REG - De La Rue PLC - FY23 full year results
29/06/2023 07:00
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RNS Number : 3632E De La Rue PLC 29 June 2023
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated by the Market Abuse Regulation
(EU) No.596/2014, as it forms part of UK law by virtue of the European
Union (Withdrawal) Act 2018 ("MAR"). Upon the publication of this
announcement, this inside information is now considered to be in the public
domain
29 June 2023
De La Rue plc
FY23 full year results and reiteration of FY24 outlook
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the "Company")
announces its full year results for the year ended 25 March 2023 (the
"period", "FY23" or "full year"). The comparative period was the 12 months
ended 26 March 2022 ("FY22"). In addition, the Company provides an update on
current trading and outlook for FY24.
Key Highlights
- Revenue for FY23 of £349.7m (FY22: £375.1m)
- Adjusted operating profit of £27.8m (FY22: £36.4m), in line
with guidance provided in April
- IFRS operating loss-for continuing operations of £29.6m (FY22
profit of £24.2m), reflecting exceptional charges of £47.1m (FY22: £5.7m),
of which £29.7m are non-cash charges.
- FY23 end-of-year net debt at £83.1m; in line with expectations
(£88-92m) after early-April final Portals exit payment
- FY23 net operating cash inflow increased 44% to £23.8m (FY22:
£16.5m).
- Market activity in Currency is showing encouraging signs of
recovery, with strong bid activity, a positive win rate, and the significant
majority of FY24 banknote print volume already under confirmed award
- Authentication on track to exceed £100m in revenue for FY24,
demonstrating good growth versus FY23 (£91.7m)
- As a result, the Company reiterates its guidance for FY24
adjusted operating profit in the low £20m range, albeit with H1 trading
expected to be broadly break-even at adjusted operating profit level, due to
timing of Currency recovery
- Net debt expected to be around £100m by year end and half year
- Successfully renegotiated the Company's facilities with its
lenders, leading to a significant relaxation of both interest cover and
gearing covenant ratios, and the addition of a liquidity measure
- Agreement reached with the Pension Trustee to defer £18.75m of
deficit repair contributions originally due over the 15 months from April
2023, with the substantive majority (£16.25m-£17.5m) deferred to the
FY26-FY29 timeframe. This significantly improves the cash position for the
Company over the next few years
- No 'material uncertainty' with respect to going concern in the
accounts
Clive Vacher, CEO of De La Rue commented:
"Following a significant downturn in Currency demand over the past 18 months,
we have witnessed encouraging signs of recovery with strong bid activity, a
positive win rate, and the significant majority of FY24 banknote print volume
already contracted.
"In addition, Authentication is on track for significant revenue growth in the
current financial year.
"The actions we have taken over the past few months have built on the
essential operational improvements made in the last three years and played a
vital role in stabilising the Company. These include renegotiating terms with
our lenders, leading to covenant relaxation, and agreeing a substantial
deferral to our pension deficit repair contributions.
"Importantly, there is now no 'material uncertainty' with respect to De La
Rue's continuation as a going concern in the FY23 full-year accounts. This
gives us a stable platform for future trading.
"Together with my management team, I will continue the development of De La
Rue and further strengthen the market position of the Company."
Clive Whiley, Chairman of De La Rue added:
"Since I joined the Board and took office as Chairman on 18 May 2023, I have
immersed myself in the business and have a clear understanding of the
principal challenges facing the Company. My background gives me unique
experience in managing companies through existential crises and it is my
conviction that the fundamentals of De La Rue's business remain sound.
"We are approaching the challenges facing the Company with vigour and I am
confident that today's announcement, which highlights support from our core
lenders, pension trustees and other stakeholders will enable a focus upon the
significant market opportunities from a stable platform.
"Whilst we are operating in volatile times, with rapid and significant changes
in the business environment and the markets in which we compete, I have been
impressed by the commitment of our people which will be critical as we
reposition ourselves for future growth."
Financial summary
FY23 FY22 Change
£m £m %
Revenue 349.7 375.1 -6.8
Authentication 91.7 90.3 +1.6
Currency 254.6 280.9 -9.4
Identity Solutions 3.4 3.9 -12.8
Adjusted operating profit*(1) 27.8 36.4 -23.6
IFRS operating (loss)/ profit- continuing operations (20.3) 29.7 n/a
IFRS (loss)/profit before tax- continuing operations (29.6) 24.2 n/a
Adjusted basic EPS*(2) (p) (1.5) 13.0p n/a
IFRS basic EPS (p) (28.6)p 10.6p n/a
FY23 FY22 Change
£m £m %
Net debt(3) 83.1 71.4 +16.4
- Adjusted operating profit of £27.8m (FY22: £36.4m) reduced year on
year due to weak market demand in Currency and lower global PC sales affecting
Brand sales within Authentication.
- Authentication:
o Revenue rose modestly, benefitting from:
§ Government Revenue Solutions ("GRS") coming on stream in Bahrain, Qatar and
Oman.
§ A full year of contribution from polycarbonate data pages manufactured for
the new Australian passport.
o Offsetting this were:
§ Lower PC sales globally, impacting sales to Microsoft.
§ The end of the HMRC contract and a falling away of Covid vaccine brand
protection seals.
- Currency: saw a 9.4% decrease in revenue. This was the result of an
industry-wide downturn in activity as Central Banks used stocks built up
during the Covid pandemic. Market recovery was also delayed, due to the
global economic downturn and lower access to foreign exchange reserves and
devaluation of currencies in some core markets. As we ended the year, the
market has shown some encouraging signs of recovery.
- Strong supply chain management mitigated much of the cost risks
identified at the beginning of the year:
o Tenders undertaken since the termination of the agreement with Portals for
paper supply have validated that the anticipated cost savings can be achieved
- Pre-tax exceptional charges of £47.1m (FY22: £5.7m) included:
o £17.0m (FY22: £nil) terminating the long-term supply agreement with
Portals Paper
o £12.6m (FY22: £nil) redundancy charges and asset impairments associated
with the wind down of activity in Kenya
o £8.5m (FY22: £1.8m) of other site relocation and restructuring costs
o £8.5m (FY22: £3.1m) non-cash charge, recognising credit loss provision
on securities held in the Portals group
- Of £47.1m of FY23 pre-tax exceptional charges:
o £17.4m were paid in FY23
o £9.4m are due to be paid in FY24
o £20.3m relate to non-cash asset impairments
- Net debt of £83.1m (FY22: £71.4m) favourable to guidance, as final
payment for Portals termination was paid in April.
o In line with guidance, once this payment is taken into account.
- Operating activities provided £24.8m of net cash inflow (FY22:
£18.3m net inflow).
In these results, we report on the financial performance of the Authentication
and Currency divisions, together with the legacy activity of the Identity
Solutions division. To provide insight into the underlying performance of our
business, we have reported revenue, gross margin and operating loss on an IFRS
and an adjusted basis for the Group. We have also reported gross profit,
adjusted operating profit and adjusted controllable operating profit for the
divisions. The Non-IFRS financial measures section of this statement provides
definitions of these Non-IFRS financial measures and their reconciliation to
the equivalent IFRS measure.
Footnotes:
* These are non-IFRS measures. The definition and reconciliation of adjusted
operating profit and adjusted basic EPS can be found in the Non-IFRS financial
measures section of this Full Year Results announcement.
1. Adjusted operating profit excludes pre-tax exceptional items of £47.1m
(FY22: £5.7m) and pre-tax amortisation of acquired intangible assets £1.0m
(FY22: £1.0m).
2. Adjusted basic EPS excludes post-tax exceptional items of £52.2m (FY 22:
£3.9m) and post-tax amortisation of acquired intangible assets £0.7m (FY22:
£0.7m).
3. The definition of net debt can be found in note 9 to the financial
statements.
The person responsible for the release of this announcement on behalf of De
La Rue for the purposes of MAR is Jon Messent (Company Secretary).
Enquiries
De La Rue plc +44 (0) 7990 337707
Clive Vacher Chief Executive Officer
Rob Harding Chief Financial Officer
Louise Rich Head of Investor Relations
Brunswick +44 (0)207 404 5959
Stuart Donnelly
Ed Brown
A briefing to analysts will take place at 9:00 am on 29 June 2023, which is
accessible via webcast on www.delarue.com.
For the live webcast, please register at
www.delarue.com/investors/results-and-reports where a replay will also be
available subsequently.
About De La Rue
De La Rue plc's purpose is to secure trust between people, businesses and
governments. As a trusted partner of governments, central banks and commercial
organisations seeking to secure their global supply chains and cash
cycles, De La Rue provides highly secure physical and digital solutions that
underpin the integrity of economies and trade.
De La Rue's Currency division provides market-leading end-to-end currency
solutions, from finished banknotes to secure polymer substrate and banknote
security features to over half the central banks and issuing authorities
around the world.
Our Authentication division protects revenues and reputations through the
provision of physical and digital solutions to governments and commercial
organisations. We also manufacture ID security components.
At 25 March 2023, De La Rue had over 1,800 employees who work with
organisations in more than 140 countries, leveraging the Group's manufacturing
facilities in the UK, USA, Malta and Sri Lanka.
De La Rue's shares are traded on the London Stock Exchange (LSE:DLAR). De
La Rue plc's LEI code is 213800DH741LZWIJXP78. For further information
please visit www.delarue.com
(https://checkpoint.url-protection.com/v1/url?o=http://www.delarue.com/&g=ODlkYzkxYjY4MTcyYzBhYw==&h=Y2UzYjE4MmQ0ZGYzOTlmZmU3OGY2ZjZiMTlmZGE1OGNkMDQ2ZjI1ODAzNTQyYzc2ZjhhYjAzMjU5NjA5MTM0Nw==&p=Y3AxZTpkZWxhcnVlMTYzMDUwMzk1MDQxOTpjOm86ZjI2MDZhMzFlYTQ5YTM3NDMyYjk2NWU2MjNiNzk0YTA6djE6cDpU)
.
Cautionary note regarding forward-looking statements
Certain statements contained in this document relate to the future and
constitute 'forward-looking statements'. These forward-looking statements
include all matters that are not historical facts. In some case, these
forward-looking statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "anticipates",
"expects", "intends", "plans", "may", "will", "could", "shall", "risk",
"aims", "predicts", "continues", "assumes", "positioned" or "should" or, in
each case, their negative or other variations or comparable terminology. They
appear in a number of places throughout this document and include statements
regarding the intentions, beliefs or current expectations of the Directors, De
La Rue or the Group concerning, amongst other things, the results of
operations, financial condition, liquidity, prospects, growth, strategies and
dividend policy of De La Rue and the industry in which it operates.
By their nature, forward-looking statements are not guarantees or predictions
of future performance and involve known and unknown risks, uncertainties,
assumptions and other factors, many of which are beyond the Group's control,
and which may cause the Group's actual results of operations, financial
condition, liquidity, dividend policy and the development of the industry and
business sectors in which the Group operates to differ materially from those
suggested by the forward-looking statements contained in this document. In
addition, even if the Group's actual results of operations, financial
condition and the development of the business sectors in which it operates are
consistent with the forward-looking statements contained in this document,
those results or developments may not be indicative of results or developments
in subsequent periods.
Past performance cannot be relied upon as a guide to future performance and
should not be taken as a representation or assurance that trends or activities
underlying past performance will continue in the future. Accordingly, readers
of this documents are cautioned not to place undue reliance on these
forward-looking statements.
Other than as required by English law, none of the Company, its Directors,
officers, advisers or any other person gives any representation, assurance or
guarantee that the occurrence of the events expressed or implied in any
forward-looking statements in this document will actually occur, in part or in
whole. Additionally, statements of the intentions of the Board and/or
Directors reflect the present intentions of the Board and/or Directors,
respectively, as at the date of this document, and may be subject to change as
the composition of the Company's Board of Directors alters, or as
circumstances require.
The forward-looking statements contained in this document speak only as at the
date of this document. Except as required by the UK's Financial Conduct
Authority, the London Stock Exchange or applicable law (including as may be
required by the UK Listing Rules and/or the Disclosure Guidance and
Transparency Rules), De La Rue expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this document to reflect any change in
the Group's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
CEO review
Following a significant downturn in Currency demand over the past 18 months,
there are encouraging signs of recovery. In addition, our Authentication
division is on track for significant revenue growth in FY24.
The actions we have taken over the past few months, implementing a range of
initiatives about which we provide further detail below, have stabilised the
Company. Specifically, we have renegotiated terms with our lenders, leading to
covenant relaxation, and agreed a substantial deferral to our pension deficit
repair contributions.
These factors have allowed us to remove the 'material uncertainty' cited at
the Interims in November 2022, and to reiterate our guidance for adjusted
operating profit for the current year (FY24).
We set out below more detail on these recent initiatives, together with
narrative on the results for FY23, where adjusted operating profit and net
debt for the FY23 were in line with guidance previously given in April 2023.
In FY23 the Currency division was profitable at the adjusted operating profit
level, generating £13.6m despite the low levels of demand across the
industry. This compares with £19.5m in FY22, but demonstrates a continuation
of our commitment, made in FY20, that the Currency division will be profitable
at this level during downturns, breaking the historical cycle of losses during
market lows.
Amended bank facilities
Following extensive negotiations with our banking syndicate, we have agreed
revised terms, which include substantial relaxations of the covenant ratios to
which we have hitherto been subject. This reflects the reality of the higher
interest rate environment in which we now find ourselves, given recent
increases in base rates, which rose 350bp over the course of FY23 and, with
inflation still at high levels, the prospect of further increases still to
come.
We would like to thank our lenders for their understanding and pragmatism in
reaching this revised agreement, recognising the challenging competitive and
global economic environment in which we are operating.
For the remainder of the term of the loan, which runs to 1 January 2025, the
interest covenant ratio to which De La Rue is subject has been relaxed to a
minimum of 1.0 times from its current minimum of 3.0 times. The limit on the
gearing covenant ratio is relaxed to a maximum of 4.0 times until March 2024
and then 3.6 times for the remaining life of the facility. For comparison, at
the end of FY23 our interest cover ratio stood at 3.03 and our gearing ratio
at 2.21.
An additional liquidity covenant will be introduced, requiring De La Rue to
maintain 'headroom' of at least £25m on its £175m facilities.
The new facility is subject to a 1% arrangement fee, reduced to 0.5% if the
facilities are refinanced prior to 31 December 2023. It is payable on the
earlier of 1 January 2025 or the refinancing of the facility. However, the
margin that we pay at any particular gearing ratio will not be changing, other
than recognising additional rachets given the higher ceiling this ratio now
has.
Further details of the terms of the new facility are given within the
Financial Review section of this statement.
We remain focused on generating free cash flow to reduce the average level of
debt.
Deferral of pension deficit reduction contributions
We have also successfully concluded negotiations with the Trustee of the De La
Rue Pension Fund, overseen by the Pensions Regulator, to defer £18.75m of
deficit reduction contributions.
The Trustee has agreed that we will defer our deficit reduction contributions
of £3.75m per quarter from that due on 5 April 2023, up to and including the
payment that was due on 5 April 2024, less an amount equivalent to the
arrangement fee agreed with our lenders on the covenant package, due on or
after 5 April 2024. During the second quarter of FY25, deficit reduction
contributions will recommence at the rate of £3.75m per quarter. 'Catch up'
payments, to put the Scheme in funds for the sum deferred, will start from
July 2025 and will continue from FY26 to FY29.
The next actuarial valuation of the scheme is due based on the funding
position as of April 2024.
This deferral significantly eases the short-term cash outflow for the business
and builds upon the actions previously taken, such as the March 2022 agreement
with the Pension Scheme Trustees to lower cash payments that fund the pension
deficit. After the deferral expires, cash payments to repair the pension
deficit will still be £9.5m per annum lower than they would have been without
this March 2022 agreement.
Going concern
The agreements with our banking syndicate and the pension fund trustee are key
elements in the Directors' assessment of going concern, which has concluded
that there is no material uncertainty with respect to going concern. A full
description of the process and judgements made in reaching this conclusion is
set in the Basis of Preparation set out below.
Divisional performance
We set out below more detail on the trading during FY23 and since year end
within each division of the business.
Authentication
In FY23, the Authentication division produced an adjusted operating profit of
£14.3m (FY22: £16.3m) on revenue of £91.7m (FY22: £90.3m).
In FY23, the division benefited from significant revenue from the contract to
supply ID data pages for the new Australian passport. The division also
onboarded new GRS schemes in Bahrain, Oman and Qatar, with all three schemes
generating revenue from the first half of FY23.
With these three latest schemes on board, De La Rue now runs Framework
Convention for Tobacco Control (FCTC) compliant schemes across all countries
that have implemented a scheme in the Gulf Cooperation Council ('GCC') area
(totalling five out of the six countries in the bloc), a 100% win rate. Our
other Government Revenue Solutions contracts performed as expected.
In the Brand segment our business with Microsoft was impacted by the fall in
PC sales globally, with International Data Corporation (IDC) noting a 16.5%
year on year fall in PC demand/shipments in 2022, and a 29% drop in the first
calendar quarter of 2023, compared to the same quarter in 2022.
Adjusted operating profit was impacted by sales mix, and the division also
attracted a greater proportion of central overheads, having generated a
greater proportion of Group revenue in the year.
The arrival of Dave Sharratt as the Managing Director, Authentication in
September 2022 has reinvigorated and refocused marketing and sales efforts
within the division. The immediate focus in GRS is now on expanding the
offering in territories where we already have arrangements in place, to cover
other excisable goods, with e-cigarettes, sweetened juices, mobile phones and
beauty products all being discussed as additional product types. Three GCC
countries have already committed to cover soft drinks. In addition, we have
recently secured multi-year GRS contract renewals with countries across Europe
and Africa, securing our existing revenue for future years.
