TIDMDLAR
RNS Number : 3959G
De La Rue PLC
25 November 2020
25 November 2020
DE LA RUE
2020/21 HALF YEAR RESULTS
Turnaround Plan on track
De La Rue plc (LSE: DLAR) ("De La Rue", the "Group" or the
"Company") announces its half year results for the six months ended
26 September 2020 (the "period", "H1" or "half year"). The
comparative period was the six months ended 28 September 2019.
H1 2020/21 highlights:
-- Adjusted operating profit significantly improved at GBP15.3m (H1 2019/20: GBP2.2m)
-- Positive operating cash flow
-- Cost reduction programme on track to contribute GBP23m of savings in FY 2020/21
-- Authentication orders secured with total lifetime contract value exceeding GBP120m
-- Currency 100% full for banknote printing in H2 2020/21
-- GBP100m equity capital raise completed July 2020
-- Exclusive Bank of England banknote printing contract extended to 2028
-- Net debt reduced to GBP21.6m (H1 2020/21: GBP170.7m; FY2020/21: GBP102.8m)
Financial Summary
H1 2020/21 H1 2019/20 Change
GBPm GBPm %
==================================== ==================== ============= ============= =======
Adjusted Revenue(1)(5) 174.7 205.9 -15.1%
Currency 126.0 128.7 -2.1%
Authentication 31.7 34.9 -9.2%
Identity Solutions 17.0 42.3 -59.8%
IFRS Revenue 179.7 232.3 -22.6%
Gross Profit 49.4 51.3 -3.7%
Adjusted operating profit(2)(5) 15.3 2.2 595.5%
IFRS operating profit/(loss) 4.6 (9.2) n/a
Net debt(5) 21.6 170.7 n/a
Adjusted EPS basic (p)(3)(5) 6.5p (1.4)p(4) n/a
IFRS EPS basic (p) 1.0p (9.8)p(4) n/a
========================================================== ============= ============= =======
H1 2020/21 financial performance
-- IFRS revenue (including "pass-through" revenue on paper contracts)
of GBP179.7m (H1 2019/20: GBP232.3m) and adjusted revenue of GBP174.7m
(H1 2019/20: GBP205.9m) reduced mainly due to the decline in Identity
Solutions revenue as a result of the sale of the International Identity
Solutions business in October 2019 and the run-off of the UK Passport
contract. Authentication revenue was lower mainly due to GBP1.6m
of contracts reported in the prior year related to the International
Identity Solutions business sold in H2 2019/20 (see page 11 for further
details), and COVID-19 related impact on two contracts.
-- Gross profit of GBP49.4m (H1 2019/20: GBP51.3m) reflecting lower
Identity Solutions gross profit following the UK Passport contract
cessation and the sale of the International Identity Solution business,
together with increased efficiencies in Currency and lower Authentication
gross profit on reduced volumes. Total gross profit for our two ongoing
divisions, Authentication and Currency, grew to GBP38.1m (H1 2019/20:
GBP34.1m).
-- Adjusted operating profit of GBP15.3m (H1 2019/20: GBP2.2m), represents
significant improvement resulting from the ongoing implementation
of the Turnaround Plan, including benefits from the reorganisation
and cost reduction programmes.
-- IFRS operating profit of GBP4.6m (H1 2019/20: loss GBP9.2m) is stated
after net exceptional items charges of GBP10.2m.
-- Net debt of GBP21.6m (H1 2019/20 GBP170.7m, FY 2019/20: GBP102.8m),
reduction principally due to equity capital raise (see note 9 to
the financial statements for details of net debt calculation), offset
in part by cash spend on the Turnaround Plan.
Business update
-- Authentication awarded contracts of total multi-year lifetime value
exceeding GBP120m in year to date, with new contracts delivering
revenue in H2 2020/21. Authentication re-iterates guidance for
GBP100m in revenue in FY 2021/22.
-- Currency expects to utilise 100% of its available polymer and banknote
printing capacity for FY 2020/21 with expected improved higher
revenue and margin mix in second half.
-- Actions taken to deliver cost savings of approximately GBP23m during
FY 2020/21 and approximately GBP36m of annualised total savings.
-- Completed the GBP100m equity capital raise on 7 July 2020, strengthening
the Group's balance sheet.
-- Debt facilities were extended to December 2023, and the Company
renegotiated Pension scheme deficit contributions.
-- Company continues to manage business effectively during the COVID-19
pandemic.
Clive Vacher, Chief Executive Officer of De La Rue, said:
"Our first half results have shown a substantial improvement in
the Group's performance, with very strong growth in adjusted
operating profit as we increase efficiencies, resulting in positive
cash generation from operating activities. I am satisfied with the
progress of the Turnaround Plan so far, which is yielding positive
improvements across the company.
"Our two ongoing divisions, Authentication and Currency, are
performing well. We are building strong order books and have
secured a number of important strategic wins in the first half of
the year.
"I am impressed by the dedication and resilience of De La Rue's
employees, particularly in their execution of the transformation
during the COVID-19 pandemic.
"Trading for the financial year 2020/21 has been positive, with
the outlook for revenue, adjusted operating profit and net debt for
the full year in line with the Board's expectations."
1. This is a non-IFRS measure. Adjusted revenue excludes "pass-through"
revenue relating to non-novated paper and International IDS business
contracts where the Group earns nil margin. Presentation of adjusted
revenue more meaningful understanding of the underlying performance
of the business. See note 17 for further explanations and reconciliation
to the comparable IFRS measures.
2. Excludes exceptional items net charges of GBP10.2m (H1 2019/20:
net charges of GBP11.0m) and amortisation of acquired intangible
assets of GBP0.5m (H1 2019/20: GBP0.4m).
3. Excludes exceptional item net charges net of tax of GBP7.8m (H1
2019/20: net charges of GBP9.2m) and amortisation of acquired
intangible assets net of tax of GBP0.4m (H1 2019/20: GBP0.3m).
4. Restatement of earnings per share reflects adjustments associated
with the Rights Issue with regards to weighted average number
of shares.
5. This is a non-IFRS measure. Amortisation of acquired intangible
assets is a non-cash item, while exceptional items are considered
to be items of income and expenditure which are both material
by size/or by nature and not representative of normal business
activities. Adjusted revenue excludes "pass-through" revenue
relating to non-novated paper business contracts where the Group
earns nil margin. By excluding these items from the adjusted
operating profit and EPS metrics, the Directors are of the opinion
that these measures give a more meaningful understanding of the
underlying performance of the business. See note 17 for further
explanations and reconciliation to the comparable IFRS measures.
See note 9 to the financial statements for details of the net
debt calculation).
Enquiries:
De La Rue plc +44 (0) 7387 122645
Clive Vacher Chief Executive Officer
Rob Harding Chief Financial Officer
Matthew Rose Director of Tax, Treasury and Investor
Relations
Brunswick +44 (0) 207 404 5959
Stuart Donnelly
Imran Jina
A conference call will take place at 9:00 am on 25 November
2020, which is accessible via webcast on www.delarue.com .
For the live webcast, please register at
https://www.delarue.com/investors/results-and-reports where a
replay will also be available subsequently.
De La Rue plc's LEI code is 213800DH741LZWIJXP78.
BUSINESS UPDATE
Group reorganisation
In these results, we report on the financial performance of the
Currency, Authentication and Identity Solutions divisions,
reflecting the sale of International Identity Solutions in October
2019 and our operating structure after our realignment of the Group
in November 2019. To provide increased insight into the underlying
performance of our business, we have reported revenue, gross margin
and operating profit on an IFRS and adjusted basis for the Group,
as well as gross profit, and adjusted operating profit for all
divisions, together with adjusted controllable operating profit
(before enabling function cost allocation) for the current period
(see note 17 for definition of controllable operating profit and
reconciliation to equivalent IFRS measure).
We have worked with Her Majesty's Passport Office (HMPO) on the
completion of the transition of the UK Passport contract during H1
2020/21. As a result, we expect substantially lower revenue from H2
2020/21 onwards and minimal revenue for Identity Solutions during
FY 2021/22 compared to the prior year, with an expected cash
outflow as we make rebate payments related to this contract. These
rebate payments have been accrued to the income statement over the
life of the contract.
We note that the UK Passport contract provided a significant
proportion of the adjusted operating profit for Identity Solutions
and the Group in H1 2020/21 and will contribute substantially lower
profits from H2 2020/21 onwards.
On 25 February 2020, we announced details of the Turnaround Plan
(the "Turnaround Plan") for the Company and progress to date on the
elements of the Turnaround Plan is set out immediately below:
Cost reduction : The Group has taken actions that will
contribute targeted savings on an annualised basis from H2 2020/21
of approximately GBP36m. Actions taken in FY 2020/21 are expected
to contribute GBP23m of annualised savings during FY 2020/21, with
a further GBP7m been identified. Actions taken in FY 2019/2020
contributed GBP6m of savings. The restructuring cash costs for the
cost reduction actions within the Turnaround Plan will be
approximately GBP16m in FY 2020/21.
In FY 2019/20, enabling function costs represented approximately
8% of Group revenue (these costs being allocated to divisional
adjusted operating profit by revenue in FY2019/20). With
significantly reduced revenues, this will remain at 8% this year
before reducing to approximately 6% of Group revenue in FY
2022/23.
Authentication; Authentication is focused on providing physical
and digital solutions to authenticate products through the supply
chain and to provide tracking of excisable goods to support
compliance with government regulations. Working across the
commercial and government sectors, we address consumer and brand
owner demand for protection against counterfeit goods. De La Rue is
targeting Authentication division revenues of GBP100m by FY
2021/22, with strong operating margins and strong year-on-year
growth in this division during the three-year period of the
Turnaround Plan, as more countries adopt tobacco tax stamp schemes
to comply with the World Health Organisation (WHO) Framework
Convention on Tobacco Control (FCTC).
The traditional tax stamp market covering tobacco and alcohol
has evolved to include digital solutions and tobacco
track-and-trace. The combined physical and digital solutions
provided by the Group support governments to protect tax revenue
and to comply with intergovernmental policies and international
treaties such as the EU Tobacco Products Directive and the World
Health Organisation FCTC.
In the first half we have signed multi-year contracts with
lifetime values of more than GBP120m. Our brand protection business
performed in line with expectations in H1 2020/21, despite two
contracts having been impacted with reduced volumes as a result of
the pandemic. These are expected to recover with the remainder of
the Group's contracts delivering volumes in line with, or higher
than, expectations.
We expect year-on-year revenue growth for Authentication during
H2 2020/21, as we begin production of tax stamps for our new
contract in Ghana and complete the software implementation for the
HMRC ID Issuer contract.
We are in discussions with several governments regarding the
roll-out of tobacco and drinks tax stamp schemes and in early
discussion regarding COVID-19 immunity certification schemes. We
continue to invest in software capabilities, service provision and
R&D focused on IP generation and are exploring blockchain
technologies
Currency: The Currency division is focused on: improving
profitability of banknote production, protecting and growing the
Group's paper security feature position, converting the world to
polymer and being the market leader, and investing in R&D in
polymer security features.
De La Rue has established a leading position in polymer, with
the number of circulating polymer banknotes more than tripling
since the first banknote was introduced on SAFEGUARD(R) in 2013.
Around 85% of new polymer banknote denominations issued in 2020
have also been on SAFEGUARD(R) and more than half of these have
contained a De La Rue hologram in the window of the polymer
banknote. De La Rue is also responsible for the design and
manufacture of the Bank of England's new GBP50 banknote due for
release in 2021.
At the end of H1 2020/21, approximately 3% of the world's
banknotes by volume and 12% by denomination had moved to polymer,
up from 11% at the start of the financial year. A cornerstone of
the Company's strategy is investing in, and supporting customers
with, the significant trend of transition from paper to polymer
notes. The Turnaround Plan targets a mid-teens adjusted
controllable operating profit margin for the Currency division from
FY 2020/2021, (before allocation of enabling function overhead -
see note 17 for definition of adjusted controllable operating
profit and reconciliation to comparable IFRS measure).
H1 2020/21 profitability in banknotes has improved through the
delivery of cost reductions and manufacturing efficiencies.
The Currency division continues to see strong ongoing global
demand for cash as central banks seek to increase stock levels
during the pandemic. We expect to utilise 100% of our remaining
available polymer and banknote printing capacity for FY 2020/21
with the mix in banknotes delivering higher revenue and margin
during H2 2020/21.
In paper security features, thread sales continue to grow and
new banknotes containing KINETIC STARCHROME(R), PUREIMAGE(TM),
IGNITE(R) and NEXUS(TM) are expected to be issued into circulation
over the next 12 months.
On 30 October 2020, we announced that the Bank of England ("the
Bank") has confirmed it will exercise its option to extend its
existing banknote print contract by three years, maintaining De La
Rue's exclusivity in printing Bank of England banknotes and
operating the Bank's facility in Debden, Essex, until 2028.
Gateshead restructuring
On 17 June 2020, we announced our decision to cease banknote
printing at our Gateshead site, while retaining some core services
and roles at the site. The banknote printing operations will cease
at Gateshead in December 2020. UK Passport operations, also in
Gateshead, ceased operations during H1 2020/21,
These actions will not lead to a reduction of the Company's
worldwide printing capacity. Following a period of transition and
the relocation of equipment from Gateshead to other sites, we will
retain the same capacity while operating with four currency print
factories, down from five.
OUTLOOK
The Directors believe that the equity capital raising provides
the Company and its management with operational and financial
flexibility to implement the Turnaround Plan.
We have a target of returning the Company to a strong, financial
position and an operating platform which will deliver sustainable
growth at high operating margins and strong cash generation in the
medium term. Following an initial period of cash outflow to fund
the Turnaround Plan, by the end of the Turnaround Plan in FY
2022/23, we aim for the Group to be generating positive free cash
flow and capable of supporting sustainable cash dividends to
shareholders.
Trading for the financial year 2020/21 to date has been
positive, with the outlook for revenue, adjusted operating profit
and net debt for the full year in line with the Board's
expectations.
EQUITY CAPITAL RAISING, DEBT REFINANCING AND PENSION RECOVERY
PLAN
De La Rue completed a GBP100m gross (pre-costs) and GBP92.9m
(post-costs) equity capital raising on 7 July 2020, strengthening
the Group's balance sheet and enabling the Company to deliver the
Turnaround Plan.
