TIDMDLAR
RNS Number : 8067Z
De La Rue PLC
26 May 2021
26 May 2021
DE LA RUE
2020/21 FULL YEAR RESULTS
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the
"Company") announces its full year results for the year ended 27
March 2021 (the "period", "FY" or "full year"). The comparative
period was the twelve months ended 28 March 2020.
Highlights:
-- Adjusted operating profit increased by 60.8% to GBP38.1m (FY 2019/20: GBP23.7m)
-- IFRS operating profit of GBP14.5m reflecting significant exceptional item charges
-- Turnaround Plan savings completed, delivering a cumulative
GBP36m of annualised cost out due to the programme from the end of
FY 2020/21
-- Substantial growth in revenue and profitability in ongoing
Authentication and Currency divisions, achieving an adjusted
operating profit of GBP27.5m (FY 2019/20: GBP1.4m)
-- Authentication saw good growth in H2 2020/21 and secured
orders with expected total multi-year lifetime contract value of
GBP195m from start of FY 2020/21 to date
-- Currency 100% banknote capacity utilisation in H2 2020/21
with strong margin progression during year
-- Bank of England majority polymer contract won starting July
2021; SAFEGUARD(R) now selected for all Sterling denominations
-- Net debt substantially reduced to GBP52.3m (FY 2019/20: GBP102.8m)
-- GBP100m equity capital raise completed July 2020
Financial Summary
FY 2020/21 FY 2019/20 (3) Change
GBPm GBPm %
================================================= ============= ================= =======
Adjusted Revenue (FY 2019/20 restated(3)
)* 388.1 432.0 -10.2%
Currency 286.8 281.6 1.8%
Authentication 77.6 73.8 5.1%
Identity Solutions 23.7 76.6 -69.1%
IFRS Revenue (FY 2019/20 restated(3)
)* 397.4 472.1 -15.8%
Gross Profit 107.8 105.9 1.8%
Adjusted operating expenses *(1) -69.7 -82.2 -15.2%
Adjusted operating profit *(1) 38.1 23.7 60.8%
IFRS operating profit/(loss) 14.5 42.8 -66.1%
Net debt(5) 52.3 102.8 -49.1%
Adjusted EPS basic (p) *(2) 14.7p 11.1p(4) 32.4%
IFRS EPS basic (continuing operations)
(p) 3.7p 30.3p(4) -87.8%
================================================== ============= ================= =======
FY 2020/21 financial performance
-- Authentication revenue full year growth of 5.1%; the increase
tempered by GBP1.6m of revenue contracts that were sold with the
International Identity Solutions business in H2 2019/20. H2 2020/21
saw growth of 27.8% compared to same period in prior year
reflecting growth from a new contract win and strong volume growth
in Government Revenue Solutions (GRS), despite COVID-19 related
impact on two contracts offsetting negative growth seen in H1
2020/21.
-- Currency revenue grew due mainly to increased banknote
volumes, and higher security features sales.
-- Gross profit of GBP107.8m (FY 2019/20: GBP105.9m), reflecting
improved mix through H2 2020/21 and increased efficiencies and
volumes in Currency and increased Authentication volumes, offset by
lower gross profit in Identity Solutions.
-- Total gross profit for our two ongoing divisions,
Authentication and Currency, grew by 30.5% to GBP95.3m (FY 2019/20:
GBP73.0m).
-- Adjusted operating profit of GBP38.1m (FY 2019/20: GBP23.7m),
represents a significant improvement resulting from the ongoing
implementation of the Turnaround Plan, including benefits from the
reorganisation and cost reduction programmes. Adjusted operating
profit for our two ongoing divisions, Authentication and Currency,
performed strongly delivering GBP27.5m (FY 2019/20: GBP1.4m) being
mainly driven by the improvement in the Currency division which
grew adjusted operating profits to GBP16.2m from a loss of GBP9.4m
in FY 2019/20. This performance more than offset the lower adjusted
operating profits from the Identity Solutions division.
-- IFRS operating profit of GBP14.5m (FY 2019/20: GBP42.8m) was
substantially lower than adjusted operating profit due mainly to
the recognition of substantial asset impairment and reorganisation
charges relating to the cessation of banknote manufacturing at the
Gateshead facility. IFRS operating profit in FY 2019/20 also
included the gain on the sale of International Identity Solutions
of GBP25.3m (excluding associated disposal costs).
-- Adjusted basic EPS was 14.7p (FY 2019/20: (restated) 11.1p)
reflected the improvement in adjusted profits which was mitigated
by the higher number of shares post equity raise.
-- IFRS basic EPS from continuing operations of 3.7p (FY
2019/20: (restated) 30.3p) reflected the recognition in FY 2020/21
of significant net exceptional charges (before tax) of GBP22.6m,
compared to a net exceptional item credit (before tax) of GBP20.0m
in the prior year in addition to the impact of a higher number of
shares post equity raise.
-- Net debt of GBP52.3m (FY 2019/20: GBP102.8m), reduction
principally due to completion of equity capital raise in July 2020
offset in part by capital expenditure under the Turnaround Plan
(which is below expectations primarily due to timings of
expenditure) and the impact of a negative movement in working
capital of GBP39.8m. The working capital movement reflects the
timing of cash collections on certain material customer contracts,
the impact of which will unwind in H1 FY 2021/22 and the impact of
the payments relating to the close out of the UK Passport contract.
Cash generated from operating activities included approximately
GBP11m of cash payments related to exceptional items and
discontinued.
Business update
-- Authentication secured GBP195m of expected total multi-year
lifetime contracts from start of FY 2020/21 to date, and
re-iterates guidance of GBP100m in revenue in FY 2021/22.
-- Currency 100% utilisation of banknote printing capacity
during H2 2020/21 with good margin progression during year.
-- Turnaround Plan savings completed, delivering a cumulative
GBP36m of annualised cost out from the end of FY 2020/21. Actions
from Turnaround Plan have delivered GBP6m of in year savings in FY
2019/20 and GBP23m of in year savings in FY 2020/21, with a further
GBP7m of in year savings to come in FY 2021/22.
-- Company continues to manage business effectively during the COVID-19 pandemic.
Clive Vacher, Chief Executive Officer of De La Rue, said:
"Both our ongoing divisions are performing well and the Group
has delivered good growth in adjusted operating profits as we
complete the first full year of our Turnaround Plan. We saw good
growth in adjusted operating margins for Currency in the year and
Authentication has secured GBP195m of expected multi-year lifetime
contracts from April 2020 to date. We have made encouraging
progress in our polymer growth plans, securing a new site to double
capacity during FY 2021/22.
"We see a strong pipeline of business for FY 2021/22 and
continue to expect to deliver the full financial and operational
benefits of the Turnaround Plan during the year."
Excludes exceptional items net charges pre-tax of GBP22.6m (FY 2019/20:
(1) net credits pre-tax of GBP20.0m) and amortisation of acquired intangible
assets pre-tax of GBP1.0m (FY 2019/20: GBP0.9m)
Excludes exceptional items net charges post-tax of GBP18.4m (FY 2019/20:
(2) net credits post-tax GBP22.5m) and amortisation of acquired intangible
assets post-tax of GBP0.6m (FY 2019/20: GBP0.7m)
FY 2019/20 figures have been restated to correctly reflect the nature
(3) of certain contract related payments to include these as cost of goods
sold rather than a reduction to revenue. The impact of this restatement
is an increase to revenue with an offsetting increase to cost of goods
sold of GBP5.3m with no overall impact on profits compared to the figures
originally reported. For further information see page 24.
(4) Restatement of earnings per share reflects adjustments associated with
the Equity Capital raise with regards to weighted average number of
shares
This is a non-IFRS measure. Adjusted revenue excludes "pass through
(*) revenue" relating to non-novated paper business contracts where the
group earns nil margin. See note 14 for reconciliation of non-IFRS measures
to comparable IFRS measures.
We announce today that the Board has decided to appoint Margaret
Rice-Jones as Senior Independent Director with immediate
effect.
Enquiries:
De La Rue plc +44 (0) 7387 122645
Clive Vacher Chief Executive Officer
Rob Harding Chief Financial Officer
Matthew Rose Director of Tax, Treasury and
Investor Relations
Kirstie Thomas Investor Relations Manager
Brunswick +44 (0)207 404 5959
Stuart Donnelly
Ed Brown
A conference call will take place at 8:30 am on 26 May 2021,
which is also 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.
De La Rue plc's LEI code is 213800DH741LZWIJXP78
BUSINESS UPDATE
Group reorganisation
In these results, we report on the financial performance of the
Currency, Authentication and Identity Solutions divisions,
reflecting the sale of International Identity Solutions in October
2019 and our operating structure after our realignment of the Group
in November 2019. To provide increased insight into the underlying
performance of our business, we have reported revenue, gross margin
and operating profit on an IFRS and adjusted basis for the Group,
as well as gross profit, and adjusted operating profit for all
divisions, together with adjusted controllable operating profit
(adjusted operating profit before enabling function (such as HR,
Legal, Finance and IT) cost allocation) for the current period (see
note 14 for definition of controllable operating profit and
reconciliation to equivalent IFRS measure).
We have worked with Her Majesty's Passport Office (HMPO) to
complete the transition of the UK Passport contract during FY
2020/21. As a result, we have reported substantially lower revenue
for Identity Solutions during FY 2020/21 compared to the prior
year. We have made all of our expected and forecast cash payments
relating to the close out of the UK Passport contract which were
accrued to the income statement over the life of the contract.
We note that the UK Passport contract provided a significant
proportion of the adjusted operating profit for Identity Solutions
and the Group in FY 2020/21 and will contribute no profits in the
future.
Turnaround Plan
On 25 February 2020, we announced details of the Turnaround Plan
(the "Turnaround Plan") for the Company. Key highlights on our
progress to date include:
Cost reduction : The Group has taken actions to complete the
Turnaround Plan savings, delivering a cumulative GBP36m of
annualised cost out the end of FY 2020/21 due to the programme.
Actions from Turnaround Plan have delivered GBP6m of in year
savings in FY 2019/20 and GBP23m of in year savings due to the
programme in FY 2020/21, with a further GBP7m of in year savings
due to the Turnaround Plan to come in FY 2021/22.
In FY 2019/20, enabling function costs represented approximately
8% of Group revenue (these costs being allocated to divisional
adjusted operating profit by revenue in FY2019/20). With
significantly reduced revenues due in part to the ending of the UK
Passport contract, this remained at 9% in FY 2020/21 as planned,
and we expect to reduce enabling operating costs relative to Group
revenue going forward.
Authentication: Authentication is focused on providing physical
and digital solutions to authenticate products through the supply
chain and to provide tracking of excisable goods to support
compliance with government regulations. Working across the
commercial and government sectors, we address consumer and brand
owner demand for protection against counterfeit goods. De La Rue
continues to target Authentication division revenues of GBP100m in
FY 2021/22, with strong operating margins and strong year-on-year
growth in this division during the three-year period of the
Turnaround Plan, as more countries adopt tobacco tax stamp schemes
to comply with the World Health Organisation (WHO) Framework
Convention on Tobacco Control (FCTC).
The traditional tax stamp market covering tobacco and alcohol
has evolved to include digital solutions and tobacco
track-and-trace. The combined physical and digital solutions
provided by the Group support governments to protect tax revenue
and to comply with intergovernmental policies and international
treaties such as the EU Tobacco Products Directive and the World
Health Organisation FCTC.
During FY 2020/21 to date, Authentication secured GBP195m of
expected lifetime multi-year contract value. The two new GRS
contracts in our announcement of 13 May 2021 are with the General
Tax Authority of Qatar and the National Bureau for Revenue of
Bahrain, and these schemes follow the same model as our current
digital tax stamp solutions in the Gulf Cooperation Council area.
The contract with the Ghana Revenue Authority announced earlier in
the year is now operational and contributed to revenue growth in H2
2020/21.
In addition to the five year renewal of our contract with
Microsoft to provide innovative authentication products to
Microsoft's OEM, Retail and Xbox channels, thereby extending the 25
year relationship until 2026 (which was announced on 13 May 2021),
we have secured further wins in brand protection, including Tier 1
companies in the technology and healthcare sectors.
Government Revenue Solutions performed well in FY 2020/21,
despite a contract having been impacted with reduced volumes as a
result of the pandemic. This is expected to recover with the
remainder of the Group's contracts delivering volumes in line with,
or higher than, expectations. We also saw an additional contract
impacted by the pandemic.
Although we saw negative growth in H1 2020/21, we saw good
year-on-year revenue growth for Authentication during H2 2020/21,
as we began production of tax stamps for our new contract in Ghana
and completed the software implementation for the HMRC ID Issuer
contract.
Currency: The Currency division is focused on: improving
profitability of banknote production, protecting and growing the
Group's paper security feature position, converting the world to
polymer and being the market leader, and investing in R&D in
polymer security features.
We improved profitability in banknotes in FY 2020/21 through an
improved mix as well as the delivery of cost reductions and
manufacturing efficiencies, and saw a mid-teens adjusted
controllable operating profit margin for the Currency division
during FY 2020/21 (before allocation of enabling function overhead
- see note 14 for definition of adjusted controllable operating
profit and reconciliation to comparable IFRS measure).
The Currency division has seen strong ongoing global demand for
cash as central banks seek to increase stock levels during the
pandemic. We utilised 100% of our banknote printing capacity during
H2 2020/21 with the volume increases and mix in banknotes
delivering higher revenue and margin compared to H1 2020/21.
De La Rue has established a leading position in polymer, with
the number of circulating polymer banknotes more than tripling
since the first banknote was introduced on SAFEGUARD(R) in 2013.
73% of all issuing authorities who issued new polymer banknotes
into circulation in FY 2020/21 used SAFEGUARD(R) and 33% selected a
De La Rue hologram in the window of the polymer banknote. De La Rue
has also been awarded the majority polymer substrate supply for the
Bank of England GBP5, GBP10 and GBP50 denominations from July 2021
resulting in De La Rue having contracts with the Bank of England
for all polymer denominations on SAFEGUARD(R). De La Rue is also
responsible for the design and manufacture of the Bank of England
new GBP50 banknote due for release in June 2021.
