9
Adjusted items:
- Amortisation of acquired intangible assets - (0.5) - - (0.5)
- Net exceptional items (6.9) (0.2) - (3.7) (10.8)
Operating (loss)/profit (5.5) 5.8 - (3.7) (3.4)
Interest income 0.1 - - - 0.1
Interest expense (0.4) (0.1) - (11.7) (12.2)
Net retirement obligation finance charge - - - (1.3) (1.3)
Net finance expense (0.3) (0.1) - (13.0) (13.4)
(Loss)/profit before taxation (5.8) 5.7 - (16.7) (16.8)
Capital expenditure on property, plant and equipment
(3.4) (2.6) - - (6.0)
Capital expenditure on intangible assets (0.5) (1.6) - - (2.1)
Impairment of property, plant and equipment (note 3) (4.4) - - - (4.4)
Depreciation of property, plant and equipment and right-of-use assets
(4.5) (1.3) - (0.4) (6.2)
Amortisation of intangible assets (0.6) (1.7) - (0.5) (2.8)
Total of Continuing operations
Identity Solutions Unallocated
H1 23 Currency Authentication Central
£m £m £m £m £m
Total revenue from contracts with customers 116.4 45.5 2.4 - 164.3
Less: Inter-segment revenue - - - - -
Revenue from contracts with customers 116.4 45.5 2.4 - 164.3
Cost of sales (90.6) (29.8) (2.1) - (122.5)
Gross profit 25.8 15.7 0.3 - 41.8
Adjusted operating expenses (21.5) (10.8) (0.2) - (32.5)
Adjusted operating profit 4.3 4.9 0.1 - 9.3
Adjusted items:
- Amortisation of acquired intangible assets - (0.5) - - (0.5)
- Net exceptional items (20.8) (0.5) - (0.1) (21.4)
Operating (loss)/profit (16.5) 3.9 0.1 (0.1) (12.6)
Interest income 0.5 - - 0.1 0.6
Interest expense (0.5) - - (3.9) (4.4)
Net retirement obligation finance credit - - - 0.5 0.5
Net finance expense - - - (3.3) (3.3)
(Loss)/profit before taxation (16.5) 3.9 0.1 (3.4) (15.9)
Capital expenditure on property, plant and equipment (4.0) (1.9) - - (5.9)
Capital expenditure on intangible assets (0.6) (4.7) - - (5.3)
Depreciation of property, plant and equipment and right-of-use assets
(5.4) (1.3) - (0.5) (7.2)
Amortisation of intangible assets (0.6) (1.5) - (0.4) (2.5)
Total of Continuing operations
Identity Solutions Unallocated
Currency Authentication Central
£m £m £m £m £m
H1 24
Segment assets 135.8 80.7 - 75.5 292.0
Segment liabilities (40.1) (17.4) - (230.3) (287.8)
FY23
Segment assets* 169.9 68.5 15.8 82.0 336.2
Segment liabilities (70.4) (14.0) (4.5) (224.7) (313.6)
*The Segment assets for FY23 has been restated as described in the Basis of
preparation above.
Revenue from contracts with customers:
Timing of revenue recognition across the Group's revenue from contracts with
customers is as follows:
Total of Continuing operations
Identity Solutions
H1 24 Currency Authentication
£m £m £m £m
Timing of revenue recognition:
Point of time 106.1 43.9 - 150.0
Over time 7.3 4.2 - 11.5
113.4 48.1 - 161.5
Total of Continuing operations
Identity Solutions
H1 23 Currency Authentication
£m £m £m £m
Timing of revenue recognition:
Point of time 97.6 38.7 2.4 138.7
Over time 18.8 6.8 - 25.6
116.4 45.5 2.4 164.3
Geographic analysis of revenue
H1 24 H1 23
£m £m
Middle East and Africa 68.7 68.6
Asia 16.6 18.7
UK 12.9 33.5
The Americas 23.9 10.2
Rest of Europe 23.0 28.9
Rest of World 16.4 4.4
161.5 164.3
( )
3 Exceptional Items
H1 24 Cash Non-cash H1 23 Cash Non-cash
£m £m £m £m £m £m
Termination of Relationship Agreement with Portals Paper Limited - - - 16.8 0.1 16.7
Site relocation and restructuring 7.9 3.0 4.9 2.1 0.8 1.3
Pension underpin costs 0.2 0.2 - - - -
Costs associated with pension deferment and banking refinancing 3.0 2.5 0.5 - - -
11.1 5.7 5.4 18.9 0.9 18.0
Recognition of expected credit loss provision on other financial assets (0.3) (0.3) - 2.5 - 2.5
Exceptional items in operating profit 10.8 5.4 5.4 21.4 0.9 20.5
Tax (charge)/credit on exceptional items (4.1) 6.7
Net exceptional items after tax 6.7 28.1
The cash flow impact of exceptional items was £14.6m in H1 24 (H1 23: £0.9m)
which included the £5.4m above, the £7.5m final payment to Portals Paper
Limited on the termination of the Relationship Agreement reported in FY23 and
£1.7m FY23 accrued restructuring payments made in the period.
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 £16.8m was recorded as an
exceptional item in H1 23, being the agreed settlement together with
associated legal costs. The final payment under the RA of £7.5m was made in
April 2023.
Site relocation and restructuring costs
Site relocation and restructuring costs in H1 24 of £7.9m (H1 23: £2.1m)
included the following:
- a £6.5m (H1 23: £nil) charge for redundancy and legal fees (£3.2m)
(Currency and Authentication) and property, plant and equipment impairments of
£3.3m (Currency) were made in relation to restructuring initiatives in both
divisions in order to right size the divisions for future operations. Since
this program commenced, £9.0m of costs have been incurred in relation to
this.
