Annual Financial Report

RNS Number : 9725J
De La Rue PLC
18 June 2014
 



De La Rue plc - Publication of Documents

 

De La Rue plc (the Company) has today posted or otherwise made available the following documents to shareholders:

 

Annual Report 2014

Notice of Annual General Meeting to be held on 24 July 2014

 

In accordance with Listing Rule 9.6.1, the Company has today submitted a copy of the above documents to the UK Listing Authority via the National Storage Mechanism and the documents will shortly be available for inspection at www.Hemscott.com/nsm.do

 

Copies of the documents are also available on the Company's website www.delarue.com

 

In addition, the information below which is extracted from the De La Rue plc Annual Report 2014 is in accordance with the requirements of the DTR 4.1.3 and DTR 6.3.5 to make public an annual financial report.

 

DE LA RUE PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT - PERIOD TO 29 MARCH 2014

 

KEY FINANCIALS

 

 

2013/14

2012/13*

Change

Revenue

£513.3m

£483.7m

6%

Underlying operating profit **

£90.5m

£63.2m

43%

 

 

 

 

Underlying profit before tax ***

£77.3m

£51.3m

51%

Reported profit before tax

£59.8m

£43.7m

37%

 

 

 

 

Underlying earnings per share ***

60.7p

38.5p

58%

Basic earnings per share

47.3p

37.4p

26%

Dividend per share

42.3p

42.3p

 

 

*

 

Restated to reflect the amendments to IAS 19R Employee Benefits

**

Underlying operating profit is defined as operating profit before exceptional charges of £17.5m (2012/13: £7.6m).  The IAS 19R administration charge (2013/14: £1.2m, 2012/13: £1.7m) has also been excluded above as we consider this to be useful to the users of the accounts given the importance of the Group's Improvement Plan operating profit target, which was stated before exceptional items and IAS 19R

***

Underlying profit before tax and EPS are reported before the exceptional charges noted above and exceptional tax credits of £4.2m (2012/13: £6.5m) 

The Directors are of the opinion that these measures give a better indication of underlying performance

 

HEADLINES

 

·     Underlying operating profit up 43% to £90.5m

 

·     Improvement Plan delivers £20m in 2013/14, annual savings of £40m over the life of the Plan

 

·     Banknote print volumes similar to prior year at 6.2bn notes

 

·     Banknote paper volumes up 10% to 9,600 tonnes

 

·     Modest net debt at £90m

 

·     Year end 12 month order book of £218m

 

·     Underlying EPS up 58% to 60.7p

 

Philip Rogerson, Chairman, commented:

 

"I am pleased to report a strong year of trading with underlying operating profit up 43 per cent at £90m despite a more challenging Currency market.

 

These results reflect the significant progress that De La Rue has made through implementing the three year Improvement Plan which has grown profits from £40m in 2010/11 to £90m in 2013/14. De La Rue is in fundamentally better shape today and with a culture of continuous improvement embedded in our business there will be further efficiencies ahead.

 

We entered the new financial year with a good order book albeit reflecting the recent more difficult pricing environment in the Currency market.  The Board's expectations for 2014/15 remain unchanged."

 

 

Enquiries:

De La Rue plc

 

+44 (0)1256 605000

Philip Rogerson

Chairman

 

Colin Child

Chief Operating Officer and Group Finance Director

 

Rob Hutchison

Group Director of Communications

 

 

Brunswick

 

+44 (0)207 404 5959

Jon Coles

 

 

Oliver Hughes

 

 

 

A presentation to analysts will take place at 09:00 on 28 May 2014 at the Lincoln Centre, 18 Lincoln's Inn Fields, WC2A 3ED. There will be a simultaneous audio webcast of the meeting.  For the live webcast, please register at www.delarue.com 

 

 

28 May 2014

 

NOTES TO EDITORS

De La Rue is the world's largest commercial banknote printer and passport manufacturer and is a trusted partner of governments, central banks and commercial organisations around the world.

De La Rue also produces a wide range of other security products, including tax stamps, authentication labels and identity documents and manufactures high speed cash sorting and banknote inspection equipment.

De La Rue's Currency division provides customers with a full range of sophisticated products and services which are available either individually or as a whole. This includes design, production of security components, manufacture of paper and polymer substrates and printing of banknotes.

Within the Solutions division, a similar integrated offering from design to manufacture is available. In addition De La Rue offers a range of specialist services and software solutions including government identity schemes, product authentication systems and cash management processing solutions

In recent years De La Rue has been involved in the production of over 150 national currencies, and passports or identity systems for over 65 countries.

De La Rue employs approximately 4,000 people worldwide and is listed on the London Stock Exchange.

 

 

DE LA RUE PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT - PERIOD TO 29 MARCH 2014

 

In 2013/14 De La Rue grew underlying operating profit by 43 per cent and revenue by 6 per cent. These results demonstrate the significant progress the Group has made by implementing its three year Improvement Plan which has seen profit grow from £40m in 2010/11 to £90m in 2013/14. 

The Group's 12 month order book at 29 March 2014 was £218m, 5 per cent higher than the prior year end.  The Currency business' order position was up 8 per cent reflecting some significant contract wins albeit at reduced contribution levels.  These reduced contribution levels reflect the continuing overcapacity in the banknote paper market which has led to a more difficult pricing environment in the printed banknote market. 

Amendments to the IAS 19 accounting standard are effective for the 2013/14 financial year. This requires the replacement of the expected return on assets and interest charge on pension scheme liabilities with a net financing cost based on the discount rate as well as the recognition of the pension scheme administration costs in operating profit. The impact of IAS 19 in the current period has been to reduce underlying operating profit from £90.5m to £89.3m, comparatives have been restated as required by the standard. 

 

FINANCIAL RESULTS

Underlying operating profit (after IAS 19 adjustments) was up significantly at £89.3m (2012/13: £61.5m) reflecting the benefits of the Improvement Plan, increased paper and component volumes and a strong performance in Identity Systems offsetting a less favourable product mix in Currency and reduced volumes in CPS. The Improvement Plan realised savings of £20m in the period, bringing the annual savings under the Plan to £40m.  The Group underlying operating profit margin improved to 17.4 per cent (2012/13: 12.7 per cent).  Foreign exchange movements adversely impacted revenue by £3m but improved operating profit by £2m (2012/13: adverse £3m and £2m respectively).

Underlying profit before tax increased by 51 per cent to £77.3m (2012/13: £51.3m) despite higher net finance costs of £4.7m (2012/13: £3.6m) and IAS 19 finance charges of £7.3m (2012/13: £6.6m).  Underlying earnings per share increased by 58 per cent to 60.7p (2012/13: 38.5p). Exceptional charges in the year totalled £17.5m (2012/13: £7.6m) predominantly due to asset impairments in relation to the CPS business and the cost of implementing the Improvement Plan.  Basic earnings per share were 47.3p (2012/13: 37.4p).

The Group has generated a good underlying operating cash flow of £99.1m (2012/13: £73.0m).  Net debt at 29 March 2014 remained modest at £89.9m, up £13.2m from the prior year end.

 

DIVIDEND

The Board is recommending a final dividend of 28.2p per share (2012/13: 28.2p per share). Together with the interim dividend paid in January 2014, this will give a total dividend for the year of 42.3p per share (2012/13: 42.3p per share).  Subject to approval by shareholders, the final dividend will be paid on 1 August 2014 to shareholders on the register on 4 July 2014.

 

2013/14 was the final year of the three year Improvement Plan which provided a strong emphasis and focus on the key areas of customers, revenue growth and cost reduction and included a programme of investment to improve manufacturing capability, quality and efficiency. Although the benefits of the Improvement Plan have been achieved, its culture of continuous improvement has been embedded within the Group and will lead to further efficiency gains in the future.

 

Initiatives under the Improvement Plan have delivered the following:

·     Country plans; firmly established throughout the business and are integral to the sales planning process

·     Innovation;  new industry leading technology centre fully operational with a good new product pipeline

·     Process improvement; £19m of cost and efficiency savings delivered over the Plan

·     Procurement; £14m of savings delivered over the Plan

·     Facility optimisation; two facilities consolidated into existing footprint generating savings of £7m

·     Standardisation; sales and operational planning process deployed

 

Although good progress continues to be made on revenue growth initiatives, we have yet to see their full benefit due to the more challenging market conditions.  

 

STRATEGY

Central banks, governments and commercial organisations rely on our products and solutions to deliver security and maintain confidence when conducting their everyday transactions. With increasing globalisation and technological developments, the ability to buy things securely, to protect identity, revenues and brands, and to fight counterfeiting and illicit trade are of increasing importance. De La Rue offers a proven track record in innovation, sophisticated design capabilities and in the production and delivery of high quality products and services.

