TIDMDLAR
RNS Number : 0674Z
De La Rue PLC
24 May 2016
De La Rue plc
24 May 2016
Solid performance and good early strategic progress
De La Rue plc (LSE: DLAR) (De La Rue, the "Group" or the
"Company") announces its full year results for the twelve months
ended 26 March 2016 (the period or full year).
KEY FINANCIALS
The table below shows the performance before and after the
disposal of the Cash Processing Solutions (CPS) business which was
sold on 22 May 2016.
Continuing Operations* Pre Disposal*
2015/16 2014/15 Change 2015/16 2014/15 Change
GBPm GBPm % GBPm GBPm %
Revenue 454.5 422.8 7% 488.2 472.1 3%
Underlying operating
profit** 70.4 69.1 2% 62.5 69.5 (10%)
Underlying operating
margin** 15.5% 16.3% (80bpts) 12.8% 14.7% (190bpts)
Underlying profit before
tax** 58.5 57.5 2% 50.4 57.7 (13%)
Reported profit before
tax 54.9 40.6 35% 20.8 38.9 (47%)
Underlying earnings
per share** 48.1p 46.1p 4% 41.0p 47.9p (14%)
Reported earnings per
share 46.8p 31.8p 47% 16.2p 34.0p (52%)
Total dividend per
share 25.0p 25.0p 0% 25.0p 25.0p 0%
* "Continuing Operations" is the Group excluding CPS, "Pre Disposal"
is the Group including CPS.
** On continuing operations basis, underlying numbers are before
a net exceptional charge of GBP3.6m (restated 2014/15: GBP16.9m).
Underlying EPS is calculated before the exceptional charge noted
above and exceptional tax credits of GBP2.3m (restated 2014/15:
GBP2.4m). On pre disposal basis, underlying numbers are before
a net exceptional charge of GBP29.6m (2014/15: GBP18.8m). Underlying
EPS is calculated before the exceptional charge noted above and
exceptional tax credits of GBP4.5m (2014/15: GBP4.7m).
FINANCIAL HIGHLIGHTS
-- Full year results in line with trading update on 13 April 2016
-- Year on year revenue up 7% and underlying operating profit up 2%(1)
-- Positive operating cash flow resulting in net debt reduction
of GBP4.9m to GBP106.1m. Net debt/EBITDA at 1.25x
-- Underlying earnings per share up 4% to 48.1p(1)
-- Final dividend maintained at 16.7p. Full year dividend unchanged at 25.0p.
-- Group 12 month order book up 62% year-on-year at GBP365m(1) ,
providing good visibility for the year ahead
OPERATIONAL HIGHLIGHTS
-- Banknotes volume up 9% to 7.1bn and Banknote Paper up 6% to
10,000 tonnes, benefiting from overspill contracts
-- Currency revenue up 11% and underlying operating profit up 9%
-- Successfully outsourced production of >500m banknotes
-- Product Authentication and Traceability underlying operating
profit up 19% due to reduced costs
-- Identity Solutions revenue and underlying operating profit
lower as a result of expected contractual reduction
-- Reorganisation from divisional to functional structure completed
-- 10% net average headcount reduction to 3,566 from operational improvements
STRATEGIC HIGHLIGHTS
-- Cash Processing Solutions business 'root and branch' review concluded with business sold
-- Encouraging progress in Polymer with a significant new
three-year contract and doubling the number of customers to 14 note
issuing authorities
-- Doubled number of patent filings. Launched next generation
security thread Active(TM) and two end-to-end software solutions -
DLR Identify(TM) and DLR Certify(TM)
-- Manufacturing footprint review completed: reducing capacity
by 25% and consolidating banknote print production to four sites(3)
to achieve >GBP13m savings p.a. from 2018/19
1. Continuing operations only
2. Excluding the site managed on behalf of Bank of England
3. Including the site managed on behalf of Bank of England
Martin Sutherland, Chief Executive Officer, commented:
"In the last year we have made good progress against our five
year strategic plan to transform De La Rue into a technology-led
security product and service provider. We have reorganised the
business structure, increased investment in product development and
new technologies, and successfully completed a manufacturing
footprint review.
"Our Currency product lines have performed very well during the
year. I am particularly pleased with our progress in Polymer which
is a large and growing market. We have doubled our customer base in
Polymer over the last year, including securing our first volume
customer, and as the only vertically integrated polymer substrate
manufacturer, we are well placed to continue to capture this growth
opportunity.
"CPS continued to underperform in the second half of the year.
Following a 'root and branch' review, we decided to exit the
business and have now completed the sale.
"Looking ahead, whilst there is more to do, I am pleased with
the progress we have made in the year and I am confident that the
right foundations are now in place to develop a more balanced
business portfolio and increase profitability. Our 12 month closing
order book of GBP365m provides good visibility for the year ahead.
Whilst, as previously announced, a material contract came to an
end, we are confident that we can mitigate the impact and our
expectations for the current year are unchanged."
Enquiries:
De La Rue plc +44 (0)1256 605000
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Martin Sutherland Chief Executive Officer
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Jitesh Sodha Chief Financial Officer
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Lili Huang Head of Investor Relations
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Brunswick +44 (0)207 404 5959
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Jon Coles
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Oliver Hughes
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A presentation to analysts will take place at 9:00 am BST on 24
May 2016 at the Lincoln Centre, 18 Lincoln's Inn Fields, WC2A
3ED. This will also be accessible via a conference call and an
audio webcast. Dial-ins for the conference call are +44 (0) 20
3059 8125, passcode: De La Rue. An archive of the conference call
is also available for a week from midday 24 May 2016, which is
accessible via +44 (0) 121 260 4861, passcode: 3214 492#. For
the live video webcast, please register at www.delarue.com where
a replay will also be available subsequently.
About De La Rue
De La Rue is a leading commercial banknote printer, security paper
maker and provider of security products and software solutions and,
as a trusted partner of governments, central banks and commercial
organisations around the world, is at the forefront of the battle
against the counterfeiter.
De La Rue, as the world's largest commercial banknote printer, provides
customers with a fully integrated range of sophisticated products
and services which are available either individually or as a whole.
This includes a leading design capability, production of innovative
security components, manufacture of security paper and polymer substrates
and sophisticated printing of banknotes, all contributing to trust
in the integrity of currencies.
De La Rue is the world's largest commercial passport manufacturer
in an environment of increasing global concern over security at
national boundaries and border control. De La Rue also produces
a wide range of other security products, including tax stamps for
governments who are seeking to combat illicit trade and collect
excise duties. Other products include authentication labels, assuring
purchasers of product validity, and government identity documents.
De La Rue also provides a range of specialist services and software
solutions including government identity schemes and product authentication
systems.
De La Rue is listed on the London Stock Exchange (LSE:DLAR). For
further information visit www.delarue.com
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.