Within GRS, the World Health Organization has been pushing signatories of
their FCTC for compliance by the promised dates (for example at the Meeting of
the Parties in October 2022). Linked to this, our level of pre-sales activity
is increasing: we are in direct conversation with multiple countries in our
focus regions of Africa and the Middle East who have expressed an intention to
tender for Digital Tax Stamp solutions within the next 18 months. Our win rate
for tenders in this space since 2020 is over 50%.
In Brand protection we are targeting expansion of the customer base, with
investment in the sales force and implementation of a partner model to boost
opportunities. This approach is already bearing fruit, with three-year
contracts recently agreed with a multinational pharmaceutical company and a
wholesale parts manufacturer. A strong pipeline of further opportunities is
being explored.
Our ID business secured a significant boost during FY23 when we agreed an
extension to the contract to manufacture data pages for Australian passports
from five to 10 years, out to 2032, building on our success to date in
fulfilling the needs of the Australian Passport Office ("APO").
Based on that commitment, we have invested in a second line to produce
polycarbonate data pages for ID documents in Malta. This is now fully
operational, with available capacity initially earmarked to allow the APO to
build up buffer stocks.
The commissioning of the ID data page second line is the first
fully-implemented part of our Malta expansion. The remaining expansion for the
Authentication division will considerably increase our capacity for printing
tax stamps and is expected to be fully operational by the second half of FY24.
Our software capabilities, with our DLR Certify(TM) and Traceology® systems
allow end-to-end track and tracing of De La Rue authenticated products. These
form a significant part of our Authentication offering. Shortly after Dave
Sharratt joined De La Rue, he requested a thorough review of our software
development operation. Following this review we have mothballed two projects,
resulting in a £2.9m exceptional write down. However, this has allowed our
team to focus on the core business and our strategic direction allows
concentration on the areas that give us the greatest future return.
Currency
The Currency division in FY23 saw revenues fall to £254.6m (FY22: £280.9m)
and saw an adjusted operating profit of £13.6m (FY22: £19.5m).
Currency was impacted by the downturn in activity in the wake of the Covid
pandemic when central banks stocked up with currency, and subsequently the
global economic slowdown. This is an industry-wide trend, as evidenced by
recent public statements made by a number of competitor companies. This is
also evidenced by our win rate on bids, which remains at the same high level
as it has been since we implemented the initial changes back in FY20 and FY21.
The amount of cash in circulation continues to rise, growing 5.3% between 2021
and 2022, indicating that central banks have been working down the banknote
inventory buffer they built in response to the Covid pandemic.
We entered FY24 with the total order book at £153.6m (25 March 2022:
£170.8m) and the 12-month order book at £136.3m (25 March 2022: £163.5m).
There are now encouraging signs that the market is recovering, with strong bid
activity, a continuing positive win rate, and the substantial majority of FY24
banknote print orders already awarded. These include recent wins, especially
in Africa, the Middle East and Asia, that have been received since the end of
FY23.
In 2020 we made a clear pledge to transform Currency, so that it is profitable
on an adjusted operating profit basis even in downturns. While it is
accepted that Currency has fallen short of expectations in recent times, the
results of this division bear out that pledge. In FY20, the Currency
division demonstrated an adjusted operating loss of £9.4m. In the three
subsequent years, FY21 to FY23, the division's adjusted operating profits have
been £16.2m, £19.5m and £13.6m respectively. This includes the severe
downturn in FY23, from which the market is beginning to recover. De La Rue has
significantly enhanced its competitiveness, refining its manufacturing
footprint and cost base, and is well positioned for when the market returns.
The termination of the long-term supply agreement for banknote paper with
Portals in July 2022, eliminating £119m in commitments for a cash payment of
£16.7m, represented a further step in our transformation. We give more detail
on this, and progress on paper tendering, below. The recently completed wind
down of the Kenyan facility further right-sizes our manufacturing facilities,
focusing on those with the greatest capability, while maintaining De La Rue's
position as the number 1 commercial printer of banknotes worldwide.
The expansion of our Malta site, where our new Currency operations will
progressively come online from the first half of FY25, further refines that
operational flexibility.
Cost base
We made substantial progress during the year in limiting supply chain
headwinds, in a period which saw a step change in global rates of inflation.
We used a combination of dual sourcing, tendering and robust negotiation to
maintain a competitive raw material price base. Our UK energy costs are fixed
to at least September 2024, providing us with a good degree of forward cost
visibility.
The termination of the contract with Portals Paper to supply banknote paper in
July 2022 marked another step in our journey to resolve the legacy issues that
have impacted the efficiency of the business. We have since qualified multiple
additional suppliers and validated the predicted future cost savings.
Kenya
As referenced above, in January 2023, the Group determined that, owing to
current market demand, and no expectation of new banknote orders from the
Central Bank of Kenya for a considerable period, De La Rue Kenya (a joint
venture with the Government of Kenya) would suspend banknote printing
operations in the country. Furthermore, operations in our Authentication
division in Kenya have been wound down.
As a result of the review of the business in Kenya, an exceptional charge of
£12.6m (FY22: £nil) was made in FY23. This included redundancy charges of
£5.5m, property, plant and equipment asset impairments of £4.9m, and
inventory impairments of £2.0m.
Malta
The substantial expansion to our Malta facility is progressing well. An
additional line producing ID data pages is now fully operational and the
remaining additional Authentication space should be completed in the second
half of FY24. The Currency facilities, including a new vault, should be ready
in FY25.
When complete, the new facilities will substantially increase our capacity
within Authentication and add significantly to our Currency capabilities
within Malta.
Outlook
As noted above, despite the low order book going into FY24, there are
encouraging signs that the Currency market is recovering. We expect revenue in
the Authentication division to exceed £100m for the first time in FY24,
driven by existing contracts, including the full year impact of the Qatar,
Bahrain and Oman GRS programmes, and a substantial increase in demand from the
Australian passport programme.
On 12 April 2023, De La Rue announced that the Board expected full year
adjusted operating profit for FY24 to be in the low £20m range. Trading for
the first two months of FY24 has been in line with this and it remains the
Board's expectation for the full year, albeit with H1 being broadly break-even
at Group level due to the timing of the recovery in Currency orders.
Over the last three years, we have taken decisive steps to restructure the
business, driving efficiencies and innovation, and reducing costs. In FY24,
we are continuing this journey, including making the final payment for the
Portals exit, thereby finally closing out another major legacy issue. This
year, we expect net debt to rise to around £100m by both the half year and
the year end.
Conclusion
I would like to express my thanks to my colleagues throughout the Group, who
have remained focused and resilient through significant changes in the
business, and through a historically low demand period in Currency. As we go
forward, we will redouble our efforts to develop the Company, with a strong
operational plan, now underpinned by the amendment to the banking arrangement,
a deferral of immediate pension contributions, and a going concern assessment
that has not identified any 'material uncertainty'.
FY23 has been a challenging year for the Company and its stakeholders. We
remain resolute in our determination to build on the ongoing transformation
actions and create a positive future.
Clive Vacher
Chief Executive Officer
Financial review
In FY23 we contended with reduced revenue, an adverse sales mix and
inflationary headwinds. We have worked hard to implement cost savings which
have helped to mitigate this impact.
To provide increased insight into the underlying performance of our business,
we have reported revenue, gross profit and operating profit on an IFRS and
adjusted basis, together with adjusted EBITDA and adjusted controllable
operating profit (adjusted operating profit before enabling function cost
allocation), for both ongoing operating divisions.
Over 99% of Group revenue for FY23 of £349.7m (FY22: £375.1m) originated
from our ongoing operating divisions of Currency and Authentication.
Together Currency and Authentication delivered adjusted operating profit of
£27.9m (FY22: £35.8m), a fall of £7.9m year-on-year. This largely reflects
lower revenue from the Currency division, adverse mix and a slight increase in
operating expenses. Identity Solutions generated an adjusted operating loss of
just £0.1m in the current financial year with minimal remaining activity
(FY22: £0.6m profit).
Authentication
FY23 FY22 Change
£m £m
Revenue 91.7 90.3 +1.6%
Gross profit 34.0 34.5 -1.4%
Adjusted controllable operating profit* 23.0 23.7 -3.0%
Adjusted operating profit* 14.3 16.3 -12.3%
Operating profit 5.4 15.1 -64.2%
% %
Gross profit margin 37.1 38.2 110bps
Adjusted controllable operating profit margin* 25.1 26.2 110bps
Adjusted operating profit margin* 15.6 18.1 250bps
*Non-IFRS measure
Our Authentication division protects revenues and reputations through the
provision of physical and digital solutions to governments and commercial
organisations. We also manufacture ID security components.
During FY23 our existing Government Revenue Solutions contracts have performed
as expected and revenue benefited from contracts in Bahrain, Oman and Qatar
coming on-stream during the year. This was offset by the HMRC contract ending
as expected in the first quarter.
In addition, our ID business has grown strongly with our contract with Note
Printing Australia (NPA) meeting scheduled volumes during FY23, securing
sufficient semi-conductors despite general supply shortages of these
components. The NPA contract reached full production volumes shortly after the
year end on the newly commissioned additional production line in Malta.
In contrast, our Brand business saw lower than expected sales, with Microsoft
particularly impacted during the year by the fall in PC sales globally, with
International Data Corporation (IDC), a well-respected industry observer,
noting a 16.5% year-on-year fall in PC demand/ shipments in 2022, and a 29%
drop in the first calendar quarter of 2023, compared to the same quarter in
2022.
The supply of Covid-19 vaccine brand protection seals, strong in FY22, also
fell away due to a change in strategic focus by the customer.
Overall, these movements led to revenue for the year of £91.7m (FY22:
£90.3m), a slight increase over last year.
Gross profit fell slightly in both absolute and margin terms with gross profit
margin falling by 110 basis points to 37.1% (FY22: 38.2%), impacted by sales
mix despite careful cost control.
Adjusted operating profit in Authentication fell 12.3% to £14.3m (FY22:
£16.3m), mostly driven by a less profitable mix of sales this year, a rise in
depreciation on capitalised software development costs and a greater
proportion of enabling costs being allocated to the Authentication division,
given the higher percentage of revenue it contributed to the overall business.
Adjusted profit before controllable costs also fell slightly, down 3.0% to
£23.0m (FY22: £23.7m), hit by an adverse sales mix. On an IFRS basis,
operating profit of £5.4m (FY22: £15.1m) was impacted by lower underlying
profits and exceptional costs, relating to asset impairment and restructuring
costs, that were £7.7m higher than prior year.
Currency
FY23 FY22 Change
£m £m
Revenue 254.6 280.9 -9.4%
Gross profit 58.2 63.2 -7.9%
Adjusted controllable operating profit* 37.6 42.5 -11.5%
Adjusted operating profit* 13.6 19.5 -30.3%
Operating (loss)/profit (24.8) 15.0 n/a
% %
Gross profit margin 22.9 22.5 +40bps
Adjusted controllable operating profit margin* 14.8 15.1 -30bps
Adjusted operating profit margin* 5.3 6.9 -160bps
*Non-IFRS measure
De La Rue's Currency division provides market-leading end-to-end currency
solutions, from finished banknotes to secure polymer substrate and banknote
security features to over half the central banks and issuing authorities
around the world.
Revenue of £254.6m in FY23 (FY22: £280.9m) for the Currency division was
down 9.4% on the previous year. The fall in revenue was mostly due to lower
banknote volumes, with a fall in polymer substrate volumes seen as well.
The post Covid-19 lull in demand, exacerbated and extended by global
macroeconomic uncertainty, continued throughout FY23. It is evident that this
slowdown has been experienced across the Currency manufacturing industry, as
several of our competitors in this area have commented publicly that they have
seen similar declines. We believe much of this is linked to banknote inventory
movements by central banks following the Covid-19 pandemic. Volumes of
banknotes in circulation continue to increase.
The demand for banknotes has recently been at low levels. As at 25 March 2023,
the De La Rue Currency division's total order book stood at £136.8m (26 March
2022: £170.8m), a lower level at this time of year than in any of the last
five years. The 12-month order book as at 25 March 2023 stood at £131.7m (26
March 2022: £163.5m).
There are encouraging signs that the market is recovering, with a number of
substantial new tenders underway since the year end, but the timing of this
recovery remains uncertain. As of 16 June 2023, we had secured the substantial
majority of the planned FY24 revenue.
Strong cost control and operational efficiency, together with the benefits of
the Portals agreement termination, meant that the gross profit margin rose
slightly to 22.9% (FY22: 22.5%), though, given the fall in revenue, gross
profit fell 7.9% in absolute terms to £58.2m (FY22: £63.2m).
Adjusted operating profit in the Currency division fell 30.3% to £13.6m
(FY22: £19.5m), impacted mostly by the fall in revenue but also partly by the
rise in enabling function costs in absolute terms, despite a smaller
proportion of those overall costs being allocated to the division. Further
detail about enabling function costs is given below.
On an IFRS basis, the division moved into an operating loss of £24.8m (FY22:
profit of £15.0m) with £38.4m of exceptional costs attributed to the
division (FY22: £4.5m), comprising £17.0m of costs relating to the
termination of the agreement with Portals Paper, £8.5m of credit loss
provision on Portals loan notes and £12.9m of restructuring and relocation
costs.
Putting aside the impact of exceptional items and the divisional allocation of
costs incurred centrally by enabling functions, discussed below, we also saw a
slight fall in adjusted controllable operating profit to £37.6m (FY22:
£42.5m) driven by the fall in revenue, though amid a background of cost
inflation, controllable operating profit margin fell only slightly to 14.8%
(FY22: 15.1%).
Identity solutions
As noted above, the legacy Identity Solutions business saw minimal activity in
FY23 with an operating loss of just £0.1m (FY22: operating profit of £0.6m).
Enabling function costs
In FY23 enabling function costs of £32.7m (FY22: £30.4m) rose by 7.6% and
represented 9.4% of Group revenue (FY22: 8.1%). The rise in enabling function
costs came from the non-recurrence of various credits received last year, a
reclassification of entity costs previously deemed discontinued, IBRN
(incurred but not recorded) insurance claims covering the risk that a claim
maybe made in the future related to cyber security and audit fee increases.
Exceptional items
Exceptional items during the period constituted a net charge of £47.1m (FY22:
£5.7m) before tax.
Exceptional charges included:
- £17.0m (FY22: £nil) relating to the payments agreed to terminate the
long-term supply agreement with Portals Paper as noted above and explained in
the first half results.
- £12.6m (FY22: £nil) in relation to redundancy charges and asset
impairments associated with the wind down of activity in our Kenyan
operations. Of this, £6.9m relates to fixed asset and inventory impairments
which are non-cash items.
- £2.9m (FY22: £nil) impairment of capitalised product development costs
within Authentication in relation to two programmes on which work was
mothballed during FY23.
- £1.4m (FY22: £nil) impairment of software assets relating to the
Currency where future revenue relating to these assets are minimal.
- £4.2m (FY22: £1.8m) of other site relocation and restructuring expenses
incurred in connection with cost out initiatives designed to right-size both
divisions for future operations.
- £8.5m (FY22: £3.1m) recognition of credit loss provision on other
financial assets. Other financial assets comprise securities held in the
Portals International Limited group which were received as part of the
consideration for the paper disposal in 2018, together with accrued interest.
In accordance with IFRS 9, management has assessed the recoverability of the
carrying value of these financial assets and recorded an expected credit loss
provision of £8.5m in exceptional items. The net amount remaining on the
balance sheet for other financial assets was £nil (FY22: £7.4m). This
provision will not impact our efforts to work with the Portals Group companies
to recover these investments.
- £0.5m (FY22: £0.4m) in relation to legal fees incurred on rectification of
certain discrepancies identified in the pension Scheme rules net of amounts
recovered.
Tax related to exceptional items amounted to £5.1m (FY22: tax credit of
£1.8m). As well as the tax impact of the items detailed above, it included
£4.0m (FY22: £1.5m) of charge related to the derecognition of a deferred tax
asset relating to the pension scheme and £6.1m (FY22: nil) relating to the
expected utilisation of tax credits in Malta, which are expected to be
surrendered for capital grants against future capital expenditure there.
The policy for exceptional items described in the Annual Report and Accounts
is used when calculating our financial covenants as agreed with our lenders.
Finance charge
The Group's net interest charge was £9.3m (FY22: £5.5m). This included
interest income of £1.2m (FY22: £0.9m), interest expense of £11.6m (FY22:
£6.2m) and retirement benefit finance income of £1.1m (FY22: expense of
£0.2m).
Interest income of £1.2m (FY22: £0.9m) included interest accrued on loan
notes and preference shares held in the Portals International Limited Group of
£1.1m (FY22: £0.8m). Interest received on loan notes and preference shares
is excluded from the Group's covenant calculations.
Interest expense included interest on bank loans of £7.2m (FY22: £3.1m),
interest on lease liabilities of £0.5m (FY22: £0.6m), net charges relating
to the November 2022 debt modification of £0.7m (FY22: £nil) and other
including amortisation of finance arrangement fees of £3.2m (FY22: £2.5m).
The increase in bank loan interest paid in FY23 was largely attributable to
the rises in Bank of England base rates which moved from 0.75% to 4.25% over
the period and now stand at 5.0%.
The IAS 19 related finance cost, which represents the difference between the
interest on pension liabilities and assets, was a credit of £1.1m (FY22:
£0.2m charge). The credit in the year was due to the opening IAS 19 pension
valuation in being a surplus of £29.8m.
The net charges relating to the debt modification of £0.7m (FY22: £nil)
relate to a loss in carrying value of the banking facilities incurred when
they were modified in November 2022, net of the amortisation of this loss over
the period. The transaction costs will be amortised over the period of the
loan.
