REG - De La Rue PLC - Annual Financial Report <Origin Href="QuoteRef">DLAR.L</Origin> - Part 3
16/06/2017 12:56
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arising on the remeasurement of the
disposal group to fair value less costs to sell have been recognised. The
impairment related to intangibles of £1.6m, goodwill of £4.0m and inventories
of £17.8m.
The cash costs for exceptional items in the period was £2.5m (2015/16:
£1.0m).
Tax credits relating to the exceptional items arising in the period were £1.7m
(2015/16 £0.3m).
4. Exceptionalitems
2017£m 2016
£m
Site relocation and restructuring (0.2) (9.2)
Sale of land 0.2 9.5
Warranty provisions 0.5 1.3
Asset impairment - (5.2)
Acquisition related (0.9) -
Exceptional items in operating profit (0.4) (3.6)
Tax credit on exceptional items 0.6 2.3
Site relocation and restructuring costs Site relocation and restructuring
costs in 2016/17 were £0.2m net (2015/16: £9.2m net) and included charges
of £1.7m including staff compensation costs related to the redesign of
the organisation structure which was offset by a credit of £1.4m in
relation to the manufacturing footprint review announced in December 2015
which planned to reduce our core banknote print production capacity from
eight billion to six billion notes a year. As noted in Note 18
"Provisions for liabilities and charges" of De La Rue Annual Report 2017,
in November 2016 we announced a refinement to that plan which resulted in
a change in the total estimate for the associated site relocation and
reorganisation costs resulting in a credit to the Income Statement which
has been recorded as an exceptional item consistent to the original
presentation in the Annual Report. Sale of land The gain in 2016/15
related to the sale of surplus land in Overton which generated a profit
of £9.5m. Gains of £0.2m in the current year relate to several
individually small land sales. Warranty provisions Surplus warranty
provisions of £0.5m in 2016/17 (2015/16: £1.3m) have been credited to
exceptional items consistent to where the cost of the original provisions
was presented in the Annual Report. Asset impairments In 2015/16
following a review of capitalised assets, £5.2m of tangible assets within
the Currency segment were written down representing assets linked with
specific products whose future income streams are forecast to be
insufficient to support the current carrying value. Acquisition related
De La Rue has incurred costs of £0.9m related to the acquisition of
DuPont Authentication Inc during 2016/17. These acquisition related costs
include £0.5m of professional advisor fees. In addition an amount of
£0.4m has been recorded in exceptional items relating to the "unwind" of
the fair value adjustment to acquired inventory recognised on the opening
day balance sheet as the related inventory was fully sold by year end.
The Directors' believe that this non-cash item is distortive to
underlying profit levels compared to the expected cost of inventories
recognised as an expense for this subsidiary going forward. Net cash
cost of exceptional items The net cash cost of exceptional items for
continuing operations in the period was £3.3m (2015/16: £12.5m). £0.8m of
the cash cost of exceptional items related to prior periods and primarily
to payment of items associated with site relocations and restructuring.
Tax credits relating to continuing exceptional items arising in the
period were £0.6m (2015/16 £2.3m).
