REG - De La Rue PLC - 2024 Full Year Results
25/07/2024 07:00
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RNS Number : 8073X De La Rue PLC 25 July 2024
25 July 2024
De La Rue plc
2024 full year results
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the "Company")
announces its full year results for the period ended 30 March 2024 (the
"year", "period" or "FY24"). The comparative period was the period ended 25
March 2023 ("FY23").
Financial highlights
FY24 FY23 Change
£m £m %
Revenue 310.3 349.7 -11.3
Authentication 103.2 91.7 +12.5
Currency 207.1 254.6 -18.7
Identity Solutions - 3.4 -100.0
Gross profit 85.9 92.1 -6.7
Adjusted operating profit*(1) 21.0 27.8 -24.5
IFRS operating profit/(loss) 5.8 (20.3) +128.6
(Loss) before taxation (15.4) (29.6) +48.0
Adjusted basic EPS*(2) (p) (5.3)p (1.5)p -253.3
IFRS basic EPS (p) (10.2)p (28.6)p +64.3
FY24 £m FY23 £m Change %
Net 89.4 82.4 8.5
debt(3)
Footnotes:
* These are non-IFRS measures. The definition and reconciliation of adjusted
operating profit and adjusted basic EPS can be found in the non-IFRS financial
measures section of this Statement.
(1. ) Adjusted operating expenses and adjusted operating profit
excludes pre-tax exceptional items of £14.2m (FY23: £47.1m) and pre-tax
amortisation of acquired intangible assets £1.0m (FY23: £1.0m).
(2. ) Adjusted basic EPS excludes post-tax exceptional items of
£9.0m (FY23: £52.2m) and post-tax amortisation of acquired intangible assets
£0.7m (FY23: £0.7m).
(3. ) The definition of net debt can be found in note 9 to the
financial statements.
(4. ) All the above are reported for continuing operations.
Highlights
· Group revenue of £310.3m (FY23: £349.7m) impacted by Currency
industry downturn.
· Adjusted operating profit of £21.0m (FY23: £27.8m) in line with
guidance provided at the start of the year. IFRS operating profit of £5.8m,
an improved performance compared with FY23 loss of £20.3m.
· Authentication:
o FY24 revenue rose 12.5% to £103.2m (FY23: £91.7m), surpassing £100m
target.
o Adjusted operating profit of £14.6m (FY23: £14.3m) and IFRS operating
profit of £12.9m (FY23: £5.4m) increased.
o Four multi-year contract renewals secured with associated expected future
revenues of over £150m.
o Authentication expected future revenues covered by contracts now over
£350m, stretching over 11 years, with most of this due within the next three
years.
· Currency:
o Revenue reduced 18.7% to £207.1m (FY23: £254.6m).
o Adjusted operating profit of £6.4m (FY23: £13.6m) achieved through
industry downturn and much reduced IFRS operating loss of £1.0m (FY23: loss
of £24.8m).
o This environment has now improved significantly, highlighting the
resilience and long-term nature of the worldwide currency industry.
o Pick-up in order book seen at Interims has continued into calendar 2024.
Order book stood at £239.2m at 30 March 2024 (FY23: £136.8m) and £241.4m at
end June 2024.
o Win rate remains high.
· Net debt of £89.4m (FY23: £82.4m restated) in line with pre close
guidance and marginally ahead of the mid-£90m guidance given in December
2023.
· Following 30 May strategy update, further interest in both of the
Group's divisions has been received and negotiations and due diligence in
respect of both divisions are progressing.
· Board is confident that one or more of these workstreams will be
concluded and allow the RCF to be repaid before its expiration on 1 July 2025.
As the expiry date of the RCF is within the going concern review period, the
results contain a material uncertainty. Further details can be found within
'2. Basis of Preparation and Accounting Policies' below.
· A further update will be provided ahead of Annual General Meeting on
25 September 2024.
Clive Vacher, CEO of De La Rue, commented:
"De La Rue's businesses successfully navigated substantial trading challenges
faced in the last financial year and met all the expectations that were set.
"Both divisions enter the current financial year well positioned to take
advantage of the increasing opportunities available to them. The recovery in
the Currency market that we noted at the end of 2023 has continued into 2024,
and the division now has a strong order book that has been secured by an
excellent win rate. Authentication has converted all four substantial
contracts that it was targeting for renewal in the last year, safeguarding
£150m of future revenue. It is now pursuing a number of new potential
opportunities to grow revenue further.
"This stronger trading environment provides an encouraging background with
which to progress our strategic priorities. These are progressing well and
we are confident that discussions will reach a successful conclusion in the
coming months."
Clive Whiley, Chairman of De La Rue, added:
"In the year since my appointment as Chairman, De La Rue has achieved much to
harmonise stakeholder objectives. At the same time, we have made significant
strides in stabilising the financial position of the Group. Despite the
challenging trading environment over the last two years, De La Rue remains a
trusted leader in providing authentication and currency solutions and the
business is well placed to benefit from the normalisation of our markets.
"Since we published our strategic update on 30 May, we have seen an increase
in strategic interest with more entities involved and due diligence undertaken
on both divisions. These workstreams continue and we will provide a further
update ahead of our annual general meeting on 25 September.
"The Board has made demonstrable progress in establishing a route to realising
the underlying intrinsic value of the business for the benefit of all
stakeholders and we look forward to completing this process during the current
financial year. "
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_FY_23/24. 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
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 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.
Chairman's statement
In the year since my appointment as Chairman, De La Rue has achieved much to
harmonise stakeholder objectives. Throughout, I have sought to increase the
cadence of communication with shareholders, lenders and the pension fund
trustee, alongside providing 'air cover' for the executive management team to
focus upon achieving the optimum performance for the business during a
challenging time.
Progress in FY24
As detailed in the CEO Review, the financial results for FY24 met the guidance
provided in April 2023 achieving adjusted operating profit of £21.0m (FY23:
£27.8m) and limited net debt to £89.4m (FY23: £82.4m), ahead of the
mid-£90m guidance given in December 2023. In addition, the Authentication
division increased revenue by 12.5% to £103.2m, breaking the £100m barrier
for the first time.
At the same time, we made significant strides in stabilising the financial
position of the Group. In June 2023, we agreed a revised set of banking
covenants together with a 15-month moratorium on pension deficit repair
contributions. This was followed in December 2023 by an extension to the
banking facilities to 1 July 2025 and a £28m reduction in pension deficit
repair contributions for the next three years, the period to the next
actuarial valuation. Further details of this can be found in the Financial
Review.
Strategic update
On 30 May 2024, we explained that a Board review of the core strategic
strengths of the Group and how best to optimise the underlying intrinsic value
of the business for the benefit of all stakeholders had included:
· recognising the improved order intake and the future
prospects for the Group's operating divisions and the Group as a whole;
· the accretive value creation that may be achieved with
increased scale and capabilities in both of our operating divisions; and
· our commitment to reduce leverage and create greater
financial flexibility in the funding structure of the Group as a whole.
In addition, we noted that the Board was in discussions with a number of
parties in relation to either of the Group's divisions. Since then, additional
parties have expressed strategic interest in both divisions and negotiations
and due diligence are ongoing. We anticipate announcing further details
ahead of our annual general meeting on 25 September 2024.
Current trading environment
In the Currency division, market activity is returning to more normal levels
after a protracted downturn and our order book has been maintained at the
enhanced levels witnessed at the year end. The Authentication division has
underpinned over £150m of its future expected revenue by successfully
renegotiating all four significant existing contracts that were up for renewal
during the last year and now holds multi-year contracts with anticipated
future revenues of over £350m. All this points to a more favourable
background in which to trade in FY25 and beyond.
Responsible business
Operating in a responsible way is embedded in De La Rue's purpose: securing
trust between people, businesses and governments. Our strategy encompasses
clear commitments to lead our industry in sustainability and to maintain the
highest ethical standards in the conduct of our business.
De La Rue has taken steps to lead our industry on environmental sustainability
for many years. Under our commitment to the Science Based Targets Initiative,
we are working towards reducing all our emissions (Scope 1, 2 and 3) by 45% by
2030. In addition, we remain committed to achieve carbon neutrality for our
own operations by 2030.
Conclusion
We are fortunate to have a committed, hard-working workforce which is key to
the success of the Group. There has been and continues to be significant
change throughout the organisation and I would like to thank every individual
for their dedication during this time.
Despite the challenging trading environment over the last two years, De La Rue
remains a trusted leader in providing authentication and currency solutions
and the business is well placed to benefit from the normalisation of our
markets.
As highlighted, the Board has made demonstrable progress in establishing a
route to realising the underlying intrinsic value of the business for the
benefit of all stakeholders and we look forward to completing this process
during the current financial year.
Clive Whiley,
Chairman
CEO review
De La Rue's performance in FY24 was robust, meeting the targets and guidance
set. It was a year in which we had to navigate a challenging trading
environment, largely driven by the lengthy downcycle in currency demand.
This environment has now improved significantly, highlighting the resilience
and long-term nature of the worldwide currency industry. The significant
transformation of De La Rue over the last four years has allowed the Company
to transition through this industry downturn, and to emerge strongly to take
advantage of the numerous opportunities coming to market in both divisions.
At the same time, we have now grown the Authentication division to over £100m
in revenue, with good prospects for further growth.,
For FY24 De La Rue achieved an adjusted operating profit of £21.0m (FY23:
£27.8m), in line with the guidance that we set out at the beginning of the
year. IFRS operating profit of £5.8m (FY23: loss of £20.3m) was
substantially better than last year, with lower exceptional costs.
We worked hard to minimise the business impact of the challenges we faced,
particularly the industry wide downturn in Currency in the wake of the Covid
pandemic, further refining the efficiency of our operations though we still
saw a 18.7% fall in revenue to £207.1m (FY23: £254.6m). We right-sized our
manufacturing capacity to reflect the volume of orders that we were
processing, planned our production schedule carefully, reviewed our cost base
in detail and prioritised cash generation through efficient working capital
management.
The business is now emerging from that challenging trading environment more
efficient, more streamlined and stronger than it was previously. The increase
in activity within the Currency division that we noted in December 2023 has
continued into the 2024 calendar year and we started FY25 with a total
Currency order book of £239.2m (25 March 2023: £136.8m). By the end of June
2024 this had increased to £241m with a further substantial contract signed
in early July.
The Authentication division achieved record sales of £103.2m in FY24, an
increase of 12.5% over the FY23 total of £91.7m and surpassing its target for
the year of £100m. Importantly the division also secured multi-year renewals
on all four of the significant contracts that were due for renewal in the
year. With these contracts in place, Authentication has sight of expected
future revenue from contracts in excess of £350m, equivalent to around 3.5
years revenue at current run rates.
At the same time, we made significant strides in stabilising the financial
position of the Group. In June 2023 we agreed a revised set of banking
covenants together with a 15-month moratorium on pension deficit repair
contributions. This was followed by an extension to the banking facilities and
a £28m reduction in pension deficit repair contributions for the next three
years, both agreed in December 2023. Further details of this can be found in
the Financial Review.
Our expanded facility in Malta is progressing well, with the Authentication
and Currency facilities on track for completion during FY25. We are also
working on relocating the remaining non-manufacturing activities that occur in
Gateshead. This builds on the progress that we have already made in
streamlining our operations through ceasing production in Kenya and flexing
our operating model more in line with expected patterns of production.
As well as maximising the efficiency of our current business, we continue to
work to incorporate state-of-the-art technologies into our products. These
include the digital solutions within Authentication which allow customers to
track and trace billions of products with sub-second response times. In
addition, within Currency we are developing leading-edge security features
such as the ASSURE™ technology which brings embedded level 3 security, only
identifiable by issuing authorities, to polymer banknotes.
Authentication
As mentioned above, the Authentication division achieved record sales of
£103.2m in FY24 (FY23: £91.7m), surpassing its target for the year of
£100m. Increased sales of data pages for the Australian passport, as
expected, were the stand out driver of this sales increase, with Microsoft
related sales lower than FY23 given the subdued state of the PC market.
Government Revenue Solutions (GRS) delivered a stable performance.
The higher revenue led to adjusted controllable operating profit rising to
£25.4m (FY23: £23.0m). Adjusted operating profit was £14.6m for the period
(FY23: £14.3m), with the division bearing a greater proportion of enabling
function costs given its higher revenue in terms of both absolute and
percentage of Group total. IFRS operating profit at £12.9m (FY23: £5.4m)
also benefitted from lower exceptional charges.
At the beginning of FY24, Authentication was facing the renewal of four
important contracts across all areas of the authentication operation. All four
of these were successfully renewed with extensions of between three and five
years' duration.
These contracts bring total expected revenue of over £150m and, as noted
above, with these in place, the division now has sight of expected future
revenue from contracts in excess of £350m, underpinning its potential to
build further on the near 40% top line growth we have seen over the past five
years. These contracts run for up to 11 years, but the bulk of this revenue
will accrue over the next three years.
Our production of data pages for the award-winning Australian passport
progressed well in FY24. The 'Explorer' polycarbonate data page, formally
launched back in June 2023, has been well-received by the industry and we are
currently pursuing further business opportunities in this area.
Within Brand, the Microsoft contract was renewed to 2029, extending that
relationship to over 25 years. Within GRS, we have achieved renewals of our
contracts for the provision of digital tax stamp solutions in two existing
customer territories for three and five years respectively and within ID
Security Features, as announced at the half year, we renegotiated a three-year
deal with a key customer on improved terms.
In GRS, we continue to see good opportunities to expand the range of products
authenticated within the existing territories which we cover, including soft
drinks within the GCC region. We are looking to expand the number of
territories covered as well as increasingly move to direct-to-product
printing. In addition, we expect growth in Brand sales, including some modest
growth in Microsoft volumes as the PC market recovers, as predicted by market
intelligence firm IDC.
Currency
During FY24, the Currency division maintained its high proportion of banknote
tender wins and, because of the increased efficiency of the division, it
remained profitable. This was despite being adversely impacted by the
industry-wide slowdown in currency orders in the wake of the Covid pandemic
for much of the year. The division achieved an adjusted operating profit of
£6.4m (FY23: £13.6m) on revenue of £207.1m (FY23: £254.6m).
On an IFRS basis, operating loss narrowed materially to just £1.0m (FY23:
loss of £24.8m), benefitting from the substantially smaller exceptional costs
incurred in FY24. In FY23 exceptional divisional costs totalled £38.4m and
included costs associated with the termination of the supply agreement with
Portals and provisions against Portals loan notes held by De La Rue. In FY24
exceptional costs amounted to £7.4m.
Careful management helped to ensure that the fall in revenue across all areas
of the division was less in percentage terms than the equivalent fall in
volume in each area.
In turn, our efforts in right-sizing the business, together with meticulous
control of costs, allowed us to achieve gross and operating margin in
percentage terms at almost the same level as last year.
The period 2020 to 2023 saw a decrease in the number of new banknote designs,
which limited the opportunities for polymer conversions versus our initial
expectations.
We retain confidence in the long-term prospects in this area, with a range of
significant countries continuing to evaluate conversion. Our most recent
analysis indicates current potential interest in polymer banknotes of 54bn
notes per annum, compared with actual current industry annual production of
around 8bn notes.