Taxation
The effective tax rate on continuing operations before exceptional items and
the amortisation of acquired intangibles was 123.2% (FY22: 11.0%). This
includes the impact of provisions against deferred tax asset balances, changes
in uncertain tax provisions and the impact of tax rate changes in Sri Lanka;
the underlying effective tax rate excluding these items was 24.9%
(FY22:19.4%).
Including the impact of exceptional items and the amortisation of acquired
intangibles, the total tax charge in the consolidated income statement for the
year was £27.6m (FY22: £1.4m).
The net tax charge relating to exceptional items in the period was £5.1m
(FY22: tax credit £1.8m). A tax credit of £0.3m (FY22: tax credit £0.3m)
was recorded in respect of the amortisation of acquired intangibles.
The Group paid tax of £1.0m in FY23 (FY22: £1.8m).
The underlying effective tax rate for FY24 on continuing operations before
exceptional items and amortisation of acquired intangibles is expected to be
between 70-80%. This appears disproportionately high due to the impact of
expected corporate interest restrictions in the UK.
Earnings per share
The basic weighted average number of shares for earnings per share ('EPS')
purposes was 195.4m (FY22: £195.2m).
Adjusted basic loss per share was 1.5p (FY22: EPS of 13.0p), reflecting the
fall in adjusted basic earnings. IFRS basic loss per share from continuing
operations was 28.6p (FY22: EPS of 10.6p) reflecting a basic loss of £55.9m
(FY22: earnings of £20.7m).
Cash flow and borrowing
Cash flow from operating activities was a net cash inflow of £23.8m (FY22:
£16.5m inflow), generated after taking into account:
- £29.6m loss before tax (FY22: £25.1m profit)
- £9.3m of net finance expense (FY22: £5.5m)
- £20.0m of depreciation and amortisation (FY22: £18.6m)
- £18.3m net working capital inflow (FY22: £17.2m outflow). This
included:
o £0.5m decrease in inventory (FY22: decrease £3.4m);
o £6.0m decrease in trade and other receivable and contract assets (FY22:
decrease £22.6m) mainly due to timing of cash collections on certain material
customer contracts; and
o £11.8m increase in trade and other payables and contract liabilities
(FY22: £43.2m decrease), including the final settlement payment of £7.5m
relating to Portals Paper being accrued at year end but not paid until April
2023.
- £16.5m of pension fund contributions of (FY22: £16.4m) including
amounts related to administrative costs of running the scheme
- £13.9m of non-cash provisions within exceptional items (FY22:
£3.0m), namely £5.4m (FY22: £0.1m credit) of asset impairments and £8.5m
(FY22: £3.1m) of credit loss provision on Portals loan notes
The cash outflow from investing activities was £20.8m (FY22: £25.8m) driven
by capital expenditure of £21.4m (FY22: £26.9m) as the Turnaround Plan
investment nears completion and we continue to invest in the capabilities of
our software-based products. Capital expenditure is stated after cash receipt
from grants received of £4.2m (FY22: £1.5m), largely relating to the
construction of our expanded facility in Malta.
The cash inflow from financing activities was £12.6m (FY22: £7.7m),
including £27.0m net draw down of borrowing (FY22: draw down of £17.0m),
£10.3m (FY22: £6.2m) of interest payments and £2.4m (FY22: £2.2m) of IFRS
16 lease liability payments. Debt issue costs of £0.9m (FY22: £nil) were
also paid on the amendment and extension of the banking facilities agreed in
November 2022.
As a result of the cash flow items referred to, Group net debt increased from
£71.4m at 26 March 2022 to £83.1m at 25 March 2023.
The Group had Bank facilities of £275.0m including a Revolving Credit
Facility (RCF) cash drawdown component of up to £175.0m and bond and
guarantee facilities of a minimum of £100.0m, with a maturity date of 1
January 2025 following an extension signed in November 2022.
The £100m of bond and guarantee facilities provided guarantees or bonds to
participate in tenders and function as back up to contracts, where the
customers require a guarantee as part of their procurement process. In
addition, the facilities underpin some advance payments from customers. The
Group considers the provision of such bonds to be in its ordinary course of
business.
At year end the RCF cash component stood at £175.0m and the bond and
guarantee component stood at £100.0m.
As at 25 March 2023, the Group, as part of the £175.0m RCF cash component,
has a total of undrawn committed borrowing facilities, all maturing in more
than one year, of £53.0m (26 March 2022: £55.0m in more than one year). The
amount of loans drawn at 25 March 2023 on the £175.0m RCF cash component was
£122.0m (26 March 2022: £95.0m). As at 25 March 2023 guarantees of £52.1m
(26 March 2022: £55.6m) were used from the £100.0m guarantee facility. The
accrued interest in relation to cash drawdowns outstanding at 25 March 2023
was £0.3m (26 March 2022: £nil).
During FY23 the financial covenants required that the ratio of EBIT to net
interest payable will not be less than three times and the net debt to EBITDA
ratio will not exceed three times. At the period end the specific covenant
tests were as follows: EBIT/net interest payable of 3.03 times, net
debt/EBITDA of 2.21 times. The covenant tests use earlier accounting standards
and exclude adjustments including IFRS 16.
On 29 June 2023 the Group reached agreement with its lenders to significantly
relax its financial covenants as outlined in the 'CEO review' above. In
addition to amending the interest cover and net leverage ratio, the Company
has also agreed to maintain a minimum liquidity ratio of £25m. The minimum
liquidity ratio is defined as available cash and the undrawn portion of the
available RCF. The ratio is tested monthly but on a weekly basis covering a
13-week historic, actuals and a 13-week forward basis, effective from I July
2023. The Group must ensure liquidity must not drop below the £25m level in
any two week consecutive period either looking historically or forward.
Furthermore, the Group has granted fixed and floating security over certain
material assets of the Group and has cancelled £25.0m of the £100.0m bond
and guarantee line. The Group now has access to £75.0m of bond and guarantee
lines.
Pension scheme
As well as focusing on operational performance, the Group continues to look
proactively to minimise future cash outflows, particularly in the immediate
future .
To conserve cash, we have agreed with the Pension Scheme Trustee to defer
£18.75m of deficit reduction contributions. We will defer our deficit
reduction contributions of £3.75m per quarter from that due on 5 April 2023,
up to and including the payment that was due on 5 April 2024, less an amount
equivalent to the arrangement fee agreed with our lenders on the covenant
package, due on or after 5 April 2024. During the second quarter of FY25,
deficit reduction contributions will recommence at the rate of £3.75m per
quarter. 'Catch up' payments, to put the Scheme in funds for the sum deferred,
will start from July 2025 and will continue through FY26 to FY29.
In order to preserve and support the position of the scheme, with the support
of the lenders, the scheme will be provided with security on a pari passu
basis together with the lenders, as well as an enhanced information sharing
protocol to ensure ongoing communication between the Group and the Trustee
remains comprehensive.
On 24 May 2022, the Trustees of the Main Scheme entered into a partial
pensioner buy-in contract for a proportion of pension members. In return for a
premium paid from the Scheme's assets, from the date of the buy-in, payments
will be made to the Scheme that match the benefit payments to those Scheme
members covered under the buy-in contract. The premium paid to the insurer was
£319.0m. As at 25 March 2023, the value of the buy-in contract was £220.6m.
The impact of the partial pensioner buy-in has been recognised as a loss on
the scheme assets within the comprehensive statement of income. This buy-in
reduces the overall future volatility of the pension fund by fixing the
liabilities of a subset of pensioners.
The valuation of the Group's UK defined benefit pension scheme (the "Scheme")
on an IAS 19 basis at 25 March 2023 is a net liability of £51.3m (26 March
2022: net surplus £31.6m). The movement in the IAS 19 valuation from a net
surplus at 26 March 2022 was mainly as a result of losses on assets, as well
as inflation experience on liabilities (due to actual inflation being higher
than assumed). This was partially offset by gains on the Scheme's liabilities
as a result of changes to the actuarial assumption - the discount rate
assumption increased from 2.85% to 4.70% - and changes to the mortality
assumption resulting in lower expectations on future life expectancy of
members.
The charge to adjusted operating profit in respect of the Scheme in the period
was £1.6m (FY22: £1.8m). Under IAS 19 there was a finance credit of £1.1m
(FY22: £0.2m charge) arising from the difference between the interest cost on
liabilities and the interest income on scheme assets.
Capital structure
At 25 March 2023 the Group had net assets of £35.0m (26 March 2022:
£161.8m).
The movement year-on-year included:
FY23 FY22
£m £m
Opening net assets 161.8 111.4
(Loss)/Profit for the year (57.2) 23.7
Remeasurement (loss)/gain on retirement benefit obligations (100.3) 35.7
Tax related to remeasurement of net defined benefit liability 24.2 (8.8)
Other movements in other comprehensive income 5.5 (0.9)
Employee share scheme charges 1.9 1.7
Other (0.9) (1.0)
Closing net assets 35.0 161.8
DIRECTORS' REPORT
Principal risks and uncertainties
Throughout its global operations De La Rue faces various risks, both internal
and external, which could have a material impact on the Group's performance.
The Group manages the risks inherent in its operations in order to mitigate
exposure to all forms of risks, where practical, and to transfer risk to
insurers where applicable.
The Group analyses the risks that it faces under the following broad headings:
strategic risks (technological revolution, strategy implementation, changes to
the market environment and economic conditions), operational risks,
legal/regulatory, information risks and financial risks (currency risk, credit
risk, liquidity risk, interest rate risk and commodity price risk).
The principal risks and uncertainties are reviewed at least quarterly and
updated. Currently they include:
· bribery and corruption;
· quality management and delivery failure;
· macroeconomic and geopolitical environment;
· loss of key site or process;
· sustainability and climate change;
· loss of key talent;
· breach of information security;
· supply chain failure;
· breach of security - product security;
· failure of a key supplier to deliver;
· sanctions; and
· banking facilities.
Full details of the above risk will be included in the FY23 Annual Report and
Accounts.
Going Concern
Please refer to the financial statements section "2. Basis of preparation and
accounting policies.
A copy of the 2022 Annual Report is available at www.delarue.com or on request
from the Company's registered office at De La Rue House, Jays Close, Viables,
Basingstoke, Hampshire, RG22 4BS.
Related Party Transactions
Details of the related party transactions that have taken place in the year
are provided in note 28 to the Financial Statements. None of these have
materially affected the financial position or the performance of the Group
during that period, and there have been no changes during FY23 in the related
party transactions described in the FY22 annual report that could materially
affect the financial position or performance of the Group.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge:
• The preliminary financial information, which has been
prepared in accordance with UK-adopted international accounting standards,
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company on a consolidated and individual basis; and
• The preliminary announcement includes a fair summary of
the development and performance of the business and the position of the
Company on a consolidated and individual basis, together with a description of
the principal risks that it faces.
The Board of Directors of De La Rue plc at 26 March 2022 and their respective
responsibilities can be found on pages 52 and 53 of the De La Rue plc Annual
Report 2022. There have been the following changes since that date:
· Resignation of Maria de Cunha
· Resignation of Kevin Loosemore
· Resignation of Catherine Ashton
· Appointment of Mark Hoad
· Appointment of Clive Whiley
· Appointment of Dean Moore
For and on behalf of the Board
Clive Whiley
Chairman
Consolidated income statement - for the period ended 25 March 2023
Notes 2023 2022
£m £m
Revenue from customer contracts 3 349.7 375.1
Cost of sales (257.6) (277.5)
Gross Profit 92.1 97.6
Adjusted operating expenses (64.3) (61.2)
Adjusted operating profit 27.8 36.4
Adjusted Items(1):
Amortisation of acquired intangibles (1.0) (1.0)
Net exceptional items - expected credit loss 4 (8.5) (3.1)
Net exceptional items - other 4 (38.6) (2.6)
Net exceptional items - Total 4 (47.1) (5.7)
Operating (loss)/profit (20.3) 29.7
Interest income 1.2 0.9
Interest expense (11.6) (6.2)
Net retirement benefit obligation finance income/(expense) 1.1 (0.2)
Net finance expense (9.3) (5.5)
(Loss)/Profit before taxation from continuing operations (29.6) 24.2
Taxation 5 (27.6) (1.3)
(Loss)/Profit for the year from continuing operations (57.2) 22.9
Profit from discontinued operations - 0.8
(Loss)/Profit for the year (57.2) 23.7
Attributable to:
Owners of the parent (55.9) 21.5
Non-controlling interests 13 (1.3) 2.2
(Loss)/Profit for the year (57.2) 23.7
Earnings per ordinary share
Basic 6
Basic EPS continuing operations (28.6)p 10.6p
Basic EPS discontinued operations - 0.4p
Total Basic EPS (28.6)p 11.0p
Diluted 6
Diluted EPS continuing operations (28.6)p 10.5p
Diluted EPS discontinued operations - 0.4p
Total Diluted EPS (28.6)p 10.9p
Note: (1) For adjusting Items, the cash flow Impact of exceptional Items can
be found in note 4 and there was no cash flow impact for the amortisation of
acquired Intangible assets.
Consolidated statement of comprehensive income
for the period ended 25 March 2023
Notes 2023 2022
£m £m
(Loss)/Profit for the year (57.2) 23.7
Other comprehensive income
Items that are not reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on retirement benefit obligations 10 (100.3) 35.7
Tax related to remeasurement of net defined benefit liability 24.2 (8.8)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations 5.0 (1.5)
Foreign currency translation differences for foreign operations - - 0.1
non-controlling interests
Change in fair value of cash flow hedges (1.0) (0.6)
Change in fair value of cash flow hedges transferred to profit or loss 1.7 0.8
Tax related to cash flow hedge movements (0.1) 0.1
Tax related to components of other comprehensive income (0.1) 0.2
Other comprehensive (loss)/income for the year, net of tax (70.6) 26.0
Total comprehensive (loss)/income for the year (127.8) 49.7
Comprehensive income for the year attributable to:
Equity shareholders of the Company (126.5) 47.4
Non-controlling interests (1.3) 2.3
(127.8) 49.7
Consolidated balance sheet
at 25 March 2023
- Notes 2023 2022
£m £m
ASSETS
Non-current assets
Property, plant and equipment 97.1 102.7
Intangible assets 39.3 37.5
Right-of-use assets 12.1 12.9
Long-term pension assets 10 - 31.6
Other financial assets 7 - 7.4
Deferred tax assets 18.3 11.2
Derivative financial assets - 0.1
166.8 203.4
Current assets
Inventories 49.3 50.1
Trade and other receivables 70.7 89.0
Contract assets 18.9 8.0
Current tax assets 0.2 0.4
Derivative financial assets 2.4 3.3
Cash and cash equivalents 9 40.3 24.3
181.8 175.1
Total assets 348.6 378.5
LIABILITIES
Current liabilities
Trade and other payables (92.1) (80.0)
Current tax liabilities (23.2) (13.9)
Derivative financial liabilities (1.9) (4.8)
Lease liabilities (3.0) (2.7)
Provisions for liabilities and charges (6.0) (5.9)
(126.2) (107.3)
Non-current liabilities
Borrowings 9 (118.4) (92.6)
Retirement benefit obligations 10 (54.7) (1.8)
Deferred tax liabilities (2.8) (2.4)
Lease liabilities (10.3) (11.5)
Other non-current liabilities (1.2) (1.1)
(187.4) (109.4)
Total liabilities (313.6) (216.7)
Net assets 35.0 161.8
Consolidated balance sheet
at 25 March 2023
Notes 2023 2022
£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 0.1 (0.5)
Cumulative translation adjustment 9.2 4.2
Other reserve (83.8) (31.9)
Retained earnings (43.3) 35.1
Total equity attributable to shareholders of the Company 19.1 143.8
Non-controlling interests 13 15.9 18.0
Total equity 35.0 161.8
Approved by the Board on 29 June 2023.
Clive Vacher
Rob Harding
Chief Executive Officer Chief
Financial Officer
Registered number: 3834125
Consolidated statement of changes in equity
for the period ended 25 March 2023
Attributable to Non-controlling 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 27 March 2021 88.8 42.2 5.9 (0.8) 5.7 (31.9) (14.9) 16.4 111.4
Profit for the year - - - - - - 21.5 2.2 23.7
Other comprehensive income for the year, net of tax - - - 0.3 (1.5) - 27.1 0.1 26.0
Total comprehensive income for the year - - - 0.3 (1.5) - 48.6 2.3 49.7
Transactions with owners of the Company recognised directly in equity:
Share capital issued - - - - - - - 0.2 0.2
Employee share scheme:
- value of services provided - - - - - - 1.7 - 1.7
Tax on income and expenses recognised directly in equity - - - - - - (0.3) - (0.3)
Dividends paid - - - - - - - (0.9) (0.9)
Balance at 26 March 2022 88.8 42.2 5.9 (0.5) 4.2 (31.9) 35.1 18.0 161.8
Loss for the year - - - - - - (55.9) (1.3) (57.2)
Other comprehensive income for the year, net of tax - - - 0.6 5.0 - (76.2) - (70.6)
Total comprehensive income for the year - - - 0.6 5.0 - (132.1) (1.3) (127.8)
Reclassification between reserves - - - - - (51.9) 51.9 - -
Transactions with Owners of the Company recognised directly in equity:
Share Capital issued - - - - - - - - -
Employee share Scheme - - - - - - 1.9 - 1.9
- value of service provided
Tax on income and expenses recognised directly in equity - - - - - - (0.5) - (0.5)
Dividends paid - - - - - - - (0.8) (0.8)
Other - unclaimed dividends - - - - - - 0.4 - 0.4
Balance at 25 March 2023 88.8 42.2 5.9 0.1 9.2 (83.8) (43.3) 15.9 35.0
Notes:
Share premium account - This reserve arises from the issuance of shares for
consideration in excess of their nominal value.
Capital redemption reserve - This reserve represents the nominal value of
shares redeemed by the Company.