At the end of FY 2020/21, approximately 4% of the world's
banknotes by volume, and 14% by denomination had moved to polymer,
up from 11% at the start of the financial year. A cornerstone of
the Company's strategy is investing in, and supporting customers
with, the significant trend of transition from paper to polymer
notes.
Given the ongoing and expected demand for polymer, we plan to
spend approximately GBP20 million on new polymer capacity, an
increase on the approximately GBP15 million previously indicated.
In January 2021, we secured a new building adjacent to our existing
premises in Westhoughton, near Bolton, which will create
operational efficiencies. We expect the new line to be fully
operational before the end of calendar year 2021 and that it will
more than double current polymer production capacity. As part of
this investment, we plan to recruit up to an additional 70 people
during the next two and a half years.
In paper security features, thread sales continue to grow and
new banknotes containing KINETIC STARCHROME(R), PUREIMAGE(TM),
IGNITE(R) and NEXUS(TM) have been issued into circulation, with
further issuance on these threads during the next 12 months.
NEXUS(TM) and IGNITE(R) were also launched as part of the Qatar new
family of banknotes.
We ceased banknote printing operations at Gateshead in December
2020, although the site remains in use for other activities. UK
Passport operations, also in Gateshead, ceased operations during H1
2020/21.These actions will not lead to a reduction of the Company's
worldwide printing capacity. Following a period of transition and
the relocation of equipment from Gateshead to other sites, we will
retain the same capacity while operating with four currency print
factories, down from five.
On 30 October 2020, we announced that the Bank of England has
confirmed it will exercise its option to extend its existing
banknote print contract by three years, maintaining De La Rue's
exclusivity in printing Bank of England banknotes and operating the
Bank's facility in Debden, Essex, until 2028.
De La Rue's total aggregate 3-year investment for the Turnaround
Plan is line with expectations. Spending includes a reduction in
Authentication capex from GBP35.2m as previously indicated, due in
part to moving to the cloud from hardware-based solutions.
OUTLOOK
Trading for the first two months of FY 2021/22 has been positive
and in line with management expectations.
The Directors believe that the equity capital raise completed in
July 2020 provided the Company and its management with operational
and financial flexibility to implement the Turnaround Plan.
We have a target of returning the Company to a strong financial
position and an operating platform which will deliver sustainable
growth at high operating margins and strong cash generation in the
medium term. Following an initial period of cash outflow to fund
the Turnaround Plan, we continue to aim for the Group to be
generating cash flow capable of supporting sustainable cash
dividends to shareholders by the end of the Turnaround Plan in FY
2022/23.
EQUITY CAPITAL RAISING, DEBT REFINANCING AND PENSION RECOVERY
PLAN
De La Rue completed a GBP100m gross (pre-costs) and GBP92.7m
(post-costs) equity capital raising on 7 July 2020, strengthening
the Group's balance sheet and enabling the Company to deliver the
Turnaround Plan.
Effective 7 July 2020, the Group amended the terms of its Bank
facilities of GBP275m. This extended the maturity date of the
Revolving Credit Facility ("RCF") to December 2023 and included an
RCF cash drawdown component of up to GBP175m and bond and guarantee
facilities of a minimum of GBP100m.
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"). As a result of the
Recovery Plan pension contributions for FY 2020/21 were GBP11.4m
with the final quarter's payment of GBP3.8m falling just outside of
year end but prior to 31 March 2021 (FY 2019/20: GBP21.3m).
Total costs relating to the equity capital raising and bank
refinancing were GBP15.3m, broken down as follows:
-- Costs related to the equity capital raise of GBP7.3m have been presented
as a reduction to equity within the Balance Sheet;
-- Transaction costs related to the debt refinancing of the Group's amended
RCF of GBP4.8m have been capitalised on the balance sheet and will
be amortised over the periods until 1 December 2023 (and which are
excluded from Interest for covenant purposes), and:
-- Further costs totalling GBP3.2m have been recorded in exceptional
items within the income statement, which includes GBP0.7m relating
to the write-off of the unamortised balance of the prepaid loan arranging
fees relating to the original RCF prior to amendment of terms.
COVID-19
In 2018, as part of the ongoing business continuity and risk
planning activities of De La Rue, the company drew up a general
pandemic Business Continuity Plan, which has proved effective in
the response to COVID-19.
The Company has assessed, and continues to assess, the potential
for disruption caused by the COVID-19 pandemic and has put in place
plans and measures in order to enable the business to maintain
normal operations, to the extent possible, against the backdrop of
an evolving situation.
Within the UK and across many of the other countries in which
the Group operates, many of the Group's products and services are
considered by customers, governments and other relevant
stakeholders to be essential to the underpinning of trade
integrity, personal identity and/or the movement of goods.
The Group has implemented actions to mitigate the impact of
COVID-19, including steps to protect its employees in line with
guidance from governments, and whilst there remains considerable
uncertainty in relation to the COVID-19 pandemic (including in
relation to its duration, extent and ultimate impact), the Board
believes that the Group's operations will continue to experience
only limited disruption due to the impact of the COVID-19
pandemic.
During FY 2020/21, all four of our UK and our Malta and Kenya
sites and our two facilities in the United States continued to
operate with minimal disruption and remained fully operational.
Operations at our site in Sri Lanka were suspended for eight weeks
between March and May 2020 due to island-wide governmental
restrictions and despite the suspension the site delivered its
printing target for the year.
Our supply chain across both our Currency and Authentication
divisions has remained materially unaffected since the outbreak of
the COVID-19 pandemic, due to robust and Group led incident
management framework.
The Group received credits via the Coronavirus Job Retention
Scheme (CJRS) of cGBP0.4m from the UK Government during the period,
in respect of employees who were unable to operate in their roles
fully due to the impact of COVID-19. The Group repaid these amounts
in April 2021.
BREXIT
We have been undertaking preparations for Brexit since 2018 and
have held frequent risk reviews and updates and enact contingency
measures to ensure preparedness and business continuity. These
reviews and updates have continued since the United Kingdom
formally exited its transition period with the European Union and
will continue as further separation milestones are reached
according to the timeline imposed by the UK-EU Trade Cooperation
Agreement.
Prior to 30 December 2020 and subsequently, we engaged with key
suppliers relating to their Brexit contingency planning, conducted
regular contractual reviews and analysed known tariff and free
trade access changes. We continue to actively review and assess the
impacts of the latest positions on on-going UK-EU talks and free
trade negotiations with non-EU countries.
The Group has experienced minimal operational and supply chain
disruption in the weeks preceding and subsequent months following
the 30 December 2020 due to contingency preparations. The risk of
operational or supply chain disruptions to either Currency or
Authentication divisions are not expected to increase in the coming
financial year.
The Group continues to seek opportunities to minimise the
administration involved and mitigate tariff and duty outlays and
costs for the group including making applications for designated
Customs Warehousing arrangements and Inward Processing Relief for
manufacturing processes where appropriate.
FINANCIAL RESULTS SUMMARY
FY 2019/20 figures have been restated to correctly reflect the
nature of certain contract related payments to include these as
cost of goods sold rather than a reduction to revenue. The impact
of this restatement is an increase to revenue with an offsetting
increase to cost of goods sold of GBP5.3m with no overall impact on
profits compared to the figures originally reported. For further
information see page 24.
Authentication saw an increase in revenue to GBP77.6m (FY
2019/20: GBP73.8m), with growth due mainly to the implementation of
tax stamps in Ghana and the completion of the software
implementation for the HMRC ID Issuer during H2 2020/21. Growth was
negatively impacted by the prior year including revenue of GBP1.6m
relating to contracts sold with the International Identity
Solutions business in H2 2019/20 and weakness in two contracts due
to the pandemic (which are expected to recover) offsetting growth
elsewhere.
We have seen a stabilisation in the market during FY 2020/21 for
Currency, with good volume growth and less pricing pressure
compared to the previous year through H2 2020/21, resulting in
adjusted revenue of GBP286.8m (FY 2019/20: GBP281.6m). Currency
IFRS revenue was GBP295.7m (FY 2019/20: GBP315.1m) the decline
being attributable to lower pass-through revenue as the contracts
covered by these arrangements are now largely completed.
As expected, we also saw a decline in adjusted revenue for
Identity Solutions in FY 2020/21, due to the impact of the sale of
International Identity Solutions in October 2019 and the completion
of the UK Passport production contract during the period. Identity
Solutions IFRS revenue declined by 71.0% and included GBP0.4m of
"pass through" revenue on non-novated contracts post sale compared
to GBP6.6m in FY 2019/20.
Group IFRS revenue reduced by 15.8% to GBP397.4m (FY 2019/20:
GBP472.1m), showing a higher rate of decline than in adjusted
revenue, due to substantially lower "pass-through" revenue on
non-novated contracts for Paper and International Identity
Solutions of GBP9.3m (FY 2019/20: GBP40.1m) as the contracts
covered by these arrangements are now largely completed.
Gross profit was GBP107.8m (FY 2019/20: GBP105.9m), reflecting
growth in Currency due mainly to an improved mix as well as the
delivery of cost reductions and manufacturing efficiencies,
increased Authentication gross profitability due to higher volumes
driven by the full year impact of wins in FY 2019/20 in the current
period and a new GRS win on Ghana during H2 2020/21, and lower
Identity Solutions profitability following the UK Passport contract
completion and the sale of the International Identity Solution
business.
Adjusted operating expenses excluding the impact of exceptional
items and amortisation of acquired intangibles were GBP69.7m (FY
2019/20: GBP82.2m), reflecting the fall in adjusted operating
expenses following the benefit of our cost reduction initiatives,
the sale of the International Identity Solutions business in
October 2019 and the completion of Her Majesty's Passport Office
(HMPO) contract.
Adjusted operating profit of GBP38.1m (FY 2019/20: GBP23.7m)
reflected the benefit of lower adjusted operating expenses which
more than offset the impact of lower adjusted revenues. The
adjusted operating profit margin improved to 9.8% (FY 2019/20:
5.5%).
Our two ongoing operating divisions, Authentication and Currency
(excluding Identity Solutions, which includes the UK Passport
contract) delivered adjusted operating profit of GBP27.5m (FY
2019/20: GBP1.4m) an improvement of GBP26.1m year-on-year. This
reflects stronger gross profitability of GBP95.3m (FY 2019/20:
GBP73.0m) and the reduction in adjusted operating expenses.
IFRS operating profit of GBP14.5m (FY 2019/20: GBP42.8m) was
substantially lower than adjusted operating profit due to the
recognition of significant net exceptional item charges of GBP22.6m
primarily relating to asset impairment and reorganisation charges
relating to the cessation of banknote manufacturing at the
Gateshead facility. IFRS operating profit in FY 2019/20 included
net exceptional item credits of GBP20.0m. Further details are
provided below.
Adjusted basic EPS was 14.7p (FY 2019/20: (restated) 11.1p) the
growth year-on-year reflected the improvement in adjusted profits
the benefit of which was mitigated by the higher number of shares
post the equity raise. IFRS basic EPS from continuing operations
was 3.7p (FY 2019/20: (restated) 30.3p) reflected the recognition
in the current period of significant net exceptional charges of
GBP22.6m compared to the impact of a net exceptional item credit of
GBP20m in the prior period in addition to the impact of the higher
number of shares post equity raise.
Cash generated from operating activities was an outflow of
GBP5.6m (FY 2019/20: inflow GBP1.5m), as profits from operating
activities were partly offset by an adverse working capital
movement of GBP39.8m (for further detail see below) and pension
funding contributions of GBP11.4m. Cash generated from operating
activities is also stated after approximately GBP11.0m of payments
relating to exceptional items and discontinued operations and the
forecasted substantial payments relating to the close-out of the UK
Passport contract (which were fully accrued over the life of the
contract).
The total net inflow including net proceeds of GBP92.7m from the
equity capital raise, but excluding GBP39.3m of net repayments on
Group borrowings in the period was GBP50.8m (FY 2019/20: inflow of
GBP4.7m), and includes proceeds from the sale of a non-operational
property of GBP2.7m, offset by capital expenditure of GBP21.1m (net
of grants received), payments of GBP4.8m of transaction costs in
relation to the debt refinancing and net interest payments of
GBP5.5m. The total net increase in cash and cash equivalents in the
period was GBP11.5m (FY 2019/20: increase of GBP3.2m).
As at 27 March 2021, EBIT/net interest payable was 6.3 times
(covenant of >=2.4 times in this financial year), and net
debt/EBITDA was 0.99 times (covenant of <=3.0 times), as
calculated in accordance with banking covenant definitions.
OPERATING PROFIT AND OPERATING COSTS
Adjusted operating profit in FY 2020/21 was GBP38.1m (FY
2019/20: GBP23.7m) and reflected :
-- A profit of GBP16.2m in Currency (FY 2019/20: loss of
GBP9.4m) resulting from a higher gross margin owing to an improved
mix, production efficiencies, increased volumes and reduced
overheads during the year, including the benefit due to the
reorganisation following the move to the divisional structure;
-- A profit in Authentication of GBP11.3m (FY 2019/20: GBP10.8m)
reflecting volume growth through FY 2020/21 due to the
implementation of new contracts and the full year impact of
contracts won in FY 2019/20, along with the divisional cost
structure changes in FY 2020/21 compared to the allocation
methodology in FY 2019/20;
-- A profit in Identity Solutions of GBP10.6m (FY 2019/20:
GBP22.8m), which will be minimal in FY 2021/22 following the end of
the UK Passport production contract.
On an IFRS basis, an operating profit of GBP14.5m was recorded
(FY 2019/20: GBP42.8m) including, in addition to the factors
referred to above, net exceptional charges of GBP22.6m, which
primarily related to asset impairment and restructuring charges
associated with cessation of banknote production at our Gateshead
facility, those related to other cost out initiatives including the
restructuring of our central enabling functions and certain costs
related to the equity capital raise and debt refinancing completed
in July 2020. IFRS operating profit in FY 2019/20 included net
exceptional credits of GBP20.0m including the impact of a GBP25.3m
gain on the sale of the International Identity Solutions business
and an GBP8.7m credit relating to the resolution of a historical
issue in respect of change in revaluation rates for certain
deferred pension scheme members. Please see note 5 'Exceptional
Items' below for more details.
