REG - De La Rue PLC - FY22 Full Year Results
25/05/2022 08:31
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RNS Number : 6885M De La Rue PLC 25 May 2022
25 May 2022
DE LA RUE
FY22 FULL YEAR RESULTS
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the "Company")
announces its full year results for the year ended 26 March 2022 (the
"period", "FY22" or "full-year"). The comparative period was the twelve months
ended 27 March 2021 ("FY21").
· Adjusted operating profit of £36.4m (FY21: £38.1m) is
consistent with guidance in January 2022.
· IFRS operating profit increased to £29.7m (FY21:
£14.5m)
· Adjusted operating profit growth of over 30%
year-on-year in ongoing divisions to £35.8m, consisting of 20.4% growth
in Currency and 44.2% growth in Authentication
· Authentication revenue growth of 16.4% to £90.3m
· Currency adjusted revenue decline of 2.1% to £280.9m
· IFRS revenue was £375.1m for the year (FY21: £397.4m)
· Polymer volumes increased 40% versus prior year, with
continuing strong customer conversion to polymer banknotes
· Agreement secured with the Pension Trustees to reduce
cash payments to the De La Rue Pension Scheme by £57m between 2023-29
· Net debt comfortably within market expectations and
banking covenants, through strong cash management; balance sheet remains
strong
· Strong operating cash flow generation of £18.3m (FY21:
£5.6m net outflow)
Outlook
Since the end of our financial year, De La Rue has experienced further
headwinds that are anticipated to have an impact on adjusted operating profit
in FY23. While the Company is making significant progress in its
transformation programme, the external environment is providing a substantial
degree of uncertainty in the outlook. In particular, supply chain inflation is
anticipated to increase Group operating costs by an additional net of £5m
this financial year, and there is a possibility that disruption may affect
revenue. For this reason, the Board now expects that adjusted operating profit
for FY23 will be broadly flat versus FY22, and weighted towards the second
half.
Despite the unprecedented macro environment, De La Rue continues to make
progress with addressing legacy issues and streamlining its operations. The
markets in which the company operates remain strong, and De La Rue continues
to improve its market position across both business divisions. The Board
remains confident of De La Rue future prospects as a strong, cash-generative
company.
Clive Vacher, Chief Executive Officer of De La Rue, said:
"Despite unprecedented global events, we grew adjusted operating profit in our
two ongoing divisions by 30.2% year-on-year, with Currency up 20.4% and
Authentication up 44.2%. This performance was against the background of supply
chain inflation, and the various impacts of Covid-19, none of which were
anticipated in the original Turnaround Plan of February 2020. We have made
significant further progress in the execution of our operational
transformation, enhanced our market positions in both divisions, and driven
further efficiency improvements across the Group.
"Across the board, De La Rue has taken a number of actions since 2020 to
de-risk the Company significantly, and we continue to address legacy issues.
Successfully agreeing a £57m reduction in cash payments to the pension
scheme, while enhancing protections for scheme members, is the latest example
of delivering for all stakeholders. We are advancing our investment programme,
with the significant majority of Currency's planned capital expenditure
already paid and contributing to overall performance. Our Authentication
division continues to grow, and good progress has been made in implementing
the contracts already won.
"We have prudently revised our outlook for the financial year 2022/23 adjusted
operating profit, due to further headwinds experienced since the end of our
financial year, and a realistic expectation of how far we can mitigate them.
While this means that our progress is slowed, we remain strongly on the right
path strategically and operationally to create a strong, cash-generative
company in the medium term."
FY22 FY21 Change
Financial Summary £m £m %
Non-IFRS Financial Measures
Adjusted Revenue* 375.1 388.1 (3.3)%
- Authentication 90.3 77.6 16.4%
- Currency 280.9 286.8 (2.1)%
- Identity Solutions(1) 3.9 23.7 (83.5)%
Adjusted operating expenses*(2) (61.2) (69.7) 12.2%
Adjusted operating profit*(2) 36.4 38.1 (4.5)%
- Authentication 16.3 11.3 44.2%
- Currency 19.5 16.2 20.4%
- Identity Solutions(1) 0.6 10.6 (94.3)%
Adjusted basic EPS (p)*(3) - continuing operations 13.0p 14.7p (11.6)%
Net debt(4) 71.4 52.3 (36.5)%
FY22 FY21 Change
Statutory Results £m £m %
Revenue - continuing operations 375.1 397.4 (5.6)%
Gross Profit - continuing operations 97.6 107.8 (9.5)%
Operating profit - continuing operations 29.7 14.5 104.8%
Basic EPS (p) - continuing operations 10.6p 3.7p 186.5%
Footnotes:
* These are non-IFRS measures. The definition and reconciliation of adjusted
revenue, adjusted operating profit and adjusted basic EPS can be found in
Non-IFRS financial measures section of this Full Year Results announcement.
(1. )Identity solutions in FY22 includes sales made under the Design
and Supply Agreement ("DSA") arrangement with HID Corporation Limited ("HID")
entered into following the sales of the International Identity Solutions
business in October 2019. FY21 includes sales relating to the UK passport
contract in addition to DSA sales.
(2. )Adjusted operating expenses and adjusted operating profit
excludes pre-tax exceptional items of £5.7m (FY21: £22.6m) and pre-tax
amortisation of acquired intangible assets £1.0m (FY21: £1.0m).
(3. )Adjusted basic EPS excludes post-tax exceptional items of £3.9m
(FY21: £18.4m) and post-tax amortisation of acquired intangible assets £0.7m
(FY21: £0.6m).
(4. )The definition of net debt can be found in note 9 to the
financial statements.
FY22 financial performance
· Substantial growth in profitability in ongoing
Authentication and Currency divisions, achieving an adjusted operating profit
of £35.8m (FY21: £27.5m)
· Authentication saw growth across the division: revenues
rose 16.4% to £90.3m (FY21: £77.6m)
o Government Revenue Solutions ("GRS") benefitted from a full year of
Ghanaian tax stamp and HMRC tobacco track and trace revenue
o Certain GRS contract implementations delayed by Covid-19 restrictions
o GRS received five additional contracts for the supply of tax stamps and
solutions, most recently from Oman Tax Authority
o Brand Protection saw strong growth with pharmaceutical, information
technology and vaping sectors
o Identity pages for Australian passport contract have started to be
delivered
· Currency saw a slight fall in adjusted revenue of 2.1%
to £280.9m (FY21: £286.8m)
o Demand for polymer continues: polymer volumes increased by 40% over
the prior year
o Market for banknotes fell to lower-than-normal demand levels following
the high demand experienced during the pandemic. As a result, volumes in
banknote printing and security features were lower.
o Staff absence due to Covid-19 in UK and Malta in December and January
impacted production
· Revenue from legacy Identity Solutions business dropped
83.5% to £3.9m (FY21: £23.7m) and adjusted operating profit dropped 94.3% to
£0.6m (FY21: £10.6m) as minimal activity remains now
· Costs impacted by supply chain shortages and cost
inflation in the second half
o Full year impact of £7m of savings, achieving £36m cost reduction in
the Turnaround Plan
· Exceptional charges of £5.7m (FY21: £22.6m)
comprised:
o £1.8m (FY21: £21.4m) of site relocation and restructuring
o £3.1m (FY21: £nil) expected credit loss provision on other financial
assets held in Portals
o £0.4m (FY21: £0.6m) legal fees in relation to the pension scheme
rules
o £0.4m (FY21: £nil) loss on devaluation of the Sri Lankan rupee in
March 2022
· IFRS operating profit rose 104.8% to £29.7m (FY21:
£14.5m) as exceptional charges of £5.7m (FY21: £22.6m) were much lower than
last year
· Adjusted basic EPS were 13.0p (FY21: 14.7p), reflecting
an increase in profits offset by the full year impact of a higher number of
shares post equity raise in 2020
· IFRS basic EPS from continuing operations of 10.6p (FY21:
3.7p) reflected the higher IFRS profits earned this year, mitigated by the
full year impact of a higher number of shares post equity raise in 2020
· Net debt of £71.4m (FY21: £52.3m) comfortably within
banking covenants
o Operating activities provided £18.3m of net cash inflow (FY21: £5.6m
net outflow)
Enquiries:
De La Rue plc + 44 (0) 7990 337707
Clive Vacher Chief Executive Officer
Rob Harding Chief Financial Officer
Louise Rich Head of Investor Relations
Brunswick + 44 (0) 207 404 5959
Stuart Donnelly
Ed Brown
A briefing to analysts will take place at 9:00 am on 25 May 2022, which is
accessible via webcast on www.delarue.com (http://www.delarue.com) .
For the live webcast, please register at
www.delarue.com/investors/results-and-reports
(http://www.delarue.com/investors/results-and-reports) where a replay will
also be available subsequently.
De La Rue plc's LEI code is 213800DH741LZWIJXP78.
CEO REVIEW
Focused execution and resilience
Despite the challenging external environment, our teams have continued to
drive the business forward. We have become more cost competitive, enhanced
our market positions, and made substantial progress in our plans
to transform the Company.
Overall performance
We have made progress in our £79.8m investment programme in FY22, building
on the strengthened financial position achieved in FY21 as a result of the
equity raise and the performance of the business last year. Our cost base has
been transformed, with the removal of £36m in costs, and we continue to look
for further efficiencies. This, along with continued progress in our
operational excellence programmes and design capability, has transformed our
market position in both divisions. We now win a high proportion of the
contracts for which we compete, and we are either number one or a strong
number two challenger in our markets.
The Turnaround Plan, first set out in February 2020, was designed to
stabilise, and increase efficiency in lower-margin banknote printing
activities and broaden the business further into the higher-margin,
technology-led sections of our business. I am pleased with the progress in
this regard: our four banknote printing facilities globally have been
profitable throughout FY22, with a strong mix of customers worldwide. Central
banks around the world have continued to convert their currency to polymer,
and we have announced some significant new security features to supplement the
growing trend of polymer banknotes. Our Authentication division showed strong
growth in both Government Revenue Solutions and Brand Protection, with GRS
receiving five contracts during the year and with Brand Protection, excluding
Microsoft which remains a strong and stable customer, up 44% versus last
year.
Finally, and very importantly, the actions of the De La Rue teams since 2020
have significantly de-risked the Company. Whereas previously the Company was
heavily dependent on a small number of large customers, now no single customer
accounts for more than 10% of our revenue annually.
Against this background of strong execution, we have faced some significant
headwinds that were not anticipated when the Turnaround Plan was originally
designed. There have been three main effects on our business: first, as they
emerge from the Covid-19 pandemic, governments have been slower than
anticipated to contract and implement new GRS schemes or return to the travel
required to enact new banknote series; second, during the year, we have faced
significant Covid-related factory absences, most notably with the Omicron
variant in our higher-cost European factories; and thirdly we have faced
supply chain shortages and inflation. These external effects have combined to
slow our progress, and we grew adjusted operating profit* for Currency and
Authentication by 30.2% against an original target of 65%, as communicated
to our stakeholders on 24 January 2022.
That said, we believe the fundamentals of the strategy set out in the
Turnaround Plan remain solid, and we expect these to continue to drive
stronger financial performance going forward.
Authentication
The Authentication division has produced a positive performance in FY22,
achieving revenue growth of 16.4% and an increase in adjusted operating
profit* of 44.2%. Government Revenue Solutions benefited from a full year of
Ghanaian tax stamp and HMRC tobacco track and trace revenue. However, growth
here was not as strong as originally predicted. Certain Government Revenue
Solutions contracts took longer than expected to be implemented as countries
managed the Covid pandemic and emerged from it in differing ways.
The visibility of revenue for 2022 and beyond was strengthened by recent
Government Revenue Solution contract wins, including a 100% success rate
amongst the Gulf Cooperation Council states. These contracts are typically of
five-year duration, with De La Rue providing exclusive supply.
Trading was also strong in the brand protection area, with excellent growth in
revenue, up 44% excluding sales to Microsoft, driven by demand from the
pharmaceutical, consumer electronics and vaping sectors. A new five-year
contract signed with Microsoft early in 2021 also helped to deepen our
relationship with this established customer and we have seen strong sales in
this area since. We have also begun to supply the polycarbonate data pages for
the new Australian passport under our five-year contract with the Australian
government.
We believe that demand for our Authentication solutions will continue
to grow, particularly as we combine our long-standing expertise in security
printing techniques with world-leading digital track and trace systems. To
that end we are investing into the further development of our CertifyTM and
Traceology® systems.
Given the continuing growth in demand for our authentication labels, in
September 2021 we announced the expansion of our site in Malta, to create a
29,000m2 state-of-the-art manufacturing site. The new facility, when completed
in 2024, will create around 100 new jobs across the business and allow us to
double our production of these labels.
Currency
The Turnaround Plan set out our ambition to improve the profitability of
banknote printing by increasing the utilisation rate from a smaller number of
facilities, to support customers around the world who wish to convert to
polymer with its greater improved recycling profile, and to develop a
portfolio of security features that are the choice of a growing range of
customers. We have made further progress in all three of these areas this
year.
We have endeavoured to maximise efficiency and flexibility throughout this
transformation. Having stopped manufacturing in Gateshead, we relocated
several machines from there to our other sites to maximise utilisation of
assets.
Our flexibility will be enhanced by the new line at Westhoughton, which will
more than double our capacity for manufacturing polymer substrate, as demand
for polymer banknotes continues to rise. In addition, the expansion of the
Malta facility will expand our banknote printing capacity, as well as
production of authentication labels.
The market for banknotes in FY22 returned to lower-than-normal demand levels
following the high demand experienced during the Covid-19 pandemic. As a
result, the division produced lower overall volumes in banknote printing and
security features year on year, which was partially offset by the continued
growth in polymer substrate sales. Increased staff absence in the UK and Malta
during December 2021 and January 2022 because of Covid-19 also had some impact
on production.
Conversion to polymer continues as expected with a number of countries
including Egypt, Libya and Jamaica recently announcing the introduction of
polymer notes, with De La Rue's SAFEGUARD® selected, as well as the Bank of
England completing its conversion to polymer with the launch of the new £50
in summer 2021. In FY22 our volumes of polymer produced increased by 40% over
the prior year.
The cost reduction plan and the operational efficiencies that we have gained
over the last two years had a beneficial effect on divisional adjusted
operating profit*, increasing 20.4% to £19.5m in FY22 with adjusted
operating margin rising 130 basis points to 6.9%. Legacy contract issues
continue to represent a drag of approximately 2.5%-3% on Currency margins.
Innovative security features continue to appeal to our customers and we
continue to develop new products in this area. Most recently in February 2022
we launched SAFEGUARD® ASSURE™, an embedded covert security feature for
polymer which can be detected by central banks even if no other aspect of the
banknote is remaining. The launch of ASSURE™ means that SAFEGUARD® is the
most complete banknote substrate available - no other substrate allows for
customisable windows, durable blind recognition features and covert embedded
security together in one substrate.
Central bank digital currencies remain an area of ongoing interest for many
central banks. This is a new area, with the underlying risks, opportunities
and benefits not yet clear in many instances. There are many questions still
to answer in this space. De La Rue has been working closely with technology
providers and central banks to develop our position in this area.