- 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 were wound down in the period. An exceptional
charge of £1.3m (H1 23: £nil) was made in the period including additional
redundancy charges of £0.2m, property, plant and equipment asset impairments
of £1.1m and other costs of £0.1m, offset by £0.1m of proceeds from the
sale of previously impaired inventory. Since this program commenced, £13.9m
of costs have been incurred in relation to this. Minimal further costs are
expected in relation to this programme in FY24.
- the recognition of £0.1m (H1 23: £0.3m) 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 £0.1m, of
relocating assets to different Group manufacturing locations. Since this
program commenced, £10.0m of costs have been incurred in relation to this.
This relocation of assets will continue into H2 24 as the Group continues its
expansion of the manufacturing facilities in Malta, net of any grants
received; and
- In addition, H1 23 included £1.8m 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, £3.4m of costs have been incurred in relation to this. No
further costs are expected.
Pension underpin costs
Pension underpin costs of £0.2m (H1 23: £nil) 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.
Costs associated with pension payment deferment and banking refinancing
Costs associated with pension payment deferment and the banking refinancing
amounted to £3.0m (H1 23: £nil) in the period. This included legal and
professional advisor fees.
The Company has not paid any deficit reduction contributions to the Main
Scheme over the period to 30 September 2023. On 3 April 2023, the Company and
the Trustee agreed to defer the deficit reduction contribution due under the
previous Recovery Plan, payable on 5 April 2023, to 26 May 2023. Subsequently,
on 25 May 2023 the Company and the Trustee agreed to defer the deficit
contribution due on 26 May 2023 to 5 July 2023. In June 2023, the Company and
the Trustee agreed to defer all the deficit reduction contributions due to
recommence from 5 April 2024 and a new Recovery Plan has been agreed between
the Company and the Trustee. The legal and professional advisor costs
associated with this in the period were £1.3m.
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' agents and
security agent, a debenture between the Company, certain other Group companies
and the banks' security agent and inter-creditor agreement between the
creditors. As a result of these changes, the facilities are secured against
material assets and shares within the Group. The legal and professional costs
associated with this in the period was £1.7m.
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.
In accordance with IFRS 9, in FY23, management assessed the recoverability of
the carrying value on the balance sheet and record an expected credit loss
provision in relation to the original principal value and interest receivable
which was recorded in exceptional items consistent with the original
recognition as part of the loss on disposal.
The amount presented on the balance sheet within other financial assets as at
30 September 2023 of £nil (25 March 2023: £nil) included the original
principal received and accrued interest amounts, fully offset by the expected
credit loss provision. The provision accounted for the risk that the full
amounts due are now considered to be credit impaired. As a result, no further
interest receivable has been recognised in the period.
On 21 July 2023, the Company received notice that Portals International
Limited were to repay an amount of £290,266 (which comprised the principal
amount of £227,280 and accrued interest of £62,986) on 1 August 2023. This
was a part repayment of the £899,138 loan notes issued by Portals in November
2021. This was unexpected. A credit of £0.3m was recognised in exceptionals
relating to this.
Taxation relating to exceptional items
The tax credit within exceptional items in the period was £4.1m (H1 23: tax
charge £6.7m).
Included within exceptional tax items is a tax credit of £2.1m relating to
the release of uncertain tax positions. These related to the expiry of an
indemnity period in May 2023, following the Cash Processing Solutions Limited
business sale in May 2016. The balance of £2.0m credit within exceptional tax
items relates to the tax impact on the exceptional costs before tax.
4 Interest income and expense
H1 24 H1 23
£m £m
Recognised in the income statement
Interest income:
- Other Interest 0.1 0.1
- - Interest on loan notes and preference shares - 0.5
Total interest income 0.1 0.6
Interest expense:
- - Interest on bank loans (6.1) (3.0)
- - Other, including amortisation of finance arrangement fees (2.1) (1.1)
- - Net loss on debt modification (3.8) -
- - Interest on lease liabilities (0.2) (0.3)
Total interest expense (12.2) (4.4)
Retirement benefit obligation finance (expense)/income (note 9) (1.3) 0.5
Net finance expense (13.4) (3.3)
All finance income and expense arise in respect of assets and liabilities not
restated to fair value though the income statement.
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. This change in existing banking
facilities is treated as a non-substantial modification under IFRS 9
"Financial Instruments", as the refinancing did not result in an
extinguishment of debt. The difference between the amortised cost carrying
amount of the previous terms of the facility and the present value of the
updated terms of the facility, discounted using the effective interest rate,
resulted in a modification loss. The net loss on debt modification was £3.8m,
including a loss on the debt modification in June 2023 of £4.8m offset by the
subsequent amortisation of £1.0m (including £0.2m of amortisation of the
loss on debt modification recognised in FY23 of £0.9m). See note 7(b) for
further information.
The retirement benefit obligation finance (expense)/income is calculated under
IAS 19 and represents the difference between the interest on pension
liabilities and assets. The loss in H1 24 of £1.3m (H1 23: credit of £0.5m)
was due to the opening pension valuation on an IAS 19 basis as at 25 March
2023 being a deficit of £54.7m).
5 Taxation
The total tax credit in respect of continuing operations for the H1 24 was
£5.6m (H1 23: tax charge £7.9m) and comprised:
- £1.4m credit (H1 23: £1.3m charge) on adjusted loss after interest
expense;
- £0.1m credit (H1 23: £0.1m credit) on the amortisation of acquired
intangibles; and
- £4.1m credit (H1 23: £6.7m charge) on exceptional items, which is
described in more detail in note 3 above.