Effective 7 July 2020, the Group amended the terms of its Bank
facilities of GBP275m. This extended the maturity date of the
Revolving Cash Facility ("RCF") to December 2023 and included an
RCF cash drawdown component of up to GBP175m and bond and guarantee
facilities of a minimum of GBP100m.
The Company agreed the terms for a schedule of contributions and
a recovery plan, setting out a programme for clearing the UK
Pension Scheme deficit (the "Recovery Plan"). As a result of the
Recovery Plan pension contributions for H2 2020/21 were GBP7.7m (H1
2019/20: GBP10.7m).
EQUITY CAPITAL RAISE AND DEBT REFINANCING COSTS
Total costs relating to the equity capital raising and bank
refinancing were GBP15.1m, broken down as follows:
-- Costs related to the equity capital raise of GBP7.1m have been
presented as a reduction to equity within the Balance Sheet;
-- Transaction costs related to the debt refinancing of the Group's
amended Revolving Credit Facility of GBP4.8m have been capitalised
on the balance sheet and will be amortised over the periods until
1 December 2023 (and which are excluded from Interest for covenant
purposes), and:
-- Further costs totalling GBP3.2m have been recorded in exceptional
items within the income statement, which includes GBP0.7m relating
to the write-off of the unamortised balance of the prepaid loan
arranging fees relating to the original RCF prior to amendment
of terms.
COVID-19
In 2018, as part of the ongoing business continuity and risk
planning activities of De La Rue, the company drew up a pandemic
Business Continuity Plan, which has proved effective in the
response to COVID-19.
The Company has assessed, and continues to assess, the potential
for disruption caused by the COVID-19 pandemic and has put in place
plans and measures in order to enable the business to maintain
normal operations, to the extent possible, against the backdrop of
an evolving situation.
Within the UK and across many of the other countries in which
the Group operates, many of the Group's products and services are
considered by customers, governments and other relevant
stakeholders to be essential to the underpinning of trade
integrity, personal identity and/or the movement of goods.
The Group has implemented actions to mitigate the impact of
COVID-19, including steps to protect its employees in line with
guidance from governments, and whilst there remains considerable
uncertainty in relation to the COVID-19 pandemic (including in
relation to its duration, extent and ultimate impact), the Board
believes that the Group's operations will continue to experience
only limited disruption due to the impact of the COVID-19
pandemic.
During H1 2020/21, all four of our UK sites, and our Malta and
Kenya sites have continued to operate with minimal disruption and
remained fully operational. Operations at our site in Sri Lanka
were suspended for eight weeks between March and May 2020 due to
island-wide governmental restrictions.
Our supply chain across both our Currency and Authentication
divisions has remained materially unaffected since the outbreak of
the COVID-19 pandemic, due to robust and Group led incident
management framework.
The Group has received furlough grants of GBP0.4m from the UK
Government during the period for employees who were unable to
operate in their roles fully due to the impact of COVID-19. The
group has recorded the furlough grants as a credit to adjusted
operating expenses, however, notwithstanding the limited impact of
COVID-19 on the Group, the losses incurred by the Group due to
Covid-19 are in excess of the amount of furlough grant
received.
BREXIT
We have been undertaking preparations for Brexit since 2018 and
have held frequent risk reviews and updates, and enact contingency
measures to ensure preparedness and business continuity.
We have engaged with key suppliers relating to their Brexit
contingency planning, conducted regular contractual reviews and
analysed known tariff and free trade access changes. We continue to
actively review the latest positions on trade negotiations and
assess the impact this may have on the Group. We are analysing HMRC
and other European country published technical notices and their
positions on customs, excise and VAT as applicable and aim to adapt
processes and systems as part of measures to mitigate the impact of
a No-Deal scenario. We have reviewed and aligned contingency stocks
and adapted logistics and delivery timescales to avoid the
potential risks of congestion and other related supply chain
risks.
.
FINANCIAL RESULTS OVERVIEW
We have seen a stabilisation in the market during H1 2020/21 for
Currency, with less pricing pressure compared to the previous year
combined with a weaker product mix, offset by increased volumes,
resulting in adjusted revenue broadly unchanged at GBP126.0m (HY
2019/20: GBP128.7m). Authentication revenue saw a decline in
revenue at GBP31.7m (H1 2019/20: GBP34.9m, the most significant
factor being GBP1.6m of contracts reported in the prior year
related to the Identity Solutions business sold in H2 2019/20 and
weakness in two contracts due to the pandemic which are expected to
recover offsetting growth elsewhere. As expected, we also saw a
decline in adjusted revenue for Identity Solutions in H1 2020/21,
due to the impact of the sale of International Identity Solutions
in October 2019 and the completion of the UK Passport production
contract during the period. Identity Solutions IFRS revenue
declined by 60.7% and included GBP0.4m of "pass through" revenue on
non-novated contracts post sale.
Group IFRS revenue declined by 22.6% to GBP179.7m (H1 2020/21:
GBP232.3m), showing a higher rate of decline than in adjusted
revenue, due to substantially lower "pass-through" revenue on paper
of GBP4.6m (H1 2020/21: GBP26.4m) as the contracts covered by this
arrangement are now largely completed. The Group also reported a
small amount (GBP0.4m) of pass-through revenue relating to
non-novated International Identity Solutions contracts following
the sale of this business in October 2019.
Gross profit was GBP49.4m (H1 2020/21: GBP51.3m), reflecting
growth in Currency due mainly to increased efficiencies, lower
Authentication gross profitability on reduced volumes, and lower
Identity Solutions profitability following the UK Passport contract
completion and the sale of the International Identity Solution
business.
Adjusted operating expenses excluding the impact of exceptional
items and amortisation of acquired intangibles were GBP34.1m,
GBP15.1m lower than the prior period (H1 2020/21: GBP49.2m),
reflecting the fall in adjusted operating expenses following the
benefit of our cost reduction initiatives, the sale of the
International Identity Solutions business in October 2019 and the
completion of Her Majesty's Passport Office (HMPO) contract.
Adjusted operating profit of GBP15.3m (H1 2019/20: profit
GBP2.2m) reflected the benefit of lower adjusted operating
expenses. Our two ongoing operating divisions adjusted operating
profit was GBP6.4m (H1 2020/21: loss GBP3.9m) an improvement of
GBP10.3m year-on-year.
IFRS operating profit of GBP4.6m (H1 2020/21: loss GBP9.2m) was
lower than adjusted operating profit due to the recognition of net
exceptional item charges of GBP10.2m. Further details are provided
below.
Adjusted basic EPS was 6.5p (H1 2019/20 (restated): (loss) 1.4p)
and IFRS basic EPS from continuing operations was 1.0p (H1 2019/20
(restated): (loss) 9.8p), the growth reflecting higher profits in
H1 2020/21 compared to H1 2019/20, the benefit of which was
mitigated by the higher weighted average share numbers post the
equity raise.
Cash generated from operating activities was an inflow of
GBP4.8m (H1 2019/20: outflow GBP32.2m), as profits from operating
activities were partly offset by an adverse working capital
movement of GBP3.4m (for further detail see below) and pension
funding contributions of GBP7.7m. Cash generated from operating
activities is also stated after approximately GBP5.0m of payments
relating to exceptional items and discontinued operations.
The total net cash inflow including net proceeds of GBP92.9m
from the equity capital raise, but excluding GBP74.3m of net
repayments on Group borrowings in the period was GBP81.2m (H1
2019/20: outflow of GBP63.2m), and includes proceeds from the sale
of a non-operational property of GBP2.7m, offset by capital
expenditure of GBP8.6m, payments of GBP4.8m of transaction costs in
relation to the debt refinancing and net interest payments of
GBP3.1m. The total net increase in cash and cash equivalents in the
period was GBP6.9m (FY 2019/20: decrease of GBP3.7m).
As at 26 September 2020, EBIT/net interest payable was 6.0 times
(covenant of >=2.4 times in this financial year), and net
debt/EBITDA was 0.45 times (covenant of <=3.0 times), as
calculated in accordance with banking covenant definitions.
OPERATING PROFIT AND OPERATING COSTS
Adjusted operating profit in H1 2020/21 was GBP15.3m (H1
2019/20: GBP2.2m) and reflected :
-- A profit of GBP2.5m in Currency (H1 2019/20: loss of GBP12.5m)
resulting from a higher gross margin owing to improved production
efficiencies and reduced overheads, including the benefit due
to the reorganisation following the move to a divisional structure;
-- A profit in Authentication of GBP3.9m a reduction on the prior
year (H1 2019/20: GBP8.6m) reflecting mainly the divisional
cost structure in H1 2020/21 compared to the allocation methodology
in H1 2019/20, and reduced gross profit on lower volumes and;
-- A profit in Identity Solutions of GBP8.9m (H1 2019/20: GBP6.1m),
which will be substantially lower in H2 2020/21 and minimal
in FY 2021/22 following the sale of International Identity Solutions
and the termination of the UK Passport production contract.
On an IFRS basis, an operating profit of GBP4.6m was recorded
(H1 2019/20: loss of GBP9.2m) including, in addition to the factors
referred to above, net exceptional charges of GBP10.2m, which
primarily related to restructuring charges associated with
cessation of banknote production at our Gateshead facility, those
related to other cost out initiatives including the restructuring
of our central enabling functions, and certain costs related to the
equity capital raise and debt refinancing completed in July 2020.
Please see note 4 'Exceptional Items' below for more details.
On 14 October 2019, the Group disposed of its International
Identity Solutions business. In November 2019, the Group moved from
a functional to a divisional operating structure and completed a
major reorganisation. Employees from the previous Group-wide
functions moved to new roles within the new Currency and
Authentication divisions or remained with enabling functions such
as legal and finance. The cost base and structure following this
reorganisation in H1 2020/21 is materially different to in H1
2019/20, reflecting the above. The Group from FY 2019/20 also
changed its methodology for the allocation of enabling function
costs into the divisions.
The group has considered the requirements of IFRS 8 with regards
to the need to restate prior period segmental results and concluded
that the Group is unable to make this restatement because the data
is not available and the cost to develop it would be excessive.
This is due to the cost base and employee structure of the business
under the previous functional model being materially different to
the new divisional structure. Therefore, it is not possible to
undertake a like-for-like reallocation of costs for new divisions
for the comparative period. Although comparatives have not been
restated, in the commentaries included in this release, we have
provided commentary on the changes in divisional cost base, to
enable a year-on-year performance by division.
Due to the substantial changes that have occurred in the
divisional structure, key reporting metrics for monitoring the
divisional performance will be linked, going forward, to gross
profit and adjusted controllable profit (before the allocation of
enabling function overheads), with the enabling functional cost
base being managed as part of the overall business key turnaround
objectives.
Adjusted operating costs are stated net of furlough grant income
of GBP0.4m received from the UK Government during the period for
employees who were unable to operate in their roles fully due to
the impact of COVID-19. The losses incurred by the Group due to
COVID-19 are in excess of the amount of furlough grant
received.
FINANCE CHARGE
The Group's net interest charge was GBP3.0m (H1 2019/20:
GBP2.2m), excluding IAS 19 and IFRS 16 finance amounts and interest
income due from the loan notes and preference shares obtained as
part of the disposal of Portals paper. The Finance Charge reflects
the revision to the available facilities from 7 July 2020 and
includes fees for Advance Payment Guarantees consistent with the
treatment in prior periods.
The IAS 19 related finance income/charge, which represents the
difference between the interest on pension liabilities and assets
was a credit of GBP0.8m (H1 2019/20: charge of GBP0.8m), due the
opening pension valuation on an IAS 19 basis as at 29 March 2020
being a net surplus of GBP64.8m.
The financing charge associated with lease liabilities recorded
under IFRS 16 in H1 2020/21 was GBP0.3m and was in line with the
amount reported in H1 2019/20.
Interest due on the loan notes and preference shares held in
Mooreco Limited (obtained as part of the consideration for the
Portals paper disposal) amounted to GBP0.4m (H1 2019/20: GBP0.4m).
The loan notes and preference shares are included in the balance
sheet as Other Financial Assets.
The total Group net finance charge was GBP2.1m (H1 2019/20:
GBP2.9m).
EXCEPTIONAL ITEMS
Exceptional items during the period were a net charge of
GBP10.2m (H1 2019/20: net charge of GBP11.0m).
Exceptional items include the recognition of GBP8.1m of
restructuring charges related to cessation of banknote production
at our Gateshead facility and a further GBP1.2m of charges relating
to other cost out initiatives including the restructuring of our
central enabling functions. Exceptional items also included charges
of GBP3.2m relating activities on the equity raise and bank
refinancing completed in July 2020 which, whilst directly
associated with these projects, did not relate to activities which
in accordance with IFRS would qualify for recording in equity or
capitalisation on the balance sheet as transaction costs associated
with the debt refinancing. A credit of GBP2.7m was also included
within exceptional items relating to the sale of a non-operational
property owned by the Group. Please see note 4 'Exceptional Items'
below for more details.
TAXATION
The net tax credit in respect of continuing operations for the
first half was GBP0.5m (H1 2019/20: tax credit GBP2.0m). The
effective tax rate on continuing operations before exceptional
items and the amortisation of acquired intangibles was 15.5% (H1
2019/20: 16.4%). The effective tax rate for FY 2020/21 on
continuing operations before exceptional items and amortisation of
acquired intangibles is expected to be between 16-17%.
Net tax credits relating to exceptional items in the period were
GBP2.4m (H1 2019/20: GBP1.8m). A tax credit of GBP0.1m (H1 2019/20:
GBP0.1m) was recorded in respect of the amortisation of acquired
intangibles.
EARNINGS PER SHARE
The equity capital raise in July 2020 increased the basic
weighted average number of shares for earnings per share (EPS)
purposes to 149.6m (HY 2019/20 (restated): 113.5m). IFRS basic
earnings per share (EPS) was 1.0p (H1 2019/20 (restated): loss
9.8p) and adjusted basic EPS was 6.5p (H1 2019/20 (restated): loss
1.4p). The growth reflects higher profits in H1 2020/21 compared to
H1 2019/20, the benefit of which was mitigated by the higher
weighted average share numbers post the equity raise.