Full Year Performance
Overall Group adjusted revenue* for the year was £375.1m, down 3.3% on prior
year. The Authentication division saw a rise in revenue of 16.4% to £90.3m
for the year. The Currency division saw a slight fall in adjusted revenue* of
2.1% to £280.9m, lower than initially expected as described above. As noted
at the time of announcement of last year's results, the contribution from the
Identity Solutions business fell substantially with residual revenues of just
£3.9m, following the end of the runoff from
the UK Passport contract during FY21.
Adjusted operating profit* for the ongoing businesses of Authentication and
Currency was £35.8m, up 30.2% on last year. For the Group as a whole,
including profits from the Identity Solutions business, adjusted operating
profit* was down 4.5% at £36.4m. Identity Solutions only generated £0.6m of
operating profit this year (FY21: £10.6m).
On an IFRS basis, Group revenue was down 5.6% at £375.1m (FY21: £397.4m),
with pass through revenue dropping to zero this year, and IFRS operating
profit rose 104.8% to £29.7m (FY21: £14.5m), reflecting substantially lower
exceptional item charges of £5.7m (FY21: £22.6m).
Earnings per share from continuing operations were 10.6p (FY21: 3.7p) on an
IFRS basis, reflecting the higher IFRS profits, and 13.0p (FY21: 14.7p) on
an adjusted basis*.
Our net cash flow reflected the bulk of the cash spend for the expansion at
Westhoughton during the year, offsetting cash generated from operating
activities. Investing activities will continue next year as the expansion of
the Malta site continues. As expected, our net debt rose at year end to
£71.4m (FY21: £52.3m), but net debt/EBITDA of 1.46 was still comfortably
below its covenant limit of 3.0 times.
* These are Non-IFRS measures. The reconciliation of IFRS to adjusted measures
can be found in the Non-IFRS financial measures of this report.
Covid-19
De La Rue has approached the Covid-19 pandemic in a risk-based manner from the
outset, building on the general pandemic business continuity plan which we
drew up in 2018. We have assessed, and continue to assess, the potential for
disruption caused by the pandemic, monitoring in detail and implementing
actions to mitigate the impact of it, including steps to protect our
employees.
This careful planning has paid off and for much of FY21 we were able to limit
the direct impact on our business. We have encouraged vaccination and have
high rates of vaccinated employees at all sites around the world. We found
workarounds to minimise the impact of an outbreak of the Delta variant at our
Sri Lanka plant over the summer of 2021.
As national case levels increased in December 2021 and January 2022 due
to the rapid spread of the Omicron variant, there was a corresponding rise in
cases within our colleagues. This caused some disruption and loss of
production in the UK and Malta due to elevated levels of staff absences during
this time. Staff absences have subsequently returned to manageable levels but
remain elevated compared to pre-pandemic levels. Our operations remain
resilient and production has only been impacted in a limited way since then.
There have in addition been a number of second order impacts of Covid-19 on
our business, notably the delay in implementation of some Government Revenue
Solution contracts noted above, and some delays to planned new banknote design
introductions as a result of customers not being able to travel.
In April 2022, in line with the Government's 'Living with Covid-19' guidance,
De La Rue moved from an incident management process to recovery in line in the
UK, while international sites will continue to follow the requirements of
their own national government. The Group, however, will maintain resilience,
ongoing surveillance, contingency planning and the ability to reintroduce key
mitigations swiftly and efficiently if required.
Supply Chain
Like many businesses, we have encountered a number of external supply chain
pressures this year, as supply chains were affected by a combination of the
Covid-19 pandemic and its aftermath. Additionally, energy, commodity and
logistics prices spiked sharply at the time of Russia's invasion of
Ukraine.
We have employed several strategies to mitigate these pressures where we can.
For example, in the UK, where energy prices for business are not government
controlled, we have fixed our supply costs until September 2024, removing
this uncertainty from the budgeting process for over two years.
Elsewhere we are looking at other cost inflation mitigations, such as
arranging insurance for cyber tech PI through a subsidiary company licensed
to write insurance policies or investigating alternative supply sources, as
well as passing on those costs where appropriate to our customers.
Employees
It has been particularly important to look out for the welfare of our staff
during these challenging times. We have maintained high levels of engagement
during the pandemic, including running various forums and surveys and offering
staff a variety of wellbeing initiatives, including on site accredited Mental
Health First Aiders and webinars on a range of wellbeing related subjects. We
continue to see learning and development as an important part of looking after
our staff. We provide content through our highly flexible Learning Management
System, which this year has focused on developing an understanding of self and
others and how to lead with inclusion.
Our 2021 employee engagement survey showed an extremely high satisfaction rate
across the organisation - 83% of our employees responded to the survey, giving
us a strong data set - 79% of respondees said that they would recommend De La
Rue as a great place to work, a wonderful endorsement.
With this background, we have reached a pay deal with our UK union that
extends out to July 2023 which was satisfactory to all parties. We also
reached settlements with our overseas sites that extend until at least the end
of this year. This provides us with certainty and clarity in this area
for some time.
Looking forward
Since the end of our financial year, the geopolitical and economic environment
around the world has deteriorated substantially. Russia's invasion of
Ukraine sparked a spike in oil, gas and commodity prices, which caused
knock-on rises in energy, raw material and logistics costs. In April 2022 the
IMF increased its inflation projection for 2022 to 5.7% in advanced economies
and 8.7% in emerging economies. As explained above, we are working hard to
mitigate the impact of these costs and pass on those elements which we are
able to our customers but we are still facing a net supply chain cost increase
of around £5m.
In addition to the general inflationary environment that is challenging all
businesses, De La Rue is also exposed to the specific uncertainty caused by
the economic crisis in Sri Lanka, where we have a manufacturing operation.
The monetary impacts of the currency devaluation and changes to rules relating
to capital flows are being actively monitored by the Group, in addition to the
overall security situation for our staff. We recognised an initial exchange
loss of £0.5m (of which £0.4m was classified as exceptional) in FY22 and the
currency has fallen against GBP since the year end. However, the net foreign
exchange impact on cash balances held now should be tempered over the coming
year by the revised GBP equivalent cost base.
Taking all these uncertainties and headwinds into account and looking at
trading to date for the current financial year, our prudent best estimate for
adjusted operating profit for FY23 is at around the same level as for the year
just ended. We also expect to return to our historic profile of earnings
weighted towards the second half of the year.
The uncertainty of the current economic environment has necessitated us to
take a prudent approach. As well as risks, there are a number of significant
opportunities, including incremental sales, operational efficiencies and
tackling some of the remaining legacy issues within the business, which may
allow us to improve the outturn for the current year.
In the two and a half years since I was appointed as CEO, we have resolved a
number of legacy issues that were facing the business, including restructuring
the divisions, rightsizing central functions to the size of the ongoing
business, raising funds to safeguard the future of the business and minimise
future cash payments to fund the pension plan. Other areas, such as
transforming the manufacturing base, increasing the speed of uptake of GRS
contracts and meeting customer demand for polymer banknotes are well on their
way to being resolved, but there remain further issues that remain
unresolved. These include various legacy supplier contracts and improvements
to the efficiency of internal systems.
Within De La Rue we are going to be working tirelessly to make these
opportunities a reality, building on the strong foundations created by
implementing the Turnaround Plan. We have a business with the potential to be
highly cash generative, once the external cost environment stabilises and with
certain of the outstanding legacy issues resolved.
At the same time we continue to improve quality and to ensure sound
environmental performance. We do this while practising the highest ethical
business principles and prioritising staff welfare. I would like to thank my
colleagues for all their hard work over the last year and our customers,
suppliers and investors for their cooperation and continued support.
I believe that the actions that we have taken over the last two years, and
the work we are continuing to do, allow us to address our markets
competitively, flexibly and efficiently, enabling us to move forward
together with confidence.
Clive Vacher
Chief Executive Officer
24 May 2022
REVIEW OF OPERATIONS
A solid performance
In this review, we report on the financial performance of the Authentication
and Currency divisions, together with the impact of operational costs
incurred centrally.
Authentication
FY22 FY21 Change
Non-IFRS financial measures
Adjusted revenue (£m) 90.3 77.6 +16.4%
Adjusted operating profit (£m)* 16.3 11.3 +44.2%
Adjusted operating margin (%)* 18.1 14.6 +350bps
Adjusted controllable operating profit (£m) 23.7 18.3 +29.5%
Adjusted controllable operating margin (%) 26.2 23.6 +260bps
IFRS measures
Revenue (£m) 90.3 77.6 +16.4%
Gross profit (£m) 34.5 29.9 +15.3%
Gross profit margin (%) 38.2 38.5 -30bps
Operating profit (£m) 15.1 9.9 +52.5%
Operating margin (%) 16.7 12.8 +390bps
* Excludes exceptional item charges of £0.2m (FY21:
£0.4m) and amortisation of acquired intangibles of £1.0m (FY21: £1.0m).
Currency
FY22 FY21 Change
Non-IFRS financial measures
Adjusted revenue (£m)* 280.9 286.8 -2.1%
Adjusted operating profit (£m)** 19.5 16.2 +20.4%
Adjusted operating margin (%)** 6.9 5.6 +130bps
Adjusted controllable operating profit (£m) 42.5 41.7 +1.9%
Adjusted controllable operating margin (%) 15.1 14.5 +60bps
IFRS measures
Revenue (£m) 280.9 295.7 -5.0%
Gross profit (£m) 63.2 65.3 -3.2%
Gross profit margin (%) 22.5 22.1 -40bps
Operating profit (loss) (£m) 15.0 (4.4) n/a
Operating margin (%) 5.3 (1.5) +680bps
* Excludes 'pass through' revenue of £nil (FY21: £8.9m)
related to non-novated paper contracts relating to the Portals De La Rue
sale.
** Excludes exceptional item net charge of £4.5m (FY21:
£20.6m).
The reconciliation of IFRS to adjusted measures can be found in the Non-IFRS
financial measures of this report.
To provide increased insight into the underlying performance of our business,
we have reported revenue, gross profit and operating profit on an IFRS and
adjusted basis, together with adjusted controllable operating profit (adjusted
operating profit before enabling function cost allocation), for both ongoing
operating divisions.
Our two ongoing operating divisions, Currency and Authentication delivered
adjusted operating profit of £35.8m (FY21: £27.5m), an improvement of £8.3m
year-on-year. This reflects stronger gross profits of £97.7m (FY21: £95.2m)
and a reduction in operating expenses. In addition, Identity Solutions
generated minimal adjusted operating profit of just £0.6m in the current
financial year as the remaining activities have run down (FY21: £10.6m).
Authentication
The Authentication division is focused on providing physical and digital
solutions to authenticate products through the supply chain and to provide
tracking of excisable goods to support compliance with government
regulations.
A number of contracts won during the previous financial year became fully
operational, and so revenue producing, for the current financial year. These
included a major polycarbonate supply contract for the Australian passport and
a Government Revenue Solutions (GRS) contract with Ghana for tax stamps used
on a range of products, though levels of supply of the passport
polycarbonate were affected by semiconductor shortages.
During FY22, our GRS business received five contracts for the supply of tax
stamps and solutions, including most recently with the Oman Tax Authority to
implement a digital tax stamp solution for excisable goods.
However, we have seen some delays in the implementation of GRS contracts
already signed due to variability between countries in the return to normal
work patterns following the Covid-19 pandemic.
Brand protection also saw healthy sales growth, notably in the pharmaceutical,
information technology and vaping sectors.
The strong revenue growth seen in the Authentication division in the first
half continued in to the second half, with revenue for the year of £90.3m
(FY21: £77.6m), up 16.4% on prior year. We expect the signed GRS contracts to
start delivering revenue during FY23.
The increase in sales volumes had a beneficial effect on gross profit in
absolute terms, although gross profit margin fell slightly by 30 basis points
to 38.2% (FY21: 38.5%), reflecting the increasing pressure of rising
raw material and energy costs.
Adjusted operating profit in Authentication rose 44.2% to £16.3m (FY21:
£11.3m), mostly driven by the additional gross profit on increased sales, but
also because of the benefit of a full year's impact of the cost savings from
the Turnaround Plan, despite a greater proportion of enabling costs being
allocated to the Authentication division, given its greater contribution to
the overall business this year. Adjusted profit before controllable costs also
increased, up 29.5% to £23.7m (FY21: £18.3m). On an IFRS basis, operating
profit of £15.1m (FY21: £9.9m) benefited from the higher underlying profits.
Currency
The Currency division is focused on: improving profitability of banknote
production by increasing the utilisation rate from a smaller number of
facilities, supporting customers around the world who wish to convert to
polymer with its improved recycling profile, investing in R&D, and
developing a portfolio of security features that are the choice of a growing
range of customers, whether they use paper or polymer substrates.
Adjusted revenue of £280.9m in FY22 (FY21: £286.8m) for the Currency
division was down 2.1% on the previous year. Lower demand for banknotes
following high demand during the pandemic was tempered by higher demand for
polymer substrate. In addition, in the second half, production in the UK and
Malta was affected by staff absences due to Covid-19.
At 26 March 2022, the 12-month order book for Currency was £163.5m (26
September 2021: £190.7m, 27 March 2021: £225.0m) and the total order book
for Currency was £170.8m (26 September 2021: £213.6m, 27 March 2021:
£256.5m).
Gross profit on adjusted sales fell slightly in both absolute and margin
terms, reflecting the product mix, with gross profit margin of 22.5% (FY21:
22.1%).
IFRS revenue of £280.9m (FY21: £295.7m) was equal to adjusted revenue as
'pass through' revenue dropped to zero this year (FY21: £8.9m) as the
contracts covered by these arrangements completed in FY21.
Despite the lower revenue, adjusted operating profit from the Currency
division grew 20.4% to £19.5m (FY21: £16.2m), reflecting the cost reduction
measures of the Turnaround Plan.
On an IFRS basis, the division moved into an operating profit of £15.0m
(FY21: loss of £4.4m) with a lower level of exceptional charges as the
reorganisation plans set out in the Turnaround Plan to remove costs came
towards its completion. Last year's exceptional charges included £11.9m of
asset impairments and accelerated depreciation charges and £9.5m of
restructuring costs (primarily people-related) due to the cessation of
banknote production at our Gateshead facility.
Putting aside the impact of exceptional items and the divisional allocation of
costs incurred centrally by enabling functions, we also saw a slight increase
in adjusted controllable operating profit to £42.5m (FY21: £41.7m) as the
full benefits of the cost savings element of the Turnaround Plan were
experienced the first time.
Again, this performance was achieved amid a background of cost inflation and
equates to a controllable operating profit margin of 15.1% (FY21:14.5%).
Enabling function costs
In FY22 enabling function costs of £30.4m (FY21: £32.5m) represented 8.1% of
adjusted Group revenue (FY21: 8.3%). Overall, this cost ratio benefited from
a portion of the additional turnaround cost savings referred to above.
Bank of England Completes its conversion to Polymer Substrate
The Bank of England completed the conversion of its banknotes to polymer with
the launch of its new £50, in July 2021. These notes are among the most
technically complex banknotes in the world and feature the scientist Alan
Turing, best known for his code-breaking work in the Second World War.
The Bank of England has transitioned to polymer banknotes as they are more
durable than paper notes, remain in better condition throughout their life and
are much harder to counterfeit. The series shares common security features
(holograms and windows).