Hedge reserve - This reserve records the portion of any gain or loss on
hedging instruments that are determined to be effective cash flow hedges. When
the hedged transaction occurs, the gain or loss on the hedging instrument is
transferred out of equity to the income statement. If a forecast transaction
is no longer expected to occur, the gain or loss on the related hedging
instrument previously recognised in equity is transferred to the income
statement.
Cumulative translation adjustment (CTA) - This reserve records cumulative
exchange differences arising from the translation of the financial statements
of foreign entities since transition to IFRS. Upon disposal of foreign
operations, the related accumulated exchange differences are recycled to the
income statement. This reserve also records the effect of hedging net
investments in foreign operations.
Other reserves - On 1 February 2000, the Company issued and credited as fully
paid 191,646,873 ordinary shares of 25p each and paid cash of £103.7m to
acquire the issued share capital of De La Rue plc (now De La Rue Holdings
Limited), following the approval of a High Court Scheme of Arrangement. In
exchange for every 20 ordinary shares in De La Rue plc, shareholders received
17 ordinary shares plus 920p in cash. The other reserve of £83.8m arose as a
result of this transaction and is a permanent adjustment to the consolidated
financial statements.
On 17 June 2020 the Group announced that it would issue new ordinary shares
via a "cash box" structure to raise gross proceeds of £100m, in order to
provide the Company and its management with operational and financial
flexibility to implement De La Rue's turnaround plan, which was first
announced by the Company earlier in the year. The cashbox completed on 7 July
2020 and consisted of a firm placing, placing and open offer. The Group issued
90.9m new ordinary shares each with a nominal value of 44 152/175p, at a price
of 110p per share (giving gross proceeds of £100m). A "cash box" structure
was used in such a way that merger relief was available under Companies Act
2006, section 612 and thus no share premium needed to be recorded and instead
an 'other reserve' of £51.9m was recorded, increasing other reserves from a
deficit of £83.8m to a deficit of £31.9m. This section applies to shares
which are issued to acquire non-equity shares (such as the Preference Shares)
issued as part of the same arrangement.
The Group recorded share capital equal to the aggregate nominal value of the
ordinary shares issued (£40.8m) and merger reserve equal to the difference
between the total proceeds net of costs and share capital. As the cash
proceeds received by De La Rue plc where loaned via intercompany account to a
subsidiary company to enable a substantial repayment of the RCF, the increase
to other reserves of £51.9m was treated as an unrealised profit. In the
current year the Group recorded an impairment of the intercompany loan. As a
matter of generally accepted accounting practice, a profit previously regarded
as unrealised becomes realised when there is a loss recognised on the
write-down for depreciation, amortisation, diminution in value or impairment
of the related asset. Therefore, on the basis, the £51.9m previously treated
as unrealised within Other Reserves is now treated as a realised amount, and
has therefore been reclassified from "Other Reserves" to "Retained earnings"
as at 25 March 2023.
Consolidated cash flow statement
for the period ended 25 March 2023
2023 2022
£m £m
Cash flows from operating activities
(Loss)/profit before tax - continuing operations (29.6) 24.2
Profit before tax - discontinued operations - 0.9
(29.6) 25.1
Adjustments for:
Finance income and expense 9.3 5.5
Depreciation of property, plant and equipment 12.5 12.0
Depreciation of right-of-use assets 2.2 2.3
Amortisation of intangible assets 5.3 4.3
Gain on sale of property plant and equipment (0.1) (0.5)
Impairment/(impairment reversal) of property, plant and equipment included 5.4 (0.1)
within exceptional items
Impairment of intangible assets included within exceptional items 4.3 -
Share based payment expense 1.9 1.8
Pension Recovery Plan and administration cost payments(1) (16.5) (16.4)
Increase/(decrease) in provisions 0.1 (3.7)
Non-cash credit loss provision - other financial assets 8.5 3.1
Non-cash credit loss provision - other (0.3) (0.2)
Other non-cash movements 3.5 2.3
Cash generated from operations before working capital 6.5 35.5
Changes in working capital:
Decrease in inventory 0.5 3.4
Decrease in trade and other receivables and contract assets 6.0 22.6
Increase/(Decrease) in trade and other payables and contract liabilities 11.8 (43.2)
18.3 (17.2)
Cash generated from operating activities 24.8 18.3
Notes
(1) The £16.5m (FY22: £16.4m) of pension payments includes £15.0m (FY22:
£15.0m) payable under the Recovery Plan, agreed in May 2020, and a further
£1.5m (FY22: £1.4m) relating to payments made by the Group towards the
administration costs of running the scheme.
Consolidated cash flow statement
for the period ended 25 March 2023
2023 2022
£m £m
Cash generated from operating activities 24.8 18.3
Net tax paid (1.0) (1.8)
Net cash flows from operating activities 23.8 16.5
Cash flows from investing activities
Purchase of loan notes - (0.9)
Purchases of property, plant and equipment - gross (15.2) (19.6)
Purchases of property, plant and equipment - grants received 4.2 1.5
Purchases of property, plant and equipment - net(1) (11.0) (18.1)
Purchase of software intangibles and development assets capitalised (10.4) (8.8)
Proceeds from sale of property, plant and equipment 0.4 1.9
Receipt of research and development tax credit - 0.1
Interest received 0.2 -
Net cash flows from investing activities (20.8) (25.8)
Net cash flows before financing activities 3.0 (9.3)
Cash flows from financing activities
Net draw down of borrowings 27.0 17.0
Payment of debt issue costs (0.9) -
Lease liability payments (2.4) (2.2)
Interest paid (10.3) (6.2)
Dividends paid to non-controlling interests (0.8) (0.9)
Net cash flows from financing activities 12.6 7.7
Net increase/(decrease) in cash and cash equivalents in the year 15.6 (1.6)
Cash and cash equivalents at the beginning of the year 24.3 25.7
Exchange rate effects 0.4 0.2
Cash and cash equivalents at the end of the year 40.3 24.3
Cash and cash equivalents consist of:
Cash at bank and in hand 26.5 20.3
Short term deposits 13.8 4.0
40.3 24.3
Notes:
(1 ) Additions to property, plant and equipment in the year
were £11.2m (FY22: £16.5m). Purchases of property, plant and equipment
includes capital expenditure creditors of £0.5m (FY22: £1.6m) and excludes
£0.7m (FY22: £nil) of grants not yet received.
1 General information
De La Rue plc (the Company) is a public limited company incorporated and
domiciled in the United Kingdom, whose shares are publicly traded on the
London Stock Exchange. The registered office is located at De La Rue House,
Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.
De La Rue plc and its subsidiaries (together "Group") has two principal
segments Currency and Authentication. In Currency we design, manufacture and
deliver bank notes, polymer substrate and security features around the world.
In Authentication, we supply products and services to governments and Brands
to assure tax revenues and authenticate goods as genuine. In addition, there
is a third segment, Identity Solutions, which includes minimal non-core
activities.
The financial statements have been prepared as at 25 March 2023, being the
last Saturday in March. The comparatives for the FY22 financial period are for
the period ended 26 March 2022.
The consolidated financial statements of the Company for the period ended 25
March 2023 were authorised for issuance by the board of Directors on 29 June
2023.
2 Basis of preparation and accounting policies
STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared on the going
concern basis and using the historical cost convention, modified for certain
items carried at fair value, as stated in the Group's accounting policies.
The financial information set out above does not constitute the Group's
statutory accounts for the periods ended 25 March 2023 or 26 March 2022.
Statutory accounts for the periods ended 26 March 2022 have been delivered
to the registrar of companies and those for the period ended 25 March 2023
will be delivered in due course. The auditor has reported on the accounts for
the periods ended 25 March 2023 and 26 March 2022. Their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter without qualifying their
report and (iii) did not contain a statement under Section 498(2) or (3) of
the Companies Act 2006.
Refer to the Going Concern Statement below for further details of the
Director's Going Concern Statement.
The consolidated financial statements of the Company for the period ended 25
March 2023 have been prepared in accordance with UK-adopted International
Accounting Standards ('IFRS') in accordance with the requirements of the
Companies Act 2006. IFRS includes standards issued by the International
Accounting Standards Board ('IASB') that are endorsed for use in the UK.
The consolidated financial statements are prepared on a going concern basis
under the historical cost convention with the exception of certain items which
are measured at fair value as disclosed in the accounting policies below.
The preparation of financial statements in accordance with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed below in ' 'V Critical accounting
estimates, assumptions and judgements'.
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below or have been incorporated
with the relevant notes to the accounts where appropriate. These policies have
been consistently applied to all the periods presented, unless otherwise
stated.
CLIMATE CHANGE
In preparing the Consolidated Financial Statements management has considered
the impact of climate change and the actions that the Group will take in order
to fulfill its sustainability strategy and satisfy its commitment to become
carbon neutral from its own operations by 2030. This includes the estimates
around future cash flows used in impairment assessments of the carrying value
of goodwill and intangible assets in De La Rue Authentication Inc,
recoverability of deferred tax assets and the useful economic life of plant
and equipment, especially assets which are power-intensive and expected to be
replaced.
This is within the context of the disclosures included in Strategic Report,
including those made in accordance with the recommendation of the Taskforce on
Climate-related Financial Disclosures this year. These considerations did not
have a material impact on the financial reporting judgements and estimates.
GOING CONCERN
Background and relevant facts
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out earlier in this
document, within the CEO Review. In addition, note 8 below includes the
Group's objectives, policies and processes for financial risk management,
details of its financial instruments and hedging activities and its exposure
to credit risk, liquidity risk and commodity pricing risk. The financial
position of the Group, its cash flows, liquidity position and borrowing
facilities are described within the Financial Review above.
Following the interim results for the period ended 24 September 2022 there has
been a difficult period of trading and rising market interest rates, meaning
the Group forecast that they would breach financial covenants in their going
concern period to 29 June 2024. As a result, they entered into extensive
negotiations with the pension trustee and the Group's banking syndicate. A
deferral letter from the trustee was signed on 28 June 2023 agreeing to
deferral of deficit repair contributions as set out in the paragraph below and
an amended facility agreement for the Group's financing facilities was signed
on 29 June 2023, which includes a relaxation of the financial covenant ratios
along with the introduction of a new minimum liquidity requirement.
Deferral of deficit repair contributions
The Group has successfully concluded negotiations with the Trustee of the De
La Rue Pension Fund to defer £17.5m of the £18.75m of deficit repair
contributions that was targeted in the Group's April trading update.
The Trustee has agreed to defer the Group's deficit repair contributions of
£3.75m per quarter from that due on 5 April 2023 up to and including that
payment that was due on 5 April 2024. From July 2024, deficit repair
contributions will recommence at the previously agreed £3.75m per quarter.
'Catch up' payments for the £18.75m of deferred payments will start from FY26
and will continue through to FY29.
This deferral significantly eases the short term cash flow burden on the
business and has been incorporated into all modelling.
Amended Facility Agreement
Under the amended facility agreement, which was executed by all parties on the
29 June 2023, the Group continues to have access to a revolving credit
facility ('RCF') of £250m that expires on 1st January 2025, which allows the
drawing down of cash up to the level of £175m and the use of bonds and
guarantees up to the level of £75m. The amendment to the debt agreement
reduces the available facility by £25m from £275m to £250m, with the cash
draw-down component remaining unchanged and the use of the bonding and
guarantee lines reduced to £75m from the prior £100m level.
The continued access to these borrowing facilities is subject to quarterly
covenant tests which look back over a rolling 12-month period. In each
covenant test in FY23 the Group has met its covenant ratios on the historical
covenant quarterly levels. At 25 March 2023, EBIT/net interest payable was 3.0
times and Net debt/EBITDA was 2.2 times with net debt of £83.1m and bonding
and guarantees in place totalling £52m. The Group is additionally in
compliance with all covenant requirements at 29 June 2023.
The quarterly covenant levels (which will continue to be tested on a 12-month
rolling basis) have been revised from the first testing period at 1 July 2023
(Q1 FY24). These are now subject to monthly minimum liquidity testing and
quarterly covenant tests from this date. The terms include consideration of
future options for the group, provision of further non-financial deliverables
and milestones that the banks will monitor, and these are fully within
management's control.
From 1 July 2023, the revised financial covenants and spread levels were as
follows:
· EBIT/net interest payable more than or equal to 1.0 times, (3.0
times previously)
· Net debt/EBITDA less than or equal to 4.0 times until the Q4 2024
testing point, reducing to less than or equal to 3.6 times from Q1 FY25
through to the end of the current agreement to 1 January 2025 (3.0 times
previously).
· Minimum Liquidity testing monthly, testing at each weekend point
on a 4-week historical basis and 13 week forward looking basis. The minimum
liquidity is defined as "available cash and undrawn RCF greater than or equal
to £25m", although reduces to £20m if £5m or more of cash collateral is in
place to fulfil guarantee or bonding requirements (new test)
· Increases in spread rates on the leverage ratio as a result of
the relaxation of levels:
Leverage (consolidated net debt to EBITDA) Margin (% per annum)
Greater than 3.5:1 4.35
Greater than 3.0:1 and less than or equal to 3.5:1 4.15
Greater than 2.5:1 and less than or equal to 3.0:1 3.95
In order to determine the appropriate basis of preparation for the financial
statements for the year ended 25 March 2023 the Directors must consider
whether the Group can continue in operational existence for a period until 29
June 2024 taking into account the above liquidity and covenant requirements.
Testing assumptions and headroom level
The Group has prepared and reviewed profit and cash flow forecasts which cover
a period up to 29 June 2024 (Q1 FY25), the going concern period, and this
includes the following quarters: Q1, Q2, Q3, Q4 FY24 & Q1 FY25 as well as
monthly liquidity testing points throughout this period.
Management's assessment is that a period of 12 months to 29 June 2024 is an
appropriate going concern period for the following reasons:
· A 12-month period is consistent with De La Rue modelling and
approach over a number of years, which in prior periods has also included a
facility termination shortly after the going concern period (such as in FY22).
· The Directors have considered events after the end of this
period, including the re-financing requirement for the RCF which is at 1
January 2025, which is considered further below
Base case assumptions and headroom
The base case forecasts over the going concern period have been built taking
into consideration the uncertainty around the timing of the Currency market
recovery. Revenue growth in Authentication to over £100m is expected to be
driven from the annualisation of contracts already won in prior periods. The
base financials over the going concern period reflect further restructuring
and refinancing costs that have already been initiated. This will help to
right size the business for the current demand with any ramp up required over
the going concern period to be carefully managed in line with pipeline
capacity requirements and orders to avoid significant negative fluctuations vs
base plans.
The Group entered FY24 with the Currency total order book at £153.6m (26
March 2022: £170.8m) and the 12-month order book at £136.3m (26 March 2022:
£163.5m). The win rate of over 70% since 2020 on Currency bids remains high.
By 16 June 2023, over 80% of the Currency business plans revenues for FY24 are
secured, with key wins in Asia providing a solid foundation for expectations
for the year.
The Group's base case modelling shows headroom on all covenant thresholds and
the minimum liquidity requirement across the period.
Severe yet plausible downsides and headroom
The downside modelling produced has factored in the Directors' assessment of
events that could occur in a "severe yet plausible downside" scenario. The
risks modelled are directly linked to the Risk Committee "principal risks".
The most significant material risks modelled were as follows;
Risk 3 Macroeconomic and geo-political risk
· Authentication new wins and implementations are not achieved in
the timescales modelled in the base case. In the severe yet plausible downside
scenario 100% of revenues with new customers have been excluded.
Risk 10 Banking Facilities
· Following the recent interest rate rises, the Group will be
paying an interest rate on its facilities of approximately 8.5% based on the
current SONIA rate of 5% and the applicable margin. Based on the base case
numbers in FY24, the combined rate would need to reach c16% before a breach in
the interest covenant would be triggered, with an implied SONIA rate of 9.2%.
Whilst management had used 5.3% as their interest rate in a severe but
plausible scenario, based on the stress testing procedures described above,
they have assessed the risk of a breach triggered by rising interest rates as
remote given the current SONIA rate applicable is 5%, the sensitivity, and
that these sensitised rates would need to apply for the entire FY24
period.
Risk 11 Kenya taxation and exit strategy
· Cash outflow assumed over and above the base case, which includes
acceleration of outflows for site exit and legal settlements.
Risk 13 Currency pipeline
· Volumes and budget margins not achieved as forecasted in the
going concern period. For currency pipeline downside risks modelled, margins
have been determined using the average production cost as opposed to using the
facilities with the lowest production costs where there is modelled capacity.
As at 25 March 2023, Currency total order book at £153.6m (26 March 2022:
£170.8m) and the 12-month order book at £136.3m (26 March 2022: £163.5m).
By 16 June 2023, over 80% of the Currency business plan revenues for FY24 are
secured, with key wins in Asia providing a foundation for expectations for the
year.
· As a result of the new liquidity testing requirement, the
Directors also considered historical monthly working capital swings over the
last three years as well as weekly cash outflow averages to ensure that
adequate considerations have been made to capture "in month" working capital
swings that the Group can see given the volatility of working capital in the
Currency business in particular. A £20m working capital outflow was
demonstrated to be suitable for a plausible severe downside to apply monthly
to liquidity testing, assuming no mitigation at all on liquidity at any given
testing period.
If all of these modelled downside risks were to materialise in the Going
Concern period, the Group would still meet its required covenant ratios and
liquidity requirements.
There remains headroom against all covenant thresholds in a "severe yet
plausible" downside scenario across the going concern period.
Minimum Liquidity testing monthly
Company modelling of the severe but plausible downside (including taking into
account working capital swings and potential cash collateral requirements)
also shows headroom to the liquidity requirement throughout the period, with
further controllable mitigations such as reduction in discretionary capex that
could be applied.