On 14 October 2019, the Group disposed of its International
Identity Solutions business. In November 2019, the Group moved from
a functional to a divisional operating structure and completed a
major reorganisation. Employees from the previous Group-wide
functions moved to new roles within the new Currency and
Authentication divisions or remained with enabling functions such
as legal and finance. The cost base and structure following this
reorganisation in FY 2020/21 is materially different to in FY
2019/20, reflecting the above. The Group from FY 2019/20 also
changed its methodology for the allocation of enabling function
costs into the divisions.
The Group has considered the requirements of IFRS 8 with regards
to the need to restate prior period segmental results and concluded
that the Group is unable to make this restatement because the data
is not available and the cost to develop it would be excessive.
This is due to the cost base and employee structure of the business
under the previous functional model being materially different to
the new divisional structure. Therefore, it is not possible to
undertake a like-for-like reallocation of costs for new divisions
for the comparative period. Although comparatives have not been
restated, in the commentaries included in this release, we have
provided commentary on the changes in divisional cost base, to
enable a year-on-year performance by division. The Group has also
determined, for the same reasons as set out above, that it is
unable to calculate the current period segmental results on the
original basis for comparability purposes.
Due to the substantial changes that have occurred in the
divisional structure, key reporting metrics for monitoring the
divisional performance will be linked, going forward, to gross
profit and adjusted controllable profit (before the allocation of
enabling function overheads), with the enabling functional cost
base being managed as part of the overall business key turnaround
objectives.
FINANCE CHARGE
The Group's net interest charge was GBP6.5m (FY 2019/20:
GBP5.2m), excluding IAS 19 and IFRS 16 finance amounts and interest
income due from the loan notes and preference shares obtained as
part of the disposal of Portals paper. The Finance Charge reflects
the revision to the available facilities from 7 July 2020 and
includes fees for Advance Payment Guarantees consistent with the
treatment in prior periods. The increase is accounted for by
amortisation post 7 July 2020 of the GBP4.8m of capitalised
transaction costs relating to the debt refinancing of the Group's
amended Revolving Credit Facility and higher interest charges and
fees for Advanced Payment Guarantees under the revised pricing on
the new agreement.
The IAS 19 related finance cost, which represents the difference
between the interest on pension liabilities and assets, was a
credit of GBP1.7m (FY 2019/20: charge of GBP1.6m). The credit was
due the opening pension valuation on an IAS 19 basis as at 29 March
2020 being a net surplus of GBP64.8m.
Interest due on the loan notes and preference shares held in
Mooreco Limited (received as part of the consideration for the
Portals paper disposal) amounted to GBP0.8m (FY 2019/20: GBP0.7m).
The loan notes and preference shares are included in the balance
sheet as Other Financial Assets.
The total Group net finance charge was GBP4.6m (FY 2019/20:
GBP6.7m).
EXCEPTIONAL ITEMS
Exceptional items during the period were a net charge of
GBP22.6m (FY 2019/20: net credit of GBP20.0m). Exceptional items
include the recognition of GBP11.9m of asset impairments and
accelerated depreciation charges, GBP7.9m of restructuring costs
(primarily related to people) due to the cessation of banknote
production at our Gateshead facility, and a further GBP1.5m of
charges relating to other cost out initiatives including the
restructuring of our central enabling functions.
Exceptional items also included charges of GBP2.9m relating to
activities on the equity raise and bank refinancing completed in
July 2020 which, whilst directly associated with these projects,
did not relate to activities which in accordance with IFRS would
qualify for recording in equity or capitalisation on the balance
sheet as transaction costs associated with the debt refinance. A
credit of GBP2.7m was also included within exceptional items
relating to the sale of a non-operational property owned by the
Group. Please see note 5 'Exceptional Items' below for more
details.
The policy for exceptional items described in the Annual Report
and Accounts is used when calculating our financial covenants as
agreed with our lenders.
TAXATION
The effective tax rate on continuing operations before
exceptional items and the amortisation of acquired intangibles was
17.9% (FY 2019/20: 15.8%). This is slightly higher than previously
estimated due to a change in the territorial mix of profits and
some increases in tax rates enacted late in the year. 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 GBP1.3m (FY 2019/20: GBP0.0m). The
underlying effective tax rate for FY 2021/22 on continuing
operations before exceptional items and amortisation of acquired
intangibles is expected to be between 16 - 18%. This excludes any
impact of the announcements in the UK Budget in March 2021 that the
UK tax rate is expected to increase to 25% from April 2023. As the
UK group has net deferred tax assets, the increase in tax rate is
expected to increase the value of these assets, which may result in
a lower reported effective tax rate in FY 2021/22.
Net tax credits relating to exceptional items in the period were
GBP4.2m (FY 2019/20: GBP2.5m). A tax credit of GBP0.4m (FY 2019/20:
GBP0.2m credit) was recorded in respect of the amortisation of
acquired intangibles.
EARNINGS PER SHARE
The equity capital raise in July 2020 increased the basic
weighted average number of shares for earnings per share (EPS)
purposes with a year-end position of 172.4m (FY 2019/20 (restated):
113.7m). Adjusted basic EPS was 14.7p (FY 2019/20: (restated)
11.1p), the growth year-on-year reflected the improvement in
adjusted profits the benefit of which was mitigated by the higher
number of shares post the equity capital raise.
IFRS basic EPS from continuing operations was 3.7p (FY 2019/20:
(restated) 30.3p) and was substantially lower than the prior period
as the impact of higher adjusted profits was offset by the
recognition in the current period of significant net exceptional
charges (net of tax) of GBP22.6m compared to the impact of a net
exceptional item credit (net of tax) of GBP22.5m in the prior
period in addition to the impact of the higher number of shares
post the equity capital raise.
CASH FLOW AND BORROWING
Cash flows from operating activities was a net outflow of
GBP5.6m (inflow of GBP1.5m in FY 2019/20). Profits from operating
activities were partially offset by:
-- an adverse net working capital movement of GBP39.8m (FY
2019/20: GBP22.1 m adverse net working capital movement) due
to:
o a build in inventory (negative impact GBP4.0m), reflecting an
increase due to shipment delays on a material Currency division
contract and a build in both the Currency and Authentication
segments due to anticipated sales in FY 2021/22, the impact of
which was partially offset by an unwind in pre-Brexit inventory
holdings on the balance sheet at 28 March 2020 and the completion
of the UK Passport contract;
o an increase in receivables (negative impact GBP19.8m), mainly
due to timing of cash collections on certain material customer
contracts and an increase in cash collateral balances which will
unwind in H1 2021/22; and
o a reduction in payables (negative impact GBP16.0m) which
included the forecasted substantial payments relating to the
close-out of the UK Passport contract (which were fully accrued
over the life of the contract);
-- pension fund contributions of GBP11.4m (FY 2019/20: GBP21.3m).
Cash generated from operating activities included approximately
GBP11.2m of payments relating to exceptional items and discontinued
operations of which GBP10.1m related to restructuring and footprint
rationalisation.
Cash outflow from investing activities was GBP20.2m (FY 2019/20:
inflow GBP25.6m), driven by capital expenditure of GBP21.1m as we
invest in the business and a payment of GBP1.9m as the final
working capital adjustment due on the sale of the International
Identity Solutions business on 14 October 2019 was agreed (the
majority of this amount was accrued as part of the gain on disposal
recorded in FY 2019/20). As previously announced the capital
expenditure during the year in relation to the Turnaround Plan was
lower than expected, however, the aggregate 3-year cash investment
for the Turnaround Plan remains unchanged. These investing activity
outflows were offset by an inflow of GBP2.7m relating to the sale
of a non-operational property. Capital expenditure is stated net of
cash receipts from grants received of GBP3.5m.
Cashflows from financing activities were a net inflow of
GBP39.7m (FY 2019/20: outflow of GBP27.5m) as proceeds from the
capital raise of GBP92.7m (stated net of costs GBP7.3m) were
partially offset by repayment of Group borrowings of GBP39.3m,
payment of transactions costs related to the debt refinancing of
GBP4.8m, interest payments in relation to the Group's borrowings of
GBP5.7m and IFRS 16 lease liability payments of GBP2.2m.
As a result of the cashflow items referred to above, Group net
debt decreased to GBP52.3m at 27 March 2021, from GBP102.8m at 28
March 2020.
The Group has Bank facilities of GBP275m including an RCF cash
drawdown component of up to GBP175m and bond and guarantee
facilities of a minimum of GBP100m, which currently are due to
mature in December 2023. The Group can convert (in blocks of
GBP25m) up to GBP50m of the undrawn RCF cash component to the bond
and guarantee component if required and can elect to convert this
back (in blocks of GBP25m) in order to draw in cash if the bond and
guarantee component has not been sufficiently utilised. At the
period end, the covenant tests were as follows: EBIT/net interest
payable 6.3 times (covenant of >=2.4 times in this financial
year), net debt/EBITDA 0.99 times (covenant of <=3.0 times). The
covenant tests use earlier accounting standards and exclude
adjustments, including IFRS 16.
In order to facilitate the equity capital raising and provide
existing Shareholders and new investors with sufficient certainty
around the continued availability, and terms, of the Group's
financing to successfully implement the Turnaround Plan and support
the future growth of the business, the Group agreed terms with its
lenders in order to secure (among other things) (i) an extension to
the maturity date of the Group's existing revolving facility
agreement to 1 December 2023; (ii) a temporary relaxation of
applicable financial covenants; and (iii) appropriately sized
committed bond and guarantee facilities.
All amendments to the Group's revolving facility agreement were
conditional, among other things, upon the Company receiving the
proceeds of the equity capital raise in the gross amount of at
least GBP100m by no later than 31 July 2020. The Group successfully
raised the proceeds via equity funding during July 2020.
PENSION DEFICIT AND FUNDING
The valuation of the Group's UK defined benefit pension scheme
(the "UK Pension Scheme") on an accounting basis under IAS 19 at 27
March 2021 is a net deficit of GBP18.5m (28 March 2020: GBP64.8m
surplus). The movement in the IAS 19 valuation from a net surplus
at 28 March 2020 to a deficit at 27 March 2021 was due to the
impact of positive growth in scheme assets being more than offset
by the growth in scheme liabilities, primarily driven by a lower
discount rate of 1.95% used in the IAS 19 valuation as at 27 March
2021 compared to the discount rate at 28 March 2020 of 2.40%. .
The charge to operating profit in respect of the administration
cost of the UK Pension Scheme in the period was GBP2.1m (FY
2019/20: GBP2.2m). In addition, under IAS 19 there was a finance
income of GBP1.7m arising from the difference between the interest
cost on liabilities and the interest income on scheme assets (FY
2019/20: charge of GBP1.6m).
On 31 May 2020, 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 31 December 2019, which was based on intentionally prudent
assumptions, revealed a funding shortfall (technical provisions
minus the value of the assets) of GBP142.6m. The Recovery Plan
makes an allowance for post-valuation market conditions up to 30
April 2020 (at which point there is an estimated funding shortfall
of GBP190m), including the impact of COVID-19 on financial markets
to that date.
The GBP190m deficit is addressed by payments of GBP15m per annum
(payable quarterly in arrears) under the Recovery Plan payable from
1 April 2020 until 31 March 2023 and then payments of GBP24.5m per
annum (payable quarterly in arrears) from 1 April 2023 until 31
March 2029 (whereas under the recovery plan agreed with the trustee
in 2016 ("2015 Recovery Plan"), the payments would have been
GBP22.2 million between 1 April 2020 and 31 March 2021, GBP23.1
million between 1 April 2021 and 31 March 2022 and GBP23 million
per annum thereafter until 31 March 2028). 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 either FY 2021/2 or FY2022/23, up
to a maximum of GBP4m in each financial year and GBP8m in total
and/or (ii) the Company or any its subsidiaries take any action
which will cause material detriment (defined in section 38 Pensions
Act 2004) to the UK Pension Scheme, of GBP23.3m (GBP7.2m in FY
2020/21, GBP8.1m in FY 2021/22 and GBP8m in FY 2022/23) over the
period up to 31 March 2023.
The funding of the Recovery Plan is to be sourced from cash
generation of the future business activities, but the Trustee has
contractually agreed not to request any portion of the equity
capital raising proceeds. As a result of the Recovery Plan pension
contributions for FY 2020/21 were GBP11.4m with the final quarter's
payment of GBP3.8m falling just outside of year end but prior to 31
March 2021 (FY 2019/20: GBP21.3m).
On 20 November 2020, the High Court issued its latest ruling in
relation to the equalisation of pension benefits between men and
women relating to Guaranteed Minimum Pensions (or "GMP"). The High
Court ruled that statutory cash equivalent transfer values
("CETVs") paid from defined benefit pension schemes are subject to
challenge and a top-up payment may be required if the CETV value
insufficiently reflected the value of an equalised GMP benefit
accrued between 17 May 1990 and 5 April 1997. The Group's initial
estimate of the impact of the latest ruling is an increase in the
pension liability on an IAS 19 basis of GBP0.1m which has been
recorded as charge within exceptional items.
OPERATING REVIEW
Authentication
The Authentication division comprises mainly GRS and brand
protection products, and includes elements of the identity business
that were not transferred as part of the sale of International
Identity Solutions .
FY 2020/21 FY 2019/20**
GBPm GBPm Change
============================== =========== ============= =======
IFRS Revenue (GBPm) 77.6 73.8 +5.1%
Adjusted Revenue (GBPm) 77.6 73.8 +5.1%
Gross profit (GBPm) 29.9 28.8 +3.9%
IFRS operating profit (GBPm) 9.9 9.7 +2.1%
IFRS profit margin 12.8% 13.1%
Adjusted operating profit*
(GBPm) 11.3 10.8 +4.6%
Adjusted operating margin* 14.6% 14.6%
============================== =========== ============= =======
*Excludes exceptional item charges of GBP0.4m (FY 2019/20: net
charges of GBP0.2m) and amortisation of acquired intangibles of
GBP1.0m (FY 2019/20: GBP0.9m). See note 14 for reconciliation of
non-IFRS measures to comparable IFRS measures.
** FY 2019/20 figures have been restated to correctly reflect
the nature of certain contract related payments to include these as
cost of goods sold rather than a reduction to revenue. The impact
of this restatement is an increase to revenue with an offsetting
increase to cost of goods sold of GBP5.3m with no overall impact on
profits compared to the figures originally reported. For further
information see page 24.