De La Rue worked collaboratively to realise the Bank's vision and direction of
the design. The aesthetic design of the new £50 was created by the Bank of
England, then passed over to De La Rue to convert it into a functional,
printable banknote, optimised for security and manufacturing efficiency.
De La Rue is the sole printer for the Bank of England, with all denominations
printed in Debden, UK. From July 2021 every Bank of England denomination is
printed on De La Rue's SAFEGUARD®, under the Bank's dual supply strategy.
Clive Vacher
Chief Executive Officer
24 May 2022
FINANCIAL REVIEW
Building the business
The financial performance of the business has continued to improve this year,
though progress has been slower than we had originally hoped.
Revenue and gross profit
Authentication saw an increase in revenue to £90.3m (FY21: £77.6m), with
16.4% revenue growth driven by strong demand across all areas of the division,
but particularly in the provision of digital tax stamps within our government
revenue solutions business. During FY22 our Government Revenue Solutions
business signed five contracts for supply of tax stamps and solutions
including, most recently with the Oman Tax Authority to implement a digital
tax stamp solution for excisable goods. The nature of this business, with
multi-year supply contracts agreed with customers, gives us confidence for the
future performance of this division.
During FY22 in Currency we saw good volume growth in polymer, offset by paper
volume decline as central bank buying patterns returned to pre-pandemic levels
and second half production was impacted by Covid-19. This resulted in
adjusted* revenue of £280.9m (FY21: £286.8m). Currency IFRS revenue was
£280.9m and equal to adjusted revenue (FY21: £295.7m) as pass-through
revenue dropped to zero as the contracts covered by these arrangements
completed in FY21.
As expected, we also saw a decline in adjusted* revenue for Identity Solutions
in FY22, due to the completion of the UK Passport production contract during
FY21. Revenue reported in FY22 relates to the DSA supply agreement entered
into with HID at the time of the International Identity Solutions business
disposal in October 2019. Identity Solutions IFRS revenue declined to £3.9m
from £24.1m in FY21 and was equal to adjusted revenue following the
completion of the contracts covered by this arrangement completing in FY21.
Overall, Group IFRS revenue reduced by 5.6% to £375.1m (FY21: £397.4m),
showing a higher rate of decline than in adjusted* revenue, due to
'pass-through' revenue on non-novated contracts for Paper and Identity
Solutions which completed in FY21 dropping to zero.
Gross profit was £97.6m (FY21: £107.8m), reflecting increased Authentication
gross profitability due to higher volumes driven by growth in GRS, Brand and
Authentication ID products. GRS benefited from the full year of revenue on the
revenue authority contract which commenced in the FY21 and the annualisation
benefit of the completion of the software implementation for the HMRC ID
Issuer during the second half of FY21.
The Authentication ID business has seen year-on-year increased volumes with
the benefit of the go-live in the fourth quarter of FY22 of the new ID
passport win with NPA. Offsetting the above growth, Currency had lower overall
volumes in the division driven by paper banknote printing and associated paper
security features volume reduction year on year but the impact of this is
partially offset by continued growth in polymer bank notes. Identity
Solutions gross profitability declined as expected following the UK Passport
contract completion in FY21.
Operating profit and operating costs
Adjusted operating profit* in FY22 was £36.4m (FY21: £38.1m) and reflected:
• An adjusted operating profit* of £19.5m in Currency (FY21: £16.2m)
despite lower overall revenues in the division driven by an improved mix,
along with the annualised benefit of last year's cost out initiatives
and ongoing tight control of the cost base of the overall Group driving
operating profit growth;
• An adjusted operating profit* in Authentication of £16.3m (FY21:
£11.3m) reflecting volume growth through FY22 due to the implementation
of new contracts and the full year impact of contracts won in FY21,
along with ongoing control of the cost base in FY22; and
• An adjusted operating profit* in Identity Solutions of £0.6m (FY21:
£10.6m).
On an IFRS basis, an operating profit of £29.7m was recorded in FY22 (FY21:
£14.5m) including, in addition to the factors referred to above, net
exceptional charges of £5.7m (FY21: £22.6m), significantly lower than last
year. FY21 included substantial asset impairment and restructuring charges
associated with cessation of banknote production at our Gateshead facility, in
addition to charges related to other cost out initiatives including the
restructuring of our central enabling functions and certain costs related to
the equity capital raise and debt refinancing completed in July 2020.
Exceptional items in FY22 included costs of relocating assets from the
Gateshead facility to other Group manufacturing sites and further cost out
initiatives.
* This is a non-IFRS measure. For a reconciliation of IFRS to adjusted
measures refer to the Non-IFRS measures section of this report.
,
Finance charge
The Group's net interest charge was £5.5m (FY21: £4.6m). This included
interest income of £0.9m (FY21: £0.8m), interest expense of £6.2m (FY21:
£7.1m) and retirement benefit expense of £0.2m (FY21: £1.7m income).
Interest income of £0.9m (FY21: £0.8m) included interest on loan notes and
preference shares held in the Portals International Limited Group of £0.8m
(FY21: £0.8m), received as part of the of the consideration for the Portals
paper disposal, in addition to a further amount subscribed for as part of a
pre-emptive offer in the year, The loan notes and preference shares are
included in the balance sheet as Other Financial Assets. Interest received on
loan notes and preference shares is excluded from the Group's covenant
calculations.
Interest expense included interest on bank loans of £3.1m (FY21: £3.6m),
interest on lease liabilities of £0.6m (FY21: £0.6m) and other including
amortisation of finance arrangement fees of £2.5m (FY21: £2.9m).
The IAS19 related finance cost, which represents the difference between the
interest on pension liabilities and assets was a charge of £0.2m (FY21:
£1.7m income). The charge in the year was due to the opening pension
valuation on an IAS 19 basis as at 27 March 2021 being a net deficit of
£18.5m.
Exceptional items
Exceptional items during the period constituted a net charge of £5.7m (FY21:
£22.6m).
Exceptional items included:
• £1.8m (FY21: £21.4m) of site relocation and restructuring. Of
this, £1.3m (FY21: £1.6m) of restructuring costs (primarily employee
related) due to further divisional and enabling function restructuring, and a
further £0.9m (FY21: £7.9m) of charges relating to machine moves net of
grant income received of £1.0m, offset by a reversal of £0.4m of the assets
impairments made in FY21 no longer required (FY21: £11.9m impairment
charge).
• £3.1m (FY21: £nil) recognition of expected credit loss provision
on other financial assets. Other financial assets comprise securities
interests held in the Portals International Limited group which were received
as part of the consideration for the paper disposal in 2018. The amount
presented on the balance sheet within other financial assets as at 26 March
2022 includes the original principal received and accrued interest amounts. In
accordance with IFRS 9, management has assessed the recoverability of the
carrying value on the balance sheet and recorded an expected credit loss
provision of £3.1m in exceptional items.
• £0.4m (FY21: £0.6m) in relation to legal fees incurred on
rectification of certain discrepancies identified in the pension Scheme rules
net of amounts recovered.
• £0.4m (FY21: £nil) relating to a significant devaluation of Sri
Lankan Rupee versus the British Pound which occurred in March 2022 following
the decision on 9 March 2022 by the Sri Lanka Government to free float the
exchange rate. This period of significant devaluation is deemed an exceptional
item as it is considered to be non-trading in nature resulting from of an
external event being the impact of the exchange rate change triggered by the
free-float of the exchange rate.
The policy for exceptional items described in the Annual Report and Accounts
is used when calculating our financial covenants as agreed with our lenders.
Taxation
The effective tax rate on continuing operations before exceptional items and
the amortisation of acquired intangibles was 11.0% (FY21: 17.9%). This
includes the impact of the UK tax rate change on deferred tax balances; the
effective tax rate excluding this was 19.1%.
Including the impact of exceptional items and the amortisation of acquired
intangibles, the total tax charge in the Consolidated Income Statement for the
year was £1.4m (FY21: £1.3m).
Net tax credits relating to exceptional items in the period were £1.8m (FY21:
tax credit £4.2m). A tax credit of £0.3m (FY21: tax credit £0.4m) was
recorded in respect of the amortisation of acquired intangibles.
The underlying effective tax rate for FY23 on continuing operations before
exceptional items and amortisation of acquired intangibles is expected to be
between 17%-19%.
Earnings per share
The full year impact of the equity capital raise in July 2020 increased the
basic weighted average number of shares for earnings per share ('EPS')
purposes with a year-end position of 195.2m (FY21: 172.4m).
Adjusted basic EPS was 13.0p (FY21: 14.7p). reflecting an increase in basic
earnings, offset by a higher weighted average number of shares. IFRS basic
EPS from continuing operations was 10.6p (FY21: 3.7p) and was higher than
the prior year's reflecting higher basic earnings of £20.7m (FY21: £6.3m).
Cash flow and borrowing
Cash flows from operating activities were a net cash inflow of £18.3m (FY21:
£5.6m outflow). Profits from operating activities were £25.1m (FY21: £9.4m)
were offset by:
• A net working capital outflow of £17.2m (FY21: £39.8m outflow).
This included:
• A decrease in inventory of £3.4m (FY21: increase £4.0m) driven by
the selling plan profile over the final month of the year leading to lower
stock levels than previous years;
• A decrease in trade and other receivable and contract assets of
£22.6m (FY21: increase £19.8m) mainly due to timing of cash collections on
certain material customer contracts; and
• A decrease in trade and other payables and contract liabilities of
£43.2m (FY21: £16.0m) mainly due to a reduction in payments on
account and accrued expenses.
• Pension fund contributions of £16.4m (FY21: £11.4m) including
amounts related to administrative costs of running the Scheme.
The cash outflow from investing activities was £25.8m (FY21: £20.2m) driven
by capital expenditure of £26.9m (FY21: £21.1m) as we continue to invest in
the business. Capital expenditure is stated after cash receipt from grants
received of £1.5m (FY21: £3.5m).
The cash inflow from financing activities was £7.7m (FY21: £39.7m),
including £17.0m net draw down of borrowings (FY21: repayment £39.3m),
£6.2m (FY21: £5.7m) of interest payments and £2.2m (FY21: £2.2m) of
IFRS 16 lease liability payments.
As a result of the cash flow items referred to, Group net debt increased from
£52.3m at 27 March 2021 to £71.4m at 26 March 2022.
The Group has Bank facilities of £275.0m including an RCF cash drawdown
component of up to £175.0m and bond and guarantee facilities of a minimum of
£100.0m, which currently are due to mature in December 2023. The Group can
convert (in blocks of £25.0m) up to £50.0m of the undrawn RCF cash component
to the bond and guarantee component if required and can elect to convert this
back (again in blocks of £25.0m) in order to draw in cash if the bond and
guarantee component has not been sufficiently utilised. The Group has
reallocated £25.0m of the cash component to the bond and guarantee component,
such that at present £150.0m in total is available on the RCF cash
component.
As at 26 March 2022, the Group, as part of the £150.0m RCF cash component,
has a total of undrawn committed borrowing facilities, all maturing in more
than one year, of £55.0m (27 March 2021: £72.0m in more than one year).
The amount of loans drawn at 26 March 2022 on the £150.0m RCF cash component
is £95.0m (27 March 2021: £78.0m). Guarantees of £55.6m (27 March 2021:
£78.2m) have been utilised from the £125.0m guarantee facility. The accrued
interest in relation to cash drawdowns outstanding at 26 March 2022 is £nil
(27 March 2021: £nil).
The financial covenants require that the ratio of EBIT to net interest payable
will not be less than 2.8 times (subsequently increasing up to 3.0 times for
each relevant period after 31 March 2022) and the net debt to EBITDA ratio
will not exceed three times. At the period end the specific covenant tests
were as follows: EBIT/net interest payable of 7.4 times, net debt/EBITDA of
1.46 times. The covenant tests use earlier accounting standards and exclude
adjustments including IFRS 16 and takes into account lease payments made.
Pension deficit and funding
As well as focusing on operational performance, the Group continues to look
proactively to minimise future cash outflows.
With the agreement of the trustees of the De La Rue pension scheme, the
actuarial valuation of the defined benefit pension plan was brought forward
from December 2022 to 5 April 2021. This valuation showed a reduced scheme
deficit of £119.5m against a previous schedule of deficit repair
contributions totalling £177m through to March 2029. As a result of this new
valuation, the scheme actuary confirmed that the deficit can be funded through
an annual payment of £15m to March 2029. The previously agreed schedule
included a step up in the annual payment from £15m to £24.5m for the period
from April 2023 to March 2029. At the same time the scheme was granted equal
'pari passu' guarantor recourse ranking to the Group's banking facility. The
new agreement therefore results in a £57m reduction in cash payments by De La
Rue over the period from 2023 to 2029, while preserving the future benefits
and enhancing protections for scheme members.
On 20 November 2020, the High Court issued its latest ruling in relation to
the equalisation of pension benefits between men and women relating to
Guaranteed Minimum Pensions (or 'GMP'). The High Court ruled that statutory
cash equivalent transfer values ('CETVs') paid from defined benefit pension
schemes are subject to challenge and a top-up payment may be required if the
CETV value insufficiently reflected the value of an equalised GMP benefit
accrued between 17 May 1990 and 5 April 1997. The Group's estimate of the
impact of this latest ruling was to increase the pension liability by £0.1m
which was recorded as an exceptional item in FY21.
Capital structure
At 26 March 2022 the Group had net assets of £160.7m (27 March 2021:
£111.4m). The movement year-on-year included:
• profit for the year of £23.7m;
• a remeasurement gain on retirement benefit obligations of £35.7m,
offset by £8.8m of related deferred taxation, as a result of the movement of
IAS 19 UK defined benefit pension valuation from a deficit of £18.5m to a
surplus of £31.6m.
Rob Harding
Chief Financial Officer
24 May 2022
Cautionary note regarding forward-looking statements
Certain statements contained in this document relate to the future and
constitute 'forward-looking statements'. These forward-looking statements
include all matters that are not historical facts. In some case, these
forward-looking statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "anticipates",
"expects", "intends", "plans", "may", "will", "could", "shall", "risk",
"aims", "predicts", "continues", "assumes", "positioned" or "should" or, in
each case, their negative or other variations or comparable terminology. They
appear in a number of places throughout this document and include statements
regarding the intentions, beliefs or current expectations of the Directors, De
La Rue or the Group concerning, amongst other things, the results of
operations, financial condition, liquidity, prospects, growth, strategies and
dividend policy of De La Rue and the industry in which it operates.
By their nature, forward-looking statements are not guarantees or predictions
of future performance and involve known and unknown risks, uncertainties,
assumptions and other factors, many of which are beyond the Group's control,
and which may cause the Group's actual results of operations, financial
condition, liquidity, dividend policy and the development of the industry and
business sectors in which the Group operates to differ materially from those
suggested by the forward-looking statements contained in this document. In
addition, even if the Group's actual results of operations, financial
condition and the development of the business sectors in which it operates
are consistent with the forward-looking statements contained in this document,
those results or developments may not be indicative of results or developments
in subsequent periods.
Past performance cannot be relied upon as a guide to future performance and
should not be taken as a representation or assurance that trends or activities
underlying past performance will continue in the future. Accordingly, readers
of this documents are cautioned not to place undue reliance on
these forward-looking statements.