The overall tax rate is determined using the statutory tax rates and
forecasted profits in the UK and all other territories. A weighted average
rate is generated for each of the UK and the other territories, with these
rates then applied to the actual profits for the half year along with
adjustments specific to the relevant period (such as known tax rate changes
substantively enacted during the period).
The Group is disputing a number of tax assessments received from the tax
authority of countries in which the Group operates. The disputed tax
assessments are at various stages in the local appeal process, but the Group
believes it has a supportable and defendable position (based upon local
accounting and legal advice) and is appealing previous judgments and
communicating with the tax authority in relation to the disputed tax
assessments. The Group's expected outcome of the disputed tax assessments is
held within the relevant provisions in this H1 24 Interim Statement. During H1
24, a credit of £1.9m was reported for disputed tax assessments, relating to
favourable movements in exchange rates rather than a change to the underlying
provided amounts.
Deferred tax assets are recognised for tax losses available and temporary
deductible differences to the extent that the realisation of the related tax
benefit through future taxable profits is probable. Future taxable profits
have been forecast based on the expected profitability of the Group over a
5-year period based on management's forecasts for FY24 through to FY27 and
applying no growth in FY28 and H1 29 taking into account historic performance
against budgets. The forecasts for FY24 to FY27 were also used in the Group's
going concern and viability assessments.
The deferred tax asset balance for the period moved from £5.9m at the start
of the period (as restated, see the Basis of Preparation) to £7.5m at the end
of the period. Within the movement for H1 24 are additional unrecognised
deferred tax assets of £2.8m, which have been disclosed within Other
Comprehensive Income as they relate to the deferred tax assets arising from
the pension deficit balance and tax losses arising from pension deficit
contribution payments.
The closing recognised deferred tax asset position mainly comprises £6.5m
(FY23: £6.3m) in respect of UK tax losses and £nil (FY23: £0.8m restated)
related to the UK pension deficit balance. Tax losses carried forward do not
have an expiry date. Recent group tax losses have mostly arisen as a
consequence of non-recurring exceptional costs and pension deficit reduction
payments. Future exceptional costs and pension deficit reduction payments are
expected to be significantly lower, with the group forecast to be profitable,
allowing the company to recover the recognised deferred tax assets amounts
noted above before the end of FY29.
As at H1 24 there were unrecognised deferred tax assets of £33.3m (FY23:
£30.5m restated) comprising:
- £7.1m (FY23: £6.6m) relating to UK tax losses;
- £7.7m (FY23: £7.7m) relating to non-UK tax losses;
- £14.7m (FY23: £12.4m restated) relating to the UK pension deficit;
- £3.8m (FY23: £3.8m) relating to other UK timing differences.
The Directors have assessed that:
- If the forecast profits are lower by 5% over the 5-year period, then
this would reduce the deferred tax assets recognised by approximately £0.9m.
- If the forecast taxable profits are higher by 5% over the 5-year
period, then this would increase the deferred tax assets recognised by
approximately £0.8m.
6 Earnings per share
H1 24 H1 23
pence pence
Earnings per share per share per share
Basic earnings per share - continuing operations (6.2) (12.6)
Basic earnings per share - discontinued operations - 0.1
Basic earnings per share - total (6.2) (12.5)
Diluted earnings per share - continuing operations(1) (6.2) (12.6)
Diluted earnings per share - discontinued operations - 0.1
Diluted earnings per share - total (6.2) (12.5)
Adjusted earnings per share
Basic earnings per share - continuing operations (2.6) 2.0
Diluted earnings per share - continuing operations(1) (2.6) 2.0
Number of shares (m)
Weighted average number of shares 195.6 195.3
Dilutive effect of shares 0.3 0.4
195.9 195.7
(1) The Group reported a loss from continuing operations attributable to the
ordinary equity shareholders of the Company for H1 24. The Diluted EPS is
reported as equal to Basic EPS, no account can be taken of the effect of
dilutive securities under IAS 33.
( )
Earnings per share are calculated by dividing the profit attributable to
equity shareholders by the weighted average number of shares. The Directors
are of the opinion that the publication of the adjusted earnings per share is
useful as it gives a better indication of underlying business performance.
Adjusted earnings per share excludes discontinued operations.
Reconciliation of the earnings used in the calculations are set out below:
H1 24 H1 23
£m £m
Earnings for basic earnings per share - Total (12.2) (24.4)
Add: Earnings for basic earnings per share - discontinued operations - (0.2)
Earnings for basic earnings per share - continuing operations (12.2) (24.6)
Add: amortisation of acquired intangibles 0.5 0.5
Add: exceptional items (excluding non-controlling interests) 10.8 21.4
Less: tax on amortisation of acquired intangibles (0.1) (0.1)
Less: tax on exceptional items (4.1) 6.7
Earnings for adjusted earnings per share (5.1) 3.9
7 Financial risk
7(a) Financial Instruments
Carrying amounts versus the fair value
Total fair Carrying Total fair Carrying amount
value amount value
H1 24 H1 24 FY23 FY23
£m £m £m £m
Financial assets
Trade and other receivables(1) Level 3 48.3 48.3 58.4 58.4
Contract assets Level 3 13.9 13.9 18.9 18.9
Cash and cash equivalents Level 1 33.7 33.7 40.3 40.3
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 0.6 0.6 1.2 1.2
- 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 1.1 1.1
- Embedded derivatives Level 2 0.1 0.1 0.1 0.1
Total financial assets 97.1 97.1 120.0 120.0
Financial liabilities
Unsecured bank loans and overdrafts(2) Level 2 (120.2) (120.2) (123.4) (123.4)
Trade and other payables(3) Level 3 (49.0) (49.0) (66.1) (66.1)
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 (1.7) (1.7) (1.0) (1.0)
- Short duration swap contracts designated as fair value hedges Level 2 (0.1) (0.1) (0.1) (0.1)
- Foreign exchange fair value hedges - other economic hedges Level 2 (0.7) (0.7) (0.4) (0.4)
- Embedded derivatives Level 2 (0.1) (0.1) (0.4) (0.4)
Total financial liabilities (171.8) (171.8) (191.4) (191.4)
1 Excludes prepayments of £3.5m (FY23: £3.6m), RDEC of
£1.2m (FY23: £2.5m) and VAT recoverable of £5.9m (FY23: £6.2m).