5 Taxation
2017 2016
£m £m
Consolidated income statement
Current tax:
UK corporation tax:
- Current tax 8.4 8.3
- Adjustment in respect of prior years (0.6) (0.1)
7.8 8.2
Overseas tax charges:
- Current year 3.7 2.2
- Adjustment in respect of prior years (0.2) (0.7)
3.5 1.5
Total current income tax charge 11.3 9.7
Deferred tax:
- Origination and reversal of temporary differences, UK (0.7) (3.3)
- Origination and reversal of temporary differences, overseas (0.3) (0.1)
Total deferred tax (credit) (1.0) (3.4)
Income tax expense reported in the consolidated income statement in 8.7 6.3
respect of continuing operations
Income tax expense/(credit) in respect of discontinued operations (note 1.6 (3.1)
3)
Total income tax charge in the consolidated income statement 10.3 3.2
Tax on continuing operations attributable to:
- Ordinary activities 9.3 8.6
- Exceptional items (0.6) (2.3)
Tax on discontinuing operations attributable to:
- Ordinary activities (0.1) (0.9)
- Exceptional items 1.7 (2.2)
Consolidated statement of comprehensive income:
- On remeasurement of net defined benefit liability (2.3) 5.4
- On cash flow hedges (0.1) 1.4
- On foreign exchange on quasi-equity balances (0.1) 0.4
Income tax (credit)/charge reported within comprehensive income (2.5) 7.2
Consolidated statement of changes in equity:
- On share options (1.0) 0.3
Income tax charge reported within equity (1.0) 0.3
The tax on the Group's consolidated profit before tax for continuing operations differs from the UK tax rate of 20 per cent as follows:
2017 2016
Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
£m £m £m £m £m £m
Profit before tax 58.7 (0.4) 58.3 58.5 (3.6) 54.9
Tax calculated at UK tax 11.7 (0.1) 11.6 11.7 (0.7) 11.0
rate of 20 per cent
(2015/16: 20 per cent)
Effects of overseas (0.1) - (0.1) (1.1) - (1.1)
taxation
(Credits)/charges not (1.8) (0.5) (2.3) (1.5) 0.8 (0.7)
allowable for tax
purposes
Increase in unutilised (0.1) - (0.1) - (1.9) (1.9)
tax losses
Adjustments in respect of (0.1) - (0.1) (0.1) (0.5) (0.6)
prior years
Change in UK tax rate (0.3) - (0.3) (0.4) - (0.4)
Tax charge/(credit) 9.3 (0.6) 8.7 8.6 (2.3) 6.3
The underlying effective
tax rate excluding
exceptional items was
15.8 per cent (2015/16:
14.7 per cent).
6 Earnings per share
2017Continuing operations 2017Discontinued operations 2017Total pence 2016Continuing operations 2016Discontinued operations 2016Total
pence pence per pence pence pence
per per share per per per
share share share share share
Earnings per share
Basic earnings per share 47.2 (7.9) 39.3 46.8 (30.6) 16.2
Diluted earnings per 46.6 (7.8) 38.8 46.2 (30.2) 16.0
share
Adjusted earnings per
share
Basic earnings per share 47.1 (2.3) 44.8 48.1 (7.1) 41.0
Diluted earnings per 46.5 (2.2) 44.3 47.5 (7.0) 40.5
share
Basic earnings per share
is calculated by dividing
the profit attributable
to equity shareholders by
the weighted average
number of ordinary shares
outstanding during the
year, excluding those
held in the employee
share trust which are
treated as cancelled.For
diluted earnings per
share, the weighted
average number of
ordinary shares in issue
is adjusted for the
impact of the dilutive
effect of share
options.The Directors are
of the opinion that the
publication of the
underlying earnings per
share, before exceptional
items, is useful to
readers of the accounts
as it gives an indication
of underlying business
performance.Reconciliatio
ns of the earnings and
weighted average number
of shares used in the
calculations are set out
below.
Earnings 2017Continuingoperations£m 2017Discontinuedoperations£m 2017Total £m 2016Continuingoperations£m 2016Discontinuedoperations£m 2016Total
£m
Earnings for basic and 47.9 (8.0) 39.9 47.4 (31.0) 16.4
diluted earnings per
share
Amortisation of acquired 0.1 - 0.1 - - -
intangible assets
Exceptional items 0.4 4.0 4.4 3.6 26.0 29.6
Less: Tax on exceptional (0.6) 1.7 1.1 (2.3) (2.2) (4.5)
items
Earnings for adjusted 47.8 (2.3) 45.5 48.7 (7.2) 41.5
earnings per share
Weighted average number 2017 2016
of ordinary shares Number Number
m m
For basic earnings per 101.6 101.3
share
Dilutive effect of share 1.2 1.3
options
For diluted earnings per 102.8 102.6
share
7 Equity dividends
2017 2016
£m £m
Final dividend for the period ended 28 March 2015 of 16.7p paid on 1 August 2015 - 16.9
Interim dividend for the period ended 26 September 2015 of 8.3p paid on 6 January 2016 - 8.4
Final dividend for the year ended 26 March 2016 of 16.7p paid on 3 August 2016 16.9 -
Interim dividend for the period ended 24 September 2016 of 8.3p paid on 11 January 2017 8.5 -
25.4 25.3
A final dividend per equity share of 16.7p has been proposed for the period ended 25 March 2017. If approved by shareholders the dividend will be paid on 3 August 2017 to ordinary shareholders on the register at 30 June 2017.