Other than as required by English law, none of the Company, its Directors,
officers, advisers or any other person gives any representation, assurance
or guarantee that the occurrence of the events expressed or implied in any
forward-looking statements in this document will actually occur, in part or in
whole. Additionally, statements of the intentions of the Board and/or
Directors reflect the present intentions of the Board and/or Directors,
respectively, as at the date of this document, and may be subject to change
as the composition of the Company's Board of Directors
alters, or as circumstances require.
The forward-looking statements contained in this document speak only as at
the date of this document. Except as required by the UK's Financial Conduct
Authority, the London Stock Exchange or applicable law (including as may be
required by the UK Listing Rules and/or the Disclosure Guidance and
Transparency Rules), De La Rue expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this document to reflect
any change in the Group's expectations with regard thereto or any change
in events, conditions or circumstances on which any such statement is
based.
DIRECTORS' REPORT
Principal risks and uncertainties
Throughout its global operations De La Rue faces various risks, both internal
and external, which could have a material impact on the Group's performance.
The Group manages the risks inherent in its operations in order to mitigate
exposure to all forms of risks, where practical, and to transfer risk to
insurers where applicable.
The Group analyses the risks that it faces under the following broad headings:
strategic risks (technological revolution, strategy implementation, changes to
the market environment and economic conditions), operational risks, legal/
regulatory, information risks and financial risks (currency risk, credit risk,
liquidity risk, interest rate risk and commodity price risk).
The principal risks and uncertainties are reviewed at least quarterly and
updated. Currently they include:
· bribery and corruption;
· quality management and delivery failure;
· macroeconomic and geopolitical environment;
· loss of key site or process;
· sustainability and climate change;
· breach of information security;
· failure of a key supplier to deliver;
· breach of security - product security; and
· sanctions;
· Covid-19
Full details of the above risk will be included in the FY22 Annual Report and
Accounts.
Going Concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out on pages 1 to 15
of the Strategic report in the 2021 Annual Report. In addition, pages 135 to
144 of the 2021 Annual Report include the Group's objectives, policies and
processes for financial risk management, details of its financial instruments
and hedging activities and its exposure to credit risk, liquidity risk and
commodity pricing risk.
The Group has prepared and reviewed profit and cashflow forecasts which cover
a period up to 30 June 2023. This base case forecast assumes continued
delivery of the Turnaround Plan, specifically protecting market share in
Currency, growing Authentication revenue, and the benefit of the cost out
initiatives already completed in addition to continued careful management of
costs. These forecasts show significant headroom and support that the Group
will be able to operate within its available banking facilities and covenants
throughout this period.
Covenants are calculated on a rolling 12-month basis each quarter and
therefore for all quarters until Q4 of FY23 and Q1 of FY24, a portion of the
EBITDA/ EBIT has already been earned, reducing the risk of a potential breach.
Taking this into account along with the forecasts reviewed, it is considered
that the net debt/ EBITDA covenant for the rolling 12 months to Q4 of FY23 and
Q1 of FY24 is the limiting factor, rather than the overall facility or the
EBIT/ net interest payable covenant in this period. The Directors have
therefore completed a reverse stress test of the forecasts to determine the
magnitude of downturn which would result in a breach to this covenant in the
going concern period. Management have included a number of potential downsides
including significant further supply chain cost pressures and revenue and
margin levels being below current forecasts.
If all of these modelled downside risks were to materialise in the Going
Concern period, the Group would still just meet its net debt/EBITDA covenant
ratio after taking into account mitigating actions which the Director's
considered to be within the management's control. This modelling demonstrated
that a cumulative decline of 30% in EBITDA compared with the base case without
any mitigation would need to occur in the going concern period for the net
debt/EBITDA covenant to breached. Taking into account mitigating actions
considered to be within the control of management, a fall in EBITDA of 42%
from base case would need to occur in the going concern period before the net
debt/EBITDA covenant would be breached.
These reductions in EBITDA are considered to be remote by management taking
into account order cover for the same period (see Review of Operations -
Currency) and other controllable mitigating actions available to management.
Additionally, the SONIA rate would need to rise to 8.0% in FY23 to trigger a
breach in the interest covenant. Management have assessed this risk as remote
given that the current SONIA rate applicable is less than 1%.
The Directors have assumed that the current revolving credit facility remains
in place with the same covenant requirements through to its current expiry
date (December 2023), which is beyond the end of the period reviewed for Going
Concern purposes. The Directors have assessed that the Group will either renew
the facility thereafter or have sufficient time to agree an alternative
source of finance for the subsequent period.
Accordingly, the Directors are satisfied that the Group is well placed to
manage its business risks and to continue in operational existence for the
foreseeable future. Accordingly, the Directors continue to adopt the going
concern basis in preparing these Condensed Consolidated Interim Financial
Statements.
A copy of the 2021 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 the first six months
of the financial year in the related party transactions described in the last
annual report that could materially affect the financial position or
performance of the Group.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge:
• The 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 1 April 2021 and their respective
responsibilities can be found on pages 50 and 51 of the De La Rue plc Annual
Report 2021. There have been no changes since that date.
For and on behalf of the Board
Kevin
Loosemore
Chairman
24 May 2022
Consolidated income statement
for the period ended 26 March 2022
Notes 2022 2021
£m £m
Revenue from customer contracts 3 375.1 397.4
Cost of sales (277.5) (289.6)
Gross Profit 97.6 107.8
Adjusted operating expenses (61.2) (69.7)
Adjusted operating profit 36.4 38.1
Adjusted Items(1):
Amortisation of acquired intangibles (1.0) (1.0)
Net exceptional items - expected credit loss 5 (3.1) -
Net exceptional items - other 5 (2.6) (22.6)
Net exceptional items - Total 5 (5.7) (22.6)
Operating profit 29.7 14.5
Interest income 0.9 0.8
Interest expense (6.2) (7.1)
Net retirement benefit obligation finance (expense)/income 10 (0.2) 1.7
Net finance expense (5.5) (4.6)
Profit before taxation from continuing operations 24.2 9.9
Taxation 6 (1.3) (1.4)
Profit for the year from continuing operations 22.9 8.5
Profit/(loss) from discontinued operations 4 0.8 (0.4)
Profit for the year 23.7 8.1
Attributable to:
Owners of the parent 21.5 5.9
Non-controlling interests 13 2.2 2.2
Profit for the year 23.7 8.1
Earnings per ordinary share
Basic 7
Basic EPS continuing operations 10.6p 3.7p
Basic EPS discontinued operations 0.4p (0.3)p
Total Basic EPS 11.0p 3.4p
Diluted 7
Diluted EPS continuing operations 10.5p 3.7p
Diluted EPS discontinued operations 0.4p (0.3)p
Total Diluted EPS 10.9p 3.4p
Notes: (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 26 March 2022
Notes 2022 2021
£m £m
Profit for the year 23.7 8.1
Other comprehensive income
Items that are not reclassified subsequently to profit or loss:
Remeasurement gain/(loss) on retirement benefit obligations 10 35.7 (95.6)
Tax related to remeasurement of net defined benefit liability 6 (8.8) 18.2
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations (1.5) (3.9)
Foreign currency translation differences for foreign operations - 0.1 -
non-controlling interests
Change in fair value of cash flow hedges (0.6) (0.3)
Change in fair value of cash flow hedges transferred to profit or loss 0.8 (0.4)
Tax related to cash flow hedge movements 6 0.1 (0.2)
Income tax relating to components of other comprehensive income 6 0.2 -
Other comprehensive income/(loss) for the year, net of tax 26.0 (82.2)
Total comprehensive income/(loss) for the year 49.7 (74.1)
Comprehensive income for the year attributable to:
Equity shareholders of the Company 47.4 (76.3)
Non-controlling interests 2.3 2.2
49.7 (74.1)
Consolidated balance sheet
at 26 March 2022
Notes 2022 2021
£m £m
ASSETS
Non-current assets
Property, plant and equipment 102.7 100.0
Intangible assets 37.5 32.3
Right-of-use assets 12.9 14.6
Retirement benefit obligations 10 31.6 -
Other financial assets 7.4 8.8
Deferred tax assets 11.2 19.7
Derivative financial assets 0.1 0.1
203.4 175.5
Current assets
Inventories 50.1 54.5
Trade and other receivables 89.0 98.8
Contract assets 8.0 14.8
Current tax assets 0.4 0.4
Derivative financial assets 3.3 7.4
Cash and cash equivalents 9 24.3 25.7
175.1 201.6
Total assets 378.5 377.1
LIABILITIES
Current liabilities
Trade and other payables (80.0) (120.5)
Current tax liabilities (13.9) (13.6)
Derivative financial liabilities (4.8) (8.2)
Lease liabilities (2.7) (2.7)
Provisions for liabilities and charges (5.9) (9.6)
(107.3) (154.6)
Non-current liabilities
Borrowings 9 (92.6) (74.2)
Retirement benefit obligations 10 (1.8) (20.5)
Deferred tax liabilities (2.4) (2.6)
Derivative financial liabilities - (0.1)
Lease liabilities (11.5) (13.0)
Other non-current liabilities (1.1) (0.7)
(109.4) (111.1)
Total liabilities (216.7) (265.7)
Net assets 161.8 111.4
Consolidated balance sheet (continued)
at 26 March 2022
Notes 2022 2021
£m £m
EQUITY
Share capital 88.8 88.8
Share premium account 42.2 42.2
Capital redemption reserve 5.9 5.9
Hedge reserve (0.5) (0.8)
Cumulative translation adjustment 4.2 5.7
Other reserve (31.9) (31.9)
Retained earnings 35.1 (14.9)
Total equity attributable to shareholders of the Company 143.8 95.0
Non-controlling interests 18.0 16.4
Total equity 161.8 111.4
Approved by the Board on 24 May 2022.
Kevin Loosemore Clive Vacher
Chairman Chief Executive
Officer
Registered number: 3834125
Consolidated statement of changes in equity
for the period ended 26 March 2022
Attributable to Non-controlling Interests Total equity
equity shareholders
Share Share Capital Hedge Cumulative Other Retained £m £m
capital premium redemption reserve translation reserve earnings
£m account reserve £m adjustment £m £m
£m £m £m
Balance at 28 March 2020 47.8 42.2 5.9 0.1 9.6 (83.8) 56.2 15.2 93.2
Profit for the year - - - - - - 5.9 2.2 8.1
Other comprehensive income for the year, net of tax - - - (0.9) (3.9) - (77.4) - (82.2)
Total comprehensive income for the year - - - (0.9) (3.9) - (71.5) 2.2 (74.1)
Transactions with owners of the Company recognised directly in equity:
Share capital issued 0.2 - - - - - - - 0.2
Equity capital raise 40.8 - - - - 51.9 - - 92.7
Employee share scheme:
- value of services provided - - - - - - 0.2 - 0.2
Tax on income and expenses recognised directly in equity - - - - - - 0.2 - 0.2
Dividends paid - - - - - - - (1.0) (1.0)
Balance at 27 March 2021 88.8 42.2 5.9 (0.8) 5.7 (31.9) (14.9) 16.4 111.4
Profit for the year - - - - - - 21.5 2.2 23.7
Other comprehensive income for the year, net of tax - - - 0.3 (1.5) - 27.1 0.1 26.0
Total comprehensive income for the year - - - 0.3 (1.5) - 48.6 2.3 49.7
Transactions with owners of the Company recognised directly in equity:
Share capital issued - - - - - - - 0.2 0.2
Employee share scheme:
- value of services provided - - - - - - 1.7 - 1.7
Tax on income and expenses recognised directly in equity - - - - - - (0.3) - (0.3)
Dividends paid (0.9) (0.9)
Balance at 26 March 2022 88.8 42.2 5.9 (0.5) 4.2 (31.9) 35.1 18.0 161.8
Consolidated statement of changes in equity (continued)
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 cashbox completed on 7 July
2020 and consisted of a firm placing, placing and open offer. The Group issued
90.9m new ordinary shares each with a nominal value of 44 152/175p, at a price
of 110p per share (giving gross proceeds of £100m). A "cash box" structure
was used in such a way that merger relief was available under Companies Act
2006, section 612 and thus no share premium needed to be recorded and instead
an 'other reserve' of £51.9m was recorded. 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 DLR 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 and hence not currently considered distributable as at 26
March 2022. This judgement might be revised in future periods, subject to
certain internal transactions enabling the settlement of intercompany
positions.
Consolidated cash flow statement
for the period ended 26 March 2022
2022 2021
£m £m
Cash flows from operating activities
Profit before tax - continuing operations 24.2 9.9
Profit / (loss) before tax - discontinued operations 0.9 (0.5)
25.1 9.4
Adjustments for:
Finance income and expense 5.5 4.6
Depreciation of property plant and equipment 12.0 12.9
Depreciation of right-of-use assets 2.3 2.5
Amortisation of intangible assets 4.3 4.2
Gain on sale of property plant and equipment (0.5) (2.7)
(Impairment reversal)/impairment of property, plant and equipment and (0.1) 11.8
intangible assets and accelerated depreciation charges included within
exceptional items
Share based payment expense 1.8 0.4
Pension Recovery Plan and administration cost payments(1) (16.4) (11.4)
Increase/(decrease) in provisions (3.7) (0.9)
Loss on disposal of subsidiary (net of associated costs) - 0.3
Non-cash credit loss provision - other financial assets 3.1 -
Non-cash credit loss provision - other (0.2) 0.8
Other non-cash movements 2.3 2.3
Cash generated from operations before working capital 35.5 34.2
Changes in working capital:
Decrease/(increase) in inventory 3.4 (4.0)
Decrease/(increase) in trade and other receivables and contract assets 22.6 (19.8)
Decrease in trade and other payables and contract liabilities (43.2) (16.0)
(17.2) (39.8)
Cash generated from/(used in) operating activities 18.3 (5.6)
Notes
(1) The £16.4m of pension payments includes £15.0m payable under the
Recovery Plan, agreed in May 2020, and a further £1.4m relating to payments
made by the Group towards the administration costs of running the scheme.
Consolidated cash flow statement (continued)
for the period ended 26 March 2022
2022 2021
£m £m
Cash generated from/(used in) operating activities 18.3 (5.6)
Net tax (paid)/refund (1.8) (2.4)
Net cash flows from operating activities 16.5 (8.0)
Cash flows from investing activities:
Deduction from the sale of subsidiary (net of cash disposed and associated - (1.9)
disposal costs)
Purchase of loan notes (0.9) -
Purchases of property, plant and equipment(1) - gross (19.6) (19.0)
Purchases of property, plant and equipment - grants received 1.5 3.5
Purchase of software intangibles and development assets capitalised (8.8) (5.6)
Proceeds from sale of property, plant and equipment 1.9 2.7
Receipt of research and development tax credit 0.1 -
Interest received - 0.1
Net cash flows from investing activities (25.8) (20.2)
Net cash flows before financing activities (9.3) (28.2)
Cash flows from financing activities:
Net proceeds from the equity capital raise - 92.7
Net draw down of borrowings(2) 17.0 (39.3)
Payment of debt issue costs - (4.8)
Lease liability payments (2.2) (2.2)
Interest paid (6.2) (5.7)
Dividends paid to non-controlling interests (0.9) (1.0)
Net cash flows from financing activities 7.7 39.7
Net (decrease)/increase in cash and cash equivalents in the year (1.6) 11.5
Cash and cash equivalents at the beginning of the year 25.7 14.5
Exchange rate effects 0.2 (0.3)
Cash and cash equivalents at the end of the year 24.3 25.7
Cash and cash equivalents consist of:
Cash at bank and in hand 20.3 25.7
Short term deposits 4.0 -
24.3 25.7
Notes:
1 Purchases of property, plant and equipment excluding down payments and
capex creditors of £1.6m (FY21: £2.4m) was £16.5m (FY21: £13.1m).