PRELIMINARY STATEMENT
De La Rue's full year results were in line with the upgraded
expectations announced in the trading update on 13 April 2016. With
a backdrop of challenging market conditions and significant
internal changes, the Group has made good progress in the first
year of the five year strategic plan which aims to focus the
business into growth markets while driving operational efficiency.
The Group has strengthened the 12 month order book to GBP365m(1)
(2015: GBP226m) as at the end of the period.
Revenue in Currency product lines, encompassing Banknotes,
Banknote Paper, Polymer and Security Features, grew 11% whilst
underlying operating profit was up 9%. These increases were
primarily driven by higher banknote volumes, partly from overspill
orders, and from greater operational efficiencies. As previously
announced, a material security features contract which contributed
annual revenue of cGBP30m came to an end during the year.
There was encouraging progress in Polymer with the winning of a
significant three year contract and the doubling of the number of
customers to 14 issuing authorities. The Currency product lines'
closing order book was up 85% year on year.
Identity Solutions has performed as expected with lower revenue
and margin due to a contractual reduction in contribution from a
large contract. With the launch of our first identity software
solution DLR Identify(TM), we have strengthened our digital and
service offerings which will help us to capture a larger share of
the passport value chain. Revenue in Product Authentication &
Traceability (PA&T) was flat year on year with higher margins
due to cost savings from the Dulles site closure.
Cash Processing Solutions (CPS) continued to underperform in the
second half. Following the 'root and branch' review of CPS, we have
sold the business.
FINANCIAL RESULTS
On a pre disposal basis, group revenue grew 3% to GBP488.2m
(2014/15: GBP472.1m). Underlying operating profit fell by 10% to
GBP62.5m (2014/15: GBP69.5m), mainly due to a loss of GBP7.9m in
CPS (2014/15: profit GBP0.4m). Underlying profit before tax was 13%
lower at GBP50.4m (2014/15: GBP57.7m) and underlying earnings per
share decreased to 41.0p (2014/15: 47.9p).
On a continuing operations basis, group revenue was up 7% to
GBP454.5m (2014/15: GBP422.8m). Underlying operating profit
increased by 2% to GBP70.4m (2014/15: GBP69.1m). Underlying profit
before tax was GBP58.5m (2014/15: GBP57.5m) and underlying earnings
per share were up 4% to 48.1p (2014/15: 46.1p).
On a pre disposal basis, net exceptional charges before tax in
the period were GBP29.6m (2014/15: GBP18.8m) of which GBP26.0m
related to the CPS discontinued activities (more fully described in
notes 3 and 4). As a result, profit before tax was 47% lower at
GBP20.8m (2014/15: GBP38.9m).On a continuing operations basis,
profit before tax was up 35% to GBP54.9m (2014/15: GBP40.6m).
DIVID
The Board proposes to maintain the dividend at the 2014/15 level
and is recommending a final dividend of 16.7p per share (2014/15:
16.7p per share). Together with the interim dividend paid in
January 2016, this will give a total dividend for the year of 25.0p
per share (2014/15: 25.0p per share). Subject to shareholders'
approval, the final dividend will be paid on 3 August 2016 to
shareholders on the register on 24 June 2016.
The Board also recommends the introduction of an alternative
scrip dividend scheme. The proposed scheme will give shareholders
the option to receive new fully paid Ordinary Shares in the Company
in place of their cash dividend payments. The Board intends that
the necessary resolution to introduce the scrip dividend scheme
will be put to shareholders at the AGM on the 21 July 2016. Further
details will be provided with the AGM documentation when it is sent
to shareholders. If the scheme is approved by shareholders, the
last date for receipt of Scrip elections will be 13 July 2016.
STRATEGIC PROGRESS
In May 2015, we announced a clear strategic plan to transform De
La Rue in the five years to 2020 into a technology-led security
product and service provider, with a more balanced business
portfolio that will deliver growth and increased profits, as well
as reduce performance volatility. Changes in the market and
customers' shift towards more technology-based, value driven
procurement mean we must be more flexible and agile in our approach
to managing our customer relationships, product pipelines and
delivery.
During the year, we reorganised the business from a divisional
to a functional structure. We strengthened the Executive Leadership
Team with a number of new hires, including Chief Financial Officer
Jitesh Sodha, Chief Technology Officer Selva Selvaratnam and Chief
Commercial Officer Richard Hird. In addition, we streamlined and
reshaped our Senior Leadership Team to align with the functional
structure. We also established a product management team to ensure
focus on the development of each product line.
We are one year into our five year plan and have already made
good progress expanding our polymer product line and enhancing our
product and service offerings with the launch of two end-to-end
software solutions. We have also taken actions to address the
overcapacity in Banknotes and sold the underperforming cash
processing business. We are pleased with the progress we have made
in the first year and are confident that the right foundations are
now in place to grow the business. However, there is still much
more to do in order to deliver our strategic goals.
Optimise and Flex
Currency is core to our business and our brand. The number of
banknotes in circulation is expected to grow at 3-4% a year, but
with ongoing oversupply in both the banknotes and paper making
industries, we must optimise our capabilities by continuing to
drive operational efficiencies and cost reduction. The volatility
of the banknote market means it is essential that we build
flexibility into our production capacity.
Banknotes
We made good progress in achieving production cost reduction
through our ongoing Operational Excellence programme. We finished
rolling out the Advanced Product Quality Planning system, giving us
a standardised process across all manufacturing sites. This enables
us to share best practice, improve productivity and reduce
spoilage.
In December 2015, we announced the results of our manufacturing
footprint review. The review concluded that we can achieve more
than GBP13m of annual savings from FY2018/19 by reducing the number
of print lines and consolidating banknote production into four
centres of excellence(3) . This will reduce our banknote print
production capacity from eight billion to six billion(2) notes a
year, matching current and long term average market demand, as well
as increasing our machine utilisation. The implementation of the
restructuring plan is now under way following the conclusion of the
consultation with affected employees.
We plan to gain access to additional capacity, as and when
required, through external partnerships. During the year, we have
successfully outsourced the printing of 500 million banknotes to
three commercial and state banknote printers. We are now looking to
build stronger relationships with selected third parties.
Banknote Paper
In the past year we saw increased demand for Banknote Paper
though pricing remained competitive as a result of industry
overcapacity. We made good progress in reducing production costs by
driving efficiency and reducing overheads. We will continue to
drive down cost and focus on growing direct sales. We are also
seeking strategic partnerships in this market and exploratory
discussions with a number of parties are ongoing, though they are
complex and will take time.
Cash Processing Solutions
In November 2015, we announced a 'root and branch' review of CPS
to address ongoing underperformance. We have completed the review
and concluded that whilst CPS has a strong product profile and
excellent long term customer relationships, we do not believe that
this is a business which should form part of our portfolio. In
order to focus on our core businesses, we have decided to exit the
cash processing market by selling CPS to Privet Capital LLP
following an auction process. We believe that the business will
benefit from standalone ownership.