8 Analysis of net debt
2017 2016
£m £m
Cash at bank and in hand 13.2 40.5
Short term bank deposits 2.2 -
Bank overdrafts (4.2) (2.6)
Total cash and cash equivalents 11.2 37.9
Borrowings due within one year (132.1) (144.0)
Net debt (120.9) (106.1)
9 Financial Instruments
Fair values
The fair value of financial assets and liabilities, together with the carrying
amounts shown in the balance sheet, are as follows:
Fair value measurement basis Total fair value Carrying amount Fair value - Fair Total fair Carrying amount
2017 2017 discontinued value - value 2016
£m £m operations Continued 2016 £m
2016 operations £m
£m 2016
£m
Financial assets
Trade and other receivables1 102.6 102.6 10.8 88.7 99.5 99.5
Cash and cash equivalents 15.4 15.4 - 40.5 40.5 40.5
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 4.5 4.5 - 5.0 5.0 5.0
- Short duration swap contracts designated as fair value hedges Level 2 0.2 0.2 - 0.1 0.1 0.1
- Foreign exchange fair value hedges - other economic hedges Level 2 0.9 0.9 0.1 3.6 3.7 3.7
- Embedded derivatives Level 2 10.3 10.3 0.1 8.2 8.3 8.3
- Interest rate swaps Level 2 - - - - - -
Total financial assets 133.9 133.9 11.0 146.1 157.1 157.1
Financial liabilities
Unsecured bank loans and overdrafts (136.3) (136.3) - (146.6) (146.6) (146.6)
Trade and other payables2 (61.6) (61.6) (1.8) (61.3) (63.1) (63.1)
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 (1.6) (1.6) - (1.8) (1.8) (1.8)
- Short duration swap contracts designated as fair value hedges Level 2 (0.1) (0.1) - (0.3) (0.3) (0.3)
- Foreign exchange fair value hedges - other economic hedges Level 2 (5.5) (5.5) (0.3) (10.1) (10.4) (10.4)
- Embedded derivatives Level 2 (0.7) (0.7) - (0.7) (0.7) (0.7)
- Interest rate swaps Level 2 (0.4) (0.4) - (0.3) (0.3) (0.3)
Total financial liabilities (206.2) (206.2) (2.1) (221.1) (223.2) (223.2)
1 Excluding prepayments.
2 Excluding accrued expenses, deferred income and payments received
on account.