Our vision is to be the leading provider of secure products and services, touching the lives of everyone, every day.  Our strategy supporting this vision is to be a lean, professional and innovative leader in the markets in which we operate. 

We will achieve our vision by

·     Building on long term mutually beneficial partnerships through a sustained focus on customers, innovation, professionalism and operational excellence

·     Investing in our people, assets, processes and innovation, to ensure we have the technology and capacity to meet customer needs and maintain an industry leading position

 

In our Currency business we will

·     Continue to invest in technology

·     Grow SafeguardTM, our polymer substrate offering

·     Address opportunities across the whole market from state print works to central banks, with particular focus on the sale of security components such as threads and holographic stripes and patches

·     Improve lead times through investing in continuous improvement and capability

·     Deliver operational excellence in our supply chain by focusing on quality, cost and delivery

 

In our Solutions business we will focus on key growth areas

·     Build on our position as the world's largest commercial producer of passports and address the growing market demand for ePassports

·     Support governments in their efforts to collect tax revenues through the introduction of the latest product authentication software solutions

 

The successful execution of the strategy will provide shareholders with increasing value from each of our businesses and from the Group as a whole by delivering:

 

·     Sustainable revenue growth over the longer term

·     Improved profitability through continuous improvement

·     Strong cash flows

·     Increased returns to shareholders

 

OPERATING REVIEWS

Currency

2013/14


2012/13

 

Change

Banknote print volume (bn notes)

6.2


6.3

(2%)

Banknote paper output ('000 tonnes)

9.6


8.7

10%







£m


£m


Revenue

342.7


298.1

15%

Underlying operating profit*

62.0


38.0

63%

 

*Segmental underlying operating profit is stated before exceptional items

 

Banknote print volume at 6.2bn notes was similar to the prior year (2012/13: 6.3bn).  Paper output volume was up 10 per cent at 9,600 tonnes (2012/13: 8,700 tonnes) despite the continuing overcapacity in the banknote paper market.

Revenue grew by 15 per cent to £342.7m (2012/13: £298.1m) largely due to increased direct banknote paper and component sales.  In addition the average price of banknotes sold was higher than in the corresponding period albeit below the historic average for this mix of work.  Underlying operating profit improved by 63 per cent to £62.0m (2012/13: £38.0m) principally reflecting the benefits from the ongoing cost reduction programme together with the positive impact of the higher revenues.  

At the year end, the Currency 12 month order book, excluding currently suspended orders, was up 8 per cent at £170m (2012/13: £158m).  The level of early orders for 2015/16 is encouraging.

 

Solutions

 

2013/14

£m

 

2012/13

£m

Change

 

Revenue:

 

 

 

 

  Cash Processing Solutions

57.4

 

61.2

(6%)

  Security Products

46.2

 

45.1

2%

  Identity Systems

77.6

 

84.4

(8%)

  Total Solutions

181.2

 

190.7

(5%)

 

 

 

 

 

Underlying operating profit/(loss):*

 

 

 

 

  Cash Processing Solutions

(4.1)

 

-

 

  Security Products

10.6

 

8.9

19%

  Identity Systems

22.0

 

16.3

35%

  Total Solutions

28.5

 

25.2

13%

 

*Segmental underlying operating profit is stated before exceptional items

 

Cash Processing Solutions (CPS)

The CPS business performance was disappointing with revenues 6 per cent lower mainly reflecting reduced large sorter sales and a reduction in service revenue.  The lower revenue and increased machine trial costs on prospective orders resulted in an underlying operating loss of £4.1m (2012/13: £nil).  The business has a target of achieving breakeven in 2014/15.

The carrying value of the CPS intangible and tangible assets has been reviewed in the light of the poor trading performance of this business.  This has resulted in a non-cash exceptional asset impairment charge of £14.2m (see note 3).

 

Security Products

Revenue grew by 2 per cent to £46.2m (2012/13: £45.1m) mainly due to increased passport and other security paper volumes. Underlying operating profit increased to £10.6m (2012/13: £8.9m) mainly reflecting the benefits of the Improvement Plan and the full year effect of reduced costs following the relocation of manufacturing from Dunstable to the Gateshead factory.

Identity Systems (IDS)

The Identity Systems business performed strongly throughout the year.  Although revenue declined by 8 per cent to £77.6m (2012/13: £84.4m), largely as the corresponding period included one off sales in relation to the HM Passport Office regional office roll out project, underlying operating profit increased to £22.0m (2012/13: £16.3m).  The increase in underlying operating profit reflects a strong performance across all operations largely generated by further operating efficiencies and within the International part of the business, an unusually high number of longer term contracts completed in the year.

Solutions Order Book

At the year end, the Solutions 12 month order book was £48m (2012/13: £49m).  These figures exclude order volumes which have yet to be confirmed on committed contracts.

 

INTEREST

The Group's net interest charge increased to £4.7m (2012/13: £3.6m) predominantly reflecting the higher average level of net debt during the period.  The IAS 19 related finance cost, which represents the difference between the interest on pension liabilities and assets, was £7.3m (2012/13: £6.6m).

 

EXCEPTIONAL ITEMS  

During the period exceptional costs of £17.5m have been charged (2012/13: £7.6m).

The costs of implementing the Improvement Plan in the current financial year were £3.5m (2012/13: £7.6m). This brings the cumulative exceptional charges taken in respect of the Improvement Plan to a total of £35.2m and a cumulative cash cost to date of £29.0m.

In addition, £1.1m of charges were incurred in connection with the preparation of bids for the supply of products or services under multi year arrangements, £2.2m of charges with regard to the resolution of an overseas historic indirect tax liability, £1.0m of legal and professional fees incurred in relation to an aborted acquisition and £14.2m in respect of asset impairments in relation to the CPS business (see note 3 for details).  These costs were partly offset by a gain on the sale of fixed assets of £4.5m.  The 2013/14 net cash cost of exceptional items was £4.0m.

 

TAXATION

The net tax charge for the year was £11.9m (2012/13: £5.5m). The effective tax rate, before exceptional items, was 20.8 per cent (2012/13: 23.4 per cent), reflecting the reduction in the UK statutory tax rates and the benefit of the introduction of the UK patent box regime. 

Tax credits relating to exceptional items arising in the period were £0.9m (2012/13: £2.1m). In addition there was an exceptional credit of £3.3m (2012/13: £4.4m) in respect of the determination of the tax treatment of prior year exceptional items, of which £1.7m credit related to discontinued operations.

 

CASH FLOW AND BORROWINGS

Underlying operating cash flow, comprising underlying operating profit adjusted for depreciation and the movement in working capital, was £99.1m (2012/13: £73.0m). This represents a cash conversion ratio (underlying operating cash flow divided by underlying operating profit) of 111 per cent (2012/13: 119 per cent).

Cash expenditure on items such as capital investment, special pension contributions, dividends and tax totalled £112.3m.  After allowing for the underlying operating cash flow income of £99.1m this resulted in an increase in net debt to £89.9m (2012/13: £76.7m).

The Group utilises a £200m revolving credit facility which expires in December 2016.  The key financial covenants on this facility, which the Group has operated well within throughout the period, require that the ratio of EBIT to net interest payable be greater than four times and the net debt to EBITDA ratio be less than three times.  At the year end the specific bank covenant tests were as follows: EBIT/Net interest payable of 18.0 times, Net debt/EBITDA of 0.83 times.

 

 

UK PENSION SCHEME

Pension deficit and funding

During 2013/14, special funding payments of £11.5m were made to the Group's defined benefit pension fund (closed to new members in 2010 and future accrual from April 2013).   The Group's latest formal (triennial) funding valuation of the UK defined benefit pension scheme took place on 5 April 2012 and identified that the scheme had a deficit of £180m. The special funding arrangements remain unchanged and are expected to eliminate the deficit in line with the original timetable by 2022.

 

IAS 19 - Employee Benefits

The valuation of the UK pension scheme under IAS 19 principles indicates a scheme deficit pre‑tax at 29 March 2014 of £165.6m broadly unchanged from the prior year (30 March 2013: £166.7m). The charge to operating profit in respect of the UK defined benefit pension scheme for 2013/14 was £1.2m (2012/13: £1.7m). In addition, under IAS 19 there was a finance charge of £7.3m arising from the difference between the expected return on assets and the interest on liabilities (2012/13: £6.6m).

Amendments to the IAS 19 accounting standard are effective for the 2013/14 financial year.  This requires the replacement of the expected return on assets and interest charge on pension scheme liabilities with a net financing cost based on the discount rate.  IAS 19 requires retrospective adoption and therefore prior periods have been restated.  The impact of the change has been to increase operating costs by £1.2m (2012/13: £1.7m), increase the net interest expense by £6.7m (2012/13: £6.1m) and reduce taxation by £1.8m (2012/13: £1.9m), with compensating adjustments in other comprehensive income leaving equity unchanged. This has reduced profit after tax by £6.1m (2012/13: £5.9m), and reduced underlying and basic EPS by 6.1p (2012/13: 5.9p).