CASH FLOW AND BORROWING
Cash flow from operating activities was a net inflow of GBP3.3m
(H1 2019/20 outflow of GBP32.2m). The inflow included:
-- An adverse net working capital movement of GBP3.4m (H1 2019/20: outflow GBP35.1m) due to:
o a build in inventory (negative impact GBP3.6m), mainly within
Currency, which in part was attributable to changes in the delivery
schedule on a significant contract;
o a decrease in receivables (positive impact GBP7.6m) mainly
reflecting a positive working capital movement on trade receivables
and contract assets (GBP9.8m), an inflow in relation to derivative
assets (GBP7.6m), offset by a cash collateral balance taken out
relating to a material new Currency sales contract; and
o a reduction in payables (negative impact GBP7.4m) due to
timing of trade creditor payments which was partially offset by
movements in advance payments;
-- an increase in provisions (positive impact of GBP1.0m)
following the recognition of the restructuring provision which was
partly offset with the utilisation of the onerous contract
provision;
-- Pension fund contributions of GBP7.7m (H1 2019/20: GBP10.7m).
Cash outflow from investing activities was GBP5.8m (H1 2019/20:
outflow GBP9.7m), primarily on capital and development asset
expenditure as we invest in the business (GBP8.6m), which was
offset by the proceeds from the sale of a non-operational property
(GBP2.7m). Capital expenditure is stated net of cash receipts from
grants received in the half year of GBP1.3m.
Cashflows from financing activities were a net inflow of GBP9.4m
(H1 2019/20: inflow of GBP38.2m) as proceeds from the capital raise
of GBP92.9m (stated net of costs GBP7.1m) were partially offset by
repayment of the revolving credit facility of GBP74.0m, payment of
transactions costs related to the debt refinancing of GBP4.8m,
interest payments in relation to the Group's borrowings of GBP3.1m
and IFRS 16 lease liability payments of GBP1.3m.
As a result, Group net debt decreased to GBP21.6m at 26
September 2020, from GBP102.8m at 28 March 2020. Net debt at the
half year was lower than expected due mainly to the phasing of
capital expenditure and positive working capital movements, as set
out above.
Cash flows in the second half will be impacted by an outflow of
circa GBP12m related to the close out of the UK Passport contract,
in addition to capital expenditure and cash exceptionals. Net debt
for the full year is forecast to remain in line with the Board's
expectations.
The Group has Bank facilities of GBP275m including an RCF cash
drawdown component of up to GBP175m and bond and guarantee
facilities of a minimum of GBP100m, which currently are due to
mature in December 2023. The Group can convert (in blocks of
GBP25m) up to GBP50m of the undrawn RCF cash component to the bond
and guarantee component if required and can elect to convert this
back (in blocks of GBP25m) in order to draw in cash if the bond and
guarantee component has not been sufficiently utilised. At the
period end, the covenant tests were as follows: EBIT/net interest
payable 6.0 times (covenant of >=2.4 times in this financial
year), net debt/EBITDA 0.45 times (covenant of <=3.0 times). The
covenant tests use earlier accounting standards and exclude
adjustments, including IFRS 16.
In order to facilitate the equity capital raising and provide
existing Shareholders and new investors with sufficient certainty
around the continued availability, and terms, of the Group's
financing to successfully implement the Turnaround Plan and support
the future growth of the business, the Group agreed terms with its
lenders in order to secure (among other things) (i) an extension to
the maturity date of the Group's existing revolving facility
agreement to 1 December 2023; (ii) a temporary relaxation of
applicable financial covenants; and (iii) appropriately sized
committed bond and guarantee facilities.
All amendments to the Group's revolving facility agreement were
conditional, among other things, upon the Company receiving the
proceeds of the equity capital raise in the gross amount of at
least GBP100m by no later than 31 July 2020. The Group successfully
raised the proceeds via equity funding during July 2020.
PENSION DEFICIT AND FUNDING
The valuation of the Group's UK defined benefit pension Scheme
(the "Scheme") on an IAS 19 basis at 26 September 2020 is a net
deficit of GBP1.3m (28 September 2019: GBP37.9m, 28 March 2020:
surplus GBP64.8m). The movement in the IAS 19 valuation from a net
surplus at 28 March 2020 was due to the positive growth in scheme
assets due to investment returns being more than offset by the
growth in scheme liabilities, primarily driven by a lower discount
rate of 1.55% used in the IAS 19 valuation as at 26 September 2020
compared to the discount rate at 28 March 2020 of 2.40%.
The charge to adjusted operating profit in respect of the Scheme
in the period was GBP0.9m (H1 2019/20: GBP0.6m) and in addition,
GBP0.5m of administration costs directly related to work completed
in connection with the equity raise and bank refinancing completed
in July 2020 was recorded within exceptional items. Under IAS 19
there was a finance credit of GBP0.8m arising from the difference
between the interest cost on liabilities and the interest income on
scheme assets, the credit being driven by the fact the scheme was
in an IAS 19 surplus at the 29 March 2020 of GBP64.8m (H1 2019/20:
charge of GBP0.8m).
On 31 May 2020, the Trustee and the Company agreed the terms for
a schedule of contributions and a recovery plan, setting out a
programme for clearing the UK Pension Scheme deficit (the "Recovery
Plan"). The latest actuarial valuation of the UK Pension Scheme as
at 31 December 2019, which was based on intentionally prudent
assumptions, revealed a funding shortfall (technical provisions
minus the value of the assets) of GBP142.6m. The Recovery Plan
makes an allowance for post-valuation market conditions up to 30
April 2020 (at which point there is an estimated funding shortfall
of GBP190m), including the impact of COVID-19 on financial markets
to that date.
The GBP190m deficit is addressed by payments of GBP15m per annum
(payable quarterly in arrears) under the Recovery Plan payable from
1 April 2020 until 31 March 2023 and then payments of GBP24.5m per
annum (payable quarterly in arrears) from 1 April 2023 until 31
March 2029 (whereas under the recovery plan agreed with the trustee
in 2016 ("2015 Recovery Plan"), the payments would have been
GBP22.2 million between 1 April 2020 and 31 March 2021, GBP23.1
million between 1 April 2021 and 31 March 2022 and GBP23 million
per annum thereafter until 31 March 2028). Additional contingent
contributions in exceptional circumstances will become payable by
way of an acceleration of the contributions due in later years
where: (i) the leverage ratio (consolidated net debt: EBITDA) is
equal to or greater than 2.5x in either FY 2021/2 or FY2022/23, up
to a maximum of GBP4m in each financial year and GBP8m in total
and/or (ii) the Company or any its subsidiaries take any action
which will cause material detriment (defined in section 38 Pensions
Act 2004) to the UK Pension Scheme, of GBP23.3m (GBP7.2m in FY
2020/21, GBP8.1m in FY 2021/22 and GBP8m in FY 2022/23) over the
period up to 31 March 2023.
The funding of the Recovery Plan is to be sourced from cash
generation of the future business activities, but the Trustee has
contractually agreed not to request any portion of the equity
capital raising proceeds. This agreement with the Trustee of the UK
Pension Scheme was conditional on an amount in full settlement of
the equity capital raising in the gross amount of at least GBP100m
having been received by the Company by no later than 31 July 2020.
The equity raising was successfully completed on 7 July 2020.
OPERATING REVIEW
Authentication
The Authentication division comprises mainly GRS and brand
protection products and includes elements of the identity business
that were not transferred as part of the sale of International
Identity Solutions .
H1 2020/21 H1 2019/20 Restated** Change
================================ ============= ======================== ==========
IFRS Revenue (GBPm) 31.7 34.9 -9.1%
Adjusted Revenue (GBPm) 31.7 34.9 -9.1%
Gross Profit (GBPm) 13.8 15.6 -11.5%
Adjusted Gross Profit margin 43.5% 44.7% -120bpts
IFRS operating profit (GBPm)** 3.2 8.2 -61.0%
IFRS operating margin 10.1% 23.5% -1340bpts
Adjusted operating profit*
(GBPm) 3.9 8.6 -54.7%
Adjusted operating margin* 12.3% 24.6% -1230bpts
================================ ============= ======================== ==========
*Excludes exceptional item charges of GBP0.1m (H1 2019/20: net
charges of GBPnil) and amortisation of acquired intangibles of
GBP0.5m (H1 2019/20: GBP0.4m).
** Authentication and Identity Solutions results for H1 2019/20
have been restated in line with the adjustment noted in the current
year to present the results of one of the Group's subsidiaries
solely in the Authentication division consistent with where
management of the subsidiary's business now falls. The impact of
this has been the transfer of the following amounts from the
Identity Solutions results above to Authentication: Revenue of
GBP1.9m, Gross Profit of GBP1.2m and Adjusted operating profit of
0.9m and IFRS operating profit of GBP0.6m that would have been
presented in the Identity Solutions division previously.
IFRS and adjusted revenue were GBP31.7m (H1 2019/20: GBP34.9m),
a decrease of 9.1% due to the H1 2019/2020 comparative including
revenues of GBP1.6m relating to contracts sold to as part of the
International Identity Solutions Business disposal, and lower
volumes on two contracts which are expected to recover, the impact
of which was partially offset by growth in ongoing sales to current
customers.
IFRS operating profit of GBP3.2m (H1 2019/20: GBP8.2m) and
adjusted operating profit of GBP3.9m (H1 2019/20: GBP8.6m) were
lower reflecting mainly the divisional cost structure in H1 2020/21
compared to an allocation methodology in H1 2019/20, and reduced
gross profit on lower volumes, which has resulted in more costs
being included within the Authentication division than would have
been the case in the prior period (see page 7 for further
details).
Adjusted controllable operating profit for H1 2020/21 was
GBP6.7m, with no comparator to the prior year due to the Group
reorganisation.
Currency
The Currency business comprises banknote print, polymer and
security features.
H1 2020/21 H1 2019/20 Change
==================================== ============= ============= =========
IFRS Revenue (GBPm) 130.6 155.1 -15.8%
Adjusted Revenue (ex-paper)
(GBPm)* 126.0 128.7 -2.1%
Gross Profit (GBPm) 24.3 18.5 31.3%
Adjusted Gross Profit margin 19.3% 14.4% 490bpts
IFRS operating (loss)/profit
(GBPm) (5.7) (12.3) 53.7%
IFRS operating margin -4.4% -7.9% 350bpts
Adjusted operating profit/(loss)**
(GBPm) 2.5 (12.5) 120%
Adjusted operating margin** 2.0% -9.7% 1170bpts
------------------------------------ ------------- ------------- ---------
*Excludes "pass through" revenue of GBP4.6m (H1 2019/20
GBP26.4m) related to non-novated paper contracts relating to the
Portals De La Rue sale.
** Excludes exceptional item net charges of GBP8.2m (H1 2019/20:
net credit of GBP0.2m).
Overall, we saw an increase in banknote and polymer volumes,
partially offset by a reduction in average banknote price, and
lower security feature volumes with an improved mix. Adjusted
revenue was GBP126.0m (H1 2019/20: GBP128.7m) and IFRS revenue was
GBP130.6m, 15.8% lower than the prior year and includes the
recognition of GBP4.6m of "pass-through" paper revenue. As at 26
September 2020, the 12-month order book for Currency was GBP192m
(28 March 2020: GBP172m) and the total order book for Currency was
GBP277m.
We saw an increase in adjusted profit from a loss of GBP12.5m in
H1 2019/20, to a GBP2.5m profit in H1 2020/21 due to the
implementation of manufacturing cost reductions and production
volume efficiencies delivered in H1 2020/21 as well as lower
overheads following the move in H2 2019/20 to the divisional
structure, which has resulted in less costs being included within
the Currency division than would have previously been the case.
Adjusted controllable operating profit for H1 2020/21 was
GBP13.8m, with no comparator to the prior year due to the Group
reorganisation.
Identity Solutions
The Identity Solutions business comprises mainly our passport
and other personal identity products.
H1 2019/20
H1 2020/21 Restated* Change
============================== ============= ============= ==========
IFRS Revenue (GBPm) 17.4 42.3 -58.9%
Adjusted Revenue (GBPm) 17.0 42.3 -59.8%
Gross Profit (GBPm) 10.6 16.9 -37.3%
Adjusted Gross Profit margin 62.4% 40.0% -2240bpts
IFRS operating profit (GBPm) 8.9 6.1 +45.9%
IFRS operating margin 51.1% 14.4% 3180pbts
Adjusted operating profit
(GBPm) 8.9 6.1 +45.9%
Adjusted operating margin 52.4% 14.4% 3310bpts
============================== ============= ============= ==========
* Authentication and Identity Solutions results for H1 2019/20
have been restated in line with the adjustment noted in the current
year to present the results of one of the Group's subsidiaries
solely in the Authentication division consistent with where
management of the subsidiary's business now falls. The impact of
this has been the transfer of the following amounts from the
Identity Solutions results above to Authentication: Revenue of
GBP1.9m, Gross Profit of GBP1.2m and Adjusted operating profit of
0.9m and IFRS operating profit of GBP0.6m that would have been
presented in the Identity Solutions division previously.
IFRS revenue and adjusted revenue was GBP17.4m (H1 2019/20:
GBP42.3m), with the reduction driven by lower volumes within our UK
Passport business ahead of the completion of the transition to the
new supplier for the UK Passport production contract, and the sale
of the International Identity Solutions business. H1 2020/21
includes revenue in relation to the DSA supply agreement entered
into with HID related to the International Identity Solutions
business disposal. IFRS and adjusted operating profit of GBP8.9m is
higher than in H1 2019/20, reflecting lower overheads following the
move in H2 2019/20 to the divisional structure, which has resulted
in less costs being included within Identity Solutions than would
have previously been the case.
We worked with Her Majesty's Passport Office on the completion
of the transition to the new supplier for the UK Passport
production contract, and we expect substantially lower operating
profits from this contract from H2 2020/21 onwards.
BOARD CHANGES
On 17 June 2020, we announced that Sabri Challah has informed
the Board of his intention to step down as a Director due to his
other commitments. Sabri stood down as the Senior Independent
Director and Board member at the Annual General Meeting on 6 August
2020.