10 Property plant and equipment
Cost
At 28 March 2015 64.8 349.7 30.1 18.7 463.3
Exchange differences 0.4 4.9 0.3 0.2 5.8
Additions - 7.0 0.2 9.3 16.5
Transfers from assets in the course of construction 0.2 14.8 1.6 (16.6) -
Disposals (0.1) (5.4) (2.3) (1.6) (9.4)
Transferred to assets classified as held for sale (3.8) (1.6) (3.8) - (9.2)
At 26 March 2016 61.5 369.4 26.1 10.0 467.0
Exchange differences 0.2 6.8 0.3 0.2 7.5
Additions 0.2 6.2 0.2 16.9 23.5
Transfers from assets in the course of construction 2.3 2.3 1.3 (5.9) -
Disposals - (5.5) (4.0) (1.5) (11.0)
Acquisitions (see note 14) - 2.1 - - 2.1
At 25 March 2017 64.2 381.3 23.9 19.7 489.1
Accumulated depreciation
At 28 March 2015 28.8 234.5 20.7 - 284.0
Exchange differences 0.3 3.8 0.1 - 4.2
Depreciation charge for the year 1.6 19.4 2.0 - 23.0
Impairment - 5.2 - - 5.2
Disposals - (4.9) (2.3) - (7.2)
Transferred to assets classified as held for sale (3.8) (1.6) (3.8) - (9.2)
At 26 March 2016 26.9 256.4 16.7 - 300.0
Exchange differences 0.1 5.6 0.2 - 5.9
Depreciation charge for the year 1.7 19.6 3.0 - 24.3
Impairment - - - - -
Disposals - (4.5) (3.8) - (8.3)
At 25 March 2017 28.7 277.1 16.1 - 321.9
Net book value at 25 March 2017 35.5 104.2 7.8 19.7 167.2
Net book value at 28 March 2016 34.6 113.0 9.4 10.0 167.0
Net book value at 29 March 2015 36.0 115.2 9.4 18.7 179.3
Net book value at 29 March 2015
36.0
115.2
9.4
18.7
179.3
11 Intangible assets
Goodwill Development costs Software assets Distribution rights Intellectual Customer Trade Total
£m £m £m £m property relationships Names £m
Cost
At 28 March 2015 7.7 34.0 9.7 0.4 - - - 51.8
Exchange differences 0.4 0.7 - - - - - 1.1
Additions - 3.0 2.3 - - - - 5.3
Disposals - - (2.5) - - - - (2.5)
Transferred to assets classified as held for resale (8.1) (16.7) - (0.3) - - - (25.1)
At 26 March 2016 - 21.0 9.5 0.1 - - - 30.6
Exchange differences (0.1) - 0.2 - (0.1) - - -
Additions - 2.1 0.7 - - - - 2.8
Disposals - - (0.4) - - - - (0.4)
Acquisitions (see note 14) 9.8 - - - 4.6 2.3 0.3 17.0
At 25 March 2017 9.7 23.1 10.0 0.1 4.5 2.3 0.3 50.0
Accumulated amortisation
At 28 March 2015 3.7 23.4 7.7 0.4 - - - 35.2
Exchange differences 0.4 0.5 (0.1) - - - - 0.8
Amortisation for the year - 2.4 0.8 - - - - 3.2
Disposals - - (2.5) - - - - (2.5)
Transferred to assets classified as held for resale (4.1) (15.1) - (0.3) - - - (19.5)
At 26 March 2016 - 11.2 5.9 0.1 - - - 17.2
Exchange differences - - (0.2) - - - - (0.2)
Amortisation for the year - 1.7 0.7 - 0.1 - - 2.5
Disposals - - (0.4) - - - - (0.4)
At 25 March 2017 - 12.9 6.0 0.1 0.1 - - 19.1
Carrying value at 25 March 2017 9.7 10.2 4.0 - 4.4 2.3 0.3 30.9
Carrying value at 26 March 2016 - 9.8 3.6 - - - - 13.4
Carrying value at 28 March 2015 4.0 10.6 2.0 - - - - 16.6
12 Retirement benefit obligations
The Group operates retirement benefit schemes, devised in accordance with
local conditions and practices in the country concerned, covering the majority
of employees. The assets of the Group's schemes are generally held in
separately administered trusts or are insured. The major schemes are defined
benefit pension schemes with assets held separately from the Group. The cost
of providing benefits under each scheme is determined using the projected unit
credit actuarial valuation method. The major defined benefit pension scheme is
based in the UK and is now largely closed to future accrual. The current
service cost and gains and losses on settlements and curtailments are included
in operating costs in the Group income statement. The interest income on the
plan assets of funded defined benefit pension schemes and the imputed interest
on pension scheme liabilities are disclosed as retirement benefit obligation
net finance expense respectively in the income statement.