 

2010 PAPER PRODUCTION ISSUES

Discussions remain ongoing with the principal customer concerned and the authorities, and therefore there remains uncertainty as to the ultimate outcome of these issues, including their financial impact (described more fully in note 12).

 

PEOPLE

De La Rue is proud of the quality of its employees who remain a vital part of its success.  The results this year clearly demonstrate their dedication and hard work and the Board would like to thank everyone for their contribution in the past twelve months.

 

BOARD CHANGES

Tim Cobbold resigned from the Board as Chief Executive on 29 March 2014 and the Board would like to record its appreciation of Tim's significant contribution over the past three years.

On the same date Philip Rogerson assumed executive responsibilities until a new Chief Executive joins the Board.  Philip now chairs De La Rue's Executive Committee and is being supported by Colin Child, Group Finance Director, who was appointed Chief Operating Officer on a similar temporary basis.  The Board's Nomination Committee is well advanced in the search to identify a suitable candidate for the role. 

 

OUTLOOK

While current market conditions remain challenging, the fundamental strengths of the business provide a strong foundation from which to deliver enhanced shareholder value.

De La Rue entered the new financial year with a good order book albeit reflecting the recent more difficult pricing environment in the Currency market.  The Board's expectations for 2014/15 remain unchanged.

 

-ends-

Risk and risk management

The UK Corporate Governance Code requires the Board to maintain a sound system of internal control to safeguard shareholders' investment and the Group's assets and at least annually to conduct a review of the effectiveness of the Group's system of internal control.

During the year, the Board carried out its annual review which covered all material controls including financial, operational, legal and technology controls and risk management systems. The Board also received information about the Group's operations throughout the year, enabling it to evaluate regularly the nature and extent of the risks to which the Group is exposed.

Committed to effective risk management

Effective risk management requires collective responsibility and engagement across the entire business.

The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. It relies on the Audit and Risk Committees to assist in this process. Details of these committees are set out in the Audit Committee report and corporate governance report on pages 37 to 40 of the De La Rue plc Annual Report 2014.

In addition to risk management being a Board level responsibility, members of De La Rue's senior management team, operating through the Risk Committee, are accountable for identifying, mitigating and managing risk in their areas of responsibility.

Management is responsible for implementing the controls which are designed to meet the particular needs of the Group, and the risks to which it is exposed, with procedures intended to provide effective internal control.

The controls by their nature are designed to manage rather than eliminate risk and can only provide reasonable but not absolute assurance against material misstatement or loss.

 

System of internal control

Our system of internal control is built on the pillars of effective governance, risk management, internal control and assurance. These are more fully described below:

Governance

• An organisation and management structure which operates across the business to enable the delivery of products and services to our customers and operational control of business activities

• The Board and its various committees define financial authorities and operational responsibilities which are designed to enable effective decision making and organisational control

• Annual strategic planning and budgeting processes

• Group central functions: finance, human resources, company secretariat and legal, health, safety and environment, security and global information services, which have responsibility to manage and improve standards in their respective areas of responsibility across all our operations

• Annual objective setting and performance reviews

• A Group policy framework which contains the core polices with which employees are required to comply eg the Code of Business Principles, Group finance manual and other key finance, operational, people, legal and information services policies

• Defined delegation of authorities that cascades throughout the Group

• A system of monthly financial and operational reporting by each operating unit which involves comparison of actual results with the original budget and the updating of a full year forecast

Risk management

• A formal risk identification process takes place to evaluate and manage the significant risks faced by the Group in accordance with the requirements of the UK Corporate Governance Code

• A Group risk register which identifies the risks faced by the business, their potential impact and likelihood of occurrence and the key controls and management processes established to mitigate these risks. Each of the Group's business units and central functions also maintains a risk register

• The Risk Committee meets twice each year to review the management of risk arising out of the Group's activities and to monitor the status of key risks and actions at Group and business unit level

Internal control

• A control environment which defines the detailed financial, operational, compliance, security, people and information security controls to be applied by all business operations

• Each site operates a control environment to satisfy legal, regulatory, Group and customer requirements

• Operational processes that govern the way in which we operate such as the quality management process, the technology management process, health and safety standards and security requirements

Assurance

• Annual control self assurance declarations are completed by all De La Rue operations which require attestation that controls are being operated as required

• Other internal assurance providers - health, safety and environment, quality, security and business continuity conduct reviews across De La Rue operations to evaluate compliance with required standards

• External audit conducts statutory audits across our operations as required

• Audits by external authorities and customers are conducted for purposes such as achieving or maintaining ISO accreditations and to ensure compliance of individual manufacturing sites with customer requirements

• An outsourced internal audit function, which is subject to the controlling direction of the Audit Committee, provides the Audit Committee with an assessment of the Group's system of internal control, through reviewing how effectively key risks are being managed, and assists management in the effective discharge of their responsibilities by carrying out appraisals and making recommendations for improvement

• The operation of a 24/7 whistleblowing hotline to enable reporting of breaches of ethical or policy requirements

• The Audit Committee assists the Board in discharging its responsibility to review the system of internal control

 

Financial risk management

Overview

The Group's activities expose it to a variety of financial risks, the most significant of which are liquidity risk, market risk and credit risk.

The Group's financial risk management policies are established and reviewed regularly to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The use of financial derivatives is governed by the Group's risk management policies approved by the Board of Directors, which provide written principles on the use of financial derivatives consistent with the Group's risk management strategy. The Group's treasury department is responsible for the management of these financial risks faced by the Group.

Group Treasury identifies, evaluates and in certain cases hedges financial risks in close co-operation with the Group's operating units. Group Treasury provides written principles for overall financial risk management as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, use of derivative financial instruments and the investment of excess liquidity.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities where due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group manages this risk by ensuring that it maintains sufficient levels of committed borrowing facilities and cash and cash equivalents. The level of headroom needed is reviewed annually as part of the Group's planning process.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group's income or the value of its holdings of financial instruments. The Group uses a range of derivative instruments, including forward contracts and swaps to hedge its risk to changes in foreign exchange rates and interest rates with the objective of controlling market risk exposures within acceptable parameters, while optimising the return. Derivative financial instruments are only used for hedging purposes.

(a) Currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, unrecognised firm commitments and investments in foreign operations.

To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward contracts, transacted with Group Treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity's functional currency. Group Treasury is responsible for managing the net position in each currency via foreign exchange contracts transacted with financial institutions.

The Group's risk management policy aims to hedge firm commitments and between 60 per cent and 100 per cent of forecast exposures in each major currency for the subsequent 12 months to the extent that forecast transactions are highly probable.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The Group's policy is to manage the currency exposure arising from the net assets of the Group's foreign operations primarily through borrowings denominated in the relevant foreign currencies and through foreign currency swaps.

The Group's policy is not to hedge net investments in subsidiaries or the translation of profits or losses generated in overseas subsidiaries.

(b) Interest rate risk

All material financial assets and liabilities are maintained at floating rates of interest. Where the Group has forecast average levels of net debt above £50m on a continuing basis, floating to fixed interest rate swaps have been used to fix the interest rate on a minimum of
50 per cent of the Group's forecast average levels of net debt for a period of at least 12 months.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investment securities.

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which customers operate has less of an influence on credit risk. Geographically, there is no concentration of credit risk. Where appropriate, letters of credit are used to mitigate the credit risk from customers.

The Group has established a credit policy that ensures that sales of products are made to customers with an appropriate credit history. The Group has a policy to procure advance payments during order negotiation which further reduces credit risk. Derivative counterparties and cash transactions are limited to high credit quality financial institutions and the Group has policies that limit the amount of credit exposure to any one financial institution.

 

Principal risks and uncertainties

The following pages set out the principal risks affecting the Group, which are not listed in any order of materiality. In addition there may be other risks which are currently believed to be immaterial, which could turn out to be material to the Group. These risks, whether they materialise individually or simultaneously, could significantly affect the Group's business and financial results. Due to the very nature of risks, mitigating factors stated should not be viewed as assurances that actions taken or planned will be wholly effective.

Strategic risks

Risk

Failure to maintain competitive and technologically advanced products and services.

Exposure

The Group operates in competitive markets and our products and services are characterised by continually evolving industry standards and changing technology, driven by the demands of our customers.

Technological revolution or failure to innovate may result in loss of market share and lower margins.

Mitigation/Comment

The Group regularly reviews its research and development portfolio as part of the strategic planning process and progress against individual research and development projects as part of its technology management process.

Evidence of continued investment in innovation, research and development and design capabilities during 2013/14 included the opening of our technology centre housing a state of the art materials science research centre and the award of the Queen's Award for Enterprise: Innovation for Optiks™ super wide security thread.