On 22 September, we announced the immediate appointments of Rt
Hon Baroness Catherine Ashton and Margaret Rice-Jones as a
Non-executive Directors of the Company. Both Directors have become
members of the Audit, Remuneration, Nomination and Ethics
Committees.
On 1 October 2020, we announced the appointment of Rob Harding
as Chief Financial Officer and as an Executive Director on the
Board of the Company to take effect immediately. Rob joined De La
Rue as Interim Chief Financial Officer on 9 March 2020.
Clive Vacher
Chief Executive Officer
25 November 2020
Cautionary note regarding forward-looking statements
These results include statements that are, or may be deemed to
be, "forward-looking statements". These forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "anticipates",
"expects", "intends", "plans", "goal", "target", "aim", "may",
"will", "would", "could" or "should" or, in each case, their
negative or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout
these results and the information incorporated by reference into
these results and include statements regarding the intentions,
beliefs or current expectations of the directors, De La Rue or the
Group concerning, amongst other things, the results of operations,
financial condition, liquidity, prospects, growth, strategies and
dividend policy of De La Rue and the industry in which it
operates.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future and may be
beyond De La Rue's ability to control or predict. Forward-looking
statements are not guarantees of future performance. The Group's
actual results of operations, financial condition, liquidity,
dividend policy and the development of the industry in which it
operates may differ materially from the impression created by the
forward-looking statements contained in these results and/or the
information incorporated by reference into these results. In
addition, even if the results of operations, financial condition,
liquidity and dividend policy of the Group and the development of
the industry in which it operates, are consistent with the
forward-looking statements contained in these results and/or the
information incorporated by reference into these results, those
results or developments may not be indicative of results or
developments in subsequent periods.
Other than in accordance with its legal or regulatory
obligations, De La Rue does not undertake any obligation to update
or revise publicly any forward-looking statement, whether as a
result of new information, future events or otherwise.
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 cost
effective.
The Group analyses the risks that it faces under the following
broad headings: strategic risks (technological revolution, strategy
implementation, changes to the market environment and economic
conditions), operational risks, legal/ regulatory, information
risks and financial risks (currency risk, credit risk, liquidity
risk, interest rate risk and commodity price risk).
The principal risks and uncertainties were outlined in the 28
March 2020 Annual Report and Accounts. Since the publication of
these, the risks have been reviewed taking into account the
successful equity capital raise and bank refinancing and now
include: COVID-19, quality management and delivery failure, failure
of a key supplier, bribery and corruption, failure to Implement the
Turnaround Plan and run the business, loss of a key site or
process, banking, loss of material contract, breach of information
security, breach of product security and breach of sanctions. In
addition, during FY 2020/21, the Group identified an additional
risk: sustainability and climate change.
A copy of the Annual Report and Accounts for the year ended 28
March 2020, is available on the Company's website
www.delarrue.com.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out on pages 1 to 17 of the Strategic report in the 2020
Annual Report. In addition, pages 134 to 142 of the 2020 Annual
Report include the Group's objectives, policies and processes for
financial risk management, details of its financial instruments and
hedging activities and its exposure to credit risk, liquidity risk
and commodity pricing risk.
In the Group's Annual Report for 2020, the Directors concluded
there was a material uncertainty that could cast significant doubt
on the Group's ability to continue as a going concern. This
uncertainty related to a shareholder vote to approve a GBP100m
equity capital raise, a vote which had not yet taken place at the
time the Annual Report was issued. At a General Meeting of the
Group on 6 July 2020, the shareholders voted overwhelmingly in
support of the capital raise, hence removing the material
uncertainty. Following the shareholder approval, effective 7 July
2020, the Group amended the terms of its banking facilities of
GBP275m.The relevant amendments among other things, extend the
maturity of the RCF to December 2023 and give the Group access to
an RCF cash drawdown component of GBP175m and bond and guarantee
facilities of a minimum of GBP100m.The continued access to these
borrowing facilities is subject to quarterly covenant testing. At
26 September 2020, the group had drawn down GBP43m of the GBP175m
cash element of the RCF leaving GBP132m of undrawn committed
borrowing facilities available to the Group. Since 26 September
2020 the Group has also reallocated GBP25m of the cash component to
the bond and guarantee component (see note 9 for further
details).
Taking into account the result of the shareholder vote on 6 July
2020, the trading result for the 6-month period to 26 September
2020 and ability of the Group to deliver on its current orderbook,
the Directors have made their Going Concern assessment for these
interim financial results. The Group's updated forecasts and
projections, which cover a period up to 31 December 2021, take into
account the base case forecast as well as plausible downside
scenarios. In performing this assessment, the Directors have
considered the potential impact of COVID-19, taking into account
its impact on the company in the period to date as well as actions
taken by the company to mitigate its impact. These forecasts and
projections show that the Group will be able to operate within its
available banking facilities and financial covenants throughout
this period.
As a consequence, the Directors have a reasonable expectation
that the Company and the Group are well placed to manage their
business risks and to continue in operational existence for the
foreseeable future. Accordingly, the Directors continue to adopt
the going concern basis in preparing the condensed interim
financial statements
A copy of the 2020 Annual Report is available at www.delarue.com
or on request from the Company's registered office at De La Rue
House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge the
condensed set of financial statements, which have been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting' as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Group as a whole as required by DTR 4.2.4R
and the management report includes a fair review of:
-- the important events that have occurred during the first half
of the financial year and their impact on the condensed set
of financial statements;
-- the principal risks and uncertainties for the remaining half
of the financial year; and
-- related party transactions that have taken place in the first
half of the financial year and any changes in the related party
transactions described in the previous annual report that have,
in either case, materially affected the financial position or
performance of the Group during the first half of the current
financial year.
The Board of Directors of De La Rue plc at 28 March 2020 and
their respective responsibilities can be found on pages 44 and 45
of the De La Rue plc Annual Report 2020. Changes since that date
are discussed above under "Board Changes".
For and on behalf of the Board
Kevin Loosemore
Chairman
25 November 2020
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 26 September 2020 which comprises the Group
condensed consolidated interim income statement, the Group
condensed consolidated interim statement of comprehensive
(loss)/income, the Group condensed consolidated interim balance
sheet, the Group condensed consolidated interim statement of cash
flows, the Group condensed consolidated interim statement of
changes in equity and the related explanatory notes. 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.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. 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.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, 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.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. 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.
Conclusion
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 26
September 2020 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Reading, UK
25 November 2020
GROUP CONDENSED CONSOLIDATED INTERIM
INCOME STATEMENT - UNAUDITED
FOR THE HALF YEARED 26 SEPTEMBER 2020
-------------------------------------------------------------------------------------------------------------
Restated Restated(2)
(1),(2)
2020/21 2019/20 2019/20
Half Year Half Year Full Year
Notes GBPm GBPm GBPm
Revenue from customer contracts 2 -179.7 232.3 466.8
Cost of sales (130.3) (181.0) (360.9)
----------------------------------------------- -------------- ---------- ---------------------- ------------
Gross Profit 49.4 51.3 105.9
Adjusted operating expenses -(34.1) (49.1) (82.2)
----------------------------------------------- -------------- ---------- ---------------------- ------------
Adjusted Operating profit -15.3 2.2 23.7
----------------------------------------------- -------------- ---------- ---------------------- ------------
Adjusted items:
Amortisation of acquired intangible
assets -(0.5) (0.4) (0.9)
Net exceptional items 4 -(10.2) (11.0) 20.0
-
----------------------------------------------- -------------- ---------- ---------------------- ------------
Operating profit -4.6 (9.2) 42.8
Interest income -0.4 0.7 1.0
Interest expense -(3.3) (2.8) (6.1)
Net retirement benefit obligation finance
income/(charge) 0.8- (0.8) (1.6)
----------------------------------------------- -------------- ---------- ---------------------- ------------
Net finance expense -(2.1) (2.9) (6.7)
----------------------------------------------- -------------- ---------- ---------------------- ------------
Profit/(loss)before taxation from continuing
operations -2.5 (12.1) 36.1
Taxation -0.5 2.0 -
Profit/(loss) for the period from continuing
operations -3.0 (10.1) 36.1
----------------------------------------------- -------------- ---------- ---------------------- ------------
Loss from discontinued operations 3 -(0.1) (0.7) (0.3)
----------------------------------------------- -------------- ---------- ---------------------- ------------
Profit/(loss) for the period -2.9 (10.8) 35.8
----------------------------------------------- -------------- ---------- ---------------------- ------------
Attributable to:
-Owners of the parent 1.4 (11.8) 34.1
-Non-controlling interests 1.5 1.0 1.7
Profit/(loss) for the period 2.9 (10.8) 35.8
----------------------------------------------- -------------- ---------- ---------------------- ------------
Earnings per ordinary share
Basic
Basic EPS continuing operations 1.0p (9.8p) 30.3p
Basic EPS discontinued operations (0.1p) (0.6p) (0.3p)
Total basic earnings per share 0.9p (10.4p) 30.0p
Diluted
Diluted EPS continuing operations 1.0p (9.8p) 30.2p
Diluted EPS discontinued operations (0.1p) (0.6p) (0.3p)
Total diluted earnings per share 0.9p (10.4p) 29.9p
Note:
(1) The prior period column has been restated to show cost of
sales separate from total operating expenses as reported in
previous periods, thus allowing presentation of gross profit. The
inclusion of this level of information is considered useful and
will provide greater insight into the performance of the business.
For HY 2019/20 total operating expenses - total ordinary operating
expenses of GBP230.5m was originally reported (including GBP1.1m
disclosed separately as expected credit losses). This was made up
of costs of inventories recognised as an expense of GBP174.9m,
negative manufacturing variances of GBP6.1m, adjusted operating
expenses of GBP49.1m (being operating expenses adjusted for
amortisation of acquired intangible assets and net exceptional
items) as an expense and the negative manufacturing variances have
been presented combined on the cost of sales line (net value
GBP181.0m) and amortisation of acquired intangible assets of
GBP0.4m. Consistent with the new presentation format above, the
prior period amounts of cost of inventories recognised and
adjusted
operating expenses of GBP49.1m have been presented separately.
(2) Prior year EPS figures have been restated for the impact of the Rights Issue.
