TIDMDLAR
RNS Number : 2770X
De La Rue PLC
19 December 2023
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated by the
Market Abuse Regulation (EU) No.596/2014, as it forms part of UK
law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").
Upon the publication of this announcement, the inside information
is now considered to be in the public domain.
19 December 2023
De La Rue plc
2023/24 half year results
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the
"Company") announces its half year results for the six months ended
30 September 2023 (the "period", "H1 24" or "half-year"). The
comparative period was the six months ended 24 September 2022 ("H1
23").
Highlights
-- Adjusted operating profit of GBP7.9m (H1 23: GBP9.3m) ahead
of previous guidance of breakeven. IFRS operating loss narrowed to
GBP3.4m (H1 23: GBP12.6m).
-- Authentication revenue rose 5.7% to GBP48.1m (H1 23: GBP45.5m).
-- Currency revenue reduced 2.6% to GBP113.4m (H1 23: GBP116.4m).
-- Net debt of GBP82m (H1 23: GBP82.4m) in line with the October
2023 trading statement and ahead of previous guidance of GBP100m;
Operating cash inflow of GBP15.4m (H1 23: outflow of GBP2.8m).
-- Banking facilities extended to July 2025; RCF limit reduced to GBP235m (from GBP250m).
-- Pension situation improved and contributions reduced:
o Deficit per actuarial valuation now GBP78m (versus previous
remaining contributions of GBP84.7m)
o Deficit repair contributions moratorium continues for FY24;
thereafter contributions reduced to GBP8m annually from FY25-FY27,
saving GBP28m over that period; FY28-FY31 contributions then
increase to clear deficit by December 2030 (from March 2029)
-- Currency order book increased over 100% since September 2023
period end, to GBP219.8m, with very high win rate since beginning
of FY24, in a recovering market.
-- Multi-year Authentication contract extension secured on
improved terms; in latter stages of settling a further significant
GRS contract extension.
-- Authentication guidance of GBP100m revenue for FY24 reiterated.
-- The above underpins the Board's reiteration of full year
guidance: adjusted operating profit of early GBP20m range and net
debt in the mid GBP90m range.
Financial highlights
H1 24 H1 23 Change
GBPm GBPm %
-------------------------------- ------------ ----------- --------
Revenue 161.5 164.3 (1.7)
Authentication 48.1 45.5 5.7
Currency 113.4 116.4 (2.6)
Identity Solutions - 2.4 n/a
Gross profit 40.2 41.8 (3.8)
Adjusted operating profit*(1) 7.9 9.3 (15.1)
IFRS operating loss (3.4) (12.6) 73.0
Loss before taxation (16.8) (15.9) (5.7)
Adjusted basic EPS*(2) (p) (2.6)p 2.0p (230.0)
IFRS basic EPS (p) (6.2)p (12.6)p 50.8
H1 23 GBPm FY23 GBPm Change
%
-------------------------------- ------------ ----------- --------
Net debt(3) 82.0 82.4 (0.5)
-------------------------------- ------------ ----------- --------
Footnotes:
* These are non-IFRS measures. The definition and reconciliation
of adjusted operating profit and adjusted basic EPS can be found in
non-IFRS financial measures section of this Interim Statement.
(1.) Adjusted operating expenses and adjusted operating profit
excludes pre-tax exceptional items of GBP10.8m (H1 23: GBP21.4m)
and pre-tax amortisation of acquired intangible assets GBP0.5m (H1
23: GBP0.5m).
(2.) Adjusted basic EPS excludes post-tax exceptional items of
GBP6.7m (H1 23: GBP28.1m) and post-tax amortisation of acquired
intangible assets GBP0.4m (H1 23: GBP0.4m).
(3.) The definition of net debt can be found in note 8 to the
financial statements.
(4.) All of the above are reported for continuing
operations.
Clive Vacher, CEO of De La Rue, commented:
"De La Rue's robust performance in the first half reflects the
important actions that we have taken since 2020 to make the company
resilient to changing market conditions. These actions have allowed
us to navigate a downturn over the past 18 months, particularly in
Currency, and I am pleased that the market is now showing signs of
continuing recovery. We have doubled the Currency order book since
September 2023 and are exhibiting a high win rate, with more
opportunities in the pipeline.
"Authentication continues on its path to GBP100m in revenue for
the full financial year. We have secured a significant multi-year
contract extension, and we are in the late stages of securing
another contract extension in GRS. Our Australian passport
programme continues apace and is a significant driver of growth
this year.
"We continue to focus on the financial progress of the company.
In the half year, we demonstrated improved operating cash flow
versus H1 FY23 and, as announced in our October trading statement,
significantly improved net debt versus previous guidance. We have
extended our banking facilities to July 2025 and are comfortable to
reduce the size of facility.
"With a new pension deficit valuation of GBP78m, we have been
able to work with the Pension Trustee on an amended schedule of
contributions, that saves the company GBP28m cash contributions
between FY25 and FY27. The schedule now runs to December 2030, a
modest extension from March 2029, but still a number of years ahead
of scheme maturity.
"The progress reported today underpins the Board's full year
guidance of adjusted operating profit in the low GBP20m range, and
net debt in the mid GBP90m range."
Clive Whiley, Chairman of De La Rue, added:
"Upon my appointment as Chairman in May this year, it soon
became clear that De La Rue was struggling to balance conflicting
stakeholder objectives, alongside associated professional fees
which were suffocating the nascent recovery emanating from the
foundations laid by the Turnaround Plan initiated in 2020, Making a
continuation of the deterioration in the market rating almost
inevitable.
"Since then I have sought to provide aircover to allow the
reinforced executive management team to complete an in-depth review
of the fundamentals of De La Rue's business, designed to arm the
Board with the information necessary to gauge the core strategic
strengths of the Group, of which there are many.
"The interim results released this morning represent
demonstrable progress with adjusted operating profit ahead of
guidance, lower net debt, pension deficit repair contributions
reduced by GBP28m over the next three years, significantly enhanced
contract win rates and renewed confidence within the management
team.
"Accordingly, I would like to thank our core lenders, pension
trustees, shareholders and employees alike for their ongoing
support to enable us to complete this strategic review. The Board
is determined to utilise today's market update as a springboard to
optimise the underlying intrinsic value of the business, for the
benefit of all stakeholders, on which the company will provide an
update before 31 May 2024."
The person responsible for the release of this announcement on
behalf of De La Rue for the purposes of MAR is Jon Messent (Company
Secretary).
Enquiries:
De La Rue plc + 44 (0) 7990 337707
Clive Vacher Chief Executive Officer
Dean Moore Interim Chief Financial Officer
Louise Rich Head of Investor Relations
Brunswick + 44 (0) 207 404 5959
Stuart Donnelly
Ed Brown
A presentation to investors and analysts, including a live
webcast will be held today at 09:00 am and will be available via
our website at https://www.delarue.com or on
https://brrmedia.news/DLAR_HY . This will be available for playback
after the event.
About De La Rue
Established 210 years ago, De La Rue is trusted by governments,
central banks, and international brands, providing digital and
physical solutions that protect their supply chains and cash cycles
from counterfeiting and illicit trade.
With operations in five continents, customers in 140 countries
and solutions that include advanced track and trace software,
security document design, banknotes, brand protection labels, tax
stamps, security features and passport bio-data pages, De La Rue
brings unparalleled knowledge and expertise to its partnerships and
projects.
Our core focus areas are:
- Authentication: leveraging advanced digital software solutions
and security labels to protect revenues and reputations from the
impacts of illicit trade, counterfeiting, and identity theft.
- Currency: designing and manufacturing highly secure banknotes
and banknote components that are optimised for security,
manufacturability, cash cycle efficacy and public engagement.
The security and trust derived from our solutions pave the way
for robust economies and flourishing societies. This is underpinned
by a significant Environmental, Social, and Governance commitment
that is evidenced by accolades such as the ISO 14001 certification
and a consistent ranking in the top tier of the Financial Times
European Climate Leaders list.
De La Rue's shares are traded on the London Stock Exchange (LSE:
DLAR). De La Rue plc's LEI code is 213800DH741LZWIJXP78. For
further information please visit www.delarue.com.
Cautionary note regarding forward-looking statements
Certain statements contained in this document relate to the
future and constitute 'forward-looking statements'. These
forward-looking statements include all matters that are not
historical facts. In some cases, these forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "anticipates",
"expects", "intends", "plans", "may", "will", "could", "shall",
"risk", "aims", "predicts", "continues", "assumes", "positioned" or
"should" or, in each case, their negative or other variations or
comparable terminology. They appear in a number of places
throughout this document and include statements regarding the
intentions, beliefs or current expectations of the Directors, De La
Rue or the Group concerning, amongst other things, the results of
operations, financial condition, liquidity, prospects, growth,
strategies and dividend policy of De La Rue and the industry in
which it operates.
By their nature, forward-looking statements are not guarantees
or predictions of future performance and involve known and unknown
risks, uncertainties, assumptions and other factors, many of which
are beyond the Group's control, and which may cause the Group's
actual results of operations, financial condition, liquidity,
dividend policy and the development of the industry and business
sectors in which the Group operates to differ materially from those
suggested by the forward-looking statements contained in this
document. In addition, even if the Group's actual results of
operations, financial condition and the development of the business
sectors in which it operates are consistent with the
forward-looking statements contained in this document, those
results or developments may not be indicative of results or
developments in subsequent periods.
Past performance cannot be relied upon as a guide to future
performance and should not be taken as a representation or
assurance that trends or activities underlying past performance
will continue in the future. Accordingly, readers of this document
are cautioned not to place undue reliance on these forward-looking
statements.
Other than as required by English law, none of the Company, its
Directors, officers, advisers or any other person gives any
representation, assurance or guarantee that the occurrence of the
events expressed or implied in any forward-looking statements in
this document will actually occur, in part or in whole.
Additionally, statements of the intentions of the Board and/or
Directors reflect the present intentions of the Board and/or
Directors, respectively, as at the date of this document, and may
be subject to change as the composition of the Company's Board of
Directors alters, or as circumstances require.
The forward-looking statements contained in this document speak
only as at the date of this document. Except as required by the
UK's Financial Conduct Authority, the London Stock Exchange or
applicable law (including as may be required by the UK Listing
Rules and/or the Disclosure Guidance and Transparency Rules), De La
Rue expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained in this document to reflect any change in the Group's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
BUSINESS UPDATE
De La Rue achieved an adjusted operating profit of GBP7.9m (H1
23: GBP9.3m) in the first half, ahead of guidance, helped by a
better-than-expected mix within Currency and strong sales coupled
with strong cost control in Authentication. Though adjusted
operating profit was lower than the comparative period last year,
the IFRS operating loss of GBP3.4m (H1 23: GBP12.6m) was much
reduced thanks to reduced exceptional charges.
The work we have done and continue to do, to reshape the
business and remove cost, has created more efficient and agile
operations. It has allowed us to begin to rebuild the order book in
Currency, winning a high proportion of the tenders for which we
have bid and to conclude a three-year contract renewal with an
important customer on improved terms within Authentication. At the
same time, we have seen an improved cash flow across the
business.
We have also announced today that we have secured an extension
to our banking facilities and improved terms for the schedule of
contributions to repair the deficit within the legacy defined
benefit pension scheme. These build on the 15-month pension deficit
repair moratorium and the banking covenant relaxation that we
announced at the time of our full year results and reduce cash
outflows through to the end of FY27 by an additional GBP28m. While
we have more to do, these actions put the business on a firmer
financial footing for the future.
FY24 to date has seen much activity across the business,
including further streamlining and improving operational
efficiency, seeking out new customers, extending relationships with
existing customers and the improvements to our financing situation
referenced above. We have restructured our UK sites, completed the
wind-down in Kenya and moved the expansion of our Malta operations
towards completion.
These have all required much hard work from employees across De
La Rue. I would like to thank the team for all their efforts during
the financial year so far, and for those yet to come as we work to
achieve our goals for the remainder of FY24 and beyond.
Pension scheme
In view of recent changes in interest rates and other actuarial
assumptions, we commissioned a fresh actuarial valuation of our
historic defined benefit pension scheme (the 'Scheme') as at
September 2023. This has resulted in the deficit being valued at
GBP78m, as compared with the outstanding total of future deficit
repair contributions previously agreed of GBP84.7m.
On 18 December 2023, we reached agreement with the Scheme
Trustee to pay deficit repair contributions in accordance with a
revised schedule. We will recommence deficit repair contributions
in July 2024 as previously agreed, but at a significantly lower
level, namely GBP8m per annum to the end of FY27, with the
outstanding amount thereafter spread over the period to December
2030, which is after the next periodic actuarial valuation is
due.
This revised deficit repair contribution schedule provides De La
Rue with a significantly improved cash flow profile, reducing cash
outflows by GBP28m over the period to the end of FY27. The actions
we have taken since 2020 in reprofiling the pension deficit repair
contributions will have saved the Group over GBP90m in cash
outflows by the end of FY27, while improving the safeguards to the
Scheme and its members with additional security and 'pari passu'
treatment with the banking facility providers.
Banking facilities
Today we also announce that we have reached agreement with our
banking syndicate so that our principal facilities now extend to
July 2025.
The extension has been granted with the same interest rate
schedule that was agreed in June 2023. The interest rates and
covenant limits remain unchanged, other than a downwards adjustment
in the liquidity headroom covenant to reflect the cancellation of
GBP15m of the revolving credit facility as explained below. Further
details of the revised banking arrangements can also be found
within the Financial Review below, under 'Banking facilities'.
Looking ahead, we are evaluating various options to refinance
our debt facilities for a longer horizon, allowing us to move away
from a repeated cycle of short-term facility extensions.
Net debt and cash
At the end of September 2023, our net debt stood at GBP82.0m
(FY23: GBP82.4m), significantly lower than our previous
guidance.
Our focus on strong control of working capital, reducing
inventory and seeking prompt payment from our customers generated
an operating cash inflow of GBP15.4m (H1 23: GBP2.8m outflow). This
was after taking account of the final GBP7.5m payment for
settlement of the termination of the Portals Paper agreement which
took place at the beginning of this financial year.
Our net debt position at the end of the first half also
benefitted from improving the matching of capital expenditure with
the timing of grant receipts in Malta. We will continue with these
and other initiatives in the second half and into FY25.
Our improved cash flow performance has enabled us to offer to
our bank syndicate the cancellation of [GBP15m] of the revolving
credit facility previously in place that is now surplus to our
requirements.
Authentication
Our Authentication division generated an adjusted operating
profit of GBP6.5m (H1 23: GBP4.9m) from revenue up 5.7% to GBP48.1m
(H1 23: GBP45.5m). The ID business saw a robust performance with
strong sales from the polycarbonate bio data page produced for the
new 'R series' Australian passport among others. These data pages
incorporate a range of security features in a technically advanced
highly secure, multi-layered polycarbonate plastic and allow
Australian citizens to benefit from one of the most advanced and
secure travel documents. Brand benefitted from the new customers
that we referenced in our full year results. Microsoft related
sales have stabilised in H1 24, but we have not yet seen any
significant recovery, reflecting the continued subdued state of PC
sales globally.
Authentication has recently seen the renewal of a three-year
contract with a key customer on improved terms. Negotiations on
another significant contract are in their later, detailed stage.
These build on the GRS contract extensions in the EU, Cameroon and
Sudan announced at the end of FY23, de-risking our future revenue
pipeline.
Recent additional investment in sales and marketing capability
is bearing fruit, with a number of leads being pursued in each area
of the business. In GRS the market continues to grow steadily, and
we are seeing several tenders or RFQ's for new contracts, together
with larger contract values to cover additional products to be
incorporated into existing schemes .
Currency
Our Currency division delivered an adjusted operating profit of
GBP1.4m (H1 23: GBP4.3m) in its traditionally weaker first half
from marginally lower revenue of GBP113.4m (H1 23: GBP116.4m)
compared with the same period last year. A mix of completed work
within banknotes with a higher margin than had been expected led to
an improved profit outturn versus expectations at the start of the
financial year.
While the industry-wide post pandemic downturn continued to
impact the business in the period, the division is now seeing some
recovery, albeit from a low base. While the overall market remains
unpredictable, our conversion rate of bids to orders since the
beginning of this financial year has been excellent. In FY24 to
date we have won substantial multi-year orders in Africa, the
Middle East and in Asia. The work we have done over the last few
years in making the business more competitive and agile, by for
example, replacing Portals as our sole provider of banknote paper
with a panel of suppliers and focusing on an efficient
manufacturing footprint, has helped us to attain this high
conversion rate.
At the same time market data continues to reflect an underlying
demand for fresh banknotes. Our latest view of the global growth of
cash in circulation is around 5% per annum, with growth in some of
our core markets increasing at a rate significantly ahead of
this.
At the end of September our total order book stood at GBP105.4m
(25 March 2023: GBP136.8m) and the 12-month order book at GBP65.8m
(25 March 2023: GBP131.7m). The timing of tenders has been such
that several significant orders have been closed recently. At
December, the total order book stood at GBP219.8m.
As well as focusing on winning tenders to print banknotes, we
also continue to seek opportunities to incorporate our security
features and SAFEGUARD(R) polymer substrate into the
specifications. Furthermore, our extensive security features
portfolio and polymer substrate provide opportunities to grow sales
to state printing works, which typically represent countries that
require a larger volume of banknotes.
Malta
The expansion of our Malta facilities is moving forward, with
the Authentication space due to be completed by end of this
financial year and the Currency facilities completed during
FY25.
When complete, the new facilities will substantially increase
our capacity within Authentication and add significantly to our
Currency capabilities within Malta.
Responsible business
Undertaking our business in an ethical and sustainable manner is
core to the De La Rue culture and underpins all that we do. We were
therefore delighted that our most recent annual assessment by
sustainability agency Ecovadis resulted in a 5% improvement in our
overall score, a rating in the 91(st) percentile and a silver
medal. De La Rue scored particularly highly in the theme area of
ethics.
Outlook
Within Currency, our order book for the remainder of FY24 is now
largely de-risked. Our operations team are now working hard to
fulfil these orders and deliver full year operating profit
expectations for the business. Authentication remains on track to
hit its GBP100m revenue target for the full year, though at an
operating profit level has a strong prior year comparative in the
second half to outperform.
We recognise that the outturn for H1 24 has been better from
both an operating profit and a net debt perspective than we set out
at the time of our full year results in June 2023. However, a
number of significant operational uncertainties still remain in
both divisions.
As a result, we reiterate the profit guidance previously given,
namely that we expect adjusted operating profit for FY24 to be in
the low GBP20m.
In relation to net debt, as we set out in our pre close
statement in early October, given the various initiatives in
relation to cash underway, we expect net debt for the full year
FY24 to be in the mid GBP90m range.
Clive Vacher
Chief Executive Officer
FINANCIAL REVIEW
To provide increased clarity on the underlying performance of
our business, we have reported gross profit and operating profit on
an IFRS and adjusted basis, together with adjusted EBITDA and
adjusted controllable operating profit (adjusted operating profit
before enabling function cost allocation), for both ongoing
operating divisions. Further details on non-IFRS financial measures
can be found later in this document.