Invest and Build
We continue to build on De La Rue's long history of innovation,
investing in differentiating features, new technologies and digital
solutions. We have restructured our R&D team and prioritised
our efforts in high growth and high margin product lines. We plan
to double our R&D investment by 2020.
In order to accelerate growth in Identity Solutions and Product
Authentication and Traceability (PA&T), we plan to invest in
new capabilities and skills to create a centre of excellence for
identity and security print at the De La Rue site in Malta. We have
also put in place a dedicated team with new skills to strengthen
our sales effort for both Identity Solutions and PA&T.
Polymer
Launched in 2012, sales of our polymer substrate Safeguard(R)
have started to gain traction. We built on the progress made in
2014 by growing the number of customers from seven to 14, including
all three Scottish note issuing banks. We reached an important
milestone by winning our first volume customer, with a significant
three year contract for polymer substrate and a technology
partnership. This raises our nominal market share to c5% by volume.
We aim to continue to grow our market share by targeting customers
who already use polymer as well as those looking to convert paper
and coins to polymer.
We continue to focus much of our R&D efforts on developing
our polymer capability, expanding the number of polymer-suited
security features and enhancing the process for substrate
manufacturing and banknote printing. There is a growing interest in
polymer banknotes as central banks look for ways to reduce the
overall cost of banknote ownership. As the only integrated polymer
substrate manufacturer and experienced polymer banknote printer, we
are well placed to capture this growth opportunity.
Security Features
We believe that continuous innovation will give us greater
differentiation and a unique advantage in a competitive market.
In 2015 we made good progress in security feature development,
with the launch of a micro-optics security thread - Active(TM) -
which has already won its first two customers. The combination of
cutting edge lenticular technology with microscopic fine line
printing gives the new feature a distinctive 3D colour shifting
effect that is simple to verify but difficult for counterfeiters to
replicate.
To maximise the value of our existing product capabilities, we
have started to explore cross-product utilisation, such as applying
polymer and holographic features to passports. We also leverage our
award winning design capabilities to enhance the sales channel for
our new features by incorporating them into banknote and passport
designs. In order to be at the forefront of technological progress
and to accelerate product development, we continue to seek
partnerships with research institutes and universities.
Identity Solutions
In collaboration with Her Majesty's Passport Office in the UK,
we redesigned the UK passport. The redesign was launched in
November 2015. The passport won the prestigious London Design Award
for its intricate design and sophisticated security layering. It
includes one of our latest inventions, the Continuous Bio-Data
Page(TM) construction method which makes the passport much harder
to counterfeit. To further enhance our passport offering we also
acquired laminate capability by partnering with Japanese printer
Dai Nippon Printing Co.
As countries increasingly look for secure and technology based
population authentication and border control, there is expected to
be a growing demand for end-to-end solutions and services. In June,
we launched our first identity software suite - DLR Identify(TM)
which provides an end-to-end solution for governments to manage and
monitor the process for authenticating and issuing a passport. The
second module of the DLR Identify(TM), which enables electronic
registration of births, is expected to launch in July 2016.
Product Authentication and Traceability
We made steady progress in PA&T during the year, with the
launch of our next generation digital solution - DLR Certify(TM).
The end-to-end solution provides a track and trace capability,
helping governments and commercial organisations to protect tax
revenue and the integrity of their products and brands. We have
already secured our first customer and will continue to focus on
building credibility by securing reference customers. We have also
initiated discussions with a number of potential technology
partners to strengthen our digital platform.
OPERATING REVIEWS
Currency
2015/16 2014/15 Change
Banknote print volume (bn notes) 7.1 6.5 9%
Banknote paper volume ('000 tonnes) 10.0 9.4 6%
GBPm GBPm
Revenue 353.3 317.9 11%
Operating profit* 55.1 50.5 9%
Operating margin* 15.6% 15.9% (30bpts)
*Segmental operating profit and operating margin are stated before
exceptional items
The Currency segment comprises Banknotes, Banknote Paper,
Polymer, and Security Features.
The segment grew its revenue by 11% to GBP353.3m (2014/15:
GBP317.9m) and operating profit by 9% to GBP55.1m (2014/15:
GBP50.5m), primarily reflecting the increased volumes in
Banknotes.
While volatility in the banknote market continued and orders
remained lumpy, overall margins in the year were stable. Banknote
volumes increased by 9% to 7.1bn notes (2014/15: 6.5bn) partly due
to winning overspill orders. Following extensive trials, production
of the new GBP5 Sterling polymer notes began in October 2015 and is
progressing well.
Banknote Paper volumes were up 6% to 10,000 tonnes (2014/15:
9,400 tonnes), also benefiting from overspill contracts. Margins,
however, continued to face downward pressure from oversupply in the
industry.
Polymer gained encouraging momentum marked by the significant
three year contract with a large customer, which resulted in a
modest revenue contribution and a small operating loss for the
year.
Security Features performed as expected, though an important
five year contract, which contributed annual revenue of GBP30m,
came to an end and was not renewed. While this is expected to
affect the profitability of this product line in 2016/17, we are
confident that we can mitigate the impact through other
opportunities that we are actively pursuing. We remain optimistic
about the long term growth prospect of this business.
At the year end the 12 month order book for Currency including
estimated call-off orders for material contracts was up 85% at
GBP278m on a like for like basis (2014/15: GBP150m). This provides
good visibility for 2016/17.
Identity Solutions (previously Identity Systems)
2015/16 2014/15 Change
GBPm GBPm
Revenue 65.8 69.0 (5%)
Operating profit* 6.4 11.1 (42%)
Operating margin* 9.7% 16.1% (640bpts)
*Segmental operating profit and operating margin are stated before
exceptional items
Revenue was 5% lower at GBP65.8m (2014/15: GBP69.0m) and
operating profit was down to GBP6.4m (2014/15: GBP11.1m. The
decline in both revenue and operating profit was expected and
predominantly due to contractual reduction in contribution on a
large contract.
The ten year contract with HMPO in the UK to produce and issue
passports continues to perform well. Volumes were up 2% year on
year. A new design of the passport was launched in November 2015
which included our latest security features Continuous Bio-Data
Page(TM) and SkyLight(TM).
Sales of ePassports were slower than anticipated as a number of
expected tenders were delayed, although the sales pipeline remained
good. Our main focus in the next 12 months is to convert some of
the pipeline to revenue and profit.
In June 2015, we launched our first identity software suite, DLR
Identify(TM). During the year, we sold and successfully installed
the software with its first customer.
Product Authentication & Traceability (PA&T, formerly
Security Products)
2015/16 2014/15 Change
GBPm GBPm
Revenue 39.5 39.6 0%
Operating profit* 8.9 7.5 19%
Operating margin* 22.5% 18.9% 360bpts
*Segmental operating profit and operating margin are stated before
exceptional items
Revenue was flat year on year at GBP39.5m (2014/15: GBP39.6m),
with operating profit up 19% to GBP8.9m (2014/15: GBP7.5m). The
higher operating margin was due to cost savings from the closure of
the Dulles site in 2014/15.