GROUP CONDENSED CONSOLIDATED INTERIM
STATEMENT OF COMPREHENSIVE (LOSS)/INCOME - UNAUDITED
FOR THE HALF YEARED 26 SEPTEMBER 2020
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Profit/(loss) for the financial period 2.9 (10.8) 35.8
------------------------------------------------------ ---------- ---------- ----------
Other comprehensive income
Items that are not reclassified subsequently
to income statement:
Re-measurement (losses)/gains on retirement
benefit obligations (74.1) 29.0 114.1
Tax related to remeasurement of net defined
benefit liability 14.0 (5.1) (20.5)
Items that may be reclassified subsequently
to income statement:
Foreign currency translation difference for
foreign operations 1.1 2.9 3.3
Foreign currency translation difference reclassified
to income statement on
disposal of subsidiary - - 1.3
Change in fair value of cash flow hedges 0.4 2.0 1.4
Change in fair value of cash flow hedges transferred
to income statement (0.3) 0.4 1.4
Change in fair value of cash flow hedges transferred - 0.2 -
to non-current assets
Income tax relating to components of other 0.1 (0.3) -
comprehensive income
Other comprehensive (loss)/income for the
period, net of tax (58.8) 29.1 101.0
------------------------------------------------------ ---------- ---------- ----------
Total comprehensive (loss)/income for the
period (55.9) 18.3 136.8
------------------------------------------------------ ---------- ---------- ----------
Total comprehensive (loss)/income for the
period attributable to:
Equity shareholders of the Company (57.4) 17.3 135.1
Non-controlling interests 1.5 1.0 1.7
----------------------------------------------------------- ---------- ---------- ----------
(55.9) 18.3 136.8
------------------------------------------------------ ---------- ---------- ----------
GROUP CONDENSED CONSOLIDATED INTERIM
BALANCE SHEET - UNAUDITED
AT 26 SEPTEMBER 2020
------------------------------------------------------------------------------------------------
Notes 2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 109.1 127.4 114.6
Intangible assets 31.2 31.9 31.0
Right-of-use assets 11.6 - 12.9
Retirement benefit obligations - - 64.8
Deferred tax assets 14.8 16.3 5.5
Derivative financial instruments 8 0.6 2.4 2.1
Other financial assets 8.4 7.6 8.0
175.7 185.6 238.9
------------------------------------------------ ------ ----------- ----------- -----------
Current assets
Inventories 56.7 62.4 53.9
Trade and other receivables 76.6 94.9 67.1
Contract assets 9.9 18.0 18.3
Current tax assets 0.2 1.6 0.3
Derivative financial instruments 8 8.4 8.0 14.5
Cash and cash equivalents 21.5 11.2 14.6
Assets classified as held for sale - 31.6 -
173.3 227.7 168.7
------------------------------------------------ ------ ----------- ----------- -----------
Total assets 349.0 413.3 407.6
------------------------------------------------ ------ ----------- ----------- -----------
LIABILITIES
Current liabilities
Current borrowings (0.1) (180.9) (116.6)
Trade and other payables (129.5) (154.5) (133.3)
Contract liabilities (0.9) (0.2) (0.3)
Lease liabilities (2.2) (2.8) (2.8)
Current tax liabilities (11.3) (11.8) (12.5)
Derivative financial instruments 8 (8.0) (7.4) (14.0)
Provisions for liabilities and charges (11.6) (11.0) (10.6)
Liabilities as held for sale - (10.8) -
(163.6) (379.4) (290.1)
------------------------------------------------ ------ ----------- ----------- -----------
Non-current liabilities
Non-current borrowings (38.5) - -
Retirement benefit obligations 10 (3.1) (39.9) (1.8)
Deferred tax liabilities (2.9) (3.7) (8.8)
Derivative financial instruments 8 (0.6) (2.3) (2.1)
Lease liabilities (10.3) (12.3) (11.1)
Other non-current liabilities - - (0.5)
(55.4) (58.2) (24.3)
------------------------------------------------ ------ ----------- ----------- -----------
Total liabilities (219.0) (437.6) (314.4)
------------------------------------------------ ------ ----------- ----------- -----------
Net assets/liabilities 130.0 (24.3) 93.2
------------------------------------------------ ------ ----------- ----------- -----------
EQUITY
Ordinary share capital 88.6 47.8 47.8
Share premium account 42.2 42.2 42.2
Capital redemption reserve 5.9 5.9 5.9
Hedge reserve 8 0.3 (0.2) 0.1
Cumulative translation adjustment 10.7 7.9 9.6
Other reserves (31.7) (83.8) (83.8)
Retained earnings (2.7) (59.2) 56.2
------------------------------------------------ ------ ----------- ----------- -----------
Total equity attributable to shareholders
of the Company 113.3 (39.4) 78.0
Non-controlling interests 16.7 15.1 15.2
------------------------------------------------ ------ ----------- ----------- -----------
Total equity 130.0 (24.3) 93.2
------------------------------------------------ ------ ----------- ----------- -----------
GROUP CONDENSED CONSOLIDATED INTERIM
STATEMENT OF CASH FLOWS - UNAUDITED
FOR THE HALF YEARED 26 SEPTEMBER 2020
2020/21 2019/20 2019/20
Half Half Year Full Year
Year
Notes GBPm GBPm GBPm
Cash flows from operating activities
(Loss)/profit before tax(1) 2.4 (12.9) 35.9
Adjustments for:
Finance income and expense 2.1 2.9 6.7
Depreciation 7.8 8.9 16.9
Amortisation 2.3 1.7 3.9
(Increase)/decrease in inventories (2) (3.6) (21.8) (12.1)
(Increase)/decrease in trade and other
receivables (2) 7.6 (5.8) 10.2
(Decrease)/increase in trade and other
payables (2) (7.4) (7.5) (19.2)
Increase/(decrease) in provisions 1.0 7.7 7.4
Pension funding contributions (7.7) (10.7) (21.3)
Share based payment expense (0.1) 0.1 (0.6)
Add back of non-cash GMP pension liability
adjustment - - (8.7)
(Profit)/Loss on disposal of business - (0.7) (22.7)
Profit from sale of Property, plant and (2.7) - -
equipment
Add back of non-cash net credit loss
provision 0.2 1.1 1.0
Add back impairment of Property, plant
and equipment and accelerated depreciation
charges included within exceptional items 1.2 1.3 2.3
Other non-cash movements 1.7 2.4 1.9
-------------------------------------------------------- ---------- ---------- ----------
Cash generated from operations 4.8 (33.3) 1.5
Tax received/(paid) (1.5) 1.1 3.5
Net cash flows from operating activities 3.3 (32.2) 5.1
-------------------------------------------------------- ---------- ---------- ----------
Cash flows from investing activities
Proceeds from the sale of subsidiary
(net of cash disposed) - - 42.0
Purchases of property, plant and equipment
and software intangibles (7.2) (5.9) (11.4)
Development expenditure capitalised (1.4) (3.8) (5.8)
Proceeds from sale of property, plant 2.7 - -
and equipment
Interest received 0.1 - 0.2
Receipt of RDEC - - 0.6
Net cash flows from investing activities (5.8) (9.7) 25.6
Net cash flows before financing activities (2.5) (41.9) 30.7
--------------------------------------------- --------- ---------- ---------- ----------
Cash flows from financing activities
Proceeds from issue of share capital 92.9(3) 0.1 0.2
Net (repayment)/drawdown of borrowings (74.3)(4) 59.0 (1.5)
Payment of transactions costs associated (4.8) - -
with the debt refinancing
Lease liability payments (1.3) (1.1) (2.3)
Interest paid (3.1) (2.5) (6.0)
Dividends paid to shareholders - (17.3) (17.3)
Dividends paid to non-controlling interests - - (0.6)
----------------------------------------------- ------- ---------- ---------- ----------
Net cash flows from financing activities 9.4 38.2 (27.5)
----------------------------------------------- ------- ---------- ---------- ----------
Net (decrease)/increase in cash and cash
equivalents in the period 6.9 (3.7) 3.2
Cash and cash equivalents at the beginning
of the period 14.5 11.3 11.3
Exchange rate effects - 0.1 -
----------------------------------------------- ------- ---------- ---------- ----------
Cash and cash equivalents at the end of
the period 21.4 7.7 14.5
----------------------------------------------- ------- ---------- ---------- ----------
Cash and cash equivalents consist of:
Cash at bank and in hand 21.5 11.2 14.6
Cash transferred to held for sale - 0.6 -
Bank overdrafts (0.1) (4.1) (0.1)
----------------------------------------------- ------- ---------- ---------- ----------
(1) Profit before tax includes continuing and discontinuing
operations.
(2) Working capital movements include in HY 2019/20 amounts
relating to International IDS which have been transferred to held
for sale in order to show true cashflows for the period. The
International IDS business was presented as held for sale at 28
September 2019 prior to final disposal on 14 October 2019.
(3) Stated net of associated costs of GBP7.1m.
(4) In the period HY 2020/21 the majority of the equity capital
raise proceeds were used to subsequently repay a substantial part
of the RCF shortly after amendment on 7 July 2020.
GROUP CONDENSED CONSOLIDATED INTERIM
STATEMENT OF CHANGES IN EQUITY - UNAUDITED
FOR THE HALF YEARED 26 SEPTEMBER 2020
Non-controlling Total
Attributable to equity shareholders interest equity
----------------------------------------------------------------------------------
Share Capital Cumulative
Share premium redemption Hedge translation Other Retained
capital account reserve reserve adjustment reserve earnings
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 31
March 2019 47.7 42.1 5.9 (2.5) 5.0 (83.8) (54.6) 9.9 (30.3)
Loss for the
period - - - - - - (11.8) 1.0 (10.8)
Other
comprehensive
income, net
of tax - - - 2.3 2.9 - 23.9 - 29.1
------------------ -------- -------- ------------- ----------- ------------ -------- ---------- ---------------- -------
Total
comprehensive
income - - - 2.3 2.9 - 12.1 1.0 18.3
Transactions - - - - - - - - -
with owners
of the company
recognised
directly
in equity:
Transactions
with
non-controlling
interests (see
note11) - - - - - - 0.8 4.2 5.0
Share capital
issued 0.1 0.1 - - - - - - 0.2
Employee share - - - - - - - - -
scheme:
- value of
services
provided - - - - - - 0.1 - 0.1
Income tax on
income and
expenses
recognised
directly
in equity - - - - - - (0.3) - (0.3)
Dividends paid - - - - - - (17.3) - (17.3)
------------------ -------- -------- ------------- ----------- ------------ -------- ---------- ---------------- -------
Balance at 28
September 2019 47.8 42.2 5.9 (0.2) 7.9 (83.8) (59.2) 15.1 (24.3)
Profit for the
period - - - - - - 45.9 0.7 46.6
Other
comprehensive
income, net
of tax - - - 0.3 1.7 - 69.9 - 71.9
------------------ -------- -------- ------------- ----------- ------------ -------- ---------- ---------------- -------
Total
comprehensive
income - - - 0.3 1.7 - 115.8 0.7 118.5
Transactions
with owners
of the company
recognised
directly
in equity:
Share capital - - - - - - - - -
issued
Employee share
scheme:
- value of
services
provided - - - - - - (0.8) - (0.8)
Income tax on
income and
expenses
recognised
directly
in equity - - - - - - (0.1) - (0.1)
Other - - - - - - 0.5 - 0.5
Dividends paid - - - - - - - (0.6) (0.6)
------------------ -------- -------- ------------- ----------- ------------ -------- ---------- ---------------- -------
Balance at 28
March 2020 47.8 42.2 5.9 0.1 9.6 (83.8) 56.2 15.2 93.2
Profit for the
period - - - - - - 1.4 1.5 2.9
Other
comprehensive
income, net
of tax - - - 0.2 1.1 - (60.1) - (58.8)
------------------ -------- -------- ------------- ----------- ------------ -------- ---------- ---------------- -------
Total
comprehensive
income - - - 0.2 1.1 - (58.7) 1.5 (55.9)
Transactions - - - - - - - - -
with owners
of the company
recognised
directly
in equity:
Transactions - - - - - - - - -
with
non-controlling
interests (see
note 11)
Share capital - - - - - - - - -
issued
Employee share
scheme: - - - - - - (0.2) - (0.2)
- value of - - - - - - - - -
services
provided
Rights issue 40.8 -- -- - - 52.1 - - 92.9
Income tax on - - - - - - - - -
income and
expenses
recognised
directly
in equity
Dividends paid - - - - - - - - -
------------------ -------- -------- ------------- ----------- ------------ -------- ---------- ---------------- -------
Balance at 26
September 2020 88.6 42.2 5.9 0.3 10.7 (31.7) (2.7) 16.7 130.0
Share premium account
This reserve arises from the issuance of shares for
consideration in excess of their nominal value.
Capital redemption reserve
This reserve represents the nominal value of shares redeemed by
the Company.
Hedge reserve
This reserve records the portion of any gain or loss on hedging
instruments that are determined to be effective cash flow hedges.
When the hedged transaction occurs, the gain or loss on the hedging
instrument is transferred out of equity to the income statement. If
a forecast transaction is no longer expected to occur, the gain or
loss on the related hedging instrument previously recognised in
equity is transferred to the income statement.
Other reserve
On 1 February 2000, the Company issued and credited as fully
paid 191,646,873 ordinary shares of 25p each and paid cash of
GBP103.7m to acquire the issued share capital of De La Rue plc (now
De La Rue Holdings Limited), following the approval of a High Court
Scheme of Arrangement. In exchange for every 20 ordinary shares in
De La Rue plc, shareholders received 17 ordinary shares plus 920p
in cash. The other reserve of GBP83.8m arose as a result of this
transaction and is a permanent adjustment to the consolidated
financial statements.
On 17 June 2020 the Group announced that it would issue new
ordinary shares via a "cash box" structure to raise gross proceeds
of GBP100m, in order to provide the Company and its management with
operational and financial flexibility to implement De La Rue's
turnaround plan, which was first announced by the Company earlier
in the year. The cashbox completed on 7 July 2020 and consisted of
a firm placing, placing and open offer. The Group issued 90.9m new
ordinary shares each with a nominal value of 44 152/175p, at a
price of 110p per share (giving gross proceeds of GBP100m). A "cash
box" structure was used in such a way that merger relief was
available under Companies Act 2006, section 612 and thus no share
premium needed to be recorded and instead an 'other reserve' of
GBP52.1m was recorded. This section applies to shares which are
issued to acquire non-equity shares (such as the Preference Shares)
issued as part of the same arrangement. The Group recorded share
capital equal to the aggregate nominal value of the ordinary shares
issued (GBP40.8m) and merger reserve equal to the difference
between the total proceeds net of costs and share capital. As the
cash proceeds received by DLR plc where loaned via intercompany
account to a subsidiary company to enable a substantial repayment
of the RCF, the increase to other reserves of GBP52.1m was treated
as an unrealised profit and hence not currently considered
distributable as at 26 September 2020. This judgement might be
revised in future periods, subject to certain internal transactions
enabling the settlement of intercompany positions.
Cumulative translation adjustment (CTA)
This reserve records cumulative exchange differences arising
from the translation of the financial statements of foreign
entities since transition to IFRS. Upon disposal of foreign
operations, the related accumulated exchange differences are
recycled to the income statement. This reserve also records the
effect of hedging net investments in foreign operations.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS - UNAUDITED
1 Basis of preparation and statement of compliance
These condensed consolidated financial statements have been prepared
on a Going Concern basis. These condensed consolidated half-yearly
financial statements of De La Rue plc (the Group) have been prepared
in accordance with International Accounting Standard (IAS) 34 Interim
Financial Reporting. The annual consolidated financial statements
of the Group are prepared in accordance with EU-endorsed International
Financial Reporting Standards (IFRSs). These condensed consolidated
half-yearly financial statements do not comprise statutory accounts
within the meaning of Section 435 of the Companies Act 2006 and should
be read in conjunction with the Annual Report March 2020. The comparative
figures for the period ended 26 September 2020 are not the Group's
statutory accounts for that financial year. The March 2020 financial
statements have been reported upon by the Group's auditor and delivered
to the registrar of companies. The report of the auditor was unqualified
and did not contain statements under Section 498 (2) or (3) of the
Companies Act 2006. The above notwithstanding, the auditor's report
for the period ended 28 March 2020 drew attention to, without modifying
the conclusion, the Group's disclosure of a material uncertainty in
respect of going concern, specifically in relation to the securing
of Shareholder approval for the equity capital raise. Refer to the
Going Concern statement on page 14 for further details of the Director's
Going Concern assessment.
The accounting policies adopted in the preparation of these condensed
consolidated half-yearly financial statements to 26 September 2020
are consistent with the accounting policies applied by the Group in
its consolidated financial statements as at, and for the period ended,
28 March 2020 as required by the Disclosure Guidance and Transparency
Rules of the UK's Financial Conduct Authority, with the exception
of the adoption of new and amended standards as set out below. The
comparative figures for HY 2019/20 have been restated to show cost
of sales separate from total operating expenses as reported in previous
periods (see footnote under the income statement on page 17 for further
details).
New and amended standards adopted by the Group
During the period, the following new and amended IFRS became effective
for the Group:
* Definition of a business - Amendments to IFRS 3
* Interest rate benchmark reform Phase 1 and temporary
relief has been taken to continue to apply hedge
accounting.
These changes have not had a material impact to the financial statements.
Additional disclosure on the impact of amendments will be provided
in the Annual Report and Accounts.
COVID-19
The Annual Report for the period ended 28 March 2020 including an
assessment of the potential impact of COVID-19 on the financial position
of the Group as a March 2020. The directors still consider this assessment
to be appropriate for the half-yearly financial statements based on
the current position. It is noted that impairments and accelerated
depreciation charges of GBP1.2m have been recorded in the period,
but that these relate to the cessation of manufacturing at the Gateshead
facility and not due to Covid-19 related issues.
2 Segmental analysis
The continuing operations of the Group have three main operating
units: Currency, Identity Solutions and Product Authentication
& Traceability. The Board, which is the Group's Chief Operating
Decision Maker, monitors the performance of the Group at this
level and there are therefore three reportable segments. The principal
financial information reviewed by the Board is revenue and adjusted
operating profit.