100% of Group revenue for H1 24 of GBP161.5m (H1 23: GBP164.3m)
originated from our ongoing operating divisions of Currency and
Authentication.
Together Currency and Authentication delivered adjusted
operating profit of GBP7.9m (H1 23: profit GBP9.3m), a fall of
GBP1.4m (15.1%) period-on-period. This largely reflects lower
revenue from the Currency division, adverse mix and a slight
increase in operating expenses. The legacy Identity Solutions
business generated an adjusted operating result of GBPnil in the
current financial year with no remaining activity (H1 23: GBP0.1m
profit).
At an IFRS operating profit level, the Group saw a small net
loss of GBP3.4m, much less than the equivalent period last year,
which saw a loss of GBP12.6m after the exceptional cost of the
termination of the agreement with Portals Paper.
Authentication
The Authentication division leverages advanced digital software
solutions and security labels to protect revenues and reputations
from the impacts of illicit trade, counterfeiting, and identity
theft.
H1 24 H1 23 Change
GBPm GBPm
----------------------------------------- ------ ------ --------
Revenue 48.1 45.5 5.7%
Gross profit 17.9 15.7 14.0%
Adjusted controllable operating profit* 11.6 9.4 23.4%
Adjusted operating profit* 6.5 4.9 32.7%
Operating profit 5.8 3.9 48.7%
----------------------------------------- ------ ------ --------
% %
----------------------------------------- ------ ------ --------
Gross profit margin 37.2 34.5 270 bps
Adjusted controllable operating profit
margin* 24.1 20.7 340 bps
Adjusted operating profit margin* 13.5 10.8 270 bps
----------------------------------------- ------ ------ --------
* Non-IFRS measure
When compared with prior period, the most substantial increase
in H1 24 Authentication revenue was due to the increase in ID
sales, notably data pages for the Australian passport. Brand
benefitted from sales from new contracts announced at the full
year. Microsoft related sales faced a strong prior year comparative
in the first quarter. The monthly run rate has stabilised, but we
have not yet seen any significant recovery, reflecting the
continued subdued state of PC sales globally. The loss of revenue
in Kenya and from HMRC in FY23, together with a muted overall
performance in GRS, moderated overall sales growth in the
division.
Gross profit margin rose 270 basis points, when compared with
the prior period, reflecting the mix in sales and good
manufacturing yields. Exceptionally strong cost control led to no
increase in divisional operating expenses, which, combined with the
higher revenue, led to adjusted controllable operating profit
rising 23.4% to GBP11.6m (H1 23: GBP9.4m).
Adjusted operating profit was up 32.7% to GBP6.5m (H1 23:
GBP4.9m) despite the division being allocated a higher proportion
of central overheads, given its proportionally higher revenue for
the period. As most of the exceptional costs recorded in both this
period and in the comparative period last year related to the
Currency division rather than Authentication and amortisation was
at the same level as last year, most of the increase in profit fed
through to the IFRS operating profit level, which rose 48.7% to
GBP5.8m (H1 23: GBP3.9m).
Currency
The Currency division designs and manufactures highly secure
banknotes and banknote components that are optimised for security,
manufacturability, cash cycle efficacy and public engagement.
H1 24 H1 23 Change
GBPm GBPm
----------------------------------------- ------ ------- ----------
Revenue 113.4 116.4 (2.6)%
Gross profit 22.3 25.8 (13.6)%
Adjusted controllable operating profit* 14.1 15.7 (10.2)%
Adjusted operating profit* 1.4 4.3 (67.4)%
Operating loss (5.5) (16.5) 66.7%
----------------------------------------- ------ ------- ----------
% %
----------------------------------------- ------ ------- ----------
Gross profit margin 19.7 22.2 (250) bps
Adjusted controllable operating profit
margin* 12.4 13.5 (110) bps
Adjusted operating profit margin* 1.2 3.7 (250) bps
----------------------------------------- ------ ------- ----------
* Non-IFRS measure
Our Currency division remained profitable at the adjusted
operating profit level during its traditionally weaker first half,
delivering an adjusted operating profit of GBP1.4m (H1 23: GBP4.3m)
from marginally lower revenue of GBP113.4m (H1 23: GBP116.4m).
Revenue from banknotes was broadly flat on the comparative period
last year, security features revenue was marginally higher and
polymer was generally subdued.
Gross profit fell 13.6% to GBP22.3m (H1 23: GBP25.8m) with the
mix of sales adversely affecting margin when compared with the
prior period.
The ongoing remaining costs of the Gateshead and Kenya
facilities were reallocated to enabling function costs at the start
of FY24, which benefitted controllable operating costs within the
division. This, together with strong cost control, led adjusted
controllable operating profit to fall just 10.2% to GBP14.1m (H1
23: GBP15.7m).
GBP6.9m (H1 23: GBP20.8m) of exceptional costs of right sizing
the business for future operations led the division into an
operating loss of GBP5.5m (H1 23: loss of GBP16.5m) on an IFRS
basis. This included restructuring in the UK, together with some
further costs in relation to the wind down in Kenya. In the
equivalent period last year, a much larger divisional IFRS
operating loss was recorded, given that GBP16.8m relating to the
termination of the Portals Paper agreement was charged to the
division as an exceptional charge.
Identity solutions
As noted above, the legacy Identity Solutions business saw no
activity in H1 24 with an operating result of GBPnil (H1 23:
operating profit of GBP0.1m).
Enabling function costs
In H1 24 enabling function costs of GBP17.8m (H1 23: GBP15.9m)
rose by 11.9% and represented 11.0% of Group revenue (H1 23:
9.7%).
The rise in enabling function costs is mostly due to increased
professional fees together with the reallocation of the remaining
ongoing costs of the Gateshead and Kenya facilities into enabling
functions from the beginning of FY24. This allows for greater focus
in the central management of these projects. Most activity at
Gateshead has now ceased and we are working to relocate the
remaining functions as soon as practicable.
Exceptional items
Exceptional items during the period constituted a net charge of
GBP10.8m (H1 23: GBP21.4m) before tax.
Exceptional charges before tax included:
H1 H1 23
24
GBPm GBPm
---------------------------------------------------------- ------ ------
Site relocation and restructuring costs 7.9 2.1
Costs in relation to pension payment deferment and 3.0 -
banking refinancing
Credit loss provision/write back on Portals loan notes (0.3) 2.5
Pension underpin costs 0.2 -
Termination costs related to the Portals Paper agreement - 16.8
10.8 21.4
---------------------------------------------------------- ------ ------
GBP7.9m (H1 23: GBP2.1m) exceptional site relocation and
restructuring costs comprised:
- GBP6.5m (H1 23: GBPnil) charge for redundancy and legal fees
(GBP3.2m) (Currency and Authentication) and property, plant and
equipment impairments (GBP3.3m) (Currency) were made in relation to
restructuring initiatives in both divisions to right size the
divisions for future operations.
- A further GBP1.3m (H1 23: GBPnil) in relation to the wind down
of our operations in Kenya announced in January 2023. This included
redundancy charges of GBP0.2m, property, plant and equipment asset
impairments of GBP1.1m and other costs of GBP0.1m, offset by
GBP0.1m of proceeds from the sale of previously impaired
inventory.
- GBP0.1m (H1 23: GBP0.3m) of restructuring charges related to
the cessation of banknote production at our Gateshead facility
primarily relating to the costs, net of grant income received of
GBP0.1m, of relocating assets to different Group manufacturing
locations. This relocation of assets will continue into H2 24 as
the Group continues its expansion of the manufacturing facilities
in Malta.
- In addition, H1 23 included GBP1.8m of charges relating to
other cost out initiatives, including the initial Turnaround Plan
restructuring of our central enabling functions, selling and
commercial functions were also included within site relocation and
restructuring costs.
Costs associated with pension payment deferment and the banking
refinancing amounted to GBP3.0m (H1 23: GBPnil) in the period. This
included the following legal and professional advisor costs:
- GBP1.3m relating to amendments to the schedule of deficit
repair contributions as explained in 'Pension scheme' below.
- GBP1.7m relating to the amendment and restatement of the terms
of the revolving facility agreement on 29 June 2023, as detailed in
'Banking facilities' below.
Pension underpin costs of GBP0.2m (H1 23: GBPnil) relate to
legal fees, net of amounts recovered, incurred in the rectification
of certain discrepancies identified in the Scheme's rules. The
Directors do not consider this to have an impact on the UK defined
benefit pension liability at the current time, but they continue to
assess this.
During H1 24, a net credit loss provision release of GBP0.3m (H1
23: GBP2.5m charge) was reported on the loan notes held in Portals
International Limited where an unexpected cash repayment was
received on the loan notes from Portals International Limited
during the period.
Tax related to exceptional items amounted to a GBP4.1m tax
credit (H1 23: tax charge of GBP6.7m). Included within exceptional
tax items is a tax credit of GBP2.1m relating to the release of a
provision in relation to uncertain tax positions. This relates to
the expiry of an indemnity period in May 2023, following the Cash
Processing Solutions Limited business sale in May 2016.
The cash flow impact of exceptional items in H1 24 was a
GBP14.6m outflow (H1 23: GBP0.9m outflow) which included the final
GBP7.5m payments to Portals Paper Limited, GBP4.7m relating to site
relocation and restructuring costs, GBP2.5m of costs associated
with pension payment deferment and banking refinancing and GBP0.2m
relating to pension underpin costs, offset by the GBP0.3m received
in relation to Portals Loan notes (other financial assets).
Finance charge
The Group's net interest charge was GBP13.4m (H1 23: GBP3.3m).
This included interest income of GBP0.1m (H1 23: GBP0.6m), interest
expense of GBP12.2m (H1 23: GBP4.4m) and retirement benefit finance
expense of GBP1.3m (H1 23: income of GBP0.5m).
Interest income of GBP0.1m (H1 23: GBP0.6m) included interest
accrued on loan notes and preference shares held in the Portals
International Limited Group of GBPnil (H1 23: GBP0.5m). Interest
receivable on loan notes and preference shares is excluded from the
Group's covenant calculations.
Interest expense comprised:
H1 H1 23
24
GBPm GBPm
------------------------------------------------------ ----- ------
Bank loan interest 5.9 3.0
Lease liability interest 0.2 0.3
Charges relating to June 2023 debt modification 3.8 -
Other, including amortisation of finance arrangement
fees 2.3 1.1
12.2 4.4
------------------------------------------------------ ----- ------
The increase in bank loan interest paid in H1 24 was largely
attributable to the rises in Bank of England base rates. In H1 24
these moved from 4.25% to 5.25% over the period. By comparison in
H1 23 these moved from 0.75% to 2.25%.
The net charges relating to the debt modification of GBP3.8m (H1
23: GBPnil) relate to the changes in existing banking facilities,
treated as a non-substantial modification under IFRS 9 'Financial
Instruments'. The modification loss and its subsequent amortisation
are non-cash items. See note 4 for further information.
The IAS 19 related finance cost, which represents the difference
between the interest on pension liabilities and assets, was an
expense of GBP1.3m (H1 23: GBP0.5m income). The charge in the
period was due to the opening IAS 19 pension valuation in being a
deficit of GBP54.7m.
Taxation
The total tax credit in respect of continuing operations for the
first half was GBP5.6m (H1 23: tax charge GBP7.9m) and
comprised:
- GBP1.4m credit (H1 23: GBP1.3m charge) on adjusted loss after interest expense;
- GBP0.1m credit (H1 23: GBP0.1m credit) on the amortisation of acquired intangibles; and
- GBP4.1m credit (H1 23: GBP6.7m charge) on exceptional items,
which is described in more detail in under 'Exceptional items'
above.
Earnings per share
The basic weighted average number of shares for earnings per
share ('EPS') purposes was 195.6m (H1 23: 195.3m).
Adjusted basic loss per share was (2.6)p (H1 23: EPS of 2.0p),
reflecting the fall in adjusted basic earnings from GBP3.9m in H1
23 to a loss of GBP5.1m in H1 24.
IFRS basic loss per share from continuing operations was 6.2p
(H1 23: 12.6p) reflecting a basic loss of GBP12.2m (H1 23: loss of
GBP24.6m).
Cash flow
The conservation and generation of cash within the business has
been an area of stringent focus over the period. Net working
capital improved by GBP11.5m as we concentrated on reducing
inventory levels and on prompt payment from our customers. We
reduced our net capital expenditure outflow in Malta by seeking
timely receipt of associated grant income and kept careful control
over software development spend. This focus on strong cash control
is continuing in the second half.
More detail on the movements within our cash flows for the
period are set out below.
Cash flow from operating activities was a net cash inflow of
GBP15.4m (H1 23: GBP2.8m outflow), generated after adjusting the
GBP16.8m loss before tax (H1 23: GBP15.7m loss) for:
- GBP13.4m of net finance expense (H1 23: GBP4.0m)
- GBP9.0m of depreciation and amortisation (H1 23: GBP9.7m)
- GBP4.4m of asset impairment (H1 23: GBPnil)
- GBP2.8m decrease in provisions (H1 23: GBP0.7m decrease)
- GBP11.5m net working capital inflow (H1 23: GBP6.2m inflow) including:
o GBP9.6m decrease in inventory (H1 23: GBP2.5m increase);
o GBP20.8m decrease in trade and other receivable and contract
assets (H1 23: GBP10.8m increase) mainly due to timing of cash
collections on certain material customer contracts; and
o GBP18.9m decrease in trade and other payables and contract
liabilities (H1 23: GBP19.5m increase), due to the timing of
supplier payments and the final payment in relation to the Portals
termination agreement, paid just after the FY23 period end.
- tax payments of GBP1.2m (H1 23: GBP0.3m).
The cash outflow from investing activities of GBP2.2m (H1 23:
GBP7.4m outflow) included:
- capital expenditure on property, plant and equipment, after
cash receipts from grants, of GBP0.8m (H1 23: GBP2.5m), largely
relating to the construction of our expanded facility in Malta.
- capital expenditure on software intangibles and development
assets of GBP2.1m (H1 23: GBP5.3m).
- proceeds of GBP0.3m received from the partial settlement of Portals Loan notes.
The cash outflow from financing activities was GBP19.6m (H1 23:
inflow GBP11.0m), included:
- GBP7.0m net repayment of borrowings (H1 23: draw down of GBP16.5m),
- GBP8.3m (H1 23: GBP4.4m) of interest payments,
- GBP3.0m (H1 23: GBPnil) of debt issue cost payments relating
to the amendment of the banking facilities in June 2023, and
- GBP1.3m (H1 23: GBP1.1m) of IFRS 16 lease liability payments.
The net decrease in cash and cash equivalents in the period was
GBP6.4m (H1 23: GBP0.8 increase).
As a result of the cash flow items referred to, Group net debt
decreased from GBP82.4m at 25 March 2023 to GBP82.0m at 30
September 2023.
Net debt
The analysis below provides a reconciliation between the opening
and closing positions for liabilities arising from financing
activities together with movements in cash and cash
equivalents:
At 25 Cash Foreign At 30
March flow exchange September
2023 and other 2023
GBPm GBPm GBPm GBPm
--------------------------- -------- ------ ----------- -----------
Gross Borrowings (122.7) 7.0 - (115.7)
Cash and cash equivalents 40.3 (6.4) (0.2) 33.7
--------------------------- -------- ------ ----------- -----------
Net debt (82.4) 0.6 (0.2) (82.0)
--------------------------- -------- ------ ----------- -----------
Net debt is presented excluding unamortised pre-paid borrowing
fees of GBP4.7m (FY23: GBP5.0m), loss on debt modification of
GBP4.5m (FY23: GBP0.7m) and GBP12.2m (FY23: GBP13.3m) of lease
liabilities .
Banking facilities
On 29 June 2023 the Company signed a range of documents which
had the effect of amending and restating the terms of the revolving
facility agreement with its lending banks and their agents. These
documents are an amendment and restatement agreement with the
various lenders and the banks' agents and security agent, a
debenture between the Company, certain other Group companies and
the banks' security agent and inter-creditor agreement between the
creditors. As a result of these changes, the facilities are now
secured against material assets and shares within the Group.
Under the June amendment and restatement agreement, the banking
facilities expiration on the 1 January 2025 remained unchanged,
whilst there were also changes to:
- margins: with new interest rates introduced for net debt to EBITDA ratios over 2.5.
- changes in daily interest rates: to SONIA daily rates.
The following changes were made to the Group covenant financial
covenants and spread levels from 1 July 2023:
- EBIT/net interest payable more than or equal to 1.0 times, (3.0 times previously).
- Net debt/EBITDA less than or equal to 4.0 times until the Q4
2024 testing point, reducing to less than or equal to 3.6 times
from Q1 FY25 through to the end of that agreement, namely 1 January
2025 (3.0 times previously).
- Minimum Liquidity testing monthly, testing at each weekend
point on a 4-week historical basis and 13-week forward-looking
basis. The minimum liquidity was defined as "available cash and
undrawn RCF greater than or equal to GBP25m", although this reduced
to GBP20m if GBP5m or more of cash collateral was in place to
fulfil guarantee or bonding requirements (new test).
- Increases in spread rates on the leverage ratio as a result of the relaxation of levels:
Leverage (consolidated net debt to EBITDA) Margin (% per annum)
--------------------------------------------------- --------------------
Greater than 3.5:1 4.35
Greater than 3.0:1 and less than or equal to 3.5:1 4.15
Greater than 2.5:1 and less than or equal to 3.0:1 3.95
--------------------------------------------------- --------------------
The covenant tests use earlier accounting standards, excluding
adjustments for IFRS 16. Net debt for covenants excludes
unamortised pre-paid borrowing fees and the net loss on debt
modification.
Covenant test results as at 30 September 2023:
Test Requirement Actual at 30 September
2023
---------------------- ----------------------- -----------------------
EBIT to net interest More than or equal to
payable 1.0 2.16
Less than or equal to
Net debt to EBITDA 4.0 2.38
---------------------- ----------------------- -----------------------
Minimum liquidity at 30 September 2023 was in excess of the
GBP25m limit required under the covenant tests.
As explained above under 'Finance charges', the June 2023 change
in existing banking facilities is treated as a non-substantial
modification under IFRS 9 'Financial Instruments'.
At 30 September 2023 the Group had Bank facilities of GBP250.0m
(FY23: GBP275.0m) including an RCF cash drawn component of up to
GBP175.0m (FY23: GBP175.0m) and bond and guarantee facilities of a
maximum of GBP75.0m (FY23: GBP100.0m), which were due to mature on
1 January 2025.
The drawdowns on the RCF facility are typically rolled over on
terms of between one and three months. However, as the Group has
the intention and ability to continue to roll forward the drawdowns
under the facility, the amount borrowed has been presented as
long-term.
At 30 September 2023, the Group had a total of undrawn RCF
committed borrowing facilities, all maturing in more than one year,
of GBP60.0m (25 March 2023: GBP53.0m, all maturing in more than one
year). The amount of loans drawn on the GBP175.0m RCF cash
component was GBP115.0m as at 30 September 2023 (25 March 2023:
GBP112.0m). The accrued interest in relation to cash drawdowns
outstanding as at 30 September 2023 was GBP0.4m (25 March 2023:
GBP0.3m).