2 Excludes unamortised pre-paid loan arrangement fees of
£4.7m (FY23: £5.0m).
3 Excludes social security and other taxation amounts of
£2.7m (FY23: £3.0m), contract liabilities of £2.2m (FY23: £0.3m) and
payments on account of £16.9m (FY23: £22.7m).
Trade receivables decreased to £28.9m compared to £42.3m at FY23, driven by
timing of selling and the increased proportion of sales following instalment
plans within the Currency business.
Contract assets have reduced from £18.9m at FY23 to £13.9m at H1 24. This
relates to Currency contracts of £9.7m (FY23: £12.7m) and Authentication
contracts of £4.2m (FY23: £6.2m).
Trade and other payables(3) have decreased from £66.1m at FY23 to £49.0m at
H1 24, driven by the timing of supply payment and our reporting dates.
Fair Value Hierarchy
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value measurement as
a whole.
- Level 1 valuations are derived from unadjusted quoted prices for
identical assets or liabilities in active markets.
- Level 2 valuations use observable inputs for the assets or
liabilities other than quoted prices.
- Level 3 valuations are not based on observable market data and are
subject to management estimates.
There has been no movement between levels during the current or prior periods.
Fair Value measurement basis for derivative financial instruments
Fair value is calculated based on the present value of future principal and
interest cash flows, discontinued at the market rate of interest at the
reporting date. The valuation bases are classified according to the degree of
estimation required in arriving at the fair values. See fair value hierarchy
above.
Forward exchange contracts used for hedging
The fair value of forward exchange contracts has been determined using quoted
forward exchange rates at the balance sheet date.
7(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group's approach to managing
liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities where due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage
to the Group's reputation.
The Group manages this risk by ensuring that it maintains sufficient levels of
committed borrowing facilities and cash and cash equivalents. The level of
headroom needed is reviewed annually as part of the Group's planning process.
The following are the contractual undiscounted cash flow maturities of
financial liabilities, including contractual interest payments and excluding
the impact of netting agreements.
Due between Due between
Due within 1 year 1 and 2 years 2 and 5 years Total undiscounted cash flows Impact of discounting and netting Carrying amount
£m £m £m After 5 years £m £m £m
£m
30 September 2023
Non-derivative financial liabilities
Unsecured bank loans(1) 14.1 119.3 - - 133.4 (13.2) 120.2
Trade and other payables(2) 49.0 - - - 49.0 - 49.0
Obligations under leases 2.7 2.4 5.2 23.9 34.2 (22.0) 12.2
Derivative financial liabilities
Gross amount payable from currency derivatives:
- Forward exchange swap contracts designated as cash flow hedges*
90.5 - - - 90.5 (88.8) 1.7
- Short duration swap contracts designated as fair value
hedges*
18.5 - - - 18.5 (18.4) 0.1
- Fair value hedges - other economic hedges*
34.5 - - - 34.5 (33.8) 0.7
209.3 121.7 5.2 23.9 360.1 (176.2) 183.9
Due between Due between
Due within 1 year 1 and 2 years 2 and 5 years Total undiscounted cash flows Impact of discounting and netting Carrying amount
£m £m £m After 5 years £m £m £m
£m
25 March 2023
Non-derivative financial liabilities
Unsecured bank loans(1) 9.7 129.4 0.7 - 139.8 (16.4) 123.4
Trade and other payables(2) 66.1 - - - 66.1 - 66.1
Obligations under leases 4.0 2.7 6.5 23.1 36.3 (23.0) 13.3
Derivative financial liabilities
Gross amount payable from currency derivatives:
- Forward exchange swap contracts designated as cash flow hedges*
91.3 2.3 - - 93.6 (92.6) 1.0
- Short duration swap contracts designated as fair value hedges*
27.3 - - - 27.3 (27.2) 0.1
- Fair value hedges - other economic hedges*
35.2 0.7 - - 35.9 (35.5) 0.4
233.6 135.1 7.2 23.1 399.0 (194.7) 204.3
Notes:
* Excludes embedded derivatives
(1) Excludes unamortised prepaid borrowing fees of £4.7m (FY23: £5.0m).
(2)Excludes social security and other taxation of £2.7m (FY23: £3.0m),
contract liabilities of £2.2m (FY23: £0.3m) and payments on account of
£16.9m (FY23: £22.7m).
The following are the contractual undiscounted cash flow maturities of
financial assets, including contractual interest receipts and excluding the
impact of netting arrangements.