IFRS and adjusted revenue was GBP77.6m (FY 2019/20: GBP73.8m), a
year-on-year increase of 5.1% driven by growth during H2 2020/21,
as we begin production of tax stamps for our new contract in Ghana
and completed the software implementation for the HMRC ID Issuer
contract. We saw a negative impact in FY 2020/21 due to the H1
2019/2020 comparative including revenues of GBP1.6m relating to
contracts sold to as part of the International Identity Solutions
Business disposal, and lower volumes on two contracts due to
COVID-19 (one in GRS as noted earlier) which are expected to
recover.
IFRS operating profit of GBP9.9m (FY 2019/20: GBP9.7m) and
adjusted operating profit of GBP11.3m (FY 2019/20: GBP10.8m) were
driven by growth in GRS volumes and also reflected the divisional
cost structure in FY 2020/21 compared to an allocation methodology
in FY 2019/20, which has resulted in more costs being included
within the Authentication division than would have been the case in
the prior period (see above for further details).
Adjusted controllable operating profit for FY 2020/21 was
GBP18.3m, with no comparator to the prior year due to the Group
reorganisation (see note 14 for further details). This equates to a
controllable operating profit margin of 23.6%.
Currency
The Currency division comprises banknote print, polymer and
security features.
FY 2020/21 FY 2019/20
GBPm GBPm Change
=================================== ============= =========== =======
IFRS Revenue (GBPm) 295.7 315.1 -6.2%
Adjusted Revenue (GBPm)* 286.8 281.6 1.8%
Gross profit (GBPm) 65.3 44.2 47.9%
IFRS operating (loss) (GBPm) -4.4 -9.9 55.6%
IFRS operating margin -1.9% -3.1%
Adjusted operating profit/(loss)*
(GBPm) 16.2 -9.4 n/a
Adjusted operating margin** 5.6% -3.3%
----------------------------------- ------------- ----------- -------
*Excludes "pass through" revenue of GBP8.9m (FY 2019/20:
GBP33.5m) related to non-novated paper contracts relating to the
Portals De La Rue sale.
** Excludes exceptional item net charge of GBP20.6m (FY 2019/20:
net charges of GBP0.5m). See note 14 for reconciliation of non-IFRS
measures to comparable IFRS measures.
Overall, we saw an increase in Currency revenue and volumes, and
strong mix through H2 FY 2020/21, adjusted revenue was GBP286.8m
(FY 2019/20: GBP281.6m) and IFRS revenue was GBP295.7m. IFRS
revenue was approximately 6% lower than the prior year as the
benefit higher volumes and strong mix was more than offset by lower
"pass through" revenue of GBP8.9m (FY 2019/20: GBP33.5m). At 27
March 2021, the 12-month order book for Currency was GBP225.8m and
the total order book for Currency was GBP263.1m.
We saw an increase in adjusted operating profit from a loss of
GBP9.4m in FY 2019/20, to a GBP16.2m profit in FY 2020/21 due an
improved mix, increased volumes and the implementation of
manufacturing cost reductions and production volume efficiencies
delivered in FY 2020/21 as well as lower overheads following the
move to the divisional structure, which has resulted in less costs
being included within the Currency division than would have
previously been the case.
Adjusted controllable operating profit for FY 2020/21 was
GBP41.7m, with no comparator to the prior year due to the Group
reorganisation (see note 14 for further details). This equates to a
controllable operating profit margin of 15%.
IFRS operating profit was substantially lower than adjusted
operating profits in FY 2020/21 due to the recognition of GBP11.9m
of asset impairments and accelerated depreciation charges and
GBP7.9m of restructuring costs (primarily related people) due to
the cessation of banknote production at our Gateshead facility.
IFRS operating margin improved to -1.9% from -3.1% in FY 2019/20
as the impact of a lower operating loss more than offset the impact
of lower IFRS revenues.
Identity Solutions
Identity Solutions comprises our passport and other personal
identity products. We sold International Identity Solutions in
October 2019, which impacted FY 2019/20 revenue and
profitability.
FY 2020/21 FY 2019/20 Change
=============================== =========== =========== =======
IFRS Revenue (GBPm) 24.1 83.2 -71.0%
Adjusted Revenue* (GBPm) 23.7 76.6 -69.1%
Gross profit (GBPm) 12.6 33.4 -62.3%
IFRS operating profit (GBPm) 10.2 47.6 -78.6%
IFRS operating profit margin 43.0% 57.2%
Adjusted operating profit**
(GBPm) 10.6 22.8 -53.5%
Adjusted operating margin*,** 45.4% 29.8%
=============================== =========== =========== =======
* Excludes "pass through" revenue of GBP0.4m (FY 2019/20:
GBP6.6m) related to non-novated contracts relating to the IDS
business.
** Excludes net exceptional item charge of GBP0.4m (FY 2019/20:
GBP24.8m). For reconciliation of non-IFRS measures to comparable
IFRS measures see note 14.
IFRS revenue was GBP24.1m (FY 2019/20: GBP83.2m) and adjusted
revenue was GBP23.7m (FY 2019/20: GBP76.6m), with the reduction
driven by lower volumes within our UK Passport business ahead of
the completion of the transition to the new supplier for the UK
Passport production contract, and the sale of the International
Identity Solutions business. FY 2020/21 includes revenue in
relation to the DSA supply agreement entered into with HID related
to the International Identity Solutions business disposal. The
reduction in revenue as detailed above also accounts for
substantially lower adjusted operating profit of GBP10.6m (FY
2019/20: GBP22.8m).
IFRS operating profit declined at a greater percentage that
adjusted operating profits as FY 2019/20 included the gain of
GBP25.3m gain on the sale of the International Identity Solutions
business in October 2019.
We worked with Her Majesty's Passport Office on the completion
of the transition to the new supplier for the UK Passport
production contract, and we expect no revenue or operating profits
from this contract going forward.
BOARD CHANGES
On 17 June 2020, we announced that Sabri Challah has informed
the Board of his intention to step down as a Director due to his
other commitments. Sabri stood down as the Senior Independent
Director and Board member at the Annual General Meeting on 6 August
2020.
On 22 September, we announced the immediate appointments of Rt
Hon Baroness Catherine Ashton and Margaret Rice-Jones as a
Non-executive Directors of the Company. Both Directors have become
members of the Audit, Remuneration, Nomination and Ethics
Committees.
On 1 October 2020, we announced the appointment of Rob Harding
as Chief Financial Officer and as an Executive Director on the
Board of the Company to take effect immediately. Rob joined De La
Rue as Interim Chief Financial Officer on 9 March 2020.
On 23 March 2021, we announced that Ruth Euling, Managing
Director of Currency, was appointed to the Board of De La Rue as an
Executive Director, with effect from 1 April 2021.
We are also announcing today that the Board has decided to
appoint Margaret Rice-Jones as Senior Independent Director with
immediate effect.
Clive Vacher
Chief Executive Officer
26 May 2021
Cautionary note regarding forward-looking statements
These results include statements that are, or may be deemed to
be, "forward-looking statements". 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. These forward-looking statements include
all matters that are not historical facts. They appear in a number
of places throughout these results and the information incorporated
by reference into these results 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 involve known and
unknown risks, uncertainties, assumptions and other factors because
they relate to events and depend on circumstances that will occur
in the future whether or not outside the control of the Company.
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, investors or potential
investors should not place undue reliance on these forward-looking
statements. The Group's actual results of operations, financial
condition, liquidity, dividend policy and the development of the
industry in which it operates may differ materially from the
impression created by the forward-looking statements contained in
these results and/or the information incorporated by reference into
these results. In addition, even if the results of operations,
financial condition, liquidity and dividend policy of the Group and
the development of the industry in which it operates, are
consistent with the forward-looking statements contained in these
results and/or the information incorporated by reference into these
results, those results or developments may not be indicative of
results or developments in subsequent periods.
Other than in accordance with its legal or regulatory
obligations, De La Rue does not undertake any obligation to update
these forward-looking statements, which speak only as at the date
of this document, and will not publicly release any revisions that
may be made to these forward-looking statements, which may result
from events or circumstances arising after the date of this
document.
DIRECTORS REPORT
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 to mitigate exposure to all forms of risks, where
practical, and to transfer risk to insurers, where cost
effective.
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 were outlined in the 28
March 2020 Annual Report and Accounts. Since the publication of
these, the risks have been reviewed considering the ongoing
turnaround plan, successful equity capital raise and bank
refinancing and now include; bribery and corruption, quality
management and delivery failure (encompassing both Divisions),
failure to Implement the Turnaround Plan and run the business, loss
of a key site or process, sustainability and climate change, breach
of information security, failure of a key supplier, breach of
product security, sanctions and COVID-19.
A copy of the Annual Report and Accounts for the year ended 28
March 2020, is available on the Company's website
www.delarrue.com.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out on pages 1 to 17 of the Strategic report in the Annual
Report for 2020. In addition, pages 134 to 142 include the Group's
objectives, policies and processes for financial risk management,
details of its financial instruments and hedging activities and its
exposure to credit risk, liquidity risk and commodity pricing risk.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in pages 20 to 21
of the Strategic report.
In the Group's Annual Report for 2020, the Directors concluded
there was a material uncertainty that could cast significant doubt
on the Group's ability to continue as a going concern. This
uncertainty related to a shareholder vote to approve a GBP100m
equity capital raise, a vote which had not yet taken place at the
time the Annual Report was issued. At a General Meeting of the
Group on 6 July 2020, the shareholders voted overwhelmingly in
support of the capital raise, hence removing the material
uncertainty. Following the shareholder approval, effective 7 July
2020, the Group amended the terms of its banking facilities of
GBP275m.The relevant amendments among other things, extend the
maturity of the RCF to December 2023 and give the Group access to
an RCF cash drawdown component of GBP175m and bond and guarantee
facilities of a minimum of GBP100m.These facilities have a leverage
covenant of net debt/EBITDA <=3.0 times and an EBIT/net interest
payable covenant of >=2.4 times. At 27 March 2021, the Group had
net debt/EBITDA ratio of 0.99 and an interest cover of 6.3.
The Group has prepared and reviewed profit and cashflow
forecasts which cover a period up to 30 June 2022. This base case
forecast assumes continued delivery of the Turnaround Plan,
specifically protecting market share in Currency, growing
Authentication revenue, and the benefit of the cost out initiatives
already completed. These forecasts show significant headroom and
support that the Group will be able to operate within its available
banking facilities and covenants throughout this period. Covenants
are calculated on a rolling 12 month basis each quarter and
therefore for all quarters until Q4 of FY2021/22 and Q1 of
FY2022/23, a portion of the EBITDA/ EBIT has already been earned,
reducing the risk of a potential breach. Taking this into account
along with the forecasts reviewed, it is considered that the net
debt/ EBITDA covenant for the rolling 12 months to Q4 of FY2021/22
and Q1 of FY2022/23 is the limiting factor, rather than the overall
facility or the EBIT/ net interest payable covenant in this period.
The Directors have therefore completed a reverse stress test of the
forecasts to determine the magnitude of downturn which would result
in a breach to this covenants in the going concern period.
A cumulative decline of 42% in EBITDA compared with the base
case would need to occur in the going concern period for the net
debt/EBITDA covenant to breached. As fixed costs are expected to be
in line with forecasts, any decrease in EBITDA would be the result
of decreased revenue and related margin which would need to be in
excess of 25% taking into account fixed costs noted above to cause
a breach. These reductions are considered to be very unlikely by
management taking into account order cover for the same period and
other controllable mitigating actions available to the company.
The Directors are satisfied that the Group is well placed to
manage its business risks and to continue in operational existence
for the foreseeable future. Accordingly, the Directors continue to
adopt the going concern basis in preparing the consolidated annual
financial statements.
A copy of the 2020 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
Statement of Directors' responsibilities
Each of the Directors confirms that, to the best of their
knowledge:
-- The preliminary financial information, which has been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 (and
IFRSs adopted pursuant to Regulation(EC) No 1606/2002 as it applies
in the European Union), 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.
For and on behalf of the Board
Kevin Loosemore
Chairman
26 May 2021
Consolidated income statement
for the period ended 27 March 2021
Notes 2021 2020
GBPm GBPm
(restated) (1) (2)
------------------------------------------------------------ ------ -------- --------------------
Revenue from customer contracts 3 397.4 472.1
Cost of sales (289.6) (366.2)
------------------------------------------------------------ ------ -------- --------------------
Gross Profit 107.8 105.9
Adjusted operating expenses (69.7) (82.2)
------ -------- --------------------
Adjusted operating profit 38.1 23.7
------------------------------------------------------------ ------ -------- --------------------
Adjusted Items:
* Amortisation of acquired intangibles (1.0) (0.9)
* Net exceptional items 5 (22.6) 20.0
------------------------------------------------------------ ------ -------- --------------------
Operating profit 14.5 42.8
Interest income 0.8 1.0
Interest expense (7.1) (6.1)
Net retirement benefit obligation finance income/(expense) 1.7 (1.6)
Net finance expense (4.6) (6.7)
Profit before taxation from continuing operations 9.9 36.1
Taxation 7 (1.4) -
------ -------- --------------------
Profit from continuing operations 8.5 36.1
------ -------- --------------------
Loss from discontinued operations 4 (0.4) (0.3)
------ -------- --------------------
Profit for the year 8.1 35.8
------------------------------------------------------------ ------ -------- --------------------
Attributable to:
* Owners of the parent 5.9 34.1
* Non-controlling interests 2.2 1.7
------ -------- --------------------
Profit for the year 8.1 35.8
------ -------- --------------------
Earnings per ordinary share (2)
Basic 8
Basic EPS continuing operations 3.7p 30.3p
Basic EPS discontinued operations (0.3)p (0.3)p
Total Basic EPS 3.4p 30.0p
------------------------------------------------------------ ------ -------- --------------------
Diluted 8
Diluted EPS continuing operations 3.7p 30.2p
Diluted EPS discontinued operations (0.3)p (0.3)p
Total Diluted EPS 3.4p 29.9p
------ -------- --------------------
Note:
(1) FY 2019/20 figures have been restated to reflect a change in
presentation of certain contract related payments to include these
as cost of goods sold rather than a reduction to revenue. The
impact of this restatement is an increase to revenue with an
offsetting increase to cost of goods sold of GBP5.3m with no
overall impact on profits compared to the figures originally
reported. For further information see page 24.