2 In the period FY21 the majority of the equity capital raise proceeds
were used to subsequently repay a substantial part of the RCF shortly after
amendment on 7 July 2020.
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 26 March 2022, being the
last Saturday in March. The comparatives for the FY21 financial period are for
the period ended 27 March 2021.
The consolidated financial statements of the Company for the period ended 26
March 2022 were authorised for issuance by the board of Directors on 24 May
2022.
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 26 March 2022 or 27 March 2021.
Statutory accounts for the periods ended 27 March 2021 have been delivered
to the registrar of companies and those for the period ended 26 March 2022
will be delivered in due course. The auditor has reported on the accounts for
the periods ended 26 March 2022 and 27 March 2021. Their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter without qualifying their
report and (iii) did not contain a statement under Section 498(2) or (3) of
the Companies Act 2006.
Refer to the Going Concern Statement below for further details of the
Director's Going Concern Statement.
The consolidated financial statements of the Company for the period ended 26
March 2022 have been prepared in accordance with UK-adopted International
Accounting Standards ('IFRS') in accordance with the requirements of the
Companies Act 2006. IFRS includes standards issued by the International
Accounting Standards Board ('IASB') that are endorsed for use in the UK.
The consolidated financial statements are prepared on a going concern basis
under the historical cost convention with the exception of certain items which
are measured at fair value as disclosed in the accounting policies below.
The preparation of financial statements in accordance with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed below in 'Critical accounting estimates,
assumptions and judgements'.
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below or have been incorporated
with the relevant notes to the accounts where appropriate. These policies have
been consistently applied to all the periods presented, unless otherwise
stated.
CLIMATE CHANGE
In preparing the Consolidated Financial Statements management has considered
the impact of climate change and the actions that the Group will take in order
to fulfill its sustainability strategy and satisfy its commitment to become
carbon neutral from its own operations by 2030. This includes the estimates
around future cash flows used in impairment assessments of the carrying value
of goodwill and intangible assets in De La Rue Authentication Inc,
recoverability of deferred tax assets and the useful economic life of plant
and equipment, especially assets which are very power-intensive and expected
to be replaced. This is within the context of the disclosures included in
Strategic Report, including those made in accordance with the recommendation
of the Taskforce on Climate-related Financial Disclosures this year. These
considerations did not have a material impact on the financial reporting
judgements and estimates consistent with the assessment that climate change is
not expected to have a significant impact on the Group's going concern
assessment as discussed below.
GOING CONCERN
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out on pages 1 to 15
of the Strategic report in the 2021 Annual Report. In addition, pages 135 to
144 of the 2021 Annual Report include the Group's objectives, policies and
processes for financial risk management, details of its financial instruments
and hedging activities and its exposure to credit risk, liquidity risk and
commodity pricing risk.
The Group has prepared and reviewed profit and cashflow forecasts which cover
a period up to 30 June 2023. This base case forecast assumes continued
delivery of the Turnaround Plan, specifically protecting market share in
Currency, growing Authentication revenue, and the benefit of the cost out
initiatives already completed in addition to continued careful management of
costs. These forecasts show significant headroom and support that the Group
will be able to operate within its available banking facilities and covenants
throughout this period.
Covenants are calculated on a rolling 12-month basis each quarter and
therefore for all quarters until Q4 of FY23 and Q1 of FY24, a portion of the
EBITDA/ EBIT has already been earned, reducing the risk of a potential breach.
Taking this into account along with the forecasts reviewed, it is considered
that the net debt/ EBITDA covenant for the rolling 12 months to Q4 of FY23 and
Q1 of FY24 is the limiting factor, rather than the overall facility or the
EBIT/ net interest payable covenant in this period. The Directors have
therefore completed a reverse stress test of the forecasts to determine the
magnitude of downturn which would result in a breach to this covenant in the
going concern period. Management have included a number of potential downsides
including significant further supply chain cost pressures and revenue and
margin levels being below current forecasts.
If all of these modelled downside risks were to materialise in the Going
Concern period, the Group would still just meet its net debt/EBITDA covenant
ratio after taking into account mitigating actions which the Director's
considered to be within the management's control. This modelling demonstrated
that a cumulative decline of 30% in EBITDA compared with the base case without
any mitigation would need to occur in the going concern period for the net
debt/EBITDA covenant to breached. Taking into account mitigating actions
considered to be within the control of management, a fall in EBITDA of 42%
from base case would need to occur in the going concern period before the net
debt/EBITDA covenant would be breached.
These reductions in EBITDA are considered to be remote by management taking
into account order cover for the same period (see Review of Operations -
Currency) and other controllable mitigating actions available to management.
Additionally, the SONIA rate would need to rise to 8.0% in FY23 to trigger a
breach in the interest covenant. Management have assessed this risk as remote
given that the current SONIA rate applicable is less than 1%.
The Directors have assumed that the current revolving credit facility remains
in place with the same covenant requirements through to its current expiry
date (December 2023), which is beyond the end of the period reviewed for Going
Concern purposes. The Directors have assessed that the Group will either renew
the facility thereafter or have sufficient time to agree an alternative
source of finance for the subsequent period.
Accordingly, the Directors are satisfied that the Group is well placed to
manage its business risks and to continue in operational existence for the
foreseeable future. Accordingly, the Directors continue to adopt the going
concern basis in preparing these Condensed Consolidated Interim Financial
Statements.
A copy of the 2021 Annual Report is available at www.delarue.com or on request
from the Company's registered office at De La Rue House, Jays Close, Viables,
Basingstoke, Hampshire, RG22 4BS.
COVID-19
The Annual Report for the period ended 27 March 2021 included an assessment of
the potential impact of COVID-19 on the financial position of the Group as at
March 2021. The directors still consider this assessment to be appropriate for
the 26 March 2022 financial statements based on the current position.
New Standards, interpretations and amendments adopted by the Group
Other than as described below, the accounting policies adopted in the
preparation of these consolidated financial statements are consistent with
those applied by the Group in its consolidated financial statements as at, and
for the period ended, 27 March 2021, apart from standards, amendments to or
interpretations of published standards adopted during the year.
During the period, the following new and amended IFRS became effective for the
Group. The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective. The impacts of
applying these policies are not considered material.
Several amendments apply for the first time in FY22, but do not have an impact
on these consolidated financial statements of the Group.
Effective for periods commencing after 1 January 2021:
- Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS9,
IAS39, IFRS7, IFRS4 and IFRS16
The amendment provides temporary reliefs which address the financial reporting
effects when an interbank offered rate ("IBOR") is replaced with an
alternative nearly risk-free rate ("RFR").
The amendments include the following practical expedients:
· A practical expedient to require contractual changes, or changes to
cash flows that are directly required by the reform, to be treated as changes
to a floating interest rate, equivalent to a movement in a market rate of
interest.
· Permit changes required by IBOR reform to be made to hedge
designations and hedge documentation without the hedging relationships being
discontinued.
· Provide temporary relief to entities from having to meet the
separately identifiable requirement when an RFR instrument is designated as a
hedge of a risk component.
These amendments had no impact on the consolidated financial statements of the
Group.
The Group transitioned from the use of the IBOR benchmark to Risk Free Rates
("RFRs") on 30 September 2021 in the Group's main borrowing facility and as
the Group generally borrows for a series of one-month periods the new basis
for calculating contractual cash flows is considered economically equivalent
to the previous basis. In addition, no existing derivatives have been impacted
by the change and there are no financial instruments yet to transition to
RFRs.
The IBOR reform has had a minimal impact to the Group's risk management
strategy but given the RFR is a backward-looking rate there is naturally less
certainty on cashflows until the final RFR and calculation is finalised at the
end of the period of any borrowing.
Effective for periods commencing after 1 January 2022, all subject to UK
endorsement:
- Amendments to IFRS 3 "Business Combinations" - Reference to the Conceptual
Framework. The amendments are intended to update a reference to the Conceptual
Framework without significantly changing the requirements of IFRS 3. The
amendments will promote consistency in financial reporting and avoid potential
confusion from having more than one version of the Conceptual Framework.
- Amendments to IAS 16 "Property, plant and equipment" - Proceeds before
intended use. The amendment prohibits entities from deducting from the cost of
an item of property and equipment any proceeds of the sale of items produced
while bringing that asset to the location and condition necessary for it to be
capable of operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the costs of producing
those items, in profit or loss.
- Amendments to IAS 37 "Provisions, Contingent assets and liabilities" -
Onerous Contracts - Costs of Fulfilling a Contract. These amendments specify
which costs an entity needs to include when assessing whether a contract is
onerous or loss-making. The amendments apply a 'directly related cost
approach'. The costs that relate directly to a contract to provide goods or
services include both incremental costs (e.g., the costs of direct labour and
materials) and an allocation of costs directly related to contract activities
(e.g., depreciation of equipment used to fulfil the contract as well as costs
of contract management and supervision). General and administrative costs do
not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
- Amendments to IFRS 9 "Financial Instruments" - Fees in the '10 per cent'
test for derecognition of financial liabilities. The amendment clarifies the
fees that an entity includes when assessing whether the terms of a new or
modified financial liability are substantially different from the terms of the
original financial liability. These fees include only those paid or received
between the borrower and the lender, including fees paid or received by either
the borrower or lender on the other's behalf.
Effective for periods commencing after 1 January 2023, all subject to UK
endorsement:
- 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 IAS 8 "Accounting policies, changes in accounting estimates
and errors" - Definition of Accounting Estimates - The amendments clarify the
distinction between changes in accounting estimates and changes in accounting
policies and the correction of errors. Also, they clarify how entities use
measurement techniques and inputs to develop accounting estimates.
- Amendments to IAS 1 "Presentation of financial statements" - Disclosure of
Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2 - The
amendments aim to help entities provide accounting policy disclosures that
are more useful by: replacing the requirement for entities to disclose their
'significant' accounting policies with a requirement to disclose their
'material' accounting policies and adding guidance on how entities apply the
concept of materiality in making decisions about accounting policy
disclosures.
- Amendments to IAS 12 "Income Taxes" - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction - The amendment narrows the
scope of the initial recognition exception under IAS 12 so that it no longer
applies to transactions that give rise to equal taxable and deductible
temporary differences.
Other amendments in IFRS 1("First time adoption"), IAS 41 ("Agriculture") and
IFRS 17 ("Insurance contracts") are not applicable to the Group.
The impact of the amendments and interpretations listed above are not expected
to a have a material impact on the Consolidated Financial Statements.
Critical accounting estimates, assumptions and judgements
Management has discussed with the Audit Committee the development, selection
and disclosure of the Group's critical accounting policies and estimates and
the application of these policies and estimates. Management is required to
exercise significant judgement in the application of these policies. Estimates
are made in many areas and the outcome may differ from that calculated.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are set out below.
A Critical accounting judgements
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.
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. 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.
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 FY22 the Group has had customer contracts where revenue is recognised
'over-time' in the Currency and Authentication divisions.
Accounting treatment for sales to Portals
The Group provides Security Features to Portals for inclusion in the paper
which they manufacture and which the Group subsequently purchases back. The
Group has carefully considered the nature of this arrangement and considers it
appropriate to record the Security Features sales to Portals as revenue since
Portals is not an associate of the Group and does not constitute a related
party and the relationship is that of a third party with full control of the
product passing to Portals upon sale.
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 (note 5).
B Critical accounting estimates
Recoverability of other financial assets
Other financial assets comprise securities interests held in companies in the
Portals International Limited group (Portals International Limited was
previously known as MooreCo Limited) following the Portals paper business
disposal in 2018, in addition to a further amount of £0.9m of loan notes
which was subscribed for pursuant to a pre-emptive offer in November 2021. The
Group also purchases cotton banknote paper under the Relationship Agreement
entered into in March 2018 with Portals Paper Limited following the disposal
of the paper business.
Management has carefully assessed the recoverability of the other financial
assets on the balance sheet as at 26 March 2022 based on information available
to them and performed probability weighted modelling against three scenarios
determining that an expected credit loss provision of £3.2m (see note 5
exceptional items for further details) is required. Management has considered
the following factors in determining which probabilities to be assigned to
each scenario:
1) The current financial position of Portals International Limited
group as presented in its 2021 consolidated financial statements;
2) The statements made publicly about Portals' plans to improve
financial performance over time including the acquisition of Fedrigoni;
3) De Le Rue's expectations for the future of the cotton paper market
overall;
This provision accounts for the risk that the full amounts due will not be
recovered rather than the instruments being credit impaired.
Management notes that if factors change in the future, this may alter the
judgements made as to the probabilities to be assigned to each scenario in the
modelling, resulting in a revision to the value of expected credit loss
provision to be recognised. Management has also prepared a sensitivity
analysis by increasing the weighting applied to the scenario which results in
the largest expected credit loss being incurred by 20% and an equivalent 10%
decrease each to the scenarios giving rise to the lowest and second lowest
expected credit loss and the impact on the overall level of provision was
£0.8m.
Recoverability assessment and impairment charges related to plant and
machinery
During the prior year the Group ceased banknote printing at its Gateshead
facility. As a result, the Group had a material value of plant and machinery
for which it has needed to assess whether an impairment is required.
Management determined that given the specialised nature of the plant and
machinery and the very limited market opportunities to sell them to a third
party, the asset values could only be supported based on management being able
to demonstrate a continued use at a different Group manufacturing location
thus demonstrating the asset's carrying value is supported by continued value
in use. In making this assessment, management carefully assessed its current
plans for relocating assets thus determining those assets which no longer have
an ongoing value in use to the Group. Those assets for which no ongoing value
in use was determined were fully impaired resulting in a material impairment
charge recorded within exceptional items in the prior period of approximately
£10m.
Management has, in FY22, made a judgement on what its future plans are for the
expansion in certain locations based on future business needs and concluded
that for the remaining assets not impaired in the prior period, their value
could be supported based on their anticipated ongoing use after a period of
relocation.
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.
Determination of the incremental Valuation date of certain fund assets in the
UK defined benefit pension scheme
The UK defined benefit pension scheme assets are made up of a number of
separate funds. For the majority of these funds valuations have been available
as at the Group's year end of 26 March 2022. However, the Multi Asset Credit
funds held by the UK Pension Scheme are valued on a monthly basis only at
calendar month ends and the 31 March 2022 fund valuation has been used to
determine the IAS19 position as at the 26 March 2022 as it is not practicable
to obtain a valuation as at 26 March 2022.
The UK Multi Asset Credit funds account for approximately £63m (FY21: £125m)
of the pension assets. If a valuation for these funds were to be conducted as
at 26 March 2022 it is estimated the impact would be less than £1m, compared
to total UK Pension Scheme assets of £1bn.