The Group's segments are:
* Currency - provides printed banknotes, polymer
substrates and banknote security components
* Authentication - the supply of a range of physical
and digital solutions such as: tax stamps and
supporting software solutions, authentication labels
and associated brand protection digital solutions,
cheques and bank cards for Africa, and ID security
components including polycarbonate.
* Identity Solutions - involved in the provision of
passport, ePassport, national ID and eID, driving
licence and voter registration schemes
Inter-segmental transactions are eliminated upon consolidation.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS - UNAUDITED
The segment note is focused on three divisions which reflects
what has been reported to the Chief Operating Decision Maker,
this is in line with the commentary in the front half on the financial
performance. The commentary in the front half relating to the
future strategy only refers to the Currency and Authentication
divisions.
On 14 October 2019, the Group disposed of its International Identity
Solutions business. In November 2019, the Group moved from a functional
to a divisional operating structure and completed a major reorganisation.
Employees from the previous Group-wide functions moved to new
roles within the new Currency and Authentication divisions or
remained with enabling functions such as legal and finance. The
cost base and structure following this reorganisation in H1 2020/21
is materially different to in H1 2019/20, reflecting the above.
The Group from FY 2019/20 also changed its methodology for the
allocation of enabling function costs into the divisions. The
group has considered the requirements of IFRS 8 with regards to
the need to restate prior period segmental results and concluded
that the Group is unable to make this restatement because the
data is not available and the cost to develop it would be excessive.
This is due to the cost base and employee structure of the business
under the previous functional model being materially different
to the new divisional structure. Therefore, it is not possible
to undertake a like-for-like reallocation of costs for new divisions
for the comparative period. Although comparatives have not been
restated, in the commentaries included in this release, we have
provided commentary on the changes in divisional cost base, to
enable a year-on-year performance by division. Due to the substantial
changes that have occurred in the divisional structure, key reporting
metrics for monitoring the divisional performance will be linked,
going forward, to gross profit and adjusted controllable profit
(before the allocation of enabling function overheads), with the
enabling functional cost base being managed as part of the overall
business key turnaround objectives. See note 17 for adjusted operating
expenses reconciliation.
2020/21 Half Year Currency Authentication Identity Unallocated Total
Solutions of continuing
operations
----------------------------------- --------- --------------- ----------- ------------ ---------------
GBPm GBPm GBPm GBPm GBPm
Total revenue from contracts
with customers 130.6 31.7 17.4 - 179.7
Less: inter-segment revenue - - - - -
----------------------------------- --------- --------------- ----------- ------------ ---------------
Revenue from contracts
with customers 130.6 31.7 17.4 - 179.7
----------------------------------- --------- --------------- ----------- ------------ ---------------
Cost of sales (106.3) (17.9) (6.9) 0.7 (130.3)
Gross Profit 24.3 13.8 10.5 0.7 49.4
Adjusted operating expenses (21.8) (9.9) (1.6) (0.7) (34.1)
----------------------------------- --------- --------------- ----------- ------------ ---------------
Adjusted operating profit 2.5 3.9 8.9 - 15.3
----------------------------------- --------- --------------- ----------- ------------ ---------------
Adjusted items:
Amortisation of acquired
intangibles - (0.5) - - (0.5)
Net exceptionals (8.2) (0.1) - (1.9) (10.2)
----------------------------------- --------- --------------- ----------- ------------ ---------------
Operating profit/(loss) (5.7) 3.3 8.9 (1.9) 4.6
Interest income - - - 0.4 0.4
Interest expense - - - (3.3) (3.3)
Net retirement benefit
obligation finance expense - - - 0.8 0.8
----------------------------------- --------- --------------- ----------- ------------ ---------------
Net finance expense - - - (2.1) (2.1)
----------------------------------- --------- --------------- ----------- ------------ ---------------
Profit/(loss) before taxation (5.7) 3.3 8.9 (4.0) 2.5
----------------------------------- --------- --------------- ----------- ------------ ---------------
Segment assets 207.9 48.1 17.4 75.6 349.0
Segment liabilities (83.2) (13.2) (19.0) (103.6) (219.0)
Capital expenditure on
property, plant and equipment(1) 5.9 - 0.6 0.7 7.2
Capital expenditure on
intangible assets 0.1 1.3 - - 1.4
Impairment of property, - - - - -
plant and equipment and
intangible assets
Depreciation of property,
plant and equipment 6.1 1.0 - 0.7 7.8
Amortisation of intangible
assets 0.9 1.1 - 0.3 2.3
(1) Capital expenditure is stated net of receipt of grant income
of GBP1.3m, all allocated to the Authentication segment.
(2) Impairments and accelerated depreciation of GBP1.2m have
been included within exceptional items (see note 4).
NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS - UNAUDITED
Unallocated assets principally comprise of deferred tax assets
of GBP14.8m (HY 2019: GBP16.3m), cash and cash equivalents of
GBP21.5m (HY 2019: GBP11.2m) which are used as part of the Group's
financing offset arrangements and derivative financial instrument
assets of GBP9.0m (HY 2019: GBP10.4m) as well as current tax
assets, associates and centrally managed property, plant and
equipment.
Unallocated liabilities principally comprise overseas retirement
benefit obligations of GBP3.1m (HY 2019: GBP39.9m), borrowings of
GBP38.6m (HY 2019: GBP180.9m), current tax liabilities of GBP11.3m
(HY 2019: GBP11.8m) and derivative financial instrument liabilities
of GBP8.6m (HY 2019: GBP9.7m) as well as deferred tax liabilities
and centrally held accruals and provisions.
2019/20 Half Year Currency Authentication* Identity Unallocated Total
Solutions* of continuing
operations
----------------------------------- --------- ---------------- ------------ ------------ ---------------
GBPm GBPm GBPm GBPm GBPm
Total revenue from contracts
with customers 155.4 34.9 42.3 - 232.6
Less: inter-segment revenue (0.3) - - - (0.3)
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Revenue from contracts
with customers 155.1 34.9 42.3 - 232.3
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Cost of sales (136.6) (19.3) (25.4) 0.3 (181.0)
Gross Profit 18.5 15.6 16.9 0.3 51.3
Adjusted operating expenses* (31.0) (7.0) (10.8) (0.3) (49.1)
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Adjusted operating profit/(loss)* (12.5) 8.6 6.1 - 2.2
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Adjusted items:
Amortisation of acquired
intangibles - (0.4) - - (0.4)
Net exceptionals 0.2 - - (11.2) (11.0)
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Operating profit/(loss) (12.3) 8.2 6.1 (11.2) (9.2)
Interest income - - - 0.7 0.7
Interest expense - - - (2.8) (2.8)
Net retirement benefit
obligation finance expense - - - (0.8) (0.8)
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Net finance expense - - - (2.9) (2.9)
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Profit/(loss) before taxation (12.3) 8.2 6.1 (14.1) (12.1)
----------------------------------- --------- ---------------- ------------ ------------ ---------------
Segment assets 222.9 46.0 56.6 87.8 413.3
Segment liabilities (93.9) (14.8) (37.4) (291.5) (437.6)
Capital expenditure on
property, plant and equipment(1) 3.3 1.6 (1.4) 2.2 5.8
Capital expenditure on
intangible assets 1.0 1.1 0.9 0.8 3.8
Impairment of property,
plant and equipment on
intangible assets 0.2 - - 0.4 0.6
Depreciation of property,
plant and equipment 6.0 0.9 1.1 0.9 8.9
Amortisation of intangible
assets - 0.1 0.3 1.3 1.7
(1) Capital expenditure is stated net of receipt of grant income
of GBP3.9m. Allocated between the segments as follows: Currency
(GBP1.5m), Identify Solutions (GBP1.6m) and, Authentication
(GBP0.8m).
*The above prior year comparatives have been restated to show
cost of sales separate from total operating expenses as reported in
previous periods, thus allowing presentation of gross profit by
segment. The inclusion of this level of information is considered
useful to the users of the Annual Report and Accounts and will
provide greater insight into the performance of the business. In
addition, the Authentication and Identity Solutions results for H1
2019/20 have been restated in line with the adjustment noted in the
current year to present the results of one of the Group's
subsidiaries solely in the Authentication division consistent with
where management of the subsidiary's business now falls. The impact
of this has been the transfer of the following amounts from the
Identity Solutions results above to Authentication: Revenue of
GBP1.9m, Gross Profit of GBP1.2m, Adjusted operating profit of
GBP0.9m and IFRS operating profit of GBP0.3m that would have been
presented in the Identity Solutions division previously.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS - UNAUDITED
Revenue from contracts with customers:
Timing of revenue recognition across the Group's revenue from
contracts with customers is as follows:
HY 2020/21 Currency Authentication Identity Total of
GBPm GBPm Solutions Continuing
GBPm Operations
GBPm
Timing of revenue recognition:
Point in time 107.3 31.7 17.4 156.4
Over time 23.3 - - 23.3
--------------------------------------------- --------- --------------- ----------- ------------
Total revenue from contracts with customers 130.6 31.7 17.4 179.7
--------------------------------------------- --------- --------------- ----------- ------------
HY 2019/20 Currency Authentication Identity Total of
GBPm GBPm Solutions Continuing
GBPm Operations
GBPm
Timing of revenue recognition:
Point in time 128.4 33.0 40.1 201.5
Over time 26.7 - 4.1 30.8
--------------------------------------------- --------- --------------- ----------- ------------
Total revenue from contracts with customers 155.1 33.0 44.2 232.3
--------------------------------------------- --------- --------------- ----------- ------------
FY 2019/20 Currency Authentication Identity Total of
GBPm GBPm Solutions Continuing
GBPm Operations
GBPm
Timing of revenue recognition:
Point in time 273.6 68.5 65.7 407.8
Over time 41.5 - 17.5 59.0
--------------------------------------------- --------- --------------- ----------- ------------
Total revenue from contracts with customers 315.1 68.5 83.2 466.8
--------------------------------------------- --------- --------------- ----------- ------------
Geographic analysis of revenue
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Middle East and Africa 79.1 81.9 188.4
Asia 11.2 39.0 86.5
UK 62.5 64.1 109.8
The Americas 19.2 18.1 41.5
Rest of Europe 0.6 18.4 24.8
Rest of world 7.1 10.7 15.8
179.7 232.2 466.8
------------------------ ---------- ---------- ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS - UNAUDITED
3 Discontinued operations
The Group completed the sale of the entire issued share capital
of Cash Processing Solutions Limited and related subsidiaries
(together 'CPS') to CPS Topco Limited, a company owned by Privet
Capital on 22 May 2016. The loss on discontinued operations in the
period of GBP0.1m relates to the winding down of remaining activity
related to CPS (net of associated tax credits). Charges in HY
2019/20 and FY 2019/20 included net costs associated with a
loss-making CPS contract that was not novated post disposal. This
contract is expected to conclude in FY 2021/22.
4 Exceptional Items
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Site relocation and restructuring (9.3) (8.2) (9.3)
Costs associated with the equity (3.2) - -
raise and bank refinancing
Pension underpin costs (0.4) (0.5) (1.1)
Gain on resolution of a historical
issue relating to UK defined benefit
pension scheme - - 8.7
Gain on sale of PPE 2.7 - -
Costs associated with disposal of - (2.0) -
subsidiary
Costs associated with the close - (1.0) -
out of hedge positions relating
to the Venezuela contract
Gain on disposal of subsidiary - 0.7 22.7
Venezuela credit loss provision - - (1.0)
Total exceptional items - (charge)/credit (10.2) (11.0) 20.0
------------------------------------------- ---------- --------------- ---------------------
Exceptional items - tax credit/(charge) 2.4 1.8 2.5
------------------------------------------- ---------- --------------- ---------------------
Site relocation and restructuring costs
Site relocation and restructuring costs in HY 2020/21 included: the
recognition of GBP8.1m of restructuring charges related to cessation
of banknote production at our Gateshead facility (primarily being
redundancy costs but also including amounts for impairment and accelerated
depreciation charges for property, plant and equipment) and a further
GBP1.2m of charges relating to other cost out initiatives including
the restructuring of our central enabling functions and the restructuring
of the Group into the new divisional structure. Costs in relation
to this programme are expected to be incurred until the end of FY
2021/22.
Site relocation and restructuring costs in FY 2019/20 and HY 2019/20
related to the reorganisation during the period of the Group into
our new divisional structure and other cost out programmes, primarily
being redundancy costs and in addition to consultant and advisor
fees.
Costs associated with the equity raise and bank refinancing
During HY 2020/21 certain costs were incurred in relation to the
equity raise and bank refinancing projects that, whilst directly
associated with these, did not relate to activities which in accordance
with IFRS would qualify for recording in equity or capitalisation
on the balance sheet as transaction costs in relation to the debt
refinancing. These costs included: GBP0.7m write-off of prepaid arrangement
fees on the previously signed RCF which was amended on 7 July 2020
(due to the substantial repayment of the amounts outstanding at that
time this has been accounted for as a settlement); costs of GBP1.5m
associated with advisors fees in connection with the new pension
deficit funding plan put in place in July 2020 following the equity
raise and bank refinancing and other fees totalling GBP1.0m related
to equity raise and bank refinancing which whilst directly related
to these projects, did not meet the IFRS criteria for capitalisation
on the balance sheet or recording within equity.
Pension underpin costs
Relate to legal fees incurred in the rectification of certain discrepancies
identified in the Scheme's rules. The Directors do not consider this
to have an impact on the UK defined benefit pension liability at
the current time but they continue to assess this.
Gain on sale of PPE
A GBP2.7m gain was made in HY 2020/21 on the sale of a non-operational
property held by the Group net of sales costs.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
Gain on resolution of a historical issue relating to the UK defined
benefit pension scheme
In FY 2019/20 a gain of GBP8.7m has been recorded following the resolution
of a historical issue in respect to a change in revaluation rates
for certain deferred pension scheme members. This resulted in an
equivalent reduction to the liabilities in the pension scheme as
at 28 March 2020.