 

Commercial risks

Risk

The timing and frequency of substantial contract awards can be uneven.

Exposure

The timing of contract awards can be uncertain. Delays in awards may result in volatility in the order book and our operating performance and failure to optimise capacity.

Political factors can also delay government procurement decisions for sensitive products like banknotes and passports.

Mitigation/Comment

Close and regular contact is maintained with customers so that any changes in requirements are recognised promptly.

Sales activity, order pipeline and forward order book are monitored to ensure that production planning is optimised to deliver on time and in full to our customers.

Any delays in order confirmation are monitored on a weekly basis to ensure that supply chain remains flexible and is able to accommodate required production planning changes.

 
Risk

Failure to win or renew a material contract.

Exposure

Failure to win or renew a material contract could restrict growth opportunities and/or have an adverse impact on the Group's financial performance and reputation.

Mitigation/Comment

Relationships with current and previous customers, together with detailed country plans, ensure we are aware of opportunities as they arise. Our sales and commercial management teams focus on tender responses which are governed through a 'stage gate' process that includes financial, technical, production, commercial and contractual reviews.

Our track record of delivering product innovation and our continuing commitment to quality and customer service, when combined with a commercial approach to tendering, places us in a good position to win or renew strategic or significant contract opportunities. The business is absolutely focused on retaining key contracts as and when they fall due for renewal.

 

Operational risks

Risk

Financial loss and/ or damage to reputation as a result of failing to deliver product to customer specification.

Exposure

Each of our contracts requires a unique product to be specified and delivered. Some of these contracts demand a high degree of technical specification. On a contract by contract basis we will be required to deliver to exacting quality standards and any shortfall in quality management may expose us to additional cost to remake and/or warranty costs.

Mitigation/Comment

An established quality management system operates across all of our production sites which are all certified to ISO9001 quality management standards.

In 2013, an operational excellence programme was introduced to further drive continuous improvement across our manufacturing sites.

 
Risk

Supplier failure.

Exposure

The Group has close trading relationships with a number of key suppliers.

Loss or failure of a key supplier, the inability to source critical materials or poor supplier performance in terms of quality or delivery could disrupt the Group's supply and ability to deliver on time and in full.

Mitigation/Comment

Our exposure is reduced by the fact that the Group can source many of its components from within the De La Rue supply chain.

Where external supply is required, either at the request of the customer or where the Group does not have the required manufacturing capability, established procedures for identifying possible risks for each supplier are in place. Key suppliers are managed through a supplier relationship management programme that includes checks on their creditworthiness, ability to deliver to our quality standards and security and business continuity arrangements. Suppliers are audited on a rotational basis.

As a contingency, alternative suppliers are pre-qualified wherever possible and where necessary we retain higher levels of stocks.

 
Risk

Product security.

Exposure

There is potential for reputational and financial damage in the event of the loss of materials from a manufacturing site as a result of negligence or theft. Loss of product while in transit, particularly during transhipment, through the failure of freight companies or through the loss of an aircraft or vessel as a result of an accident or natural disaster, is also possible. The Group may be contractually liable for those losses.

Mitigation/Comment

Robust physical security and materials control procedures at production sites reduce the risk of an inadvertent loss or theft during manufacturing. Movements of security materials between Group sites and onward delivery to customers are conducted applying stringent operational procedures using carefully selected carriers and suitably screened personnel. All movements are risk managed and monitored globally on a 24/7 basis. A comprehensive global insurance programme is maintained.

 
Risk

Health, safety or environmental failure.

Exposure

All of De La Rue's activities are subject to extensive internal health, safety and environmental (HSE) procedures, processes and controls. Nevertheless, there is a risk that failure of process could, in the worst case, lead to a serious injury or an environmental breach.

Mitigation/Comment

The Group operates a robust HSE management system which is internally audited and certified to the OHSAS18001 and ISO14001 standards in all major facilities. The Group HSE Committee regularly reviews HSE performance which is also monitored monthly by the supply chain leadership. The Board also receives monthly reports. Each manufacturing facility has clear HSE action plans which are prioritised, monitored and subject to review by local senior management to ensure that health and safety standards are maintained.

 
Risk

Loss of a key site.

Exposure

There are a number of key manufacturing sites across the business. The total loss of any one of these key sites could have a major financial impact, particularly where the site forms a single source of supply for the business.

Mitigation/Comment

The business has a high degree of interoperability between sites for banknote production and security printing. We aim to minimise risk by adopting the highest standards of risk engineering in our production processes, particularly to reduce risks from fire hazards and the use of flammable solvents.

In 2013, De La Rue was accredited to ISO22301:2012 Business Continuity standard for its head office and Debden banknote production operations (see case study on page 20 of the De La Rue plc Annual Report 2014)

In recognition of increasing customer requirements on business continuity standards, we continue to enhance business continuity resilience across all of our major facilities in line with the ISO standard.

 

Legal and regulatory risks

Risk

Breach of legal and regulatory requirements.

Exposure

It is possible that employees acting either individually or in collusion with others could act in contravention of the Group's stringent requirements in relation to bribery and corruption, competition and third party partners (TPPs), resulting in major reputational and financial damage to the business.

Mitigation/Comment

In February 2014, De La Rue was formally accredited as a Banknote Ethics Initiative member following a detailed audit of our ethics and compliance processes completed by independent auditors.

The ethical standards of the business are articulated in the Code of Business Principles which is supported by underlying policies, regularly reviewed and enforced robustly. Non-compliances are dealt with through disciplinary procedures where necessary.

Particular focus is given to the operation and development of our anti-bribery and corruption and competition law control frameworks which is supported by delivery of relevant training.

Overseen by the General Counsel and Company Secretary, the Group has a process for the appointment, management and remuneration of TPPs which operates independently of the sales function. The Group's whistleblowing policy and procedure forms an integral part of the compliance framework.

 

Information risks

Risk

Cyber risk.

Exposure

The confidentiality and integrity of our customer, employee and business data could be affected by factors that include human error, ineffective design or operation of key data security controls or through breakdown of IT control processes. Any compromise of the confidentiality of information could impact our reputation with current and potential customers.

Mitigation/Comment

All aspects of information security arrangements are regularly reviewed. There are a number of controls in place to manage this risk including network segregation, access restrictions, system monitoring, security reviews and vulnerability assessments of infrastructure and applications.

The Group maintains accreditation to ISO22701 Information Security standard in respect of its corporate information systems provision.

 
Risk

Loss of core IT systems availability.

Exposure

Outages and interruptions could affect the Group's ability to conduct day to day operations. These could be caused by physical damage to the main data centres or malicious cyber activities.

Mitigation/Comment

Our data centres are resilient and secure. Disaster recovery plans are in place to assist in prompt recovery from any significant system outages or interruptions. Business continuity arrangements, including business impact assessments and regular testing, are kept under regular review and are subject to independent external verification.

 
 
Responsibility Statement of the Directors in respect of the Annual Report Announcement

 

The 2014 Annual Report and Accounts, which will be issued to shareholders on 18 June 2014, contain a responsibility statement in compliance with Rule 4.1.12 of the Financial Services Authority's Disclosure & Transparency Rules. This states that each of the Directors as at 28 May 2014, the date of approval of the 2014 Annual Report and Accounts, confirms that to the best of their knowledge:

(a)  The Group Financial Statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole

(b)  The management report represented by the strategic and directors' reports includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

 

The Board

The Board of Directors that held office at 29 March 2014 and their respective responsibilities can be found on pages 30 and 31 of the De La Rue plc Annual Report 2014.