The level of reduction that would be required to breach the liquidity covenant
is considered to be remote by management on the basis that in the tightest
observable period of the severe but plausible downside scenario in £27m and
£17m if taking into account working capital swings and potential cash
collateral requirements. This assessment excludes the potential further
mitigations available.
Stress-Testing
Under the base case modelling, EBIT and EBITDA would need to drop by £10m
(46%) and £11m (27%) respectively, or liquidity would need to drop £30m from
the lowest point, for any breach to occur. In the severe but plausible
scenario modelling, EBIT and EBITDA would need to drop by £6m (32%) and £6m
(15%) respectively, or liquidity would need to drop £27m from the lowest
point (£17m including a negative working capital swing of £20m and cash
collateralisation savings of £10m), for any breach to occur. Management
concluded that a breach is remote given that:
· Trading to the end of P2 indicates the Group is on-track to
deliver the FY24 budget from an EBIT and EBITDA perspective. The Group has
experienced working capital drag which has led to Net Debt levels being worse
than those forecast in the base case scenario. The working capital drags are
in line with those modelled in the severe but plausible downside scenario and
the Group has seen positive movements to recover working capital in P3.
· Liquidity stress testing excluded controllable mitigating actions
(as described above) that management could employ and still showed headroom.
· Management are comfortable that any non-financial conditions and
reporting requirements can be achieved. The Directors have assumed that the
current revolving credit facility remains in place with the same
covenant requirements through to its current expiry date (1 January 2025),
which is beyond the end of the period reviewed for Going Concern purposes. The
Directors have concluded that the Group will either renew the facility
thereafter or have sufficient time to agree an alternative source of finance
from 1 January 2025 onwards.
Other Requirements
As referred to earlier, there are a number of additional requirements under
the recently amended facility agreement and pensions Trustee arrangements that
include conventional enhanced monitoring measures and progress on the
development of future options. Progress has already been made on ensuring that
the right processes are in place to be able to meet the non-financial
conditions and terms agreed with the lenders, and the Directors are confident
that all of these additional conditions and terms will be met in the timeframe
required.
Reasonable prospects beyond the going concern period
The Directors have also considered the pension trustee's and the lenders'
on-going support for the business given that further refinancing discussions
are likely to occur over the going concern period with the current facility
due to terminate on 1st January 2025. Specifically, an extension by November
2023 is necessary to have adequate facility duration for going concern
purposes at FY24 Half Year.
Management has concluded that there are realistic prospects for refinancing to
occur ahead of facility termination as a result of:
· Lenders have continued to support the Group through an amended
facility agreement. This was signed on 29 June 2023, and the covenants
(financial and non-financial) were set to levels that allows the Group to
continue to meet its covenant in a severe but plausible downside scenario. The
Directors see no reason that the lender's support will not continue given the
level of relaxation of covenants that has been agreed.
· As stated above, prior to the 30 September 2023 Half-Year
announcement in November 2023, the Group will have to agree an extension with
its existing lenders for the facility that comes to end on 1 January 2025.
Discussions will commence over the coming months with the banks on the future
options open to the Group, and subject to the Group achieving specific
financial and non-financial milestones that the Directors are confident in
achieving. To maximise stakeholder value for all parties, the lenders would
need to provide the business with continued support through the Currency
market recovery and continued growth in the Authentication division. It is the
Directors' judgement that based on the current support of the lenders the
extension will be achieved.
· In the event the current lenders were not supportive of an
extension to the facility at FY24 Half Year, the Group would consider and
implement alternative financing options at that time. The directors continue
to assess these alternative financing options, including but not limited to:
alternative lenders; alternative finance vehicles; equity injections; and/or
the sale of trade and assets. However, the Directors are confident this
scenario won't manifest given its confidence in refinancing and extending the
facility at FY24 Half Year.
The Directors have therefore assessed that the Group will either renew the
facility or have sufficient time to agree an alternative source of finance.
The costs of refinancing are included in the base case.
Conclusion
The base and severe but plausible forecasts show headroom above the covenant
levels agreed with the lenders and support the position that the Group will be
able to operate within its available banking facilities and covenants
throughout the going concern period to 29 June 2024.
Accordingly, the Directors are satisfied that the Group is able to manage its
business risks and to continue in operational existence for the going concern
period. Accordingly, the Directors continue to adopt the going concern basis
in preparing the Consolidated Financial Statements.
A copy of the 2022 Annual Report is available at www.delarue.com or on request
from the Company's registered office at De La Rue House, Jays Close, Viables,
Basingstoke, Hampshire, RG22 4BS.
COVID-19
The Annual Report for the period ended 27 March 2021 included an assessment of
the potential impact of COVID-19 on the financial position of the Group as at
27 March 2021. The Group put in place plans and measures in order to enable
the business to maintain normal operations, to the extent possible, against
the backdrop of the evolving situation. The Group implemented actions to
mitigate the impact of COVID-19, including steps to protect our employees in
line with guidance from governments. The Board believed that the Group's
operations would continue to experience only limited disruption due to the
impact of the COVID-19 pandemic. The directors still consider this assessment
to be appropriate for the 25 March 2023 financial statements based on the
current position.
New Standards, interpretations and amendments adopted by the Group
Other than as described below, the accounting policies adopted in the
preparation of these consolidated financial statements are consistent with
those applied by the Group in its consolidated financial statements as at, and
for the period ended, 26 March 2022, apart from standards, amendments to or
interpretations of published standards adopted during the year.
During the period, the following new and amended IFRS became effective for the
Group. The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective. The impacts of
applying these policies are not considered material.
Several amendments apply for the first time in FY23, but do not have an impact
on these consolidated financial statements of the Group.
Effective for periods commencing after 1 January 2022:
- Amendments to IFRS 3 "Business Combinations" - Reference to the
Conceptual Framework. The amendments are intended to update a reference to the
Conceptual Framework without significantly changing the requirements of IFRS
3. The amendments will promote consistency in financial reporting and avoid
potential confusion from having more than one version of the Conceptual
Framework.
- Amendments to IAS 16 "Property, plant and equipment" - Proceeds
before intended use. The amendment prohibits entities from deducting from the
cost of an item of property and equipment any proceeds of the sale of items
produced while bringing that asset to the location and condition necessary for
it to be capable of operating in the manner intended by management. Instead,
an entity recognises the proceeds from selling such items, and the costs of
producing those items, in profit or loss.
- Amendments to IAS 37 "Provisions, Contingent assets and liabilities"
- Onerous Contracts - Costs of Fulfilling a Contract. These amendments specify
which costs an entity needs to include when assessing whether a contract is
onerous or loss-making. The amendments apply a 'directly related cost
approach'. The costs that relate directly to a contract to provide goods or
services include both incremental costs (e.g., the costs of direct labour and
materials) and an allocation of costs directly related to contract activities
(e.g., depreciation of equipment used to fulfil the contract as well as costs
of contract management and supervision). General and administrative costs do
not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
- Amendments to IFRS 9 "Financial Instruments" - Fees in the '10 per
cent' test for derecognition of financial liabilities. The amendment clarifies
the fees that an entity includes when assessing whether the terms of a new or
modified financial liability are substantially different from the terms of the
original financial liability. These fees include only those paid or received
between the borrower and the lender, including fees paid or received by either
the borrower or lender on the other's behalf.
Effective for periods commencing after 1 January 2023:
- Amendments to IAS 8 "Accounting policies, changes in accounting
estimates and errors" - Definition of Accounting Estimates - The amendments
clarify the distinction between changes in accounting estimates and changes in
accounting policies and the correction of errors. Also, they clarify how
entities use measurement techniques and inputs to develop accounting
estimates.
- Amendments to IAS 1 "Presentation of financial statements" -
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2 - The amendments aim to help entities provide accounting policy
disclosures that are more useful by: replacing the requirement for entities to
disclose their 'significant' accounting policies with a requirement to
disclose their 'material' accounting policies and adding guidance on how
entities apply the concept of materiality in making decisions about accounting
policy disclosures.
- Amendments to IAS 12 "Income Taxes" - Deferred Tax related to Assets
and Liabilities arising from a Single Transaction - The amendment narrows the
scope of the initial recognition exception under IAS 12 so that it no longer
applies to transactions that give rise to equal taxable and deductible
temporary differences.
Effective for periods commencing after 1 January 2024, all subject to UK
endorsement:
- Amendments to IFRS 16 "Leases" - Lease liabilities in a sale and
leaseback - This amendment to IFRS 16 specifies the requirements that a
seller-lessee uses in measuring the lease liability arising in a sale and
leaseback transaction, to ensure the seller-lessee does not recognise any
amount of the gain or loss that relates to the right of use it retains.
- Amendments to IAS 1 "Presentation of financial statements" -
Classification of Liabilities as Current or Non-current. The amendments
clarify: what is meant by a right to defer settlement; that a right to defer
must exist at the end of the reporting period; that classification is
unaffected by the likelihood that an entity will exercise its deferral right
and that only if an embedded derivative in a convertible liability is itself
an equity instrument, would the terms of a liability not impact its
classification.
Other amendments in IFRS 1("First time adoption"), IAS 41 ("Agriculture") are
not applicable to the Group. IFRS 17 ("Insurance contracts") is under review
by management and the impact, if any, is still to be quantified.
The impact of the amendments and interpretations listed above are not expected
to a have a material impact on the Consolidated Financial Statements.
Critical accounting estimates, assumptions and judgements
Management has discussed with the Audit Committee the development, selection
and disclosure of the Group's critical accounting policies and estimates and
the application of these policies and estimates. Management is required to
exercise significant judgement in the application of these policies. Estimates
are made in many areas and the outcome may differ from that calculated.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are set out in "B. Critical accounting estimates"
below.
Other accounting estimates that are not considered to have a significant risk
of causing a material adjustment with the next financial year but which the
Group would like to draw attention to due to judgements or longer-term
estimates are set out in "C. Other areas of accounting estimates" below.
A Critical accounting judgements
1. Determination of lease term
Management has made certain judgements on lease terms based on the Group's
current expectations of whether break or renewal options will be taken. In
arriving at these judgements, management has considered its current business
plans including the locations in which it wants to operate in addition to the
impact of any cost-out programmes it is considering.
2. Revenue recognition and cut-off
Customer contracts will often include specific terms that impact the timing of
revenue recognition. The timing of the transfer of control varies depending on
the individual terms of the sales agreement.
For sales of products the transfer usually occurs on loading the goods onto
the relevant carrier, however the point at which control passes may be later
if the contract includes customer acceptance clauses or control passes on
arrival at the customer location. Control will also pass if the customer
requests that goods are held in storage until required. Specific consideration
is needed at year end to ensure revenue is recorded within the appropriate
financial year.
This judgement is particularly important in the Currency division due to the
material nature of certain contracts which may ship near to a reporting period
end. Management has carefully reviewed material customer contracts with
particular focus on those shipping in the last quarter of the financial period
to ensure revenue has been recorded in the correct year.
3. Revenue recognition and determination of whether an
enforceable right to payment exists
For certain customer contracts, revenue is recognised over time in accordance
with IFRS 15, as the Group has an enforceable right to payment.
Determination of whether the Group had an enforceable right to payment
requires careful analysis of the legal terms and conditions included within
the customer contract and consideration of applicable laws and customary legal
practice in the territory under which contract is enforceable.
External legal advice is obtained if considered necessary to allow management
to make this assessment. Management has carefully reviewed material contracts
relating to revenue recognised in the period to determine if an enforceable
right to payment exists which results in revenue being recorded 'over-time'
rather than 'point in time'.
In FY23 the Group has had customer contracts where revenue is recognised
'over-time' in the Currency and Authentication divisions.
4. Classification of exceptional items
The Directors consider items of income and expenditure which are material by
size and/or by nature and not representative of normal business activities
should be disclosed separately in the financial statements so as to help
provide an indication of the Group's underlying business performance. The
Directors label these items collectively as 'exceptional items'. Determining
which transactions are to be considered exceptional in nature is often
a subjective matter.
However, circumstances that the Directors believe would give rise to
exceptional items for separate disclosure would include: gains or losses on
the disposal of businesses, curtailments on defined benefit pension
arrangements or changes to the pension scheme liability which are considered
to be of a permanent nature and non-recurring fees relating to the management
of historical scheme issues; restructuring of businesses; asset impairments
and costs associated with the acquisition and integration of business
combinations.
All exceptional items are included in the appropriate income statement
category to which they relate.
5. Replacement of Savings Related Share Option Scheme
granted
During the year the Group granted a Save As You Earn share option grant
("SAYE"). Management judged the new grant as a replacement award for two SAYE
grants which are due to vest in FY24 and FY25 that were cancelled by employees
at the time of the new grant and applied modification accounting rather than
cancellation accounting.
To account for the replacement grant on modification basis, the following
factors were considered by the management:
a. The new share options are with the same
participants as the cancelled options.
The modification basis of accounting was used, where a given participant
applied for options under the 2022 invitation and that same person issued an
instruction to Equiniti (the administrators of De La Rue's Sharesave plan) to
cancel one or more of their existing savings contracts in the period between
(1) the date on which the invitation was launched to participants and (2) the
date on which the options were granted. Any cancellation instructions given by
a 2022 applicant outside of this time window is not treated as linked to the
cancelled award. Similarly, any cancellation of options by an employee who
does not apply for 2022 options is not treated under the modification basis.
b. The transactions to issue and cancel the options are part
of the same arrangement.
As explained in point a above, the management are able to point to a decision
taken by the participant during a short time window in relation to demonstrate
the linkage between their application for new 2022 options and their
instructions to Equiniti to terminate the savings contracts entered into in
the 2020 and/or 2021 invitations.
c. The cancellation of the options would not have
occurred unless the new options were issued.
The management has carefully considered the correlation of cancellations and
new subscriptions and the close proximity in time between cancelling and
applying for options in the 2022 invitation and made judgement that there is a
strong indication of a connection.
d. Management identified the FY23 SAYE grant as a
replacement grant
The Remuneration Committee set no limit (subject to HMRC limit of £500) on
the monthly saving for the FY23 grant. In comparison the previous grants in
FY21 and FY22 had a maximum limit set by the Company. On management's
recommendation, the Remuneration Committee agreed to approach the 2022
invitation as a replacement for the 2020 and 2021 options. On this basis,
the Committee decided not to apply any arbitrary caps to monthly savings
amounts or shares under option (both of which have been done in recent years)
or to invoke a rule which counts any cancelled awards by employees towards
their monthly limit of £500. The latter is included in the plan rules
specifically as a tool to mitigate cancellations of options, where the company
does not want this to occur.
The scheme documents and the internal newsflash were substantially amended
from previous years, to make employees aware of the difference in the option
prices from 2020 and 2021 to 2022/23, and that they are able to cancel their
previous savings contracts/options and apply for new options in the 2022/23
invitation.
Applying modification accounting results in £0.3m lower share-based payment
expense compared with cancellation accounting in FY23. The impact on future
periods assuming a forfeiture rate of 10% is:
Accounting type applied FY23 FY24 FY25 FY26
£'000 £'000 £'000 £'000
Modified accounting 1,147.3 566.7 325.5 167.4
Cancellation accounting 1,420.9 421.4 282.4 173.3
Additional expense versus modified accounting 273.6 (145.3) (43.1) 5.9
6. Accounting for the extension of the factory site in
Malta
On 9 September 2021 the Group signed an Agreement with Malta Enterprise ("ME")
where ME finances the construction, civil works and M&E installations to
be carried out at the premises located in Malta. The premises included land,
the demolition of an existing building and a rebuild to the Group's
specifications. On 14 September 2021 the Company signed a lease for the
premises for an initial term of 20 years. The Group is managing the
construction of the new buildings for the lessor to the pre-agreed
specifications.
Management have made a judgement as to whether the Company has control of the
site during the construction period. If the Group has the right to control the
use of the identified asset for only a portion of the term of the contract,
the contract contains a lease for that portion of the term. In order to
control the asset, the lessee must have the right to obtain substantially all
of the economic benefits from the use of the asset and the right to direct the
use of the asset. It was determined that control exists only after the build
is completed and site becomes available for use. Management considers that
given the building was under construction at the year-end date and therefore
there were no economic benefits as the asset was not ready for use at that
time.
As per the agreement, there are three separate units with different start-up
dates. Therefore, the lease will be recognised as these units become
operational. The lease costs will be allocated to the division to which they
relate to based on area. However, if the cost relates to the total site, then
it is divided based on the percentage split of the area, with 27% of the total
sqm occupied by Authentication and 73% by Currency. The first block is
currently scheduled to be completed in H2 FY24. Therefore, management have
concluded that no lease should be recognised in FY23. The lease will be
recognised when the building becomes available for use.
B Critical accounting estimates
1. Recoverability of other financial assets
Other financial assets comprise securities interests held in companies in the
Portals International Limited group following the Portals paper business
disposal in 2018. In addition, a further amount of £0.9m of loan notes were
subscribed for pursuant to a pre-emptive offer in November 2021 to enable
Portals to undertake a business combination. The Group also purchased cotton
banknote paper under the Relationship Agreement (' RA'), until its termination
in July 2022.
Management has carefully assessed the recoverability of the other financial
assets on the balance sheet as at 25 March 2023 based on information available
to them determining that an expected credit loss provision of £8.5m is
required which will fully impair these other financial assets. Management has
considered the following factors in making this determination:
1) The public announcements from the Portals group relating to the wind
down of the Overton paper mill and its sale of assets.
2) The latest available financial position of Portals International
Limited group as presented in its 2022 consolidated financial statements
including significant losses for the period and a net liabilities position.
3) The announcement of the sale of the Fedrigoni business to IN Groupe in
May 2023.
This provision accounts for the risk that the full amounts due will not be
recovered rather than the instruments being credit impaired.