Due between Due between
Due within 1 year 1 and 2 years 2 and 5 years Total undiscounted cash flows Impact of discounting and netting Carrying amount
£m £m £m After 5 years £m £m £m
£m
30 September 2023
Non-derivative financial assets
Trade and other receivables(1)* 48.3 - - - 48.3 - 48.3
Contract assets 13.9 - - - 13.9 - 13.9
Cash and cash equivalents 33.7 - - - 33.7 - 33.7
Derivative financial assets
Gross amount receivable from currency derivatives:
- Forward exchange contracts designated as cash flow hedges*
36.0 - - - 36.0 (35.4) 0.6
- Short duration swap contracts designated as fair value hedges*
7.8 - - - 7.8 (7.7) 0.1
- Fair value hedges - other economic hedges*
29.7 0.4 - - 30.1 (29.7) 0.4
169.4 0.4 - - 169.8 (72.8) 97.0
Due between Due between
Due within 1 year 1 and 2 years 2 and 5 years Total undiscounted cash flows Impact of discounting and netting Carrying amount
£m £m £m After 5 years £m £m £m
£m
25 March 2023
Non-derivative financial assets
Trade and other receivables(1)* 58.4 - - - 58.4 - 58.4
Contract assets 18.9 - - - 18.9 - 18.9
Cash and cash equivalents 40.3 - - - 40.3 - 40.3
Derivative financial assets
Gross amount receivable from currency derivatives:
- Forward exchange contracts designated as cash flow hedges*
71.3 0.3 - - 71.6 (70.4) 1.2
- Short duration swap contracts designated as fair value hedges*
1.0 - - - 1.0 (1.0) -
- Fair value hedges - other economic hedges*
88.8 - - - 88.8 (87.7) 1.1
278.7 0.3 - - 279.0 (159.1) 119.9
Notes:
* Excludes embedded derivatives.
(1) Excludes prepayments of £3.5m (FY23: £3.6m), RDEC of £1.2m (FY23:
£2.5m) and VAT recoverable of £5.9m (FY23: £6.2m).
The fair value of a hedging derivative is classified as a non-current asset or
liability if the remaining maturity of the hedged instrument is more than 12
months and as a current asset or liability if the maturity of the hedged
instrument is less than 12 months.
Cash and cash equivalents, trade and other receivables, contract assets,
unsecured bank loans and overdrafts, and trade and other payables have fair
values that approximate to their carrying amounts due to their short-term
nature.
Banking Facilities
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' agents and
security agent, a debenture between the Company, certain other Group companies
and the banks' security agent and inter-creditor agreement between the
creditors. As a result of these changes, the facilities are secured against
material assets and shares within the Group.
The banking facilities expiration on 1 January 2025 remained unchanged, whilst
there were changes to:
- Changes to margins: new interest rates were introduced for net debt
to EBITDA ratios over 2.5.
- Changes in daily interest rates: This was amended to SONIA daily
rates.
There were also changes to the Group covenant financial covenants and spread
levels as follows from 1 July 2023:
- 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 £25m", although reduces to £20m if £5m 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
The covenant tests use earlier accounting standards, excluding adjustments for
IFRS 16. Net debt for covenants includes the borrowings, where the RCF amount
is considered the principal amount withdrawn, (excluding unamortised pre-paid
borrowing fees and the net loss on debt modification) net of cash and cash
equivalents.
Covenant test results as at 30 September 2023:
Test Requirement Actual at 30 September 2023
EBIT to net interest payable More than or equal to 1.0 times 2.16
Net debt to EBITDA Less than or equal to 4.0 times 2.38
Minimum liquidity at 30 September 2023 was in excess of the £25m limit
required under the covenant tests.
This change in existing banking facilities is treated as a non-substantial
modification under IFRS 9 "Financial Instruments", as the refinancing did not
result in an extinguishment of debt. The difference between the amortised cost
carrying amount of the previous terms of the facility and the present value of
the updated terms of the facility, discounted using the effective interest
rate, resulted in a modification loss. The net loss on debt modification was
£3.8m, including a loss on the debt modification in June 2023 of £4.8m
offset by the subsequent amortisation of £1.0m (including £0.2m of
amortisation of the loss on debt modification recognised in FY23 of £0.9m).
See note 4.
The Group has Bank facilities of £250.0m (FY23: £275.0m) including an RCF
cash drawn component of up to £175.0m (FY23: £175.0m) and bond and guarantee
facilities of a maximum of £75.0m (FY23: £100.0m), which are due to mature
on 1 January 2025.
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.
As at 30 September 2023, the Group had a total of undrawn RCF committed
borrowing facilities, all maturing in more than one year, of £60.0m (25 March
2023: £53.0m, all maturing in more than one year). The amount of loans drawn
on the £175.0m RCF cash component is £115.0m was drawn as at 30 September
2023 (25 March 2023: £112.0m).
Guarantees of £46.0m (25 March 2023: £52.1m) have been drawn using the
£75.0m guarantee facility. The accrued interest in relation to cash drawdowns
outstanding as at 30 September 2023 is £0.4m (25 March 2023: £0.3m).
Actual as at Maximum
30 September 2023 Facility
£m £m
Facilities:
Cash 115.0 175.0
Bonds and guarantees 46.0 75.0
161.0 250.0
A separate borrowing facility for financing equipment under construction is in
place and at 25 March 2023 the amount outstanding on this facility is £0.7m.
8 Analysis of net debt
The analysis below provides a reconciliation between the opening and closing
positions for liabilities arising from financing activities together with
movements in cash and cash equivalents. During the period the Group has
redefined and restated the definition of net debt to exclude losses or gains
on debt modification. This is in line with the definition used in the covenant
calculations. As a result, the FY23 net debt has been restated to £82.4m,
previously £83.1m, after excluding the £0.7m of net loss on debt
modification.