Guarantees of GBP46.0m (26 March 2023: GBP52.1m) were drawn at
30 September 2023 using the GBP75.0m guarantee facility. The bond
and guarantee facilities provide guarantees or bonds to participate
in tenders and function as back up to contracts, where the
customers require a guarantee as part of their procurement process.
In addition, the facilities underpin some advance payments from
customers. The Group considers the provision of such bonds to be in
its ordinary course of business.
On 18 December 2023 the Group entered into a new agreement with
its banking syndicate to extend its banking facilities to July
2025. From this date the Group will have Bank facilities of GBP235m
including an RCF cash drawn component of up to GBP160m (a reduction
of GBP15m) and bond and guarantee facilities of a maximum of
GBP75m. The covenant tests described above will continue to apply
to the facilities, other than the liquidity covenant where the
minimum headroom is now defined as "available cash and undrawn RCF
greater than or equal to GBP10m", to reflect the GBP15m reduction
in RCF. In addition an arrangement fee is due, equal to 1% of the
facility, which will reduce to 0.5% if the facility is refinanced
before 30 June 2024.
Pension scheme
The Company has not paid any deficit repair contributions to the
Scheme over the period to 30 September 2023. On 3 April 2023, the
Company and the Trustee agreed to defer the deficit repair
contribution due, payable on 5 April 2023, to 26 May 2023.
Subsequently, on 25 May 2023 the Company and the Trustee agreed to
defer the deficit contribution due on 26 May 2023 to 5 July 2023.
In June 2023, the Company and the Trustee agreed to defer all the
deficit repair contributions due to recommence from 5 July 2023 and
a new Recovery Plan was then agreed between the Company and the
Trustee which deferred all deficit repair contributions until July
2024. Under the Recovery Plan, the amount deferred, totalling
GBP18.75m, would be paid to the Scheme, from FY26 to FY29.
An actuarial valuation of the Scheme has been undertaken as at
30 September 2023. This showed a Scheme deficit of GBP78m. As a
result of this new valuation, on 18 December 2023, the Company and
the Scheme Trustee agreed a new schedule to fund the deficit. The
funding moratorium until July 2024 as previously agreed will be
retained, with the only payment being GBP1.25m due under the June
2023 Recovery Plan. This will be followed by deficit repair
contributions from the Company of GBP8m per annum to the end of
FY27, followed by higher contributions that at no time exceed
GBP16m per annum and which run until December 2030 or until the
Scheme becomes fully funded.
The next periodic actuarial valuation will be as at the end of
September 2026, with the Scheme Trustee undertaking to provide the
results of this valuation by January 2027, ahead of any increase in
contribution from GBP8m per annum.
The valuation of the Scheme on an IAS 19 basis at 30 September
2023 is a net liability of GBP60.5m (25 March 2023: net liability
of GBP54.7m).
The charge to the adjusted operating profit in respect of the
Scheme in the period was GBP0.6m (H1 23: GBP0.8m). Under IAS 19
there was a finance charge of GBP1.3m (H1 23: finance credit of
GBP0.5m) arising from the difference between the interest cost on
liabilities and the interest income on scheme assets.
Capital structure
At 30 September 2023 the Group had net assets of GBP4.2m (25
March 2023: GBP22.6m restated).
In the prior period (FY23) deferred tax assets were incorrectly
reported, being overstated by GBP12.4m. This has had an impact in
the second half of FY23 only and has no impact on H1 23 or earlier
reported periods. Neither does it have any cash impact on the
Group.
The prior year revision is a technical accounting point whereby
the Company has incorrectly treated a taxable timing difference as
a permanent timing difference, the error is in relation to external
interest expense which is restricted to 30% of EBITDA. The company
has claimed, and intends to continue to claim and carry forward,
the amounts arising from the interest restriction for use against
future profits.
Further information can be found in the Basis of Preparation
section below.
The movement during the period included:
GBPm
--------------------------------------------------------------- -------
Opening net assets - 25 March 2023 - as reported 35.0
Prior year revision (12.4)
--------------------------------------------------------------- -------
Opening net assets - 25 March 2023 - restated 22.6
Loss for the period (11.2)
Remeasurement loss on retirement benefit obligations (4.5)
Tax related to remeasurement of net defined benefit liability (1.7)
Other movements in other comprehensive income (1.0)
Foreign exchange movements (1.1)
Employee share scheme charges 0.8
Share capital issued 0.3
Closing net assets - 30 September 2023 4.2
--------------------------------------------------------------- -------
DIRECTORS' REPORT
Principal risks and uncertainties
Throughout its global operations De La Rue faces various risks,
both internal and external, which could have a material impact on
the Group's performance. The Group manages the risks inherent in
its operations in order to mitigate exposure to all forms of risks,
where practical, and to transfer risk to insurers where
applicable.
The Group analyses the risks that it faces under the following
broad headings: strategic risks (technological revolution, strategy
implementation, changes to the market environment and economic
conditions), operational risks, legal and regulatory, information
risks and financial risks (currency risk, credit risk, liquidity
risk, interest rate risk and commodity price risk).
The principal risks and uncertainties are reviewed and updated
at least quarterly. Currently we expect the key risks for the
remaining six months of the financial year to include:
- bribery and corruption;
- quality management and delivery failure;
- macroeconomic and geo-political environment;
- loss of a key site or process;
- sustainability and climate change;
- loss of key talent;
- breach of information security;
- supply chain failure;
- breach of security - product security;
- sanctions; and
- banking facilities.
The principal risks remain in line with the Annual Report and
Accounts for FY23, however, the Group continues to monitor and work
to mitigate headwinds in commodity and energy costs and challenges
in the supply chain.
The Group has not experienced any specific impact from the war
in Ukraine and the Israel-Hamas war, other than the global economic
conditions.
Going concern
Going concern assessments are included with the Basis of
Preparation section of these Interim Financial Statements. These
Interim Financial Statements do not contain the adjustments that
would result if the company was unable to continue as a going
concern.
A copy of the 2023 Annual Report is available at www.delarue.com
or on request from the Company's registered office at De La Rue
House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.
Related Party Transactions
Details of the related party transactions that have taken place
in the first six months of the current financial year are provided
in note 12 to the Condensed Consolidated Interim Financial
Statements. None of these have materially affected the financial
position or the performance of the Group during that period, and
there have been no changes during the first six months of the
financial year in the related party transactions described in the
last annual report that could materially affect the financial
position or performance of the Group.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge:
- the Condensed Consolidated Interim Financial Statements, which
have been prepared in accordance with UK adopted IAS 34 'Interim
Financial Reporting', give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the
undertakings included in the consolidation as a whole;
- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
Condensed Consolidated Interim Financial Statements; and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the financial year and that have materially affected
the financial position or performance of the entity during that
period; and any changes during the first six months of the
financial year in the related party transactions described in the
last annual report that could materially affect the financial
position or performance of the entity.
The Board of Directors of De La Rue plc at 25 March 2023 and
their respective responsibilities can be found on pages 72 and 73
of the De La Rue plc Annual Report 2023. Since the year end there
have been the following changes to the Board:
- Kevin Loosemore, Non-Executive Chairman resigned - 1 May 2023
- Clive Whiley, Non-Executive Chairman appointed - 18 May 2023
- Catherine Ashton, Independent Non-Executive Director resigned - 12 June 2023
- Dean Moore, Independent Non-Executive Director appointed - 26
June 2023 and as Interim Chief Financial Officer - 4 August
2023
- Rob Harding, Chief Financial Officer resigned - 28 July 2023
- Margaret Rice-Jones, Independent Non-Executive Director resigned - 7 September 2023
- Brian Small, Independent Non-Executive Director appointed - 8 September 2023
For and on behalf of the Board
Clive Whiley
Chairman
19 December 2023
INDEPENT REVIEW REPORT TO DE LA RUE PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2023 which comprises the Group
condensed consolidated interim income statement, the Group
condensed consolidated interim statement of comprehensive
income/(loss), the Group condensed consolidated interim balance
sheet, the Group condensed consolidated interim statement of
changes in equity, the Group condensed consolidated interim
statement of cash flows, and the notes to the condensed
consolidated interim financial statements. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2023 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern (including the material uncertainty set out in Note 1) and
using the going concern basis of accounting unless the directors
either intend to liquidate the company or to cease operations, or
have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Reading
19 December 2023
GROUP CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT -
UNAUDITED
FOR THE HALF YEARED 30 SEPTEMBER 2023
H1 24 H1 23
Note GBPm GBPm
---------------------------------------------------------- ----- -------- --------
Revenue from customer contracts 2 161.5 164.3
Cost of sales (121.3) (122.5)
---------------------------------------------------------- ----- -------- --------
Gross Profit 40.2 41.8
Adjusted operating expenses (32.3) (32.5)
---------------------------------------------------------- ----- -------- --------
Adjusted operating profit 7.9 9.3
Adjusted items(1) :
* Amortisation of acquired intangible assets (0.5) (0.5)
* Net exceptional items - expected credit loss 3 0.3 (2.5)
* Net exceptional items 3 (11.1) (18.9)
---------------------------------------------------------- ----- -------- --------
* Net exceptional items - Total 3 (10.8) (21.4)
Operating loss (3.4) (12.6)
Interest income 0.1 0.6
Interest expense (12.2) (4.4)
Net retirement benefit obligation finance
(charge)/income (1.3) 0.5
---------------------------------------------------------- ----- -------- --------
Net finance expense 4 (13.4) (3.3)
Loss before taxation from continuing
operations (16.8) (15.9)
Taxation 5 5.6 (7.9)
---------------------------------------------------------- ----- -------- --------
Loss for the period from continuing
operations (11.2) (23.8)
Profit from discontinued operations - 0.2
---------------------------------------------------------- ----- -------- --------
Loss for the period (11.2) (23.6)
---------------------------------------------------------- ----- -------- --------
Attributable to:
* Owners of the parent (12.2) (24.4)
* Non-controlling interests 11 1.0 0.8
---------------------------------------------------------- ----- -------- --------
Loss for the period (11.2) (23.6)
---------------------------------------------------------- ----- -------- --------
Earnings per ordinary share
Basic
Basic EPS continuing operations 6 (6.2)p (12.6)p
Basic EPS discontinued operations 6 - 0.1p
---------------------------------------------------------- ----- -------- --------
Total Basic earnings per share 6 (6.2)p (12.5)p
---------------------------------------------------------- ----- -------- --------
Diluted
Diluted EPS continuing operations 6 (6.2)p (12.6)p
Diluted EPS discontinued operations 6 - 0.1p
---------------------------------------------------------- ----- -------- --------
Total Diluted earnings per share 6 (6.2)p (12.5)p
---------------------------------------------------------- ----- -------- --------
(1) For adjusting items, the cash flow impact of exceptional
items can be found in note 3 and there was no cash flow impact for
the amortisation of acquired intangible assets.
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE
INCOME/(LOSS) - UNAUDITED
FOR THE HALF YEARED 30 SEPTEMBER 2023
H1 24 H1 23
GBPm GBPm
------------------------------------------------------ ------- -------
Loss for the financial period (11.2) (23.6)
Other comprehensive (expense)/income:
Items that are not reclassified subsequently
to income statement:
Re-measurement losses on retirement benefit
obligations (note 9) (4.5) (74.0)
Tax related to remeasurement of net defined
benefit liability (1.7) 16.9
------- -------
(6.2) (57.1)
Items that may be reclassified subsequently
to income statement:
Foreign currency translation difference for
foreign operations (1.8) 7.0
Foreign currency translation difference for
foreign operations - non-controlling interests 0.7 0.6
Change in fair value of cash flow hedges (1.2) (1.9)
Change in fair value of cash flow hedges transferred
to income statement (0.1) 0.8
Tax related to cash flow hedge movements 0.3 0.4
------- -------
(1.0) (0.7)
Other comprehensive loss for the period,
net of tax (8.3) (50.2)
------------------------------------------------------- ------- -------
Total comprehensive loss for the period (19.5) (73.8)
------------------------------------------------------- ------- -------
Total comprehensive income/(loss) for the
period attributable to:
Equity shareholders of the Company (20.1) (75.2)
Non-controlling interests 0.6 1.4
------------------------------------------------------- ------- -------
(19.5) (73.8)
------------------------------------------------------ ------- -------
GROUP CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
AT 30 SEPTEMBER 2023
H1 24 FY 23
(unaudited) (audited)
Note restated*
GBPm GBPm
------------------------------------------- ------- --------------- -----------
ASSETS
Non-current assets
Property, plant and equipment 87.4 97.1
Intangible assets 38.4 39.3
Right-of use assets 11.1 12.1
Deferred tax assets 7.5 5.9
144.4 154.4
------------------------------------------- ------- --------------- -----------
Current assets
Inventories 39.9 49.3
Trade and other receivables 58.9 70.7
Contract assets 13.9 18.9
Current tax assets - 0.2
Derivative financial instruments 7 1.2 2.4
Cash and cash equivalents 33.7 40.3
------------------------------------------- ------- --------------- -----------
147.6 181.8
------------------------------------------- ------- --------------- -----------
Total assets 292.0 336.2
------------------------------------------- ------- --------------- -----------
LIABILITIES
Current liabilities
Trade and other payables (70.8) (92.1)
Current tax liabilities (19.2) (23.2)
Derivative financial liabilities 7 (2.6) (1.9)
Lease liabilities (3.0) (3.0)
Provisions for liabilities and charges 10 (3.2) (6.0)
------------------------------------------- ------- --------------- -----------
(98.8) (126.2)
------------------------------------------- ------- --------------- -----------
Non-current liabilities
Borrowings (115.5) (118.4)
Retirement benefit obligations 9 (60.5) (54.7)
Deferred tax liabilities (2.6) (2.8)
Lease liabilities (9.2) (10.3)
Other non-current liabilities (1.2) (1.2)
------------------------------------------- ------- --------------- -----------
(189.0) (187.4)
------------------------------------------- ------- --------------- -----------
Total liabilities (287.8) (313.6)
------------------------------------------- ------- --------------- -----------
Net assets 4.2 22.6
------------------------------------------- ------- --------------- -----------
EQUITY
Share capital 89.0 88.8
Share premium account 42.3 42.2
Capital redemption reserve 5.9 5.9
Hedge reserve (0.9) 0.1
Cumulative translation adjustment 7.4 9.2
Other reserves (83.8) (83.8)
Retained earnings (73.3) (55.7)
------------------------------------------- ------- --------------- -----------
Total equity attributable to shareholders
of the Company (13.4) 6.7
Non-controlling interests 11 17.6 15.9
------------------------------------------- ------- --------------- -----------
Total Equity 4.2 22.6
------------------------------------------- ------- --------------- -----------
*The Group Consolidated Balance Sheet for FY23 has been restated
as described in the Basis of preparation below.
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY - UNAUDITED
FOR THE HALF YEARED 30 SEPTEMBER 2023
Attributable to equity shareholders Non- Total
controlling equity
interests
------------------------------------------------------------------------------
Share Share Capital Hedge Cumulative Other Retained
capital premium redemption reserve translation reserves reserves
account reserve adjustment
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
Balance at 26
March
2022 88.8 42.2 5.9 (0.5) 4.2 (31.9) 35.1 18.0 161.8
(Loss)/profit for
the period - - - - - - (24.4) 0.8 (23.6)
Other
comprehensive
income for the
period,
net of tax - - - (0.7) 7.0 - (57.1) 0.6 (50.2)
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
Total
comprehensive
income - - - (0.7) 7.0 - (81.5) 1.4 (73.8)
Transactions with
owners of the
Company
recognised
directly
in equity:
Employee share
scheme
- value of
services
provided - - - - - - 1.0 - 1.0
Share capital
issued - 0.1 - - - - - - 0.1
Other - unclaimed
dividends - - - - - - 0.3 - 0.3
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
Balance at 24
September
2022 88.8 42.3 5.9 (1.2) 11.2 (31.9) (45.1) 19.4 89.4
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
Balance at 26
March
2022 88.8 42.2 5.9 (0.5) 4.2 (31.9) 35.1 18.0 161.8
Loss for the
period - - - - - - (55.9) (1.3) (57.2)
Other
comprehensive
income for the
year,
net of tax - as
reported - - - 0.6 5.0 - (76.2) - (70.6)
Prior year
revision - - - - - - (12.4) - (12.4)
Other
comprehensive
income for the
year,
net of tax -
restated - - - 0.6 5.0 - (88.6) - (83.0)
Total
comprehensive
income - - - 0.6 5.0 - (144.5) (1.3) (140.2)
Reclassification
between reserves - - - - - (51.9) 51.9 - -
Transactions with
owners of the
Company
recognised
directly
in equity:
Employee share
scheme
- value of
services
provided - - - - - - 1.9 - 1.9
Tax on income and
expenses
recognised
directly in
equity - - - - - - (0.5) - (0.5)
Dividends Paid - - - - - - - (0.8) (0.8)
Other - unclaimed
dividends - - - - - - 0.4 - 0.4
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
Balance at 25
March
2023 88.8 42.2 5.9 0.1 9.2 (83.8) (55.7) 15.9 22.6
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
(Loss)/profit for
the period - - - - - - (12.2) 1.0 (11.2)
Other
comprehensive
income for the
period,
net of tax - - - (1.0) (1.8) - (6.2) 0.7 (8.3)
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
Total
comprehensive
income - - - (1.0) (1.8) - (18.4) 1.7 (19.5)
Transactions with
owners of the
Company
recognised
directly
in equity:
Employee share
scheme
- value of
services
provided - - - - - - 0.8 - 0.8
Share capital
issued 0.2 0.1 - - - - - - 0.3
Balance at 30
September
2023 89.0 42.3 5.9 (0.9) 7.4 (83.8) (73.3) 17.6 4.2
------------------ -------- -------- ----------- -------- ------------ --------- ---------- ------------ ---------
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY (Continued) - UNAUDITED
FOR THE HALF YEARED 30 SEPTEMBER 2023
Share premium account
This reserve arises from the issuance of shares for
consideration in excess of their nominal value.
Capital redemption reserve
This reserve represents the nominal value of shares redeemed by
the Company.
Hedge reserve
This reserve records the portion of any gain or loss on hedging
instruments that are determined to be effective cash flow hedges.
When the hedged transaction occurs, the gain or loss on the hedging
instrument is transferred out of equity to the income statement. If
a forecast transaction is no longer expected to occur, the gain or
loss on the related hedging instrument previously recognised in
equity is transferred to the income statement.
Cumulative translation adjustment ("CTA")
This reserve records cumulative exchange differences arising
from the translation of the financial statements of foreign
entities since transition to IFRS. Upon disposal of foreign
operations, the related accumulated exchange differences are
recycled to the income statement. This reserve also records the
effect of hedging net investments in foreign operations.