(2) Prior period EPS figures have been restated for the impact
of the equity Capital raise
Consolidated statement of comprehensive income
for the period ended 27 March 2021
Notes 2021 2020
GBPm GBPm
Profit for the year 8.1 35.8
----------------------------------------------------------------------------- ------ ------- ------------
Other comprehensive income
Items that are not reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on retirement benefit obligations (95.6) 114.1
Tax related to remeasurement of net defined benefit liability 7 18.2 (20.5)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations (3.9) 3.3
Foreign currency translation difference reclassified to income statement on
disposal of subsidiary - 1.3
Change in fair value of cash flow hedges (0.3) 1.4
Change in fair value of cash flow hedges transferred to profit or loss (0.4) 1.4
Income tax relating to components of other comprehensive income 7 (0.2) -
------ ------- ------------
Other comprehensive income/(loss) for the year, net of tax (82.2) 101.0
------ ------- ------------
Total comprehensive income for the year (74.1) 136.8
----------------------------------------------------------------------------- ------ ------- ------------
Comprehensive income for the year attributable to:
Equity shareholders of the Company (71.9) 135.1
Non-controlling interests 2.2 1.7
------ ------- ------------
(74.1) 136.8
------ ------- ------------
Consolidated balance sheet
at 27 March 2021
Notes 2021 2020
GBPm GBPm
ASSETS
---------------------------------------------------------- ------ -------- --------
Non-current assets
Property, plant and equipment 100.0 114.6
Intangible assets 32.3 31.0
Right-of-use assets 14.6 12.9
Retirement benefit obligations - 64.8
Other financial assets 8.8 8.0
Deferred tax assets 19.7 5.5
Derivative financial assets 0.1 2.1
------ -------- --------
175.5 238.9
---------------------------------------------------------- ------ -------- --------
Current assets
Inventories 54.5 53.9
Trade and other receivables 98.8 67.1
Contract assets 3 14.8 18.3
Current tax assets 0.4 0.3
Derivative financial assets 7.4 14.5
Cash and cash equivalents 25.7 14.6
------ -------- --------
201.6 168.7
------ -------- --------
Total assets 377.1 407.6
---------------------------------------------------------- ------ -------- --------
LIABILITIES
Current liabilities
Borrowings 10 - (116.6)
Trade and other payables 3 (120.5) (133.6)
Current tax liabilities (13.6) (12.5)
Derivative financial liabilities (8.2) (14.0)
Lease liabilities (2.7) (2.8)
Provisions for liabilities and charges (9.6) (10.6)
------ -------- --------
(154.6) (290.1)
---------------------------------------------------------- ------ -------- --------
Non-current liabilities
Borrowings 10 (74.2) -
Retirement benefit obligations (20.5) (1.8)
Deferred tax liabilities (2.6) (8.8)
Derivative financial liabilities (0.1) (2.1)
Provisions for liabilities and charges - -
Lease liabilities (13.0) (11.1)
Other non-current liabilities (0.7) (0.5)
------ -------- --------
(111.1) (24.3)
------ -------- --------
Total liabilities (265.7) (314.4)
------ -------- --------
Net assets/(liabilities) 111.4 93.2
------ -------- --------
EQUITY
Share capital 88.8 47.8
Share premium account 42.2 42.2
Capital redemption reserve 5.9 5.9
Hedge reserve (0.8) 0.1
Cumulative translation adjustment 5.7 9.6
Other reserve (31.9) (83.8)
Retained earnings (14.9) 56.2
------ -------- --------
Total equity attributable to shareholders of the Company 95.0 78.0
------ -------- --------
Non-controlling interests 16.4 15.2
------ -------- --------
Total equity 111.4 93.2
------ -------- --------
Approved by the Board on 26 May 2021.
Kevin Loosemore Clive Vacher
Chairman Chief Executive Officer
Registered number: 3834125
Consolidated statement of changes in equity
for the period ended 27 March 2021
Attributable to Non-controlling Total
equity shareholders Interests equity
Share Share Capital Hedge Cumulative Other Retained GBPm GBPm
capital premium redemption reserve translation reserve earnings
GBPm account reserve GBPm adjustment GBPm GBPm
GBPm GBPm GBPm
----------------- -------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Balance at 31
March 2019 47.7 42.1 5.9 (2.5) 5.0 (83.8) (54.6) 9.9 (30.3)
-------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Profit for the
year - - - - - - 34.1 1.7 35.8
Other
comprehensive
income for the
year, net of
tax - - - 2.6 4.6 - 93.8 - 101.0
Other movements - - - - - - - - -
-------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Total
comprehensive
income for the
year - - - 2.6 4.6 - 127.9 1.7 136.8
Transactions
with owners of
the Company
recognised
directly in
equity:
Transactions
with
non-controlling
interests (see
note 33 of
Annual Report
and Accounts
2020) - - - - - - 0.8 4.2 5.0
Share capital
issued 0.1 0.1 - - - - - - 0.2
Employee share
scheme:
- value of
services
provided - - - - - - (0.7) - (0.7)
Income tax on
income and
expenses
recognised
directly in
equity - - - - - - (0.4) - (0.4)
Other - - - - - - 0.5 - 0.5
Dividends paid - - - - - - (17.3) (0.6) (17.9)
-------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Balance at 28
March 2020 47.8 42.2 5.9 0.1 9.6 (83.8) 56.2 15.2 93.2
----------------- -------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Profit for the
year - - - - - - 5.9 2.2 8.1
Other - - - - - - - - -
comprehensive
income for the
year,
net of tax
Other movements - - - (0.9) (3.9) - (77.4) - (82.2)
-------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Total
comprehensive
income for the
year - - - (0.9) (3.9) - (71.5) 2.2 (74.1)
Transactions
with owners of
the Company
recognised
directly in
equity:
Transactions - - - - - - - - -
with
non-controlling
interests (see
note 33 of
Annual Report
and Accounts
2020)
Share capital
issued 0.2 - - - - - - - 0.2
Employee share
scheme:
- value of
services
provided - - - - - - 0.2 - 0.2
Equity Capital
raise 40.8 - - - - 51.9 - - 92.7
Income tax on
income and
expenses
recognised
directly in
equity - - - - - - 0.2 - 0.2
Dividends paid - - - - - - - (1.0) (1.0)
-------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
Balance at 27
March 2021 88.8 42.2 5.9 (0.8) 5.7 (31.9) (14.9) 16.4 111.4
-------- -------- ----------- -------- ------------ -------- ---------- ---------------- -------
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.
Other reserve
On 1 February 2000, the Company issued and credited as fully
paid 191,646,873 ordinary shares of 25p each and paid cash of
GBP103.7m 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 GBP83.8m 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 GBP100m, 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 GBP100m). 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
GBP52.1m was recorded. This section applies to shares which are
issued to acquire non-equity shares (such as the Preference Shares)
issued as part of the same arrangement. The Group recorded share
capital equal to the aggregate nominal value of the ordinary shares
issued (GBP40.8m) and merger reserve equal to the difference
between the total proceeds net of costs and share capital. As the
cash proceeds received by DLR plc where loaned via intercompany
account to a subsidiary company to enable a substantial repayment
of the RCF, the increase to other reserves of GBP51.9m was treated
as an unrealised profit and hence not currently considered
distributable as at 27 March 2021. This judgement might be revised
in future periods, subject to certain internal transactions
enabling the settlement of intercompany positions.
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.
Consolidated cash flow statement
for the period ended 27 March 2021
Notes 2021 2020
GBPm GBPm
------------------------------------------------------------------------------------------- ------- ------- -------
Cash flows from operating activities
Profit before tax* 9.4 35.9
Adjustments for:
Finance income and expense 4.6 6.7
Depreciation of property plant and equipment and right-of-use assets 15.4 16.9
Amortisation of intangible assets 4.2 3.9
(Increase) in inventory (4.0) (12.1)
Decrease/(increase) in trade and other receivables and contract assets (19.8) 10.2
(Decrease)/increase in trade and other payables and contract liabilities (16.0) (19.2)
Increase/(decrease) in provisions (0.9) 7.4
Pension funding contributions (11.4) (21.3)
Share based payment expense 0.4 (0.6)
Gain on sale of property plant and equipment (2.7) -
(Deduct)/add back of non-cash pension liability adjustment - (8.7)
Loss/(Gain) on disposal of subsidiary (net of associated costs) 0.3 (22.7)
Add back of non-cash credit loss provision 0.8 1.0
Add back impairment of Property, plant and equipment and intangible assets and accelerated
depreciation charges included within exceptional items 11.9 2.3
Other non-cash movements 2.2 1.9
---------------------------------------------------------------------------------------------------- ------- -------
Cash generated from operating activities (5.6) 1.5
Net tax (paid)/refund (2.4) 3.5
------- -------
Net cash flows from operating activities (8.0) 5.1
---------------------------------------------------------------------------------------------------- ------- -------
Cash flows from investing activities
Proceeds from the sale of subsidiary (net of cash disposed and associated disposal costs) (1.9) 42.0
Purchases of property, plant and equipment (1) (15.5) (11.4)
Purchase of software intangibles and development assets capitalised (5.6) (5.8)
Proceeds from sale of property, plant and equipment 2.7 -
Interest received 0.1 0.2
Receipt of RDEC - 0.6
------- -------
Net cash flows from investing activities (20.2) 25.6
------- -------
Net cash flows before financing activities (28.2) 30.7
---------------------------------------------------------------------------------------------------- ------- -------
Cash flows from financing activities
Proceeds from issue of share capital 92.7 0.2
Net draw down of borrowings(2) (39.3) (1.5)
Payment of debt issue costs (4.8)
Lease liability payments (2.2) (2.3)
Interest paid (5.7) (6.0)
Dividends paid to shareholders - (17.3)
Dividends paid to non-controlling interests (1.0) (0.6)
------- -------
Net cash flows from financing activities 39.7 (27.5)
------- -------
Net increase/(decrease) in cash and cash equivalents in the year 11.5 3.2
---------------------------------------------------------------------------------------------------- ------- -------
Cash and cash equivalents at the beginning of the year 14.5 11.3
Exchange rate effects (0.3) -
------- ------- -------
Cash and cash equivalents at the end of the year 25.7 14.5
---------------------------------------------------------------------------------------------------- ------- -------
Cash and cash equivalents consist of:
Cash at bank and in hand 25.7 14.6
Short term deposits - -
Bank overdrafts - (0.1)
------- -------
25.7 14.5
--------------------------------------------------------------------------------------------------- ------- -------
Note:
* Profit before tax includes continuing and discontinued
operations.
(1) Purchases of property, plant and equipment are stated net of
grant income received of GBP3.5m (2020: GBP3.8m).
(2) In the period FY2020/21 the majority of the equity capital
raise proceeds were used to subsequently repay a substantial part
of the RCF shortly after amendment on 7 July 2020.
1 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 27 March 2021 or
28 March 2020. Statutory accounts for the periods ended 28 March
2020 have been delivered to the registrar of companies and those
for the period ended 27 March 2021 will be delivered in due course.
The auditor has reported on the accounts for the periods ended 27
March 2021 and 28 March 2020. Their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter without
qualifying their report and (iii) did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006. The above
notwithstanding, the auditor's report for the period ended 28 March
2020 drew attention to, without modifying its conclusion, the
Group's Shareholder approval for the equity capital raise. Refer to
the Going Concern Statement on page 15 for further details of the
Director's Going Concern Statement.
Adoption of new International Reporting Standards adopted by the
Group
There have been no new accounting standards implemented by the
Group during the year and no revisions to accounting standards have
had a material impact on the Group's Financial Statements.
International Financial Reporting Standards issued but not yet
effective
The standards that are issued but not yet effective are not
expected to have any material impact on the Group.
Restatement of FY 2019/20 revenue and cost of goods sold
figures
During the period management has changed its presentation of
certain contract related payments to correctly reflect the nature
of these payments, being payments to third parties rather than
customers. These payments are now shown as a cost of goods sold
instead of a reduction to revenue in accordance with IFRS 15. The
prior period revenue and cost of goods sold (GBP5.3m) has been
restated to reflect this change.
The current year impact of this is the inclusion of GBP5.1m of
payments in cost of sales that would have previously been reported
as a reduction to revenue. This reclassification has no impact of
Gross Margin, Operating Profit or Profit Before Tax or the Group's
Earnings Per Share measures. The prior period has been restated
given the importance, to the users of the financial statements, of
understanding revenue growth within the Authentication segment.
2 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 printed banknotes, polymer substrates and
banknote security components
-- Authentication - the supply of a range of physical and
digital solutions such as: tax stamps and supporting software
solutions, authentication labels and associated brand protection
digital solutions, cheques and bank cards for Africa, and ID
security components including polycarbonate.
-- Identity Solutions - which included the results of the
Group's International Identity Solutions business prior to disposal
on 14 October 2019 and the UK Passport contract which completed in
FY 2020/21. Going forwards there will only be minimal activity in
this segment.
Inter-segmental transactions are eliminated upon
consolidation.
On 14 October 2019, the Group completed the sale of the
International Identity Solutions business to HID Corporation
Limited. The results of the International Identity business are
included within the identity solutions segment until the date of
disposal.
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 the front half on the financial
performance. The commentary in the front half relating to
the future strategy only refers to the Currency and Authentication divisions.
The Group from FY 2019/20 also changed its methodology for the
allocation of enabling function costs into the divisions. The group
has considered the requirements of IFRS 8 with regards to the need
to restate prior period segmental results and concluded that the
Group is unable to make this restatement because the data is not
available and the cost to develop it would be excessive. This is
due to the cost base and employee structure of the business under
the previous functional model being materially different to the new
divisional structure. Therefore, it is not possible to undertake a
like-for-like reallocation of costs for new divisions for the
comparative period. The Group has also determined, for the same
reasons as set out above, that it is unable to calculate the
current period segmental results on the original basis for
comparability purposes.Although comparatives have not been
restated, in the commentaries included in this release, we have
provided commentary on the changes in divisional cost base, to
enable a year-on-year performance by division. Due to the
substantial changes that have occurred in the divisional structure,
key reporting metrics for monitoring the divisional performance
will be linked, going forward, to gross profit and adjusted
controllable profit (before the allocation of enabling function
overheads), with the enabling functional cost base being managed as
part of the overall business key turnaround objectives. See note 14
for adjusted operating expenses reconciliation.