Management notes that if factors change again in the future, this may alter
the judgements made resulting in a revision to the value of expected credit
loss provision to be recognised.
2.. Recoverability assessment and impairment charges
related to plant and machinery and capitalised product development costs
In January 2023, the Group announced that owing to current market demand, and
no expectation of new bank note orders from the Central Bank of Kenya for at
least the next 12 months, De La Rue Kenya (a joint venture with the Government
of Kenya) has suspended banknote printing operations in the country. In
addition, operations in our Authentication division are also in the process of
winding down. As a result of the review of the business in Kenya an
exceptional charge of £12.6m (FY22: £nil) was made in the year including
redundancy charges of £5.5m, property, plant and equipment asset impairments
of £4.9m, inventory impairments of £2.0m and other costs of £0.2m. There is
not expected to be any recoverable value relating to these assets.
In addition, an impairment charge of £2.9m (FY22: £nil) was made in the year
in relation to capitalised product development costs. A review was carried out
as part of the Authentication business right-sizing programme of ongoing
development projects and their suitability for further divisional growth and
the product portfolio. As a result, two programs were terminated and
associated capitalised costs were impaired.
In FY22 the Group ceased banknote printing at its Gateshead site and as a
result the Group had a material value of plant and machinery for which an
impairment was required. Management has, in FY23, made a judgement on what its
future plans are for the expansion in certain other locations based on future
business needs and concluded that for the remaining assets in Gateshead not
impaired in the prior period, their value could be supported based on their
anticipated ongoing use after a period of relocation to another site for usage
there.
3. Post-retirement benefit obligations
Pension costs within the income statement and the pension obligations/assets
as stated in the balance sheet are both dependent upon a number of assumptions
chosen by management with advice from professional actuaries. These include
the rate used to discount future liabilities, the expected longevity for
current and future pensioners and estimates of future rates of inflation. The
discount rate is the interest rate that should be used to determine the
present value of estimated future cash outflows expected to be required to
settle the pension obligations.
The Group engages the services of professional actuaries to assist with
calculating the pension liability.
4. Determination of the incremental Valuation date of
certain fund assets in the UK defined benefit pension scheme
The UK defined benefit pension scheme assets are made up of a number of
separate funds. For the majority of these funds valuations have been available
as at the Group's year end of 25 March 2023. However, the Multi Asset Credit
and Secured Finance funds held by the UK Pension Scheme are valued on a
monthly basis only at calendar month ends.
It was agreed to determine the IAS 19 position as at 25 March 2023 for these
funds that they would be calculated by rolling forward the fund value at 28
February 2023, using suitable market indices.
The UK Multi Asset Credit and Secured Finance funds account for approximately
£61m and £139m of the pension assets respectively (FY22: £63m and £143m
respectively). During the period from 28 February to 25 March, based on the
movement in relevant market indices, we have estimated that the value of the
funds have decreased by £4.4m. The total UK pension scheme assets value is
£678.2m. This £4.4m decrease includes £3.9m relates to the updated
third-party valuation data as at the year-end date and the remaining £0.5m is
based on day-to-day market volatility of high yield market indices. A 0.1%
change in these market indices would result in a £0.6m increase in the
pension scheme assets.
The potential impact has been estimated by observing what were considered to
be the most relevant comparable indices to establish the level of day-to-day
volatility in the market.
The Multi Asset Credit funds are largely composed of sub-investment grade
corporate debt and the most relevant indices were determined to be those which
measure the return on high yield corporate bonds. The Secured Finance fund is
composed of a wide range of corporate debt. Management has therefore made the
judgement that valuing the pension assets using the 28 February 2023 valuation
for these funds and rolling forward to 25 March 2023 is reasonable given there
is no practical way of obtaining a better estimate.
5. Tax
The Group is subject to income taxes in numerous jurisdictions and
significant judgement is required in determining the worldwide provision for
those taxes. The level of current and deferred tax recognised is dependent on
subjective judgements as to the outcome of decisions to be made by the tax
authorities in the various tax jurisdictions around the world in which the
Group operates.
It is necessary to consider which deferred tax assets should be recognised
based on an assessment of the extent to which they are regarded as
recoverable, which involves assessment of the future trading prospects of
individual statutory entities, the nature and level of any deferred tax
liabilities from other items in the accounts such as pension positions, and
overseas tax credits that are carried forward for utilisation in future
periods, including some that have been allocated to Governmental authorities
as part of investment projects.
The actual outcome may vary from that anticipated. Where the final tax
outcomes differ from the amounts initially recorded, there will be impacts
upon income tax and deferred tax provisions and on the income statement in the
period in which such determination is made.
The Group has current tax provisions recorded within current tax liabilities,
in respect of uncertain tax positions. In accordance with IFRIC 23, tax
provisions are recognised for uncertain tax positions where it is considered
probable that the position in the filed tax return will not be sustained and
there will be a future outflow of funds to a taxing authority. Tax provisions
are measured either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the sum of the
probability-weighted amounts in a range of possible outcomes) depending on
management's judgement on how the uncertainty may be resolved.
The Group is disputing tax assessments received in certain countries in which
the Group operates. These tax assessments have been subject to court ruling
both in favour of the Group and also against the Group. The rulings are
subject to ongoing appeal processes. The Group has increased the relevant tax
provisions and is fully provided where necessary as required by the relevant
accounting standards. The disputed tax assessments are subject to ongoing
dialogue with the relevant tax authorities to reach a settlement without the
requirement to continue in a protracted legal process.
C Other long-term estimation uncertainties
1. Impairment test of Goodwill and acquired
intangibles
These assets were recognised following the acquisition of De La Rue
Authentication Inc in January 2017. Management has considered the Group's
short-term and the long-term profitability for this business and determined
that the goodwill and acquired intangible asset values are recoverable at 25
March 2023. In making this determination, management has prepared discounted
cash flows using its forecasts for the business which include budgeted
financial performance for a 5-year period with a growth rate assumption
applied which extrapolates the business into perpetuity which are aligned to
the Group's longer-term expectations of the Authentication division. In order
to obtain further assurance as to the recoverability of the goodwill and
intangible assets, management has prepared a range of sensitivities to model
what adverse changes would need to occur before an impairment was required.
Management modelled the following sensitivities and concluded that:
Sensitivity 1 (discount rate): The discount rate used for the impairment
calculation (assuming the same cash flows as in the base impairment test)
would need to increase to 19.0% before an impairment occurred;
Sensitivity 2 (revenue growth): Forecasts used in the base impairment
calculation include strong revenue growth in FY24 to FY25 before the growth
rate reduces to 3% per year from FY26, management has modelled a scenario of
no revenue growth from FY26 and concluded that at this point no impairment
would be required;
Sensitivity 3 (loss of material customer): Management has modelled the impact
of the loss of revenue of a significant customer from FY24, orders from which
were not yet secured at the end of FY23. Management noted that in this
scenario, no impairment was needed; and
Sensitivity 4 (profit margin reduction): The base calculation includes 19.7%
margin in FY24 with growth to a constant 24.7% from FY25. Management has
modelled the impact of margin reduction to 20.0% from FY26. Management noted
that in this scenario, no impairment was required.
Based on the base impairment forecast prepared and the additional
sensitivities referred to above, Management is confident that no impairment of
the goodwill and intangible asset balances is required as at 25 March 2023
and therefore no impairment is recognised. There are no reasonable possible
changes in the key assumptions (e.g. discount rate, growth rate or profit
margin) that would cause the recoverable amount to fall below the carrying
amount of the cash generating unit.
2. Onerous contract provisions
The financial statements also included a small number of onerous contract
provisions for loss making contracts. Management has assessed these and
applied judgement in determining the required level of provisioning including
how, in accordance with IAS 37, the lowest unavoidable costs of exiting or
fulfilling the contract have been calculated.
3. Estimation of provisions
The Group holds a number of provisions relating to warranties for defective
products and contract penalties. Management has assessed these and applied
judgement in determining the value of provisions required.
3 Segmental analysis
The continuing operations of the Group have three main operating units:
Currency, Authentication and Identity Solutions. The Board, which is the
Group's Chief Operating Decision Maker, monitors the performance of the Group
at this level and there are therefore three reportable segments. The principal
financial information reviewed by the Board is revenue and adjusted operating
profit.
The Group's segments are:
Currency - provides Banknote print, Polymer and Security features;
Authentication - provides the physical and digital solutions to authenticate
products through the supply chain and to provide tracking of excisable goods
to support compliance with government regulators. Working across the
commercial and government sectors the division addresses consumer and Brand
owner demand for protection against counterfeit goods; and
Identity Solutions -includes minimal non-core activity in the year. FY22 also
included to sales under a service arrangement with HID Corporation Limited
following the sale of the International Identity Solutions business in October
2019.
The segment note is focused on three divisions, which reflects what has been
reported to the Chief Operating Decision Maker, this is in line with the
commentary in other areas of this Annual Report and Accounts. The commentary
elsewhere in this Annual Report and Accounts relating to the future strategy
only refers to the Currency and Authentication divisions. Inter-segmental
transactions are eliminated upon consolidation.
FY23 Currency Authentication Identity Solutions Unallocated Total of Continuing operations
£m £m £m £m £m
£m
Total revenue from contracts with customers 254.6 91.7 3.4 - 349.7
Less: inter-segment revenue - - - - -
Revenue from contracts with customers 254.6 91.7 3.4 - 349.7
Cost of sales (196.4) (57.7) (3.5) - (257.6)
Gross profit 58.2 34.0 (0.1) - 92.1
Adjusted operating expenses (44.6) (19.7) - - (64.3)
Adjusted operating profit 13.6 14.3 (0.1) - 27.8
Adjusted items:
Amortisation of acquired intangible assets - (1.0) - - (1.0)
Net exceptionals (38.4) (7.9) (0.1) (0.7) (47.1)
Operating (loss)/profit (24.8) 5.4 (0.2) (0.7) (20.3)
Interest income 1.0 - 0.1 0.1 1.2
Interest expense (0.9) (0.1) - (10.6) (11.6)
Net retirement benefit obligation finance income - - - 1.1 1.1
Net finance expense 0.1 (0.1) 0.1 (9.4) (9.3)
(Loss)/profit before taxation (24.7) 5.3 (0.1) (10.1) (29.6)
Capital expenditure on property, plant and equipment (excluding grants (7.9) (7.1) - (0.2) (15.2)
received)
Capital expenditure on intangible assets (2.9) (7.4) - (0.1) (10.4)
Impairment of property, plant and equipment (3.9) (1.5) - - (5.4)
Impairment of intangible assets (1.4) (2.9) - - (4.3)
Depreciation of property, plant and equipment and right-of-use-assets (11.1) (2.6) - (1.0) (14.7)
Amortisation of intangible assets (1.3) (3.4) - (0.6) (5.3)
FY22 Currency Authentication Identity Unallocated Total of
£m £m Solutions £m Continuing
£m operations
£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 (excluding grants (15.7) (2.0) - (0.4) (18.1)
received)
Capital expenditure on intangible assets (1.0) (7.7) - (0.1) (8.8)
Impairment of property, plant and equipment on intangible assets 0.1 - - - 0.1
Depreciation of property, plant and equipment and right-of-use-assets (10.7) (2.5) - (1.1) (14.3)
Amortisation of intangible assets (1.3) (2.3) - (0.7) (4.3)
Currency Authentication Identity Unallocated Total of
£m £m Solutions £m Continuing
£m operations
£m
FY23
Segmental assets 169.9 68.5 15.8 94.4 348.6
Segmental liabilities (70.4) (14.0) (4.5) (224.7) (313.6)
FY22
Segmental assets 203.1 65.7 13.3 96.4 378.5
Segmental liabilities (53.0) (13.4) (3.1) (147.2) (216.7)
Unallocated assets principally comprise long-term pension assets of £nil
(FY22: £31.6m) deferred tax assets of £18.3m (FY22: £11.2m), cash and cash
equivalents of £40.3m (FY22: £24.3m) and derivative financial instrument
assets of £2.4m (FY22: £3.4m) as well as current tax assets, associates and
centrally managed property, plant and equipment.
Unallocated liabilities principally comprise retirement benefit obligations of
£54.7m (FY22: £1.8m), borrowings of £118.4m (FY22: £92.6m), current tax
liabilities of £23.2m (FY22: £13.9m) and derivative financial instrument
liabilities of £1.9m (FY22: £4.8m) as well as deferred tax liabilities and
centrally held accruals and provisions.
Revenue from contracts with customers:
Timing of revenue recognition across the Group's revenue from contracts with
customers is as follows:
FY23 Currency Authentication Identity Total of
£m £m Solutions Continuing
£m operations
£m
Timing of revenue recognition:
Point in time 217.6 78.3 3.4 299.3
Over time 37.0 13.4 - 50.4
Total revenue from contracts with customers 254.6 91.7 3.4 349.7
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
Geographic analysis of revenue by destination
2023 2022
£m £m
Middle East and Africa 145.4 196.4
Asia 39.3 44.3
UK 55.7 65.4
The Americas 24.8 28.8
Rest of Europe 71.2 37.3
Rest of world 13.3 2.9
349.7 375.1
Contract balances
The contract balances arising from contracts with customers are as follows:
2023 2022
£m £m
Trade receivables 42.3 64.8
Provision for impairment (0.6) (0.8)
Net trade receivables 41.7 64.0
Contract assets 18.9 8.0
Contract liabilities (0.3) (0.3)
Payments received on account (22.7) (14.3)
Trade receivables have decreased to £42.3m in FY23 (FY22: £64.8m) reflecting
timing of payments on certain material customer contracts.
Contract assets have increased to £18.9m in FY23 (FY22: £8.0m) reflecting
the timing of the revenue recognition under IFRS 15.
Payments on account in FY23 have increased to £22.7m (FY22: £14.3m)
reflecting significant additions in the year of £21.7m (FY22: £4.6m) and
revenue recognised from payments on account at the end of FY22 of £13.3m
(FY22: utilisation of £28.3m).
Set out below is the amount of revenue recognised from:
2023 2022
£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 2022.
The following table shows the transaction price allocated to remaining
performance obligations for contracts with original expected duration of more
than one year. The Group has decided to take the practical expedient provided
in IFRS 15.121 not to disclose the amount of the remaining performance
obligations for contracts with original expected duration of less than one
year.
2023 2022
£m £m
Within 1 year 12.4 31.3
Between 2 - 5 years 15.5 25.8
5 years and beyond - -
27.9 57.1
4 Exceptional Items
2023 Cash Non- 2022 Cash Non-
£m £m cash £m £m cash
£m £m
Termination of Relationship Agreement with Portals Paper Limited 17.0 9.3 7.7 - - -
Site relocations and restructuring costs 21.1 7.6 13.5 1.8 2.1 (0.3)
Pension underpin costs 0.5 0.5 - 0.4 0.4 -
Foreign exchange loss on devaluation of Sri Lankan rupee - - - 0.4 - 0.4
38.6 17.4 21.2 2.6 2.5 0.1
Recognition of expected credit loss provision on other financial assets 8.5 - 8.5 3.1 - 3.1
Total exceptional items 47.1 17.4 29.7 5.7 2.5 3.2
Tax charge/(credit) on exceptional items 5.1 (1.8)
Net exceptionals 52.2 3.9
Termination of Relationship Agreement with Portals Paper Limited
On the 26 July 2022, the Group reached a settlement to terminate its long-term
supply agreement with Portals Paper Limited ("Portals"), related to the
supply of banknote, proofing and security paper (the "Relationship Agreement"
or "RA"). As a result of this termination, £17.0m (FY22: £nil) was recorded
as an exceptional item in the period, being the agreed settlement together
with associated legal costs. This is further described below.
Background
In March 2018, De La Rue sold the Portals paper-making business to a
private equity backed management buyout and entered into the RA for a period
of 10 years. Under this agreement, De La Rue has purchased banknote,
proofing and security paper from Portals, subject to a minimum annual volume
guarantee, and Portals has purchased security features from De La Rue, with
no guarantee of volume.
Settlement arrangements
Under the settlement terms, De La Rue is released from all obligations under
the RA is free to purchase banknote and security paper from any supplier
worldwide. De La Rue agreed to pay Portals the amounts due under the normal
RA arrangements in respect of confirmed orders placed up to the end of July
2022, and a total of £16.7m in cash to terminate the RA.
The £16.7m and the associated legal costs are classed as an exceptional
charge in the period, and payments were made according to the following
schedule: £1.7m on or before 31 October 2022, £7.5m on or before 31
December 2022 and £7.5m on or before 7 April 2023. The final payment was
made in FY24.
With the termination of the RA, De La Rue is not liable to pay any more
volume-related shortfall payments. These payments have
averaged £3.3m annually for each of the past two financial years and
totalled £3.0m in FY23, up to the termination of the RA.
De La Rue retains its existing equity and loan note interests in the Portals
group of companies and its rights in respect of those interests remain
unaffected by this settlement.
Following the termination of the RA, De La Rue will be able to sell all
banknote security features freely to customers, through any other paper
supplier. This includes the advanced features developed in collaboration with
Portals. Strategically, this settlement supports De La Rue's goal to convert
more of its print customers to polymer banknotes, as, in doing so, there will
no longer be volume shortfall payments.
Site relocations and restructuring costs
Site relocations and restructuring costs in FY23 of £21.1m (FY22: £1.8m)
included:
· in January 2023, the Group announced that owing to current market
demand, and no expectation of new bank note orders from the Central Bank of
Kenya for at least the next 12 months, De La Rue Kenya (a subsidiary with a
material non-controlling interest held by the Government of Kenya) has
suspended banknote printing operations in the country. In addition, operations
in our Authentication division are also in the process of winding down. As a
result of the review of the business in Kenya an exceptional charge of £12.6m
(FY22: £nil) was made in the year including redundancy charges of £5.5m,
property, plant and equipment asset impairments of £4.9m, inventory
impairments of £2.0m and other costs of £0.2m. Further costs, as yet
undetermined, are expected in relation to this as the operations continue to
be wound down in FY24.