Return on plan assets excluding assumed interest income on the assets, changes
in the retirement benefit obligation due to experience and changes in
actuarial assumptions are included in the statement of comprehensive income in
full in the period in which they arise.
The liability recognised in respect of defined benefit pension schemes is the
present value of the defined benefit obligation less the fair value of the
scheme assets, as determined by actuarial valuations carried out at the
balance sheet date.
The Group's contributions to defined contribution plans are charged to the
income statement in the period to which the contributions relate.
A Trustee board has been appointed to operate the UK defined benefit scheme in
accordance with its governing documents and pensions law. The scheme meets the
legal requirement for member nominated trustees representation on the trustee
board and a professional independent trustee has been appointed as chair of
the board. The members of the trustee board undertake regular training to
ensure they are able to fulfil their function as trustees and have appointed
professional advisers to give them specialist expertise where required.
The Group has calculated the value of the minimum funding commitments to its
schemes and determined that no additional liability under IFRIC 14 is required
at 25 March 2017. No significant judgements were involved in making this
determination.
(a) Defined benefit pension schemes
Amounts recognised in the consolidated balance sheet:
2017 2017 Overseas 2017 2016 2016 Overseas 2016
UK £m Total UK £m Total
£m £m £m £m
Equities 222.9 - 222.9 303.9 - 303.9
Bonds 270.0 - 270.0 100.1 - 100.1
Gilts - - - 156.7 - 156.7
Diversified Growth Fund 199.4 - 199.4 186.3 - 186.3
Liability Driven Investment Fund 222.2 - 222.2 90.3 - 90.3
Multi Asset Credit 38.1 - 38.1 - - -
Other 21.9 - 21.9 24.6 - 24.6
Fair value of scheme assets 974.5 - 974.5 861.9 - 861.9
Present value of funded obligations (1,204.7) - (1,204.7) (1,072.2) - (1,072.2)
Funded defined benefit pension schemes (230.2) - (230.2) (210.3) - (210.3)
Present value of unfunded obligations (6.8) (2.4) (9.2) (7.3) (2.3) (9.6)
Net liability (237.0) (2.4) (239.4) (217.6) (2.3) (219.9)
Amounts recognised in the consolidated income statement:
2017 2017 Overseas 2017 2016 2016 Overseas 2016
UK £m Total UK £m Total
£m £m £m £m
Included in employee benefits expense:
- Current service cost - (0.2) (0.2) - (0.2) (0.2)
- Administrative expenses and taxes (1.5) - (1.5) (1.2) - (1.2)
Included in interest on retirement benefit obligation net finance expense:
- Interest income on scheme assets 29.6 - 29.6 28.1 - 28.1
- Interest cost on liabilities (37.0) - (37.0) (35.2) - (35.2)
Retirement benefit obligation net finance expense (7.4) - (7.4) (7.1) - (7.1)
Total recognised in the consolidated income statement (8.9) (0.2) (9.1) (8.3) (0.2) (8.5)
Return on scheme assets excluding assumed interest income 114.7 - 114.7 (37.1) - (37.1)
Remeasurement (losses)/gains on defined benefit pension obligations (140.0) 0.1 (139.9) 42.7 (0.2) 42.5
Amounts recognised in other comprehensive income (25.3) 0.1 (25.2) 5.6 (0.2) 5.4
Major categories of scheme assets as a percentage of total scheme assets:
2017 2017 Overseas 2017 2016 2016 Overseas 2016
UK % Total UK % Total
% % % %
Equities 22.9 - 22.9 35.3 - 35.3
Bonds 27.7 - 27.7 11.6 - 11.6
Gilts - - - 18.2 - 18.2
Diversified Growth Fund 20.5 - 20.5 21.6 - 21.6
Liability Driven Investment Fund 22.8 - 22.8 10.5 - 10.5
Multi Asset Credit 3.9 - 3.9 - - -
Other 2.2 - 2.2 2.8 - 2.8
The Diversified Growth Fund is a diversified asset portfolio which includes
investments in equities, emerging market bonds, property, high yield credit
and structured finance and smaller holdings in other asset classes. The
Liability Driven Investment (LDI) fund consists of fixed interest bond
holdings (approximately 49 per cent), index linked bond holdings
(approximately 37 per cent) and cash (approximately 14 per cent). Interest
rate swaps and floating rate notes are employed to complement the role of the
LDI fund for liability risk management. Derivatives have been valued on a mark
to market basis. The LDI is designed to proportionally counterbalance the
effect/impact of a decrease/increase in interest rates/inflation on 50% of the
funded obligations. The Multi-Asset Credit Fund invests in a variety of debt
instruments. The scheme's assets include £18,000 of the Group's own financial
instruments as at March 2017 which relate to ordinary shares of the Group
through index tracking investments.