At 25 Cash Foreign exchange and other At 30 September 2023
March flow
2023
£m £m £m £m
Gross Borrowings (122.7) 7.0 - (115.7)
Cash and cash equivalents 40.3 (6.4) (0.2) 33.7
Net Debt (82.4) 0.6 (0.2) (82.0)
At 26 Cash Foreign exchange and other At 25
March flow March
2022 2023
£m £m £m £m
Gross Borrowings (95.7) (27.0) - (122.7)
Cash and cash equivalents 24.3 15.6 0.4 40.3
Net Debt (71.4) (11.4) 0.4 (82.4)
Net debt is presented excluding unamortised pre-paid borrowing fees of £4.7m
(FY23: £5.0m), net loss on debt modification of £4.5m (FY23: £0.7m) and
£12.2m (FY23: £13.3m) of lease liabilities.
At 25 Cash Non-cash At 30 September
March flow movements 2023
2023
£m £m £m £m
Unamortised pre-paid borrowing fees 5.0 3.0 (3.3) 4.7
Borrowings:
30 September 2023 25 March 2023
Unamortised pre-paid borrowing fees Unamortised pre-paid borrowing fees
Loss on debt modification
Gross Borrowings Loss on debt modification Gross Borrowings
Reported within: Total Total
£m £m £m £m £m £m £m £m
Non-current liabilities (115.7) 4.7 (4.5) (115.5) (122.7) 5.0 (0.7) (118.4)
9 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.
The Company has not paid any deficit reduction contributions to the Main
Scheme over the period to 30 September 2023. On 3 April 2023, the Company and
the Trustee agreed to defer the deficit reduction contribution due under the
previous Recovery Plan, payable on 5 April 2023, to 26 May 2023. Subsequently,
on 25 May 2023 the Company and the Trustee agreed to defer the deficit
contribution due on 26 May 2023 to 5 July 2023. In June 2023, the Company and
the Trustee agreed to defer all the deficit reduction contributions due to
recommence from 5 April 2024 and a new Recovery Plan has been agreed between
the Company and the Trustee.
H1 24 FY23
£m £m
UK retirement benefit liability (58.7) (53.1)
Overseas retirement liability (1.8) (1.6)
Retirement benefit liability (60.5) (54.7)
The majority of the Group's retirement benefit obligations are in the UK:
H1 24 H1 24 H1 24 FY23 FY23 FY23
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Equities 3.4 - 3.4 3.2 - 3.2
Bonds 85.9 - 85.9 88.7 - 88.7
Secured/fixed income 117.1 - 117.1 133.0 - 133.0
Liability Driven Investment Fund 133.0 - 133.0 163.6 - 163.6
Multi Asset Credit 56.1 - 56.1 60.2 - 60.2
Qualifying insurance policy 196.5 - 196.5 220.6 - 220.6
Other 11.3 - 11.3 8.9 - 8.9
Fair value of scheme assets 603.3 - 603.3 678.2 - 678.2
Present value of funded obligations (658.5) - (658.5) (727.5) - (727.5)
Funded defined benefit pension schemes (55.2) - (55.2) (49.3) - (49.3)
Present value of unfunded obligations (3.5) (1.8) (5.3) (3.8) (1.6) (5.4)
Net deficit (58.7) (1.8) (60.5) (53.1) (1.6) (54.7)
Amounts recognised in the consolidated income statement:
H1 24 H1 24 H1 24 H1 23 H1 23 H1 23
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Included in employee benefits expense:
Current service cost - - - - - -
Administrative expenses and taxes (0.6) - (0.6) (0.8) - (0.8)
Included in interest on retirement benefit obligation net finance expense:
Interest income on scheme assets 15.9 - 15.9 13.7 - 13.7
Interest cost on liabilities (17.2) - (17.2) (13.2) - (13.2)
Retirement benefit obligation net finance expense (1.3) - (1.3) 0.5 - 0.5
Total recognised in the consolidated income statement (1.9) - (1.9) (0.3) - (0.3)
Return on scheme assets excluding assumed interest income (65.2) - (65.2) (312.6) - (312.6)
Remeasurement gains/(losses) on defined benefit pension obligations 60.7 - 60.7 238.6 - 238.6
Amounts recognised in other comprehensive income (4.5) - (4.5) (74.0) - (74.0)
Principal actuarial assumptions:
H1 24 H1 24 FY23 FY23
UK Overseas UK Overseas
% % % %
Discount rate 5.55% - 4.70% -
CPI inflation rate 2.80% - 2.50% -
RPI inflation rate 3.30% - 3.00% -
The financial assumptions adopted as at 30 September 2023 reflect the duration
of the scheme liabilities which has been estimated to be broadly 11.5 years
(FY23: broadly 12.5 years).
At 30 September 2023 mortality assumptions were based on tables issued by Club
Vita, with future improvements in line with the CMI model, CMI_2022 (FY23:
CMI_2021) with a smoothing parameter of 7.5 and a long-term future improvement
trend of 1.25% per annum (FY23: long-term rate of 1.25% per annum) and w2022
parameter of 75% (FY23: w2020 parameter 20%). The resulting life expectancies
within retirement are as follows:
H1 24 FY23
Aged 65 retiring immediately (current pensioner) Male 21.5 21.8
Female 23.6 23.9
Aged 50 retiring in 15 years (future pensioner) Male 22.0 22.4
Female 24.9 25.3
The table below provides the sensitivity of the liability in the scheme to
changes in various assumptions:
Assumption change Approximate impact on liability
0.50% decrease in discount rate Increase in liability of £38.3m
0.50% increase in discount rate Decrease in liability of £34.8m
0.25% increase in expected RPI inflation rate (without knock-on impact to CPI Increase in liability of £0.7m
inflation rate)
0.25% decrease in expected RPI inflation rate (without knock-on impact to CPI Decrease in liability of £0.7m
inflation rate)
0.25% increase in expected CPI inflation rate Increase in liability by £8.7m
0.25% decrease in expected CPI inflation rate Decrease in liability by £6.9m
Increasing life expectancy by one year Increase in liability of £24.3m
The liability sensitivities have been derived using the duration of the scheme
based on the membership profile as at 5 April 2021 and assumptions chosen for
H1 24. The sensitivity analysis does not allow for changes in scheme
membership since the 2021 actuarial valuation or the impact of the Scheme or
Group's risk management activities in respect of interest rate and inflation
risk on the valuation of the Scheme assets.