Venezuela Credit loss provision
In FY 2019/20 GBP1m was recognised relating to the close out of the
hedge position taken out in relation to Venezuela receivables for
which a credit loss of GBP18.1m was provided and reported in exceptional
items in FY 2018/19. The hedge position was closed out in H1 2019/20
as subsequent to the FY 2018/19 year end sanctions have further tightened
against Venezuela.
Costs associated with disposal of subsidiary
In HY 2019/20 costs resulting from the sale of our IDS business to
HID Global of GBP2.0m were incurred comprising advisor fees coupled
with salaries for contractors and temporary employees employed to
work solely on the sale.
Gain/(Loss) on disposal of subsidiary and associated costs
Following the sale of the Group's International Identify Solutions
business on 14 October 2019, the Group has recorded a gain of GBP25.3m
before the deduction of costs associated with the disposal. The gain
was calculated based on an estimate for the working capital adjustment
which at FY 2019/20 year end remained subject to agreement with HID
in accordance with the sales agreement. Subsequent to 26 September
2020 but prior to the issue of this report, the final working capital
balance has been agreed. The final payment to be made by the Group
is not materially different from the amount including in the original
disposal accounting in FY 2019/20 and consequently an immaterial
incremental adjustment byway of loss will be recorded in exceptional
items in H2 FY 2020/21. Costs associated with the disposal of the
subsidiary in FY 2019/20 were GBP3.3m. In addition during FY 2019/20
a GBP0.7m gain was made in H1 on the final release of the recompense
provision provided for in relation to the sale of the Portals De
La Rue business. Delivery against the remaining contracts for which
a recompense provision was recognised has now been satisfactorily
completed and as such no further risk of the recompense provision
being triggered is considered to exist.
5 Taxation
A tax rate of 15.5% (H1 2019/20: 16.4%, FY 2019/20: 15.8%) represents
management's best estimate of the effective rate of tax for the
year arising on the profit before exceptional items and tax on the
amortisation of acquired intangibles giving rise to a tax charge
for the period of GBP2.0m (on a non-IFRS basis). In addition, tax
credits of GBP0.1m in relation to the tax on the amortisation of
acquired intangibles and GBP2.4m on exceptional items recognised
in the period as described in Note 4, result in an overall tax credit
on continuing operations for the period of GBP0.5m (on an IFRS basis).
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 the 26 September 2020 Financial Statements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
6 Earnings per share
*Restated *Restated
2020/21 2019/20 2019/20
Half Year Half Year Full Year
pence per pence per pence
share share per
share
Earnings per share
Basic earnings per share from continuing
operations 1.0 (9.8) 30.3
Diluted earnings per share from continuing
operations 1.0 (9.8) 30.2
Basic earnings per share from discontinued
operations (0.1) (0.6) (0.3)
Diluted earnings per share from discontinued
operations (0.1) (0.6) (0.3)
Basic earnings per share - total 0.9 (10.4) 30.0
Diluted earnings per share - total 0.9 (10.4) 29.9
Adjusted earnings per share
Basic earnings per share from continuing
operations 6.5 (1.4) 11.1
*The prior years have been restated following the Rights Issue.
Earnings per share is calculated by dividing the profit attributable
to equity shareholders by the weighted average number of shares. The
weighted average number of ordinary shares used in the calculations
for earnings per share is 149.6m (H1 2019/20 (restated): 113.5m; FY
2019/20 (restated): 113.7m) for basic earnings per share. The dilutive
impact of shares options for H1 2020/21 was 149.8m and for FY 2019/20
(restated) was 113.9m for diluted earnings per share after adjusting
for dilutive impact of share options. Due to the loss for H1 2019/20
potential ordinary shares which may be issued to satisfy share option
awards have not been included in the calculation of a share number
for diluted earnings per share as their inclusion would be anti-dilutive.
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
Reconciliations of the earnings used in the calculations are set out
below:
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Earnings for basic earnings per share -
Total 1.4 (11.8) 34.1
Add: Earnings for basic earnings per share
- discontinued operations 0.1 0.7 0.3
--------------------------------------------------- ---------- --------------- ----------
Earnings for basic earnings per share -
continuing operations 1.5 (11.1) 34.4
Add: amortisation of acquired intangibles 0.5 0.4 0.9
Add: exceptional items (excluding non-controlling
interests) 10.2 11.0 (20.0)
Less: tax on amortisation of acquired intangibles (0.1) (0.1) (0.2)
Less: tax on exceptional items (2.4) (1.8) (2.5)
Earnings for adjusted earnings per share 9.7 (1.6) 12.6
--------------------------------------------------- ---------- --------------- ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
7 Equity dividends
2020/21 2019/20 2019/20
Half Year Half Year Full
Year
GBPm GBPm GBPm
Final dividend for the year ended 30 March
2019 of 16.7p paid on 03 August 2019 - 17.3 17.3
- 17.3 17.3
------------------------------------------------ ------------- ----------- ------------
8 Financial Instruments
Carrying amounts
versus
the fair values
Total fair Carrying Total fair Carrying
value amount value amount
Sep 2020 Sep 2020 Mar 2020 Mar 2020
Financial assets GBPm GBPm GBPm GBPm
Trade and other
receivables Level
(1) 3 70.1 70.1 61.9 61.9
Level
Contract assets 3 9.9 9.9 18.3 18.3
Other financial assets Level
(2) 3 8.2 8.2 7.8 7.8
Cash and cash Level
equivalents 1 21.5 21.5 14.6 14.6
Derivative financial
instruments:
- Forward exchange
contracts
designated as cash
flow Level
hedges(5) 2 3.6 3.6 6.7 6.7
- Short duration swap
contracts
designated as fair
value Level
hedges(5) 2 - - 1.0 1.0
- Foreign exchange
fair
value hedges - other
economic Level
hedges(5) 2 1.6 1.6 2.1 2.1
- Embedded Level
derivatives(5) 2 3.8 3.8 6.8 6.8
Total financial assets 118.7 118.7 119.2 119.2
----------------------- ---------------- ---------------------------- ------------- ----------- ----------
Financial liabilities
Unsecured bank loans
and Level
overdraft (3) 2 (43.1) (43.1) (117.4) (117.4)
Trade and other Level
payables(4) 3 (128.1) (128.1) (130.7) (130.7)
Derivative financial
instruments:
- Forward exchange
contracts
designated as cash
flow Level
hedges(5) 2 (3.4) (3.4) (6.5) (6.5)
- Short duration swap
contracts
designated as fair
value Level
hedges(5) 2 (0.2) (0.2) (0.1) (0.1)
- Foreign exchange
fair
value hedges - other
economic Level
hedges(5) 2 (4.0) (4.0) (9.2) (9.2)
- Embedded Level
derivatives(5) 2 (0.9) (0.9) (0.1) (0.1)
- Interest rate Level
swaps(5) 2 (0.1) (0.1) (0.2) (0.2)
Total financial
liabilities (179.8) (179.8) (264.2) (264.2)
----------------------- --------------------------------------------- ------------- ----------- ----------
(1) Excludes prepayments
(2) Excludes ordinary shares of GBP0.2m which are accounted for as
fair value through profit and loss
(3) Excludes unamortised pre-paid loan arrangement fees
(4) Excludes social security amounts
(5) Level 2 valuations
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
Fair Value measurement for derivative financial instruments
Fair value is calculated based on the future principal and
interest cash flows, discontinued at the market rate of interest at
the reporting date. The valuation bases are classified according to
the degree of estimation required in arriving at the fair values.
Level 1 valuations are derived from unadjusted quoted prices for
identical assets or liabilities in active markets, level 2
valuations use observable inputs for the assets or liabilities
other than quoted prices, while level 3 valuations are not based on
observable market data and are subject to management estimates.
There has been no movement between levels during the current or
prior periods.
9 Analysis of net debt
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Cash at bank and in hand 21.5 11.2 14.6
Short term bank deposits - - -
Bank overdrafts (0.1) (4.1) (0.1)
---------------------------------------------------- ---------------- ------------- ----------
Cash and cash equivalents 21.4 7.1 14.5
Other debt due within one year - (177.8) (117.3)
Other debt due after one year (43.0)
Net debt at end of period (21.6) (170.7) (102.8)
---------------------------------------------------- ---------------- ------------- ----------
Effective 7 July 2020, the Group amended the terms of its Bank facilities
of GBP275m.The relevant amendments, among other things, extend the
maturity date of the Revolving Cash Facility ("RCF") to December 2023,
reset the interest cover ratio and provide available committed bond
and guarantee facilities that do not need to be cash collateralised
in most cases. In addition, the majority of the equity capital raise
proceeds were used to subsequently repay a substantial part of the
RCF shortly after the amendment on 7 July 2020. This was accounted
for as a settlement under IFRS 9 and consequently the unamortised balance
on the loan arrangement fees on the old RCF of GBP0.7m was written-off
to the income statement and included within exceptional items.
The Group has Bank facilities of GBP275m including an RCF cash drawdown
component of up to GBP175m and bond and guarantee facilities of a minimum
of GBP100m, which currently are due to mature in December 2023. The
Group can convert (in blocks of GBP25m) up to GBP50m of the undrawn
RCF cash component to the bond and guarantee component if required
and can elect to convert this back (again in blocks of GBP25m) in order
to draw in cash if the bond and guarantee component has not been sufficiently
utilised.
The drawdowns on the RCF facility are typically rolled over on terms
of between one and three months. However, as the Group has the intention
and ability to continue to roll forward the drawdowns under the facility,
the amount borrowed has been presented as long term at HY 2020/21.
This is a different presentation to the position as at 28 March 2020
when the borrowings were presented as current ahead of the completion
of the bank refinancing.
As at 26 September 2020, the Group had a total of undrawn committed
borrowing facilities, all maturing in more than one year, of GBP132m
(28 September 2019: GBP97.5m, 28 March 2020: GBP158m, all maturing
in more than one year). The amount of loans drawn on the GBP175m facility
is GBP43m. Since 26 September 2020 the Group has reallocated GBP25m
of the cash component to the bond and guarantee component.
Net debt above is presented excluding unamortised capitalised transaction
costs in relation to the debt refinancing of GBP4.5m. Net debt also
excludes GBP12.5m of lease liabilities recognised following the adoption
of IFRS 16
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -
UNAUDITED
10 Retirement benefit obligations
The Group has pension plans, devised in accordance with local conditions
and practices in the country concerned, covering the majority of employees.
The assets of the Group's plans are generally held in separately administered
trusts or are insured.
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
UK retirement benefit (liability)/surplus (1.3) (37.9) 64.8
Overseas retirement benefit (liability) (1.8) (2.0) (1.8)
------------------------------------------------ ----------- ----------- ----------
Retirement benefit (liability)/surplus (3.1) (39.9) 63.0
The majority of the Group's retirement benefit obligations are in
the UK:
Amounts recognised in the consolidated
Balance Sheet:
Fair value of plan assets 1,104.7 1,116.8 1,046.9
Present value of funded obligations (1,101.1) (1,149.4) (977.6)
------------------------------------------------ ----------- ----------- ----------
Funded defined benefit pension plans 3.6 (32.6) 69.3
Present value of unfunded obligations (4.9) (5.3) (4.5)
------------------------------------------------ ----------- ----------- ----------
Net liability (1.3) (37.9) 64.8
------------------------------------------------ ----------- ----------- ----------
Amounts recognised in the consolidated
Income Statement:
Included in employee benefits expense:
Administrative expenses (1.4)* (0.6) (2.2)
Past service credit - - 8.7**
Included in net finance cost:
Net retirement benefit obligation finance
credit/(charge) 0.8 (0.8) (1.6)
Total recognised in the consolidated Income
Statement (credit/charge) 0.6 (1.4) 4.9
----------------------------------------------------- ----------- ----------- ----------
*includes GBP0.5m of costs presented within exceptional items as
they were in connection with the equity raise and bank refinancing
completed in July 2020.
**During FY 2019/20 a past service credit of 8.7m relating to
the resolution of a historical issue in respect to a change in
revaluation rates for certain UK defined benefit pension deferred
scheme members was recorded in the income statement within
exceptional items. The Directors continue to assess any residual
impact from these changes.
Principal actuarial assumptions: 2020/21 2019/20 2019/20
Half Year Half Year Full Year
UK UK UK
% % %
Discount rate 1.55 1.85 2.40
Inflation rate - RPI 2.80 3.00 2.60
Inflation rate - CPI 1.80 1.90 1.60
------------------------------------------ ------------- ------------ ------------
At 26 September 2020 mortality assumptions were based on tables issued
by Club Vita, with future improvements in line with the CMI model,
CMI_2019 with a smoothing parameter of 7.5 and a long-term future
improvement trend of 1.25 per cent per annum.
On 31 May 2020, the Trustee and the Company agreed the terms for a
schedule of contributions and a recovery plan, setting out a programme
for clearing the UK Pension Scheme deficit (the "Recovery Plan").
The latest actuarial valuation of the UK Pension Scheme as at 31 December
2019, which was based on intentionally prudent assumptions, revealed
a funding shortfall (technical provisions minus the value of the assets)
of GBP142.6m. The Recovery Plan makes an allowance for post-valuation
market conditions up to 30 April 2020 (at which point there is an
estimated funding shortfall of GBP190m), including the impact of COVID-19
on financial markets to that date.
The GBP190m deficit is addressed by payments of GBP15m per annum (payable
quarterly in arrears) under the Recovery Plan payable from 1 April
2020 until 31 March 2023 and then payments of GBP24.5m per annum (payable
quarterly in arrears) from 1 April 2023 until 31 March 2029 (whereas
under the recovery plan agreed with the trustee in 2016 ("2015 Recovery
Plan"), the payments would have been GBP22.2 million between 1 April
2020 and 31 March 2021, GBP23.1 million between 1 April 2021 and 31
March 2022 and GBP23 million per annum thereafter until 31 March 2028).
Additional contingent contributions in exceptional circumstances will
become payable by way of an acceleration of the contributions due
in later years where: (i) the leverage ratio (consolidated net debt:
EBITDA)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -
UNAUDITED
is equal to or greater than 2.5x in either FY 2021/2 or FY2022/23,
up to a maximum of GBP4m in each financial year and GBP8m in total
and/or (ii) the Company or any its subsidiaries take any action which
will cause material detriment (defined in section 38 Pensions Act
2004) to the UK Pension Scheme, of GBP23.3m (GBP7.2m in FY 2020/21,
GBP8.1m in FY 2021/22 and GBP8m in FY 2022/23) over the period up
to 31 March 2023.