Multi Asset Credit, Diversified Growth Funds and LDI asset categories include
certain assets which are not quoted in an active market and are stated at fair
value estimates provided by the manager of the investment fund.
Other UK assets comprise cash, interest rate swaps and floating rate notes.
Principal actuarial assumptions:
2017 2017 Overseas 2016 2016 Overseas
UK % UK %
% %
Future pension increases - past service 3.65 - 3.60 -
Discount rate 2.75 - 3.50 -
RPI inflation rate 3.30 - 3.10 -
The financial assumptions adopted as at 25 March 2017 reflect the duration of
the scheme liabilities which has been estimated to be 19 years.
At 25 March 2017 mortality assumptions were based on tables issued by Club
Vita, with future improvements in line with the CMI model, CMI_2015 (2016:
CMI_2013) and a long term rate of 1.25 per cent per annum (2015/16: long term
rate of 1.25% per annum). The resulting life expectancies within retirement
are as follows:
2017 2016
Aged 65 retiring immediately (current pensioner) Male 22.7 23.0
Female 24.2 24.4
Aged 50 retiring in 17 years (future pensioner) Male 23.3 24.1
Female 25.5 26.9
The defined benefit pension schemes expose the Group to the following main
risks:
Mortality risk - an increase in the life expectancy of members will increase
the liabilities of the schemes. The mortality assumptions are reviewed
regularly, and are considered appropriate.
Interest rate risk - A decrease in bond yields will increase the liabilities
of the scheme. Liability driven investment strategies are used to hedge part
of this risk.
Investment risk - The value of pension scheme assets vary with changes in
interest rates, inflation expectations, credit spreads, exchange rates, and
equity and property prices. There is a risk that asset returns are volatile
and that the value of pension scheme assets may not move in line with changes
in pension scheme liabilities. To mitigate against investment risk the pension
scheme invests in derivatives which aim to hedge a proportion of the movements
in assets and liabilities. The pension scheme invests in a wide range of
assets to provide diversification in order to reduce the risk that a single
investment or type of asset class could have a materially adverse impact on
total scheme assets. The investment strategy and performance of investment
funds are reviewed regularly to ensure the asset strategy of the pension
schemes continues to be appropriate.
Inflation risk - The liabilities of the scheme are linked to inflation. An
increase in inflation will result in an increase in liabilities. There are
caps in place for UK scheme benefits to mitigate the risk of extreme increases
in inflation. Liability driven investment strategies are used to hedge part of
this risk.
Any increase in the retirement benefit obligation could lead to additional
funding obligations in future years.
The table below provides the sensitivity of the liability in the scheme to
changes in various assumptions:
Assumption change Approximate impact on liability
0.25% decrease in discount rate Increase in liability of c£55m
0.25% increase in RPI inflation rate Increase in liability of c£28m
Increasing life expectancy by one year Increase in liability of c£55m
The liability sensitivities have been derived using projected cash flows for
the Scheme valued using the membership profile as at 5 April 2015 and
assumptions chosen for the 2017 year end. The sensitivity analysis does not
allow for changes in scheme membership since the 2015 actuarial valuation or
the impact of the Scheme or Group's risk management activities in respect of
interest rate and inflation risk on the valuation of the Scheme assets.