We currently have the capacity to triple our production of polymer substrate
without the need for further investment. We believe the continued move to the
use of polymer substrate, with its improved durability and recyclability, will
generate significant value over the next three to five years.
Our launch of ASSURE™ represents the first offer of a level 3 security in a
proven polymer substrate and allows De La Rue to provide polymer notes with a
full suite of security features.
We said at the time of the interim results that we had begun to see an up-tick
in tender activity within Currency. This has continued through the last
quarter of FY24 and into FY25. At the end of March 2024 the order book stood
at £239.2m (25 March 2023: £136.8m). At the end of June 2024, the order book
had increased to £241.4m with a further substantial contract closed in early
July 2024.
Responsible business
Doing business responsibly remains at the very heart of our business. During
FY24, we refined and bolstered our sanctions screening procedures. We were
pleased when our ISO 37001 anti-bribery and corruption certification was
subsequently renewed with no non-conformances raised.
Our ongoing efforts to improve energy efficiency have also been recognised,
when we received an A- grade on our 2023 CDP Climate Change questionnaire,
placing us as a climate change leader according to their assessment.
Our overall progress in the realm of sustainability was reflected in a Silver
medal in Ecovadis' 2023 appraisal, ranking De La Rue in the top 15% of the
thousands of companies assessed by this leading holistic sustainability
ratings service and FT Statista has listed the company as a Climate Change
Leader for a fourth successive year.
Employees
We continue to keep the health, safety and welfare of our employees centre
stage. Overall, we have had an excellent year for health and safety compliance
exceeding our targeted lost time injury frequency rate (LTIFR), through the
active continuation of our 'Safe, Secure and Sustainable' hearts and minds
campaign. We also completed the year with no governmental reportable accidents
across all sites, even with the backdrop of extensive construction work at our
Malta site. Elsewhere we have supported employee welfare by further developing
site employee engagement teams. These teams organise events and activities for
their sites, including community support and fundraising.
Going concern
The Group's Revolving Credit Facility (RCF) expires on 1 July 2025. The cash
flow forecasts for the Group indicate that it would not have sufficient
liquidity to meet the obligation to repay the RCF on or before 1 July 2025.
As detailed in the Chairman's statement, various strategic options are being
pursued which would allow the Group to repay the RCF on or before 1 July 2025.
The most progressed of those is the sale of the Authentication division. The
Board notes that the probability of completion, timing and terms of the sale
of the division are subject to factors outside of the Board's control, which
may in turn impact the cash proceeds, the costs associated with the
transaction and the amounts required to address any pension scheme risk, along
with the day one liquidity of the retained operations of the Group. These
matters represent a material uncertainty which may cast significant doubt upon
the Group's ability and the Company's ability to continue as a going concern
for a period up to 28 September 2025.
Notwithstanding the above, the Board is confident that the range of strategic
options and the progress being made with them will ultimately allow the Group
to repay the RCF in full before its expiration, satisfy future bonding
requirements, mitigate any risks to the De La Rue UK defined benefit pension
scheme and continue to operate the retained business as a going concern,
though management acknowledge that the probability, timing and final agreed
terms of any such transaction are subject to factors outside of the Board's
control.
Our modelling also shows that the Group should meet all its liquidity and
covenant requirements in the going concern assessment period, excluding the
need to repay the RCF by 1 July 2025.
Current trading and outlook
In the first quarter of 2025, the Authentication division traded in line with
expectations, having successfully renewed the four significant multi-year
contracts referred to above. As well as continuing revenue from current
contracts there is potential upside from the considerable number of new
business opportunities that the Authentication division is currently actively
pursuing.
The recovery in the Currency division noted in the interim results continues,
as reflected in the order book figures at March and June 2024 set out above.
This deeper order book has translated into higher revenues as well as improved
gross and operating profit performance in the first quarter compared with the
same period last year. The profitability of Currency has been further aided by
an improved payback on the Portals termination. At the time of signing in 2022
we assumed this would take four years, but which we now estimate will be
achieved in two years.
The precise outturn for the Group in FY25 will depend on the exact nature and
timing of any business disposal. We will provide further details once these
become clearer.
Conclusion
We move into FY25 with Currency now enjoying a prolonged and substantial
growth in activity and with Authentication pursuing several potential new
business opportunities, having already secured substantial revenue with its
renewal of four significant multi-year contracts. As a result of the
transformation of the company over the past four years, De La Rue's divisions
occupy leadership positions in their respective industries and are well
positioned to take advantage of the growth that is evident in their market
segments. I would like to thank all the employees at De La Rue for their
perseverance and determination in reaching this point and look forward to
taking full advantage of the new opportunities we now see across both
divisions to create growth.
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
operating divisions. Further details on non-IFRS financial measures can be
found on within Non-IFRS Measures.
100% of Group revenue for FY24 of £310.3m (FY23: £349.7m) originated from
our ongoing operating divisions of Currency and Authentication.
Together, Currency and Authentication delivered adjusted operating profit of
£21.0m (FY23: profit £27.8m), a fall of £6.8m (24.5%) period-on-period.
This largely reflects lower revenue from the Currency division and a slight
increase in operating expenses. The legacy Identity Solutions business
generated an adjusted operating result of £nil in FY24 with no remaining
activity (FY23: £0.1m loss).
The Group saw IFRS operating profit of £5.8m, as compared with a loss of
£20.3m in FY23, which saw much higher exceptional costs, including the
termination of the agreement with Portals Paper, a credit loss provision on
Portals loan notes and substantial restructuring expenses.
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.
FY24 FY23 Change
£m £m
Revenue 103.2 91.7 +12.5%
Gross profit 39.3 34.0 +15.6%
Adjusted controllable operating profit 25.4 23.0 +10.4%
Adjusted operating profit* 14.6 14.3 +2.1%
Operating profit 12.9 5.4 +138.9%
% %
Gross profit margin 38.1 37.1 +100bps
Adjusted controllable operating profit margin* 24.6 25.1 -50bps
Adjusted operating profit margin* 14.1 15.6 -150bps
* Non-IFRS measure
When compared with the prior period, the most substantial increase in FY24
Authentication revenue was due to the increase in ID sales, notably the
expected increase in production of data pages for the Australian passport.
Within Brand, Microsoft related sales were lower than in FY23. As noted at the
half year, the monthly run rate has stabilised, reflecting the continued
restrained state of PC sales globally. The loss of revenue in Kenya and from
HMRC in FY23, together with a stable overall performance in GRS, moderated
overall sales growth.
Gross profit margin rose 100 basis points, when compared with the prior
period, reflecting the mix in sales and efficient manufacturing processes.
Adjusted controllable operating profits, at £25.4m (FY23: £23.0m) were up on
last year in absolute terms but saw a slight fall in margin as depreciation
and amortisation rose, due to further investment in software, together with
staff incentives. Adjusted operating profits were marginally up on last year
at £14.6m (FY23: £14.3m) with the division allocated a higher proportion of
enabling function costs, as both divisional revenue was higher and Group
revenue was lower than last year.
In FY23, the division was impacted by substantial exceptional costs in
relation to the wind down of Kenya and the impairment of certain software
development costs.
This has not repeated this year and in FY24 exceptional costs relating to
Authentication amounted to just £0.7m in relation to restructuring
initiatives. As a result, IFRS operating profit rose 138.9% to £12.9m (FY23:
£5.4m).
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.
FY24 FY23 Change
£m £m
Revenue 207.1 254.6 -18.7%
Gross profit 46.6 58.2 -19.9%
Adjusted controllable operating profit 29.5 37.6 -21.5%
Adjusted operating profit* 6.4 13.6 -52.9%
Operating loss (1.0) (24.8) +96.0%
% %
Gross profit margin 22.5 22.9 -40bps
Adjusted controllable operating profit margin* 14.2 14.8 -60bps
Adjusted operating profit margin* 3.1 5.3 -220bps
* Non-IFRS measure
Revenue for the year in the Currency division was adversely impacted by the
industry downturn, falling 18.7% compared with last year to £207.1m (FY23:
£254.6m). Volumes were substantially down in all areas of the business.
However, by right-sizing our operations and by careful management of our
tenders, we were able to minimise the fall in margins at a gross profit level.
In monetary value, gross profit fell 19.9% to £46.6m (FY23: £58.2m).
Careful cost control and the reallocation of the ongoing remaining costs of
the Gateshead and Kenya facilities to enabling function costs at the start of
FY24 resulted in adjusted controllable operating profit falling nearly
proportionally to £29.5m (FY23: £37.6m).
The allocation of enabling function costs to the division fell slightly in
absolute terms, given the smaller proportional contribution of divisional
revenue to the Group in FY24 but, because of the lower adjusted controllable
operating profit, adjusted operating profit fell 52.9% to £6.4m (FY23:
£13.6m).
£7.4m (FY23: £38.4m) of exceptional costs of right-sizing the business for
future operations led the division into a marginal loss of £1.0m (FY23: loss
of £24.8m) 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, including the termination of the agreement with Portals Paper, a
credit loss provision on Portals loan notes and substantial restructuring
expenses.
Identity solutions
As noted above, the legacy Identity Solutions business saw no activity in FY24
with an operating result of £nil (FY23: operating loss of £0.1m).
Enabling function costs
In FY24, enabling function costs of £33.9m (FY23: £32.7m) rose by 3.7% and
represented 10.9% of Group revenue (FY23: 9.4%).
The rise in enabling function costs is mostly due to 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. Excluding this reallocation, enabling function costs fell
compared with FY23.
Exceptional items
Exceptional items during the period constituted a net charge of £14.2m (FY23:
£47.1m) before tax.
Exceptional charges before tax included:
FY24 Cash Non-cash FY23
£m £m £m £m
Site relocation and restructuring costs 9.0 4.3 4.7 21.1
Costs in relation to pension payment deferment and banking refinancing
5.4 5.1 0.3 -
Credit loss provision/write back on Portals loan notes 8.5
(0.5) (0.3) (0.2)
Pension underpin costs 0.3 0.3 - 0.5
Termination costs related to the Portals Paper agreement
- - - 17.0
14.2 9.4 4.8 47.1
£9.4m (FY23: £17.4m) of the exceptional items reported in FY24 were settled
in cash in the year. An additional £9.2m was settled in cash in relation to
prior year exceptional items, being £7.5m related to the termination of the
Relationship Agreement with Portals Paper Limited and £1.7m related to
restructuring costs. Therefore, a total of £18.6m was settled in cash in FY24
relating to exceptional items.
£9.0m (FY23: £21.1m) exceptional site relocation and restructuring costs
comprised:
· £4.1m (FY23: £2.5m) charge for redundancy and legal fees, namely
£2.8m within Currency, £0.8m in Authentication and £0.5m in Central
enabling functions, was made in relation to restructuring initiatives to
right-size the divisions for future operations.
· £4.5m (FY23: nil) of impairment charges relating to the impairment of
certain assets and machinery in the Currency division, together with £0.2m of
costs preparing these assets for removal.
· £0.2m (FY23: £1.1m) 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.
· A net nil (FY23: £12.6m) in relation to the wind down of our
operations in Kenya announced in January 2023. This included redundancy
charges of £0.1m, offset by £0.1m of proceeds from the sale of previously
impaired inventory.
In addition, FY23 included £4.3m of asset impairments and £0.6m of charges
relating to other cost out initiatives, including the initial Turnaround Plan
restructuring.
Costs associated with pension payment deferment and the banking refinancing
amounted to £5.4m (FY23: £nil) in the period. This included the following
legal and professional advisor costs:
· £2.6m 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.
· £1.1m relating to the extension of the revolving facility agreement on
18 December 2023, as detailed in 'Banking facilities' below.
Pension underpin costs of £0.3m (FY23: £0.5m) 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 FY24, a net credit loss provision release of £0.5m (FY23: £8.5m
charge) was reported on the loan notes held in Portals International Limited
where an unexpected cash repayment of £0.3m was received during the period
and a further unexpected payment of £0.2m was received after the period end.
In FY23, the Group reached a settlement to terminate a long-term supply
agreement with Portals Paper Limited, incurring an exceptional cost of
£17.0m, representing the agreed settlement together with associated legal
costs. The final payment under the Relationship Agreement of £7.5m was made
in April 2023.
Of the pre-tax net exceptional charge of £14.2m (FY23: £47.1m), £4.8m
(FY23: £29.7m) relates to non-cash items, principally asset impairments, and
£9.4m (FY23: £17.4m) relates to cash items.
Tax related to exceptional items amounted to a £5.2m tax credit (FY23: tax
charge of £5.1m).
Included within exceptional tax items are:
· £2.7m credit representing the tax relief impact of the
exceptional costs detailed above, which is net of a £0.5m charge relating to
the UK corporate interest restriction;
· £2.3m credit relating to the release of a provision
following the expiry of an indemnity period, following the Cash Processing
Solutions Limited business sale in May 2016; and
· £0.2m credit for the release of other tax provisions no
longer considered necessary.
Finance costs
The Group's net interest charge was £21.2m (FY23: £9.3m). This included
interest income of £0.5m (FY23: £1.2m), interest expense of £19.2m (FY23:
£11.6m) and retirement benefit finance expense of £2.5m (FY23: income of
£1.1m).
In FY24, no interest income has been recognised on the loan notes and
preference shares held in Portals Paper Limited (FY23: £1.1m) as the original
principal received and accrued interest was fully set off by the expected
credit loss provision in the balance sheet as at 30 March 2024.
Interest expense comprised:
FY24 FY23
£m £m
Bank loan interest 12.3 7.2
Other, including amortisation of finance arrangement fees 3.7 3.2
Net loss on debt modification 2.7 0.7
Interest on lease liabilities 0.5 0.5
19.2 11.6
The increase in bank loan interest paid in FY24 was largely attributable to
the rises in Bank of England base rates. In FY24, these were between 4.25% and
5.25%. By comparison in FY23 these moved from 0.75% to 4.25%, with most of the
increase taking place in the second half of the year.
The net loss on debt modification of £2.7m (FY23: £0.7m) relates 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.
The IAS 19 related finance cost, which represents the difference between the
interest on pension liabilities and assets, was an expense of £2.5m (FY23:
£1.1m 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 charge in the Consolidated Income Statement for the year was
£3.7m (FY23: £27.6m). This includes the impact of derecognised deferred tax
asset balances totalling £12.2m (FY23: £11.9m). It also includes a £3.8m
credit relating to a reduction in uncertain tax positions (FY23: £8.5m tax
charge).
Included within the total tax charge was a net tax credit relating to
exceptional items in the period of £5.2m (FY23: tax charge £5.1m) and a tax
credit of £0.3m (FY23: tax credit £0.3m) recorded in respect of the
amortisation of acquired intangibles.
The Group paid corporate income tax of £2.3m in FY24 (FY23: £1.0m).
The underlying effective tax rate for FY25 on continuing operations before
exceptional items and amortisation of acquired intangibles is expected to be
between 60%-80%. This appears disproportionately high due to the impact of
expected corporate interest restrictions in the UK and assumes no business
disposals or significant changes to the net debt position.
Earnings per share
The basic weighted average number of shares for earnings per share ('EPS')
purposes was 195.7m (FY23: 195.4m).
Adjusted basic loss per share was 5.3p (FY23: loss per share of 1.5p),
reflecting adjusted basic loss falling from £3.0m in FY23 to a loss of
£10.3m in FY24.