· a £2.5m (FY22: £nil) charge for redundancy and legal fees was
made in relation to restructuring initiatives in both the Currency (£1.2m)
and Authentication (£1.3m) divisions in order to right-size the divisions for
future operations. No further costs are expected in relation to these projects
in FY24.
· an impairment charge of £4.3m (FY22: £nil) was made in the year
in relation to capitalised product development costs and software assets. A
review was carried out as part of the Authentication business right-sizing
programme of ongoing development projects. With the resulting restructuring
initiatives, the Group no longer had the technical and financial ability to
complete two programs. As a result, work on the two programs was terminated
and the technology mothballed with the associated capitalised costs impaired
(£2.9m). A further £1.4m of software assets relating to the Currency
business were impaired as future revenue relating to these assets are minimal.
No further costs are expected in relation to this in FY24.
· the recognition of £1.1m (FY22: £0.9m) 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 £0.1m, of
relocating assets to different Group manufacturing locations and further plant
and equipment impairments of £0.5m. Since this program commenced, £9.9m of
costs have been incurred in relation to this. As the Group continues its
expansion of the manufacturing facilities in Malta, into FY25, a cost of
approximately £2.1m net of any grants received, is expected; and
· a further £0.6m (FY22: £1.3m) of charges relating to other cost
out initiatives including the initial Turnaround Plan restructuring of our
central enabling functions, selling and commercial functions. Since this
program commenced, £3.4m of costs have been incurred in relation to this. No
further costs are expected.
FY22 was offset by a reversal of £0.4m of asset impairments no longer
required related to cessation of banknote production at our Gateshead
facility.
Pension underpin costs
Pension underpin costs of £0.5m (FY22: £0.4m) relate to legal fees, net of
amounts recovered, incurred in the rectification of certain discrepancies
identified in the Scheme's rules. The Directors do not consider this to have
an impact on the UK defined benefit pension liability at the current time, but
they continue to assess this.
Recognition of expected credit loss provision on other financial assets
Other financial assets comprise securities interests held in the Portals
International Limited group which were received as part of the consideration
for the paper disposal in 2018. The amount presented on the balance sheet
within other financial assets as at 25 March 2023 includes the original
principal received and accrued interest amounts.
In accordance with IFRS 9, management has assessed the recoverability of the
carrying value on the balance sheet and recorded an expected credit loss
provision of £8.5m (FY22: £3.1m) in relation to the original principal value
of £7.9m (FY22: £2.3m) and interest receivable of £0.6m (FY22: £0.8m)
which has been recorded in exceptional items consistent with the original
recognition as part of the loss on disposal.
Further details can be found in "Critical accounting estimates assumptions and
judgements".
Foreign exchange loss on devaluation of Sri Lankan rupee
Significant devaluation of Sri Lanka Rupee versus the British Pound which
occurred in March 2022 where the Rupee/GBP rate moved from 265/£ 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 in FY22.
Taxation relating to exceptional items
The overall tax charge relating to continuing exceptional items arising in the
period was £5.1m (FY22: tax credit £1.8m).
Included in the exceptional tax items is a deferred tax charge of £4.0m
(FY22: £1.5m credit) relating to the derecognition of a deferred tax asset in
relation to restricted UK tax interest amounts that under IAS12 had to be
recognised in prior years even though the amounts are not expected to be fully
utilised for the foreseeable future. The asset was originally recognised
because the defined benefit pension was in a surplus position which led to a
deferred tax liability relating to pensions in the UK, and under IAS any
potential deferred tax assets must be recognised against this deferred tax
liability.
During FY23 the pension moved from a surplus to a deficit position, which
meant that the deferred tax asset on the UK restricted UK tax interest amounts
is no longer required to be recognised. As the majority of the deferred tax in
relation to the pension movements is recognised directly in the Statement of
Comprehensive Income, to recognise movements in the recognition and
derecognition of this asset as an operating item would distort the Operating
Effective Tax Rate and therefore considered to be unhelpful for users of the
accounts. This movement and any future creation or unwind of this asset
is therefore considered to be an Exceptional item for financial reporting
purposes where possible.
Exceptional items also includes a tax charge in respect of additional expected
utilisation of tax credits in Malta of £6.1m, as they are expected to be
surrendered for capital grants against future capital expenditure in Malta.
The balance of £5.0m credit within exceptional tax items relates to the tax
impact on the exceptional costs before tax.
5 Taxation
2023 2022
£m £m
Current tax
UK corporation tax:
Current tax 11.9 3.3
- Adjustment in respect of prior years 0.1 0.2
12.0 3.5
Overseas tax charges:
Current year 2.1 1.7
Adjustment in respect of prior years (0.3) 0.2
1.8 1.9
Total current income tax charge 13.8 5.4
Deferred tax:
Origination and reversal of temporary differences, UK 7.4 (4.1)
Origination and reversal of temporary differences, overseas 6.4 0.1
Total deferred tax charge/(credit) 13.8 (4.0)
Total income tax charge in the consolidated income statement 27.6 1.4
Included in:
Income tax expense reported in the consolidated income statement in respect of 27.6 1.3
continuing operations
Income tax expense/(credit) in respect of discontinued operations - 0.1
Total income tax charge in the consolidated income statement 27.6 1.4
Tax on continuing operations attributable to:
Ordinary activities 22.8 3.4
Amortisation of acquired intangible assets (0.3) (0.3)
Exceptional items 5.1 (1.8)
27.6 1.3
2023 2022
£m £m
Consolidated statement of comprehensive income:
On remeasurement of net defined benefit liability (24.2) 8.8
On cash flow hedges 0.1 (0.1)
On foreign exchange on quasi-equity balances 0.1 (0.2)
Income tax (credit)/charge reported within other comprehensive income (24.0) 8.5
Consolidated statement of changes in equity:
On share options 0.5 0.3
Income tax charge reported within equity 0.5 0.3
The tax on the Group's consolidated (loss)/profit before tax differs from the
UK tax rate of 19% as follows:
2023 2022
Before exceptional items Movement on acquired intangibles Exceptional items Total Before exceptional items Movement on acquired intangibles Exceptional items Total
£m £m £m £m £m £m £m £m
(Loss)/profit before tax 18.5 (1.0) (47.1) (29.6) 30.9 (1.0) (5.7) 24.2
Tax calculated at UK tax rate of 19% (FY22: 19.0%) 3.5 (0.2) (8.9) (5.6) 5.8 (0.2) (1.1) 4.5
Effects of overseas taxation 1.1 (0.1) 1.2 2.2 0.4 (0.1) - 0.3
Charges/(credits) not allowable/taxable for tax purposes (1.0) - 0.1 (0.9)
0.5 - 1.7 2.2
Changes in uncertain tax provisions - - - -
8.5 - - 8.5
Tax attributes written down/(not previously recognised) for deferred tax (0.1) - (0.7) (0.8)
7.9 - 4.0 11.9
Utilisation of tax credits previously recognised for deferred tax - - - -
- - 6.1 6.1
Adjustments in respect of prior years (0.5) - - (0.5) 0.8 - 0.2 1.0
Impact of UK tax rate change on deferred tax balances 1.8 - 1.0 2.8 (2.5) - (0.3) (2.8)
Tax charge/(credit) 22.8 (0.3) 5.1 27.6 3.4 (0.3) (1.8) 1.3
The underlying effective tax rate excluding exceptional items was 123.2%
(FY22: 11.0%). This includes the impact of provisions against deferred tax
balances, changes in uncertain tax provisions and the impact of tax rate
changes in Sri Lanka: the underlying effective tax rate excluding these items
was 24.9% (FY22: 19.4%).
The Group is subject to income taxes in numerous jurisdictions and significant
judgement is required in determining the worldwide provision for those taxes.
The level of current and deferred tax recognised is dependent on subjective
judgements as to the outcome of decisions to be made by the tax authorities in
the various tax jurisdictions around the world in which the Group operates. It
is necessary to consider which deferred tax assets should be recognised based
on an assessment of the extent to which they are regarded as recoverable,
which involves assessment of the future trading prospects of individual
statutory entities.
The actual outcome may vary from that anticipated. Where the final tax
outcomes differ from the amounts initially recorded, there will be impacts
upon income tax and deferred tax provisions and on the income statement in the
period in which such determination is made.
The Group has current tax provisions recorded within current tax liabilities,
in respect of uncertain tax positions. In accordance with IFRIC 23, tax
provisions are recognised for uncertain tax positions where it is considered
probable that the position in the filed tax return will not be sustained and
there will be a future outflow of funds to a taxing authority. Tax provisions
are measured either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the sum of the
probability weighted amounts in a range of possible outcomes) depending on
management's judgement on how the uncertainty may be resolved.
The Group is disputing tax assessments received in certain countries in which
the Group operates. These tax assessments have been subject to court ruling
both in favour of the Group and also against the Group. The rulings are
subject to ongoing appeal processes. The Group has increased the relevant tax
provisions and is fully provided where necessary as required by the relevant
accounting standards. The disputed tax assessments are subject to ongoing
dialogue with the relevant tax authorities to reach a settlement without the
requirement to continue in a protracted legal process.
6 EARNINGS PER SHARE
2023 2022
pence pence
Earnings per share per share per share
Basic EPS - continuing operations (28.6) 10.6
Basic EPS - discontinued operations - 0.4
Basic EPS - total (28.6) 11.0
Diluted EPS - continuing operations(1) (28.6) 10.5
Diluted EPS - discontinued operations - 0.4
Diluted EPS - total (28.6) 10.9
Adjusted EPS
Basic EPS - continuing operations (1.5) 13.0
Diluted EPS - continuing operations (1.5) 12.8
Number of shares (m)
Weighted average number of shares 195.4 195.2
Dilutive effect of shares 0.5 2.6
195.9 197.8
(1) The Group reported a loss from continuing operations attributable to the
ordinary equity shareholders of the Company for FY23. The Diluted EPS is
reported as equal to Basic EPS, no account can be taken of the effect of
dilutive securities under IAS 33.
Reconciliations of the earnings used in the calculations are set out below:
2023 2022
£m £m
(Loss)/Earnings for basic EPS - Total (55.9) 21.5
Add: Earnings for basic EPS - discontinued operations - (0.8)
(Loss)/Earnings for basic EPS - continuing operations (55.9) 20.7
Add: amortisation of acquired intangibles 1.0 1.0
Less: tax on amortisation of acquired intangibles (0.3) (0.3)
Add: exceptional items (excluding non-controlling interests) 47.1 5.7
Less: tax on exceptional items 5.1 (1.8)
(Loss)/Earnings for adjusted EPS (3.0) 25.3
7 OTHER FINANCIAL ASSETS
2023 2022
£m £m
Opening balance 7.4 8.8
Interest accrued in the period 1.1 0.8
Additional investment in loan notes in the Portals International Limited group - 0.9
Expected credit loss (reported in exceptionals) (8.5) (3.1)
Closing balance - 7.4
Analysed as:
Fixed rate unsecured loan notes in Portals Finance 1 Limited 3.8 3.8
Preference shares in Portals International Group Limited 2.6 2.6
Fixed rate unsecured loan notes in Portals International Group Limited 0.9 0.9
B ordinary shares in Portals International Group Limited 0.2 0.2
Cumulative accrued interest 4.1 3.0
Cumulative expected credit loss (11.6) (3.1)
- 7.4
Fixed rate unsecured loan notes in Portals Finance 1 Limited are repayable in
December 2028, bear interest at 10% per annum and compounds annually if the
interest is not paid. These are listed on the International Stock Exchange in
Guernsey.
2,563,095 cumulative redeemable preference shares of £0.000001 each were
issued at £1.00 per share, have a cumulative dividend of 10% per annum and
are redeemable at any time at the discretion of the issuer or will be redeemed
in full by 31 December 2028.
Fixed rate unsecured loan notes in Portals International Group Limited are
repayable in December 2029 and interest accrues at a rate of 15% per annum and
compounds annually if the interest is not paid. These are listed on the
International Stock Exchange in Guernsey.
In accordance with the terms of the instruments, the interest has not been
paid in the year but accrued and added to the value of the Other Financial
Asset. In FY22 an additional £0.9m was invested in loan notes in the Portals
International Limited group.
Management has assessed the recoverability of the other financial assets on
the balance sheet as at 25 March 2023 and as a result an expected credit loss
was recorded in the period of £8.5m. Further details on the impairment can be
found in "B Critical accounting estimates - 1. Recoverability of other
financial assets" within Accounting Policies.
8 FINANCIAL INSTRUMENTS
The fair value of financial assets and liabilities, together with the carrying
amounts shown in the balance sheet, are as follows:
Fair value hierarchy Total fair value Carrying amount Total fair Carrying
2023 2023 value* amount*
£m £m 2022 2022
£m £m
Financial assets
Trade and other receivables(1) Level 3 58.4 58.4 78.3 78.3
Contract assets Level 3 18.9 18.9 8.0 8.0
Other financial assets(2) Level 3 - - 7.2 7.2
Cash and cash equivalents Level 1 40.3 40.3 24.3 24.3
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 1.2 1.2 1.3 1.3
- Foreign exchange fair value hedges - other economic hedges Level 2 1.1 1.1 0.9 0.9
- Embedded derivatives Level 2 0.1 0.1 1.2 1.2
Total financial assets 120.0 120.0 121.2 121.2
Financial liabilities
Unsecured bank loans and overdrafts(3) Level 2 (123.4) (123.4) (95.7) (95.7)
Trade and other payables(4) Level 3 (66.1) (66.1) (62.9) (62.9)
Derivative financial instruments:
- Forward exchange contracts designated as cash flow hedges Level 2 (1.0) (1.0) (1.8) (1.8)
- Short duration swap contracts designated as fair value hedges Level 2 (0.1) (0.1) - -
- Foreign exchange fair value hedges - other economic hedges Level 2 (0.4) (0.4) (2.9) (2.9)
- Embedded derivatives Level 2 (0.4) (0.4) (0.1) (0.1)
Total financial liabilities (191.4) (191.4) (163.4) (163.4)
Notes:
(1) Excludes prepayments of £3.6m (FY22: 2.9m), RDEC of £2.5m (FY22:
£2.7m) and VAT recoverable of £6.2m (FY22: £5.1m).
(2) FY22 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 of £5.0m (FY22:
£3.1m).
(4) Excludes social security and other taxation amounts of £3.0m (FY22:
£2.6m), contract liabilities of £0.3m (FY22: £0.3m) and payments on account
of £22.7m (FY22: £14.3m).
(*) The prior year comparatives have been restated to correct a prior year
error by removing a VAT receivable of £5.1m from the Trade and other
receivables line item in accordance with the requirements of IFRS 9. The
restatement only affects the line item mentioned and has no other impact on
the consolidated financial statements.
Trade receivables decreased to £42.3m compared to £64.8m at FY22 reflecting
timing of payments on certain material customer contracts.
Contract assets have increased by £10.9m from £8.0m at FY22 to £18.9m at
FY23. This relates to Currency contracts of £12.7m (FY22: £4.9m) and
Authentication contracts of £6.2m (FY22: £3.1m).
9 ANALYSIS OF NET DEBT
The analysis below provides a reconciliation between the opening and closing
of the Group's net debt position (being the net of borrowings and cash and
cash equivalents).
At 26 March Cash flow Foreign exchange and other At 25 March
2022 £m £m 2023
£m £m
Borrowings (95.7) (27.0) (0.7) (123.4)
Cash and cash equivalents 24.3 15.6 0.4 40.3
Net debt (71.4) (11.4) (0.3) (83.1)
At 27 Cash flow Foreign exchange and other At 26
March £m £m March 2022
2021 £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)
Net debt is presented excluding unamortised pre-paid borrowing fees of £5.0m
(FY22: £3.1m) and £12.4m (FY22: £14.2m) 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 January 2025. 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 FY23, the Group reallocated £25.0m of the bond and
guarantee component to the cash component such that at present, £175.0m in
total is available on the RCF component, of which £122.0m was drawn as at 25
March 2023. A separate borrowing facility for financing equipment under
construction is in place and at 25 March 2023 the amount outstanding on this
facility is £0.7m.
As at 25 March 2023, the Group had a total of undrawn committed borrowing
facilities, all maturing in more than one year, of £53.0m (26 March 2022:
£55.0m, all maturing in more than one year).
10 RETIREMENT BENEFIT OBLIGATIONS
The Group has pension plans, devised in accordance with local conditions and
practices in the country concerned, covering the majority of employees. The
assets of the Group's plans are generally held in separately administered
trusts or are insured.