We continued to focus on building reference customers in both
the public and private sectors, aiming particularly at central
governments and enterprises that produce high value goods or
operate in highly regulated industries.
Our first track and trace solution DLR Certify(TM) was launched
in April 2015 and successfully delivered to its first customer in
November 2015.
Cash Processing Solutions (CPS)
2015/16 2014/15 Change
GBPm GBPm
Revenue 33.9 50.7 (33%)
Operating profit* (7.9) 0.4
*Segmental operating profit is stated before exceptional items
Sales volumes in Cash Processing Solutions (CPS) was affected by
increased competition and adverse foreign exchange movement, which
resulted in a 33% decline in revenue to GBP33.9m (2014/15:
GBP50.7m) and an operating loss of GBP7.9m (2014/15: operating
profit of GBP0.4m).
Following a 'root and branch' review initiated in November 2015,
we decided to exit the cash processing market. The sale of the CPS
business was completed on 22 May 2016.
FINANCE CHARGE
On a continuing operations basis, the Group's net interest
charge was GBP4.8m (2014/15: GBP4.6m) reflecting an increase in the
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 GBP7.1m (2014/15:
GBP7.0m).
EXCEPTIONAL ITEMS
During the period exceptional items on continuing operations,
summarised below, totalling GBP3.6m net, have been charged
(2014/15: GBP16.9m net - see note 4 for details).
Site relocation and restructuring costs in 2015/16 were GBP9.2m
net (2014/15: GBP2.8m net). Restructuring costs were incurred as
part of the redesign of the organisation structure and the
optimisation of manufacturing capabilities including the impact of
the manufacturing footprint review which will reduce our banknote
print production capacity from eight billion to six billion(2)
notes a year.
The sale of surplus land in Overton generated a profit of
GBP9.5m while surplus warranty provisions of GBP1.3m, previously
charged as exceptional items (2014/15: GBP3.0m) were released in
the period.
Following a review of capitalised assets, GBP5.2m of tangible
assets within the Currency segment were written down representing
assets linked with specific products whose future income streams
are forecast to be insufficient to support the current carrying
value.
The net cash cost of exceptional items for continuing operations
in the period was GBP12.5m. GBP17.6m of cash costs related to prior
periods and predominantly reflected the settlement of the
invocation of guarantees provided for as a post balance sheet event
in 2014/15.
Exceptional charges on discontinued operations were GBP26.0m -
see note 3 for details. These related to the Cash Processing
Solutions which was sold on 22 May 2016.
Site closure and restructuring costs in 2015/16 were GBP2.6m
(2014/15: GBP1.9m) mainly reflecting the closure of the Brazil
operation.
Asset impairments of GBP23.4m arising on the remeasurement of
the disposal group to fair value less costs to sell have been
recognised. The impairment has been applied to software intangibles
of GBP1.6m, goodwill of GBP4.0m and inventories of GBP17.8m.
The cash costs for exceptional items, on discontinued
operations, was GBP1.0m (2014/15: GBP1.7m).
CASH FLOW AND BORROWING
Underlying operating cash flow, comprising underlying operating
profit adjusted for depreciation and the movement in working
capital, was GBP100.2m (2014/15: GBP85.6m). This represents a cash
conversion ratio (underlying operating cash flow divided by
underlying operating profit) of 160% (2014/15:123%).
Net debt decreased by GBP4.9m to GBP106.1m (2014/15: GBP111.0m).
This was predominantly from improved working capital with increased
payments in advance received from customers.
The Group utilises a GBP250m revolving credit facility which
expires in December 2019. The Group has operated well within the
key financial covenants on this facility. These are 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 period
end the specific bank covenant tests were as follows: EBIT/net
interest payable of 12.9 times and Net debt/EBITDA of 1.25
times.
CAPITAL STRUCTURE
At 26 March 2016 the Group had net liabilities of GBP145.6m (28
March 2015: GBP146.9m) mainly due to the recognition of the long
term retirement benefit obligations of GBP219.9m (2014/15:
GBP236.7m) in accordance with IAS 19.
The Company had shareholders' funds of GBP174.4m (2014/15:
GBP199.6m) and had 101.4m fully paid ordinary shares in issue
(2014/15: 101.1m) at the year end.
TAXATION
On a continuing operations basis, the net tax charge for the
year was GBP6.3m (2014/15: GBP7.7m). The effective tax rate before
exceptional items was 14.7% (2014/15: 17.6%). The tax rate is lower
than the prior year primarily as a result of favourable changes to
UK tax rates, reducing from 21% to 20% in the current year and
further reducing to 18% from April 2020. The Group has also
benefited from the increasing relief available under the UK Patent
Box regime.
Net tax credits relating to exceptional items, on continuing
operations, arising in the period were GBP1.8m (2014/15 GBP2.4m).
In addition there was an exceptional credit of GBP0.5m (2014/15:
GBPnil) in respect of the determination of the tax treatment of a
prior year exceptional restructuring item.
PENSION DEFICIT AND FUNDING
During 2015/16, special funding payments of GBP19.1m (including
scheme administration fees) were made to the Group's UK defined
benefit pension scheme (closed to new members in 2010 and future
accrual from April 2013). The Group's formal triennial funding
valuation of the UK defined benefit pension scheme as at 5 April
2015 has not been finalised as the company and scheme Trustees
continue discussions with the Pensions Regulator. The previous
valuation took place on 5 April 2012 and identified that the scheme
had a deficit of GBP180m. The Group had agreed with the scheme
Trustees and Pension Regulator deficit funding payments to the
scheme of GBP18.9m in 2016/17, rising by 4% per annum. Pending
finalisation of the 2015 valuation, the special funding
arrangements agreed in 2012 which aim to eliminate the deficit by
2022 remain unchanged.
Recognition of the current deficit in accordance with IFRS when
combined with overseas unfunded obligations results in the negative
net assets shown on the Group balance sheet.
The valuation of the UK pension scheme under IAS 19 principles
indicates a pre-tax scheme deficit at 26 March 2016 of GBP217.6m
(28 March 2015: GBP234.1m). The decrease of GBP16.5m is largely a
reflection of the increase in the discount rate used to project the
value of the scheme liabilities (3.5% in 2015/16 compared with 3.2%
in the prior year) and the Group funding contributions. The
decrease has been partly offset by an increase in the life
expectancy of members and lower than expected returns of scheme
assets.
In common with other final salary schemes the scheme valuation
is very sensitive to any movement in the discount rate, with a
0.25% increase in discount rate resulting in a GBP49m decrease in
liabilities or vice versa and hence the deficit would reduce should
interest and discount rates increase in the future.
The charge to operating profit in respect of the UK defined
benefit pension scheme for 2015/16 was GBP1.2m (2014/15: GBP1.1m).