IFRS basic loss per share from continuing operations was 10.2p (FY23: 28.6p),
given the lower net exceptional charges recorded in FY24 and reflecting a
basic loss of £20.0m (FY23: loss of £55.9m).
Cash flow
The conservation and generation of cash within the business has been an area
of stringent focus during the period. Net working capital improved by £5.9m
(FY23: £18.3m) as we concentrated on reducing inventory levels, on careful
structuring of advance payments from customers where possible and on receipt
of prompt payment. 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.
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 £26.2m (FY23:
£23.8m inflow), generated after adjusting the £15.4m loss before tax (FY23:
£29.6m loss) for:
· £21.2m of net finance expense (FY23: £9.3m);
· £19.3m of depreciation and amortisation (FY23: £20.0m);
· £4.5m of asset impairment (FY23: £9.7m);
· £4.2m decrease in provisions (FY23: £0.1m increase);
· £ 1.5m of pension fund contributions related to the
administrative costs of running the Scheme. In FY23 a total of £16.5m cash
contributions were paid to the Scheme, which included pension deficit repair
contributions. De La Rue secured a moratorium on such payments in FY24.
· £5.9m net working capital inflow (FY23: £18.3m inflow)
including:
o £7.6m decrease in inventory (FY23: £0.5m decrease);
o £2.3m decrease in trade and other receivable and contract assets (FY23:
£6.0m decrease); and
o £4.0m decrease in trade and other payables and contract liabilities (FY23:
£11.8m 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 £2.3m (FY23: £1.0m).
The cash outflow from investing activities of £7.8m (FY23: £20.8m outflow)
included:
· capital expenditure on property, plant and equipment, after
cash receipts from grants, of £4.1m (FY23: £11.0m), largely relating to the
construction of our expanded facility in Malta.
· capital expenditure on software intangibles and development
assets of £4.6m (FY23: £10.4m).
· £0.6m (FY23: £0.2m) of interest received.
· £0.3m repayment of other financial assets.
The cash outflow from financing activities was £29.0m (FY23: inflow £12.6m),
included:
· £4.0m net repayment of borrowings (FY23: draw down of
£27.0m),
· £14.1m (FY23: £10.3m) of interest payments,
· £5.5m (FY23: £0.9m) of payments for debt issue costs,
· £2.5m (FY23: £2.4m) of IFRS 16 lease liability payments,
and
· £3.2m (FY23: £0.8m) of dividends paid to non-controlling
interests, mostly due to a repatriation of cash from Sri Lanka.
The net decrease in cash and cash equivalents in the period was £10.6m (FY23:
£15.6m increase).
As a result of the cash flow items referred to, Group net debt increased from
£82.4m at 25 March 2023 to £89.4m at 30 March 2024.
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 Foreign exchange At 30
March and other March
2023 Cash flow £m 2024
£m £m £m
Gross borrowings (122.7) 4.0 - (118.7)
Cash and cash equivalents 40.3 (10.6) (0.4) 29.3
Net debt (82.4) (6.6) (0.4) (89.4)
Net debt is presented excluding unamortised pre-paid borrowing fees of £5.0m
(FY23: £5.0m), loss on debt modification of £3.5m (FY23: £0.7m) and £11.6m
(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 the terms of the revolving facility agreement with its lending
banks and their agents. As a result of these changes, the facilities are now
secured against material assets and shares within the Group.
Under this amended agreement, the banking facilities' expiration on 1 January
2025 remained unchanged, but there were 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 financial covenant limits 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 up to and
including the Q4 2024 testing point, reducing to less than or equal to 3.6
times from Q1 FY25 through to the end of the agreement (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). This was further amended in December 2023 (see below).
· Additional spread rates on the leverage ratio to cover the
extra levels envisaged by the relaxation of covenant limits:
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
On 18 December 2023, the Group entered into a new agreement with its banking
syndicate to extend its banking facilities to July 2025. From December 2023,
the Group has bank facilities of £235m including an RCF cash drawn component
of up to £160m (a reduction of £15m from the previous agreement) and bond
and guarantee facilities of a maximum of £75m. The covenant tests described
above 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.
Covenant test results at 30 March 2024 are as follows:
Test Requirement Actual at
30 March 2024
EBIT to net interest payable More than or equal to 1.0 1.55
Net debt to EBITDA Less than or equal to 4.0 2.78
Minimum liquidity at 30 March 2024 was in excess of the £10m limit required
under the covenant tests.
The Group also met its covenant and liquidity requirements at the end of June
2024.
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.
At 30 March 2024, the Group had Bank facilities of £235.0m (FY23: £275.0m)
including an RCF cash drawn component of up to £160.0m (FY23: £175.0m) and
bond and guarantee facilities of a maximum of £75.0m (FY23: £100.0m), 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 March 2024, the Group had a total of undrawn RCF committed borrowing
facilities, all maturing in more than one year, of £42.0m (FY23: £53.0m).
The amount of loans drawn on the RCF cash component was £118.0m at 30 March
2024 (FY23: £122.0m). The accrued interest in relation to cash drawdowns
outstanding as at 30 March 2024 was £0.3m (FY23: £0.3m).
Guarantees of £41.8m (FY23: £52.1m) were drawn at 30 March 2024 under the
guarantee facility. The bond and guarantee facilities provide guarantees or
bonds to participate in tenders and function as back up to contracts where
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.
Pension scheme
The Company did not pay any deficit repair contributions to the Scheme during
the period to 30 March 2024. 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 was then undertaken as at 30 September
2023. This showed a Scheme deficit of £78m. As a result of this 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
was 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 defined benefit pension schemes of the Group on an IAS 19
basis at 30 March 2024 is a net liability of £51.6m (FY23: net liability of
£54.7m).
The charge to the adjusted operating profit in respect of the administration
of the Scheme in FY24 was £1.3m (FY23: £1.6m). Under IAS 19 there was a
finance charge of £2.5m (FY23: finance credit of £1.1m) arising from the
difference between the interest cost on liabilities and the interest income on
scheme assets.
Capital structure
At 30 March 2024, the Group had net assets of £2.6m (FY23: £22.6m restated).
In the prior period (FY23), deferred tax assets were incorrectly reported,
being overstated by £12.4m. This has no impact on earlier reported periods.
Neither does it have any cash impact on the Group. The prior year revision
corrects the impact of incorrectly including forecast corporate interest
restrictions within the forecast taxable profits used to support deferred tax
asset recognition purposes. The corporate interest restrictions are considered
temporary differences that are expected to originate in future periods and
therefore excluded from the assessment of future taxable profits. Further
information can be found in the Basis of Preparation within the Financial
Statements.
The movement during the period included:
£m
Opening net assets - 25 March 2023 - as reported 35.0
Prior period revision (12.4)
Opening net assets - 25 March 2023 - restated 22.6
Loss for the period (19.1)
Remeasurement loss on retirement benefit obligations 5.4
Tax related to remeasurement benefit liability (1.3)
Foreign exchange movements (2.2)
Movement in cash flow hedges (1.3)
Employee share scheme charges 1.4
Share capital issued 0.3
Dividends paid to non-controlling interests (3.2)
Closing net assets - 30 March 2024 2.6
Directors' report
Principal risks and uncertainties
Throughout its global operations De La Rue faces various risks, both internal
and external, which could have a material impact on the Group's performance.
The Group manages the risks inherent in its operations in order to mitigate
exposure to all forms of risks, where practical, and to transfer risk to
insurers where applicable.
The Group analyses the risks that it faces under the following broad headings:
strategic risks (technological revolution, strategy implementation, changes to
the market environment and economic conditions), operational risks,
legal/regulatory, information risks and financial risks (currency risk, credit
risk, liquidity risk, interest rate risk and commodity price risk).
The principal risks and uncertainties are reviewed at least quarterly and
updated. Currently they include:
· bribery and corruption;
· quality management and delivery failure;
· macroeconomic and geo-political environment;
· loss of key site or process;
· sustainability and climate change;
· breach of information security;
· supply chain failure;
· breach of security - product security;
· sanctions;
· loss of key talent;
· banking facilities; and
· currency sales pipeline.
Full details of the above risks will be included in the FY24 Annual Report and
Accounts.
Going concern
Please refer to the financial statements section "2. Basis of preparation and
accounting policies".
A copy of the 2023 Annual Report is available at www.delarue.com or on request
from the Company's registered office at De La Rue House, Jays Close, Viables,
Basingstoke, Hampshire, RG22 4BS.
Related Party Transactions
Details of the related party transactions that have taken place in the year
are provided in note 12 to the Financial Statements. None of these have
materially affected the financial position or the performance of the Group
during that period, and there have been no changes during FY24 in the related
party transactions described in the FY23 annual report that could materially
affect the financial position or performance of the Group.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge:
· The preliminary financial information, which has been
prepared in accordance with UK-adopted international accounting standards,
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company on a consolidated and individual basis; and
· The preliminary announcement includes a fair summary of the
development and performance of the business and the position of the Company on
a consolidated and individual basis, together with a description of the
principal risks that it faces.
The Board of Directors of De La Rue plc at 25 March 2023 and their respective
responsibilities can be found on pages 72 and 73 of the De La Rue plc Annual
Report 2023. There have been the following changes since the date of that
report:
· Resignation of Margaret Rice Jones
· Resignation of Rob Harding
· Appointment of Brian Small
For and on behalf of the Board
Clive Whiley
Chairman
Consolidated income statement
For the period ended 30 March 2024
Notes 2024 2023
£m £m
Revenue from customer contracts 4 310.3 349.7
Cost of sales (224.4) (257.6)
Gross Profit 85.9 92.1
Adjusted operating expenses (65.6) (64.3)
Other operating income 0.7 -
Adjusted operating profit 21.0 27.8
Adjusted Items(1):
Amortisation of acquired intangibles (1.0) (1.0)
Net exceptional items - expected credit loss 5 0.5 (8.5)
Net exceptional items - other 5 (14.7) (38.6)
Net exceptional items - Total 5 (14.2) (47.1)
Operating profit/(loss) 5.8 (20.3)
Interest income 0.5 1.2
Interest expense (19.2) (11.6)
Net retirement benefit obligation finance (expense)/income (2.5) 1.1
Net finance expense (21.2) (9.3)
Loss before taxation from continuing operations (15.4) (29.6)
Taxation 6 (3.7) (27.6)
Loss for the year (19.1) (57.2)
Attributable to:
Owners of the parent (20.0) (55.9)
Non-controlling interests 0.9 (1.3)
Loss for the year (19.1) (57.2)
Earnings per ordinary share
Basic EPS 7 (10.2)p (28.6)p
Diluted EPS 7 (10.2)p (28.6)p
Note: (1) For adjusting items, the cash flow impact of exceptional items can
be found in note 5 and there was no cash flow impact for the amortisation of
acquired Intangible assets.
Consolidated statement of comprehensive income
For the period ended 30 March 2024
Notes 2024 2023
restated *
£m £m
Loss for the year (19.1) (57.2)
Other comprehensive income
Items that are not reclassified subsequently to profit or loss:
Remeasurement gain/(loss) on retirement benefit obligations 5.4 (100.3)
Tax related to remeasurement of net defined benefit liability (1.3) 11.8
Tax related to components of other comprehensive income - (0.1)
4.1 (88.6)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations (2.8) 5.0
Foreign currency translation differences for foreign operations - -
non-controlling interests
0.6
Change in fair value of cash flow hedges (1.9) (1.0)
Change in fair value of cash flow hedges transferred to profit or loss 0.6 1.7
Tax related to cash flow hedge movements - (0.1)
(1.3) 0.6
(3.5) 5.6
Other comprehensive income/(loss) for the year, net of tax 0.6 (83.0)
Total comprehensive loss for the year (18.5) (140.2)
Comprehensive income for the year attributable to:
Equity shareholders of the Company (20.0) (138.9)
Non-controlling interests 1.5 (1.3)
(18.5) (140.2)
*The Group Consolidated Statement of Comprehensive Income for FY23 has been
restated as described in the Basis of preparation (note 2).
Consolidated balance sheet
At 30 March 2024
- Notes 2024 2023
restated *
£m £m
ASSETS
Non-current assets
Property, plant and equipment 85.4 97.1
Intangible assets 37.2 39.3
Right-of-use assets 10.2 12.1
Deferred tax assets 0.1 5.9
132.9 154.4
Current assets
Inventories 41.7 49.3
Trade and other receivables 72.8 70.7
Contract assets 16.7 18.9
Current tax assets 0.2 0.2
Derivative financial assets 0.7 2.4
Cash and cash equivalents 29.3 40.3
161.4 181.8
Total assets 294.3 336.2
LIABILITIES
Current liabilities
Trade and other payables (82.8) (92.1)
Current tax liabilities (20.4) (23.2)
Derivative financial liabilities (3.3) (1.9)
Lease liabilities (2.5) (3.0)
Provisions for liabilities and charges (1.8) (6.0)
(110.8) (126.2)
Non-current liabilities
Borrowings (117.2) (118.4)
Retirement benefit obligations 10 (51.6) (54.7)
Deferred tax liabilities (1.9) (2.8)
Lease liabilities (9.1) (10.3)
Other non-current liabilities (1.1) (1.2)
(180.9) (187.4)
Total liabilities (291.7) (313.6)
Net assets 2.6 22.6
Consolidated balance sheet
At 30 March 2024
Notes 2024 2023
restated *
£m £m
EQUITY
Share capital 89.0 88.8
Share premium account 42.3 42.2
Capital redemption reserve 5.9 5.9
Hedge reserve (1.2) 0.1
Cumulative translation adjustment 6.4 9.2
Other reserve (83.8) (83.8)
Retained earnings (70.2) (55.7)
Total (deficit)/equity attributable to shareholders of the Company (11.6) 6.7
Non-controlling interests 13 14.2 15.9
Total equity 2.6 22.6
*The Group Consolidated Balance Sheet for FY23 has been restated as described
in the Basis of preparation (note 2).
Approved by the Board on 24 July 2024.
Clive Vacher
Dean Moore
Chief Executive Officer Interim
Chief Financial Officer
Registered number: 3834125
Consolidated statement of change in equity
for the period ended 30 March 2024
Attributable to
equity shareholders
Share Share Capital Hedge Cumulative Other Retained Earnings £m Non-controlling interests £m Total equity
capital premium redemption reserve translation reserve £m
£m account reserve £m adjustment £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 for the year - - - - - - (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 for the year - - - 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 for the year - - - - - - (20.0) 0.9 (19.1)
Other comprehensive income for the year, net of tax - - - (1.3) (2.8) - 4.1 0.6 0.6
Total comprehensive income for the year - - - (1.3) (2.8) - (15.9) 1.5 (18.5)
Transactions with Owners of the Company recognised directly in equity:
Share Capital issued 0.2 0.1 - - - - - - 0.3
Employee share scheme
- value of service provided - - - - - - 1.4 - 1.4
Dividends paid - - - - - - - (3.2) (3.2)
Balance at 30 March 2024 89.0 42.3 5.9 (1.2) 6.4 (83.8) (70.2) 14.2 2.6
Notes:
Share premium account
This reserve arises from the issuance of shares for consideration in excess of
their nominal value.
Capital redemption reserve
This reserve represents the nominal value of shares redeemed by the Company.