The largest defined benefit pension scheme operated by the Group is in the UK.
The Group's formal triennial funding valuation of the UK defined benefit
pension scheme was finalised in June 2016. The underlying funding deficit as
at 5 April 2015 was valued at £252m.
Changes in the fair value of UK scheme assets:
2017 2016
£m £m
At 26 March 2016/28 March 2015 861.9 891.6
Assumed Interest income on scheme assets 29.6 28.1
Scheme administration expenses (1.5) (1.2)
Return on scheme assets less interest income 114.7 (37.1)
Employer contributions and other income 14.8 19.2
Benefits paid (including transfers) (45.0) (38.7)
At 25 March 2017/26 March 2016 974.5 861.9
Changes in the fair value of UK defined benefit pension obligations:
2017 2016
£m £m
At 26 March 2016/28 March 2015 (1,079.5) (1,125.7)
Interest cost on liabilities (37.0) (35.2)
Effect of changes in financial assumptions (168.9) 58.7
Effect of changes in demographic assumptions 12.9 (12.3)
Effect of experience items on liabilities 16.0 (3.7)
Benefits paid (including transfers) 45.0 38.7
At 25 March 2017/26 March 2016 (1,211.5) (1,079.5)
During 2015/16, the Group made special funding payments of £19.1m (including
scheme administration fees). The Group's formal triennial valuation of the UK
defined benefit Scheme was finalised in June 2016. The underlying funding
deficit was valued at £252m. The Group agreed a revised funding plan with the
Trustee to eliminate the deficit over a period of 12 years from 31 March 2016.
The plan will see the existing funding payment schedule extended from 2022 to
2028.
The cash contributions to the Scheme of £13.0m (in addition to the regular
contributions outside of the revised funding plan) have been made in the
current year and £13.5m will be made in 2018, increasing to £20.5m in 2019 and
then rising by 4% per annum to 2022. It will be frozen at £23.0m per year
between 2023 and 2028. The Group will continue to pay annual fees of £1.6m for
managing the Scheme in addition to the cash contributions. In the year ended
25 March 2017, the Group made funding payments and management fees totalling
£14.8m. The next triennial funding valuation is due in April 2018.
(b) Defined contribution pension plans
The Group operates a number of defined contribution plans for which the charge
in the consolidated income statement for the year was £8.8m (2015/16: £9.4m).
13 Contingent liabilities
De La Rue has extensive international operations and is subject to various
legal and regulatory regimes, including those covering taxation matters from
which, in the ordinary course of business, contingent liabilities can arise.
While the outcome of litigation and disputes can never be predicted with
certainty, having regard to legal advice received and the insurance
arrangements of the Company and its subsidiaries, the Directors believe that
adequate provision has been made to cover these matters. The Group also
provides guarantees and performance bonds which are issued in the ordinary
course of business. In the event that a guarantee or bond is called,
provision may be required subject to the particular circumstances, including
an assessment of its recoverability.
14 Business combinations
On December 12, 2016 De La Rue entered into a Share Purchase Agreement ("SPA")
to acquire 100% of the outstanding capital stock of DuPont Authentication Inc
(subsequently renamed to De La Rue Authentication Solutions ("DAS")). The
acquisition completed on January 6, 2017 for a total consideration of $26.2m
(£21.3m). This included the initial cash payment of $24.8m (equivalent to
£20.2m) and a closing working capital adjustment of $1.4m (£1.1m) as per the
terms of the SPA.