In addition, under IAS 19 there was a finance charge of GBP7.1m
arising from the difference between the interest cost on
liabilities and the interest income on scheme assets (2014/15:
GBP7.0m).
EVENTS SINCE THE BALANCE SHEET DATE
Since the year end the following material non adjusting event
has occurred:
On 22 May 2016 the sale of the Cash Processing Solutions
business was completed. The sale is expected to result in a profit
on disposal in the range of GBPnil to GBP3m, which will be
recognised in the half year ending 24 September 2016. This
estimated loss includes the loss on disposal of certain current
assets and liabilities held for sale (refer to note 3), and the
recycling through the income statement of accumulated foreign
exchange translation losses recorded in reserves and the estimated
costs of disposal.
In addition to the cash payment upon completion and deferred
cash payments there is also a contingent element of consideration
which is dependent upon the disposed business meeting certain
future targets. This contingent element of the consideration has
not been factored into the estimated loss on disposal.
BOARD CHANGES
There have been significant changes to both the Board and the
executive management team in the past year.
We have welcomed four new Board members since the AGM on 23 July
2015. Sabri Challah and Maria da Cunha joined the Board as
Non-executive Directors to replace Warren East and Gill Rider who
stood down after serving eight years and nine years respectively.
Sabri Challah was appointed Chair of the Remuneration Committee in
July 2015, replacing Gill Rider.
Jitesh Sodha, appointed in August 2015 to replace Colin Child as
Chief Financial Officer, and the Group's Chief Operating Officer
Rupert Middleton also joined the Board as an Executive Director
after the AGM.
Victoria Jarman has informed the Board of her decision to step
down after the AGM having served six years as a Non-executive
Director. We are in the advanced stages of recruiting a new
Non-executive Director to the Board whom we anticipate will succeed
Victoria as Chair of the Audit Committee. We would like to thank
Victoria for the significant contribution she has made during her
time on the Board.
We believe that the current Board composition offers the right
balance of experience and skills to provide insightful strategic
guidance as well as robust corporate governance to the
business.
OUTLOOK
The Group's 12 month closing order book of GBP365m(1) provides
good visibility for the year ahead. Whilst, as previously
announced, a material contract came to an end, we are confident we
can mitigate the impact and our expectations for the current year
are unchanged.
-ends-
Martin Sutherland Jitesh Sodha
Chief Executive Officer Chief Financial Officer
24 May 2016
GROUP INCOME STATEMENT For the period ended 26
March 2016
=========================================================== ====== ======== =========
2016 Restated*
Notes GBPm 2015
GBPm
=========================================================== ====== ======== =========
Revenue 454.5 422.8
======== =========
Operating expenses - ordinary (384.1) (353.7)
Operating expenses - exceptional 4 (3.6) (16.9)
======== =========
Total operating expenses (387.7) (370.6)
=========================================================== ====== ======== =========
Operating profit 66.8 52.2
Comprising:
======== =========
Underlying operating profit 70.4 69.1
Exceptional items 4 (3.6) (16.9)
======== =========
Profit before interest and taxation 66.8 52.2
Interest income 0.1 0.1
Interest expense (4.9) (4.7)
Net retirement benefit obligation finance cost (7.1) (7.0)
=========================================================== ====== ======== =========
Net finance expense (11.9) (11.6)
=========================================================== ====== ======== =========
Profit before taxation 54.9 40.6
Comprising:
-------- ---------
Underlying profit before tax 58.5 57.5
Exceptional items (3.6) (16.9)
-------- ---------
Taxation 5 (6.3) (7.7)
=========================================================== ====== ======== =========
Profit for the year from continuing operations 48.6 32.9
----------------------------------------------------------- ------ -------- ---------
Comprising:
-------- ---------
Underlying profit for the year 49.9 47.4
Loss for the year on exceptional items (1.3) (14.5)
-------- ---------
(Loss)/profit from discontinued operations (31.0) 2.2
Profit for the year 17.6 35.1
=========================================================== ====== ======== =========
Profit attributable to equity shareholders of the 47.4
company
Profit for the year from continuing operations (31.0) 32.1
Loss for the year from discontinuing operations 16.4 2.2
Total profit for the year attributable to equity 34.3
shareholders of the company
Profit attributable to non-controlling interests 1.2
Profit for the year from continuing operations - 0.8
Profit for the year from discontinuing operations 1.2 -
Total profit for the year attributable to non-controlling 0.8
interests
17.6 35.1
=========================================================== ====== ======== =========
*2015 figures have been restated for the impact
of discontinued operations - see note 3
Profit for the year attributable to the Company's Notes 2016 2015
equity holders GBPm GBPm
================================================= ===== ========= =======
Earnings per share 6 46.8p
Basic (30.6p)
Basic EPS continuing operations 16.2p 31.8p
Basic EPS discontinued operations 2.2p
Total Basic Earnings per share 34.0p
Diluted 6 46.2p
Diluted EPS continuing operations (30.2p) 31.3p
Diluted EPS discontinued operations 16.0p 2.1p
Total Diluted Earnings per share 33.4p
================================================= ===== ========= =======
Earnings per share - underlying 6 48.1p
Basic (7.1p)
Basic EPS continuing operations 41.0p 46.1p
Basic EPS discontinued operations 1.8p
Total Basic Earnings per share 47.9p
Diluted 6 47.5p
Diluted EPS continuing operations (7.0p) 45.5p
Diluted EPS discontinued operations 40.5p 1.8p
Total Diluted Earnings per share 47.2p
==================================== ======== =======
GROUP STATEMENT OF COMPREHENSIVE INCOME For the
period ended 26 March 2016
========================================================= ===== ======
2016 2015
GBPm GBPm
========================================================= ===== ======
Profit for the year 17.6 35.1
========================================================== ===== ======
Other comprehensive income
Items that are not reclassified subsequently to
profit or loss:
Remeasurement losses on retirement benefit obligations 5.4 (79.1)
Tax related to remeasurement of net defined benefit
liability (5.4) 16.0
Items that may be reclassified subsequently to
profit or loss:
Foreign currency translation differences for foreign
operations 1.5 (10.4)
Change in fair value of cash flow hedges 4.1 (7.3)
Change in fair value of cash flow hedges transferred
to profit or loss 1.6 5.3
Change in fair value of cash flow hedges transferred
to non-current assets 1.5 1.6
Income tax relating to components of other comprehensive
income (1.8) (0.1)
Other comprehensive income for the year, net of
tax 6.9 (74.0)
========================================================== ===== ======
Total comprehensive income for the year 24.5 (38.9)
========================================================== ===== ======
Comprehensive income for the year attributable
to:
Equity shareholders of the Company 23.3 (39.7)
Non-controlling interests 1.2 0.8
========================================================== ===== ======
24.5 (38.9)
========================================================= ===== ======
GROUP BALANCE SHEET At 26 March 2016
================================================= === ======= =======
2016 2015
GBPm GBPm
================================================= === ======= =======
Assets
Non-current assets