Hedge reserve
This reserve records the portion of any gain or loss on hedging instruments
that are determined to be effective cash flow hedges. When the hedged
transaction occurs, the gain or loss on the hedging instrument is transferred
out of equity to the income statement. If a forecast transaction is no longer
expected to occur, the gain or loss on the related hedging instrument
previously recognised in equity is transferred to the income statement.
Cumulative translation adjustment (CTA)
This reserve records cumulative exchange differences arising from the
translation of the financial statements of foreign entities since transition
to IFRS. Upon disposal of foreign operations, the related accumulated
exchange differences are recycled to the income statement. This reserve also
records the effect of hedging net investments in foreign operations.
Other reserves
On 1 February 2000, the Company issued and credited as fully paid 191,646,873
ordinary shares of 25p each and paid cash of £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 cash box 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 where 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 Group recorded an impairment of the intercompany
loan. As a matter of generally accepted accounting practice, a profit
previously regarded as unrealised becomes realised when there is a loss
recognised on the write-down for depreciation, amortisation, diminution in
value or impairment of the related asset. In the year ended 25 March 2023, the
£51.9m previously treated as unrealised within Other Reserves was treated as
a realised amount which could be considered distributable and was reclassified
from "Other Reserves" to "Retained earnings".
Given the reversal of the impairment recorded in relation to intercompany
during the year ended 30 March 2024, the £51.9m is now considered to be
unrealised.
Consolidated cash flow statement
for the period ended 30 March 2024
2024 2023
£m £m
Cash flows from operating activities
Loss before tax (15.4) (29.6)
Adjustments for:
Finance income and expense 21.2 9.3
Depreciation of property, plant and equipment 10.9 12.5
Depreciation of right-of-use assets 2.5 2.2
Amortisation of intangible assets 5.9 5.3
Gain on sale of property plant and equipment - (0.1)
Impairment of property, plant and equipment included within exceptional items 4.5 5.4
Impairment of intangible assets included within exceptional items - 4.3
Share based payment expense 1.4 1.9
Pension Recovery Plan and administration cost payments(1) (1.5) (16.5)
(Decrease)/increase in provisions (4.2) 0.1
Non-cash credit loss provision - other financial assets (0.2) 8.5
Non-cash credit loss provision - other (0.1) (0.3)
Other non-cash movements (2.4) 3.5
Cash generated from operations before working capital 22.6 6.5
Changes in working capital:
Decrease in inventory 7.6 0.5
Decrease in trade and other receivables and contract assets 2.3 6.0
(Decrease)/increase in trade and other payables and contract liabilities (4.0) 11.8
5.9 18.3
Cash generated from operating activities 28.5 24.8
Notes
(1) The £1.5m (FY23: £16.5m) of pension payments includes £nil (FY23:
£15.0m) payable under the Recovery Plan, agreed in May 2020, and a further
£1.5m (FY23: £1.5m) relating to payments made by the Group towards the
administration costs of running the scheme.
Consolidated cash flow statement
for the period ended 30 March 2024
2024 2023
£m £m
Cash generated from operating activities 28.5 24.8
Net tax paid (2.3) (1.0)
Net cash flows from operating activities 26.2 23.8
Cash flows from investing activities:
Purchases of property, plant and equipment - gross (12.6) (15.2)
Purchases of property, plant and equipment - grants received 8.5 4.2
Purchases of property, plant and equipment - net(1) (4.1) (11.0)
Proceeds from repayment of other financial assets 0.3 -
Purchase of software intangibles and development assets capitalised (4.6) (10.4)
Proceeds from sale of property, plant and equipment - 0.4
Interest received 0.6 0.2
Net cash flows from investing activities (7.8) (20.8)
Net cash flows before financing activities 18.4 3.0
Cash flows from financing activities:
Proceeds from issue of ordinary share capital 0.3 -
Net (repayment)/draw down of borrowings (4.0) 27.0
Payment of debt issue costs (5.5) (0.9)
Lease liability principal payments (2.5) (2.4)
Interest paid (14.1) (10.3)
Dividends paid to non-controlling interests (3.2) (0.8)
Net cash flows from financing activities (29.0) 12.6
Net (decrease)/increase in cash and cash equivalents in the year (10.6) 15.6
Cash and cash equivalents at the beginning of the year 40.3 24.3
Exchange rate effects (0.4) 0.4
Cash and cash equivalents at the end of the year 29.3 40.3
Cash and cash equivalents consist of:
Cash at bank and in hand 21.8 26.5
Short-term deposits 7.5 13.8
29.3 40.3
Notes:
(1 ) The net purchases of property, plant and
equipment of £4.1m (FY23: £11.0m) includes additions to property, plant and
equipment in the year of £4.1m (FY23: £11.2m), down payments and capex
creditors cash outflow of £0.5m (FY23: £0.5m) and excludes £0.5m (FY23:
£0.7m) of grants not yet received.
1 GENERAL INFORMATION
De La Rue plc (the Company) is a public limited company incorporated and
domiciled in the United Kingdom, whose shares are publicly traded on the
London Stock Exchange. The registered office is located at De La Rue House,
Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.
De La Rue plc and its subsidiaries (together "Group") has two principal
segments Currency and Authentication. In Currency we design, manufacture and
deliver bank notes, polymer substrate and security features around the world.
In Authentication, we supply products and services to governments and Brands
to assure tax revenues and authenticate goods as genuine. In addition, there
is a third segment, Identity Solutions, which includes minimal non-core
activities.
The financial statements have been prepared as at 30 March 2024, being the
last Saturday in March. The comparatives for the FY23 financial period are for
the period ended 25 March 2023.
The consolidated financial statements of the Company for the period ended 30
March 2024 were authorised for issuance by the board of Directors on 24 July
2024.
2 BASIS OF PREPARATION AND ACCOUNTING POLICIES
STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared on the going
concern basis and using the historical cost convention, modified for certain
items carried at fair value, as stated in the Group's accounting policies.
The financial information set out above does not constitute the Group's
statutory accounts for the periods ended 30 March 2024 or 25 March 2023.
Statutory accounts for the periods ended 25 March 2023 have been delivered
to the registrar of companies and those for the period ended 30 March 2024
will be delivered in due course.
The auditor has reported on the accounts for the periods ended 30 March 2024
and 25 March 2023. Their reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of
emphasis of matter without qualifying their report and (iii) did not contain a
statement under Section 498(2) or (3) of the Companies Act 2006. The above
notwithstanding, the auditor's report on the accounts for the period ended 30
March 2024 contains a material uncertainty in respect of going concern in
relation to the ability of the Group to repay its revolving credit facility on
1 July 2025 when it becomes due, given that the timing, probability of
completion and terms of a sale of the Authentication division are subject to
factors outside of the Board's control.
Refer to the Going Concern Statement below for further details of the
Directors' Going Concern Statement.
The consolidated financial statements of the Company for the period ended 30
March 2024 have been prepared in accordance with UK-adopted International
Financial Reporting Standards ('IFRS') in accordance with the requirements of
the Companies Act 2006. IFRS includes standards issued by the International
Accounting Standards Board ('IASB') that are endorsed for use in the UK.
The consolidated financial statements are prepared on a going concern basis
under the historical cost convention with the exception of certain items which
are measured at fair value as disclosed in the accounting policies below.
The preparation of financial statements in accordance with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed below in 'Critical accounting estimates,
assumptions and judgements'.
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below or have been incorporated
with the relevant notes to the accounts where appropriate. These policies have
been consistently applied to all the periods presented, unless otherwise
stated.
Consolidated Statement of Financial Position - Prior Year Revision
In the prior period (FY23), deferred tax assets of £18.3m were incorrectly
reported. This had an impact on FY23 only and has no impact on the opening
comparatives as at 27 March 2022 or on earlier reported periods.
Deferred tax assets were overstated by £12.4m which relates to the UK Group
entities. 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 "Income Taxes". 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 temporary
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 and
liabilities for accounting purposes only and has no impact on the underlying
tax attributes of the Group.
Impact on the Group Consolidated Balance Sheet
FY23 Prior year FY23
As reported revision restated
£m £m £m
Deferred tax asset 18.3 (12.4) 5.9
Deferred tax liabilities (2.8) - (2.8)
Net assets 35.0 (12.4) 22.6
Retained earnings (43.3) (12.4) (55.7)
Impact on the Group Consolidated Statement of Comprehensive Income/(loss) in
FY23:
FY23 Prior year FY23
As reported revision restated
£m £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 Consolidated 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 loss for the year - as reported (70.6)
Prior year revision (12.4)
Other comprehensive loss for the year - restated (83.0)
Total comprehensive loss 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
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below or have been incorporated
with the relevant notes to the accounts where appropriate. These policies have
been consistently applied to all the periods presented, unless otherwise
stated.
CLIMATE CHANGE
In preparing the Consolidated Financial Statements management has considered
the impact of climate change and the actions that the Group will take in order
to fulfill its sustainability strategy and satisfy its commitment to become
carbon neutral from its own operations by 2030. This includes the estimates
around future cash flows used in impairment assessments of the carrying value
of goodwill and intangible assets in De La Rue Authentication Inc,
recoverability of deferred tax assets and the useful economic life of plant
and equipment, especially assets which are power-intensive and expected to be
replaced.
This is within the context of the disclosures included in Strategic report,
including those made in accordance with the recommendation of the Task force
on Climate-related Financial Disclosures and the Companies (Strategic report)
Climate -related Financial Disclosure Regulations 2022 this year. These
considerations did not have a material impact on the financial reporting
judgements and estimates.
GOING CONCERN
Overview
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 and the Company's
ability to continue as a going concern, the Directors have taken into account
all available information for a period up to 28 September 2025, 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 in the Chairman's
review and CEO review above. The financial position of the Group, its cash
flows, liquidity position and borrowing facilities are described in the
Financial Review above.
As explained further below, the Board has determined that the going concern
basis of accounting in the preparation of the consolidated financial
statements is appropriate.
The Group's Revolving Credit Facility (RCF) expires on 1 July 2025. The cash
flow forecasts for the Group indicate that it would not have sufficient
liquidity to meet the obligation to repay the RCF in full on or before 1 July
2025. Management has been pursuing various strategic options which would allow
the Group to repay the RCF on or before 1 July 2025. The most progressed of
those is the sale of the Authentication division. The Board notes that the
probability of completion, timing and terms of the sale of the division are
subject to factors outside of the Board's control, which may in turn impact
the cash proceeds, the costs associated with the transaction and the amounts
required to address any pension scheme risk, along with the day one liquidity
of the retained operations of the Group. These matters represent a material
uncertainty which may cast significant doubt upon the Group's ability and the
Company's ability to continue as a going concern for a period up to 28
September 2025.
Strategic review
As detailed in the trading update released on 30 May 2024, the Directors have
been undertaking a review of the core strategic strengths of the Group and how
best to optimise the underlying intrinsic value of the business for the
benefit of all stakeholders.
This review and analysis has included:
· recognising the improved order intake over the last
year, and the future prospects for the Group's operating divisions and the
Group as a whole;
· the accretive value creation that may be achieved with
increased scale and capabilities in both of the operating divisions; and
· the Directors' commitment to reduce leverage and create
greater financial flexibility in the funding structure of the Group as a
whole.
This review, and associated learnings, has guided the Board in its process to
evaluate strategic options for the group and each division. As a result, the
Board is in discussions with a number of parties who have made proposals in
relation to, or expressed interest in, the acquisition of each of the Group's
divisions.
Since the release of the trading update on 30 May 2024, the discussions with
the interested parties have progressed in line with the Board's expectations.
The Board is satisfied that, if the discussions relating to the Group's
Authentication division conclude in a sale of that division on the terms
currently under discussion (and notwithstanding the material uncertainty as
detailed above), there would be adequate proceeds from the transaction to
fully repay the RCF, satisfy future bonding requirements, mitigate any risks
to the De La Rue UK defined benefits pension scheme, and continue to operate
the retained business as a going concern.
Expiration of the RCF
Under the amended facility agreement, signed on 18 December 2023, the Group
has access to a RCF of £235m that expires on 1 July 2025, which is within the
going concern period.
Over the last year, the Board has been in ongoing dialogue with the banking
syndicate providing the RCF. This dialogue has been constructive, and the
lenders are supportive of the Board pursuing the strategic options summarised
above.
The Directors are confident that further progression of the sale of
Authentication will ultimately allow for the full repayment of the RCF prior
to its expiration in July 2025. As a result, both the Group and its banking
syndicate have agreed not to further extend the RCF beyond its current expiry
date at this point in time.
Covenants testing
The RCF allows the drawing down of cash up to the level of £160m and the use
of bonds and guarantees up to the level of £75m.
The continued access to these borrowing facilities is subject to quarterly
covenant tests which look back over a rolling 12-month period. In addition,
there is minimum liquidity testing at each weekend point on a four-week
historical basis and 13-week forward looking basis. The Group was in full
compliance with its covenants throughout FY24.
During FY24 the covenant terms were:
· 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 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'.
The spread rates on the leverage ratio remain at the following levels:
Leverage (consolidated net debt to EBITDA) Margin (% per annum)
Greater than 3.5:1 4.35
Greater than 3.0:1 and less than or equal to 3.5:1 4.15
Greater than 2.5:1 and less than or equal to 3.0:1 3.95
In order to determine the appropriate basis of preparation for the financial
statements for the period ended 30 March 2024, the Directors must consider
whether the Group can continue in operational existence for the going concern
review period to 28 September 2025, taking into account the above liquidity
headroom and covenant tests.
The terms of the facility agreement also include consideration of future
options for the Group and provision of non-financial deliverables. These
requirements have been monitored throughout the year and have continued to be
achieved to the satisfaction of all parties.
Testing assumptions
The Group has prepared profit and cash flow forecasts which cover a period up
to 28 September 2025 (Q2 FY26), being the going concern period. This
includes the following quarters: Q2, Q3 and Q4 FY25 and Q1, Q2 FY26 as well as
monthly liquidity testing points over the period.
The Directors consider that a period of at least 14 months to 28 September
2025 is an appropriate going concern period given this is the first quarterly
covenant test which is greater than 12 months from the opinion date. While
the current RCF is due to expire before this date, the Directors are confident
that the further progression of the sale of Authentication will provide
sufficient liquidity within the going concern period (notwithstanding the
material uncertainty as described above).
Base case assumptions
The base case forecasts over the going concern period have been developed
taking into consideration the timing and continuation of the Currency recovery
that has been materialising in the marketplace with orderbook growth and bid
activity showing positive signs of a market rebound. In addition, renewals of
key Authentication contracts, combined with annualization of contracts already
won and starting to produce in the current financial year, aid confidence in
the strategic growth forecasted for that division through the going concern
period up to 28 September 2025.
The already enacted and largely completed footprint and restructuring projects
have right sized the business for current demand levels. 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.
FY25 results to date indicate the Group is substantially on-track to deliver
the FY25 budget from an EBIT and EBITDA perspective, with key orderbook wins
secured to deliver the in-year plan.
In Currency, the Group is seeing clear evidence 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. At March 2024, the total order book stood at £239.2m
(26 March 2023: £136.8m).
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.
The Group's base case modelling (excluding the repayment of the RCF on or
before 1 July 2025) shows headroom on all covenant and liquidity thresholds
across the going concern period.