The potential impact has been estimated by observing what were considered to
be the most relevant comparable indices to establish the level of day-to-day
volatility in the market.
The Multi Asset Credit funds are largely composed of sub-investment grade
corporate debt and the most relevant indices were determined to be those which
measure the return on high yield corporate bonds. Management has therefore
made the judgement that valuing the pension assets using the 31 March 2022
valuation for these funds is reasonable given there is no practical way of
obtaining a better estimate and a less than £1m difference is not considered
significant compared to the total value of the assets in the pension scheme.
Incremental borrowing rate for a lease
The incremental borrowing rate for a lease reflects a rate to borrow over a
similar lease term, with similar security funds to a similar value to the
right-of-use asset in a similar economic environment. The Group has estimated
the incremental borrowing rate using the 1) The risk of the asset and similar
economic environment has been calculated by reference to the Treasury Bond
Curve for the country the lease asset is located in. This is considered to
derive the risk-free rate plus the appropriate level of country risk premium.
2) The credit risk factor was calculated based on the credit risk factor of
similar corporate bond with a term of 50% of the lease term which is standard
convention for the purposes of setting an IBR under IFRS 16.
Management has modelled the impact of change the discount rates for three of
its most material leases, with the longest remaining durations by an
additional plus and minus 1% and 2% and this demonstrated that the impact on
the P&L was immaterial, however the impact on the right of use asset and
liability was material.
Impairment test of Goodwill and acquired intangibles
These assets were recognised following the acquisition of De La Rue
Authentication Inc in January 2017. Management has considered the Group's
short-term and the long-term profitability for this business and determined
that the goodwill and acquired intangible asset values are recoverable at 26
March 2022. In making this determination, management has prepared discounted
cashflows using its forecasts for the business which include budgeted
financial performance for the earlier periods (FY23 and FY24) and growth rates
and ratios for the later periods (FY25 onwards) based on management's
longer-term expectations for the business which are aligned to the Group's
longer-term expectations the Authentication division. In order to obtain
further assurance as to the recoverability of the goodwill and intangible
assets, management has prepared a range of sensitivities to model what adverse
changes would need to occur before an impairment was required.
Management modelled the following sensitivities and concluded that:
Sensitivity 1 (discount rate): The discount rate used for the impairment
calculation (assuming the same cashflows as in the base impairment test) would
need to increase to 19.9% before an impairment occurred;
Sensitivity 2 (revenue growth): Forecasts used in the base impairment
calculation include strong revenue growth each year from FY23 to FY26 before
the growth rate starts to reduce from FY27, management has modelled a scenario
of no revenue growth from FY24 and concluded that at this point no impairment
would be required;
Sensitivity 3 (loss of material customers): Management has modelled the impact
of the loss in FY25 of a significant customer. Management noted that in this
scenario no impairment was needed; and
Sensitivity 4 (No revenue generated from an expected new significant
contract): The base impairment forecasts include revenue from a significant
new contract win. Management has modelled the impact on the impairment
calculations if no revenue was generated from this new contract. The impact
was a significant reduction in headroom but no impairment.
Based on the base impairment forecast prepared and the additional
sensitivities referred to above, management is confident that no impairment of
the goodwill and intangible asset balances is required as at 26 March 2022.
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 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 judgements 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 2022 Financial
Statements.
3 Segmental analysis
The continuing operations of the Group have three main operating units:
Currency, Authentication and Identity Solutions. The Board, which is the
Group's Chief Operating Decision Maker, monitors the performance of the Group
at this level and there are therefore three reportable segments. The principal
financial information reviewed by the Board is revenue and adjusted operating
profit.
The Group's segments are:
Currency - provides Banknote print, Polymer and Security features;
Authentication - provides the physical and digital solutions to authenticate
products through the supply chain and to provide tracking of exercisable goods
to support compliance with government regulators. Working across the
commercial and government sectors the division addresses consumer and Brand
owner demand for protection against counterfeit goods; and
Identity Solutions -includes minimal non-core activity in the year and
primarily relates to sales under the DSA arrangement with HID following the
sale of the International Identity Solutions business in October 2019. In the
prior year this also included the results of the Group's UK Passport contract
which completed in FY21.
The segment note is focused on three divisions, which reflects what has been
reported to the Chief Operating Decision Maker, this is in line with the
commentary in other areas of this Annual Report and Accounts. The commentary
elsewhere in this Annual Report and Accounts relating to the future strategy
only refers to the Currency and Authentication divisions.
Inter-segmental transactions are eliminated upon consolidation.
FY22 Currency Authentication Identity Solutions Unallocated Total from Continuing operations
£m £m £m £m £m
Total revenue from contracts with customers 280.9 90.3 3.9 - 375.1
Less: inter-segment revenue - - - - -
Revenue from contracts with customers 280.9 90.3 3.9 - 375.1
Cost of sales (217.7) (55.8) (4.0) - (277.5)
Gross profit 63.2 34.5 (0.1) - 97.6
Adjusted operating expenses (43.7) (18.2) 0.7 - (61.2)
Adjusted operating profit 19.5 16.3 0.6 - 36.4
Adjusted items:
Amortisation of acquired intangible assets - (1.0) - - (1.0)
Net exceptionals (4.5) (0.2) - (1.0) (5.7)
Operating profit/(loss) 15.0 15.1 0.6 (1.0) 29.7
Interest income 0.9 - - - 0.9
Interest expense (0.8) - - (5.4) (6.2)
Net retirement benefit obligation finance expense (0.1) - - (0.1) (0.2)
Net finance expense - - - (5.5) (5.5)
Profit/(loss) before taxation 15.0 15.1 0.6 (6.5) 24.2
Capital expenditure on property, plant and equipment (net of grants received) (15.7) (2.0) - (0.4) (18.1)
Capital expenditure on intangible assets (1.0) (7.7) - (0.1) (8.8)
Impairment reversal of property, plant and equipment on intangible assets 0.1 - - - 0.1
Depreciation of property, plant and equipment and right-of-use-assets (10.7) (2.5) - (1.1) (14.3)
Amortisation of intangible assets (1.3) (2.3) - (0.7) (4.3)
FY21 Currency Authentication Identity Unallocated Total from
£m £m Solutions £m Continuing
£m operations
£m
Total revenue from contracts with customers 295.7 77.6 24.1 - 397.4
Less: inter-segment revenue - - - - -
Revenue from contracts with customers 295.7 77.6 24.1 - 397.4
Cost of sales (230.4) (47.7) (11.5) - (289.6)
Gross profit 65.3 29.9 12.6 - 107.8
Adjusted operating expenses (49.1) (18.6) (2.0) - (69.7)
Adjusted operating profit 16.2 11.3 10.6 - 38.1
Adjusted items:
- Amortisation of acquired intangible assets - (1.0) - - (1.0)
- Net exceptionals (20.6) (0.4) (0.4) (1.2) (22.6)
Operating (loss)/profit (4.4) 9.9 10.2 (1.2) 14.5
Interest income 0.8 - - - 0.8
Interest expense (1.7) (0.2) - (5.2) (7.1)
Net retirement benefit obligation finance expense - - - 1.7 1.7
Net finance expense (0.9) (0.2) - (3.5) (4.6)
(Loss)/profit before taxation (5.3) 9.7 10.2 (4.7) 9.9
Capital expenditure on property, plant and equipment (net of grants received) (14.0) - (0.4) (1.1) (15.5)
Capital expenditure on intangible assets (0.5) (5.1) - - (5.6)
Impairment of property, plant and equipment on intangible assets(1) (11.9) - - - (11.9)
Depreciation of property, plant and equipment and right-of-use-assets (12.0) (2.0) - (1.4) (15.4)
Amortisation of intangible assets (1.6) (1.8) - (0.8) (4.2)
Note:
(1) Impairments and accelerated depreciation of £11.9m have been included
within exceptional items.
Currency Authentication Identity Unallocated Total of
£m £m Solutions £m Continuing
£m operations
£m
FY22
Segmental assets 203.1 65.7 13.3 96.4 378.5
Segmental liabilities (53.0) (13.4) (3.1) (147.2) (216.7)
FY21
Segmental assets 216.8 57.3 14.4 88.6 377.1
Segmental liabilities (88.1) (17.2) (3.3) (157.1) (265.7)
Unallocated assets principally comprise long-term pension assets £31.6m
(FY21: £nil), deferred tax assets of £11.2m (FY21: £19.7m), cash and cash
equivalents of £24.3m (FY21: £25.7m) which are used as part of the Group's
financing offset arrangements and derivative financial instrument assets
of £3.4m (FY21: £7.5m) as well as current tax assets, associates and
centrally managed property, plant and equipment.
Unallocated liabilities principally comprise retirement benefit obligations of
£1.8m (FY21: £20.5m), borrowings of £92.6m (FY21: £74.2m), current tax
liabilities of £13.9m (FY21: £13.6m) and derivative financial instrument
liabilities of £4.8m (FY21: £8.3m) as well as deferred tax liabilities and
centrally held accruals and provisions.
Revenue from contracts with customers:
Timing of revenue recognition across the Group's revenue from contracts with
customers is as follows:
FY22 Currency Authentication Identity Total of
£m £m Solutions Continuing
£m operations
£m
Timing of revenue recognition:
Point in time 257.2 76.0 3.9 337.1
Over time 23.7 14.3 - 38.0
Total revenue from contracts with customers 280.9 90.3 3.9 375.1
FY21 Currency Authentication Identity Total of
£m £m Solutions Continuing
£m operations
£m
Timing of revenue recognition:
Point in time 240.2 72.0 24.1 336.3
Over time 55.5 5.6 - 61.1
Total revenue from contracts with customers 295.7 77.6 24.1 397.4
Geographic analysis of revenue
2022 2021
£m £m
Middle East and Africa 196.4 192.0
Asia 44.3 51.3
UK 65.4 97.7
The Americas 28.8 33.7
Rest of Europe 37.3 20.2
Rest of world 2.9 2.5
375.1 397.4
Contract balances
The contract balances arising from contracts with customers are as follows:
2022 2021
£m £m
Trade receivables 64.8 69.6
Provision for impairment (0.8) (1.5)
Net trade receivables 64.0 68.1
Contract assets 8.0 14.8
Contract liabilities (0.3) (1.6)
Payments received on account (14.3) (38.0)
Trade receivables have decreased to £64.8m compared to £69.6m in FY21
reflecting timing of payments on certain material customer contracts.
Contract assets have decreased to £8.0m compared to £14.8m in FY21
reflecting the fact that in the current period customer invoicing has more
closely matched the timing of revenue recognition.
Payments on account have decreased to £14.3m compared to £38.0m in FY21
reflecting utilisation in the year of £28.3m.
Set out below is the amount of revenue recognised from:
2022 2021
£m £m
Amounts included in contract liabilities at the beginning of the year 1.3 -
Performance obligations satisfied in previous years - -
Performance obligations
Information about the Group's performance obligations is summarised in the
Accounting Policies section of the Annual Report and Accounts 2021 on page
114.
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.
2022 2021
£m £m
Within 1 year 31.3 51.8
Between 2 - 5 years 25.8 35.7
5 years and beyond - -
57.1 87.5
4 Discontinued operations
The Group completed the sale of the entire issued share capital of Cash
Processing Solutions Limited and related subsidiaries (together 'CPS') to CPS
Topco Limited, a company owned by Privet Capital on 22 May 2016.
The gain on discontinued operations in the period of £0.8m (net of associated
tax of £0.1m) included £0.3m related to the winding down and finalising of
remaining activity related to the CPS contract, which has now ended and £0.5m
foreign exchange gains in the period from a foreign subsidiary in Brazil,
where operations have been discontinued.
FY21 was a loss of £0.4m (net of associated tax of £0.1m) and related to a
change in assessment of the total net loss the Group will incur completing a
loss-making CPS contract that was not novated post disposal in addition to
amounts associated with the winding down of remaining activity related to CPS.
5 Exceptional Items
2022 2021
£m £m
Site relocation and restructuring 1.8 21.4
Pension underpin costs 0.4 0.6
Foreign exchange loss on devaluation of Sri Lankan rupee 0.4 -
Costs associated with the equity raise and bank refinancing - 2.9
Loss on resolution of a historical issue relating to UK defined benefit - 0.1
pension scheme
Gain on sale of property, plant and equipment - (2.7)
Loss on disposal of subsidiary - 0.3
2.6 22.6
Recognition of expected credit loss provision on other financial assets (note 3.1 -
11)
Exceptional items in operating profit 5.7 22.6
Tax credit on exceptional items (1.8) (4.2)
Net exceptionals 3.9 18.4
The cash flow impact of exceptional items in FY22 was £2.5m (FY21: £11.2m)
which included £2.1m (FY21: £10.6m) relating to site relocation and
restructuring costs and £0.4m (FY21: £0.6m) relating to pension underpin
costs.
Site relocation and restructuring costs
Site relocation and restructuring costs in FY22 of £1.8m (FY21: £21.4m)
included:
· the recognition of £0.9m (FY21: £7.9m) of
restructuring charges related to the cessation of banknote production at our
Gateshead facility primarily relating to the costs, net of grant income
received of £1.0m, of relocating assets to different Group manufacturing
locations. Since this program commenced, £8.8m of costs have been incurred in
relation to this. This relocation of assets will continue into FY23 as the
Group continues its expansion of the manufacturing facilities in Malta, net of
any grants received;
· a further £1.3m (FY21: £1.6m) 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 program commenced, £2.8m of costs have been incurred in relation to
this; and
· offset by a reversal of £0.4m of asset impairments
made in FY21 no longer required (FY21: £11.9m of asset impairments and
accelerated depreciation charges related to cessation of banknote production
at our Gateshead facility).
Pension underpin costs
Pension underpin costs of £0.4m (FY21: £0.6m) relate to legal fees, net of
amounts recovered, incurred in the rectification of certain discrepancies
identified in the Scheme's rules. The Directors do not consider this to have
an impact on the UK defined benefit pension liability at the current time, but
they continue to assess this.
Recognition of expected credit loss provision on other financial assets
Other financial assets comprise securities interests held in the Portals
International Limited group which were received as part of the consideration
for the paper disposal in 2018. The amount presented on the balance sheet
within other financial assets as at 26 March 2022 includes the original
principal received and accrued interest amounts. In accordance with IFRS 9,
management has assessed the recoverability of the carrying value on the
balance sheet and recorded an expected credit loss provision of £3.1m in
relation to the original principal value and interest receivable which has
been recorded in exceptional items consistent with the original recognition as
part of the loss on disposal. Further details can be found in "II Critical
accounting estimates, assumptions and judgements".
Foreign exchange loss on devaluation of Sri Lankan rupee
Significant devaluation of Sri Lanka Rupee versus the British Pound which
occurred in March 2022 where the Rupee/GBP rate moved from 265/£ on 8 March
2022 to 342/£ on 15 March 2022, following the decision on 9 March 2022 by
the Sri Lanka Government to free float the exchange rate. This period of
significant devaluation is deemed an exceptional item as it is considered to
be non-trading in nature resulting from of an external event being the impact
of the exchange rate change triggered by the free-float of the exchange rate.
An amount of £0.4m has been included in exceptional items.