Other reserves
On 1 February 2000, the Company issued and credited as fully
paid 191,646,873 ordinary shares of 25p each and paid cash of
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
GBP51.9m was recorded, increasing other reserves from a deficit of
GBP83.8m to a deficit of GBP31.9m. This section applies to shares
which are issued to acquire non-equity shares (such as the
Preference Shares) issued as part of the same arrangement.
The Group recorded share capital equal to the aggregate nominal
value of the ordinary shares issued (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 De La Rue plc were
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. In the year ended 25
March 2023, the Company recorded an impairment of the intercompany
loan. As a matter of generally accepted accounting practice, a
profit previously regarded as unrealised becomes realised when
there is a loss recognised on the write-down for depreciation,
amortisation, diminution in value or impairment of the related
asset. Therefore, on this basis, the GBP51.9m previously treated as
unrealised within Other Reserves is now treated as a realised
amount, and has therefore been reclassified from "Other Reserves"
to "Retained earnings" as at 25 March 2023.
GROUP CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS -
UNAUDITED
FOR THE HALF YEARED 30 SEPTEMBER 2023
H1 24 H1 23
GBPm GBPm
------------------------------------------------------------ ------- -------
Cash flows from operating activities
Loss before tax - continuing operations (16.8) (15.9)
Profit before tax - discontinued operations - 0.2
------------------------------------------------------------ ------- -------
Loss before tax - total (16.8) (15.7)
Adjustments for:
Finance income and expenses 13.4 4.0
Depreciation of property, plant and equipment 5.1 6.0
Depreciation of right-of-use assets 1.1 1.2
Amortisation of intangible assets 2.8 2.5
Gain on sale of property, plant and equipment - (0.2)
Impairment of property, plant and equipment and intangible
assets and accelerated depreciation charges (note 4.4 -
3)
Share-based payment expense 0.8 1.1
Pension Recovery Plan and administration cost payments(1) (0.9) (8.4)
Decrease in provisions (note 10) (2.8) (0.7)
Non-cash credit loss provision - other financial
assets - 2.5
Non-cash credit loss provision - other - -
Other non-cash movements (2.0) (1.0)
------------------------------------------------------------ ------- -------
Cash generated from/(used in) operations before
working capital 5.1 (8.7)
Changes in working capital:
Decrease/(increase) in inventory 9.6 (2.5)
Decrease/(increase) in trade and other receivables
and contract assets 20.8 (10.8)
(Decrease)/increase in trade and other payables(2) (18.9) 19.5
------------------------------------------------------------ ------- -------
11.5 6.2
Cash generated from/(used in) from operating activities 16.6 (2.5)
Net tax paid (1.2) (0.3)
------------------------------------------------------------ ------- -------
Net cash flows from operating activities 15.4 (2.8)
------------------------------------------------------------ ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment - gross (6.0) (5.9)
Purchases of property, plant and equipment - grants
received 5.2 3.4
Purchase of software intangibles and development
assets capitalised (2.1) (5.3)
Proceeds from the sale of property, plant and equipment 0.2 0.4
Proceeds from other financial assets 0.3 -
Interest received 0.2 -
------------------------------------------------------------ ------- -------
Net cash flows from investing activities (2.2) (7.4)
------------------------------------------------------------ ------- -------
Net cash flows before financing activities 13.2 (10.2)
------------------------------------------------------------ ------- -------
Cash flows from financing activities:
Net (repayment)/draw down of borrowings (7.0) 16.5
Payment of debt issue costs (3.0) -
Lease liability payments (1.3) (1.1)
Interest paid (8.3) (4.4)
Net cash flows from financing activities (19.6) 11.0
------------------------------------------------------------ ------- -------
Net (decrease)/increase in cash and cash equivalent
in the period (6.4) 0.8
Cash and cash equivalents at the beginning of the
period 40.3 24.3
Exchange rate effects (0.2) 0.6
------------------------------------------------------------ ------- -------
Cash and cash equivalents at the end of the period 33.7 25.7
------------------------------------------------------------ ------- -------
Cash and cash equivalents consist of:
------------------------------------------------------------ ------- -------
Cash at bank and in hand 33.7 25.7
------------------------------------------------------------ ------- -------
(1) H1 24 - the GBP0.9m (H1 23: GBP8.4m) of pension payments
includes GBPnil (H1 23: GBP7.5m) payable under the Recovery Plan
(note 9) and a further GBP0.9m (H1 23: GBP0.9m) relating to
payments made by the Group towards the administration costs of
running the scheme.
(2) H1 23 included a GBP16.7m movement in accruals relating to
the termination of the Portals Relationship Agreement (note 3).
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
1 Corporate information, basis of preparation and change to the
Group's accounting policies
Corporate Information
De La Rue plc is a public limited company, incorporated and
domiciled in the UK, whose shares are publicly traded. The
registered office is located at De La Rue House, Jays Close,
Viables, Basingstoke, Hampshire, RG22 4BS.The Group has two
principal segments Currency and Authentication. In Currency we
design, manufacture and deliver bank notes, polymer substrate and
security features around the world. In Authentication, we supply
products and services to governments and Brands to assure tax
revenues and authenticate goods as genuine.
These unaudited Condensed Consolidated Interim Financial
Statements of De La Rue plc and its subsidiaries ("Group") for the
half-year ended 30 September 2023 were authorised for issue in
accordance with a resolution of the Directors on 19 December
2023.
These Condensed Consolidated Interim Financial Statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 25
March 2023 were approved by the Board of Directors on 29 June 2023
and delivered to the Registrar of Companies. The auditor has
reported on the 25 March 2023 accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section498 (2) or (3) of the Companies Act 2006.
Basis of preparation
These Condensed Consolidated Interim Financial Statements for
the half-year ended 30 September 2023 have been prepared in
accordance with IAS 34, "Interim Financial Reporting" as adopted
for use in the UK and should be read in conjunction with the Annual
Report and Accounts for the year ended 25 March 2023. They do not
include all the information required for a complete set of
financial statements prepared in accordance with UK-International
Financial Reporting Standards. However, selected explanatory notes
are included to explain events and transactions that are
significant to an understanding of the changes in the Group's
financial position and performance since the last annual financial
statements.
The annual financial statements of the Group for the year ending
30 March 2024 will be prepared in accordance with UK-adopted
International Accounting Standards ('IFRS') in accordance with the
requirements of the Companies Act 2006.
Consolidated Statement of Financial Position - Prior Year
Revision
In the prior period (FY23) deferred tax assets of GBP18.3m were
incorrectly reported. This has had an impact on H2 FY23 only and
has no impact on H1 23 or earlier reported periods.
Deferred tax assets relating to the UK Group entities were
overstated by GBP12.4m. This was due to an error in the forecast
taxable profits used for the purposes of calculating the UK
deferred tax assets that could be recognised in accordance with IAS
12. Specifically, forecast corporate interest restrictions were
incorrectly included within the forecast taxable profits used for
deferred tax asset recognition purposes. Under IAS 12, when
assessing tax forecasts, taxable amounts that arise from deductible
temporary differences that are expected to originate in future
periods should be ignored. Even though the corporate interest
restrictions are not expected to reverse for the foreseeable
future, they are strictly a timing difference for tax purposes, so
they should not have been included in the taxable profits used for
the purposes of deferred tax asset recognition.
The adjustment has been disclosed as a restatement to the tax
related to remeasurement of net defined benefit pension liability
within Other Comprehensive Income as it relates to deferred tax
assets arising from the pension deficit balance and tax losses
arising from pension deficit contribution payments.
This adjustment concerns the recognition of deferred tax assets
for accounting purposes only and has no impact on the underlying
tax attributes of the Group.
Impact on the Group Consolidated Interim Balance Sheet
FY23 Prior year FY23
As reported revision Restated
GBPm GBPm GBPm
-------------------- ------------- ----------- ----------
Deferred Tax Asset 18.3 (12.4) 5.9
-------------------- ------------- ----------- ----------
Net assets 35.0 (12.4) 22.6
-------------------- ------------- ----------- ----------
Retained earnings (43.3) (12.4) (55.7)
-------------------- ------------- ----------- ----------
Impact on the Group Condensed Consolidated Interim Statement of
Comprehensive Income/(Loss) in FY23:
FY23 Prior year FY23
As reported revision Restated
GBPm GBPm GBPm
--------------------------------------- ------------- ----------- ----------
Other comprehensive (expense)/income:
Tax related to remeasurement of net
defined benefit liability 24.2 (12.4) 11.8
Total comprehensive loss for the
period (127.8) (12.4) (140.2)
--------------------------------------- ------------- ----------- ----------
Impact on the Group Condensed Consolidated Interim Statement of
Changes in Equity in FY23:
Total
equity
GBPm
Balance at 26 March 2022 161.8
Loss for the year (57.2)
Other comprehensive income/(loss) for the year - as reported (70.6)
Prior year revision (12.4)
-------------------------------------------------------------- --------
Other comprehensive income/(loss) for the year - restated (83.0)
Total comprehensive income for the year (140.2)
Transactions with Owners of the Company recognised directly
in equity
Employee share Scheme - value of service provided 1.9
Tax on income and expenses recognised directly in equity (0.5)
Dividends Paid (0.8)
Other - unclaimed dividends 0.4
Balance at 25 March 2023 22.6
-------------------------------------------------------------- --------
Going concern
Background and relevant facts
In line with IAS 1 "Presentation of financial statements", and
the FRC guidance on "risk management, internal control and related
financial and business reporting", when assessing the Group's
ability to continue as a going concern, the Directors have taken
into account all available information for a period up to 28
December 2024, being the Going Concern period.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out on pages 1 to 10 of the Strategic Report in the FY23
Annual Report. In addition, pages 56 to 63 include the Group's
objectives, policies and processes. There have been no material
changes in overall strategy to that disclosed in the 2023 Annual
Report.
Extension of banking facilities
On 18 December 2023, the Group successfully extended its
existing banking facilities by six months to 1 July 2025.
Under this extension, the Group now has access to banking
facilities of GBP235m (down from GBP250m) including a Revolving
Credit Facility (RCF) cash drawdown component of up to GBP160.0m
(down from GBP175m) and bond and guarantee facilities of GBP75m,
with a new maturity date of 1 July 2025. The reduction in the RCF
has been offset by a corresponding reduction in the existing
minimum liquidity covenant, from GBP25m to GBP10m. There were no
other changes to financial covenants or spread rates. as disclosed
within "Accounting Policies" in the Annual Report and Accounts for
the year ended 25 March 2023.
There have been no new non-financial conditions imposed on the
company that are outside the company's control.
Covenants testing
The continued access to borrowing facilities described above is
subject to quarterly covenant tests which look back over a rolling
12-month period. In addition, there is minimum liquidity testing
monthly, testing at each weekend point on a 4-week historical basis
and 13 week forward looking basis. The minimum liquidity is defined
as "available cash and undrawn RCF greater than or equal to
GBP10m".
In each covenant test to date in FY24 the Group has met its
covenant ratios on the historical covenant quarterly levels as well
as the historic and forward-looking minimum liquidity tests.
The terms under the facility agreement signed in June 2023,
included consideration of future options for the group, provision
of further non-financial deliverables and milestones that the banks
have monitored, and were delivered in line with agreed deliverable
dates from all parties.
The covenant terms remain:
-- EBIT/net interest payable more than or equal to 1.0 times.
-- Net debt/EBITDA less than or equal to 4.0 times until the Q4
2024 testing point, reducing to less than or equal to 3.6 times
from Q1 FY25 through to the end of the going concern period.
-- Minimum Liquidity testing monthly, testing at each week-end
point on a four-week historical basis and 13 week forward looking
basis. The minimum liquidity is defined as "available cash and
undrawn RCF greater than or equal to GBP10m".
In order to determine the appropriate basis of preparation for
the interim financial statements for the period ended 30 September
2023, the Directors must consider whether the Group can continue in
operational existence for the going concern review period to 28
December 2024, taking into account the above liquidity headroom and
covenant tests.
Testing assumptions and headroom level
The Group has prepared and reviewed profit and cashflow
forecasts which cover a period up to 28 December 2024 (Q3 FY25),
being the going concern period, and this includes the following
quarters: Q3, Q4 FY24 and Q1, Q2 and Q3 FY25 as well as monthly
liquidity testing points over the period.
Management's assessment is that a period of at least 12 months
to 28 December 2024 is an appropriate going concern period, given
this is the first quarterly covenant test which is greater than 12
months from the opinion date, and because the Group have access to
financing facilities through to at least 1 July 2025, at which
point management have concluded there are reasonable prospects of
refinancing given ongoing support from their lenders.
Base case assumptions and headroom
The base case forecasts over the going concern period have been
built taking into consideration the timing of the Currency recovery
that has been materialising in the marketplace with order book
growth and bid activity showing positive signs of market recovery.
In addition, renewals of key Authentication contracts and
annualization of contracts already won and starting to produce in
the current financial year aids confidence in the strategic growth
forecasted for that division into FY25.
The already enacted and largely completed footprint and
restructuring projects have right sized the business for the
current demand. Any ramp up required over the going concern period
will be carefully managed in line with pipeline capacity
requirements and orders to avoid significant negative fluctuations
against base plans.
FY24 results to date indicate the Group is on-track to deliver
the FY24 forecast from an EBIT and EBITDA perspective, with key
orderbook wins secured to deliver the in-year plan.
In Currency, the Group is seeing the beginning of the expected
market recovery. While the overall market remains unpredictable,
our conversion rate of bids to orders since the beginning of this
financial year supports the base strategic plan numbers.
The timing of tenders has been such that several significant
orders have been closed recently, which further supports the base
case modelling within the going concern period. At December 2023,
the total order book stood at GBP219.8m (25 March 2023: GBP136.8m)
which supports the Currency market recovery seen as the total order
book has more than doubled since 30 September 2023 from
GBP105.4m.
The Group's base case modelling shows headroom on all covenant
thresholds across the going concern period.
Non-Financial milestones
In both the base and 'severe yet plausible' downside cases the
Directors' assessment of the non-financial terms remains consistent
as all required deliverables and monitoring milestones have been
achieved through the going concern period. A number of these terms
were linked to an increase in monthly monitoring with an increased
obligation around information sharing with the lenders and pension
trustee, including monthly short-term cash flow (STCF) submissions,
and monthly progress updates. Management have proactively
implemented a bi-monthly 13-week cash flow process with the outturn
of this and monthly monitoring reports shared with the relevant
stakeholders in line with the amended terms from June 2023.
Directors are confident that all of the non-financial conditions
and monthly monitoring will continue to be delivered and are in the
control of the Company.
Severe yet plausible downsides and headroom
The downside modelling produced has factored in the Directors'
assessment of events that could occur in a 'severe yet plausible
downside' scenario. The risks modelled are directly linked to the
Risk Committee 'principal risks' described on page 56 of the March
2023 annual report and the Directors note there are no new matters
which present additional principal risks. The most significant
material risks modelled were as follows:
Risk 3 Macroeconomic and geo-political risk
-- Authentication new wins and implementations are not achieved
in the timescales modelled in the base case.
-- Cost inflation in the Base Case is assumed at 2.5% from FY25
onwards for UK and Malta, with revenue inflated at 50% of cost
inflation assumption. The downside modelling includes an increase
in the cost inflation rate for FY25 to be in line with the assumed
base interest rate of 5.25% and no change in revenues assumed.
-- Supply chain risks are monitored regularly by the company.
Fixed price contracts are in place for utilities until September
2024 (i.e. Q2 FY25). Inflation has also already been factored in
for the Base Case, as well as an inflation related downside risk in
the severe yet plausible downside scenario, and therefore the
downside risk modelled is appropriate.
Risk 10 Banking Facilities
-- The Group will be paying an interest rate on its facilities
of approximately 9% based on the current SONIA rate of 5.25% and
the applicable margin. Based on the Base Case and Severe yet
Plausible modelling in FY24, the underlying SONIA rate would need
to increase in excess of 2.5% to trigger a breach in the interest
covenant. Management have assessed this risk as remote given that
the current SONIA rate applicable is 5.25% and this would need to
apply for the entire going concern period. The Board have also
considered current and future market conditions to determine the
risk of rate increases beyond that level above is remote.
Risk 11 Kenya taxation and exit strategy
-- Cash outflow assumed over and above the base case, which
includes acceleration of amounts to finalise in country
settlements.
Risk 13 Currency pipeline
-- Volumes and budget margins are not achieved as forecasted in
the going concern period, including revenue contracts not landing
and volume reductions against base plan. This represents a margin
reduction of GBP7.9m (15%) of total Currency margin over the going
concern period. For currency pipeline downside risks modelled,
margins have been determined using the average production cost as
opposed to using the facilities with the lowest production costs
where there is modelled capacity.
As a result of the liquidity testing requirement, the Directors
also considered historical monthly working capital swings over the
last three years. This analysis also included assessing periods
where management's conclusion was that a "material uncertainty"
over going concern existed, specifically between November 2022 and
June 2023. Management also analysed weekly cash outflow averages to
ensure that adequate considerations have been made to capture 'in
quarter' working capital swings that the Group has experienced
given the volatility of working capital in the Currency business in
particular. A GBP15m working capital outflow, excluding
non-recurring items, was incorporated into a severe yet plausible
downside to apply monthly to liquidity testing.
The Directors noted that working capital and cash management
have improved in the business over the course of Q2 FY24, resulting
in a reduction in our net debt guidance for FY24 of GBP5m. The Base
Case and working capital stress modelling have not been updated to
reflect these improvements which means there are additional
mitigations with regards to net debt and liquidity that the company
has at its disposal for quarterly testing dates should they be
required.
Company modelling (including taking into account working capital
swings and potential cash collateral requirements) shows headroom
to the covenant liquidity requirement throughout the going concern
period, with controllable mitigations that could be applied.
The level of reduction that would be required to breach the
liquidity covenant is considered to be remote by management, given
the controllable mitigations available.
If all of these modelled downside risks were to materialise in
the Going Concern period, the Group would still meet its required
covenant ratios, after taking into account mitigating actions, such
as identified cost saving opportunities which the Directors
consider to be within the Group's control.
Stress-Testing
Under the severe yet plausible downside modelling, EBIT and
EBITDA would need to drop in the going concern period in excess of
our historic forecasting inaccuracy over the last few years for any
breach to occur. On liquidity this would need to drop in the going
concern period by in excess of what the company has experienced
over the last few years (taking into account the largest recurring
monthly working capital movements), and from the lowest point
modelled in the going concern period, for any breach to occur. This
is taking into account mitigating actions within management's
control.
Management have concluded that a breach is remote on the
financial covenants given:
-- Trading to date, along with net debt and liquidity is in line
with the forecast indicating the Group is on-track to deliver the
FY24 budget with market guidance maintained.
-- Management considers that given the longer-term and
consistent nature of its Authentication contracts, the key revenue
and the corresponding EBIT/EBITDA risk is mainly in regard to the
Currency division whereby the timing of contract wins and delivery
of the current orderbook in line with the strategy has historically
impacted performance against forecasts in previous periods. The
Currency order book is showing encouraging signs of recovery, with
win rates high and a number of substantial new tenders actively
underway, and key orders secured for FY24 and early FY25
forecast.