Non-financial milestones
Over the going concern period, there are number of non-financial milestones
such as the provision of 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. The
Directors are confident that all of the non-financial conditions and monthly
monitoring will continue to be met over the going concern period.
Downside modelling
Our downside modelling has incorporated 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' 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 to be 4.5% in the UK, 1.5% in Malta
and 10% in Sri Lanka, with no corresponding revenue inflation assumption.
Inflationary impacts have already been considered in the FY25 budget, with the
Group having sufficient sight of selling prices and costs that no additional
inflationary downside is necessary for FY25 and no element of recovery on
selling prices has been incorporated into any modelling in FY26.
Supply chain risks are monitored regularly by the Group. Fixed price contracts
are in place for utilities until September 2024 (i.e. the end of Q2 FY25) and
latest utility estimates had also been reviewed from external brokers which
confirmed base utility costs are reducing. No reduction was factored into the
base case and with overall inflation pressures already considered above, 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. The
base case modelling is aligned with the latest forward interest rate curves
that indicate a significant reduction in interest rates over the going concern
period. The bonding pipeline was also considered and a £5m cash collateral
expectation has been factored into the base case from July 2024 to support the
strong bid activity around the Group. Under the base case, interest would need
to increase by circa £9.7m at the lowest point for a breach to occur in Q2
FY26. Given the forward interest rate curves are suggesting a reduction in
interest rates, management have assessed this risk as 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. For FY25, this represents a margin reduction of £6.7m (34%) of our
unsecured orderbook margin as of June 2024. For currency pipeline downside
risks modelled, margins have been determined using the average margin and/or
known unsecured jobs targeted.
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 "material uncertainty" 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 can see given the volatility of
working capital in the Currency business in particular. A £15m working
capital outflow, excluding non-recurring items, was incorporated on top of the
modelled plausible severe downside to apply monthly to liquidity testing.
Sufficient liquidity headroom remained.
The Directors noted that working capital and cash management have improved in
the business over the course of FY24, resulting in a circa £10m improvement
in net debt achieved vs initial FY24 budgeted expectations. 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.
If all of these modelled downside risks were to materialise in the going
concern period prior to the maturity of the RCF on 1 July 2025, the Group
would still meet its required covenant ratios and maintain sufficient
liquidity, after taking into account mitigating actions, such as identified
cost saving opportunities which the Directors consider to be within the
Group's control, for example the deferral of uncommitted operating expenditure
and a reduction in capital expenditure.
The Group's 'severe yet plausible' downside modelling (excluding the repayment
of the RCF on or before 1 July 2025) shows headroom on all covenant and
liquidity thresholds across the going concern period.
Stress-testing
Under the severe yet plausible downside modelling, EBIT and EBITDA would need
to drop in excess of the Group's historic forecasting inaccuracy over the last
few years for any breach to occur. For a breach to occur on liquidity, there
would need to be a drop from the lowest point in excess of what the Group has
experienced over the last three years in terms of recurring cash flow
swings. This is taking into account mitigating actions within the Board's
control, including the timing of supplier payments and capital expenditure.
The Directors have concluded that a breach is remote on the financial
covenants given:
· FY25 results to date indicate the Group is
substantially on-track to deliver the FY25 budget from an EBIT and EBITDA
perspective.
· Management considers that given the longer-term and
consistent nature and renewals 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 an orderbook increase supported by
a continued trend in win rates and the multi-year nature of the orderbook. For
FY25, 68% of budgeted revenue had already been secured by June 2024.
· Severe stress testing of liquidity excluded mitigating
actions, as noted above, that management could employ and still showed
headroom under stress. The Directors consider 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
the Directors.
· The Directors are comfortable that any non-financial
conditions and reporting requirements have been achieved and will be
throughout the going concern period.
Additional modelling
In addition to the above, management have performed modelling that assumes the
theoretical sale of the Authentication division. This modelling took into
account the expected use of funds, which includes full repayment of the RCF,
mitigation of any risk to the De La Rue UK defined benefits pension scheme and
expected transaction costs. This modelling indicated sufficient cash
liquidity, including the expected use of funds, between the theoretical
completion date and the end of the going concern period taking into account
the required liquidity of the remaining Group through to 28 September 2025,
with the Group benefitting from reduced interest costs in particular.
However, management acknowledge that the probability and timing of completion
and final agreed terms of any such transaction are subject to factors outside
of the Board's control, which could lead to a scenario whereby the Group and
Company would have to seek alternative financing to repay the RCF on or before
1 July 2025, or obtain an extension to the RCF from the lenders. Both of these
options are outside of the Board's control.
Furthermore, even in the event that the transaction is completed prior to 1
July 2025 and the RCF is repaid, the amount that will be retained by Group is
subject to factors outside of the Board's control, having taken into account
the Group's cash position on disposal, the final sale price, transaction costs
and any cash outflows addressing the pension risk.
Conclusion
Based on the above, the Board has concluded the following:
1. Both the base case modelling and the severe yet plausible
modelling indicate that the Group would generate sufficient positive cash
flows to continue operating as a going concern over the 14-month period ending
28 September 2025, excluding the need to repay the RCF on or before 1 July
2025. Similarly, there would be no expected breaches of financial and
non-financial covenants (assuming no changes to the existing covenants).
2. Given recent discussions, the Board is confident that
further progression of the sale of Authentication will ultimately allow the
Group to repay the RCF in full before its expiration on 1 July 2025, satisfy
future bonding requirements, mitigate any risks to the De La Rue UK defined
benefits pension scheme, and continue to operate the remaining business as a
going concern.
3. Management's base case modelling indicates that the Group
would not have sufficient funds or the ability to repay the RCF on or before 1
July 2025 when it becomes due, given that the timing, probability of
completion and terms of the sale of the Authentication division are subject to
factors outside of the Board's control. The circumstances which would follow
non-repayment of the RCF on or before 1 July 2025, including the manner in
which the Group's lenders would seek to recover funds, would not be within the
control of the Directors. Furthermore, even in the event of a transaction
completing, the proceeds that will be retained (and immediately available) in
the Group to address its ongoing liquidity requirements following the
repayment of the RCF, are subject to factors outside of the Board's control.
These include the Group's cash position on disposal, the final sale price,
transaction costs and any cash outflows addressing the pension risk. These
matters represent a material uncertainty which may cast significant doubt upon
the Group's ability and the Company's ability to continue as a going concern
for a period up to 28 September 2025. p
The financial statements do not contain the adjustments that would result if
the Group and the Company were unable to continue as a going concern.
New Standards, interpretations and amendments adopted by the Group
Other than as described below, the accounting policies adopted in the
preparation of these consolidated financial statements are consistent with
those applied by the Group in its consolidated financial statements as at, and
for the period ended, 25 March 2023.
As at the reporting date, 30 March 2024, several amendments apply for the
first time in FY24 and their impact on these consolidated financial statements
of the Group is described below.
For the amendments that become effective for future periods the Group has not
early adopted any standard, interpretation or amendment that has been issued
but is not yet effective. The impacts of applying these policies are not
considered material.
New standards and amendments effective in the year:
- 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. This is not applicable to the
Group.
- 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. The Group has disclosed its material
accounting policy information only.
- 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 differences
for deferred tax on the recognition of assets and liabilities from a single
transaction. For FY24, this has impacted the deferred tax balances for leases
where a tax deduction arises on the payment of lease liabilities rather than
on asset deprecation. This has not impacted the opening reserves or the
current period tax charge; however the deferred tax asset and liabilities
related to leases have now been disclosed separately, including the
comparative balances. There is no impact on the net deferred tax asset or
liability position on the balance sheet due to the effect of jurisdictional
offset.
- 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.
New standards and amendments not yet effective:
- 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.
Critical accounting estimates, assumptions and judgements
Management has discussed with the Audit Committee the development, selection
and disclosure of the Group's critical accounting policies and estimates and
the application of these policies and estimates. Management is required to
exercise significant judgement in the application of these policies. Estimates
are made in many areas and the outcome may differ from that calculated.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are set out in "B. Critical accounting estimates"
below.
Other accounting estimates that are not considered to have a significant risk
of causing a material adjustment with the next financial year but which the
Group would like to draw attention to due to judgements or longer-term
estimates are set out in "C. Other areas of accounting estimates" below.
A Critical accounting judgements
1. Determination of lease term
Management has made certain judgements on lease terms based on the Group's
current expectations of whether break or renewal options will be taken. In
arriving at these judgements, management has considered its current business
plans including the locations in which it wants to operate in addition to the
impact of any cost-out programmes it is considering.
2. Revenue recognition and cut-off
Customer contracts will often include specific terms that impact the timing of
revenue recognition. The timing of the transfer of control varies depending on
the individual terms of the sales agreement.
For sales of products the transfer usually occurs on loading the goods onto
the relevant carrier; however the point at which control passes may be later
if the contract includes customer acceptance clauses or control passes on
arrival at the customer location. Control will also pass if the customer
requests that goods are held in storage until required. Specific consideration
is needed at year end to ensure revenue is recorded within the appropriate
financial year.
This judgement is particularly important in the Currency division due to the
material nature of certain contracts which may ship near to a reporting period
end. Management has carefully reviewed material customer contracts with
particular focus on those shipping in the last quarter of the financial period
to ensure revenue has been recorded in the correct year.
3. Revenue recognition and determination of whether an
enforceable right to payment exists
For certain customer contracts, revenue is recognised over time in accordance
with IFRS 15, as the Group has an enforceable right to payment.
Determination of whether the Group had an enforceable right to payment
requires careful analysis of the legal terms and conditions included within
the customer contract and consideration of applicable laws and customary legal
practice in the territory under which contract is enforceable.
External legal advice is obtained if considered necessary to allow management
to make this assessment. Management has carefully reviewed material contracts
relating to revenue recognised in the period to determine if an enforceable
right to payment exists which results in revenue being recorded 'over-time'
rather than 'point in time'.
In FY24 the Group has had customer contracts where revenue is recognised
'over-time' in the Currency and Authentication divisions.
4. Classification of exceptional items
The Directors consider items of income and expenditure which are material by
size and/or by nature and not representative of normal business activities
should be disclosed separately in the financial statements so as to help
provide an indication of the Group's underlying business performance. The
Directors label these items collectively as 'exceptional items'. Determining
which transactions are to be considered exceptional in nature is often
a subjective matter.
However, circumstances that the Directors believe would give rise to
exceptional items for separate disclosure would include: gains or losses on
the disposal of businesses, curtailments on defined benefit pension
arrangements or changes to the pension scheme liability which are considered
to be of a permanent nature and non-recurring fees relating to the management
of historical scheme issues; restructuring of businesses; asset impairments
and costs associated with the acquisition and integration of business
combinations.
All exceptional items are included in the appropriate income statement
category to which they relate. Refer to note 5 for further details.
5. 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 machinery and equipment
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 has 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
available for use.
As per the agreement, there are three separate units with different start-up
dates. 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, 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 H1 25. Therefore,
management has concluded that no lease should be recognised in FY24. The lease
will be recognised when the building becomes available for use.
Please refer to note 14 for the related future capital commitments.
6. Accounting for the change in the terms of the banking
facilities
a. 29 June 2023 amendments
On 29 June 2023, the Company entered into a number of documents which had the
effect of amending 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%
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.
b. 18 December 2023 amendments
On 18 December 2023, the Company entered into a number of documents which had
the effect of amending 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%
from the present value of the remaining cash flows under the original terms.
Based on the procedure performed there was a net impact of 1.45%. 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 £5.6m, including a loss on the debt
modification in June 2023 of £4.8m and a loss on the debt modification in
December 2023 of £0.8m.
B Critical accounting estimates
1. Recoverability of other financial assets
In FY23, management assessed the recoverability of the carrying value of
securities interests held in the Portals International Limited group on the
balance sheet and recorded an expected credit loss provision in relation to
the original principal value and interest receivable which was recorded in
exceptional items in FY23 consistent with the original recognition as part of
the loss on disposal (note 5).
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 and performed probability weighted modelling against three scenarios
determining that an expected credit loss provision of £8.5m was required
which fully impaired these other financial assets. Management has considered
the following factors in making this determination:
1) The public announcement from the Portals group relating to
the wind down of the Overton paper mill and its sale of assets.
2) The latest available financial position of Portals
International Limited group as presented in its 2022 consolidated financial
statements including significant losses for the period and a net liabilities
position.
3) The announcement of the sale of the Fedrigoni business to
IN Groupe in May 2023.
This provision accounts for the risk that the full amounts due will not be
recovered rather than the instruments being credit impaired. Management 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.
During FY24, £0.3m was received to settle some of these other financial
assets. This was unexpected and no further amounts were expected as at 30
March 2024. However, a further £0.2m was received, again unexpectedly, in
June 2024 in settlement of some of these other financial assets. The £0.5m
credit has been reflected in exceptional items in FY24 (note 5). After a
further review, management has concluded that there has been no change in this
assessment of the remaining other financial assets in FY24.
The amount presented on the balance sheet within other financial assets as at
30 March 2024 of £nil (25 March 2023: £nil) included the original principal
received and accrued interest amounts, fully offset by the expected credit
loss provision.
2. Post-retirement benefit obligations
Pension costs within the income statement and the pension obligations/assets
as stated in the balance sheet are both dependent upon a number of assumptions
chosen by management with advice from professional actuaries. These include
the rate used to discount future liabilities, the expected longevity for
current and future pensioners and estimates of future rates of inflation. The
discount rate is the interest rate that should be used to determine the
present value of estimated future cash outflows expected to be required to
settle the pension obligations.
The Group engages the services of professional actuaries to assist with
calculating the pension liability (note 10).
3. Tax
The Group is subject to income taxes in numerous jurisdictions and significant
judgement is required in determining the worldwide provision for those taxes.
The level of current and deferred tax recognised is dependent on subjective
judgements as to the outcome of decisions to be made by the tax authorities in
the various tax jurisdictions around the world in which the Group operates.
It is necessary to consider which deferred tax assets should be recognised
based on an assessment of the extent to which they are regarded as
recoverable, which involves assessment of the future trading prospects of
individual statutory entities, the nature and level of any deferred tax
liabilities from other items in the accounts such as pension positions, and
overseas tax credits that are carried forward for utilisation in future
periods, including some that have been allocated to Governmental authorities
as part of investment projects.
The actual outcome may vary from that anticipated. Where the final tax
outcomes differ from the amounts initially recorded, there will be impacts
upon income tax and deferred tax provisions and on the income statement in the
period in which such determination is made.
The Group has current tax provisions recorded within current tax liabilities,
in respect of uncertain tax positions. In accordance with IFRIC 23, tax
provisions are recognised for uncertain tax positions where it is considered
probable that the position in the filed tax return will not be sustained and
there will be a future outflow of funds to a taxing authority. Tax provisions
are measured either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the sum of the
probability-weighted amounts in a range of possible outcomes) depending on
management's judgement on how the uncertainty may be resolved.
The Group is disputing tax assessments received in certain countries in which
the Group operates. These tax assessments have been subject to court ruling
both in favour of the Group and also against the Group. The rulings are
subject to ongoing appeal processes. The Group has increased the relevant tax
provisions and is fully provided where necessary as required by the relevant
accounting standards. The disputed tax assessments are subject to ongoing
dialogue with the relevant tax authorities to reach a settlement without the
requirement to continue in a protracted legal process.