Costs associated with equity raise and bank refinancing
In FY21 certain costs were incurred in relation to the equity raise and bank
refinancing projects that, whilst directly associated with these, did not
relate to activities which in accordance with IFRS would qualify for recording
in equity or capitalisation on the balance sheet as transaction costs in
relation to the debt refinancing. These costs included: £0.7m write-off of
prepaid arrangement fees on the previously signed RCF which was amended on 7
July 2020 (due to the substantial repayment of the amounts outstanding at that
time this has been accounted for as a settlement); costs of £1.5m associated
with advisors fees in connection with the new pension deficit funding plan put
in place in July 2020 following the equity raise and bank refinancing and
other fees totalling £1.0m related to equity raise and bank refinancing which
whilst directly related to these projects, did not meet the IFRS criteria for
capitalisation on the balance sheet or recording within equity.
Gain on sale of PPE
A £2.7m gain was made in FY21 on the sale of a non-operational property held
by the Group net of sales costs.
Loss on disposal of subsidiary and associated costs
During FY21 the final working capital balance relating to the sale of the
Group's International Identity Solutions business on 14 October 2014 was
agreed with HID, which resulted in an additional £0.3m loss being recorded.
Taxation relating to exceptional items
The overall tax credit relating to continuing exceptional items arising in the
period was £1.8m (FY21: tax credit of £4.2m).
Included in the exceptional tax credit is a deferred tax credit of £1.5m
(FY21: £nil). This relates to the recognition of a deferred tax asset in
relation to restricted UK tax interest amounts that under IAS12 must be
recognised even though the amounts are not expected to be fully utilised for
the foreseeable future. This is because the large movement in the pension
accounting position from a deficit to a surplus in the year has 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. As the majority of the deferred tax in relation to the pension
movement is recognised directly in the Statement of Comprehensive Income, to
recognise the creation 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 unwind of this asset
is therefore considered to be an Exceptional item for financial reporting
purposes where possible.
6 Taxation
2022 2021
£m £m
Current tax
UK corporation tax:
Current tax 3.3 2.4
- Adjustment in respect of prior years 0.2 0.1
3.5 2.5
Overseas tax charges:
Current year 1.7 1.7
- Adjustment in respect of prior years 0.2 1.7
1.9 3.4
Total current income tax charge 5.4 5.9
Deferred tax:
Origination and reversal of temporary differences, UK (4.1) (2.3)
Origination and reversal of temporary differences, overseas 0.1 (2.3)
Total deferred tax credit (4.0) (4.6)
Total income tax charge in the consolidated income statement 1.4 1.3
Included in:
Income tax expense reported in the consolidated income statement in respect of 1.3 1.4
continuing operations
Income tax expense/(credit) in respect of discontinued operations (note 4) 0.1 (0.1)
Total income tax charge in the consolidated income statement 1.4 1.3
Tax on continuing operations attributable to:
Ordinary activities 3.4 6.0
Amortisation of acquired intangible assets (0.3) (0.4)
Exceptional items (1.8) (4.2)
1.3 1.4
2022 2021
£m £m
Consolidated statement of comprehensive income:
On remeasurement of net defined benefit liability 8.8 (18.2)
On cash flow hedges (0.1) 0.2
On foreign exchange on quasi-equity balances (0.2) -
Income tax charge/(credit) reported within other comprehensive income 8.5 (18.0)
Consolidated statement of changes in equity:
On share options 0.3 (0.2)
Income tax charge/(credit) reported within equity 0.3 (0.2)
The tax on the Group's consolidated profit before tax differs from the UK tax
rate of 19% as follows:
2022 2021
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
Profit before tax 30.9 (1.0) (5.7) 24.2 33.5 (1.0) (22.6) 9.9
Tax calculated at UK tax rate of 19% (FY21: 19.0%) 5.8 (0.2) (1.1) 4.5 6.4 (0.2) (4.3) 1.9
Effects of overseas taxation 0.4 (0.1) - 0.3 0.7 - - 0.7
(Credits)/charges not allowable/taxable for tax purposes (1.0) - 0.1 (0.9) 0.2 - 0.2 0.4
Tax attributes not previously recognised for deferred tax (0.1) - (0.7) (0.8) (1.9) - - (1.9)
Utilisation of tax credits upon which no deferred tax was previously - - - - (1.4) - - (1.4)
recognised
Adjustments in respect of prior years 0.8 - 0.2 1.0 2.0 (0.2) (0.1) 1.7
Impact of UK tax rate change on deferred tax balances (2.5) - (0.3) (2.8) - - - -
Tax charge/(credit) 3.4 (0.3) (1.8) 1.3 6.0 (0.4) (4.2) 1.4
The underlying effective tax rate excluding exceptional items was 11.0% (FY21:
17.9%).
The Group is subject to income taxes in numerous jurisdictions and significant
judgement is required in determining the worldwide provision for those taxes.
The level of current and deferred tax recognised is dependent on subjective
judgements as to the outcome of decisions to be made by the tax authorities in
the various tax jurisdictions around the world in which the Group operates. It
is necessary to consider which deferred tax assets should be recognised based
on an assessment of the extent to which they are regarded as recoverable,
which involves assessment of the future trading prospects of individual
statutory entities.
The actual outcome may vary from that anticipated. Where the final tax
outcomes differ from the amounts initially recorded, there will be impacts
upon income tax and deferred tax provisions and on the income statement in the
period in which such determination is made.
The Group has current tax provisions recorded within Current tax liabilities,
in respect of uncertain tax positions. In accordance with IFRIC 23, tax
provisions are recognised for uncertain tax positions where it is considered
probable that the position in the filed tax return will not be sustained and
there will be a future outflow of funds to a taxing authority. Tax provisions
are measured either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the sum of the
probability weighted amounts in a range of possible outcomes) depending on
management's judgement on how the uncertainty may be resolved.
The Group is disputing tax assessments received 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 judgements 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 FY22 Financial
Statements.
7 Earnings per 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 treasury shares.
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 adjusted earnings
per share, before exceptional items, is useful to readers of the accounts as
it gives an indication of underlying business performance.
2022 2021
pence pence
Earnings per share per share per share
Basic earnings per share - continuing operations 10.6 3.7
Basic earnings per share - discontinued operations 0.4 (0.3)
Basic earnings per share - total 11.0 3.4
Diluted earnings per share - continuing operations 10.5 3.7
Diluted earnings per share - discontinued operations 0.4 (0.3)
Diluted earnings per share - total 10.9 3.4
Adjusted earnings per share
Basic earnings per share - continuing operations 13.0 14.7
Diluted earnings per share - continuing operations 12.8 14.6
Number of shares (m)
Weighted average number of shares 195.2 172.4
Dilutive effect of shares 2.6 1.6
197.8 174.0
Reconciliations of the earnings used in the calculations are set out below:
2022 2021
£m £m
Earnings for basic earnings per share - Total 21.5 5.9
Add: Earnings for basic earnings per share - discontinued operations (0.8) 0.4
Earnings for basic earnings per share - continuing operations 20.7 6.3
Add: amortisation of acquired intangibles 1.0 1.0
Less: tax on amortisation of acquired intangibles (0.3) (0.4)
Add: exceptional items (excluding non-controlling interests) 5.7 22.6
Less: tax on exceptional items (1.8) (4.2)
Earnings for adjusted earnings per share 25.3 25.3
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
2022 2022 value amount
£m £m 2021 2021
£m £m
Financial assets
Trade and other receivables(1) Level 3 83.4 83.4 91.7 91.7
Contract assets Level 3 8.0 8.0 14.8 14.8
Other financial assets(2) Level 3 7.2 7.2 8.6 8.6
Cash and cash equivalents Level 1 24.3 24.3 25.7 25.7
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 1.3 1.3 2.5 2.5
- Short duration swap contracts designated as fair value hedges Level 2 - - 0.1 0.1
- Foreign exchange fair value hedges - other economic hedges Level 2 0.9 0.9 4.9 4.9
- Embedded derivatives Level 2 1.2 1.2 - -
Total financial assets 126.3 126.3 148.3 148.3
Financial liabilities
Unsecured bank loans and overdrafts(3) Level 2 (95.7) (95.7) (78.0) (78.0)
Trade and other payables(4) Level 3 (62.9) (62.9) (78.9) (78.9)
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 (1.8) (1.8) (3.4) (3.4)
- Short duration swap contracts designated as fair value hedges Level 2 - - (0.1) (0.1)
- Foreign exchange fair value hedges - other economic hedges Level 2 (2.9) (2.9) (1.7) (1.7)
- Embedded derivatives Level 2 (0.1) (0.1) (3.1) (3.1)
Total financial liabilities (163.4) (163.4) (165.2) (165.2)
Notes:
(1) Excludes prepayments and RDEC of £2.7m (FY21: £2.6m).
(2) Excludes ordinary shares of £0.2m which are accounted for as fair
value through profit and loss.
(3) Excludes unamortised pre-paid loan arrangement fees.
(4) Excludes social security amounts, contract liabilities and
payments on account.
Trade receivables decreased compared to FY21 reflecting timing of payments on
certain material customer contracts. Contract assets have decreased from
£14.8m at FY21 to £8.0m at FY22 reflecting the fact that in the current
period customer invoicing has more closely matched the timing of revenue
recognition.
Fair Value measurement for derivative financial instruments
Fair value is calculated based on the future principal and interest cash
flows, discontinued at the market rate of interest at the reporting date. The
valuation bases are classified according to the degree of estimation required
in arriving at the fair values. Level 1 valuations are derived from unadjusted
quoted prices for identical assets or liabilities in active markets, level 2
valuations use observable inputs for the assets or liabilities other than
quoted prices, while level 3 valuations are not based on observable market
data and are subject to management estimates. There has been no movement
between levels during the current or prior periods.
9 Analysis of net debt
The analysis below provides a reconciliation between the opening and closing
of the Group's net debt position (being the net of borrowings and cash and
cash equivalents).
At 27 March 2021 Cash flow Foreign exchange and other At 26 March 2022
£m £m £m £m
Borrowings (78.0) (17.0) (0.7) (95.7)
Cash and cash equivalents 25.7 (1.6) 0.2 24.3
Net debt (52.3) (18.6) (0.5) (71.4)
At 28 March 2020 Cash flow Foreign exchange and other At 27 March 2021
£m £m £m £m
Borrowings (117.3) 39.3 - (78.0)
Cash and cash equivalents 14.5 11.5 (0.3) 25.7
Net debt (102.8) 50.8 (0.3) (52.3)
Net debt is presented excluding unamortised pre-paid borrowing fees of £3.1m
(FY21: £3.8m) and £14.2m (FY21: £15.7m) of lease liabilities.
The Group has Bank facilities of £275.0m including an RCF cash drawdown
component of up to £175.0m and bond and guarantee facilities of a minimum of
£100.0m, which currently are due to mature in December 2023. The Group can
convert (in blocks of £25.0m) up to £50.0m of the undrawn RCF cash component
to the bond and guarantee component if required and can elect to convert this
back (again in blocks of £25.0m) in order to draw in cash if the bond and
guarantee component has not been sufficiently utilised.
The drawdowns on the RCF facility are typically rolled over on terms of
between one and three months. However, as the Group has the intention and
ability to continue to roll forward the drawdowns under the facility, the
amount borrowed has been presented as long-term.
In the second half of FY21, the Group reallocated £25.0m of the cash
component to the bond and guarantee component such that at present, £150.0m
in total is available on the RCF component, of which £95.0m was drawn as at
26 March 2022. In the year a separate borrowing facility for financing
equipment under construction has been signed and at 26 March 2022 the amount
outstanding on this facility is £0.7m.
As at 26 March 2022, the Group had a total of undrawn committed borrowing
facilities, all maturing in more than one year, of £55m (27 March 2021:
£78.0m, all maturing in more than one year).
10 Retirement benefit obligations
The Group has pension plans, devised in accordance with local conditions and
practices in the country concerned, covering the majority of employees. The
assets of the Group's plans are generally held in separately administered
trusts or are insured.
2022 2021
£m £m
UK retirement benefit surplus/(liability) 31.6 (18.5)
Overseas retirement liability (1.8) (2.0)
Retirement benefit surplus/(liability) 29.8 (20.5)
Reported in:
Non-current assets 31.6 -
Non-current liabilities (1.8) (20.5)
29.8 (20.5)
The majority of the Group's retirement benefit obligations are in the UK:
2022 2022 2022 2021 2021 2021
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Equities 56.3 - 56.3 125.0 - 125.0
Bonds 154.9 - 154.9 123.6 - 123.6
Diversified Growth Fund - - - 54.7 - 54.7
Secured/fixed income 456.2 - 456.2 342.7 - 342.7
Liability Driven Investment Fund 248.1 - 248.1 276.3 - 276.3
Multi Asset Credit 62.8 - 62.8 125.0 - 125.0
Other 10.4 - 10.4 6.0 - 6.0
Fair value of scheme assets 988.7 - 988.7 1,053.3 - 1,053.3
Present value of funded obligations (952.8) - (952.8) (1,067.0) - (1,067.0)
Funded defined benefit pension schemes 35.9 - 35.9 (13.7) - (13.7)
Present value of unfunded obligations (4.3) (1.8) (6.1) (4.8) (2.0) (6.8)
Net surplus/(liability) 31.6 (1.8) 29.8 (18.5) (2.0) (20.5)
Amounts recognised in the consolidated income statement:
2022 2022 2022 2021 2021 2021
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Included in employee benefits expense:
Current service cost - - - - - -
Past service cost - - - 0.1* - 0.1*
Administrative expenses and taxes (1.8) - (1.8) (2.1) - (2.1)
Included in interest on retirement benefit obligation net finance expense: -
Interest income on scheme assets 20.2 - 20.2 24.6 - 24.6
Interest cost on liabilities (20.4) - (20.4) (22.9) - (22.9)
Retirement benefit obligation net finance (expense)/income (0.2) - (0.2) 1.7 - 1.7
Total recognised in the consolidated income statement (2.0) - (2.0) 0.3 - 0.3
Return on scheme assets excluding assumed interest income (51.2) - (51.2) 27.0 - 27.0
Remeasurement gains/(losses) on defined benefit pension obligations 86.9 - 86.9 (122.6) - (122.6)
Amounts recognised in other comprehensive income 35.7 - 35.7 (95.6) - (95.6)
Note: * Included within exceptional items (note 5).
Principal actuarial assumptions:
2022 2022 2021 2021
UK Overseas UK Overseas
% % % %
Discount rate 2.85% - 1.95% -
CPI inflation rate 3.10% - 2.65% -
RPI inflation rate 3.50% - 3.15% -
The financial assumptions adopted as at 26 March 2022 reflect the duration of
the scheme liabilities which has been estimated to be broadly 15 years (FY21:
broadly 16 years).
At 26 March 2022 mortality assumptions were based on tables issued by Club
Vita, with future improvements in line with the CMI model, CMI_2021 (FY21:
CMI_2020) with a smoothing parameter of 7.5 and a long-term future improvement
trend of 1.25% per annum (FY21: long-term rate of 1.25% per annum) and w2020
parameter of 5% (FY20: no allowance). The resulting life expectancies within
retirement are as follows:
2022 2021
Aged 65 retiring immediately (current pensioner) Male 22.0 22.0
Female 24.0 23.4
Aged 50 retiring in 15 years (future pensioner) Male 22.5 22.9
Female 25.4 24.7
On 2 March 2022, the Trustee and the Company agreed the terms for a schedule
of contributions and a recovery plan, setting out a programme for clearing the
UK Pension Scheme deficit (the "Recovery Plan"). The last actuarial valuation
of the UK Pension Scheme was at 5 April 2021, which was based on intentionally
prudent assumptions, revealed a funding shortfall (technical provisions minus
the value of the assets) of £119.5m.