For and on behalf of the Board

 

Philip Rogerson

Chairman

28 May 2014

 

GROUP INCOME STATEMENT

For the period ended 29 March 2014

 

 

 

 

 


Notes

2014

£m

2013*
£m

Revenue

 

513.3

483.7

Operating expenses - ordinary

 

(424.0)

(422.2)

Operating expenses - exceptional

3

(17.5)

(7.6)

Total operating expenses

 

(441.5)

(429.8)

Operating profit

 

71.8

53.9

Comprising:

 

 


Underlying operating profit before IAS 19R

 

90.5

63.2

Defined benefit pension administration costs (IAS 19R)**

 

(1.2)

(1.7)

Exceptional items

3

(17.5)

(7.6)



 


Profit before interest and taxation

 

71.8

53.9

Interest income

 

0.2

0.2

Interest expense

 

(4.9)

(3.8)

Retirement benefit obligation net finance cost

 

(7.3)

(6.6)

Net finance expense

 

(12.0)

(10.2)

Profit before taxation

 

59.8

43.7

Comprising:

 

 


Underlying profit before tax

 

77.3

51.3

Exceptional items

 

(17.5)

(7.6)

 

 

 


Taxation

4

(11.9)

(5.5)

Profit for the year

 

47.9

38.2

Comprising:

 

 


Underlying profit for the year

 

61.2

39.3

Loss for the year on exceptional items

 

(13.3)

(1.1)

 

 

 


Profit attributable to equity shareholders of the Company

 

47.3

37.2

Profit attributable to non-controlling interests

 

0.6

1.0

 

 

47.9

38.2

 

Profit for the year attributable to the Company's equity holders

 

2014
£m

2013*
£m

Earnings per share

Basic

 

5

 

47.3p

 

37.4p

Diluted

5

47.0p

36.9p

*Restated to reflect the amendments to IAS 19R Employee benefits (IAS 19R) - see note 1

**The impact of IAS 19R on operating profit has been separately disclosed above as we consider this to be useful to the users of the accounts given the importance of the Group's Improvement Plan operating profit target, which was stated before exceptional items and IAS 19R

 

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the period ended 29 March 2014

 

 

 

 

 

 

2014
£m

2013*
£m

Profit for the year

 

47.9

38.2

Other comprehensive income

 

 


Items that are not reclassified subsequently to profit or loss:

 

 


Remeasurement losses on retirement benefit obligations

 

(2.1)

(29.5)

Tax related to  remeasurement of net defined benefit liability

 

(4.7)

5.6

Items that may be reclassified subsequently to profit or loss:

 

 


Foreign currency translation differences for foreign operations

 

(2.5)

1.0

Change in fair value of cash flow hedges

 

(4.2)

(0.9)

Change in fair value of cash flow hedges transferred to profit or loss

 

0.6

2.1

Income tax relating to components of other comprehensive income

 

0.2

(0.1)

Other comprehensive income for the year, net of tax

 

(12.7)

(21.8)

Comprehensive income for the year, net of tax

 

35.2

16.4

Comprehensive income for the year attributable to:

 

 


Equity shareholders of the Company

 

34.6

15.4

Non-controlling interests

 

0.6

1.0

 

 

35.2

16.4

*Restated to reflect the amendments to IAS 19R Employee benefits - see note 1

 

 

GROUP BALANCE SHEET

At 29 March 2014

 

 

 

 

 

2014
£m

2013
£m

Assets

 

 


Non-current assets

 

 


Property, plant and equipment

 

184.3

179.7

Intangible assets

 

18.1

26.0

Investments in associates and joint ventures

 

0.1

0.1

Deferred tax assets

 

37.5

45.5

Derivative financial assets

 

0.4

-

 

 

240.4

251.3

Current assets

 

 


Inventories

 

77.1

73.4

Trade and other receivables

 

105.0

89.2

Current tax assets

 

0.2

0.3

Derivative financial assets

 

2.3

4.9

Cash and cash equivalents

 

57.9

24.8

 

 

242.5

192.6

Total assets

 

482.9

443.9

Liabilities

 

 


Current liabilities

 

 


Borrowings

 

(147.8)

(101.5)

Trade and other payables

 

(170.9)

(167.4)

Current tax liabilities

 

(27.6)

(29.1)

Derivative financial liabilities

 

(5.8)

(3.9)

Provisions for liabilities and charges

 

(21.1)

(26.0)

 

 

(373.2)

(327.9)

Non-current liabilities

 

 


Retirement benefit obligations

 

(168.0)

(169.1)

Deferred tax liabilities

 

(1.3)

(2.8)

Derivative financial liabilities

 

(1.5)

(1.2)

Provisions for liabilities and charges

 

(2.1)

(4.5)

Other non-current liabilities

 

(7.2)

(5.0)

 

 

(180.1)

(182.6)

Total liabilities

 

(553.3)

(510.5)

Net liabilities

 

(70.4)

(66.6)

 

Equity

 

 


Share capital

 

46.3

45.8

Share premium account

 

35.3

31.9

Capital redemption reserve

 

5.9

5.9

Hedge reserve

 

(3.2)

(0.3)

Cumulative translation adjustment

 

(3.4)

(0.4)

Other reserves

 

(83.8)

(83.8)

Retained earnings

 

(72.6)

(70.4)

Total equity attributable to shareholders of the Company

 

(75.5)

(71.3)

Non-controlling interests

 

5.1

4.7

Total equity

 

(70.4)

(66.6)

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

For the period ended 29 March 2014

 

 

 

Attributable to equity shareholders

Non-controlling
interests

Total
equity

 


Share
capital
£m

Share
premium
account
£m

Capital
redemption
reserve
£m


Hedge
reserve
£m

Cumulative
translation
adjustment
£m


Other
reserve
£m


Retained
earnings
£m




£m




£m

Balance at 31 March 2012

45.7

30.7

5.9

(1.2)

(1.4)

(83.8)

(45.4)

3.9

(45.6)

Profit for the year

-

-

-

-

-

-

37.2

1.0

38.2

Other comprehensive income for the year, net of tax

-

-

-

0.9

1.0

-

(23.7)

-

(21.8)

Total comprehensive income for the year

-

-

-

0.9

1.0

-

13.5

1.0

16.4

Transactions with owners of the Company recognised directly in equity:






 




Share capital issued

0.1

1.2

-

-

-

-

-

-

1.3

Employee share scheme:

 

 

 

 


 

 

 

 

- value of services provided

-

-

-

-

-

-

3.0

-

3.0

Income tax on income and expenses recognised directly in equity

-

-

-

-

-

-

0.6

-

0.6

Dividends paid

-

-

-

-

-

-

(42.1)

(0.2)

(42.3)

Balance at 30 March 2013

45.8

31.9

5.9

(0.3)

(0.4)

(83.8)

(70.4)

4.7

(66.6)

Profit for the year

-

-

-

-

-

-

47.3

0.6

47.9

Other comprehensive income for the year, net of tax

-

-

-

(2.9)

(3.0)

-

(6.8)

-

(12.7)

Total comprehensive income for the year

-

-

-

(2.9)

(3.0)

-

40.5

0.6

35.2

Transactions with owners of the Company recognised directly in equity:






 




Share capital issued

0.5

3.4

-

-

-

-

-

-

3.9

Employee share scheme:

 

 

 

 

 

 

 

 

 

- value of services provided

-

-

-

-

-

-

(0.2)

-

(0.2)

Income tax on income and expenses recognised directly in equity

-

-

-

-

-

-

(0.3)

-

(0.3)

Dividends paid

-

-

-

-

-

-

(42.2)

(0.2)

(42.4)

Balance at 29 March 2014

46.3

35.3

5.9

(3.2)

(3.4)

(83.8)

(72.6)

5.1

(70.4)

 

 

GROUP CASH FLOW STATEMENT

For the period ended 29 March 2014

 

 

 

 


Notes

2014
£m

2013*
£m

Cash flows from operating activities

 

 


Profit before tax

 

59.8

43.7

Adjustments for:

 

 


Finance income and expense

 

12.0

10.2

Depreciation and amortisation

 

28.3

26.3

Increase in inventory

 

(6.1)

(4.1)

Increase in trade and other receivables

 

(11.5)

(6.9)

Decrease in trade and other payables

 

(0.9)

(3.8)

Decrease in reorganisation provisions

 

(6.0)

(10.4)

Special pension fund contributions

 

(11.5)

(16.2)

(Profit)/loss on disposal of property, plant, equipment and software intangibles

 

(4.0)

0.3

Asset impairment

 

14.2

-

Other non-cash movements

 

(0.4)

1.3

Cash generated from operating activities

 

73.9

40.4

Tax paid

 

(11.2)

(7.5)

Net cash flows from operating activities

 

62.7

32.9

Cash flows from investing activities

 

 


Purchases of property, plant, equipment and software intangibles

 

(34.9)

(37.1)

Development assets capitalised

 

(4.7)

(3.7)

Proceeds from sale of property, plant and equipment

 

8.1

0.2

Net cash flows from investing activities

 

(31.5)

(40.6)

Net cash flows before financing activities

 

31.2

(7.7)

Cash flows from financing activities

 

 


Proceeds from issue of share capital

 

3.8

1.3

Proceeds from borrowings

 

47.2

50.9

Interest received

 

0.2

0.2

Interest paid

 

(4.6)

(3.5)

Dividends paid to shareholders

 

(42.2)

(42.1)

Dividends paid to non-controlling interests

 

(0.2)

(0.2)

Net cash flows from financing activities

 

4.2

6.6

Net increase/(decrease) in cash and cash equivalents in the year

 

35.4

(1.1)

Cash and cash equivalents at the beginning of the year

 

21.7

22.5

Exchange rate effects

 

(0.9)

0.3

Cash and cash equivalents at the end of the year

 

56.2

21.7

Cash and cash equivalents consist of:

 

 


Cash at bank and in hand

7

55.7

24.8

Short term bank deposits

7

2.2

-

Bank overdrafts

7

(1.7)

(3.1)

 

7

56.2

21.7

*Restated to reflect the amendments to IAS 19R Employee benefits - see note 1

 

1 Basis of preparation and accounting policies

The annual financial report announcement for the period ended 29 March 2014 has been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (collectively "IFRS") as adopted by the European Union (EU) at 29 March 2014. Details of the accounting policies applied are those set out in De La Rue plc's annual report 2013.