C Other areas of accounting estimates
1. Impairment test of Goodwill and acquired Intangibles
Goodwill relates to the acquisition in FY17 of De La Rue Authentication Inc.
(previously DuPont Authentication Inc). The goodwill has been tested for
impairment during the year as IAS 36 "Impairment of Assets" requires annual
testing for assets with an indefinite life. For the purposes of impairment
testing the Cash Generating Unit ("CGU") for the goodwill has been determined
as the De La Rue Authentication entity as a whole. This is consistent with
the fact that the entity is not fully integrated into the Group and the
integrated nature of the Intellectual Property and other assets which
collectively generate cash flows.
The FY24 impairment test calculated the recoverable amount using the fair
value less costs to sell approach as it was considered to provide a higher
amount than the value in approach. Fair value less costs to sell is the arm's
length sale price between knowledgeable willing parties less costs of
disposal. Fair value represents Level 3 in the FV hierarchy.
The fair value less costs to sell of the CGU was derived from recent
expressions of interest for the Group's Authentication division. These
expressions of interest were received from third parties and are considered to
be at arm's length. For further information on these expressions of interest,
refer to the going concern disclosures within the accounting policies section
of these financial statements.
To determine the implied CGU valuation from the divisional valuation,
management analysed the contribution of the CGU to total Authentication
revenues, EBITDA and Adjusted operating profit in both FY24 (actual) and FY25
(budgeted).
The recoverable amount at the testing date was significantly in excess of the
carrying value at 30 March 2024.
The key assumptions supporting the recoverable amount include the valuation of
the Authentication division as a whole, along with the budgeted revenue,
EBITDA and Adjusted operating profit contributions of the CGU (expressed as a
percentage of the total). There are no reasonable possible changes in these
key assumptions that would cause the recoverable amount to fall below the
carrying amount of the CGU.
A decrease in the fair value of the CGU of 5% would result in a reduction in
the headroom of 11% and would not result in an impairment.
2. Recoverability assessment and impairment charges related to
plant and machinery, capitalised product development costs and assets under
construction
Kenya operations
In January 2023, the Group announced that owing to current market demand, and
no expectation of new banknote orders from the Central Bank of Kenya for at
least the next 12 months, De La Rue Kenya (a joint venture with the Government
of Kenya) has suspended banknote printing operations in the country. In
addition, operations in our Authentication division were also wound down and
suspended at the start of FY24. As a result of the review of the business in
Kenya in FY23 an exceptional charge of FY23: £12.6m was made 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.
Property, plant and equipment and assets under construction impairments
In FY24 impairment charges of £3.4m were made in relation to plant and
machinery and £1.1m in relation to assets in the course of construction. A
review was carried out of assets held by the Currency division and as a result
£4.5m of assets were identified for impairment, mostly relating to assets
that were originally to be utilised in another location where there is no
longer the demand.
The above have been included within exceptional items (note 5).
3. Onerous contract provisions
The financial statements also included a small number of onerous contract
provisions for loss making contracts. Management has assessed these and
applied judgement in determining the required level of provisioning including
how, in accordance with IAS 37, the lowest unavoidable costs of exiting or
fulfilling the contract have been calculated.
4. Estimation of provisions
The Group holds a number of provisions relating to warranties for defective
products and contract penalties. Management has assessed these and applied
judgement in determining the value of provisions required.
3. SEGMENTAL ANALYSIS
The continuing operations of the Group have two main operating units: Currency
and Authentication.
In the prior period, FY23, there were three main operating units being
Currency, Authentication and Identity Solutions. In FY23, 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 FY24 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 two reportable
segments. The principal financial information reviewed by the Board is
revenue, adjusted operating profit and assets and liabilities.
The Group's segments are:
Currency - provides Banknote print, Polymer and Security features.
Authentication - provides the physical and digital solutions to authenticate
products through the supply chain and to provide tracking of excisable goods
to support compliance with government regulators. Working across the
commercial and government sectors the division addresses consumer and Brand
owner demand for protection against counterfeit goods.
Inter-segmental transactions are eliminated upon consolidation. There is no
history of seasonality or cyclability of operations.
Currency Authentication Identity Solutions Unallocated Total of Continuing operations
£m £m £m £m £m
£m
FY24
Total revenue from contracts with customers 207.1 103.2 - - 310.3
Less: inter-segment revenue - - - - -
Revenue from contracts with customers 207.1 103.2 - - 310.3
Cost of sales (160.5) (63.9) - - (224.4)
Gross profit 46.6 39.3 - - 85.9
Adjusted operating expenses (40.9) (24.7) - - (65.6)
Other operating income 0.7 - - - 0.7
Adjusted operating profit 6.4 14.6 - - 21.0
Adjusted items:
Amortisation of acquired intangible assets - (1.0) - - (1.0)
Net exceptionals (7.4) (0.7) - (6.1) (14.2)
Operating (loss)/profit (1.0) 12.9 - (6.1) 5.8
Interest income - - - 0.5 0.5
Interest expense (0.7) - - (18.5) (19.2)
Net retirement benefit obligation finance income - - - (2.5) (2.5)
Net finance expense (0.7) - - (20.5) (21.2)
(Loss)/profit before taxation (1.7) 12.9 - (26.6) (15.4)
Capital expenditure on property, plant and equipment (excluding grants
received)
(7.8) (4.4) - (0.4) (12.6)
Capital expenditure on intangible assets (1.2) (3.3) (0.1) (4.6)
Impairment of property, plant and equipment (4.5) - - - (4.5)
Depreciation of property, plant and equipment and right-of-use assets
(9.8) (2.7) - (0.9) (13.4)
Amortisation of intangible assets (1.2) (4.6) (0.1) (5.9)
FY23 Currency Authentication Identity Unallocated Total of
£m £m Solutions £m Continuing
£m operations
£m
Total revenue from contracts with customers 254.6 91.7 3.4 - 349.7
Less: inter-segment revenue - - - - -
Revenue from contracts with customers 254.6 91.7 3.4 - 349.7
Cost of sales (196.4) (57.7) (3.5) - (257.6)
Gross profit/(loss) 58.2 34.0 (0.1) - 92.1
Adjusted operating expenses (44.6) (19.7) - - (64.3)
Adjusted operating profit/(loss) 13.6 14.3 (0.1) - 27.8
Adjusted items:
- Amortisation of acquired intangible assets - (1.0) - - (1.0)
- Net exceptionals (38.4) (7.9) (0.1) (0.7) (47.1)
Operating (loss)/profit (24.8) 5.4 (0.2) (0.7) (20.3)
Interest income 1.0 - 0.1 0.1 1.2
Interest expense (0.9) (0.1) - (10.6) (11.6)
Net retirement benefit obligation finance expense - - - 1.1 1.1
Net finance income/(expense) 0.1 (0.1) 0.1 (9.4) (9.3)
(Loss)/profit before taxation (24.7) 5.3 (0.1) (10.1) (29.6)
Capital expenditure on property, plant and equipment (excluding grants (7.9) (7.1) - (0.2) (15.2)
received)
Capital expenditure on intangible assets (2.9) (7.4) - (0.1) (10.4)
Impairment of property, plant and equipment (3.9) (1.5) - - (5.4)
Impairment of intangible assets (1.4) (2.9) - - (4.3)
Depreciation of property, plant and equipment and right-of-use assets (11.1) (2.6) - (1.0) (14.7)
Amortisation of intangible assets (1.3) (3.4) - (0.6) (5.3)
Currency Authentication Identity Unallocated Total of
£m £m Solutions £m Continuing
£m operations
£m
FY24
Segmental assets 155.3 83.3 - 55.7 294.3
Segmental liabilities (70.0) (15.0) - (206.7) (291.7)
FY23
Segmental assets (restated)* 169.9 68.5 15.8 82.0 336.2
Segmental liabilities (70.4) (14.0) (4.5) (224.7) (313.6)
*Segmental assets and liabilities in FY23 have restated as a result of a
reassessment of the unallocated assets.
Unallocated assets principally comprise deferred tax assets of £0.1m (FY23:
£5.9m), cash and cash equivalents of £29.3m (FY23: £40.3m), derivative
financial instrument assets of £0.7m (FY23: £2.4m), centrally managed
property, plant and equipment of £17.5m (FY23: £9.0m), and centrally managed
right-of-use assets of £3.1m (FY23: £2.7m), as well as current tax assets,
and amounts due from associates.
Unallocated liabilities principally comprise retirement benefit obligations of
£51.6m (FY23: £54.7m), borrowings of £117.2m (FY23: £118.4m), current tax
liabilities of £20.4m (FY23: £23.2m), derivative financial instrument
liabilities of £3.3m (FY23: £1.9m), lease liabilities of £3.9m (FY23:
£3.4m) as well as deferred tax liabilities and centrally held accruals and
provisions.
4. Revenue from contracts with customers
Timing of revenue recognition across the Group's revenue from contracts with
customers is as follows:
FY24 Currency Authentication Identity Total of
£m £m Solutions Continuing
£m operations
£m
Timing of revenue recognition:
Point in time 180.9 92.0 - 272.9
Over time 26.2 11.2 - 37.4
Total revenue from contracts with customers 207.1 103.2 - 310.3
FY23 Currency Authentication Identity Total of
£m £m Solutions Continuing
£m operations
£m
Timing of revenue recognition:
Point in time 217.6 78.3 3.4 299.3
Over time 37.0 13.4 - 50.4
Total revenue from contracts with customers 254.6 91.7 3.4 349.7
Revenue by customer type
2024 2023
£m £m
Government contracts 251.8 288.3
Corporate contracts 58.5 61.4
310.3 349.7
Geographic analysis of revenue by destination
2024 2023
£m £m
Middle East and Africa 137.1 145.4
Asia 39.2 39.3
UK 21.1 55.7
The Americas 25.1 24.8
Rest of Europe 52.7 71.2
Rest of world 35.1 13.3
310.3 349.7
Contract balances
The contract balances arising from contracts with customers are as follows:
2024 2023
£m £m
Trade receivables 39.6 42.3
Provision for impairment (0.6) (0.6)
Net trade receivables 39.0 41.7
Contract assets 16.7 18.9
Contract liabilities (0.2) (0.3)
Payments received on account (23.1) (22.7)
Trade receivables have decreased to £39.6m in FY24 (FY23: £42.3m) reflecting
timing of payments on certain material customer contracts.
Contract assets have decreased to £16.7m in FY24 (FY23: £18.9m) reflecting
the timing of the revenue recognition under IFRS 15 "Revenue recognition". The
Group applies the simplified approach when measuring the contract assets'
expected credit losses. The approach uses a lifetime expected credit loss
allowance. The expected credit losses are reviewed annually and the credit
loss relating to contract assets is not significant.
Costs to obtain contracts of £nil (FY23: £nil) have been capitalised in the
year where the contract has yet to be won.
Set out below is the amount of revenue recognised from:
2024 2023
£m £m
Amounts included in contract liabilities at the beginning of the year 0.3 -
Performance obligations satisfied in previous years - -
Payments on account
2024 2023
£m £m
Balance at the start of the year 22.7 14.3
Additions 42.8 21.7
Revenue recognised (42.4) (13.3)
Balance at the end of the year 23.1 22.7
Performance obligations
The following table shows the transaction price allocated to remaining
performance obligations for contracts with original expected duration of more
than one year. The Group has decided to take the practical expedient provided
in IFRS 15.121 not to disclose the amount of the remaining performance
obligations for contracts with original expected duration of less than one
year.
2024 2023
£m £m
Within 1 year 12.0 12.4
Between 2 - 5 years 3.0 15.5
5 years and beyond - -
15.0 27.9
5. EXCEPTIONAL ITEMS
2024 Cash Non- 2023 Cash Non-
£m £m cash £m £m cash
£m £m
Termination of Relationship Agreement with Portals Paper Limited - - - 17.0 9.3 7.7
Site relocations and restructuring costs 9.0 4.3 4.7 21.1 7.6 13.5
Pension underpin costs 0.3 0.3 - 0.5 0.5 -
Costs associated with pension deferment and banking refinancing 5.4 5.1 0.3 - - -
14.7 9.7 5.0 38.6 17.4 21.2
(Reversal)/recognition of expected credit loss provision on other financial (0.5) (0.3) (0.2) 8.5 - 8.5
assets
Total exceptional items 14.2 9.4 4.8 47.1 17.4 29.7
Tax (credit)/ charge on exceptional items (5.2) 5.1
Net exceptionals 9.0 52.2
In FY24, £9.4m (FY23: £17.4m) of the reported exceptional items were settled
in cash. An additional £9.2m was settled in cash in relation to prior year
exceptional items, with £7.5m relating to the termination of the Relationship
Agreement with Portals Paper Limited and £1.7m relating to restructuring
costs. In aggregate, £18.6m was settled in cash in FY24 relating to
exceptional items.
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 £17.0m was recorded as an
exceptional item in FY23, 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 FY24 of £9.0m (FY23: £21.1m)
included the following:
· A £4.1m (FY23: £2.5m) charge for redundancy and legal
fees were made in relation to restructuring initiatives in both the Currency
£2.8m (FY23: £1.2m), Authentication £0.8m (FY23: £1.3m) divisions and
Central enabling functions £0.5m (FY23: £nil) in order to right-size the
divisions for future operations. Since these programmes commenced, £6.6m of
costs have been incurred in relation to this. No further costs are expected in
relation to these initiatives in FY25.
· In FY24, impairment charges of £3.4m were made in
relation to plant and machinery and £1.1m in assets in the course of
construction (FY23: £nil). A review was carried out of assets held by the
Currency division and as a result £4.5m of assets were identified for
impairment, mostly relating to assets that were originally to be utilised in
another location where there is no longer the demand. In addition, £0.2m of
costs were incurred in relation to these assets in preparation for their
anticipated move.
· In FY23, 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 year. As a result of the
mothballing of operations in Kenya an exceptional charge of £nil (FY23:
£12.6m) was made in FY24 including redundancy charges of £0.1m (FY23:
£5.5m), property, plant and equipment asset impairments of £nil (FY23:
£4.9m), and other costs of £nil (FY23: £0.2m), offset by £0.1m of proceeds
from the sale of previously impaired inventory (FY23: £2.0m impairment).
Since this programme commenced, £12.6m of costs have been incurred in
relation to this. No further costs are expected in relation to this project in
FY25.
· The recognition of £0.2m (FY23: £1.1m) 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 programme commenced, £10.0m of costs have been incurred
in relation to this. This relocation of assets is expected to be completed in
FY25 as the Group continues its expansion of the manufacturing facilities in
Malta (net of grants received) and the Group works towards exiting from the
Gateshead facility; and
· In FY24, impairment charges of £nil (FY24: £4.3m)
were made in relation to capitalised product development costs and software
assets. In FY23, a review was carried out as part of the Authentication
business right-sizing programme of ongoing development projects. With the
resulting restructuring initiatives, the Group no longer had the technical and
financial ability to complete two programmes. As a result, in FY23, work on
the two programmes was terminated and the technology mothballed with the
associated capitalised costs impaired (£2.9m). A further £1.4m of software
assets relating to the Currency business were impaired in FY23 as future
revenue relating to these assets were minimal. No such costs were incurred in
FY24.
· In FY23, £0.6m 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 programme
commenced, £3.4m of costs have been incurred in relation to this. No further
costs were incurred in FY24.