The £119.5m deficit is addressed by payments of £15m per annum (payable
quarterly in arrears) under the Recovery Plan payable from the year ending 5
April 2022 until 31 March 2029 whereas under the recovery plan agreed with the
trustees in 2020 ("2019 Recovery Plan") until 31 March 2029. Additional
contingent contributions in exceptional circumstances will become payable by
way of an acceleration of the contributions due in later years where: (i) the
leverage ratio (consolidated net debt: EBITDA) is equal to or greater than
2.5x in FY23, up to a maximum of £4m in the financial year and /or (ii) the
Company or any of its subsidiaries take any action which will cause material
detriment (defined in section 38 Pensions Act 2004) to the UK Pension Scheme
of £8m (£8m in FY23) over the period up to March 2023.
On 20 November 2020, the High Court issued its latest ruling in relation to
the equalisation of pension benefits between men and women relating to
Guaranteed Minimum Pensions (or "GMP"). The High Court ruled that statutory
cash equivalent transfer values ("CETVs") paid from defined benefit pension
schemes are subject to challenge and a top-up payment may be required if the
CETV value insufficiently reflected the value of an equalised GMP benefit
accrued between 17 May 1990 and 5 April 1997.The Group's estimate of the
impact of this latest ruling was to increase the pension liability by £0.1m
which was recorded as an exceptional item in FY21.
In addition, during FY22, legal fees of £0.2m have been incurred in the
rectification of certain discrepancies identified in the Scheme's rules (FY21:
£0.6m). This has no impact on the UK defined benefit pension liability
11 Contingent assets and liabilities
In June 2019 De La Rue International Limited terminated its agency agreement
and sales consultancy agreement with Pastoriza SRL, a company which provided
agency and sales consultancy services to the Group in the Dominican Republic
from 2016 to 2019. Pastoriza SRL disputed the termination and commenced a
commercial lawsuit in the Dominican Republic for a claimed amount of
approximately US$8m (plus monthly interest) which was dismissed by the Court
in December 2020. Pastoriza appealed the decision but the Court of Appeal
dismissed the appeal in May 2021. Pastoriza has now appealed to the Supreme
Court, we anticipate a decision being issued in summer 2022, although the
Group does not anticipate this appeal will be successful either.
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, 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 £20.3m (FY21: £28.2m) for the purchase of ink and other
consumables on an arm's length basis. At the balance sheet date there was
£4.6m (FY21: £1.5m) 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 2022 2021
£m £m
Aggregate emoluments 2,097 1,811
Aggregate gains made on the exercise of share options - -
2,097 1,811
Directors and Key management 2022 2021
£m £m
Salaries and other short term employee benefits 2.2 3.3
Retirement benefits - Defined contribution 0.1 0.1
Share-based payments 0.8 -
3.1 3.4
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 interests
The Group has three subsidiaries with material non-controlling interests:
· De La Rue Buck Press Limited, whose country of incorporation is
Ghana;
· De La Rue Lanka Currency and Security Print (Private) Limited,
whose country of incorporation is Sri Lanka; and
· De La Rue Kenya EPZ Limited, whose country of incorporation and
operation is Kenya.
The accumulated non-controlling interest of the subsidiary at the end of the
reporting period is shown in the Group balance sheet. The following table
summarises the key information relating to these subsidiaries, before
intra-group eliminations.
Ghana Sri Lanka Kenya Ghana Sri Kenya
Lanka
Non-controlling interest percentage 51% 40% 40% 51% 40% 40%
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Non-current assets - 9.4 5.8 - 11.0 6.4
Current assets 5.8 22.6 25.1 5.1 27.4 23.1
Non-current liabilities - (0.3) (0.1) - (0.7) -
Current liabilities (5.1) (3.8) (14.2) (5.2) (11.4) (14.7)
Net assets (100%) 0.7 27.9 16.6 (0.1) 26.3 14.8
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Revenue 14.3 34.4 30.5 5.6 34.8 29.4
Profit for the year 0.3 3.0 2.2 - 2.6 3.1
Profit allocated to non-controlling interest 0.2 1.1 0.9 - 1.0 1.2
Dividends paid to non-controlling interest - 0.7 0.2 - 0.6 0.4
Cash flows from operating activities (0.6) (0.6) 0.9 1.4 (0.1) 1.5
Cash flows from investing activities - 0.2 (0.3) - 0.5 (0.8)
Cash flows from financing activities 0.3 (1.8) (0.5) - (1.5) (1.0)
Net (decrease)/increase in cash and cash equivalents (0.3) (2.2) 0.1 1.4 (1.1) (0.3)
Ghana JV
On 8 June 2021 the Group and Buck Press Limited ("BPL") established a new
Joint Venture company in Ghana for the distribution of printed and
personalized excise tax stamps - De La Rue Buck Press Limited, which is owned
by De La Rue International Limited (49%) and BPL (51%). This was to enter into
a contract with the Ghana Revenue Authority which is expected to run for 5
years.
In applying the definitions of control identified in IFRS 10, it has been
determined that the Group controls De La Rue Buck Press Limited due to the
fact that it has a majority of the Board membership and is able to use this to
control the key business decisions of the JV entity. As such the results of
the subsidiary are fully consolidated into the Group's financial statements.
14 Capital and other commitments
2022 2021
£m £m
Capital and other expenditure contracted but not provided:
Property, plant and equipment 10.6 11.8
Intangible assets - 0.1
Other commitments 364.2 425.6
374.8 437.5
Other commitments in the table above is an amount in relation to the sale of
Portals De La Rue Limited to EPIRIS Fund II on 29 March 2018. As part of the
transaction Portals De La Rue Limited will supply paper to meet the Group's
anticipated internal requirements with pre-agreed volumes and price mechanisms
until March 2028. Based on the terms of the agreement the Group had other
commitments of approximately £626.9m over 10 years from the date of sale.
Management has assessed that such supply arrangements and associated
commitments form a single agreement for accounting purposes.
15 Post Balance Sheet events
Insurance
Effective 1 April 2022, the Group started to write insurance for Cyber and
Tech PI through its subsidiary The Burnhill Insurance Company Limited. This
subsidiary is licenced to write insurance. Under these arrangements, the Group
has coverage against Cyber and Tech PI claims up to £6m (after deduction of
excess) using its own external insurers, but any claim amounts between £6m
and £16m would be covered by The Burnhill Insurance Company Limited and would
result in a loss in the Group income statement.
Partial pensioner buy-in
On 24 May 2022, the trustees of the De La Rue Pension Scheme ("the Scheme"),
entered into a partial pensioner buy-in contract ("the buy-in"). In return for
a premium paid from the Scheme's assets, from the date of the buy-in, payments
will be made to the Scheme that match the benefit payments to those Scheme
members covered under the buy-in contract. The buy-in contract covers
approximately 36% of the Scheme liabilities. The price of the buy-in is still
to be determined as at the date of this report.
The buy-in is accounted for as a change in the Scheme's investment strategy.
From the buy-in date, the value of the buy-in will be included in the fair
value of plan assets on the Company balance sheet. The value of the buy-in
will be determined as equal to the value of the Scheme's liabilities covered
by the buy-in contract, as determined in accordance with the requirements of
IAS 19. Any change in the fair value of plan assets arising from the buy-in
will be recognised through Other Comprehensive Income at the 25 September
2022.
The buy-in is a non-adjusting post balance sheet event per the guidance set
out in IAS 10 as the buy-in contract was executed after the balance sheet
date.
NON-IFRS FINANCIAL MEASURES
De La Rue plc publishes certain additional information in a non-statutory
format in order to provide readers with an increased insight into the
underlying performance of the business. These non-statutory measures are
prepared on a basis excluding the impact of exceptional items and amortisation
of intangibles acquired through business combinations, as they are not
considered to be representative of underlying business performance. The
measures the Group uses along with appropriate reconciliations to the
equivalent IFRS measures where applicable are shown in the following tables.
The Group's policy on classification of exceptional items is also set out
below:
The Directors consider items of income and expenditure which are material by
size and/or by nature and not representative of normal business activities
should be disclosed separately in the financial statements so as to help
provide an indication of the Group's underlying business performance. The
Directors label these items collectively as 'exceptional items'. Determining
which transactions are to be considered exceptional in nature is often a
subjective matter. However, circumstances that the Directors believe would
give rise to exceptional items for separate disclosure would include: gains or
losses on the disposal of businesses, curtailments on defined benefit pension
arrangements or changes to the pension scheme liability which are considered
to be of a permanent nature such as the change in indexation or the GMPs, and
non-recurring fees relating to the management of historical scheme issues,
restructuring of businesses, asset impairments and costs associated with the
acquisition and integration of business combinations. All exceptional items
are included in the appropriate income statement category to which they
relate.
A Adjusted revenue
Adjusted revenue excludes "pass through" revenue relating to non-novated
contracts following the paper and international identify solutions business
sales. The following amounts of "pass through" revenue have been excluded:
Currency £nil (FY21: £8.9m) and Identify Solutions: £nil (FY21: £0.4m).
2022 2021
£m £m
Revenue on an IFRS basis 375.1 397.4
Exclude: pass-through revenue - (9.3)
Adjusted revenue 375.1 388.1
B Adjusted operating profit
Adjusted operating profit represents earnings from continuing operations
adjusted to exclude exceptional items and amortisation of acquired intangible
assets.
2022 2021
£m £m
Operating profit from continuing operations on an IFRS basis 29.7 14.5
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 5.7 22.6
Adjusted operating profit from continuing operations 36.4 38.1
C Adjusted basic earnings per share
Adjusted earnings per share are the earnings attributable to equity
shareholders, excluding exceptional items and amortisation of acquired
intangible assets and discontinued operations divided by the weighted average
basic number of ordinary shares in issue. It has been calculated by dividing
the De La Rue plc's adjusted operating profit from continuing operations for
the period by the weighted average basic number of ordinary shares in issue
excluding shares held in the employee share trust.
2022 2021
£m £m
Profit attributable to equity shareholders of the Company 21.5 5.9
Exclude: discontinued operations (0.8) 0.4
Profit attributable to equity shareholders of the Company from continuing
operations on an
20.7 6.3
IFRS basis
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 5.7 22.6
Tax on amortisation of acquired intangible assets (0.3) (0.4)
Tax on exceptional items (1.8) (4.2)
Adjusted profit attributable to equity shareholders of the Company from 25.3 25.3
continuing operations
Weighted average number of ordinary shares for basic earnings 195.2 172.4
Continuing operations 2022 2021
pence per share pence per share
Basic earnings per ordinary share on an IFRS basis 10.6 3.7
Basic adjusted earnings per ordinary share 13.0 14.7
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 adjusted EBITDA margin percentage takes the applicable EBITDA figure and
divides this by the continuing revenue in the period of £375.1m (FY21:
£388.1m) which excludes the Portal pass through revenue of £nil (FY21:
£9.3m). The EBITDA margin on an IFRS basis is a percentage against the
reported revenue of £375.1m (FY21: £397.4m). The covenant test (note 14(b))
uses earlier accounting standards and excludes adjustments for IFRS 16 and
takes into account lease payments made.
2022 2021
£m £m
Profit for the year 23.7 8.1
Add back:
(Profit)/loss on discontinued operations (0.8) 0.4
Taxation 1.3 1.4
Net finance expenses 5.5 4.6
Profit before interest and taxation from continuing operations (Operating 29.7 14.5
profit)
Add back:
Depreciation of property, plant and equipment 12.0 12.9
Depreciation of right-of-use assets 2.3 2.5
Amortisation of intangible assets 4.3 4.2
EBITDA 48.3 34.1
Exceptional items 5.7 22.6
Adjusted EBITDA 54.0 56.7
Adjusted Revenue £m 375.1 388.1
EBITDA margin 12.9% 8.8%
Adjusted EBITDA margin 14.4% 14.6%
E Adjusted controllable operating profit by division
Adjusted controllable operating profit represents earnings from continuing
operations of the on-going divisions adjusted to exclude exceptional items and
amortisation of acquired intangible assets and costs relating to the enabling
functions such as Finance, IT and Legal that are deemed to be attributable
only to the on-going two divisional structure model. Key reporting metrics for
monitoring the divisional performance is linked to gross profit and
controllable profit (being adjusted operating profit before the allocation of
enabling function overheads), with the enabling functional cost base being
managed as part of the overall business key Turnaround Plan objectives.
Total of continuing operations
Identity Solutions Central
FY22 Currency Authentication
£m £m £m £m £m
Operating profit/(loss) on IFRS basis 15.0 15.1 0.6 (1.0) 29.7
Amortisation of acquired intangibles - 1.0 - - 1.0
Net exceptional items 4.5 0.2 - 1.0 5.7
Adjusted operating profit 19.5 16.3 0.6 - 36.4
Enabling function overheads 23.0 7.4 - (30.4) -
Adjusted controllable operating profit/(loss) 42.5 23.7 0.6 (30.4) 36.4
Identity Solutions Total of continuing operations
FY21 Currency Authentication Central
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (4.4) 9.9 10.2 (1.2) 14.5
Amortisation of acquired intangibles - 1.0 - - 1.0
Net exceptional items 20.6 0.4 0.4 1.2 22.6
Adjusted operating profit 16.2 11.3 10.6 - 38.1
Enabling function overheads 25.5 7.0 - (32.5) -
Adjusted controllable operating profit/(loss) 41.7 18.3 10.6 (32.5) 38.1
F Return on capital employed ("ROCE")
ROCE is the ratio of the adjusted operating profit (operating profit before
amortisation of acquired intangible assets and net exceptional items) over the
average capital employed for the current and prior year.
In 2020 the Performance share plan measures were revised and TSR (Total
Shareholder Return relative to FTSE 250 companies, measured over three
calendar years) was used in replacement of ROCE, to align to planned growth
over the three-year period of the Turnaround Plan, so that appropriate focus
is placed on the key business imperative of restoring value to shareholders.
The ROCE measure is still applicable to current PSP share awards which will
vest between 2021 and 2022, with the last vesting date in July 2022.
2022 2021
£m £m
- Property, plant and equipment 102.7 100.0
- Intangible assets 37.5 32.3
- Right-of-use assets 12.9 14.6
- Other financial assets 7.4 8.8
- Inventories 50.1 54.5
- Trade and other receivables 89.0 98.8
- Contract assets 8.0 14.8
- Derivative financial assets 3.4 7.5
- Trade and other payables (80.0) (120.5)
- Derivative financial liabilities (4.8) (8.3)
Capital Employed 226.2 202.5
ROCE = Adjusted operating profit/Average Capital Employed
Adjusted operating profit 36.4 38.1
Capital Employed - current year 226.2 202.5
Capital Employed - prior year 202.5 172.7
Average Capital Employed 214.3 187.5
ROCE 17.0% 20.3%
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. END FR XZLLLLELLBBXRecent news on De La Rue
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