2021 Currency Authentication Identity Unallocated Total of
GBPm GBPm Solutions GBPm Continuing
GBPm operations
GBPm
------------------------------------------------- --------- --------------- ----------- ------------ ------------
Total revenue from contracts with customers 295.7 77.6 24.1 - 397.4
Less: inter-segment revenue - - - - -
--------- --------------- ----------- ------------ ------------
Revenue from contracts with customers 295.7 77.6 24.1 - 397.4
------------------------------------------------- --------- --------------- ----------- ------------ ------------
Cost of sales (230.4) (47.7) (11.5) - (289.6)
Gross Profit 65.3 29.9 12.6 - 107.8
Adjusted operating expenses (49.1) (18.6) (2.0) - (69.7)
--------- --------------- ----------- ------------ ------------
Adjusted operating profit 16.2 11.3 10.6 - 38.1
------------------------------------------------- --------- --------------- ----------- ------------ ------------
Adjusted items:
- Amortisation of acquired intangible - (1.0) - - (1.0)
- Net exceptionals (20.6) (0.4) (0.4) (1.2) (22.6)
------------------------------------------------- --------- --------------- ----------- ------------ ------------
Operating profit (4.4) 9.9 10.2 (1.2) 14.5
Interest income 0.8 - - - 0.8
Interest expense (1.7) (0.2) - (5.2) (7.1)
Net retirement benefit obligation finance income - - - 1.7 1.7
--------- --------------- ----------- ------------ ------------
Net finance expense (0.9) (0.2) - (3.5) (4.6)
--------- --------------- ----------- ------------ ------------
Profit before taxation (5.3) 9.7 10.2 (4.7) 9.9
--------- --------------- ----------- ------------ ------------
Segment assets 216.8 57.3 14.4 88.5 377.1
--------- --------------- ----------- ------------ ------------
Segment liabilities (88.1) (17.2) (3.3) (156.7) (265.7)
------------------------------------------------- --------- --------------- ----------- ------------ ------------
Capital expenditure on property, plant and
equipment (14.7) 2.8 (0.4) (1.0) (19.0)
Capital grants received 0.7 2.8 - - 3.5
Capital expenditure on intangible assets (0.5) (5.1) - - (5.6)
Impairment of Property, plant and equipment and
intangible assets and accelerated depreciation
charges included within exceptional items (1) (11.9) - - - (11.9)
Depreciation of PPE and right-of-use-assets (12.0) (2.0) - (1.4) (15.4)
Amortisation of intangible assets (1.6) (1.8) - (0.7) (4.2)
--------- --------------- ----------- ------------ ------------
(1) Impairments and accelerated depreciation of GBP11.9m have
been included within exceptional items (see note 4)
Unallocated assets principally comprise deferred tax assets of
GBP19.7m (FY 2020: GBP5.5m), cash and cash equivalents of GBP25.7m
(FY 2019: GBP14.6m) which are used as part of the Group's financing
offset arrangements and derivative financial instrument assets of
GBP7.5m (FY 2019: GBP16.6m) as well as current tax assets,
associates and centrally managed property, plant and equipment.
Unallocated liabilities principally comprise retirement benefit
obligations of GBP20.5m (FY 2019: GBP1.8m), borrowings
of GBP74.2m (FY 2020: GBP116.6m), current tax liabilities of
GBP13.6m (FY 2020: GBP12.5m) and derivative financial instrument
liabilities of GBP8.3m (FY 2020: GBP16.1m) as well as deferred tax
liabilities and centrally held accruals and provisions.
2020 Currency Authentication Identity Unallocated Total of
GBPm GBPm (restated *) Solutions GBPm Continuing
GBPm operations
GBPm
--------------------------------------------- --------- ------------------- ----------- ------------ ------------
Total revenue from contracts with customers 315.1 73.8 83.2 - 472.1
Less: inter-segment revenue - - - - -
--------- ------------------- ----------- ------------ ------------
Revenue from contracts with customers 315.1 73.8 83.2 - 472.1
--------------------------------------------- --------- ------------------- ----------- ------------ ------------
Cost of sales (270.9) (45.0) (49.8) (0.5) (366.2)
Gross Profit 44.2 28.8 33.4 (0.5) 105.9
Adjusted operating expenses (53.6) (18.0) (10.6) - (82.2)
--------- ------------------- ----------- ------------ ------------
Adjusted operating profit (9.4) 10.8 22.8 (0.5) 23.7
--------------------------------------------- --------- ------------------- ----------- ------------ ------------
Adjusted items:
- Amortisation of acquired intangible - (0.9) - - (0.9)
- Net exceptionals (0.5) (0.2) 24.8 (4.1) 20.0
--------------------------------------------- --------- ------------------- ----------- ------------ ------------
Operating profit (9.9) 9.7 47.6 (4.6) 42.8
Interest income 0.7 - - 0.3 1.0
Interest expense (0.8) (0.1) - (5.2) (6.1)
Net retirement benefit obligation finance
expense - - - (1.6) (1.6)
--------- ------------------- ----------- ------------ ------------
Net finance expense (0.1) (0.1) - (6.5) (6.7)
--------- ------------------- ----------- ------------ ------------
Profit before taxation (10.0) 9.6 47.6 (11.1) 36.1
--------- ------------------- ----------- ------------ ------------
Segment assets 199.6 28.9 46.8 132.3 407.6
--------- ------------------- ----------- ------------ ------------
Segment liabilities (81.3) (28.6) (11.8) (192.7) (314.4)
--------------------------------------------- --------- ------------------- ----------- ------------ ------------
Capital expenditure on property, plant and
equipment (6.9) (2.7) (1.2) (0.6) (11.4)
Capital expenditure on intangible assets (0.2) (0.5) (0.8) (4.2) (5.7)
Impairment of Property, plant and equipment
on intangible assets (1.0) (0.1) - (1.2) (2.3)
Depreciation of PPE and right-of-use-assets (12.2) (1.9) (1.2) (1.7) (17.0)
Amortisation of intangible assets (0.7) (1.5) - (1.7) (3.9)
--------- ------------------- ----------- ------------ ------------
* FY 2019/20 figures have been restated to correctly reflect the
nature of certain contract related payments to include these as
cost of goods sold rather than a reduction to revenue. The impact
of this restatement is an increase to revenue with an offsetting
increase to cost of goods sold of GBP5.3m with no overall impact on
profits compared to the figures originally reported. For further
information see page 24.
Geographic analysis of non-current assets
2021 (1) 2020 (2)
GBPm GBPm
----------------- --------- ---------
UK 97.2 176.7
Malta 15.6 19.9
USA 16.0 19.3
Sri Lanka 11.0 13.2
Other countries 7.1 9.8
--------- ---------
146.9 238.9
--------- ---------
(1) Other financial assets, deferred tax assets and derivative
financial instruments are excluded from the analysis shown above
for FY2021
(2) FY2020 includes other financial assets (GBP8.0m), deferred
tax assets (GBP5.5m), derivative assets (GBP2.1m) and retirement
benefit assets (GBP64.8m).
Major customers
The Group had one major customers from which it derived total
revenues in excess of 10% of Group revenue. One customer was in the
Currency segment with revenue GBP40.6m which equates to 10.0% of
Group revenue. In FY20 one customer was in the Currency segment
with revenue GBP46.6m which equates to 10.0% of Group revenue and
one in the IDS segment with revenue of GBP53.2m which equates to
11.4% of Group revenue.
3 Revenue from contracts with customers
Information regarding the Group's major customers, and a
segmental analysis of revenue is provided in note 2.
Timing of revenue recognition across the Group's revenue from
contracts with customers is as follows:
FY 2020/21 Currency Authentication Identity Total of
GBPm GBPm Solutions Continuing
GBPm Operations
GBPm
--------------------------------------------- --------- --------------- ----------- ------------
Timing of revenue recognition:
Point in time 240.2 72.0 24.1 336.3
Over time 55.5 5.6 - 61.1
Total revenue from contracts with customers 295.7 77.6 24.1 397.4
--------- --------------- ----------- ------------
FY 2019/20 Currency Authentication Identity Total of
GBPm GBPm (restated) * Solutions Continuing
GBPm Operations
GBPm
--------------------------------------------- --------- ------------------- ----------- ------------
Timing of revenue recognition:
Point in time 273.6 73.8 65.7 413.1
Over time 41.5 - 17.5 59.0
Total revenue from contracts with customers 315.1 73.8 83.2 472.1
--------- ------------------- ----------- ------------
* FY 2019/20 figures have been restated to correctly reflect the
nature of certain contract related payments to include these as
cost of goods sold rather than a reduction to revenue. The impact
of this restatement is an increase to revenue with an offsetting
increase to cost of goods sold of GBP5.3m with no overall impact on
profits compared to the figures originally reported. For further
information see page 24.
Geographic analysis of revenue by destination
FY 2020/21 FY 2019/20
GBPm GBPm
------------------------ ----------- -----------
Middle East and Africa 192.0 193.7
Asia 51.3 86.5
UK 97.7 109.8
The Americas 33.7 41.5
Rest of Europe 20.2 24.8
Rest of world 2.5 15.8
----------- -----------
397.4 472.1
----------- -----------
Contract balances
The contract balances arising from contracts with customers are
as follows:
FY 2020/21 FY 2019/20
GBPm GBPm
----------------------------------------- ----------- -----------
Trade receivables 69.4 72.8
Provision for impairment (1.5) (19.9)
Net trade receivables 67.9 52.9
Contract assets 14.8 18.3
Contract liabilities - deferred revenue (1.6) (0.3)
Payments received on account 38.1 38.2
----------- -----------
Trade receivables have increased compared to 2020 reflecting
timing of payments on certain material customer contracts. Contract
assets have fallen compared to 2020 reflecting the fact that in the
current period customer invoicing has more closely matched the
timing of revenue recognition. Contract liabilities have increased
in the current year due to a significant new contract were cash has
been collected prior to revenue being recognized under IFRS 15.
Set out below is the amount of revenue recognised from:
FY 2020/21 FY 2019/20
GBPm GBPm
----------------------------------------------------------------------- ------------ -----------
Amounts included in contract liabilities at the beginning of the year - 6.0
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 2020 in page 114.
The following table shows the transaction price allocated to
remaining performance obligations for contracts with original
expected duration of more than one year. The group has decided to
take the practical expedient provided in IFRS15.121 not
to disclose the amount of the remaining performance obligations
for contracts with original expected duration of less than
one year.
FY 2020/21 GBPm FY 2019/20*
GBPm
--------------------- ---------------- ------------
Within 1 year 51.8 23.0
Between 2 - 5 years 35.7 24.0
5 years and beyond - -
---------------- ------------
87.5 47.0
---------------- ------------
Note:
* All within the currency division.
4 Discontinued operations
The Group completed the sale of the entire issued share capital
of Cash Processing Solutions Limited and related subsidiaries
(together 'CPS') to CPS Topco Limited, a company owned by Privet
Capital on 22 May 2016. The loss on discontinued operations in the
period of GBP0.4m (net of associated tax credits) related to a
change in assessment of the total net loss the Group will incur
completing a loss making CPS contract that was not novated post
disposal (the contract is expected to conclude in FY 2021/22) in
addition to amounts associated with the winding down of remaining
activity related to CPS.
5 Exceptional items
Accounting policies
Exceptional items are disclosed separately in the financial
statements to provide readers with an increased insight into the
underlying performance of the Group.
2021 2020
GBPm GBPm
----------------------------------------------------------------------------------------------- ------- ------
Site relocation and restructuring (21.4) (9.3)
Costs associated with the equity raise and bank refinancing (2.9) -
Pension underpin costs (0.6) (1.1)
Gain/(Loss) on resolution of a historical issue relating to UK defined benefit pension scheme (0.1) 8.7
Gain on sale of PPE 2.7 -
Gain on disposal of subsidiary (0.3) 22.7
Venezuela expected credit loss provision - (1.0)
Exceptional items in operating profit (22.6) 20.0
Tax (charge)/credit on exceptional items 4.2 2.5
------- ------
Site relocation and restructuring costs
Site relocation and restructuring costs in FY 2020/21 included:
the recognition of GBP7.9m of restructuring charges (primarily
people related) and GBP11.9m of asset impairments and accelerated
depreciation charges related to cessation of banknote production at
our Gateshead facility and a further GBP1.5m of charges relating to
other cost out initiatives including the restructuring of our
central enabling functions and the restructuring of the Group into
the new divisional structure.
Site relocation and restructuring costs in FY 2019/20 related to
the reorganisation during the period of the Group into our new
divisional structure and other cost out programmes, primarily being
redundancy costs and in addition to consultant and advisor
fees.
Costs associated with equity raise and bank refinancing
In FY 2020/21 certain costs were incurred in relation to the
equity raise and bank refinancing projects that, whilst directly
associated with these, did not relate to activities which in
accordance with IFRS would qualify for recording in equity or
capitalisation on the balance sheet as transaction costs in
relation to the debt refinancing. These costs included: GBP0.7m
write-off of prepaid arrangement fees on the previously signed RCF
which was amended on 7 July 2020 (due to the substantial repayment
of the amounts outstanding at that time this has been accounted for
as a settlement); costs of GBP1.5m associated with advisors fees in
connection with the new pension deficit funding plan put in place
in July 2020 following the equity raise and bank refinancing and
other fees totalling GBP1.0m related to equity raise and bank
refinancing which whilst directly related to these projects, did
not meet the IFRS criteria for capitalisation on the balance sheet
or recording within equity.
Pension underpin costs
Relate to legal fees 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 .
Gain on resolution of a historical issue relating to the UK
defined benefit pension scheme
On 20 November 2020, the High Court issued its latest ruling in
relation to the equalisation of pension benefits between men and
women relating to Guaranteed Minimum Pensions (or "GMP"). The High
Court ruled that statutory cash equivalent transfer values
("CETVs") paid from defined benefit pension schemes are subject to
challenge and a top-up payment may be required if the CETV value
insufficiently reflected the value of an equalised GMP benefit
accrued between 17 May 1990 and 5 April 1997. The Group's initial
estimate of the impact of the latest ruling is an increase in the
IAS 19 pension liability of GBP0.1m which has been recorded within
exceptional items in accordance with the Group's policy.