Property, plant and equipment 167.0 179.3
Intangible assets 13.4 16.6
Investments in associates and joint ventures 0.1 0.1
Deferred tax assets 41.6 47.7
Derivative financial assets 1.9 0.3
224.0 244.0
===================================================== ======= =======
Current assets
Inventories 67.1 71.2
Trade and other receivables 93.5 105.4
Current tax assets 1.3 2.2
Derivative financial assets 15.0 7.8
Cash and cash equivalents 40.5 30.8
Assets classified as held for sale 11.2 -
228.6 217.4
===================================================== ======= =======
Total assets 452.6 461.4
====================================================== ======= =======
Liabilities
Current liabilities
Borrowings (146.6) (141.8)
Trade and other payables (171.5) (159.1)
Current tax liabilities (17.6) (19.6)
Derivative financial liabilities (12.0) (12.0)
Provisions for liabilities and charges (9.0) (26.6)
Liabilities classified as held for sale (10.5) -
====================================================== ======= =======
(367.2) (359.1)
===================================================== ======= =======
Non-current liabilities
Retirement benefit obligations (219.9) (236.7)
Deferred tax liabilities (1.6) (1.1)
Derivative financial liabilities (1.2) (1.0)
Provisions for liabilities and charges (6.9) (3.5)
Other non-current liabilities (1.4) (6.9)
====================================================== ======= =======
(231.0) (249.2)
===================================================== ======= =======
Total liabilities (598.2) (608.3)
====================================================== ======= =======
Net liabilities (145.6) (146.9)
====================================================== ======= =======
Equity
Share capital 46.6 46.5
Share premium account 35.7 35.5
Capital redemption reserve 5.9 5.9
Hedge reserve 2.3 (3.5)
Cumulative translation adjustment (12.3) (13.8)
Other reserves (83.8) (83.8)
Retained earnings (146.6) (139.4)
====================================================== ======= =======
Total equity attributable to shareholders of the
Company (152.2) (152.6)
Non-controlling interests 6.6 5.7
====================================================== ======= =======
Total equity (145.6) (146.9)
====================================================== ======= =======
GROUP STATEMENT OF CHANGES IN EQUITY For the period ended
26 March 2016
Attributable to equity shareholders Non-controlling Total
interests 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 29 March
2014 46.3 35.3 5.9 (3.2) (3.4) (83.8) (72.6) 5.1 (70.4)
------- ------- ---------- ------- ----------- ------- --------- --------------- -------
Profit for the year - - - - - - 34.3 0.8 35.1
Other comprehensive
income for the year,
net of tax - - - (0.3) (10.4) - (63.3) - (74.0)
------- ------- ---------- ------- ----------- ------- --------- --------------- -------
Total comprehensive
income for the year - - - (0.3) (10.4) - (29.0) 0.8 (38.9)
Transactions with
owners of the Company
recognised directly
in equity:
Share capital issued 0.2 0.2 - - - - - - 0.4
Employee share scheme:
* value of services provided - - - - - - (0.5) - (0.5)
Income tax on income
and expenses recognised
directly in equity - - - - - - (0.5) - (0.5)
Dividends paid - - - - - - (36.8) (0.2) (37.0)
================================= ======= ======= ========== ======= =========== ======= ========= =============== =======
Balance at 28 March
2015 46.5 35.5 5.9 (3.5) (13.8) (83.8) (139.4) 5.7 (146.9)
------- ------- ---------- ------- ----------- ------- --------- --------------- -------
Profit for the year - - - - - - 16.4 1.2 17.6
Other comprehensive
income for the year,
net of tax - - - 5.8 1.5 - (0.4) - 6.9
------- ------- ---------- ------- ----------- ------- --------- --------------- -------
Total comprehensive
income for the year - - - 5.8 1.5 - 16.0 1.2 24.5
Transactions with
owners of the Company
recognised directly
in equity:
Share capital issued 0.1 0.2 - - - - - - 0.3
Employee share scheme:
* value of services provided - - - - - - 2.4 - 2.4
Income tax on income
and expenses recognised
directly in equity - - - - - - (0.3) - (0.3)
Dividends paid - - - - - - (25.3) (0.3) (25.6)
================================= ======= ======= ========== ======= =========== ======= ========= =============== =======
Balance at 26 March
2016 46.6 35.7 5.9 2.3 (12.3) (83.8) (146.6) 6.6 (145.6)
================================= ======= ======= ========== ======= =========== ======= ========= =============== =======
GROUP CASH FLOW STATEMENT For the period ended
26 March 2016
======================================================== ====== ====== ======
2016 2015
Notes GBPm GBPm
======================================================== ====== ====== ======
Cash flows from operating activities
Profit before tax 20.8 38.9
Adjustments for:
Finance income and expense 12.1 11.9
Depreciation 23.0 23.0
Amortisation 3.2 1.8
Decrease in inventory 5.0 5.7
(Increase)/decrease in trade and other receivables (2.0) 0.1
Increase/(decrease) in trade and other payables 11.4 (5.4)
Increase/(decrease) in reorganisation provisions 0.4 (0.3)
Special pension fund contributions (19.1) (18.6)
(Profit)/loss on disposal of property, plant, equipment
and software intangibles (7.6) 2.2
Asset impairment 10.8 3.8
Other non-cash movements 0.9 0.5
Cash generated from operating activities 58.9 63.6
Tax paid (4.7) (9.3)
======================================================== ====== ====== ======
Net cash flows from operating activities 54.2 54.3
======================================================== ====== ====== ======
Cash flows from investing activities
Purchases of property, plant, equipment and software
intangibles (25.0) (28.8)
Development assets capitalised (3.0) (5.1)
Proceeds from sale of property, plant and equipment 9.9 0.2
======================================================== ====== ====== ======
Net cash flows from investing activities (18.1) (33.7)
======================================================== ====== ====== ======
Net cash flows before financing activities 36.1 20.6
======================================================== ====== ====== ======
Cash flows from financing activities
Proceeds from issue of share capital 0.3 0.4
Proceeds from/(repayments of) borrowings 3.6 (6.8)
Interest received 0.1 0.2
Interest paid (4.2) (4.8)
Dividends paid to shareholders (25.3) (36.8)
Dividends paid to non-controlling interests (0.3) (0.2)
======================================================== ====== ====== ======
Net cash flows from financing activities (25.8) (48.0)
======================================================== ====== ====== ======
Net increase/(decrease) in cash and cash equivalents
in the year 10.3 (27.4)
Cash and cash equivalents at the beginning of the
year 28.9 56.2
Exchange rate effects (1.3) 0.1
======================================================== ====== ====== ======
Cash and cash equivalents at the end of the year 37.9 28.9
======================================================== ====== ====== ======
Cash and cash equivalents consist of:
Cash at bank and in hand 8 40.5 28.6
Short term bank deposits 8 - 2.2
Bank overdrafts 8 (2.6) (1.9)
======================================================== ====== ====== ======
8 37.9 28.9
======================================================== ====== ====== ======
1 Basis of preparation and accounting policies
The preliminary announcement for the period ended 26 March 2016
has been prepared consistently with International Accounting Standards
and International Financial Reporting Standards (collectively "IFRS")
as adopted by the European Union (EU) at 26 March 2016. Details
of the accounting policies applied are those set out in De La Rue
plc's annual report 2015. For 2015/16 there is an additional accounting
policy included in the Group Financial Statements covering Classification
of assets held for resale which addresses the discontinued operations
of the CPS business.