Pension underpin costs
Pension underpin costs of £0.3m (FY23: £0.5m) 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 £5.4m (FY23: £nil) in the period. This included legal and
professional advisor fees.
Pension payment deferment
The Company has not paid any deficit reduction contributions to the Main
Scheme over the period to 30 March 2024.
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 pension payment deferment
were £1.3m.
An actuarial valuation of the Scheme has been undertaken as at 30 September
2023. This was required by the Trustee to support the Company's renegotiation
of the funding arrangements. This was not a normal cycle valuation and
therefore the costs associated with this have been recorded as exceptional
items due to their nature and size.
The new valuation 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 £2.5m due on
a repayment event such as either on the repayment of the RCF or when the RCF
is wholly refinances or the end of the current RCF facility in July 2025. 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 costs associated with the new funding payment arrangements have been
recorded as exceptional items due to their nature and size. The legal and
professional advisor costs associated with this pension payment deferment were
£1.3m.
Banking refinancing
On the 29 June 2023, the Company entered into a number of documents which had
the effect of amending the terms of the revolving facility agreement with its
lending banks and their agents, including changes to covenants. 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.
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 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. The legal and professional costs associated
with this in the period was £1.1m.
(Reversal)/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, management assessed
the recoverability of the carrying value on the balance sheet and recorded an
expected credit loss provision in relation to the original principal value and
interest receivable. This was recorded in exceptional items in FY23,
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
March 2024 of £nil (25 March 2023: £nil) included the original principal
received and accrued interest amounts, fully offset by the expected credit
loss provision.
During FY24, the Group recognised a credit of £0.5m in relation to a reversal
of the expected credit loss provision relating to other financial assets
(FY23: £8.5m credit loss provision recognised).
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 part 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.
On 19 June 2024, the Company received notice that Portals International
Limited were to repay an amount of £104,245 (which comprised the principal
amount of £85,801 and accrued interest of £18,144) on 24 June 2024. This was
part of the £899,138 loan notes issued by Portals in November 2021. This was
unexpected. A credit of £0.1m was recognised in exceptionals as this is an
adjusting post balance sheet event under IAS 10 "Events after the reporting
period".
On 19 June 2024, the Company also received notice that Portals Finance Limited
were to repay an amount of £147,887 (which comprised the principal amount of
£81,537 and accrued interest of £66,350) on 24 June 2024. This was part of
the £32,000,000 loan notes issued by Portals in March 2018. This was
unexpected. A credit of £0.1m was recognised in exceptionals as this is an
adjusting post balance sheet event under IAS 10 "Events after the reporting
period".
Taxation relating to exceptional items
The overall tax credit relating to continuing exceptional items arising in the
period was £5.2m (FY23: tax charge £5.1m), and relates to the following
items:
- £2.3m credit for the release of uncertain tax positions
related to the expiry of an indemnity period in May 2023, following the Cash
Processing Solutions Limited business sale in May 2016.
- £0.2m credit for the release of other uncertain tax
positions no longer considered necessary.
- £0.5m charge for the portion of the UK corporate
interest restriction which has arisen as a consequence of the exceptional
costs.
- £3.2m credit for the tax relief on exceptional costs
before tax, at broadly 25%.
Included in the exceptional tax items in FY23 is a deferred tax charge of
£4.0m relating to the derecognition of a deferred tax asset in relation to
restricted UK tax interest amounts that under IAS12 had to be recognised in
prior years even though the amounts are not expected to be fully utilised for
the foreseeable future. The asset was originally recognised because the
defined benefit pension was in a surplus position which led to a deferred tax
liability relating to pensions in the UK, and under IAS any potential deferred
tax assets must be recognised against this deferred tax liability.
During FY23, the pension moved from a surplus to a deficit position, which
meant that the deferred tax asset on the UK restricted UK tax interest amounts
is no longer required to be recognised. As the majority of the deferred tax in
relation to the pension movements is recognised directly in the Statement of
Comprehensive Income, to recognise movements in the recognition and
derecognition of this asset as an operating item would distort the Operating
Effective Tax Rate and therefore considered to be unhelpful for users of the
accounts. This movement and any future creation or unwind of this asset
is therefore considered to be an Exceptional item for financial reporting
purposes where possible.
The FY23 exceptional items also includes a tax charge in respect of additional
expected utilisation of tax credits in Malta of £6.1m, as they are expected
to be surrendered for capital grants against future capital expenditure in
Malta.
6. TAXATION
2024 2023
£m £m
Current tax
UK corporation tax:
Current tax 0.7 11.9
- Adjustment in respect of prior years 0.3 0.1
1.0 12.0
Overseas tax charges:
Current year (0.8) 2.1
Adjustment in respect of prior years (0.2) (0.3)
(1.0) 1.8
Total current income tax charge - 13.8
Deferred tax:
Origination and reversal of temporary differences, UK 4.2 7.4
Origination and reversal of temporary differences, overseas (0.5) 6.4
Total deferred tax charge 3.7 13.8
Total income tax charge in the consolidated income statement 3.7 27.6
Tax on continuing operations attributable to:
Ordinary activities 9.2 22.8
Amortisation of acquired intangible assets (0.3) (0.3)
Exceptional items (5.2) 5.1
3.7 27.6
2024 2023
£m restated *
£m
Consolidated statement of comprehensive income:
On remeasurement of net defined benefit liability 1.3 (11.8)
On cash flow hedges - 0.1
On foreign exchange on quasi-equity balances - 0.1
Income tax charge/(credit) reported within other comprehensive income 1.3 (11.6)
Consolidated statement of changes in equity:
Deferred tax on share options - 0.5
Income tax charge reported within equity - 0.5
*The Group Consolidated Statement of Comprehensive Income for FY23 has been
restated as described in the Basis of preparation (note 2).
The tax on the Group's consolidated loss before tax differs from the UK tax
rate of 25% as follows:
2024 2023
Before exceptional items Movement on acquired intangibles Exceptional items Total Before exceptional items Movement on acquired intangibles Exceptional items Total
£m £m £m £m £m £m £m £m
(Loss)/ profit before tax (0.2) (1.0) (14.2) (15.4) 18.5 (1.0) (47.1) (29.6)
Tax calculated at UK tax rate of 25% (FY23: 19.0%) (0.1) (0.3) (3.5) (3.9) 3.5 (0.2) (8.9) (5.6)
Effects of overseas taxation 0.7 - - 0.7 1.1 (0.1) 1.2 2.2
Charges/(credits) not allowable/taxable for tax purposes (1.5) - - (1.5) 0.5 - 1.7 2.2
Changes in uncertain tax provisions
(1.3) - (2.5) (3.8) 8.5 - - 8.5
Movement in unrecognised deferred tax assets 11.6 - 0.6 12.2 7.9 - 4.0 11.9
Utilisation of tax credits previously recognised for deferred tax - - - - - - 6.1 6.1
Adjustments in respect of prior years (0.2) - 0.2 - (0.5) - - (0.5)
Impact of UK tax rate change on deferred tax balances - - - - 1.8 - 1.0 2.8
Tax charge/(credit) 9.2 (0.3) (5.2) 3.7 22.8 (0.3) 5.1 27.6
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.
During FY24, there was a charge in the Income Statement for the derecognition
of deferred tax asset balances totalling £12.2m (FY23: £11.9m), with
unrecognised deferred tax assets increasing to £51.5m (FY23: £39.3m
restated).
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 from the tax authorities of
some countries in which the Group operates. The disputed tax assessments are
at various stages in the appeal processes, 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
relevant tax authority. The Group's expected outcome of the disputed tax
assessments is held within the relevant provisions in the 2024 financial
statements.
The uncertain tax positions credit of £3.8m (FY23: £8.5m charge) includes
£2.5m included within exceptional tax items related to the expiry of an
indemnity period in May 2023, following the Cash Processing Solutions Limited
business sale in May 2016. Of the remaining £1.5m credit, £0.5m relates to
favourable movements in exchange rates for other provisions rather than a
change to the underlying provided amounts and £1.0m relates to the release of
provisions no longer considered necessary. The remaining provisions for
uncertain tax positions total £18.2m (FY23: £22.0m) and are contained within
current tax liabilities.
7. EARNINGS PER SHARE
2024 2023
pence pence
Earnings per share per share per share
Basic EPS - continuing operations (10.2) (28.6)
Diluted EPS - continuing operations(1) (10.2) (28.6)
Adjusted EPS
Basic EPS - continuing operations (5.3) (1.5)
Diluted EPS - continuing operations (5.3) (1.5)
Number of shares (m)
Weighted average number of shares 195.7 195.4
Dilutive effect of shares 0.2 0.5
195.9 195.9
(1) The Group reported a loss from continuing operations attributable to the
ordinary equity shareholders of the Company for FY23. The Diluted EPS is
reported as equal to Basic EPS; no account can be taken of the effect of
dilutive securities under IAS 33.
Reconciliations of the earnings used in the calculations are set out below:
2024 2023
£m £m
Loss for basic EPS - continuing operations (20.0) (55.9)
Add: amortisation of acquired intangibles 1.0 1.0
Less: tax on amortisation of acquired intangibles (0.3) (0.3)
Add: exceptional items (excluding non-controlling interests) 14.2 47.1
Less: tax on exceptional items (5.2) 5.1
Loss for adjusted EPS (10.3) (3.0)
8. FINANCIAL INSTRUMENTS
The fair value of financial assets and liabilities, together with the carrying
amounts shown in the balance sheet, are as follows:
Fair value hierarchy Total fair value Carrying amount Total fair Carrying
2024 2024 value amount
£m £m 2023 2023
£m £m
Financial assets
Trade and other receivables(1) Level 3 60.7 60.7 58.4 58.4
Contract assets Level 3 16.7 16.7 18.9 18.9
Cash and cash equivalents Level 1 29.3 29.3 40.3 40.3
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 0.4 0.4 1.2 1.2
- Foreign exchange fair value hedges - other economic hedges Level 2 0.2 0.2 1.1 1.1
- Embedded derivatives Level 2 0.1 0.1 0.1 0.1
0.7 0.7 2.4 2.4
Total financial assets 107.4 107.4 120.0 120.0
Financial liabilities
Unsecured bank loans(2) Level 2 (118.7) (118.7) (122.7) (122.7)
Trade and other payables(3) Level 3 (57.6) (57.6) (66.1) (66.1)
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 (1.5) (1.5) (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 (1.4) (1.4) (0.4) (0.4)
- Embedded derivatives Level 2 (0.3) (0.3) (0.4) (0.4)
(3.3) (3.3) (1.9) (1.9)
Total financial liabilities (179.6) (179.6) (190.7) (190.7)
Notes:
(1) Excludes prepayments of £6.4m (FY23: £3.6m), RDEC of
£2.0m (FY23: £2.5m) and VAT recoverable of £3.7m (FY23: £6.2m).
(2) Excludes unamortised pre-paid loan arrangement fees of
£5.0m (FY23: £5.0m) and loss on debt modification of £3.5m (FY23: £0.7m).
(3) Excludes social security and other taxation amounts of
£1.9m (FY23: £3.0m), contract liabilities of £0.2m (FY23: £0.3m) and
payments on account of £23.1m (FY23: £22.7m).
Trade receivables decreased to £39.6m compared to £42.3m at FY23 reflecting
timing of payments on certain material customer contracts.
Contract assets have decreased from £18.9m at FY23 to £16.7m at FY24. This
relates to a decrease in Currency contracts of £1.2m (FY23: increase of
£12.7m) and Authentication contracts of £1.0m (FY23: increase of £6.2m).
9. ANALYSIS OF NET DEBT
The analysis below provides a reconciliation between the opening and closing
of the Group's net debt position (being the net of borrowings and cash and
cash equivalents). 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 flow Foreign exchange and other At 30
March £m £m March
2023 2024
£m £m
Gross Borrowings (122.7) 4.0 - (118.7)
Cash and cash equivalents 40.3 (10.6) (0.4) 29.3
Net debt (82.4) (6.6) (0.4) (89.4)
At 26 Cash flow Foreign exchange and other At 25
March £m £m March
2022 2023
£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 £5.0m
(FY23: £5.0m), net loss on debt modification of £3.5m (FY23: £0.7m) and
£11.6m (FY23: £13.3m) of lease liabilities.
At 25 Cash Non-cash movements At 30
March flow £m March
2023 £m 2024
£m £m
Unamortised pre-paid borrowing fees 5.0 (5.5) 5.5 5.0
As at 30 March 2024, the Group had a total of undrawn RCF committed borrowing
facilities, all maturing in more than one year, of £42.0m (25 March 2023:
£53.0m, all maturing in more than one year). The amount of loans drawn on the
£160.0m RCF cash component facility was £118.0m as at 30 March 2024 (25
March 2023: £112.0m).
Minimum liquidity at 30 March 2024 was in excess of the £10m limit required
under the covenant tests.
Guarantees of £41.8m (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 March 2024 is £0.3m (25 March 2023: £0.3m).
Actual as at Maximum
30 March 2024 facility
£m £m
Facilities:
Cash 118.0 160.0
Bonds and guarantees 41.8 75.0
159.8 235.0
A separate borrowing facility for financing equipment under construction is in
place and at 30 March 2024 the amount outstanding on this facility is £0.7m
(25 March 2023: £0.7m).
10. RETIREMENT BENEFIT OBLIGATIONS
The Group has pension plans, devised in accordance with local conditions and
practices in the country concerned, covering the majority of employees. The
assets of the Group's plans are generally held in separately administered
trusts or are insured.
On 3 April 2023, the Company and the Trustee agreed to defer the deficit
reduction contributions 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.
An actuarial valuation of the Scheme was undertaken as at 30 September 2023.
This showed a Scheme deficit of £78m. As a result of this new valuation, on
18 September 2023, the Company and the Scheme Trustee agreed a new schedule to
fund the deficit. The funding moratorium until July 2024 as preciously agreed
will be retained with the only payment being £1.25m due under the June 2023
Recover 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 Company has not paid any deficit reduction contributions to the Main
Scheme in the year to 30 March 2024.