In FY 2019/20 the gain of GBP8.7m related to the resolution of a
historical issue in respect to a change in revaluation rates for
certain deferred pension scheme members. This resulted in an
equivalent reduction to the liabilities in the pension scheme as at
28 March 2020.
Venezuela Credit loss provision
In FY 2019/20 GBP1.0m was recognised relating to the close out
of the hedge position taken out in relation to Venezuela
receivables for which a credit loss of GBP18.1m was provided and
reported in exceptional items in FY 2018/19. The hedge position was
closed out in FY 2019/20 as subsequent to year end sanctions have
further tightened against Venezuela.
Gain on sale of PPE
A GBP2.7m gain was made in FY 2020/21 on the sale of a
non-operational property held by the Group net of sales costs.
Gain/(Loss) on disposal of subsidiary and associated costs
In FY2019/20, following the sale of the Group's International
Identify Solutions business on 14 October 2019, the Group recorded
a gain of GBP25.3m before the deduction of costs associated with
the disposal. The gain was calculated based on an estimate for the
working capital adjustment which at FY 2019/20 year end remained
subject to agreement with HID in accordance with the sales
agreement. Costs associated with the disposal of the subsidiary in
FY 2019/20 were GBP3.3m. In addition during FY 2019/20 a GBP0.7m
gain was made in H1 on the final release of the recompense
provision provided for in relation to the sale of the Portals De La
Rue business. Delivery against the remaining contracts for which a
recompense provision was recognised has now been satisfactorily
completed and as such no further risk of the recompense provision
being triggered is considered to exist.
During FY 2020/21 the final working capital balance has been
agreed with HID which resulted in an additional GBP0.3m loss being
recorded.
Taxation relating to exceptional items
The overall tax credit relating to exceptional items arising in
the period was GBP4.2m (FY 2019/20: tax credit of GBP2.5m).
Included within the exceptional tax credit in the prior year was
a deferred tax credit of GBP1.1m. This related to the recognition
of a deferred tax asset in relation to restricted UK interest
expenses available for deduction in future years that were fully
recognised under IAS12 as there was a net overall net deferred tax
liability position in the UK and any potential deferred tax assets
had to be recognised against this deferred tax liability. During
the current period GBP0.6m of this asset was no longer considered
to meet the criteria to be recognised as a deferred tax asset, so
has been recorded as an exceptional tax charge as the original
credit was recognised within exceptional items.
6 Disposal of International Identity Solutions business
On 12 June 2019, the Group announced it had agreed the sale of
its International Identity Solutions business to HID Corporation,
an ASSA ABLOY Group company, for cash consideration of GBP42m plus
an amount for working capital. Under the terms of the agreement,
HID Global will acquire De La Rue's International Identity
Solutions contracts, associated software, passport assembly
facilities in Malta, and certain printing contracts of security
documents such as visas and birth/death/marriage certificates. A
separate supply agreement for De La Rue to supply printed paper and
polycarbonate to HID Global until March 2022 was also signed. The
UK passport contract is outside the scope of the agreement.
This transaction will allow the Group to refocus on
identity-related security features and components where the market
opportunities are more accessible. Strong synergies in technology
and customer relations between identity security features and the
rest of the Group will enable it to generate better returns on
investment. The sale proceeds will strengthen the Group's balance
sheet, providing it with greater flexibility to invest in other
strategic growth areas.
The Group's International Identity Solutions business did not
meet the IFRS 5 definition of a discontinued operation and
as such its results were included within continuing operations.
The Group tested the disposal Group for impairment prior to the
completion of the transaction and concluded that no impairment of
the disposal group was required.
On 14 October 2019, the Group completed the final sale to HID
and in addition to the GBP42m referred to above the Group received
an additional amount in relation to working capital which was
estimated at GBP5.0m but which remains subject to agreement with
HID management in accordance with the sales agreement. The working
capital adjustment included amounts related to cash that was
included in the net assets disposed of at the point of final
sale.
No UK defined benefit pension liability transferred as part of
the disposal.
The carrying amounts of assets and liabilities as at the date of
sale (14 October 2019) were:
GBPm
------------------------------- -------
Property, plant and equipment 1.9
Right to use assets 0.4
Intangibles 4.7
Inventories 1.3
Trade and other receivables 26.6
Cash and cash equivalents 2.5
-------
Total assets 37.4
------------------------------- -------
Trade and other payables (17.4)
Lease liabilities (0.4)
Provisions (0.3)
Total liabilities (18.1)
-------
Net assets 19.3
-------
The gain on disposal on the sale of the subsidiary was:
GBPm
---------------------------------------------- -------
Amounts paid by purchaser:
Cash 47.2
Estimated working capital adjustment (1.3)
-------
Total disposal consideration 45.9
-------
Net assets and liabilities disposed (19.3)
-------
CTA reclassified on disposal (1.3)
-------
Gain on disposal (before associated costs) 25.3
-------
Costs associated with disposal of subsidiary (3.3)
-------
Gain on disposal (after associated costs) 22.0
-------
Proceeds from sale of subsidiary in the consolidated cashflow
statement are stated net of cash received of GBP47.2m, cash
disposed of GBP2.5m payments for costs associated with the disposal
of GBP2.7m. During FY 2020/21 the final working capital balance has
been agreed with HID which resulted in an additional GBP0.3m loss
being recorded (see note 5 exceptional items).
7 Taxation
2021 2020
GBPm GBPm
------------------------------------------------------------------------------------------- ------------- ------
Consolidated income statement
Current tax
UK corporation tax:
* Current tax 2.4 4.7
* Adjustment in respect of prior years 0.1 0.6
------------- ------
2.5 5.3
------------------------------------------------------------------------------------------- ------------- ------
Overseas tax charges:
* Current year 1.7 1.8
* Adjustment in respect of prior years 1.7 (0.3)
------------- ------
3.4 1.5
------------- ------
Total current income tax charge 5.9 6.8
------------------------------------------------------------------------------------------- ------------- ------
Deferred tax:
* Origination and reversal of temporary differences, UK (2.3) (6.4)
* Origination and reversal of temporary differences,
overseas (2.3) (0.4)
------------- ------
Total deferred tax charge/(credit) (4.6) (6.8)
------------------------------------------------------------------------------------------- ------------- ------
Income tax expense reported in the consolidated income statement in respect of continuing 1.4 -
operations
Income tax expense/(credit) in respect of discontinued operations (note 4) (0.1) -
------------- ------
Total income tax charge in the consolidated income statement 1.3 -
------------------------------------------------------------------------------------------- ------------- ------
Tax on continuing operations attributable to:
* Ordinary activities 6.0 2.7
* Amortisation of acquired intangible assets (0.4) (0.2)
* Exceptional items (4.2) (2.5)
------------------------------------------------------------------------------------------- ------------- ------
Consolidated statement of comprehensive income:
* On remeasurement of net defined benefit liability (18.2) 20.5
* On cash flow hedges 0.2 0.2
* On foreign exchange on quasi-equity balances 0.1 (0.2)
------------- ------
Income tax (credit)/charge reported within other comprehensive income (17.9) 20.5
------------------------------------------------------------------------------------------- ------------- ------
Consolidated statement of changes in equity:
* On share options (0.3) 0.4
------------- ------
Income tax charge reported within equity (0.3) 0.4
------------- ------
The tax on the Group's consolidated profit before tax differs
from the UK tax rate of 19% as follows:
2021 2020
Before Exceptional Movement on Total Before Exceptional Movement Total
exceptional items acquired GBPm exceptional items on acquired GBPm
items GBPm intangibles items GBPm intangibles
GBPm GBPm GBPm GBPm
-------------- ------------ ------------ ------ ------------ ------------ ------------ ------
Profit before tax 33.5 (22.6) (1.0) 9.9 17.0 20.0 (0.9) 36.1
------------------------ -------------- ------------ ------------ ------ ------------ ------------ ------------ ------
Tax calculated at UK
tax rate of 19% (FY
2019/20: 19%) 6.4 (4.3) (0.2) 1.9 3.2 3.8 (0.2) 6.8
Effects of overseas
taxation 0.7 - - 0.7 (1.0) - - (1.0)
(Credits)/charges not
allowable for tax
purposes 0.2 0.2 - 0.4 0.9 (6.2) - (5.3)
Tax attributes not
previously recognised
for deferred tax (1.9) - - (1.9) - - - -
(Utilisation)/increase
in unrecognised tax
losses (1.4) - - (1.4) - - - -
Adjustments in respect
of prior years 2.0 (0.1) (0.2) 1.7 (0.6) (0.1) - (0.7)
Change in UK and
overseas tax rate - - - - (0.2) - - (0.2)
Tax charge/(credit) 6.0 (4.2) (0.4) 1.4 2.7 (2.5) (0.2) -
------------------------ -------------- ------------ ------------ ------ ------------ ------------ ------------ ------
Underlying effective
tax rate
(Tax charge/Profit
before tax) 17.9% 15.8%
-------------- ------------ ------------ ------ ------------ ------------ ------------ ------
The Group is subject to income taxes in numerous jurisdictions
and significant judgement is required in determining the worldwide
provision for those taxes. The level of current and deferred tax
recognised is dependent on subjective judgements as to the outcome
of decisions to be made by the tax authorities in the various tax
jurisdictions around the world in which the Group operates. It is
necessary to consider which deferred tax assets should be
recognised based on an assessment of the extent to which they are
regarded as recoverable, which involves assessment of the future
trading prospects of individual statutory entities.
The actual outcome may vary from that anticipated. Where the
final tax outcomes differ from the amounts initially recorded,
there will be impacts upon income tax and deferred tax provisions
and on the income statement in the period in which such
determination is made.
The Group has current tax provisions recorded within Current tax
liabilities, in respect of uncertain tax positions. In accordance
with IFRIC 23, tax provisions are recognised for uncertain tax
positions where it is considered probable that the position in the
filed tax return will not be sustained and there will be a future
outflow of funds to a taxing authority. Tax provisions are measured
either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the
sum of the probability weighted amounts in a range of possible
outcomes) depending on management's judgement on how the
uncertainty may be resolved.
The Group is disputing tax assessments received from the tax
authorities of some countries in which the Group operates. The
disputed tax assessments are at various stages in the appeal
processes, but the Group believes it has a supportable and
defendable position (based upon local accounting and legal advice),
and is appealing previous judgments and communicating with the
relevant tax authority. The Group's expected outcome of the
disputed tax assessments is held within the relevant provisions in
the 2021 Financial Statements.
8 Earnings per share
2021 2021 2021 2020 2020 2020
Continuing Discontinued Total pence Continuing Discontinued Total pence
operations operations per share operations operations per share
pence pence pence pence
per share per share per share per share
(restated*) (restated*) (restated*)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
IFRS earnings
per share
Basic earnings
per share 3.7 (0.3) 3.4 30.3 (0.3) 30.0
Diluted
earnings per
share 3.7 (0.3) 3.4 30.2 (0.3) 29.9
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Adjusted
earnings per
share
Basic earnings
per share 14.7 n/a n/a 11.1 n/a n/a
--------------- --------------- --------------- --------------- --------------- ---------------
*The prior years have been restated following the equity capital
raise.
The prior years have been restated following the equity capital
raise. Earnings per share is calculated by dividing the profit
attributable to equity shareholders by the weighted average number
of shares. The weighted average number of ordinary shares used in
the calculations for earnings per share is 172.4m (FY 2019/20
(restated): 113.7m); for basic earnings per share. The dilutive
impact of share options for FY 2020/21 was 1.6m shares resulting in
a weighted average number of shares of 174.0m (FY 2019/20
(restated) was 0.2m shares resulting in a weighted average number
of shares of 113.9m).
Reconciliations of the earnings and weighted average number of
shares used in the calculations are set out below:
Earnings
2021 2020
Continuing operations Continuing operations
GBPm GBPm
--------------------------------------------------- ----------------------- -----------------------
Earnings for basic and diluted earnings per share 6.4 34.4
Amortisation of acquired intangible assets 1.0 0.9
Exceptional items 22.6 (20.0)
Less: tax on amortisation of acquired intangibles (0.4) (0.2)
Less: tax on exceptional items (4.2) (2.5)
----------------------- -----------------------
Earnings for adjusted earnings per share 25.4 12.6
----------------------- -----------------------
Weighted average number of ordinary shares
2021 2020
Number Number
m m
(restated*)
---------------------------------- -------- -------------
For basic earnings per share 172.4 113.7
Dilutive effect of share options 1.6 0.2
-------- -------------
For diluted earnings per share 174.0 113.9
-------- -------------
*The prior years have been restated following the equity capital
raise.
9 Equity dividends
Final dividends proposed by the Board of Directors and unpaid at
the year end are not recognised in the financial statements until
they have been approved by the shareholders at the annual general
meeting. Interim
dividends are recognised in the period that they are paid.
2021 2020
GBPm GBPm
--------------------------------------------------------------------------------- ------- ------
Final dividend for the year ended 30 March 2019 of 16.7p paid on 03 August 2019 - 17.3
------- ------
- 17.3
----------------------------------------------------------------------------------------- ------
No dividends are proposed on ordinary shares in 2021.
10 Analysis of net debt
The analysis below provides a reconciliation between the opening
and closing positions in the balance sheet for liabilities arising
from financing activities together with movements in cash and cash
equivalents.