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.
A number of other new and amended IFRS were issued during the year,
which do not become effective until after 27 March 2016. IFRS 15
Revenue from Contracts with Customers (effective for the year ending
30 March 2019, not yet endorsed by the EU) provides a single, principles
based, five step model to be applied to all sales contracts. Based
on a provisional assessment, IFRS 15 is not expected to have a
significant impact on the timing of revenue recognition in the
Group. The group will continue to assess the impact during 2016/17.
Otherwise, none of the new or amended IFRSs are expected to have
a material impact on the Group for the 2016/17 period.
In applying the accounting policies, management has made appropriate
estimates in many areas, and the actual outcome may differ from
those calculated. The key sources of estimation uncertainty at
the balance sheet date were the same as those that applied to the
consolidated financial statements of the Group for the period ended
28 March 2015, apart from an additional accounting policy included
in the Group Financial Statements covering Classification of assets
held for resale which addresses the discontinued operations of
the CPS business.
The financial information set out above does not constitute the
Group's statutory accounts for the periods ended 26 March 2016
or 28 March 2015. The financial information for the period ended
26 March 2016 is derived from the statutory accounts for the period
ended 26 March 2016 which will be delivered to the registrar of
companies. The auditor has reported on the accounts for the period
ended 26 March 2016; 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 continuing operations of the Group have three main operating
units: Currency, Identity Solutions and Product Authentication
and 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 underlying
operating profit, measured on an IFRS basis.
The Group's segments are:
* Currency - provides printed banknotes, banknote paper
and polymer substrates and banknote security features
* Identity Solutions - involved in the provision of
passport, ePassport, national ID and eID, driving
licence and voter registration schemes
* Product Authentication and Traceability (previously
Security Products) - produces security documents,
including authentication labels, brand licensing
products, government documents, cheques and postage
stamps
Inter-segmental transactions are eliminated upon consolidation.
Discontinued operations - The Cash Processing Solutions (CPS)
operation, primarily focused on the production of large banknote
sorters and authentication machines for central banks, has been
classified as a disposal group held for sale (see note 3).
2016 Currency Identity Product Unallocated Total Discontinued Total
Solutions Authentication of Continuing operations
and Traceability operations
------------------ --------- ----------- ------------------ ------------ --------------- ------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total revenue 353.3 65.8 39.5 - 458.6 33.9 492.5
Less:
inter-segment
revenue (0.8) - (3.3) - (4.1) (0.2) (4.3)
------------------ --------- ----------- ------------------ ------------ --------------- ------------- --------
Revenue 352.5 65.8 36.2 - 454.5 33.7 488.2
------------------ --------- ----------- ------------------ ------------ --------------- ------------- --------
Underlying
operating
profit/(loss) 55.1 6.4 8.9 - 70.4 (7.9) 62.5
Exceptional items
- operating
(note 4, 3) (13.1) - (0.5) 10.0 (3.6) (26.0) (29.6)
------------------ --------- ----------- ------------------ ------------ --------------- ------------- --------
Operating
profit/(loss) 42.0 6.4 8.4 10.0 66.8 (33.9) 32.9
Net interest
expense (4.8) (4.8) (0.2) (5.0)
Retirement
benefit
obligations
net finance
expense (7.1) (7.1) - (7.1)
------------------ --------- ----------- ------------------ ------------ --------------- ------------- --------
Profit/(loss)
before taxation 54.9 (34.1) 20.8
------------------ --------- ----------- ------------------ ------------ --------------- ------------- --------
Segment assets 238.4 38.9 20.8 143.3 441.4 11.2 452.6
Segment
liabilities (119.4) (26.7) (7.2) (434.4) (587.7) (10.5) (598.2)
Capital
expenditure on
property,
plant and
equipment 11.1 0.2 1.7 3.5 16.5 - 16.5
Capital
expenditure on
intangible
assets 3.3 1.4 0.3 - 5.0 0.3 5.3
Depreciation of
property,
plant and
equipment 17.0 2.6 1.4 2.0 23.0 - 23.0
Impairment of
property, plant
and equipment 5.2 - - - 5.2 - 5.2
Amortisation of
intangible
assets 2.2 0.7 0.1 - 3.0 0.2 3.2
Impairment of
intangible
assets - - - - - 5.6 5.6
2015 Currency Identity Product Unallocated Total Discontinued Total
Solutions Authentication of Continuing operations
and operations
Traceability
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total revenue 317.9 69.0 39.6 - 426.5 50.7 477.2
Less: inter-segment
revenue (0.8) - (2.9) - (3.7) (1.4) (5.1)
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
Revenue 317.1 69.0 36.7 - 422.8 49.3 472.1
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
Underlying
operating
profit/(loss) 50.5 11.1 7.5 - 69.1 0.4 69.5
Exceptional items -
operating
(note 4, 3) (10.7) - (6.2) - (16.9) (1.9) (18.8)
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
Operating
profit/(loss) 39.8 11.1 1.3 - 52.2 (1.5) 50.7
Net interest
expense (4.6) (4.6) (0.2) (4.8)
Retirement benefit
obligations
net finance
expense (7.0) (7.0) - (7.0)
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
Profit/(loss)
before taxation 40.6 (1.7) 38.9
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
Segment assets 241.7 38.8 19.8 128.0 428.3 33.1 461.4
Segment liabilities (128.8) (21.6) (9.1) (437.7) (597.2) (11.1) (608.3)
Capital expenditure
on property,
plant and
equipment 19.6 0.9 1.0 1.8 23.3 - 23.3
Capital expenditure
on intangible
assets 3.8 0.6 0.9 - 5.3 1.0 6.3
Depreciation of
property,
plant and
equipment 17.3 2.7 1.6 1.4 23.0 - 23.0
Amortisation of
intangible
assets 1.3 0.4 - - 1.7 0.1 1.8
Impairment of
intangible assets - - 3.8 - 3.8 - 3.8
-------------------- --------- ----------- ---------------- ------------ --------------- ------------- --------
3 Discontinued operations
The Cash Processing Solutions business (CPS) is presented as a
disposal group held for sale following the conclusion of a root and
branch review. The Board concluded that whilst CPS has a good
product profile and long term customer relationships, it does not
believe that this is a business which should form part of the
Group's portfolio and has therefore decided to exit this market.