10 Provisions for liabilities and charges
Restructuring Warranty Other Total
£m £m £m £m
At 25 March 2023 1.8 0.9 3.3 6.0
Charge for the period 0.6 - 0.3 0.9
Utilised in the period (1.7) (0.7) (1.2) (3.6)
Released in the period (0.1) - - (0.1)
Exchange differences - 0.2 (0.2) -
At 30 September 2023 0.6 0.4 2.2 3.2
Expected to be utilised within 1 year 0.6 0.4 2.2 3.2
Restructuring provisions
Restructuring provisions as at 30 September 2023 related to redundancy and
other employee related termination costs for a Group site relating to a change
in working patterns. This was substantially utilised in the period and the
remaining provision is expected to be utilised in FY24.
Warranty provisions
Warranty provisions relate to present obligations for defective products. The
provisions are management judgements based on information currently available,
past history and experience of the products sold. However, it is inherent in
the nature of the business that the actual liabilities may differ from the
provisions. The precise timing of the utilisation of these provisions is
uncertain but is generally expected to fall within one year.
The Group measures warranty provisions at the Directors' best estimate of the
amount required to settle the obligation at the balance sheet date, discounted
where the time value of money is considered material. These estimates take
account of available information, historical experience and the likelihood of
different possible outcomes. Both the amount and the maturity of these
liabilities could be different from those estimated.
Other provisions
Other provisions comprise a number of liabilities with varying expected
utilisation rates. This included a small number of onerous contract provisions
(£0.1m), employee related liabilities (£0.6m), IBNR insurance claim
provisions (£0.5m) and other liabilities (£1.0m) arising through the Group's
normal operations.
Onerous contract provisions arise where the unavoidable costs under a contract
exceed the economic benefits expected to be received under it. Unavoidable
costs represent the least net cost of exiting the contract, which is the lower
of the cost of fulfilling it and any compensation or penalties arising from
failure to fulfil it. Costs to fulfil a contract include those that directly
relate to the contract, including incremental costs and allocation of
production overheads. The precise timing of the utilisation of these
provisions is uncertain but is generally expected to fall within one year.
11 Non-controlling interests
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 Ghana Sri Kenya
Lanka Lanka
Non-controlling interest percentage 51% 40% 40% 51% 40% 40%
H1 24 H1 24 H1 24 FY23 FY23 FY23
£m £m £m £m £m £m
Non-current assets - 6.9 0.2 - 7.7 0.2
Current assets 7.7 29.2 20.5 8.9 30.5 22.8
Non-current liabilities - (0.5) - - (0.4) -
Current liabilities (4.2) (6.2) (11.4) (5.7) (10.6) (13.7)
Net assets (100%) 3.5 29.4 9.3 3.2 27.2 9.3
H1 24 H1 24 H1 24 H1 23 H1 23 H1 23
£m £m £m £m £m £m
Revenue 4.2 17.7 0.2 7.0 13.3 10.8
Profit/(loss) for the period 0.4 2.3 (0.1) 0.6 0.5 0.5
Profit allocated to non-controlling interest 0.2 0.8 - 0.3 0.2 0.3
Dividends declared by non-controlling interest - - - - - -
Cash flows from operating activities (2.2) 0.2 0.3 (0.9) 1.7 0.1
Cash flows from investing activities - (0.1) 0.1 - (0.1) (0.2)
Cash flows from financing activities - - - - - -
Net (decrease)/increase in cash and cash equivalents
(2.2) 0.1 0.4 (0.9) 1.6 (0.1)
12 Related party transactions
During the period 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 £12.7m (H1 23: £12.5m) for the purchase of ink
and other consumables on an arm's length basis. At the balance sheet date
there was £2.6m (FY23: £1.7m) 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.
There were no material changes to these related parties in the period, other
than changes in the composition of the Board. Other than total compensation in
respect of key management, no material related party transactions have taken
place during the current period.
13 Contingent assets and liabilities.
In January 2023, De la Rue was made aware that the Central Bureau of
Investigation in India (CBI-I) had 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 still not received any official direct
communication of this investigation from the CBI-I. 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 therefore has not raised a contingent liability or
provision.
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.
14 Capital and other commitments
H1 24 FY23
£m £m
Capital expenditure contracted but not provided:
Property, plant and equipment 13.0 16.4
Lease commitments 13.3 13.9
26.3 30.3
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.
15 De La Rue Financial Calendar: FY24
Financial year
end
30 March 2024
16 Subsequent events
Banking Facilities
On 18 December 2023 the Group entered into a new agreement with its banking
syndicate to extend its banking facilities to July 2025. From this date the
Group will have Bank facilities of £235m including an RCF cash drawn
component of up to £160m (a reduction of £15m) and bond and guarantee
facilities of a maximum of £75m. The covenant tests described above will
continue to apply to the facilities, other than the liquidity covenant where
the minimum headroom is now defined as "available cash and undrawn RCF greater
than or equal to £10m", to reflect the £15m reduction in RCF. In addition,
an arrangement fee is due, equal to 1% of the facility, which will reduce to
0.5% if the facility is refinanced before 30 June 2024.