At 28 March 2020 Cash flow Foreign exchange At 27 March 2021
GBPm GBPm GBPm GBPm
--------------------------- ----------------- ---------- ----------------- -----------------
Borrowings (117.3) 39.3 - (78.0)
Cash and cash equivalents 14.5 11.5 (0.3) 25.7
Net debt1 (102.8) 50.8 (0.3) (52.3)
----------------- ---------- ----------------- -----------------
At 30 March At 28 March
2019 Cash flow 2020
GBPm GBPm GBPm
Borrowings (118.8) 1.5 (117.3)
------------ ---------- ------------
Cash and cash equivalents 11.3 3.2 14.5
------------ ---------- ------------
Net debt(1) (107.5) 4.7 (102.8)
------------ ---------- ------------
Note:
1 Net debt above is presented excluding unamortised pre-paid
borrowing fees of GBP3.8m (FY 2019/20: GBP0.8m). Net debt also
excludes GBP15.7m (FY 2019/20: GBP13.9m) of lease liabilities
recognised following the adoption
of IFRS 16
Effective 7 July 2020, the Group amended the terms of its Bank
facilities of GBP275m.The relevant amendments, among other things,
extend the maturity date of the Revolving Cash Facility ("RCF") to
December 2023, reset the interest cover ratio and provide available
committed bond and guarantee facilities that do not need to be cash
collateralised in most cases. In addition, the majority of the
equity capital raise proceeds were used to subsequently repay a
substantial part of the RCF shortly after the amendment on 7 July
2020. This was accounted for as a settlement under IFRS 9 and
consequently the unamortised balance on the loan arrangement fees
on the old RCF of GBP0.7m was written-off to the income statement
and included within exceptional items. The Group has Bank
facilities of GBP275m including an RCF cash drawdown component of
up to GBP175m and bond and guarantee facilities of a minimum of
GBP100m, which currently are due to mature in December 2023. The
Group can convert (in blocks of GBP25m) up to GBP50m 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 GBP25m) 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 from HY 2020/21 and at 27 March
2021. This is a different presentation to the position as at 28
March 2020 when the borrowings were presented as current ahead of
the completion of the bank refinancing. In H2 the Group has
reallocated GBP25m of the cash component to the bond and guarantee
component such that at present GBP150m in total is available on the
RCF component, of which GBP78m has been drawn. Accordingly as at 27
March 2021, the Group had a total of undrawn committed borrowing
facilities, all maturing in more than one year, of GBP72m (28 March
2020: GBP158m, all maturing in more than one year). A further
amendment to the Bank facilities was agreed and became effective on
25 March 2021 which largely covered some relatively minor
administrative issues and included wording to prepare for the
transition of the underlying borrowing rate from LIBOR to Risk Free
Rates later in 2021. Net debt above is presented excluding
unamortised capitalised transaction costs in relation to the debt
refinancing of GBP3.8m. Net debt also excludes GBP15.7m of lease
liabilities recognised following the adoption of IFRS 16.
11 Contingent assets and liabilities
In June 2019 De La Rue International Limited terminated its
agency agreement and sales consultancy agreement with Pastoriza
SRL, a company which provided agency and sales consultancy services
to the Group in the Dominican Republic from 2016 to 2019. Pastoriza
SRL disputed the termination and commenced a commercial lawsuit in
the Dominican Republic for a claimed amount of approximately
US$8million (plus monthly interest) which was dismissed by the
Court in December 2020. Pastoriza has appealed the Court's
decision, although the Group does not anticipate this appeal will
be successful.
The Group also provides guarantees and performance bonds which
are issued in the ordinary course of business. In the event that a
guarantee or performance bond is called, provision may be required
subject to the particular circumstances including an assessment of
its recoverability
12 Related party transactions
During the year the Group traded on an arm's length basis with
the associated company Fidink S.A. (33.3% owned). The Group's
trading activities with this company included GBP28.2m (FY 2020:
GBP30.9m) for the purchase of security ink and other consumables.
At the balance sheet date there were creditor balances of GBP1.5m
(FY 2019: GBP2.5m) with Fidink S.A. Intra-group transactions
between the Parent and the fully consolidated subsidiaries or
between fully consolidated subsidiaries are eliminated on
consolidation.
Key management compensation
Key management comprises members of the Board (including the
fees of Non-executive Directors) and the ELT. 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.
2021 2020
GBPm GBPm
------------------------------------------------- ------ ------
Salaries and other short-term employee benefits 2.4 2.9
Retirement benefits:
-- Defined contribution 0.1 0.4
Share based payments - -
Termination benefits - 1.1
2.5 4.4
13
Non-controlling 2021 2021 2021 2020 2020
interest GBPm GBPm GBPm GBPm GBPm
De La Rue Buck De La Rue Lanka De La Rue Kenya De La Rue Lanka De La Rue Kenya
Press Limited Currency EPZ Limited Currency EPZ Limited
------------------ ------------------ ------------------ ------------------ ------------------
Non-current
assets - 11.0 6.4 13.2 7.2
------------------ ------------------ ------------------ ------------------ ------------------
Current assets 5.1 27.4 23.1 22.0 20.5
------------------ ------------------ ------------------ ------------------ ------------------
Non-current
liabilities - (0.7) - (0.5) -
------------------ ------------------ ------------------ ------------------ ------------------
Current
liabilities (5.2) (11.4) (14.7) (8.7) (14.6)
------------------ ------------------ ------------------ ------------------ ------------------
Net assets (100%) (0.1) 26.3 14.8 26.0 13.1
------------------ ------------------ ------------------ ------------------ ------------------
Revenue 5.6 34.8 29.4 27.8 36.7
------------------ ------------------ ------------------ ------------------ ------------------
Profit for the
year - 2.6 3.1 2.4 2.2
------------------ ------------------ ------------------ ------------------ ------------------
Non-controlling
interest
percentage 51% 40% 40% 40% 40%
------------------ ------------------ ------------------ ------------------ ------------------
Profit allocated
to
non-controlling
interest - 1.0 1.2 0.9 0.8
------------------ ------------------ ------------------ ------------------ ------------------
Dividends paid to
non-controlling
interest - 0.6 0.4 0.6 -
------------------ ------------------ ------------------ ------------------ ------------------
Cash flows from
operating
activities 1.4 (0.1) 1.5 6.0 1.6
------------------ ------------------ ------------------ ------------------ ------------------
Cash flows from
investment
activities - 0.5 (0.8) (0.3) (1.8)
------------------ ------------------ ------------------ ------------------ ------------------
Cash flows from
financing
activities - (1.5) (1.0) (0.6) -
------------------ ------------------ ------------------ ------------------ ------------------
Net increase in
cash and cash
equivalents 1.3 (1.1) (0.4) 5.1 (0.2)
------------------ ------------------ ------------------ ------------------ ------------------
Transactions with non controlling interests
Kenya JV
On 16 April 2019 the Group commenced a commercial partnership with
the Government of Kenya on our currency and secure printing site in
Nairobi, Kenya. Under the terms of the agreement, the National Treasury
of Kenya acquired a 40% stake in De La Rue's previously wholly owned
subsidiary De La Rue Kenya EPZ Limited, for a consideration of 5 million,
which was received in September 2017 and included within advance payments
on the balance sheet as at 31 March 2019.
In the prior period, the Group recognised an increase in non controlling
interests of GBP4.2m and an increase in equity attributable to owners
of the parent of GBP0.8m. The effect on the equity attributable to
the owners of De La Rue plc during the prior period on completion
of the transaction is summarised as follows:
FY 2020/21 FY 2019/20
GBP m GBP m
Consideration received - 5.0
Carrying amount of non controlling interests
disposed of - (4.2)
Excess of consideration received recognised
in the transactions with non controlling
interests reserve within equity - 0.8
========== ==========
Ghana JV
On 8 June 2020 the Group and Buck Press Limited ("BPL") established
a new Joint Venture company in Ghana for the distribution of printed
and personalized excise tax stamps - De La Rue Buck Press Limited,
which is owned by the Group (49%) and BPL (51%). This was to enter
into a contract with the Ghana Revenue Authority which is expected
to run for 5 years.
This contract builds on the Group's long and successful history of
supplying security products in Ghana and more widely across Africa.
In applying the definitions of control identified in IFRS 10, it has
been determined that the Group controls De La Rue Buck Press Limited
due to the fact that it has a majority of the Board membership and
is able to use this to control the key business decisions of the JV
entity. As such the results of the subsidiary are fully consolidated
into the Group's financial statements.
A nominal value of share capital was invested in the JV on formation.
14 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 acquired intangibles.
Amortisation of acquired intangible assets and exceptional items
are excluded 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.
Adjusted revenue
Adjusted revenue excludes "pass-through" revenue relating to
non-novated contracts following the paper and international
identify solutions business sales. The following amounts of "pass
through" revenue have been excluded: Paper GBP8.9m (FY 2019/20:
GBP33.5m) and Identify Solutions: GBP0.4m ( FY 2019/20:
GBP6.6m).
FY 2020/21 FY 2019/20(1)
GBPm GBPm
Revenue on an IFRS basis 397.4 472.1
-------------------------------- ----------- --------------
- Exclude pass-through revenue (9.3) (40.1)
Adjusted revenue 388.1 432.0
-------------------------------- ----------- --------------
(1) FY 2019/20 figures have been restated to correctly reflect
the nature of certain contract related payments to include these as
cost of goods sold rather than a reduction to revenue. The impact
of this restatement is an increase to revenue with an offsetting
increase to cost of goods sold of GBP5.3m with no overall impact on
profits compared to the figures originally reported. For further
information see page 24.
Adjusted operating profit
Adjusted operating profit represents earnings from continuing
operations adjusted to exclude exceptional items and amortisation
of acquired intangible assets.
FY 2020/21 FY 2019/20
GBPm GBPm
Operating profit from continuing operations
on an IFRS basis 14.5 42.8
--------------------------------------------- ----------- -----------
- Amortisation of acquired intangible
assets 1.0 0.9
- Exceptional items 22.6 (20.0)
--------------------------------------------- ----------- -----------
Adjusted operating profit from continuing
operations 38.1 23.7
--------------------------------------------- ----------- -----------
Adjusted basic earnings per share
FY 2020/21 FY 2019/20
GBPm GBPm
Profit attributable to equity shareholders
of the Company from continuing operations
on an IFRS basis 6.4 34.4
----------------------------------------------- ----------- -----------
- Amortisation of acquired intangible
assets 1.0 0.9
- Exceptional items 22.6 (20.0)
- Tax on amortisation of acquired intangibles (0.4) (0.2)
- Tax on exceptional items (4.2) (2.5)
----------------------------------------------- ----------- -----------
Adjusted profit attributable to equity
shareholders of the Company from continuing
operations 25.4 12.6
----------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for basic earnings* 172.4 113.7
----------------------------------------------- ----------- -----------
*Prior year share numbers are restated following the equity
capital raise
*Restated
FY 2020/21 FY 2019/20
pence pence
per share per share
Basic earnings per ordinary share continuing
operations on an IFRS basis 3.7 30.3
---------------------------------------------- ------------ ------------
Adjusted basic per ordinary share for
continuing operations 14.7 11.1
*Prior year numbers are restated following the Equity Capital
raise
Net debt
Net debt is a non-IFRS measure. See note 10 for details of how
net debt is calculated.
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,
HR 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 will be linked, going
forward, 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 objectives.
The group has considered the requirements of IFRS 8 with regards
to the need to restate segmental results and concluded that the
Group is unable to make this restatement. This is due to the cost
base and employee structure of the business under the previous
functional model being materially different to the new divisional
structure. Therefore, it is not possible to undertake a
like-for-like reallocation of costs for new divisions for the
comparative period. Although comparatives have not been restated,
in the commentaries included in this release, we have provided
commentary on the changes in divisional cost base, to enable a
year-on-year performance by division. The Group has also
determined, for the same reasons as set out above, that it is
unable to calculate the current period segmental results on the
original basis for comparability purposes.
FY 2020/21 Currency Authentication Identity Central Total
Solutions of continuing
operations
---------------------------------- --------- --------------- ----------- -------- ---------------
GBPm GBPm GBPm GBPm GBPm
Operating profit/(loss)
on IFRS basis (4.4) 9.9 10.2 (1.2) 14.5
---------------------------------- --------- --------------- ----------- -------- ---------------
Amortisation of acquired
intangibles - 1.0 - - 1.0
Net exceptional items 20.6 0.4 0.4 1.2 22.6
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating profit/(loss) 16.2 11.3 10.6 - 38.1
---------------------------------- --------- --------------- ----------- -------- ---------------
Enabling function overheads 25.5 7.0 - (32.5) -
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted controllable
operating profit/(loss) 41.7 18.3 10.6 (32.5) 38.1
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating expenses reconciliation
Due to the cost base and employee structure of the business
under the previous functional model being materially different to
the new divisional structure, the table below is presented to show
the Group adjusted operating expenses make-up for FY 2019/20 and FY
2020/21.
FY 2020/21 Currency Authentication Identity Central Total
Solutions of continuing
operations
---------------------------------- --------- --------------- ----------- -------- ---------------
GBPm GBPm GBPm GBPm GBPm
Gross Profit 65.3 29.9 12.6 - 107.8
Divisional overhead (23.6) (11.6) (2.0) (32.5) (69.7)
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted controllable
operating profit/(loss) 41.7 18.3 10.6 (32.5) 38.1
---------------------------------- --------- --------------- ----------- -------- ---------------
Enabling function overhead
base allocation (25.5) (7.0) - 32.5 -
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating profit/(loss) 16.2 11.3 10.6 - 38.1
---------------------------------- --------- --------------- ----------- -------- ---------------
Amortisation of acquired
intangibles - (1.0) - - (1.0)
Net exceptional items (20.6) (0.4) (0.4) (1.2) 22.6
---------------------------------- --------- --------------- ----------- -------- ---------------
Operating profit/(loss)
on IFRS basis (4.4) 9.9 10.2 (1.2) 14.5
---------------------------------- --------- --------------- ----------- -------- ---------------
FY 2019/20 Currency Authentication Identity Central Total
Solutions of continuing
operations
---------------------------------- --------- --------------- ----------- -------- ---------------
GBPm GBPm GBPm GBPm GBPm
Gross Profit 44.2 28.8 33.4 (0.5) 105.9
Divisional overhead - - - - -
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted controllable n/a n/a n/a n/a n/a
operating profit/(loss)
---------------------------------- --------- --------------- ----------- -------- ---------------
Central overhead base (53.6) (18.0) (10.6) - (82.2)
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating profit/(loss) (9.4) 10.8 22.8 (0.5) 23.7
---------------------------------- --------- --------------- ----------- -------- ---------------
Amortisation of acquired
intangibles - (0.9) - - (0.9)
Net exceptional items (0.5) (0.2) 24.8 (4.1) 20.0
---------------------------------- --------- --------------- ----------- -------- ---------------
Operating profit/(loss)
on IFRS basis (9.9) 9.7 47.6 (4.6) 42.8
---------------------------------- --------- --------------- ----------- -------- ---------------
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