During the period a number of amendments to IFRS became effective and were adopted by the Group, none of which had a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share, other than IAS 19 - Employee benefits, which requires retrospective adoption and therefore prior periods have been restated.

As a result of IAS 19 (2011) the Group has changed its accounting policy with respect to the basis for determining the income or expense related to its defined benefit scheme. Under IAS 19 (2011) the Group determines the net interest income for the period on the net defined asset by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit asset at the beginning of the annual period, taking into account any changes in the net defined benefit asset during the period as a result of contributions and benefit payments.  In addition, pension administration charges are now charged against operating profit.

The impact of the change has been to increase operating costs by £1.2m (2012/13: £1.7m), increase the net interest expense by £6.7m (2012/13: £6.1m) and reduce taxation by £1.8m (2012/13: £1.9m), with compensating adjustments in other comprehensive income leaving equity unchanged. This has reduced profit after tax by £6.1m (2012/13: £5.9m), and reduced underlying and basic EPS by 6.1p (2012/13: 5.9p).

A number of other new and amended IFRS were issued during the year which do not become effective until after 29 March 2014. None of these are likely to have a material impact on the Group for the 2014/15 year.

The financial information set out above does not constitute the Group's statutory accounts for the periods ended 29 March 2014 or 30 March 2013. The financial information for the period ended 29 March 2014 is derived from the statutory accounts for the period ended 29 March 2014 which will be delivered to the registrar of companies. The auditor has reported on the accounts for the period ended 29 March 2014; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These consolidated financial statements have been prepared on the going concern basis and using the historical cost convention, modified for certain items carried at fair value, as stated in the Group's accounting policies. 

 

2 Segmental analysis

The Group has two business units, Currency and Solutions.  Currency is a single operating unit.  Solutions consists of three operating units: Cash Processing Solutions, Security Products and Identity Systems.  The Board, which is the Group's Chief Operating Decision Maker, monitors the performance of the Group at an operating unit level and there are therefore four reportable segments.  The principal financial information reviewed by the Board, is revenue and underlying operating profit, measured on an IFRS basis.

The Group's segments are:

·     Currency - provides banknote paper, printed banknotes and banknote security components

·     Solutions

- Cash Processing Solutions - primarily focused on the production of large banknote sorters and authentication machines for central banks, complimenting the Currency business

- Security Products - produces security documents, including authentication labels, brand licensing products, government documents, cheques and postage stamps

- Identity Systems - involved in the provision of passport, ePassport, national ID and eID, driving licence and voter registration schemes

 

Inter-segmental transactions are carried out on an arms length basis and eliminated upon consolidation.

 

 

 


Solutions



2014

Currency

Cash Processing Solutions

Security Products

Identity Systems

Unallocated

Total


£m

£m

£m

£m

£m

£m

Total revenue

342.7

57.4

46.2

77.6

-

523.9

Less: inter-segment revenue

(1.9)

(4.2)

(4.5)

-

-

(10.6)

340.8

53.2

41.7

77.6

-

513.3

Underlying operating profit

62.0

(4.1)

10.6

22.0

-

90.5

Defined benefit pension administration cost





(1.2)

(1.2)

Exceptional items - operating (note 3)

0.5

(16.9)

1.3

-

(2.4)

(17.5)

Operating profit/(loss)

62.5

(21.0)

11.9

22.0

(3.6)

71.8

Net interest expense





(4.7)

(4.7)

Retirement benefit obligations net finance expense





(7.3)

(7.3)






59.8

Segment assets

247.7

35.6

26.4

39.8

133.4

482.9

Segment liabilities

(133.0)

(11.4)

(7.7)

(21.9)

(379.3)

(553.3)

Capital expenditure on property, plant and equipment

35.2

0.6

1.4

1.7

-

38.9

Capital expenditure on intangible assets

1.9

2.5

2.2

0.1

-

6.7

Depreciation of property, plant and equipment

17.1

1.3

2.0

3.4

-

23.8

Impairment of property, plant and equipment

-

3.6

-

-

-

3.6

Amortisation of intangible assets

1.3

2.7

-

0.5

-

4.5

-

10.6

-

-

-

10.6

 


Solutions



2013*

Currency

Cash Processing Solutions

Security Products

Identity Systems

Unallocated

Total


£m

£m

£m

£m

£m

£m

Total revenue

298.1

61.2

45.1

84.4

-

488.8

Less: inter-segment revenue

(1.9)

-

(3.2)

-

-

(5.1)

Revenue

296.2

61.2

41.9

84.4

-

483.7

Underlying operating profit

38.0

-

8.9

16.3

-

63.2

Defined benefit pension administration cost





(1.7)

(1.7)

Exceptional items - operating (note 3)

(1.8)

-

(2.1)

-

(3.7)

(7.6)

Operating profit/(loss)

36.2

-

6.8

16.3

(5.4)

53.9

Net interest expense





(3.6)

(3.6)

Retirement benefit obligations net finance expense





(6.6)

(6.6)

Profit before taxation         






43.7

Segment assets

220.8

49.3

21.8

45.5

106.5

443.9

Segment liabilities

(112.2)

(21.9)

(8.9)

(23.8)

(343.7)

(510.5)

Capital expenditure on property, plant and equipment

33.3

1.7

6.8

0.4

-

42.2

Capital expenditure on intangible assets

3.1

1.0

-

0.1

-

4.2

Depreciation of property, plant and equipment

17.6

1.8

0.9

3.1

-

23.4

Amortisation of intangible assets

1.3

1.0

-

0.6

-

2.9

 

 

*Restated to reflect the amendments to IAS 19R Employee benefits - see note 1

Unallocated assets principally comprise deferred tax assets of £37.5m (2012/13: £45.5m), cash and cash equivalents of £57.9m (2012/13: £24.8m) which are used as part of the Group's financing offset arrangements and derivative financial instrument assets of £2.7m (2012/13: £4.9m) as well as current tax assets, associates and centrally managed property, plant and equipment.

Unallocated liabilities principally comprise retirement benefit obligations of £168.0m (2012/13: £169.1m), borrowings of £147.8m (2012/13: £101.5m), current tax liabilities of £27.6m (2012/13: £29.1m) and derivative financial instrument liabilities of £7.3m (2012/13: £5.1m) as well as deferred tax liabilities and centrally held accruals and provisions.

 

 

3 Exceptional items

 

 


2014     
£m     

2013
£m

Site relocation and restructuring

(3.5)    

(7.6)

Legacy indirect tax issue

(2.2)

-

Multi year contract bid costs

(1.1)

-

Professional fees on aborted acquisition

(1.0)

-

Gain on sale of fixed assets

4.5 

-

CPS asset impairment

(14.2)

-

Total exceptional items

(17.5)    

(7.6)

 

 


Tax credit on exceptional items

4.2     

6.5

 

Exceptional costs of £3.5m have been incurred in 2013/14 in connection with the ongoing costs of implementing the Improvement Plan (2012/13: £7.6m). This brings the cumulative exceptional charges taken in respect of the Improvement Plan to a total of £35.2m.

In addition, £1.1m of charges were incurred in connection with the preparation of bids for the supply of products or services under multi year arrangements, £2.2m of charges with regard to the resolution of an overseas historic indirect tax liability, £1.0m of legal and professional fees incurred in relation to an aborted acquisition and £14.2m in relation to tangible and intangible asset impairments. These costs were partly offset by a gain on sale of fixed assets in the year of £4.5m. The net cash cost of exceptional items in the year was £4.0m.

Following a detailed review of the individual cash generating units (CGU's) within the CPS business and the performance of the business as a whole, impairment charges of £14.2m (£7.4m; development intangibles, £3.2m; goodwill intangibles and £3.6m; tangible assets) have been recognised.  This is a consequence of lower expectations of future trading performance, informed by the poor trading result reported in the current financial year.  These lower expectations, and hence lower forecast cash inflows, reflect the benefit of the targeted breakeven plan for 2014/15 but also recognise the continuing challenging environment for CPS. 

The £3.5m exceptional operating charge with respect to the Improvement Plan reported in 2013/14 (2012/13: £7.6m) comprised £1.5m (2012/13: £0.8m) in staff compensation, £nil (2012/13: £0.2m) of accelerated depreciation on property, plant and equipment, £0.7m credit (2012/13: £4.3m charge) for site exit costs and £2.7m (2012/13: £2.3m) in other associated reorganisation costs.