DAS is a leading global producer of photopolymer holographic films and 3D
holograms and associated software. Its technology is used to authenticate
products ranging from consumer electronics to spirits and also to secure
identity documents. Its products are based on the highly specialised and
secure Lippmann holography technology. Based in Utah, USA and with operations
in Delaware, DAS has a well established global customer base in brand
protection and identity authentication. This acquisition is in line with De La
Rue's five year strategic plan to transform the Group into a technology led
Security product and service provider. It will strengthen De La Rue's Security
Features, Product Authentication & Traceability, and Identity Solutions
product lines. DuPont Authentication's proprietary technology will also
provide a solid platform for De La Rue to create new applications for the
Currency market.
Goodwill of $12.1m (£9.8m) was recognised on the acquisition, being the excess
of the purchase consideration over the fair value of net assets acquired as
set out below. Through the acquisition of DAS, De La Rue has acquired the
intellectual property, trade names and existing customer relationships and
these intangible assets have been valued at $8.9m (£7.2m).
Provisional2017
£m
ASSETS
Non-current assets
Property, plant and equipment 2.1
Intangible assets 7.2
9.3
Current assets
Inventories 2.7
Trade and other receivables 1.1
Cash and cash equivalents 2.3
6.1
Total assets 15.4
LIABILITIES
Current liabilities
Trade and other payables 0.7
0.7
Non-current liabilities
Deferred tax liabilities 3.2
Total liabilities 3.9
Total identifiable assets 11.5
Goodwill 9.8
Total consideration 21.3
Consideration was fully satisfied in cash. The closing working capital
adjustment of $1.4m (£1.1m) was paid post year end. Acquisition related costs
of £0.5m were recognised in the Income Statement (See Note 4 "exceptional
items").
DAS contributed £2.2m of revenue and loss of £0.1m to the Group's profit
(£0.3m profit based on adjusted operating profit which excludes £0.4m unwind
of the fair value adjustment to acquired inventory. See note 4 for more
details) since acquisition and the balance sheet date. If the acquisition had
been completed on the first day of the financial year, revenues for the period
would have been £10.6m and the profit would have been £1.0m (£1.7m based on
adjusted operating profit).
15 Related party transactions
During the year the Group traded on an arms length basis with the associated
company Fidink S.A. (33.3 per cent owned). The Group's trading activities with
this company included £20.8m (2015/16: £24.2m) for the purchase of security
ink and other consumables. At the balance sheet date there were creditor
balances of £6.4m (2015/16: £3.2m) with Fidink S.A.
Intra-Group transactions between the parent and the fully consolidated
subsidiaries or between fully consolidated subsidiaries are eliminated on
consolidation.
Key management compensation
2017 2016
£'000 £'000
Salaries and other short term employee benefits 2,959.9 3,356.6
Termination benefits - 237.7
Retirement benefits:
- Defined contribution 90.4 230.4
Share based payments 190.9 827.0
3,241.2 4,651.7
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.
16 Dates
The consolidated accounts have been prepared as at 25 March 2017, being the
last Saturday in March. The comparatives for the 2015/16 financial year are
for the period ended 26 March 2016.
17 Statutory accounts
Statutory accounts for the period ended 25 March 2017 will be made available
to shareholders for subsequent approval at the Annual General Meeting and
copies will be available from the Company Secretary at De La Rue plc, De La
Rue House, Jays Close, Viables, Hampshire, RG22 4BS.
18 Foreign exchange
Principal exchange rates used in translating the Group's results:
2016/17 2015/16
Average Year End Average Year End
US dollar 1.32 1.25 1.50 1.41
Euro 1.20 1.16 1.36 1.27
19 Non-IFRS financial measures
De La Rue plc publishes certain additional information in a non-statutory
format in order to provide readers with an increased insight into the
underlying performance of the business. The Directors are of the opinion that
these measures give a better understanding of the underlying performance of
the business. Amortisation of acquired intangible assets is a non-cash item
and by excluding this from the adjusted operating profit metrics this is
deemed to be a more meaningful metric of the contribution from the underlying
business. The measures the Group uses along with appropriate reconciliations
where applicable are shown below.
Adjusted operating profit
Adjusted operating profit represents earnings from continuing operations
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