-- Liquidity severe stress testing excluded mitigating actions
that management could employ and still showed headroom under
stress. Management considers the liquidity risk to be low given the
current trading performance and orderbook profile.
-- Additionally, the Group is currently paying an interest rate
on its facilities of approximately 9% based on the current SONIA
rate of over 5% and the applicable margin. As previously noted, the
increase in underlying SONIA rate required to breach covenants is
deemed to be remote by management.
-- Management is comfortable that any non-financial conditions
and reporting requirements have been achieved and can be maintained
throughout the going concern period.
-- The current revolving credit facility expires on 1 July 2025,
which is beyond the end of the period reviewed for Going Concern
purposes. The Directors have assessed that the Group will either
renew the facility or have sufficient time to agree an alternative
source of finance within a suitable timeframe prior to the expiry
date, as evidenced by the continued engagement of the lenders in
agreeing the extension to 1 July 2025.
Accordingly, the Directors are satisfied that the Group is well
placed to manage its business risks and to continue in operational
existence for the going concern period to 28 December 2024.
Conclusion
In assessing the appropriateness of applying the going concern
basis in the preparation of the Interim financial statements the
Directors have considered the Group's liquidity and forecast cash
flows taking into account severe yet plausible outcomes over the
going concern period review to 28 December 2024.
As explained above, the severe yet plausible modelling shows
headroom above the covenant levels agreed with the lenders and
support the position that the Group will be able to operate within
its available banking facilities and covenants throughout the going
concern period. The Directors consider any scenario in which the
Company would exhaust available liquidity or would breach covenants
to be remote for the reasons detailed above. Combined with the
recent extension to the Group's banking facilities by six months to
1 July 2025, the Directors are satisfied that the application of
the going concern basis is appropriate and that no material
uncertainty exists.
A copy of the FY23 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.
Critical estimates, assumptions and judgements
In preparing these Condensed Consolidated Interim Financial
Statements, the Group has made its best estimates and judgements of
certain amounts included in the financial statements, giving due
consideration to materiality. The Group regularly reviews these
estimates and updates them as required. The Group has reviewed its
critical accounting estimates, assumptions and judgements and
identified no new critical accounting estimates, assumptions and
judgements in the period.
Critical accounting estimates, assumptions and judgements set
out on pages 157 to 160 of the Group's Annual Report and Accounts
for the year ended 25 March 2023. These remain relevant to these
Condensed Consolidated Interim Financial Statements, in addition to
the updates disclosed below.
A Critical accounting judgements
1. Accounting for the extension of the factory site in Malta
On 9 September 2021, the Group signed an Agreement with Malta
Enterprise ("ME") where ME finances the construction, civil works
and M&E installations to be carried out at the premises located
in Malta. The premises included land, the demolition of an existing
building and a rebuild to the Group's specifications. On 14
September 2021 the Company signed a lease for the premises for an
initial term of 20 years. The Group is managing the construction of
the new buildings for the lessor to the pre-agreed
specifications.
Management have made a judgement as to whether the Company has
control of the site during the construction period. If the Group
has the right to control the use of the identified asset for only a
portion of the term of the contract, the contract contains a lease
for that portion of the term. It was determined that control exists
only after the build is completed and site becomes operational.
As per the agreement, there are three separate units with the
different start-up dates (one for Authentication and two for
Currency). Therefore, the lease will be recognised as these units
become available for use. The lease costs will be allocated to the
division to which they relate to based on area. However, if the
cost relates to the total site, then it is divided based on the
percentage split of the area, with 27% of the total sqm occupied by
Authentication and 73% by Currency. The first block is currently
scheduled to be completed in H2 24.
2. Accounting for the change in the terms of the banking facilities
On 29 June 2023 the Company entered into a number of documents
which had the effect of amending and restating the terms of the
revolving facility agreement with its lending banks and their
agents.
A quantitative assessment was carried out where the updated
terms are considered to have been substantially modified where the
net present value of the cash flows under the updated terms,
including any fees paid and discounted using the original Effective
Interest rate ("EIR") differs by at least 10 per cent from the
present value of the remaining cash flows under the original terms.
Based on the procedure performed there was a net impact of 4.64%.
Therefore, there is no substantial modification on a quantitative
basis.
A qualitative review was also undertaken where all the key
changes in the updated facility were assessed. Excluding, those
that had quantitative impacts, the other changes related to
covenants. The changes to the covenant tests are not considered
substantial as they are amending previously agreed limits with the
exception of the minimum liquidity testing, which is a new test.
The minimum liquidity test is not considered to be substantial.
The change in existing banking facilities is treated as a
non-substantial modification under IFRS 9 "Financial Instruments",
as the refinancing did not result in an extinguishment of debt. The
difference between the amortised cost carrying amount of the
previous terms of the facility and the present value of the updated
terms of the facility, discounted using the effective interest
rate, resulted in a modification loss.
The net loss on debt modification was GBP3.8m, including a loss
on the debt modification in June 2023 of GBP4.8m offset by the
subsequent amortisation of GBP1.0m (including GBP0.2m of
amortisation of the loss on debt modification recognised in FY23 of
GBP0.9m).
B Critical accounting estimates
1. Recoverability of other financial assets
Other financial assets comprise securities interests held in
companies in the Portals International Limited group following the
Portals paper business disposal in 2018. In addition, a further
amount of GBP0.9m of loan notes were subscribed for pursuant to a
pre-emptive offer in November 2021 to enable Portals to undertake a
business combination. The Group also purchased cotton banknote
paper under the Relationship Agreement ('RA'), until its
termination in July 2022.
Management carefully assessed the recoverability of the other
financial assets on the balance sheet as at 25 March 2023 based on
information available to them determining that an expected credit
loss provision of GBP8.5m was required which will fully impair
these other financial assets. Management considered the following
factors in making this determination:
1) The public announcements from the Portals group relating to
the wind down of the Overton paper mill and its sale of assets.
2) The latest available financial position of Portals
International Limited group as presented in its 2022 consolidated
financial statements including significant losses for the period
and a net liabilities position.
3) The announcement of the sale of the Fedrigoni business to IN Groupe in May 2023.
The provision accounted for the risk that the full amounts due
are now considered to be credit impaired. As a result no further
interest receivable has been recognised in the period.
On 21 July 2023, the Group received a payment of GBP290,000 from
the Portals International Limited Group in settlement of GBP227,000
of loan notes plus interest of accrued GBP63,000. This repayment
has been recorded as a credit within exceptional items as the
impairment in the prior periods were also reported as
exceptional.
Management has reassessed the recoverability of the remaining
loan notes and note that there have been no further changes that
would amend its assessment of their recoverability. Management
noted that if factors change again in the future, this may alter
the judgements made resulting in a revision to the value of
expected credit loss provision to be recognised.
2. Recoverability assessment and impairment charges related to
plant and machinery and capitalised product development costs
In January 2023, the Group announced that owing to current
market demand, and no expectation of new bank note orders from the
Central Bank of Kenya for at least the next 12 months, De La Rue
Kenya (a joint venture with the Government of Kenya) suspended bank
note printing operations in the country. In addition, operations in
our Authentication division were wound down in the period. As a
result of the review of the business in Kenya an exceptional charge
of GBP12.6m was made in FY23, including redundancy charges of
GBP5.5m, property, plant and equipment asset impairments of
GBP4.9m, inventory impairments of GBP2.0m and other costs of
GBP0.2m. There is not expected to be any recoverable value relating
to these assets.
During H1 24, a further GBP1.1m of property, plant and equipment
asset impairments were identified relating to assets held for
refurbishment in the UK which will no longer be sent to Kenya. This
has been included within exceptional items.
In addition, a further GBP3.3m of property, plant and equipment
asset impairments were identified relating to assets held in UK
sites where the carrying amount was not supported by the assets
recoverable amount. This has been included within exceptional
items.
3. Determination of the incremental valuation date of certain
fund assets in the UK defined benefit pension scheme
The UK defined pension scheme assets are made up of a number of
separate funds. Valuations for these funds were available as at 30
September 2023 which is co-terminus with the Group's interim
reporting date.
4. Tax
The Group is subject to income taxes in numerous jurisdictions
and significant judgement is required in determining the worldwide
provision for those taxes. The level of current and deferred tax
recognised is dependent on subjective judgements as to the outcome
of decisions to be made by the tax authorities in the various tax
jurisdictions around the world in which the Group operates.
It is necessary to consider which deferred tax assets should be
recognised based on an assessment of the extent to which they are
regarded as recoverable, which involves assessment of the future
trading prospects of individual statutory entities, the nature and
level of any deferred tax liabilities from other items in the
accounts such as pension positions, and overseas tax credits that
are carried forward for utilisation in future periods, including
some that have been allocated to Governmental authorities as part
of investment projects. Note 5 Taxation contains further details
regarding changes to recognised deferred tax assets balances as at
H1 24.
The actual outcome may vary from that anticipated. Where the
final tax outcomes differ from the amounts initially recorded,
there will be impacts upon income tax and deferred tax provisions
and on the income statement in the period in which such
determination is made.
The Group has current tax provisions recorded within current tax
liabilities, in respect of uncertain tax positions. In accordance
with IFRIC 23, tax provisions are recognised for uncertain tax
positions where it is considered probable that the position in the
filed tax return will not be sustained and there will be a future
outflow of funds to a taxing authority. Tax provisions are measured
either based on the most likely amount (the single most likely
amount in a range of possible outcomes) or the expected value (the
sum of the probability-weighted amounts in a range of possible
outcomes) depending on management's judgement on how the
uncertainty may be resolved.
The Group is disputing tax assessments received in certain
countries in which the Group operates. These tax assessments have
been subject to court rulings both in favour of the Group and also
against the Group. The rulings are subject to ongoing appeal
processes. The Group has fully provided for these as required by
the relevant accounting standards. The disputed tax assessments are
subject to ongoing dialogue with the relevant tax authorities to
reach a settlement without the requirement to continue in a
protracted legal process.
During H1 24, uncertain tax positions were reduced from GBP22m
at FY23 to GBP18m. GBP2.1m of the reduction related to the expiry
of an indemnity period in May 2023, following the Cash Processing
Solutions Limited business sale in May 2016. The balance of GBP1.9m
relates to favourable movements in exchange rates for other
provisions rather than a change to the underlying provided
amounts.
C Other long-term estimation uncertainties
1. Impairment test of Goodwill and acquired intangibles
These assets were recognised following the acquisition of De La
Rue Authentication Inc in January 2017. Management has considered
the Group's short-term and the long-term profitability for this
business and determined that the goodwill and acquired intangible
asset values are recoverable at 30 September 2023. In making this
determination, management has prepared discounted cash flows using
its forecasts for the business which include budgeted financial
performance for a 5-year period with a growth rate assumption
applied which extrapolates the business into perpetuity which are
aligned to the Group's longer-term expectations of the
Authentication division. In order to obtain further assurance as to
the recoverability of the goodwill and intangible assets,
management has prepared a range of sensitivities to model what
adverse changes would need to occur before an impairment was
required.
Management modelled the following sensitivities and concluded
that:
-- Sensitivity 1 (discount rate): The discount rate used for the
impairment calculation (assuming the same cash flows as in the base
impairment test) would need to increase to 20.0% before an
impairment occurred;
-- Sensitivity 2 (revenue growth): Forecasts used in the base
impairment calculation include strong revenue growth in FY24 to
FY25 before the growth rate reduces to 3% per year from FY26,
management has modelled a scenario of no revenue growth from FY26
and concluded that at this point no impairment would be
required;
-- Sensitivity 3 (loss of material customer): Management has
modelled the impact of the loss of revenue of a significant
customer from FY24, orders from which were not yet secured at the
end of FY23. Management noted that in this scenario, no impairment
was needed; and
-- Sensitivity 4 (profit margin reduction): The base calculation
includes 14.2% margin in FY24 with growth to a constant 24.7% from
FY25. Management has modelled the impact of margin reduction to
20.0% from FY26. Management noted that in this scenario, no
impairment was required.
Based on the base impairment forecast prepared and the
additional sensitivities referred to above, Management is confident
that no impairment of the goodwill and intangible asset balances is
required as at 30 September 2023 and therefore no impairment is
recognised. There are no reasonable possible changes in the key
assumptions (e.g. discount rate, growth rate or profit margin) that
would cause the recoverable amount to fall below the carrying
amount of the cash generating unit.
New standards, interpretations and amendments adopted by the
Group
The accounting policies adopted in the preparation of these
Condensed Consolidated Interim Financial Statements to 30 September
2023 are consistent with those applied by the Group in its
consolidated financial statements as at, and for the period ended,
25 March 2023, as required by the Disclosure Guidance and
Transparency Rules of the UK's Financial Conduct Authority.
During the period, the following new and amended IFRS became
effective for the Group. The Group has not early adopted any
standard, interpretation or amendment that has been issued but is
not yet effective.
Several amendments apply for the first time in 2023, but do not
have an impact on these Condensed Consolidated Interim Financial
Statements of the Group.
Effective for periods commencing after 1 January 2023:
- Amendments to IFRS 17 "Insurance Contracts" - The overall
objective of the standard is to provide an accounting model for
insurance contracts that is more useful and consistent for
insurers.
- Amendments to IAS 1 "Presentation of financial statements" -
Disclosure of material accounting policy information - Amendments
to IAS 1 and IFRS Practice Statement 2 - The amendments aim to help
entities provide accounting policy disclosures that are more useful
by: replacing the requirement for entities to disclose their
'significant' accounting policies with a requirement to disclose
their 'material' accounting policies and adding guidance on how
entities apply the concept of materiality in making decisions about
accounting policy disclosures.
- Amendments to IAS 8 "Accounting policies, changes in
accounting estimates and errors" - Definition of Accounting
Estimates - The amendments clarify the distinction between changes
in accounting estimates and changes in accounting policies and the
correction of errors. Also, they clarify how entities use
measurement techniques and inputs to develop accounting
estimates.
- Amendments to IAS 12 "Income Taxes" - covering temporary
timing differences for deferred tax on the recognition of assets
and liabilities from a single transaction. For the FY24
Consolidated Financial Statements this is expected to impact
deferred tax balances for leases where a tax deduction arises on
the payment of lease liabilities rather than on asset deprecation.
Where applicable, deferred tax balances will be recognised on lease
assets and liabilities separately rather than on a net basis. This
does not have an impact on the disclosures within these Condensed
Consolidated Interim Financial Statements. There is no impact to
the opening reserves or the current period tax charge.
- Amendments to IAS 12 "International Tax Reform Pillar Two
Model Rules, including mandatory exception in IAS 12 from
recognising and disclosing deferred tax assets and liabilities
related to Pillar Two income taxes. The Pillar Two legislation is
not expected to apply to the Group as the revenue threshold is not
expected to be met.
Effective for periods commencing after 1 January 2024:
- Amendments to IAS 1 "Presentation of financial statements" -
Classification of Liabilities as Current or Non-current - The
amendments clarify: what is meant by a right to defer settlement;
that a right to defer must exist at the end of the reporting
period; that classification is unaffected by the likelihood that an
entity will exercise its deferral right and that only if an
embedded derivative in a convertible liability is itself an equity
instrument, would the terms of a liability not impact its
classification.
- Amendments to IFRS 16 "Leases" - Lease liabilities in a sale
and leaseback - This amendment to IFRS 16 specifies the
requirements that a seller-lessee uses in measuring the lease
liability arising in a sale and leaseback transaction, to ensure
the seller-lessee does not recognise any amount of the gain or loss
that relates to the right of use it retains.
- Amendments to IAS 7 "Statement of Cash Flows" and IFRS 7
"Financial Instruments: Disclosures" - Supplier Finance
Arrangements, subject to UK endorsement - The amendments specify
disclosure requirements to enhance the current requirements, which
are intended to assist users of financial statements in
understanding the effects of supplier finance arrangements on an
entity's liabilities, cash flows and exposure to liquidity
risk.
Effective for periods commencing after 1 January 2025, all
subject to UK endorsement:
- Amendments to IAS 21 "The effect of changes in foreign
exchange rates" - Lack of exchangeability - The amendment specifies
how an entity should assess whether a currency is exchangeable and
how it should determine a spot exchange rate when exchangeability
is lacking.
2 Segmental analysis
The continuing operations of the Group have two main operating
units: Currency and Authentication.
In the prior period, H1 23, there were three main operating
units being Currency, Authentication and Identity Solutions. In H1
23, Identity Solutions included minimal non-core activities and
primarily related to sales under a service agreement with HID
Corporation Limited following the sale of the International
Identity Solutions business in October 2019. In H1 24 these had
ceased and will no longer be presented in future periods, resulting
in comparative data only being presented.
The Board, which is the Group's Chief Operating Decision Maker,
monitors the performance of the Group at this level and there are
therefore three reportable segments. The principal financial
information reviewed by the Board is revenue and adjusted operating
profit.
The Group's segments are:
- Currency - provides Banknote print, Polymer and Security features;
- Authentication - provides physical and digital solutions to
authenticate products through the supply chain and to provide
tracking of exercisable goods to support compliance with government
regulators. Working across the commercial and government sectors
the division addresses consumer and Brand owner demand for
protection against counterfeit goods; and
Inter-segmental transactions are eliminated upon consolidation.
There is no history of seasonality or cyclability of interim
operations.
The segment note is focused on the three divisions, which
reflects what has been reported to the Chief Operating Decision
Maker and 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.