2024 2023
£m £m
UK retirement benefit deficit (49.7) (53.1)
Overseas retirement liability (1.9) (1.6)
Retirement benefit deficit (51.6) (54.7)
Reported in:
Non-current liabilities (51.6) (54.7)
The majority of the Group's retirement benefit obligations are in the UK:
2024 2024 2024 2023 2023 2023
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Equities 3.9 - 3.9 3.2 - 3.2
Bonds 91.6 - 91.6 88.7 - 88.7
Secured/fixed income 91.7 - 91.7 133.0 - 133.0
Liability Driven Investment Fund 183.7 - 183.7 163.6 - 163.6
Multi Asset Credit 46.7 - 46.7 60.2 - 60.2
Qualifying insurance policy 214.1 - 214.1 220.6 - 220.6
Other 12.4 - 12.4 8.9 - 8.9
Fair value of scheme assets 644.1 - 644.1 678.2 - 678.2
Present value of funded obligations (689.4) - (689.4) (727.5) - (727.5)
Funded defined benefit pension schemes (45.3) - (45.3) (49.3) - (49.3)
Present value of unfunded obligations (4.4) (1.9) (6.3) (3.8) (1.6) (5.4)
Net deficit (49.7) (1.9) (51.6) (53.1) (1.6) (54.7)
Amounts recognised in the consolidated income statement:
2024 2024 2024 2023 2023 2023
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Included in employee benefits expense:
Current service cost - - - - - -
Administrative expenses and taxes (1.3) - (1.3) (1.6) - (1.6)
Included in interest on retirement benefit obligation net finance expense:
Interest income on scheme assets 31.2 - 31.2 27.6 - 27.6
Interest cost on liabilities (33.7) - (33.7) (26.5) - (26.5)
Retirement benefit obligation net finance expense (2.5) - (2.5) 1.1 - 1.1
Total recognised in the consolidated income statement (3.8) - (3.8) (0.5) - (0.5)
Return on scheme assets excluding assumed interest income (17.8) - (17.8) (301.1) 0.4 (300.7)
Remeasurement gains/(losses) on defined benefit pension obligations 200.4 - 200.4
23.5 (0.3) 23.2
Amounts recognised in other comprehensive income 5.7 (0.3) 5.4 (100.7) 0.4 (100.3)
Principal actuarial assumptions:
2024 2024 2023 2023
UK Overseas UK Overseas
% % % %
Discount rate 4.90% - 4.70% -
CPI inflation rate 2.80% - 2.50% -
RPI inflation rate 3.20% - 3.00% -
The financial assumptions adopted as at 30 March 2024 reflect the duration of
the scheme liabilities which has been estimated to be broadly 13 years (FY23:
broadly 14 years).
As at 30 March 2024 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 20% (FY23: w2020 parameter 20%). The resulting life expectancies
within retirement are as follows:
2024 2023
Aged 65 retiring immediately (current pensioner) Male 21.3 21.8
Female 23.5 23.9
Aged 50 retiring in 15 years (future pensioner) Male 21.8 22.4
Female 25.0 25.3
United Kingdom Pension Benefits - High Court of Justice Ruling on Actuarial
Confirmations
In June 2023, the High Court ruled in the case between Virgin Media and the
NTL Pension Trustees II Limited (and others) that the absence of a "Section
37" certificate accompanying an amendment to benefits in a contracted-out
pension scheme would render the amendment void. If upheld, the High Court's
decision could have wider ranging implications, affecting other defined
benefit pension schemes in the United Kingdom that were contracted-out on a
salary-related basis, and made amendments between April 1997 and April 2016.
There is still further uncertainty, with a Court of Appeal hearing in June
2024 not yet opined on.
The Company has a contracted out defined benefit pension fund scheme. The
pension fund trustees have determined that there were nine amendments in the
scheme for the period from 2003 - 2016. The pension scheme administrators and
trustees have not as yet carried out a full review of these amendments and
historical actuarial certification dating back to 1997 as the Company is
awaiting the outcome of the appeal that was heard in June 2024. As such,
management is unable to determine if the scheme will be impacted, or to
reliably estimate any impact as at the period-end.
11. Contingent assets and liabilities
In FY23, 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 had been implicated. The
Company still has not received any official direct communication of this
investigation from the CBI-I but has learned about it from publicly available
sources. De La Rue has not served the Government of India or the Central Bank
of India in any capacity since 2016. The Company believes that there is no
merit to the allegations that relate to De La Rue.
The Group also provides guarantees and performance bonds which are issued in
the ordinary course of business. In the event that a guarantee or performance
bond is called, a provision may be required subject to the particular
circumstances including an assessment of its recoverability.
12. Related party transactions
During the year the Group traded on an arm's length basis with the associated
company Fidink (33.3% owned). The Group's trading activities with Fidink in
the period comprise £18.7m (FY23: £22.2m) for the purchase of ink and other
consumables on an arm's length basis. At the balance sheet date there was
£3.7m (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.
Directors and key management compensation
Directors 2024 2023
£'000 £'000
Aggregate emoluments 1,588 1,595
Aggregate gains made on the exercise of share options - -
1,588 1,595
Directors and key management 2024 2023
£m £m
Salaries and other short-term employee benefits 2.4 2.1
Retirement benefits - Defined contribution 0.1 0.1
Termination benefits - 0.2
Share-based payments 0.3 0.1
2.8 2.5
Key management comprises members of the Board (including the fees of
Non-executive Directors) and the Executive Leadership Team. Termination
benefits include compensation for loss of office, ex gratia payments,
redundancy payments, enhanced retirement benefits and any related benefits in
kind connected with a person leaving office or employment.
13. Non-controlling interest
The Group has three subsidiaries with material non-controlling interests:
· De La Rue Buck Press Limited, whose country of
incorporation is Ghana;
· De La Rue Lanka Currency and Security Print (Private)
Limited, whose country of incorporation is Sri Lanka; and
· De La Rue Kenya EPZ Limited, whose country of
incorporation and operation is Kenya.
The accumulated non-controlling interest of the subsidiary at the end of the
reporting period is shown in the Group balance sheet. The following table
summarises the key information relating to these subsidiaries, before
intra-group eliminations.
Ghana Sri Lanka Kenya(1) Ghana Sri Kenya(1)
Lanka
Non-controlling interest percentage 51% 40% 40% 51% 40% 40%
2024 2024 2024 2023 2023 2023
£m £m £m £m £m £m
Non-current assets 0.1 6.0 0.2 - 7.7 0.2
Current assets 7.1 30.0 20.3 8.9 30.5 22.8
Non-current liabilities - (0.5) - - (0.4) -
Current liabilities (4.6) (13.5) (11.2) (5.7) (10.6) (13.7)
Net assets (100%) 2.6 22.0 9.3 3.2 27.2 9.3
2024 2024 2024 2023 2023 2023
£m £m £m £m £m £m
Revenue 10.9 33.8 0.2 13.8 35.0 16.8
Profit/(loss) for the year (0.2) 2.7 (0.2) 2.2 1.2 (7.3)
(Loss)/profit allocated to non-controlling interest (0.1) 1.1 (0.1) 1.1 0.5 (2.9)
Dividends declared by non-controlling interest - 3.2 - - 0.8 -
Cash flows from operating activities (3.7) 6.6 (0.3) 2.9 8.9 0.8
Cash flows from investing activities (0.1) (0.1) 0.1 - (0.2) (0.3)
Cash flows from financing activities - (7.9) - - (1.9) (0.1)
Net (decrease)/increase in cash and cash equivalents (3.8) (1.4) (0.2) 2.9 6.8 0.4
Notes:
(1) In January 2023, the Group announced that it has suspended banknote
printing operations Kenya. Operations ceased in FY24.
14. CAPITAL AND OTHER COMMITMENTS
2024 2023
£m £m
Capital and other expenditure contracted but not provided:
Property, plant and equipment 5.9 16.4
Lease commitments 13.3 13.9
19.2 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. POST BALANCE SHEET EVENTS
As announced to the market on 30 May 2024, the Group is currently exploring
certain strategic options in relation to the sale of the whole group or each
of its divisions. As a result, a number of parties have made proposals in
relation to both the Group's divisions, the furthest advanced being for the
Authentication division. These workstreams continue, but at the date of the
approval of the financial statements, no formal agreement has been entered
into.
Non IFRS measures
De La Rue plc publishes certain additional information in a non-statutory
format in order to provide readers with an increased insight into the
underlying performance of the business. These non-statutory measures are
prepared on a basis excluding the impact of exceptional items and amortisation
of intangibles acquired through business combinations, as they are not
considered to be representative of underlying business performance. The
measures the Group uses along with appropriate reconciliations to the
equivalent IFRS measures where applicable are shown in the following tables.
The Group's policy on classification of exceptional items is also set out
below:
The Directors consider items of income and expenditure which are material by
size and/or by nature and not representative of normal business activities
should be disclosed separately in the financial statements so as to help
provide an indication of the Group's underlying business performance. The
Directors label these items collectively as 'exceptional items'. Determining
which transactions are to be considered exceptional in nature is often a
subjective matter. However, circumstances that the Directors believe would
give rise to exceptional items for separate disclosure would include: gains or
losses on the disposal of businesses, curtailments on defined benefit pension
arrangements or changes to the pension scheme liability which are considered
to be of a permanent nature such as the change in indexation or the GMPs, and
non-recurring fees relating to the management of historical scheme issues,
restructuring of businesses, asset impairments and costs associated with the
acquisition and integration of business combinations. All exceptional items
are included in the appropriate income statement category to which they
relate.
A Adjusted operating profit
Adjusted operating profit represents earnings from continuing operations
adjusted to exclude exceptional items and amortisation of acquired intangible
assets.
2024 2023
£m £m
Operating profit/(loss) from continuing operations on an IFRS basis 5.8 (20.3)
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 14.2 47.1
Adjusted operating profit from continuing operations 21.0 27.8
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.
2024 2023
£m £m
Loss attributable to equity shareholders of the Company from continuing (20.0) (55.9)
operations on an
IFRS basis
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 14.2 47.1
Tax on amortisation of acquired intangible assets (0.3) (0.3)
Tax on exceptional items (5.2) 5.1
Adjusted loss attributable to equity shareholders of the Company from (10.3) (3.0)
continuing
operations
Weighted average number of ordinary shares for basic earnings 195.7 195.4
Continuing operations 2024 2023
pence per share pence per share
Basic earnings per ordinary share on an IFRS basis (10.2) (28.6)
Basic adjusted earnings per ordinary share (5.3) (1.5)
Diluted adjusted earnings per ordinary share(1) (5.3) (1.5)
(1) As there is a loss from continuing operations attributable to the ordinary
equity shareholders of the Company for the year, 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 9 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 £310.3m (FY23: £349.7m). The
covenant test uses earlier accounting standards and excludes adjustments for
IFRS 16 and takes into account lease payments made.
2024 2023
£m £m
Loss for the year (19.1) (57.2)
Add back:
Taxation 3.7 27.6
Net finance expenses 21.2 9.3
Profit/(loss) before interest and taxation from continuing operations 5.8 (20.3)
Add back:
Depreciation of property, plant and equipment 10.9 12.5
Depreciation of right-of-use assets 2.5 2.2
Amortisation of intangible assets 5.9 5.3
EBITDA 25.1 (0.3)
Exceptional items 14.2 47.1
Adjusted EBITDA 39.3 46.8
Revenue £m 310.3 349.7
EBITDA margin 8.1% (0.1)%
Adjusted EBITDA margin 12.7% 13.4%
The adjusted EBITDA split by division was as follows:
Total of continuing operations
Identity Solutions Central
FY24 Currency Authentication
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (1.0) 12.9 - (6.1) 5.8
Add back:
Net exceptional items 7.4 0.7 - 6.1 14.2
Depreciation of property, plant and equipment and right-of-use assets
9.8 2.7 - 0.9 13.4
Amortisation of intangible assets 1.2 4.6 - 0.1 5.9
Adjusted EBITDA 17.4 20.9 - 1.0 39.3
Identity Solutions Total of continuing operations
FY23 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (24.8) 5.4 (0.2) (0.7) (20.3)
Add back:
Net exceptional items 38.4 7.9 0.1 0.7 47.1
Depreciation of property, plant and equipment and right-of-use assets
11.1 2.6 - 1.0 14.7
Amortisation of intangible assets 1.3 3.4 - 0.6 5.3
Adjusted EBITDA 26.0 19.3 (0.1) 1.6 46.8
E Adjusted controllable operating profit by division
Adjusted controllable operating profit represents earnings from continuing
operations of the ongoing 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 ongoing 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 Central
FY24 Currency Authentication
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (1.0) 12.9 - (6.1) 5.8
Amortisation of acquired intangibles - 1.0 - - 1.0
Net exceptional items 7.4 0.7 - 6.1 14.2
Adjusted operating profit 6.4 14.6 - - 21.0
Enabling function overheads 23.1 10.8 - (33.9) -
Adjusted controllable operating profit/(loss) 29.5 25.4 - (33.9) 21.0
Identity Solutions Total of continuing operations
FY23 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (24.8) 5.4 (0.2) (0.7) (20.3)
Amortisation of acquired intangibles - 1.0 - - 1.0
Net exceptional items 38.4 7.9 0.1 0.7 47.1
Adjusted operating profit/(loss) 13.6 14.3 (0.1) - 27.8
Enabling function overheads 24.0 8.7 - (32.7) -
Adjusted controllable operating profit/(loss) 37.6 23.0 (0.1) (32.7) 27.8
F Covenant ratios
The following covenant ratios are applicable to the Group's banking facilities
as at 30 March 2024.
1. Covenant net debt to EBITDA ratio
For covenant purposes the Net debt/EBITDA ratio is required to be less than or
equal to 4.0 times until the Q4 2024 testing point. This then reduces to less
than or equal to 3.6 times from Q1 FY25 through to the end of the current
agreement to 1 July 2025.
The definitions of "covenant net debt" and "covenant EBITDA" are different to
those provided in note C and D above. These are defined below:
2024
£m
Gross Borrowings (118.7)
Cash and cash equivalents 29.3
Net debt (89.4)
Trapped and other cash adjustments per banking facilities agreement (15.0)
Covenant net debt (104.4)
2024
£m
Adjusted EBITDA (note D) 39.3
Adjustments per banking facilities agreement:
IFRS 16 leases adjustment (3.0)
Bank guarantee fees 1.2
Covenant EBITDA 37.5
2024
Covenant net debt to EBITDA ratio 2.78
2. Covenant EBIT / net interest payable ratio
For covenant purposes the EBIT/net interest payable ratio is required to be
more than or equal to 1.0 times.
The definition of "covenant EBIT" and "covenant net interest payable" are
provided below:
2024
£m
Adjusted operating profit 21.0
Adjustments per banking facilities agreement:
IFRS 16 leases adjustment (0.5)
Bank guarantee fees 1.2
Covenant EBIT 21.7
2024
£m
Interest on bank loans 12.3
Other, including amortisation of finance arrangement fees 3.7
Adjustments per banking facilities agreement:
Exclude amortisation of finance arrangement fees (0.7)
Exclude arrangement fees (2.5)
Include bank guarantee fees 1.2
Covenant net interest payable 14.0
2024
Covenant EBIT / net interest payable ratio 1.55
Covenant test results as at 30 March 2024:
Test Requirement Actual at
30 March 2024
EBIT to net interest payable More than or equal to 1.0 times 1.55
Net debt to EBITDA Less than or equal to 4.0 times 2.78
Minimum liquidity testing Testing at each weekend point on a 4-week historical basis and 13-week forward No breaches
looking basis. The minimum liquidity is defined as "available cash and undrawn
RCF greater than or equal to £10m".
G Free cash flow
Free cash flow is a Key Performance Indicator for the Group and shows how much
cash is being generated for shareholders and is a metric used in assessment of
the Group's Performance Share Plan. Free cash flow is defined below:
2024 2023
£m £m
Cash generated from operating activities 28.5 24.8
Add back: Pension recovery plan payments - 16.5
Deduct: Purchases of property, plant and equipment (net of grants received) (4.1) (11.0)
Deduct: Purchases of software intangibles and development assets capitalised (4.6) (10.4)
Deduct: Lease liability payments (2.5) (2.4)
Add back: Receipt from repayment of other financial assets 0.3 -
Deduct: Interest paid (14.1) (10.3)
Deduct: Dividends paid to non-controlling interests (3.2) (0.8)
Free cash flow 0.3 6.4
-END-
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