Tax credits relating to exceptional items arising in the period were £0.9m (2012/13: £2.1m). In addition there was an exceptional credit of £3.3m (2012/13: £4.4m) in respect of the determination of the tax treatment of prior year exceptional items, of which £1.7m credit related to discontinued operations.

 

 

4 Taxation

 

 

 

 

2014
£m

2013*
£m

Consolidated income statement

 


Current tax:

 


UK corporation tax:

 


- Current tax

12.4

8.2

- Adjustment in respect of prior years

(0.7)

(3.8)

 

11.7

4.4

Overseas tax charges:

 


- Current year

3.6

3.9

- Adjustment in respect of prior years

(2.9)

(1.0)

 

0.7

2.9

Total current income tax expense

12.4

7.3

Deferred tax:

 


- Origination and reversal of temporary differences, UK

0.9

(3.1)

- Origination and reversal of temporary differences, overseas

(1.4)

1.3

Total deferred tax credit

(0.5)

(1.8)

Total income tax expense in the consolidated income statement

11.9

5.5

Attributable to:

 


- Ordinary activities

16.1

12.0

- Exceptional items

(4.2)

(6.5)

 

 

Consolidated statement of comprehensive income:

 


- On remeasurement of net defined benefit liability

4.7

(5.6)

- On cash flow hedges

(0.7)

0.3

- On foreign exchange on quasi-equity balances

0.5

(0.2)

Income tax expense/(credit) reported within comprehensive income

4.5

(5.5)

 

 

Consolidated statement of changes in equity:

 


- On share options

0.3

(0.6)

Income tax expense/(credit) reported within equity

0.3

(0.6)

 

The tax on the Group's consolidated profit before tax differs from the UK tax rate of 23 per cent as follows:

 

2014

2013*


Before exceptional items

 

Exceptional items

 

 

Total

Before exceptional items

 

Exceptional items

 

 

Total


£m

£m

£m

£m

£m

£m

Profit before tax

77.3

(17.5)

59.8

51.3

(7.6)

43.7

Tax calculated at UK tax rate of 23 per cent (2013: 24 per cent)

17.8

(4.0)

13.8

12.3

(1.8)

10.5

Effects of overseas taxation

(1.8)

-

(1.8)

(0.7)

-

(0.7)

Expenses/(credits) not allowable for tax purposes

0.6

1.3

1.9

1.3

(0.3)

1.0

Increase in unutilised tax losses

0.5

1.7

2.2

0.3

-

0.3

Adjustments in respect of prior years

(0.1)

(3.3)

(3.4)

(1.1)

(4.4)

(5.5)

Change in UK tax rate

(0.9)

0.1

(0.8)

(0.1)

-

(0.1)

Tax expense/(credit)

16.1

(4.2)

11.9

12.0

(6.5)

5.5

*Restated to reflect the amendments to IAS 19R Employee benefits - see note 1

The underlying effective tax rate excluding exceptional items was 20.8 per cent (2012/13: 23.4 per cent).

 

5 Earnings per share

 

 

 

2014
pence
per
share

2013*
pence
per
share

Total operations

 


Basic earnings per share

47.3

37.4

Diluted earnings per share

47.0

36.9

Underlying

 


Basic earnings per share

60.7

38.5

Diluted earnings per share

60.2

38.0

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the impact of all dilutive potential ordinary shares.

The Directors are of the opinion that the publication of the underlying earnings per share, before exceptional items, is useful to readers of the accounts as it gives an indication of underlying business performance.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

 

Earnings

2014

£m

2013*
£m

Earnings for basic and diluted earnings per share

47.3

37.2

Exceptional items

17.5

7.6

Less: Tax on exceptional items

(4.2)

(6.5)

Earnings for underlying earnings per share

60.6

38.3

 

Weighted average number of ordinary shares

2014
Number
m

2013
Number
m

For basic earnings per share

99.9

99.6

Dilutive effect of share options

0.7

1.1

For diluted earnings per share

100.6

100.7

*Restated to reflect the amendments to IAS 19R Employee benefits - see note 1

6 Equity dividends

 

 

 

2014
£m

2013
£m

Final dividend for the period ended 30 March 2013 of 28.2p paid on 1 August 2013

28.1

-

Interim dividend for the period ended 28 September 2013 of 14.1p paid on 8 January 2014

14.1

-

Final dividend for the period ended 31 March 2012 of 28.2p paid on 2 August 2012

-

28.1

Interim dividend for the period ended 29 September 2012 of 14.1p paid on 9 January 2013

-

14.0

 

42.2

42.1

A final dividend per equity share of 28.2p has been proposed for the period ended 29 March 2014, payable on 1 August 2014. In accordance with IFRS accounting requirements this dividend has not been accrued in these consolidated financial statements.

 

7 Financial Instruments

Carrying amounts versus fair values

The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:


Total fair

value

Mar 2014

£m

Carrying

amount

Mar 2014

£m

Total fair

value

Mar 2013

 £m

Carrying

amount

Mar 2013

£m

Financial assets





Derivative financial instruments:





- Interest rate swaps

0.2

0.2

-

-

- Forward exchange contracts designated as cash flow hedges

0.7

0.7

3.3

3.3

- Short duration swap contracts designated as fair value hedges

0.1

0.1

0.1

0.1

- Foreign exchange fair value hedges - other economic hedges

1.2

1.2

0.6

0.6

- Embedded derivatives

0.5

0.5

0.9

0.9

Total financial assets

2.7

2.7

4.9

4.9






Financial liabilities





Derivative financial instruments:





- Forward exchange contracts designated as cash flow hedges

(5.0)

(5.0)

(3.5)

(3.5)

- Short duration swap contracts designated as fair value hedges

(0.2)

(0.2)

(0.1)

(0.1)

- Foreign exchange fair value hedges - other economic hedges

(0.1)

(0.1)

(1.3)

(1.3)

- Embedded derivatives

(2.0)

(2.0)

(0.2)

(0.2)

Total financial liabilities

(7.3)

(7.3)

(5.1)

(5.1)

Fair value measurement basis for derivative financial instruments

Fair value is calculated based on the present value of future principal and interest cash flows, discounted 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. The financial assets and liabilities detailed in the above table are level 2 valuations.

 

8 Analysis of net debt

 

 

 

2014
£m

2013
£m

Cash at bank and in hand

55.7

24.8

Short term bank deposits

2.2

-

Bank overdrafts

(1.7)

(3.1)

Total cash and cash equivalents

56.2

21.7

Borrowings due within one year

(146.1)

(98.4)

Net debt

(89.9)

(76.7)

 

9 Property, plant and equipment

 

 

 

 

 

 

Land and
buildings
£m

Plant and
machinery
£m

Fixtures and
fittings
£m

In course of
construction
£m


Total
£m

Cost

 

 

 

 

 

At 31 March 2012

60.2

320.2

23.9

15.8

420.1

Exchange differences

0.2

1.2

0.1

-

1.5

Additions

0.4

6.5

1.4

33.9

42.2

Transfers from assets in the course of construction

0.4

25.7

3.8

(29.9)

-

Disposals

(1.3)

(15.8)

(2.9)

(0.3)

(20.3)

At 30 March 2013

59.9

337.8

26.3

19.5

443.5

Exchange differences

(0.4)

(4.6)

(0.5)

(0.1)

(5.6)

Additions

-

3.0

0.6

35.3

38.9

Transfers from assets in the course of construction

6.1

24.3

3.8

(35.8)

(1.6)

Disposals

-

(8.3)

(1.0)

(0.2)

(9.5)

At 29 March 2014

65.6

352.2

29.2

18.7

465.7

Accumulated depreciation

 

 

 

 

 

At 31 March 2012

23.9

217.2

18.1

-

259.2

Exchange differences

0.1

0.8

0.1

-

1.0

Depreciation charge for the year

1.6

19.9

1.9

-

23.4

Disposals

(1.3)

(15.7)

(2.8)

-

(19.8)

At 30 March 2013

24.3

222.2

17.3

-

263.8

Exchange differences

(0.2)

(3.8)

(0.4)

-

(4.4)

Depreciation charge for the year

1.5

19.7

2.6

-

23.8

Impairment

2.2

0.5

0.9

-

3.6

Disposals

-

(4.7)

(0.7)

-

(5.4)

At 29 March 2014

27.8

233.9

19.7

-

281.4

Net book value at 29 March 2014

37.8

118.3

9.5

18.7

184.3

Net book value at 30 March 2013

35.6

115.6

9.0

19.5

179.7

Net book value at 31 March 2012

36.3

103.0

5.8

15.8

160.9

 

10 Retirement benefit obligations

 

 

The Group operates retirement benefit schemes covering the majority of employees. These plans are devised in accordance with local conditions and practices in the country concerned. The assets of the Group's plans are generally held in separately administered trusts or are insured.