Pension deficit payments
An actuarial valuation of the Scheme has been undertaken as at 30 September
2023. This showed a Scheme deficit of £78m. As a result of this new
valuation, on 18 December 2023, the Company and the Scheme Trustee agreed a
new schedule to fund the deficit. The funding moratorium until July 2024 as
previously agreed will be retained, with the only payment being £1.25m due
under the June 2023 Recovery Plan. This will be followed by deficit repair
contributions from the Company of £8m per annum to the end of FY27, followed
by higher contributions that at no time exceed £16m per annum and which run
until December 2030 or until the Scheme becomes fully funded.
The next periodic actuarial valuation will be as at the end of September 2026,
with the Scheme Trustee undertaking to provide the results of this valuation
by January 2027, ahead of any increase in contribution from £8m per annum.
NON-IFRS FINANCIAL 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 operating profit from continuing operations
Adjusted operating profit represents earnings from continuing operations
adjusted to exclude exceptional items and amortisation of acquired intangible
assets.
H1 24 H1 23
£m £m
Operating loss from continuing operations on an IFRS basis (3.4) (12.6)
Amortisation of acquired intangible assets 0.5 0.5
Exceptional items 10.8 21.4
Adjusted operating profit from continuing operations 7.9 9.3
B 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.
H1 24 H1 23
£m £m
Loss attributable to equity shareholders of the Company (12.2) (24.4)
Exclude: discontinued operations - (0.2)
Loss attributable to equity shareholders of the Company from continuing
operations on an IFRS basis
(12.2) (24.6)
Amortisation of acquired intangible assets 0.5 0.5
Exceptional items 10.8 21.4
Tax on amortisation of acquired intangible assets (0.1) (0.1)
Tax on exceptional items (4.1) 6.7
Adjusted (loss)/profit attributable to equity shareholders of the Company from
continuing
(5.1) 3.9
operations
Weighted average number of ordinary shares for basic earnings 195.6 195.3
H1 24 H1 23
pence per share pence per share
Continuing operations
Basic earnings per ordinary share on an IFRS basis (6.2) (12.6)
Basic adjusted earnings per ordinary share (2.6) 2.0
Diluted adjusted earnings per ordinary share(1) (2.6) 2.0
(1) As there is a loss from continuing operations attributable to the ordinary
equity shareholders of the Company for the period (£12.2m), the Diluted EPS
is reported as equal to Basic EPS, as no account can be taken of the effect of
dilutive securities under IAS 33.
C Net debt
Net debt is a non-IFRS measure. See note 8 for details of how net debt is
calculated.
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 £161.5m (H1 23: £164.3m).
The covenant test uses earlier accounting standards and excludes adjustments
for IFRS 16 and takes into account lease payments made.
H1 24 H1 23
£m £m
Loss for the period (11.2) (23.6)
Add back:
Profit on discontinued operations - (0.2)
Taxation (5.6) 7.9
Net finance expenses 13.4 3.3
Loss before interest and taxation from continuing operations (Operating loss) (3.4) (12.6)
Add back:
Depreciation of property, plant and equipment and right-of-use assets 6.2 7.2
Amortisation of intangible assets 2.8 2.5
EBITDA 5.6 (2.9)
Exceptional items 10.8 21.4
Adjusted EBITDA 16.4 18.5
Revenue £m 161.5 164.3
EBITDA margin 3.5% (1.8)%
Adjusted EBITDA margin 10.2% 11.3%
The adjusted EBITDA split by division was as follows:
Total of continuing operations
Identity Solutions
H1 24 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (5.5) 5.8 - (3.7) (3.4)
Add back:
Net exceptional items 6.9 0.2 - 3.7 10.8
Depreciation of property, plant and equipment and right-of-use assets
4.5 1.3 - 0.4 6.2
Amortisation of intangible assets 0.6 1.7 - 0.5 2.8
Adjusted EBITDA 6.5 9.0 - 0.9 16.4
Total of continuing operations
Identity Solutions
H1 23 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (16.5) 3.9 0.1 (0.1) (12.6)
Add back:
Net exceptional items 20.8 0.5 - 0.1 21.4
Depreciation of property, plant and equipment and right-of-use assets
5.4 1.3 - 0.5 7.2
Amortisation of intangible assets 0.6 1.5 - 0.4 2.5
Adjusted EBITDA 10.3 7.2 0.1 0.9 18.5
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 of continuing operations
Identity Solutions
H1 24 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (5.5) 5.8 - (3.7) (3.4)
Amortisation of acquired intangibles - 0.5 - - 0.5
Net exceptional items 6.9 0.2 - 3.7 10.8
Adjusted operating profit 1.4 6.5 - - 7.9
Enabling function overheads 12.7 5.1 - (17.8) -
Adjusted controllable operating profit/(loss) 14.1 11.6 - (17.8) 7.9
Total of continuing operations
Identity Solutions
H1 23 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (16.5) 3.9 0.1 (0.1) (12.6)
Amortisation of acquired intangibles - 0.5 - - 0.5
Net exceptional items 20.8 0.5 - 0.1 21.4
Adjusted operating profit 4.3 4.9 0.1 - 9.3
Enabling function overheads 11.4 4.5 - (15.9) -
Adjusted controllable operating profit/(loss) 15.7 9.4 0.1 (15.9) 9.3
-ENDS-
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