Total
Identity Unallocated of
H1 24 Currency Authentication Solutions Central Continuing
operations
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Total revenue from contracts
with customers 113.4 48.1 - - 161.5
Less: Inter-segment revenue - - - - -
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Revenue from contracts with
customers 113.4 48.1 - - 161.5
Cost of sales (91.1) (30.2) - - (121.3)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Gross profit 22.3 17.9 - - 40.2
Adjusted operating expenses (20.9) (11.4) - - (32.3)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Adjusted operating profit 1.4 6.5 - - 7.9
Adjusted items:
* Amortisation of acquired intangible assets - (0.5) - - (0.5)
* Net exceptional items (6.9) (0.2) - (3.7) (10.8)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Operating (loss)/profit (5.5) 5.8 - (3.7) (3.4)
Interest income 0.1 - - - 0.1
Interest expense (0.4) (0.1) - (11.7) (12.2)
Net retirement obligation
finance charge - - - (1.3) (1.3)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Net finance expense (0.3) (0.1) - (13.0) (13.4)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
(Loss)/profit before taxation (5.8) 5.7 - (16.7) (16.8)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Capital expenditure on property,
plant and equipment (3.4) (2.6) - - (6.0)
Capital expenditure on intangible
assets (0.5) (1.6) - - (2.1)
Impairment of property, plant
and equipment (note 3) (4.4) - - - (4.4)
Depreciation of property,
plant and equipment and right-of-use
assets (4.5) (1.3) - (0.4) (6.2)
Amortisation of intangible
assets (0.6) (1.7) - (0.5) (2.8)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Total
Identity Unallocated of
H1 23 Currency Authentication Solutions Central Continuing
operations
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Total revenue from contracts
with customers 116.4 45.5 2.4 - 164.3
Less: Inter-segment revenue - - - - -
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Revenue from contracts with
customers 116.4 45.5 2.4 - 164.3
Cost of sales (90.6) (29.8) (2.1) - (122.5)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Gross profit 25.8 15.7 0.3 - 41.8
Adjusted operating expenses (21.5) (10.8) (0.2) - (32.5)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Adjusted operating profit 4.3 4.9 0.1 - 9.3
Adjusted items:
* Amortisation of acquired intangible assets - (0.5) - - (0.5)
* Net exceptional items (20.8) (0.5) - (0.1) (21.4)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Operating (loss)/profit (16.5) 3.9 0.1 (0.1) (12.6)
Interest income 0.5 - - 0.1 0.6
Interest expense (0.5) - - (3.9) (4.4)
Net retirement obligation
finance credit - - - 0.5 0.5
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Net finance expense - - - (3.3) (3.3)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
(Loss)/profit before taxation (16.5) 3.9 0.1 (3.4) (15.9)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Capital expenditure on property,
plant and equipment (4.0) (1.9) - - (5.9)
Capital expenditure on intangible
assets (0.6) (4.7) - - (5.3)
Depreciation of property,
plant and equipment and right-of-use
assets (5.4) (1.3) - (0.5) (7.2)
Amortisation of intangible
assets (0.6) (1.5) - (0.4) (2.5)
-------------------------------------------------- ---------- ---------------- ----------- ------------- -----------
Total
Identity Unallocated of Continuing
Currency Authentication Solutions Central operations
GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ----------------- ------------ -------------- ---------------
H1 24
Segment assets 135.8 80.7 - 75.5 292.0
Segment liabilities (40.1) (17.4) - (230.3) (287.8)
--------------------- ----------- ----------------- ------------ -------------- ---------------
FY23
Segment assets* 169.9 68.5 15.8 82.0 336.2
Segment liabilities (70.4) (14.0) (4.5) (224.7) (313.6)
--------------------- ----------- ----------------- ------------ -------------- ---------------
*The Segment assets for FY23 has been restated as described in
the Basis of preparation above.
Revenue from contracts with customers:
Timing of revenue recognition across the Group's revenue from
contracts with customers is as follows:
Total
Identity of Continuing
H1 24 Currency Authentication Solutions operations
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ----------------- ------------ ---------------
Timing of revenue recognition:
Point of time 106.1 43.9 - 150.0
Over time 7.3 4.2 - 11.5
-------------------------------- ----------- ----------------- ------------ ---------------
113.4 48.1 - 161.5
-------------------------------- ----------- ----------------- ------------ ---------------
Total
Identity of Continuing
H1 23 Currency Authentication Solutions operations
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ----------------- ------------ ---------------
Timing of revenue recognition:
Point of time 97.6 38.7 2.4 138.7
Over time 18.8 6.8 - 25.6
-------------------------------- ----------- ----------------- ------------ ---------------
116.4 45.5 2.4 164.3
-------------------------------- ----------- ----------------- ------------ ---------------
Geographic analysis of revenue
H1 24 H1 23
GBPm GBPm
------------------------ ------ ------
Middle East and Africa 68.7 68.6
Asia 16.6 18.7
UK 12.9 33.5
The Americas 23.9 10.2
Rest of Europe 23.0 28.9
Rest of World 16.4 4.4
------------------------ ------ ------
161.5 164.3
------------------------ ------ ------
3 Exceptional Items
H1 Cash Non-cash H1 23 Cash Non-cash
24 GBPm GBPm GBPm GBPm GBPm
GBPm
------------------------------------ ------- ------ --------- ------ ------ ---------
Termination of Relationship
Agreement with Portals Paper
Limited - - - 16.8 0.1 16.7
Site relocation and restructuring 7.9 3.0 4.9 2.1 0.8 1.3
Pension underpin costs 0.2 0.2 - - - -
Costs associated with pension
deferment and banking refinancing 3.0 2.5 0.5 - - -
11.1 5.7 5.4 18.9 0.9 18.0
Recognition of expected credit
loss provision on other financial
assets (0.3) (0.3) - 2.5 - 2.5
------------------------------------ ------- ------ --------- ------ ------ ---------
Exceptional items in operating
profit 10.8 5.4 5.4 21.4 0.9 20.5
------ --------- ------ ---------
Tax (charge)/credit on exceptional
items (4.1) 6.7
------------------------------------ ------- ------
Net exceptional items after
tax 6.7 28.1
------------------------------------ ------- ------
The cash flow impact of exceptional items was GBP14.6m in H1 24
(H1 23: GBP0.9m) which included the GBP5.4m above, the GBP7.5m
final payment to Portals Paper Limited on the termination of the
Relationship Agreement reported in FY23 and GBP1.7m FY23 accrued
restructuring payments made in the period.
Termination of Relationship Agreement with Portals Paper
Limited
On the 26 July 2022, the Group reached a settlement to terminate
its long-term supply agreement with Portals Paper Limited
("Portals"), related to the supply of banknote, proofing and
security paper (the "Relationship Agreement" or "RA"). As a result
of this termination GBP16.8m was recorded as an exceptional item in
H1 23, being the agreed settlement together with associated legal
costs. The final payment under the RA of GBP7.5m was made in April
2023.
Site relocation and restructuring costs
Site relocation and restructuring costs in H1 24 of GBP7.9m (H1
23: GBP2.1m) included the following:
- a GBP6.5m (H1 23: GBPnil) charge for redundancy and legal fees
(GBP3.2m) (Currency and Authentication) and property, plant and
equipment impairments of GBP3.3m (Currency) were made in relation
to restructuring initiatives in both divisions in order to right
size the divisions for future operations. Since this program
commenced, GBP9.0m of costs have been incurred in relation to
this.
- In January 2023, the Group announced that owing to current
market demand, and no expectation of new bank note orders from the
Central Bank of Kenya for at least the next 12 months, De La Rue
Kenya (a subsidiary with a material non-controlling interest held
by the Government of Kenya) has suspended banknote printing
operations in the country. In addition, operations in our
Authentication division were wound down in the period. An
exceptional charge of GBP1.3m (H1 23: GBPnil) was made in the
period including additional redundancy charges of GBP0.2m,
property, plant and equipment asset impairments of GBP1.1m and
other costs of GBP0.1m, offset by GBP0.1m of proceeds from the sale
of previously impaired inventory. Since this program commenced,
GBP13.9m of costs have been incurred in relation to this. Minimal
further costs are expected in relation to this programme in
FY24.
- the recognition of GBP0.1m (H1 23: GBP0.3m) of restructuring
charges related to the cessation of banknote production at our
Gateshead facility primarily relating to the costs, net of grant
income received of GBP0.1m, of relocating assets to different Group
manufacturing locations. Since this program commenced, GBP10.0m of
costs have been incurred in relation to this. This relocation of
assets will continue into H2 24 as the Group continues its
expansion of the manufacturing facilities in Malta, net of any
grants received; and
- In addition, H1 23 included GBP1.8m of charges relating to
other cost out initiatives including the initial Turnaround Plan
restructuring of our central enabling functions, selling and
commercial functions. Since this program commenced, GBP3.4m of
costs have been incurred in relation to this. No further costs are
expected.
Pension underpin costs
Pension underpin costs of GBP0.2m (H1 23: GBPnil) relate to
legal fees, net of amounts recovered, incurred in the rectification
of certain discrepancies identified in the Scheme's rules. The
Directors do not consider this to have an impact on the UK defined
benefit pension liability at the current time, but they continue to
assess this.
Costs associated with pension payment deferment and banking
refinancing
Costs associated with pension payment deferment and the banking
refinancing amounted to GBP3.0m (H1 23: GBPnil) in the period. This
included legal and professional advisor fees.
The Company has not paid any deficit reduction contributions to
the Main Scheme over the period to 30 September 2023. On 3 April
2023, the Company and the Trustee agreed to defer the deficit
reduction contribution due under the previous Recovery Plan,
payable on 5 April 2023, to 26 May 2023. Subsequently, on 25 May
2023 the Company and the Trustee agreed to defer the deficit
contribution due on 26 May 2023 to 5 July 2023. In June 2023, the
Company and the Trustee agreed to defer all the deficit reduction
contributions due to recommence from 5 April 2024 and a new
Recovery Plan has been agreed between the Company and the Trustee.
The legal and professional advisor costs associated with this in
the period were GBP1.3m.
On 29 June 2023 the Company entered into a number of documents
which had the effect of amending and restating the terms of the
revolving facility agreement with its lending banks and their
agents. These documents are an amendment and restatement agreement
with the various lenders and the banks' agents and security agent,
a debenture between the Company, certain other Group companies and
the banks' security agent and inter-creditor agreement between the
creditors. As a result of these changes, the facilities are secured
against material assets and shares within the Group. The legal and
professional costs associated with this in the period was
GBP1.7m.
Recognition of expected credit loss provision on other financial
assets
Other financial assets comprise securities interests held in the
Portals International Limited group which were received as part of
the consideration for the paper disposal in 2018.
In accordance with IFRS 9, in FY23, management assessed the
recoverability of the carrying value on the balance sheet and
record an expected credit loss provision in relation to the
original principal value and interest receivable which was recorded
in exceptional items consistent with the original recognition as
part of the loss on disposal.
The amount presented on the balance sheet within other financial
assets as at 30 September 2023 of GBPnil (25 March 2023: GBPnil)
included the original principal received and accrued interest
amounts, fully offset by the expected credit loss provision. The
provision accounted for the risk that the full amounts due are now
considered to be credit impaired. As a result, no further interest
receivable has been recognised in the period.
On 21 July 2023, the Company received notice that Portals
International Limited were to repay an amount of GBP290,266 (which
comprised the principal amount of GBP227,280 and accrued interest
of GBP62,986) on 1 August 2023. This was a part repayment of the
GBP899,138 loan notes issued by Portals in November 2021. This was
unexpected. A credit of GBP0.3m was recognised in exceptionals
relating to this.
Taxation relating to exceptional items
The tax credit within exceptional items in the period was
GBP4.1m (H1 23: tax charge GBP6.7m).
Included within exceptional tax items is a tax credit of GBP2.1m
relating to the release of uncertain tax positions. These related
to the expiry of an indemnity period in May 2023, following the
Cash Processing Solutions Limited business sale in May 2016. The
balance of GBP2.0m credit within exceptional tax items relates to
the tax impact on the exceptional costs before tax.
4 Interest income and expense
H1 24 H1 23
GBPm GBPm
-------------------------------------------------------- ------- ------
Recognised in the income statement
Interest income:
- Other Interest 0.1 0.1
- - Interest on loan notes and preference shares - 0.5
-------------------------------------------------------- ------- ------
Total interest income 0.1 0.6
-------------------------------------------------------- ------- ------
Interest expense:
- - Interest on bank loans (6.1) (3.0)
- - Other, including amortisation of finance
arrangement fees (2.1) (1.1)
- - Net loss on debt modification (3.8) -
- - Interest on lease liabilities (0.2) (0.3)
-------------------------------------------------------- ------- ------
Total interest expense (12.2) (4.4)
-------------------------------------------------------- ------- ------
Retirement benefit obligation finance (expense)/income
(note 9) (1.3) 0.5
Net finance expense (13.4) (3.3)
-------------------------------------------------------- ------- ------
All finance income and expense arise in respect of assets and
liabilities not restated to fair value though the income
statement.
On 29 June 2023 the Company entered into a number of documents
which had the effect of amending and restating the terms of the
revolving facility agreement with its lending banks and their
agents. This change in existing banking facilities is treated as a
non-substantial modification under IFRS 9 "Financial Instruments",
as the refinancing did not result in an extinguishment of debt. The
difference between the amortised cost carrying amount of the
previous terms of the facility and the present value of the updated
terms of the facility, discounted using the effective interest
rate, resulted in a modification loss. The net loss on debt
modification was GBP3.8m, including a loss on the debt modification
in June 2023 of GBP4.8m offset by the subsequent amortisation of
GBP1.0m (including GBP0.2m of amortisation of the loss on debt
modification recognised in FY23 of GBP0.9m). See note 7(b) for
further information.
The retirement benefit obligation finance (expense)/income is
calculated under IAS 19 and represents the difference between the
interest on pension liabilities and assets. The loss in H1 24 of
GBP1.3m (H1 23: credit of GBP0.5m) was due to the opening pension
valuation on an IAS 19 basis as at 25 March 2023 being a deficit of
GBP54.7m).
5 Taxation
The total tax credit in respect of continuing operations for the
H1 24 was GBP5.6m (H1 23: tax charge GBP7.9m) and comprised:
- GBP1.4m credit (H1 23: GBP1.3m charge) on adjusted loss after
interest expense;
- GBP0.1m credit (H1 23: GBP0.1m credit) on the amortisation of
acquired intangibles; and
- GBP4.1m credit (H1 23: GBP6.7m charge) on exceptional items,
which is described in more detail in note 3 above.
The overall tax rate is determined using the statutory tax rates
and forecasted profits in the UK and all other territories. A
weighted average rate is generated for each of the UK and the other
territories, with these rates then applied to the actual profits
for the half year along with adjustments specific to the relevant
period (such as known tax rate changes substantively enacted during
the period).
The Group is disputing a number of tax assessments received from
the tax authority of countries in which the Group operates. The
disputed tax assessments are at various stages in the local appeal
process, 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 tax
authority in relation to the disputed tax assessments. The Group's
expected outcome of the disputed tax assessments is held within the
relevant provisions in this H1 24 Interim Statement. During H1 24,
a credit of GBP1.9m was reported for disputed tax assessments,
relating to favourable movements in exchange rates rather than a
change to the underlying provided amounts.
Deferred tax assets are recognised for tax losses available and
temporary deductible differences to the extent that the realisation
of the related tax benefit through future taxable profits is
probable. Future taxable profits have been forecast based on the
expected profitability of the Group over a 5-year period based on
management's forecasts for FY24 through to FY27 and applying no
growth in FY28 and H1 29 taking into account historic performance
against budgets. The forecasts for FY24 to FY27 were also used in
the Group's going concern and viability assessments.
The deferred tax asset balance for the period moved from GBP5.9m
at the start of the period (as restated, see the Basis of
Preparation) to GBP7.5m at the end of the period. Within the
movement for H1 24 are additional unrecognised deferred tax assets
of GBP2.8m, which have been disclosed within Other Comprehensive
Income as they relate to the deferred tax assets arising from the
pension deficit balance and tax losses arising from pension deficit
contribution payments.
The closing recognised deferred tax asset position mainly
comprises GBP6.5m (FY23: GBP6.3m) in respect of UK tax losses and
GBPnil (FY23: GBP0.8m restated) related to the UK pension deficit
balance. Tax losses carried forward do not have an expiry date.
Recent group tax losses have mostly arisen as a consequence of
non-recurring exceptional costs and pension deficit reduction
payments. Future exceptional costs and pension deficit reduction
payments are expected to be significantly lower, with the group
forecast to be profitable, allowing the company to recover the
recognised deferred tax assets amounts noted above before the end
of FY29.
As at H1 24 there were unrecognised deferred tax assets of
GBP33.3m (FY23: GBP30.5m restated) comprising:
- GBP7.1m (FY23: GBP6.6m) relating to UK tax losses;
- GBP7.7m (FY23: GBP7.7m) relating to non-UK tax losses;
- GBP14.7m (FY23: GBP12.4m restated) relating to the UK pension
deficit;
- GBP3.8m (FY23: GBP3.8m) relating to other UK timing
differences.
The Directors have assessed that:
- If the forecast profits are lower by 5% over the 5-year
period, then this would reduce the deferred tax assets recognised
by approximately GBP0.9m.
- If the forecast taxable profits are higher by 5% over the
5-year period, then this would increase the deferred tax assets
recognised by approximately GBP0.8m.
6 Earnings per share
H1 24 H1 23
pence pence
Earnings per share per share per share
------------------------------------------------------- ----------- -----------
Basic earnings per share - continuing operations (6.2) (12.6)
Basic earnings per share - discontinued operations - 0.1
------------------------------------------------------- ----------- -----------
Basic earnings per share - total (6.2) (12.5)
------------------------------------------------------- ----------- -----------
Diluted earnings per share - continuing operations(1) (6.2) (12.6)
Diluted earnings per share - discontinued operations - 0.1
Diluted earnings per share - total (6.2) (12.5)
------------------------------------------------------- ----------- -----------
Adjusted earnings per share
Basic earnings per share - continuing operations (2.6) 2.0
Diluted earnings per share - continuing operations(1) (2.6) 2.0
------------------------------------------------------- ----------- -----------
Number of shares (m)
Weighted average number of shares 195.6 195.3
Dilutive effect of shares 0.3 0.4
------------------------------------------------------- ----------- -----------
195.9 195.7
------------------------------------------------------- ----------- -----------
(1) The Group reported a loss from continuing operations
attributable to the ordinary equity shareholders of the Company for
H1 24. The Diluted EPS is reported as equal to Basic EPS, no
account can be taken of the effect of dilutive securities under IAS
33.
Earnings per share are calculated by dividing the profit
attributable to equity shareholders by the weighted average number
of shares. The Directors are of the opinion that the publication of
the adjusted earnings per share is useful as it gives a better
indication of underlying business performance. Adjusted earnings
per share excludes discontinued operations.
Reconciliation of the earnings used in the calculations are set
out below:
H1 24 H1 23
GBPm GBPm
Earnings for basic earnings per share - Total (12.2) (24.4)
Add: Earnings for basic earnings per share -
discontinued operations - (0.2)
---------------------------------------------------- ------- -------
Earnings for basic earnings per share - continuing
operations (12.2) (24.6)
Add: amortisation of acquired intangibles 0.5 0.5
Add: exceptional items (excluding non-controlling
interests) 10.8 21.4
Less: tax on amortisation of acquired intangibles (0.1) (0.1)
Less: tax on exceptional items (4.1) 6.7
---------------------------------------------------- ------- -------
Earnings for adjusted earnings per share (5.1) 3.9
---------------------------------------------------- ------- -------
7 Financial risk
7(a) Financial Instruments
Carrying amounts versus the fair value
Total Carrying Total Carrying
fair amount fair amount
value value
H1 24 H1 24 FY23 FY23
GBPm GBPm GBPm GBPm
------------------------------------------------------------ ------- -------- ----------- -------- -----------
Financial assets
Level
Trade and other receivables(1) 3 48.3 48.3 58.4 58.4
Level
Contract assets 3 13.9 13.9 18.9 18.9
Level
Cash and cash equivalents 1 33.7 33.7 40.3 40.3
Derivative financial instruments:
* Forward exchange contracts designated as cash flow Level
hedges 2 0.6 0.6 1.2 1.2
* Short duration swap contracts designated as fair Level
value hedges 2 0.1 0.1 - -
* Foreign exchange fair value hedges - other economic Level
hedges 2 0.4 0.4 1.1 1.1
Level
* Embedded derivatives 2 0.1 0.1 0.1 0.1
------------------------------------------------------------ ------- -------- ----------- -------- -----------
Total financial assets 97.1 97.1 120.0 120.0
--------------------------------------------------------------------- -------- ----------- -------- -----------
Financial liabilities
Level
Unsecured bank loans and overdrafts(2) 2 (120.2) (120.2) (123.4) (123.4)
Level
Trade and other payables(3) 3 (49.0) (49.0) (66.1) (66.1)
Derivative financial instruments:
* Forward exchange contracts designated as cash flow Level
hedges 2 (1.7) (1.7) (1.0) (1.0)
* Short duration swap contracts designated as fair Level
value hedges 2 (0.1) (0.1) (0.1) (0.1)
* Foreign exchange fair value hedges - other economic Level
hedges 2 (0.7) (0.7) (0.4) (0.4)
Level
* Embedded derivatives 2 (0.1) (0.1) (0.4) (0.4)
Total financial liabilities (171.8) (171.8) (191.4) (191.4)
--------------------------------------------------------------------- -------- ----------- -------- -----------
1 Excludes prepayments of GBP3.5m (FY23: GBP3.6m), RDEC of
GBP1.2m (FY23: GBP2.5m) and VAT recoverable of GBP5.9m (FY23:
GBP6.2m).