The funding of the Recovery Plan is to be sourced from cash generation
of the future business activities, but the Trustee has contractually
agreed not to request any portion of the equity capital raising proceeds.
This agreement with the Trustee of the UK Pension Scheme was conditional
on an amount in full settlement of the equity capital raising in the
gross amount of at least GBP100m having been received by the Company
by no later than 31 July 2020. The equity raising was successfully
completed on 7 July 2020.
11 Transactions with non controlling interests
Kenya JV
On 16 April 2019 the Group commenced a commercial partnership with
the Government of Kenya on our currency and secure printing site in
Nairobi, Kenya. Under the terms of the agreement, the National Treasury
of Kenya has taken a 40% stake in De La Rue's wholly owned subsidiary
De La Rue Kenya EPZ Limited, for a consideration of GBP5 million which
was received in September 2017 and included within advance payments
on the balance sheet as at 31 March 2019.
In the prior period, the Group recognised an increase in non controlling
interests of GBP4.2m and an increase in equity attributable to owners
of the parent of GBP0.8m. The effect on the equity attributable to
the owners of De La Rue plc during the prior period on completion
of the transaction is summarised as follows:
Half Year Half Year
2020/21 2019/20
GBP m GBP m
Consideration received - 5.0
Carrying amount of non controlling interests
disposed of - (4.2)
Excess of consideration received recognised
in the transactions with non controlling
interests reserve within equity - 0.8
========= =========
Ghana JV
On 8 June 2020 the Group and Buck Press Limited ("BPL") established
a new Joint Venture company in Ghana for the distribution of printed
and personalized excise tax stamps - De La Rue Buck Press Limited,
which is owned by De La Rue International Limited (49%) and BPL (51%).
This was to enter into a contract with the Ghana Revenue Authority
which is expected to run for 5 years.
This contract builds on the Group's long and successful history of
supplying security products in Ghana and more widely across Africa.
In applying the definitions of control identified in IFRS 10, it has
been determined that the Group controls De La Rue Buck Press Limited
due to the fact that it has a majority of the Board membership and
is able to use this to control the key business decisions of the JV
entity and affect exposure to variable returns. As such the results
of the subsidiary are fully consolidated into the Group's financial
statements.
A nominal value of share capital was invested in the JV on formation
and an immaterial value of trade has occurred for the period to 26
September 2020.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -
UNAUDITED
12 Related party transactions
During the year the Group traded on an arm's length basis with the
associated company Fidink (33.3% owned).
The Group's trading activities with Fidink in the period comprise
GBP10.1m (H1 2019/20: GBP6.1m) for the purchase of ink and other consumables
on an arm's length basis . At the balance sheet date there was GBP1.6m
(H1 2019/20: GBP3.8m) 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.
13 Contingent assets and liabilities
In June 2019 De La Rue International Limited terminated its
agency agreement and sales consultancy agreement with Pastoriza
SRL, a company which provided agency and sales consultancy services
to the Group in the Dominican Republic from 2016 to 2019. Pastoriza
SRL disputed the termination and claimed compensation for the
termination. De La Rue commenced arbitration proceedings in London.
The arbitration tribunal found in favour of De La Rue declaring
that the agreements had been correctly terminated and no
compensation was due.
In response to De La Rue International Limited terminating the
agency agreement and the sales consultancy agreement, Pastoriza SRL
commenced a commercial lawsuit in the Dominican Republic for a
claimed amount of approximately US$8million (plus monthly
interest). De La Rue International Limited filed evidence to the
courts in the Dominican Republic. The points disputed by De La Rue
International Limited in respect of Pastoriza SRL's claim include
whether the courts of the Dominican Republic should have
jurisdiction in relation to the claim. A claim hearing took place
on 19 October 2020, where Pastoriza SRL made an application for a
further extension to file further documents. The Court granted the
application and Pastoriza filed its papers on 3 November 2020. De
La Rue is currently preparing its response to those documents. A
hearing is set for 7 December 2020. The Group does not consider it
probable that an economic outflow will occur under this claim and
accordingly under IAS 37 no provision has been made in respect of
the proceedings in the Dominican Republic.
The Group also provides guarantees and performance bonds which
are issued in the ordinary course of business. In the event that a
guarantee or performance bond is called, provision may be required
subject to the particular circumstances including an assessment of
its recoverability.
14 Capital commitments
2020/21 2019/20 2019/20
Half Year Half Year Full
Year
GBPm GBPm GBPm
Capital expenditure
contracted but not provided:
Property, plant and equipment 11.3 22.6 2.3
Other commitments 461.8 526.1 492.5
------------------------------ ---------- --------------------------- --------
473.1 548.7 494.8
------------------------------ ---------- --------------------------- --------
Other commitments in the table above is an amount in relation to the
sale of Portals De La Rue Limited to EPIRIS Fund II on 29 March 2018.
As part of the transaction Portals De La Rue Limited will supply security
paper to meet the Group's anticipated internal requirements with pre-agreed
volumes and price mechanisms until March 2028. Based on the terms of
the agreement the Group had a capital commitment of approximately GBP626.9m
over 10 years from the date of sale. The contract is assessed to be
at market rates.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -
UNAUDITED
15 De La Rue Financial
Calendar: 2020/21
Financial year end 27 March 2021
16 Subsequent events
On 20 November 2020, the High Court issued its latest ruling in
relation to the equalisation of pension benefits between men and
women relating to Guaranteed Minimum Pensions (or "GMP"). The High
Court ruled that statutory cash equivalent transfer values
("CETVs") paid from defined benefit pension schemes are subject to
challenge and a top-up payment may be required if the CETV value
insufficiently reflected the value of an equalised GMP benefit
accrued between 17 May 1990 and 5 April 1997. As this ruling has
occurred after the balance sheet date, and information on
historical transfer values will take time to obtain, the impact of
this announcement on the De La Rue Pension Scheme is yet to be
determined. The Company will work with the Trustees to calculate
the impact with a view to reflecting the impact, if material, in
our full year results. Any impact on the Income Statement will be
included within exceptional items in accordance with the Group's
exceptional items policy consistent with the treatment applied to
the previous GMP ruling in FY 2018/19.
17 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 acquired intangibles.
Amortisation of acquired intangible assets and exceptional items
are excluded as they are not considered to be representative of
underlying business performance. The measures the Group uses along
with appropriate reconciliations to the equivalent IFRS measures
where applicable are shown in the following tables.
The Group's policy on classification of exceptional items is
also set out below:
The Directors consider items of income and expenditure which are
material by size and/or by nature and not representative of normal
business activities should be disclosed separately in the financial
statements so as to help provide an indication of the Group's
underlying business performance. The Directors label these items
collectively as 'exceptional items'. Determining which transactions
are to be considered exceptional in nature is often a subjective
matter. However, circumstances that the Directors believe would
give rise to exceptional items for separate disclosure would
include: gains or losses on the disposal of businesses,
curtailments on defined benefit pension arrangements or changes to
the pension scheme liability which are considered to be of a
permanent nature such as the change in indexation or the GMPs, and
non-recurring fees relating to the management of historical scheme
issues, restructuring of businesses, asset impairments and costs
associated with the acquisition and integration of business
combinations.
All exceptional items are included in the appropriate income
statement category to which they relate.
Adjusted revenue
Adjusted revenue excludes "pass-through" revenue relating to
non-novated contracts following the paper and international
identify solutions business sales. The following amounts of "pass
through" revenue have been excluded: Paper GBP4.6m (HY 2019/20:
GBP26.4m; FY 2019/20: GBP33.5m) and Identify Solutions: GBP0.4m (HY
2019/20: GBPnil; FY 2019/20: GBP6.6m).
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Revenue on an IFRS basis 179.7 232.3 466.8
-------------------------------- ---------- ---------- ----------
- Exclude pass-through revenue (5.0) (26.4) (40.1)
Adjusted revenue 174.7 205.9 426.7
-------------------------------- ---------- ---------- ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
Adjusted operating profit
Adjusted operating profit represents earnings from continuing
operations adjusted to exclude exceptional items and amortisation
of acquired intangible assets.
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Operating profit from continuing operations
on an IFRS basis 4.6 (9.2) 42.8
--------------------------------------------- ---------- ---------- ----------
- Amortisation of acquired intangible
assets 0.5 0.4 0.9
- Exceptional items 10.2 11.0 (20.0)
--------------------------------------------- ---------- ---------- ----------
Adjusted operating profit from continuing
operations 15.3 2.2 23.7
--------------------------------------------- ---------- ---------- ----------
Adjusted basic earnings per share
2020/21 2019/20 2019/20
Half Year Half Year Full Year
GBPm GBPm GBPm
Profit attributable to equity shareholders
of the Company from continuing operations
on an IFRS basis 1.5 (11.1) 34.4
----------------------------------------------- ---------- ---------- ----------
- Amortisation of acquired intangible
assets 0.5 0.4 0.9
- Exceptional items 10.2 11.0 (20.0)
- Tax on amortisation of acquired intangibles (0.1) (0.1) (0.2)
- Tax on exceptional items (2.4) (1.8) (2.5)
----------------------------------------------- ---------- ---------- ----------
Adjusted profit attributable to equity
shareholders of the Company from continuing
operations 9.7 (1.6) 12.6
----------------------------------------------- ---------- ---------- ----------
Weighted average number of ordinary shares
for basic earnings* 149.6 113.5 113.7
----------------------------------------------- ---------- ---------- ----------
*Prior year share numbers are restated following the Rights
issue
*Restated *Restated
2020/21 2019/20 2019/20
Half Year Half Year Full Year
pence per pence per pence
share share per share
Basic earnings per ordinary share continuing
operations on an IFRS basis 1.0 (9.8) 30.3
---------------------------------------------- ---------- ----------- ------------
Adjusted basic per ordinary share for
continuing operations 6.5 (1.4) 11.1
*Prior year numbers are restated following the Rights issue
Net debt
Net debt is a non-IFRS measure. See note 9 for details of how
net debt is calculated.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- UNAUDITED
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 will be linked, going
forward, to gross profit and controllable profit (being adjusted
operating profit before the allocation of enabling function
overheads), with the enabling functional cost base being managed as
part of the overall business key turnaround objectives.
The group has considered the requirements of IFRS 8 with regards
to the need to restate segmental results and concluded that the
Group is unable to make this restatement. This is due to the cost
base and employee structure of the business under the previous
functional model being materially different to the new divisional
structure. Therefore, it is not possible to undertake a
like-for-like reallocation of costs for new divisions for the
comparative period. Although comparatives have not been restated,
in the commentaries included in this release, we have provided
commentary on the changes in divisional cost base, to enable a
year-on-year performance by division.
2020/21 Half Year Currency Authentication Identity Central Total
Solutions of continuing
operations
---------------------------------- --------- --------------- ----------- -------- ---------------
GBPm GBPm GBPm GBPm GBPm
Operating profit/(loss)
on IFRS basis (5.7) 3.3 8.9 (1.9) 4.6
---------------------------------- --------- --------------- ----------- -------- ---------------
Amortisation of acquired
intangibles - 0.5 - - 0.5
Net exceptional items 8.2 0.1 - 1.9 10.2
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating profit/(loss) 2.5 3.9 8.9 - 15.3
---------------------------------- --------- --------------- ----------- -------- ---------------
Enabling function overheads 11.3 2.8 - (14.1) -
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted controllable
operating profit/(loss) 13.8 6.7 8.9 (14.1) 15.3
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating expenses reconciliation
Due to the cost base and employee structure of the business
under the previous functional model being materially different to
the new divisional structure, the table below is presented to show
the Group adjusted operating expenses make-up for H1 2019/20 and H1
2020/21.
2020/21 Half Year Currency Authentication Identity Central Total
Solutions of continuing
operations
---------------------------------- --------- --------------- ----------- -------- ---------------
GBPm GBPm GBPm GBPm GBPm
Gross Profit 24.3 13.8 10.6 0.7 49.3
Divisional overhead (10.5) (7.1) (1.7) (14.8) (34.0)
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted controllable
operating profit/(loss) 13.8 6.7 8.9 (14.1) 15.3
---------------------------------- --------- --------------- ----------- -------- ---------------
Enabling function overheads (11.3) (2.8) - 14.1 -
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating profit/(loss) 2.5 3.9 8.9 - 15.3
---------------------------------- --------- --------------- ----------- -------- ---------------
Amortisation of acquired
intangibles - (0.5) - - (0.5)
Net exceptional items (8.2) (0.1) - (1.9) (10.2)
---------------------------------- --------- --------------- ----------- -------- ---------------
Operating profit/(loss)
on IFRS basis (5.7) 3.3 8.9 (1.9) 4.6
---------------------------------- --------- --------------- ----------- -------- ---------------
2019/20 Half Year Currency Authentication Identity Central Total
Solutions of continuing
operations
---------------------------------- --------- --------------- ----------- -------- ---------------
GBPm GBPm GBPm GBPm GBPm
Gross Profit 18.5 15.6 16.9 0.3 51.3
Divisional overhead - - - - -
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted controllable n/a n/a n/a n/a n/a
operating profit/(loss)
---------------------------------- --------- --------------- ----------- -------- ---------------
Central overhead base (31.0) (7.0) (10.8) (0.3) (49.1)
---------------------------------- --------- --------------- ----------- -------- ---------------
Adjusted operating profit/(loss) (12.5) 8.6 6.1 - 2.2
---------------------------------- --------- --------------- ----------- -------- ---------------
Amortisation of acquired
intangibles - (0.4) - - (0.4)
Net exceptional items 0.2 - - (11.2) (11.2)
---------------------------------- --------- --------------- ----------- -------- ---------------
Operating profit/(loss)
on IFRS basis (12.3) 8.2 6.1 (11.2) 9.2
---------------------------------- --------- --------------- ----------- -------- ---------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR PPGMAGUPUPGC
(END) Dow Jones Newswires
November 25, 2020 02:00 ET (07:00 GMT)
De La Rue (LSE:DLAR)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
De La Rue (LSE:DLAR)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