2023 2022
£m £m
UK retirement benefit (deficit)/surplus (53.1) 31.6
Overseas retirement liability (1.6) (1.8)
Retirement benefit (deficit)/surplus (54.7) 29.8
Reported in:
Non-current assets - 31.6
Non-current liabilities (54.7) (1.8)
(54.7) 29.8
The majority of the Group's retirement benefit obligations are in the UK:
2023 2023 2023 2022 2022 2022
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Equities 3.2 - 3.2 56.3 - 56.3
Bonds 88.7 - 88.7 154.9 - 154.9
Secured/fixed income 133.0 - 133.0 456.2 - 456.2
Liability Driven Investment Fund 163.6 - 163.6 248.1 - 248.1
Multi Asset Credit 60.2 - 60.2 62.8 - 62.8
Qualifying insurance policy 220.6 - 220.6 - - -
Other 8.9 - 8.9 10.4 - 10.4
Fair value of scheme assets 678.2 - 678.2 988.7 - 988.7
Present value of funded obligations (727.5) - (727.5) (952.8) - (952.8)
Funded defined benefit pension schemes (49.3) - (49.3) 35.9 - 35.9
Present value of unfunded obligations (3.8) (1.6) (5.4) (4.3) (1.8) (6.1)
Net (deficit)/surplus (53.1) (1.6) (54.7) 31.6 (1.8) 29.8
Amounts recognised in the consolidated income statement:
2023 2023 2023 2022 2022 2022
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Included in employee benefits expense:
Current service cost - - - - - -
Administrative expenses and taxes (1.6) - (1.6) (1.8) - (1.8)
Included in interest on retirement benefit obligation net finance expense: -
Interest income on scheme assets 27.6 - 27.6 20.2 - 20.2
Interest cost on liabilities (26.5) - (26.5) (20.4) - (20.4)
Retirement benefit obligation net finance expense 1.1 - 1.1 (0.2) - (0.2)
Total recognised in the consolidated income statement (0.5) - (0.5) (2.0) - (2.0)
Return on scheme assets excluding assumed interest income (301.1) 0.4 (300.7) (51.2) - (51.2)
Remeasurement gains/(losses) on defined benefit pension obligations 200.4 - 200.4 86.9 - 86.9
Amounts recognised in other comprehensive income (100.7) 0.4 (100.3) 35.7 - 35.7
Principal actuarial assumptions:
2023 2023 2022 2022
UK Overseas UK Overseas
% % % %
Discount rate 4.70% - 2.85% -
CPI inflation rate 2.50% - 3.10% -
RPI inflation rate 3.00% - 3.50% -
The financial assumptions adopted as at 25 March 2023 reflect the duration of
the scheme liabilities which has been estimated to be broadly 14 years (FY22:
broadly 15 years).
At 25 March 2023 mortality assumptions were based on tables issued by Club
Vita, with future improvements in line with the CMI model, CMI_2021 (FY22:
CMI_2021) with a smoothing parameter of 7.5 and a long-term future improvement
trend of 1.25% per annum (FY22: long-term rate of 1.25% per annum) and w2020
parameter of 20% (FY22: 5%). The resulting life expectancies within retirement
are as follows:
2023 2022
Aged 65 retiring immediately (current pensioner) Male 21.8 22.0
Female 23.9 24.0
Aged 50 retiring in 15 years (future pensioner) Male 22.4 22.5
Female 25.3 25.4
On 2 March 2022, the Trustee and the Company agreed the terms for a schedule
of contributions and a recovery plan, setting out a programme for clearing the
UK Pension Scheme deficit (the "Recovery Plan"). The last actuarial valuation
of the UK Pension Scheme was at 5 April 2021, which was based on intentionally
prudent assumptions, revealed a funding shortfall (technical provisions minus
the value of the assets) of £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. 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 24 May 2022, the Trustees of the Main Scheme entered into a partial
pensioner buy-in contract (qualifying insurance policy) or a proportion of
pension members. In return for a premium paid from the Scheme's assets, from
the date of the buy-in, payments will be made to the Scheme that match the
benefit payments to those Scheme members covered under the buy-in contract.
The buy-in is considered to be a qualifying insurance policy. The premium paid
to the insurer was £319.0m. As at 25 March 2023, the value of the buy-in
contract was £220.6m. The impact of the partial pensioner buy-in has been
recognised as a loss on the scheme assets.
11 CONTINGENT ASSETS AND LIABILITES
In June 2019 De La Rue International Limited terminated its agency agreement
and sales consultancy agreement with Pastoriza SRL, a company which provided
agency and sales consultancy services to the Group in the Dominican Republic
from 2016 to 2019. Pastoriza disputed the termination and commenced a
commercial lawsuit in the Dominican Republic for a claimed amount of
approximately US$8m (plus monthly interest) which was dismissed by the Court
in December 2020. Pastoriza appealed the decision, but the Court of Appeal
dismissed the appeal in May 2021. Pastoriza then appealed to the Supreme
Court, which also dismissed the appeal in July 2022. We have now had
confirmation from the Court that Pastoriza has not lodged an appeal with the
Constitutional Court (which would have been the final possible forum for this
litigation) and it is now too late to do so, therefore the litigation is now
at an end.
De la Rue has been made aware that the Central Bureau of Investigation in
India (CBI-I) has launched an investigation into the conduct of Arvind
Mayaram, the former Indian Finance Secretary, in which the historical
activities of De La Rue in India prior to 2016 have been implicated. The
Company has not received any official direct communication of this
investigation from the CBI-I but has learned about it from publicly available
sources. De La Rue has not served the Government of India or the Central Bank
of India in any capacity since 2016. The Company believes that there is no
merit to the allegations that relate to De La Rue and is seeking legal advice
in this regard.
The Group also provides guarantees and performance bonds which are issued in
the ordinary course of business. In the event that a guarantee or performance
bond is called, a provision may be required subject to the particular
circumstances including an assessment of its recoverability.
12 RELATED PARTY TRANSACTIONS
During the year the Group traded on an arm's length basis with the associated
company Fidink (33.3% owned). The Group's trading activities with Fidink in
the period comprise £22.2m (FY22: £20.3m) for the purchase of ink and other
consumables on an arm's length basis. At the balance sheet date there was
£1.7m (FY22: £4.6m) owing to this company.
The value of the Group's investment in associate is not material and hence not
disclosed on the face of the balance sheet.
Intra-group transactions between the Parent and the fully consolidated
subsidiaries or between fully consolidated subsidiaries are eliminated on
consolidation.
Directors and Key management compensation
Directors 2023 2022
£'000 £'000
Aggregate emoluments 1,595 2,097
Aggregate gains made on the exercise of share options - -
1,595 2,097
Directors and Key management 2023 2022
£m £m
Salaries and other short term employee benefits 2.1 2.7
Retirement benefits - Defined contribution 0.1 0.1
Termination benefits 0.2 -
Share-based payments 0.1 0.8
2.5 3.6
Key management comprises members of the Board (including the fees of
Non-executive Directors) and the Executive Leadership Team. Termination
benefits include compensation for loss of office, ex gratia payments,
redundancy payments, enhanced retirement benefits and any related benefits in
kind connected with a person leaving office or employment.
13 NON-CONTROLLING INTEREST
The Group has three subsidiaries with material non-controlling interests:
· De La Rue Buck Press Limited, whose country of incorporation is
Ghana;
· De La Rue Lanka Currency and Security Print (Private) Limited,
whose country of incorporation is Sri Lanka; and
· De La Rue Kenya EPZ Limited, whose country of incorporation and
operation is Kenya.
The accumulated non-controlling interest of the subsidiary at the end of the
reporting period is shown in the Group balance sheet. The following table
summarises the key information relating to these subsidiaries, before
intra-group eliminations.
Ghana Sri Lanka Kenya(1) Ghana Sri Kenya
Lanka
Non-controlling interest percentage 51% 40% 40% 51% 40% 40%
2023 2023 2023 2022 2022 2022
£m £m £m £m £m £m
Non-current assets - 7.7 0.2 - 9.4 5.8
Current assets 8.9 30.5 22.8 5.8 22.6 25.1
Non-current liabilities - (0.4) - - (0.3) (0.1)
Current liabilities (5.7) (10.6) (13.7) (5.1) (3.8) (14.2)
Net assets (100%) 3.2 27.2 9.3 0.7 27.9 16.6
2023 2023 2023 2022 2022 2022
£m £m £m £m £m £m
Revenue 13.8 35.0 16.8 14.3 34.4 30.5
Profit/(loss) for the year 2.1 1.2 (7.3) 0.3 3.0 2.2
Profit/(loss) allocated to non-controlling interest 1.1 0.5 (2.9) 0.2 1.1 0.9
Dividends declared by non-controlling interest - 0.8 - - 0.7 0.2
Cash flows from operating activities 2.9 8.9 0.8 (0.6) (0.6) 0.9
Cash flows from investing activities - (0.2) (0.3) - 0.2 (0.3)
Cash flows from financing activities - (1.9) (0.1) 0.3 (1.8) (0.5)
Net (decrease)/increase in cash and cash equivalents 2.9 6.8 0.4 (0.3) (2.2) 0.1
Notes:
(1) In January 2023, the Group announced that it has suspended banknote
printing operations Kenya. In addition, operations in Authentication division
are also in the process of winding down.
14 CAPITAL AND OTHER COMMITMENTS
2023 2022
£m £m
Capital and other expenditure contracted but not provided:
Property, plant and equipment 16.4 10.6
Lease commitments 13.9 -
Other commitments - 364.2
30.3 374.8
Lease commitments relate to the factory site extension in Malta where the
Company has signed a lease for the premises for an initial term of 20 years.
The lease will be recognised when the building becomes available for use.
Other commitments in the table above in FY22 were amounts in relation to the
sale of Portals De La Rue Limited to EPIRIS Fund II on 29 March 2018. As part
of the transaction, Portals De La Rue Limited supplied paper to meet the
Group's anticipated internal requirements with pre-agreed volumes and price
mechanisms until March 2028. Based on the terms of the agreement the Group had
other commitments of approximately £626.9m over 10 years from the date of
sale. Management assessed that such supply arrangement all associated
commitments form a single agreement for accounting purposes. The termination
of the Relationship Agreement with Portals in the year resulted in these
commitments being extinguished.
15 Post Balance Sheet events
On 29 June 2023 the Company entered into a number of documents which had the
effect of amending and restating the terms of the revolving facility agreement
with its lending banks and their agents.
These documents are an amendment and restatement agreement with the various
lenders and the banks' agent and security agent, a debenture between the
Company, certain other Group companies and the banks' security agent and an
inter-creditor agreement between the creditors. As a result of these
changes, the facilities are now secured against material assets and shares
within the Group.
On the 28 June 2023 the Company entered into an agreement with the trustees of
the De La Rue Pension Scheme in relation to the deferral of certain deficit
reduction payments that were otherwise due to be paid by the Company and other
Group companies to that scheme. In order to preserve and support the position
of the scheme, with the support of the lenders, the scheme will be provided
with security on a pari passu basis together with the lenders, as well as an
enhanced information sharing protocol to ensure ongoing communication between
the Group and the trustee remains comprehensive.
NON IFRS MEASURES
De La Rue plc publishes certain additional information in a non-statutory
format in order to provide readers with an increased insight into the
underlying performance of the business. These non-statutory measures are
prepared on a basis excluding the impact of exceptional items and amortisation
of intangibles acquired through business combinations, as they are not
considered to be representative of underlying business performance. The
measures the Group uses along with appropriate reconciliations to the
equivalent IFRS measures where applicable are shown in the following tables.
The Group's policy on classification of exceptional items is also set out
below:
The Directors consider items of income and expenditure which are material by
size and/or by nature and not representative of normal business activities
should be disclosed separately in the financial statements so as to help
provide an indication of the Group's underlying business performance. The
Directors label these items collectively as 'exceptional items'. Determining
which transactions are to be considered exceptional in nature is often a
subjective matter. However, circumstances that the Directors believe would
give rise to exceptional items for separate disclosure would include: gains or
losses on the disposal of businesses, curtailments on defined benefit pension
arrangements or changes to the pension scheme liability which are considered
to be of a permanent nature such as the change in indexation or the GMPs, and
non-recurring fees relating to the management of historical scheme issues,
restructuring of businesses, asset impairments and costs associated with the
acquisition and integration of business combinations. All exceptional items
are included in the appropriate income statement category to which they
relate.
A Adjusted revenue
Adjusted revenue excluded "pass-through" revenue relating to non-novated
contracts following the paper and international identity solutions business
sales. There has been no "pass-through" revenue in FY23 or FY22 and therefore
this non-IFRS is no longer used by the Group.
B Adjusted operating profit
Adjusted operating profit represents earnings from continuing operations
adjusted to exclude exceptional items and amortisation of acquired intangible
assets.
2023 2022
£m £m
Operating (loss)/profit from continuing operations on an IFRS basis (20.3) 29.7
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 47.1 5.7
Adjusted operating profit from continuing operations 27.8 36.4
C Adjusted basic earnings per share
Adjusted earnings per share are the earnings attributable to equity
shareholders, excluding exceptional items and amortisation of acquired
intangible assets and discontinued operations divided by the weighted average
basic number of ordinary shares in issue. It has been calculated by dividing
the De La Rue plc's adjusted operating profit from continuing operations for
the period by the weighted average basic number of ordinary shares in issue
excluding shares held in the employee share trust.
2023 2022
£m £m
(Loss)/Profit attributable to equity shareholders of the Company (55.9) 21.5
Exclude: discontinued operations - (0.8)
(Loss)/Profit attributable to equity shareholders of the Company from
continuing operations on an
(55.9) 20.7
IFRS basis
Amortisation of acquired intangible assets 1.0 1.0
Exceptional items 47.1 5.7
Tax on amortisation of acquired intangible assets (0.3) (0.3)
Tax on exceptional items 5.1 (1.8)
Adjusted (loss)/profit attributable to equity shareholders of the Company from (3.0) 25.3
continuing operations
Weighted average number of ordinary shares for basic earnings 195.4 195.2
Continuing operations 2023 2022
pence per share pence per share
Basic earnings per ordinary share on an IFRS basis (28.6) 10.6
Basic adjusted earnings per ordinary share (1.5) 13.0
D Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA represents earnings from continuing operations before the
deduction of interest, tax, depreciation, amortisation and exceptional items.
The EBITDA margin percentage takes the applicable EBITDA figure and divides
this by the continuing revenue in the period of £349.7m (FY22: £375.1m). The
covenant test (note 14(b)) uses earlier accounting standards and excludes
adjustments for IFRS 16 and takes into account lease payments made.
2023 2022
£m £m
(Loss)/Profit for the year (57.2) 23.7
Add back:
Profit on discontinued operations - (0.8)
Taxation 27.6 1.3
Net finance expenses 9.3 5.5
(Loss)/Profit before interest and taxation from continuing operations (20.3) 29.7
Add back:
Depreciation of property, plant and equipment 12.5 12.0
Depreciation of right-of-use assets 2.2 2.3
Amortisation of intangible assets 5.3 4.3
EBITDA (0.3) 48.3
Exceptional items 47.1 5.7
Adjusted EBITDA 46.8 54.0
Revenue £m 349.7 375.1
EBITDA margin (0.1)% 12.9%
Adjusted EBITDA margin 13.4% 14.4%
The adjusted EBITDA split by division was as follows:
Total of continuing operations
Identity Solutions Central
FY23 Currency Authentication
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (24.8) 5.4 (0.2) (0.7) (20.3)
Add back:
Net exceptional items 38.4 7.9 0.1 0.7 47.1
Depreciation of property, plant and equipment and right-of-use assets 11.1 2.5 0.1 1.0 14.7
Amortisation of intangible assets 1.3 3.4 - 0.6 5.3
Adjusted EBITDA 26.0 19.2 - 1.6 46.8
Identity Solutions Total of continuing operations
FY22 Currency Authentication Central
£m £m £m £m £m
Operating profit/(loss) on IFRS basis 15.0 15.1 0.6 (1.0) 29.7
Add back:
Net exceptional items 4.5 0.2 - 1.0 5.7
Depreciation of property, plant and equipment and right-of-use assets 10.7 2.5 - 1.1 14.3
Amortisation of intangible assets 1.3 2.3 - 0.7 4.3
Adjusted EBITDA 31.5 20.1 0.6 1.8 54.0
E Adjusted controllable operating profit by division
Adjusted controllable operating profit represents earnings from continuing
operations of the on-going divisions adjusted to exclude exceptional items and
amortisation of acquired intangible assets and costs relating to the enabling
functions such as Finance, IT and Legal that are deemed to be attributable
only to the on-going two divisional structure model. Key reporting metrics for
monitoring the divisional performance is linked to gross profit and
controllable profit (being adjusted operating profit before the allocation of
enabling function overheads), with the enabling functional cost base being
managed as part of the overall business key Turnaround Plan objectives.
Total of continuing operations
Identity Solutions Central
FY23 Currency Authentication
£m £m £m £m £m
Operating (loss)/profit on IFRS basis (24.8) 5.4 (0.2) (0.7) (20.3)
Amortisation of acquired intangibles - 1.0 - - 1.0
Net exceptional items 38.4 7.9 0.1 0.7 47.1
Adjusted operating profit/(loss) 13.6 14.3 (0.1) - 27.8
Enabling function overheads 24.0 8.7 - (32.7) -
Adjusted controllable operating profit/(loss) 37.6 23.0 (0.1) (32.7) 27.8
Identity Solutions Total of continuing operations
FY22 Currency Authentication Central
£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
F Return on capital employed ("ROCE")
ROCE is the ratio of the adjusted operating profit (operating profit before
amortisation of acquired intangible assets and net exceptional items) over the
average capital employed for the current and prior year.
In 2020 the Performance share plan measures were revised and TSR (Total
Shareholder Return relative to FTSE 250 companies, measured over three
calendar years) was used in replacement of ROCE, to align to planned growth
over the three-year period of the Turnaround Plan, so that appropriate focus
is placed on the key business imperative of restoring value to shareholders.
The ROCE measure was still applicable to PSP share awards which vested between
2021 and 2022, with the last vesting date was in July 2022. This non-IFRS
measure is no longer used by the Group.
2022
£m
- Property, plant and equipment 102.7
- Intangible assets 37.5
- Right-of-use assets 12.9
- Other financial assets 7.4
- Inventories 50.1
- Trade and other receivables 89.0
- Contract assets 8.0
- Derivative financial assets 3.4
- Trade and other payables (80.0)
- Derivative financial liabilities (4.8)
Capital Employed 226.2
ROCE = Adjusted operating profit/Average Capital Employed
Adjusted operating profit 36.4
Capital Employed - current year 226.2
Capital Employed - prior year 202.5
Average Capital Employed 214.3
ROCE 17.0%
-ENDS-_
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