2 Excludes unamortised pre-paid loan arrangement fees of GBP4.7m (FY23: GBP5.0m).
3 Excludes social security and other taxation amounts of GBP2.7m
(FY23: GBP3.0m), contract liabilities of GBP2.2m (FY23: GBP0.3m)
and payments on account of GBP16.9m (FY23: GBP22.7m).
Trade receivables decreased to GBP28.9m compared to GBP42.3m at
FY23, driven by timing of selling and the increased proportion of
sales following instalment plans within the Currency business.
Contract assets have reduced from GBP18.9m at FY23 to GBP13.9m
at H1 24. This relates to Currency contracts of GBP9.7m (FY23:
GBP12.7m) and Authentication contracts of GBP4.2m (FY23:
GBP6.2m).
Trade and other payables(3) have decreased from GBP66.1m at FY23
to GBP49.0m at H1 24, driven by the timing of supply payment and
our reporting dates.
Fair Value Hierarchy
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value measurement as a whole.
- Level 1 valuations are derived from unadjusted quoted prices
for identical assets or liabilities in active markets.
- Level 2 valuations use observable inputs for the assets or
liabilities other than quoted prices.
- Level 3 valuations are not based on observable market data and
are subject to management estimates.
There has been no movement between levels during the current or
prior periods.
Fair Value measurement basis for derivative financial
instruments
Fair value is calculated based on the present value of future
principal and interest cash flows, discontinued at the market rate
of interest at the reporting date. The valuation bases are
classified according to the degree of estimation required in
arriving at the fair values. See fair value hierarchy above.
Forward exchange contracts used for hedging
The fair value of forward exchange contracts has been determined
using quoted forward exchange rates at the balance sheet date.
7(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities where due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Group's reputation.
The Group manages this risk by ensuring that it maintains
sufficient levels of committed borrowing facilities and cash and
cash equivalents. The level of headroom needed is reviewed annually
as part of the Group's planning process.
The following are the contractual undiscounted cash flow
maturities of financial liabilities, including contractual interest
payments and excluding the impact of netting agreements.
Due Due
Due between between Total Impact Carrying
within 1 and 2 and After undiscounted of amount
1 year 2 years 5 years 5 cash flows discounting GBPm
30 September 2023 GBPm GBPm GBPm years GBPm and netting
GBPm GBPm
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Non-derivative financial
liabilities
Unsecured bank loans(1) 14.1 119.3 - - 133.4 (13.2) 120.2
Trade and other payables(2) 49.0 - - - 49.0 - 49.0
Obligations under
leases 2.7 2.4 5.2 23.9 34.2 (22.0) 12.2
Derivative financial
liabilities
Gross amount payable
from currency derivatives:
* Forward exchange swap contracts designated as cash
flow hedges* 90.5 - - - 90.5 (88.8) 1.7
* Short duration swap contracts designated as fair
value hedges* 18.5 - - - 18.5 (18.4) 0.1
- Fair value hedges
- other economic
hedges* 34.5 - - - 34.5 (33.8) 0.7
209.3 121.7 5.2 23.9 360.1 (176.2) 183.9
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Due Due
Due between between Total Impact Carrying
within 1 and 2 and After undiscounted of amount
1 year 2 years 5 years 5 cash flows discounting GBPm
25 March 2023 GBPm GBPm GBPm years GBPm and netting
GBPm GBPm
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Non-derivative financial
liabilities
Unsecured bank loans(1) 9.7 129.4 0.7 - 139.8 (16.4) 123.4
Trade and other payables(2) 66.1 - - - 66.1 - 66.1
Obligations under
leases 4.0 2.7 6.5 23.1 36.3 (23.0) 13.3
Derivative financial
liabilities
Gross amount payable
from currency derivatives:
* Forward exchange swap contracts designated as cash
flow hedges* 91.3 2.3 - - 93.6 (92.6) 1.0
* Short duration swap contracts designated as fair
value hedges* 27.3 - - - 27.3 (27.2) 0.1
* Fair value hedges - other economic hedges* 35.2 0.7 - - 35.9 (35.5) 0.4
233.6 135.1 7.2 23.1 399.0 (194.7) 204.3
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Notes:
* Excludes embedded derivatives
(1) Excludes unamortised prepaid borrowing fees of GBP4.7m
(FY23: GBP5.0m).
(2) Excludes social security and other taxation of GBP2.7m
(FY23: GBP3.0m), contract liabilities of GBP2.2m (FY23: GBP0.3m)
and payments on account of GBP16.9m (FY23: GBP22.7m).
The following are the contractual undiscounted cash flow
maturities of financial assets, including contractual interest
receipts and excluding the impact of netting arrangements.
Due Due
Due between between Total Impact Carrying
within 1 and 2 and After undiscounted of amount
1 year 2 years 5 years 5 cash flows discounting GBPm
30 September 2023 GBPm GBPm GBPm years GBPm and netting
GBPm GBPm
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Non-derivative financial
assets
Trade and other receivables(1)
* 48.3 - - - 48.3 - 48.3
Contract assets 13.9 - - - 13.9 - 13.9
Cash and cash equivalents 33.7 - - - 33.7 - 33.7
Derivative financial
assets
Gross amount receivable
from currency derivatives:
* Forward exchange contracts designated as cash flow
hedges* 36.0 - - - 36.0 (35.4) 0.6
* Short duration swap contracts designated as fair
value hedges* 7.8 - - - 7.8 (7.7) 0.1
* Fair value hedges - other economic hedges* 29.7 0.4 - - 30.1 (29.7) 0.4
169.4 0.4 - - 169.8 (72.8) 97.0
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Due Due
Due between between Total Impact Carrying
within 1 and 2 and After undiscounted of amount
1 year 2 years 5 years 5 cash flows discounting GBPm
25 March 2023 GBPm GBPm GBPm years GBPm and netting
GBPm GBPm
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Non-derivative financial
assets
Trade and other receivables(1)
* 58.4 - - - 58.4 - 58.4
Contract assets 18.9 - - - 18.9 - 18.9
Cash and cash equivalents 40.3 - - - 40.3 - 40.3
Derivative financial
assets
Gross amount receivable
from currency derivatives:
* Forward exchange contracts designated as cash flow
hedges* 71.3 0.3 - - 71.6 (70.4) 1.2
* Short duration swap contracts designated as fair
value hedges* 1.0 - - - 1.0 (1.0) -
* Fair value hedges - other economic hedges* 88.8 - - - 88.8 (87.7) 1.1
278.7 0.3 - - 279.0 (159.1) 119.9
--------------------------------------------------------------- -------- -------- -------- ------- -------------- ------------- ----------
Notes:
* Excludes embedded derivatives.
(1) Excludes prepayments of GBP3.5m (FY23: GBP3.6m), RDEC of
GBP1.2m (FY23: GBP2.5m) and VAT recoverable of GBP5.9m (FY23:
GBP6.2m).
The fair value of a hedging derivative is classified as a
non-current asset or liability if the remaining maturity of the
hedged instrument is more than 12 months and as a current asset or
liability if the maturity of the hedged instrument is less than 12
months.
Cash and cash equivalents, trade and other receivables, contract
assets, unsecured bank loans and overdrafts, and trade and other
payables have fair values that approximate to their carrying
amounts due to their short-term nature.
Banking Facilities
On 29 June 2023 the Company entered into a number of documents
which had the effect of amending and restating the terms of the
revolving facility agreement with its lending banks and their
agents. These documents are an amendment and restatement agreement
with the various lenders and the banks' agents and security agent,
a debenture between the Company, certain other Group companies and
the banks' security agent and inter-creditor agreement between the
creditors. As a result of these changes, the facilities are secured
against material assets and shares within the Group.
The banking facilities expiration on 1 January 2025 remained
unchanged, whilst there were changes to:
- Changes to margins: new interest rates were introduced for net
debt to EBITDA ratios over 2.5.
- Changes in daily interest rates: This was amended to SONIA daily rates.
There were also changes to the Group covenant financial
covenants and spread levels as follows from 1 July 2023:
- EBIT/net interest payable more than or equal to 1.0 times, (3.0 times previously).
- Net debt/EBITDA less than or equal to 4.0 times until the Q4
2024 testing point, reducing to less than or equal to 3.6 times
from Q1 FY25 through to the end of the current agreement to 1
January 2025 (3.0 times previously).
- Minimum Liquidity testing monthly, testing at each weekend
point on a 4-week historical basis and 13 week forward looking
basis. The minimum liquidity is defined as "available cash and
undrawn RCF greater than or equal to GBP25m", although reduces to
GBP20m if GBP5m or more of cash collateral is in place to fulfil
guarantee or bonding requirements (new test).
- Increases in spread rates on the leverage ratio as a result of the relaxation of levels:
Leverage (consolidated net debt to EBITDA) Margin (% per annum)
--------------------------------------------------- --------------------
Greater than 3.5:1 4.35
Greater than 3.0:1 and less than or equal to 3.5:1 4.15
Greater than 2.5:1 and less than or equal to 3.0:1 3.95
--------------------------------------------------- --------------------
The covenant tests use earlier accounting standards, excluding
adjustments for IFRS 16. Net debt for covenants includes the
borrowings, where the RCF amount is considered the principal amount
withdrawn, (excluding unamortised pre-paid borrowing fees and the
net loss on debt modification) net of cash and cash
equivalents.
Covenant test results as at 30 September 2023:
Test Requirement Actual at 30 September
2023
---------------------- ----------------------- -----------------------
EBIT to net interest More than or equal to
payable 1.0 times 2.16
Less than or equal to
Net debt to EBITDA 4.0 times 2.38
---------------------- ----------------------- -----------------------
Minimum liquidity at 30 September 2023 was in excess of the
GBP25m limit required under the covenant tests.
This change in existing banking facilities is treated as a
non-substantial modification under IFRS 9 "Financial Instruments",
as the refinancing did not result in an extinguishment of debt. The
difference between the amortised cost carrying amount of the
previous terms of the facility and the present value of the updated
terms of the facility, discounted using the effective interest
rate, resulted in a modification loss. The net loss on debt
modification was GBP3.8m, including a loss on the debt modification
in June 2023 of GBP4.8m offset by the subsequent amortisation of
GBP1.0m (including GBP0.2m of amortisation of the loss on debt
modification recognised in FY23 of GBP0.9m). See note 4.
The Group has Bank facilities of GBP250.0m (FY23: GBP275.0m)
including an RCF cash drawn component of up to GBP175.0m (FY23:
GBP175.0m) and bond and guarantee facilities of a maximum of
GBP75.0m (FY23: GBP100.0m), which are due to mature on 1 January
2025.
The drawdowns on the RCF facility are typically rolled over on
terms of between one and three months. However, as the Group has
the intention and ability to continue to roll forward the drawdowns
under the facility, the amount borrowed has been presented as
long-term.
As at 30 September 2023, the Group had a total of undrawn RCF
committed borrowing facilities, all maturing in more than one year,
of GBP60.0m (25 March 2023: GBP53.0m, all maturing in more than one
year). The amount of loans drawn on the GBP175.0m RCF cash
component is GBP115.0m was drawn as at 30 September 2023 (25 March
2023: GBP112.0m).
Guarantees of GBP46.0m (25 March 2023: GBP52.1m) have been drawn
using the GBP75.0m guarantee facility. The accrued interest in
relation to cash drawdowns outstanding as at 30 September 2023 is
GBP0.4m (25 March 2023: GBP0.3m).
Actual as at Maximum
30 September Facility
2023 GBPm
GBPm
---------------------- -------------- ----------
Facilities:
Cash 115.0 175.0
Bonds and guarantees 46.0 75.0
---------------------- -------------- ----------
161.0 250.0
---------------------- -------------- ----------
A separate borrowing facility for financing equipment under
construction is in place and at 25 March 2023 the amount
outstanding on this facility is GBP0.7m.
8 Analysis of net debt
The analysis below provides a reconciliation between the opening
and closing positions for liabilities arising from financing
activities together with movements in cash and cash equivalents.
During the period the Group has redefined and restated the
definition of net debt to exclude losses or gains on debt
modification. This is in line with the definition used in the
covenant calculations. As a result, the FY23 net debt has been
restated to GBP82.4m, previously GBP83.1m, after excluding the
GBP0.7m of net loss on debt modification.
At 25 Cash Foreign At 30
March flow exchange September
2023 and other 2023
GBPm GBPm GBPm GBPm
--------------------------- -------- ------ ----------- -----------
Gross Borrowings (122.7) 7.0 - (115.7)
Cash and cash equivalents 40.3 (6.4) (0.2) 33.7
--------------------------- -------- ------ ----------- -----------
Net Debt (82.4) 0.6 (0.2) (82.0)
--------------------------- -------- ------ ----------- -----------
At 26 Cash Foreign At 25
March flow exchange March
2022 and other 2023
GBPm GBPm GBPm GBPm
--------------------------- ------- ------- ----------- --------
Gross Borrowings (95.7) (27.0) - (122.7)
Cash and cash equivalents 24.3 15.6 0.4 40.3
--------------------------- ------- ------- ----------- --------
Net Debt (71.4) (11.4) 0.4 (82.4)
--------------------------- ------- ------- ----------- --------
Net debt is presented excluding unamortised pre-paid borrowing
fees of GBP4.7m (FY23: GBP5.0m), net loss on debt modification of
GBP4.5m (FY23: GBP0.7m) and GBP12.2m (FY23: GBP13.3m) of lease
liabilities .
At 25 Cash Non-cash At 30 September
March flow movements 2023
2023
GBPm GBPm GBPm GBPm
-------------------------------- ------- ------ ----------- ----------------
Unamortised pre-paid borrowing
fees 5.0 3.0 (3.3) 4.7
-------------------------------- ------- ------ ----------- ----------------
Borrowings:
30 September 2023 25 March 2023
----------------------------------------------------- -----------------------------------------------------
Unamortised Unamortised
pre-paid pre-paid Loss on
Gross borrowing Loss Gross borrowing debt
Reported Borrowings fees on debt Total Borrowings fees modification Total
within: modification
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ------------ ------------- -------------- -------- ------------ ------------- -------------- --------
Non-current
liabilities (115.7) 4.7 (4.5) (115.5) (122.7) 5.0 (0.7) (118.4)
------------- ------------ ------------- -------------- -------- ------------ ------------- -------------- --------
9 Retirement benefit obligations
The Group has pension plans, devised in accordance with local
conditions and practices in the country concerned, covering the
majority of employees. The assets of the Group's plans are
generally held in separately administered trusts or are
insured.
The Company has not paid any deficit reduction contributions to
the Main Scheme over the period to 30 September 2023. On 3 April
2023, the Company and the Trustee agreed to defer the deficit
reduction contribution due under the previous Recovery Plan,
payable on 5 April 2023, to 26 May 2023. Subsequently, on 25 May
2023 the Company and the Trustee agreed to defer the deficit
contribution due on 26 May 2023 to 5 July 2023. In June 2023, the
Company and the Trustee agreed to defer all the deficit reduction
contributions due to recommence from 5 April 2024 and a new
Recovery Plan has been agreed between the Company and the
Trustee.
H1 24 FY23
GBPm GBPm
--------------------------------- ------- -------
UK retirement benefit liability (58.7) (53.1)
Overseas retirement liability (1.8) (1.6)
--------------------------------- ------- -------
Retirement benefit liability (60.5) (54.7)
--------------------------------- ------- -------
The majority of the Group's retirement benefit obligations are
in the UK:
H1 24 H1 24 H1 24 FY23 FY23 FY23
UK Overseas Total UK Overseas Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------- --------- ------- ------- --------- -------
Equities 3.4 - 3.4 3.2 - 3.2
Bonds 85.9 - 85.9 88.7 - 88.7
Secured/fixed income 117.1 - 117.1 133.0 - 133.0
Liability Driven Investment Fund 133.0 - 133.0 163.6 - 163.6
Multi Asset Credit 56.1 - 56.1 60.2 - 60.2
Qualifying insurance policy 196.5 - 196.5 220.6 - 220.6
Other 11.3 - 11.3 8.9 - 8.9
--------------------------------------- ------- --------- ------- ------- --------- -------
Fair value of scheme assets 603.3 - 603.3 678.2 - 678.2
Present value of funded obligations (658.5) - (658.5) (727.5) - (727.5)
--------------------------------------- ------- --------- ------- ------- --------- -------
Funded defined benefit pension schemes (55.2) - (55.2) (49.3) - (49.3)
Present value of unfunded obligations (3.5) (1.8) (5.3) (3.8) (1.6) (5.4)
--------------------------------------- ------- --------- ------- ------- --------- -------
Net deficit (58.7) (1.8) (60.5) (53.1) (1.6) (54.7)
--------------------------------------- ------- --------- ------- ------- --------- -------
Amounts recognised in the consolidated income statement:
H1 24 H1 24 H1 24 H1 23 H1 23 H1 23
UK Overseas Total UK Overseas Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------- ------ --------- ------ ------- --------- -------
Included in employee benefits expense:
Current service cost - - - - - -
Administrative expenses and taxes (0.6) - (0.6) (0.8) - (0.8)
Included in interest on retirement benefit obligation net
finance expense:
Interest income on scheme assets 15.9 - 15.9 13.7 - 13.7
Interest cost on liabilities (17.2) - (17.2) (13.2) - (13.2)
-------------------------------------------------------------- ------ --------- ------ ------- --------- -------
Retirement benefit obligation net finance expense (1.3) - (1.3) 0.5 - 0.5
-------------------------------------------------------------- ------ --------- ------ ------- --------- -------
Total recognised in the consolidated income statement (1.9) - (1.9) (0.3) - (0.3)
-------------------------------------------------------------- ------ --------- ------ ------- --------- -------
Return on scheme assets excluding assumed interest income (65.2) - (65.2) (312.6) - (312.6)
Remeasurement gains/(losses) on defined benefit pension
obligations 60.7 - 60.7 238.6 - 238.6
-------------------------------------------------------------- ------ --------- ------ ------- --------- -------
Amounts recognised in other comprehensive income (4.5) - (4.5) (74.0) - (74.0)
-------------------------------------------------------------- ------ --------- ------ ------- --------- -------
Principal actuarial assumptions:
H1 24 H1 24 FY23 FY23
UK Overseas UK Overseas
% % % %
------------------- ----- --------- ----- ---------
Discount rate 5.55% - 4.70% -
CPI inflation rate 2.80% - 2.50% -
RPI inflation rate 3.30% - 3.00% -
------------------- ----- --------- ----- ---------
The financial assumptions adopted as at 30 September 2023
reflect the duration of the scheme liabilities which has been
estimated to be broadly 11.5 years (FY23: broadly 12.5 years).