 

2014
£m

2013*
£m

UK defined benefit pension

(165.6)

(166.7)

Overseas defined benefit pension

(2.4)

(2.4)

Gross defined benefit pension

(168.0)

(169.1)

Deferred tax

33.9

39.0

Net defined benefit pension

(134.1)

(130.1)

 

 

 

The largest defined benefit pension plan operated by the Group is in the UK. A full actuarial valuation of the plan was carried out by a qualified actuary as at 5 April 2012 and updated to 29 March 2014. The plan is valued formally every three years, the next valuation being as at April 2015.

 

Changes in the fair value of UK plan assets:

2014
£m

2013*
£m

At 30 March 2013 / 31 March 2012

761.1

697.6

Interest income on plan assets

33.7

33.2

Plan administration expenses

(1.2)

(1.7)

Return on plan assets less interest income

3.5

42.3

Employer contributions and other income

11.9

22.4

Plan participant contributions

- 

2.5

Benefits paid (including transfers)

(35.1)

(35.2)

At 29 March 2014 / 30 March 2013

773.9

761.1




Changes in the fair value of UK plan assets:

2014
£m

2013*
£m

At 30 March 2013 / 31 March 2012

(927.8)

(840.9)

Current service cost

- 

(7.8)

Curtailments

- 

- 

Interest cost on liabilities

(41.0)

(39.8)

Effect of changes in financial assumptions

0.2

(72.6)

Effect of changes in demographic assumptions

- 

- 

Effect of experience items on liabilities

(6.0)

0.6

Plan participant contributions

- 

(2.5)

Benefits paid (including transfers)

35.1

35.2

At 29 March 2014 / 30 March 2013

(939.5)

(927.8)

 

 

 

Amounts recognised in the consolidated balance sheet:

2014
£m

2013*
£m

Equities

281.1

309.0

Bonds

89.4

169.0

Gilts

154.1

169.7

Diversified Growth Fund

155.6

-

Liability Driven Investment Fund

65.8

-

Other

27.8

113.4

Fair value of plan assets

773.9

761.1

Present value of funded obligations

(931.8)

(920.2)

Funded defined benefit pension plans

(157.9)

(159.1)

Present value of unfunded obligations

(7.7)

(7.6)

Net liability

(165.6)

(166.7)

 

 

 

Amounts recognised in the consolidated income statement:

2014
£m

2013*
£m

Included in employee benefits expense:



- Current service cost

-

(7.8)

- Administrative expenses and taxes

(1.2)

(1.7)

Included in interest on retirement benefit obligation net finance expense



- Interest income on plan assets

33.7

33.2

- Interest cost on liabilities

(41.0)

(39.8)

Retirement benefit obligation net finance expense

(7.3)

(6.6)

Total recognised in the consolidated income statement

(8.5)

(16.1)

Return on plan assets excluding interest income

74.3

42.3

Actuarial gains on plan assets

3.5

35.0

Actuarial losses on defined benefit pension obligations

(5.8)

(72.0)

Amounts recognised in other comprehensive income

(2.3)

(29.7)

*Restated to reflect the amendments to IAS 19R Employee benefits - see accounting policies

 

 


Principal actuarial assumptions:

 


 

2014
UK
%

2013
UK
%

Future pension increases - past service

3.70

3.70

Discount rate

4.50

4.50

Inflation rate

3.40

3.40




The financial assumptions adopted as at 29 March 2014 reflect the duration of the plan liabilities which has been estimated to be 19 years.

The mortality assumptions used to assess the defined benefit obligation for the UK plan are based on tables issued by the Continuous Mortality Investigation Bureau. At 29 March 2014 mortality assumptions were based on the SAPS All lives tables, with future improvements in line with the CMI model, CMI_2011 and a long term rate of 1.0 per cent per annum. This assumption is unchanged from that used as at 31 March 2013. The resulting life expectancies are as follows:

 

2014

2013

Aged 65 retiring immediately (current pensioner) - Male

22.2

22.2

Aged 65 retiring immediately (current pensioner) - Female

24.6

24.5

Aged 50 retiring in 17 years (future pensioner) - Male

21.5

23.2

Aged 50 retiring in 17 years (future pensioner) - Female

23.9

25.7

 

 

 

The defined benefit pension schemes expose the Group to the following main risks:

Mortality risk - an increase in the life expectancy of members will increase the liabilities of the schemes. The mortality assumptions are reviewed regularly, and are considered appropriate.

Interest rate risk - A decrease in bond yields will increase the liabilities of the scheme. Liability driven investment strategies are used to hedge part of this risk.

Investment risk - The pension schemes invest in a range of assets to mitigate the risk of any single asset class, and align growth and returns to the long term funding objectives. The investment strategy is reviewed regularly to ensure it continues to be appropriate.

Inflation risk - The liabilities of the scheme are linked to inflation. An increase in inflation will result in an increase in liabilities. There are caps in place for UK scheme benefits to mitigate the risk of extreme increases in inflation. Liability driven investment strategies are used to hedge part of this risk.

Any increase in the retirement benefit obligation could lead to additional funding obligations in future years. The Group has agreed deficit funding to the scheme of £17.5m for 2014/15, rising by 4% per annum until 2022.

11 Related party transactions

 

 

 

During the year the Group traded on an arms length basis with the associated company Fidink (33.3 per cent owned) The Group's trading activities with this company included £24.5m (2012/13: £17.4m) for the purchase of security ink and other consumables. At the balance sheet date there were creditor balances of £7.1m (2012/13: £1.7m) with Fidink.  Intra-Group transactions between the parent and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation. Such transactions were contracted on an arms length basis.

 

Key management compensation

 

 

 


2014
£m

2013
£m

 

Salaries and other short-term employee benefits

5,096.8

2,968.2

 

Termination benefits

200.0

549.2

 

Retirement benefits:

 


 

- Defined contribution

171.7

149.6

 

- Defined benefit

-

33.2

 

Share based payments

(617.1)

1,959.8

 

 

4,851.4

5,660.0

 

 

 

 

 

Key management comprises members of the Board (including the fees of Non-executive Directors) and the Executive Committee. Termination benefits includes compensation for loss of office, ex gratia payments, redundancy payments, enhanced retirement benefits and any related benefits in kind connected with a person leaving office or employment.

 

 

12 Contingent liabilities

De La Rue has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation matters. While the outcome of litigation and other disputes can never be predicted with certainty, having regard to legal advice received and the insurance arrangements of the Company and its subsidiaries, the Directors believe that adequate provision has been made to cover these matters.   The Group provides guarantees and performance bonds which are issued in the ordinary course of business.  In the event that a guarantee or bond is called, provision may be required subject to the particular circumstances, including an assessment of its recoverability.

In July 2010 the Board commissioned an investigation by external lawyers into issues that had been brought to its attention internally. The investigation, which was completed in October 2010, found nothing of substance to support the matters raised other than in respect of some paper production issues where it was found that a small number of the many detailed specification parameters of some paper had fallen marginally short of specification. It was also established that certain paper specification test certificates had been deliberately falsified. The Board reported the findings of the investigation to the appropriate authorities, who are considering the matter, and has implemented a number of measures arising from the findings of the investigation.

Provision has been made in prior years for the costs associated with the paper production issues identified at this stage including the write off of trade receivables and other costs relating to the investigation, production and rectification of these matters.

Provision has not been made for the potential cost of resolutions or for potential fines from regulatory authorities. The nature and extent of these resolutions will be the subject of ongoing discussions, the outcome of which cannot be estimated reliably at present. The timing, response and outcome of the consideration by the authorities of the reported findings of the investigation is also uncertain and the financial consequences, if any, cannot be estimated reliably at present.

 

13 Capital commitments

 

 

 

2014
£m

2013
£m

The following commitments existed at the balance sheet date:

 


- Contracted but not provided for in the accounts

9.3

19.9

 

14 Dates

The consolidated accounts have been prepared as at 29 March 2014, being the last Saturday in March. The comparatives for the 2012/13 financial year are for the period ended 30 March 2013.

 

15 Statutory accounts

Statutory accounts for the period ended 29 March 2014 will be made available to shareholders for subsequent approval at the Annual General Meeting and copies will be available from the Company Secretary at De La Rue plc, De La Rue House, Jays Close, Viables, Hampshire, RG22 4BS.

 

16 Foreign exchange

Principal exchange rates used in translating the Group's results:


2013/14

2012/13


Average

Year End

Average

Year End

US dollar

1.59

1.66

1.58

1.52

Euro

1.19

1.21

1.22

1.18

 

17 De La Rue financial calendar : 2014/15

 

Ex-dividend date for 2013/14 final dividend

2 July 2014

Record date for final dividend

4 July 2014

Annual General Meeting

24 July 2014

Payment of 2013/14 final dividend

1 August 2014

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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