At 30 September 2023 mortality assumptions were based on tables
issued by Club Vita, with future improvements in line with the CMI
model, CMI_2022 (FY23: CMI_2021) with a smoothing parameter of 7.5
and a long-term future improvement trend of 1.25% per annum (FY23:
long-term rate of 1.25% per annum) and w2022 parameter of 75%
(FY23: w2020 parameter 20%). The resulting life expectancies within
retirement are as follows:
H1 24 FY23
------------------------------------------------- ------- ----- ----
Aged 65 retiring immediately (current pensioner) Male 21.5 21.8
Female 23.6 23.9
--------------------------------------------------------- ----- ----
Aged 50 retiring in 15 years (future pensioner) Male 22.0 22.4
Female 24.9 25.3
--------------------------------------------------------- ----- ----
The table below provides the sensitivity of the liability in the
scheme to changes in various assumptions:
Assumption change Approximate impact
on liability
------------------------------------------------- ----------------------
0.50% decrease in discount rate Increase in liability
of GBP38.3m
0.50% increase in discount rate Decrease in liability
of GBP34.8m
0.25% increase in expected RPI inflation rate Increase in liability
(without knock-on impact to CPI inflation rate) of GBP0.7m
0.25% decrease in expected RPI inflation rate Decrease in liability
(without knock-on impact to CPI inflation rate) of GBP0.7m
0.25% increase in expected CPI inflation rate Increase in liability
by GBP8.7m
0.25% decrease in expected CPI inflation rate Decrease in liability
by GBP6.9m
Increasing life expectancy by one year Increase in liability
of GBP24.3m
------------------------------------------------- ----------------------
The liability sensitivities have been derived using the duration
of the scheme based on the membership profile as at 5 April 2021
and assumptions chosen for H1 24. The sensitivity analysis does not
allow for changes in scheme membership since the 2021 actuarial
valuation or the impact of the Scheme or Group's risk management
activities in respect of interest rate and inflation risk on the
valuation of the Scheme assets.
10 Provisions for liabilities and charges
Restructuring Warranty Other Total
GBPm GBPm GBPm GBPm
--------------------------------------- -------------- --------- ------ ------
At 25 March 2023 1.8 0.9 3.3 6.0
Charge for the period 0.6 - 0.3 0.9
Utilised in the period (1.7) (0.7) (1.2) (3.6)
Released in the period (0.1) - - (0.1)
Exchange differences - 0.2 (0.2) -
--------------------------------------- -------------- --------- ------ ------
At 30 September 2023 0.6 0.4 2.2 3.2
--------------------------------------- -------------- --------- ------ ------
Expected to be utilised within 1 year 0.6 0.4 2.2 3.2
--------------------------------------- -------------- --------- ------ ------
Restructuring provisions
Restructuring provisions as at 30 September 2023 related to
redundancy and other employee related termination costs for a Group
site relating to a change in working patterns. This was
substantially utilised in the period and the remaining provision is
expected to be utilised in FY24.
Warranty provisions
Warranty provisions relate to present obligations for defective
products. The provisions are management judgements based on
information currently available, past history and experience of the
products sold. However, it is inherent in the nature of the
business that the actual liabilities may differ from the
provisions. The precise timing of the utilisation of these
provisions is uncertain but is generally expected to fall within
one year.
The Group measures warranty provisions at the Directors' best
estimate of the amount required to settle the obligation at the
balance sheet date, discounted where the time value of money is
considered material. These estimates take account of available
information, historical experience and the likelihood of different
possible outcomes. Both the amount and the maturity of these
liabilities could be different from those estimated.
Other provisions
Other provisions comprise a number of liabilities with varying
expected utilisation rates. This included a small number of onerous
contract provisions (GBP0.1m), employee related liabilities
(GBP0.6m), IBNR insurance claim provisions (GBP0.5m) and other
liabilities (GBP1.0m) arising through the Group's normal
operations.
Onerous contract provisions arise where the unavoidable costs
under a contract exceed the economic benefits expected to be
received under it. Unavoidable costs represent the least net cost
of exiting the contract, which is the lower of the cost of
fulfilling it and any compensation or penalties arising from
failure to fulfil it. Costs to fulfil a contract include those that
directly relate to the contract, including incremental costs and
allocation of production overheads. The precise timing of the
utilisation of these provisions is uncertain but is generally
expected to fall within one year.
11 Non-controlling interests
The Group has three subsidiaries with material non-controlling
interests:
- De La Rue Buck Press Limited, whose country of incorporation is Ghana;
- De La Rue Lanka Currency and Security Print (Private) Limited,
whose country of incorporation is Sri Lanka; and
- De La Rue Kenya EPZ Limited, whose country of incorporation and operation is Kenya.
The accumulated non-controlling interest of the subsidiary at
the end of the reporting period is shown in the Group balance
sheet. The following table summarises the key information relating
to these subsidiaries, before intra-group eliminations.
Ghana Sri Kenya Ghana Sri Kenya
Lanka Lanka
Non-controlling interest
percentage 51% 40% 40% 51% 40% 40%
--------------------------------------- -------- ------- ------- -------- ------- --------
H1 24 H1 24 H1 24 FY23 FY23 FY23
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------- ------- -------- ------- --------
Non-current assets - 6.9 0.2 - 7.7 0.2
Current assets 7.7 29.2 20.5 8.9 30.5 22.8
Non-current liabilities - (0.5) - - (0.4) -
Current liabilities (4.2) (6.2) (11.4) (5.7) (10.6) (13.7)
--------------------------------------- -------- ------- ------- -------- ------- --------
Net assets (100%) 3.5 29.4 9.3 3.2 27.2 9.3
--------------------------------------- -------- ------- ------- -------- ------- --------
H1 24 H1 24 H1 24 H1 23 H1 23 H1 23
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------- ------- ------- -------- ------- --------
Revenue 4.2 17.7 0.2 7.0 13.3 10.8
Profit/(loss) for the period 0.4 2.3 (0.1) 0.6 0.5 0.5
Profit allocated to non-controlling
interest 0.2 0.8 - 0.3 0.2 0.3
Dividends declared by non-controlling - - - - - -
interest
Cash flows from operating
activities (2.2) 0.2 0.3 (0.9) 1.7 0.1
Cash flows from investing
activities - (0.1) 0.1 - (0.1) (0.2)
Cash flows from financing - - - - - -
activities
--------------------------------------- -------- ------- ------- -------- ------- --------
Net (decrease)/increase in
cash and cash equivalents (2.2) 0.1 0.4 (0.9) 1.6 (0.1)
--------------------------------------- -------- ------- ------- -------- ------- --------
12 Related party transactions
During the period the Group traded on an arm's length basis with
the associated company Fidink (33.3% owned). The Group's trading
activities with Fidink in the period comprise GBP12.7m (H1 23:
GBP12.5m) for the purchase of ink and other consumables on an arm's
length basis . At the balance sheet date there was GBP2.6m (FY23:
GBP1.7m) owing to this company.
The value of the Group's investment in associate is not material
and hence not disclosed on the face of the balance sheet.
Intra-group transactions between the Parent and the fully
consolidated subsidiaries or between fully consolidated
subsidiaries are eliminated on consolidation.
There were no material changes to these related parties in the
period, other than changes in the composition of the Board. Other
than total compensation in respect of key management, no material
related party transactions have taken place during the current
period.
13 Contingent assets and liabilities.
In January 2023, De la Rue was made aware that the Central
Bureau of Investigation in India (CBI-I) had launched an
investigation into the conduct of Arvind Mayaram, the former Indian
Finance Secretary, in which the historical activities of De La Rue
in India prior to 2016 have been implicated. The Company has still
not received any official direct communication of this
investigation from the CBI-I. De La Rue has not served the
Government of India or the Central Bank of India in any capacity
since 2016. The Company believes that there is no merit to the
allegations that relate to De La Rue and therefore has not raised a
contingent liability or provision.
The Group also provides guarantees and performance bonds which
are issued in the ordinary course of business. In the event that a
guarantee or performance bond is called, a provision may be
required subject to the particular circumstances including an
assessment of its recoverability.
14 Capital and other commitments
H1 24 FY23
GBPm GBPm
-------------------------------------------------- ------ -----
Capital expenditure contracted but not provided:
Property, plant and equipment 13.0 16.4
Lease commitments 13.3 13.9
26.3 30.3
-------------------------------------------------- ------ -----
Lease commitments relate to the factory site extension in Malta
where the Company has signed a lease for the premises for an
initial term of 20 years. The lease will be recognised when the
building becomes available for use.
15 De La Rue Financial Calendar: FY24
Financial year end 30 March 2024
16 Subsequent events
Banking Facilities
On 18 December 2023 the Group entered into a new agreement with
its banking syndicate to extend its banking facilities to July
2025. From this date the Group will have Bank facilities of GBP235m
including an RCF cash drawn component of up to GBP160m (a reduction
of GBP15m) and bond and guarantee facilities of a maximum of
GBP75m. The covenant tests described above will continue to apply
to the facilities, other than the liquidity covenant where the
minimum headroom is now defined as "available cash and undrawn RCF
greater than or equal to GBP10m", to reflect the GBP15m reduction
in RCF. In addition, an arrangement fee is due, equal to 1% of the
facility, which will reduce to 0.5% if the facility is refinanced
before 30 June 2024.
Pension deficit payments
An actuarial valuation of the Scheme has been undertaken as at
30 September 2023. This showed a Scheme deficit of GBP78m. As a
result of this new valuation, on 18 December 2023, the Company and
the Scheme Trustee agreed a new schedule to fund the deficit. The
funding moratorium until July 2024 as previously agreed will be
retained, with the only payment being GBP1.25m due under the June
2023 Recovery Plan. This will be followed by deficit repair
contributions from the Company of GBP8m per annum to the end of
FY27, followed by higher contributions that at no time exceed
GBP16m per annum and which run until December 2030 or until the
Scheme becomes fully funded.
The next periodic actuarial valuation will be as at the end of
September 2026, with the Scheme Trustee undertaking to provide the
results of this valuation by January 2027, ahead of any increase in
contribution from GBP8m per annum.
NON-IFRS FINANCIAL MEASURES
De La Rue plc publishes certain additional information in a
non-statutory format in order to provide readers with an increased
insight into the underlying performance of the business. These
non-statutory measures are prepared on a basis excluding the impact
of exceptional items and amortisation of intangibles acquired
through business combinations, as they are not considered to be
representative of underlying business performance. The measures the
Group uses along with appropriate reconciliations to the equivalent
IFRS measures where applicable are shown in the following
tables.
The Group's policy on classification of exceptional items is
also set out below.
The Directors consider items of income and expenditure which are
material by size and/or by nature and not representative of normal
business activities should be disclosed separately in the financial
statements so as to help provide an indication of the Group's
underlying business performance. The Directors label these items
collectively as 'exceptional items'. Determining which transactions
are to be considered exceptional in nature is often a subjective
matter. However, circumstances that the Directors believe would
give rise to exceptional items for separate disclosure would
include: gains or losses on the disposal of businesses,
curtailments on defined benefit pension arrangements or changes to
the pension scheme liability which are considered to be of a
permanent nature such as the change in indexation or the GMPs, and
non-recurring fees relating to the management of historical scheme
issues, restructuring of businesses, asset impairments and costs
associated with the acquisition and integration of business
combinations. All exceptional items are included in the appropriate
income statement category to which they relate.
A Adjusted operating profit from continuing operations
Adjusted operating profit represents earnings from continuing
operations adjusted to exclude exceptional items and amortisation
of acquired intangible assets.
H1 24 H1 23
GBPm GBPm
------------------------------------------------------ ------- -------
Operating loss from continuing operations on an
IFRS basis (3.4) (12.6)
Amortisation of acquired intangible assets 0.5 0.5
Exceptional items 10.8 21.4
Adjusted operating profit from continuing operations 7.9 9.3
------------------------------------------------------ ------- -------
B Adjusted basic earnings per share
Adjusted earnings per share are the earnings attributable to
equity shareholders, excluding exceptional items and amortisation
of acquired intangible assets and discontinued operations divided
by the weighted average basic number of ordinary shares in issue.
It has been calculated by dividing the De La Rue plc's adjusted
operating profit from continuing operations for the period by the
weighted average basic number of ordinary shares in issue excluding
shares held in the employee share trust.
H1 24 H1 23
GBPm GBPm
--------------------------------------------------- --------- ---------
Loss attributable to equity shareholders of the
Company (12.2) (24.4)
Exclude: discontinued operations - (0.2)
--------------------------------------------------- --------- ---------
Loss attributable to equity shareholders of the
Company from continuing operations on an IFRS
basis (12.2) (24.6)
Amortisation of acquired intangible assets 0.5 0.5
Exceptional items 10.8 21.4
Tax on amortisation of acquired intangible assets (0.1) (0.1)
Tax on exceptional items (4.1) 6.7
--------------------------------------------------- --------- ---------
Adjusted (loss)/profit attributable to equity
shareholders of the Company from continuing
operations (5.1) 3.9
--------------------------------------------------- --------- ---------
Weighted average number of ordinary shares for
basic earnings 195.6 195.3
--------------------------------------------------- --------- ---------
H1 24 H1 23
pence per pence per
Continuing operations share share
---------------------------------------------------- ---------- ----------
Basic earnings per ordinary share on an IFRS basis (6.2) (12.6)
Basic adjusted earnings per ordinary share (2.6) 2.0
---------------------------------------------------- ---------- ----------
Diluted adjusted earnings per ordinary share(1) (2.6) 2.0
---------------------------------------------------- ---------- ----------
(1) As there is a loss from continuing operations attributable
to the ordinary equity shareholders of the Company for the period
(GBP12.2m), the Diluted EPS is reported as equal to Basic EPS, as
no account can be taken of the effect of dilutive securities under
IAS 33.
C Net debt
Net debt is a non-IFRS measure. See note 8 for details of how
net debt is calculated.
D Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA represents earnings from continuing operations
before the deduction of interest, tax, depreciation, amortisation
and exceptional items.
The EBITDA margin percentage takes the applicable EBITDA figure
and divides this by the continuing revenue in the period of
GBP161.5m (H1 23: GBP164.3m). The covenant test uses earlier
accounting standards and excludes adjustments for IFRS 16 and takes
into account lease payments made.
H1 24 H1 23
GBPm GBPm
------------------------------------------------------------------------------ ------ ------
Loss for the period (11.2) (23.6)
Add back:
Profit on discontinued operations - (0.2)
Taxation (5.6) 7.9
Net finance expenses 13.4 3.3
------------------------------------------------------------------------------- ------ ------
Loss before interest and taxation from continuing operations (Operating loss) (3.4) (12.6)
Add back:
Depreciation of property, plant and equipment and right-of-use assets 6.2 7.2
Amortisation of intangible assets 2.8 2.5
------------------------------------------------------------------------------- ------ ------
EBITDA 5.6 (2.9)
Exceptional items 10.8 21.4
------------------------------------------------------------------------------- ------ ------
Adjusted EBITDA 16.4 18.5
------------------------------------------------------------------------------- ------ ------
Revenue GBPm 161.5 164.3
EBITDA margin 3.5% (1.8)%
------------------------------------------------------------------------------- ------ ------
Adjusted EBITDA margin 10.2% 11.3%
------------------------------------------------------------------------------- ------ ------
The adjusted EBITDA split by division was as follows:
Total
Identity of continuing
H1 24 Currency Authentication Solutions Central operations
GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Operating (loss)/profit on IFRS
basis (5.5) 5.8 - (3.7) (3.4)
Add back:
Net exceptional items 6.9 0.2 - 3.7 10.8
Depreciation of property, plant
and equipment and right-of-use
assets 4.5 1.3 - 0.4 6.2
Amortisation of intangible assets 0.6 1.7 - 0.5 2.8
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted EBITDA 6.5 9.0 - 0.9 16.4
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Total
Identity of continuing
H1 23 Currency Authentication Solutions Central operations
GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Operating (loss)/profit on IFRS
basis (16.5) 3.9 0.1 (0.1) (12.6)
Add back:
Net exceptional items 20.8 0.5 - 0.1 21.4
Depreciation of property, plant
and equipment and right-of-use
assets 5.4 1.3 - 0.5 7.2
Amortisation of intangible assets 0.6 1.5 - 0.4 2.5
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted EBITDA 10.3 7.2 0.1 0.9 18.5
----------------------------------- ----------- ----------------- ------------ ---------- ---------------
E Adjusted controllable operating profit by division
Adjusted controllable operating profit represents earnings from
continuing operations of the on-going divisions adjusted to exclude
exceptional items and amortisation of acquired intangible assets
and costs relating to the enabling functions such as Finance, IT
and Legal that are deemed to be attributable only to the on-going
two divisional structure model. Key reporting metrics for
monitoring the divisional performance is linked to gross profit and
controllable profit (being adjusted operating profit before the
allocation of enabling function overheads), with the enabling
functional cost base being managed as part of the overall business
key Turnaround Plan objectives.
.
Total
Identity of continuing
H1 24 Currency Authentication Solutions Central operations
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Operating (loss)/profit on
IFRS basis (5.5) 5.8 - (3.7) (3.4)
Amortisation of acquired intangibles - 0.5 - - 0.5
Net exceptional items 6.9 0.2 - 3.7 10.8
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted operating profit 1.4 6.5 - - 7.9
Enabling function overheads 12.7 5.1 - (17.8) -
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted controllable operating
profit/(loss) 14.1 11.6 - (17.8) 7.9
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Total
Identity of continuing
H1 23 Currency Authentication Solutions Central operations
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Operating (loss)/profit on
IFRS basis (16.5) 3.9 0.1 (0.1) (12.6)
Amortisation of acquired intangibles - 0.5 - - 0.5
Net exceptional items 20.8 0.5 - 0.1 21.4
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted operating profit 4.3 4.9 0.1 - 9.3
Enabling function overheads 11.4 4.5 - (15.9) -
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
Adjusted controllable operating
profit/(loss) 15.7 9.4 0.1 (15.9) 9.3
-------------------------------------- ----------- ----------------- ------------ ---------- ---------------
-ENDS-
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END
IR EASANFENDFEA
(END) Dow Jones Newswires
December 19, 2023 02:00 ET (07:00 GMT)
De La Rue (LSE:DLAR)
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De Mar 2024 a Abr 2024
De La Rue (LSE:DLAR)
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