This will enable the continuing Group to focus on its core business
and future growth areas, as well as allow CPS to achieve its full
potential under new dedicated ownership.
The CPS assets and liabilities that the group plans to dispose
of were transferred into the disposal group at their carrying
value. A charge of GBP23.4m arising on the remeasurement of the
disposal group to the lower of the carrying amount and its fair
value less costs to sell has been recognised in exceptional items.
This has been applied first to non-current assets and then to
inventory within the disposal group.
In line with IFRS 5 no remeasurement has been applied to
financial assets. The fair value reflects the anticipated sales
price to be achieved upon completion.
No UK pension liability will transfer with the disposal
group.
Results of the discontinued operation including the disposal
group held for sale
2016 2015
GBPm GBPm
================================================ ====== ======
Revenue 33.7 49.3
====== ======
Operating expenses - ordinary (41.6) (48.9)
Operating expenses - exceptional (26.0) (1.9)
====== ======
Total operating expenses (67.6) (50.8)
================================================= ====== ======
Operating loss (33.9) (1.5)
Comprising:
====== ======
Underlying operating (loss)/profit (7.9) 0.4
Exceptional items (26.0) (1.9)
====== ======
Loss before interest and taxation (33.9) (1.5)
Interest income - 0.1
Interest expense (0.2) (0.3)
Net finance expense (0.2) (0.2)
================================================= ====== ======
Loss before taxation (34.1) (1.7)
Comprising:
====== ======
Underlying (loss)/profit before tax (8.1) 0.2
Exceptional items (26.0) (1.9)
====== ======
Taxation 3.1 3.9
================================================= ====== ======
(Loss)/profit from discontinued operations (31.0) 2.2
================================================= ====== ======
Comprising:
====== ======
Underlying (loss)/profit for the year (7.2) 1.8
(Loss)/profit for the year on exceptional items (23.8) 0.4
====== ======
Assets/liabilities held for sale/disposal group
2016 2015
Notes GBPm GBPm
=================================== ======= ===== =====
Assets classified as held for sale
Derivative financial assets 0.2 -
Trade and other receivables 11.0 -
11.2 -
=========================================== ===== =====
2016 2015
GBPm GBPm
Liabilities classified as held for sale
Trade and other payables (10.0) -
Derivative financial liabilities (0.3) -
Provisions for liabilities and charges (0.2) -
(10.5) -
======================================== ====== =====
2016 2015
GBPm GBPm
Exceptional items on discontinued operations
Site closures and restructuring (2.6) (1.9)
Assessment of carrying value following classification
as an asset for sale (23.4) -
Exceptional items (26.0) (1.9)
======================================================= ====== =====
Tax credit on exceptional items 2.2 2.3
======================================================= ====== =====
Site closure and restructuring costs in 2015/16 were GBP2.6m
(2014/15: GBP1.9m) comprising GBP0.7m (2014/15: GBP1.5m) in staff
compensation, and GBP1.9m (2014/15: GBPnil) for site exit costs and
GBPnil (2014/15: GBP0.4m) in other associated reorganisation
costs.
Asset impairments of GBP23.4m arising on the remeasurement of
the disposal group to fair value less costs to sell have been
recognised. The impairment has been applied to software intangibles
of GBP1.6m, goodwill of GBP4.0m and inventories of GBP17.8m.
The cash cost for exceptional items in the period was GBP1.0m
(2014/15: GBP1.7m).
Tax credits relating to the exceptional items arising in the
period were GBP0.3m (2014/15: GBP0.4m). In addition there was an
exceptional credit of GBP1.9m in respect of the determination of
the tax treatment of prior year discontinued exceptional items
(2014/15: GBP1.9m).
Accumulated foreign currency translation gains and losses within
the disposal group held for sale
The Group has accumulated foreign currency translation gains and
losses in relation to the entities included within the disposal
group. IAS 21 requires recycling of these foreign currency
translation gains or losses, which have previously been taken
direct to reserves, through the income statement at the point of
disposal. At 26 March 2016 these foreign exchange gains or losses
have not been recycled. If a sale of the disposal group had been
completed as at 26 March 2016 the amount that would have been
recycled through the income statement is cGBP3.5m gain.
Subsequent to the year end the disposal of the CPS business has
been completed, refer to note 10.
4 Exceptional items
====================================== ========== ========
2016 Restated
GBPm 2015
GBPm
====================================== ========== ========
Site relocation and restructuring (9.2) (2.8)
Invocation of guarantees - (13.3)
Sale of land 9.5 -
Warranty provisions 1.3 3.0
Asset impairment (5.2) (3.8)
Exceptional items in operating profit (3.6) (16.9)
====================================== ========== ========
Tax credit on exceptional items 2.3 2.4
====================================== ========== ========
Site relocation and restructuring costs in 2015/16 were GBP9.2m
net (2014/15: GBP2.8m net). Restructuring costs were incurred as
part of the redesign of the organisation structure and the optimisation
of manufacturing capabilities including the impact of the manufacturing
footprint review which will reduce our banknote print production
capacity from eight billion to six billion notes a year(2) .
The GBP9.2m net exceptional operating charge in respect of site
relocation and restructuring (2014/15: GBP2.8m) comprised GBP8.4m
(2014/15: GBP2.8m) in staff compensation, GBP1.0m (2014/15: GBP1.9m)
for site exit costs offset by credits on existing provisions of
GBP0.2m (2104/15: GBP1.2m) in staff compensation and GBPnil (2014/15:
GBP0.7m) for site exit costs. The GBP9.2m charge was split between
the operating segments as follows: Currency GBP8.7m, Product Authentication
and Traceability GBP0.5m.
The sale of surplus land in Overton generated a profit of GBP9.5m
while surplus warranty provisions of GBP1.3m, previously charged
as exceptional items (2014/15: GBP3.0m) were released in the period.
Following a review of capitalised assets, GBP5.2m of tangible assets
within the Currency segment were written down representing assets
linked with specific products whose future income streams are forecast
to be insufficient to support the current carrying value.
The net cash cost of exceptional items for continuing operations
in the period was GBP12.5m. GBP17.6m of cash cost of exceptional
items related to prior periods and predominantly reflected the
settlement of the invocation of guarantees provided for as a post
balance sheet event in 2014/15.
In addition the following exceptional items were incurred in the
prior year: GBP13.3m of charges in relation to the invocation of
guarantees and GBP3.8m write off on first generation software within
the Product Authentication and Traceability segment.
Tax credits relating to continuing exceptional items arising in
the period were GBP1.8m (2014/15 GBP2.4m). In addition there was
an exceptional credit of GBP0.5m (2014/15: GBPnil) in respect of
the determination of the tax treatment of a prior year exceptional
restructuring item.
5 Taxation
========================================================= ===== ========
2016 Restated
GBPm 2015
GBPm
========================================================= ===== ========
Consolidated income statement
========================================================= ===== ========
Current tax:
UK corporation tax:
- Current tax 8.3 6.1
- Adjustment in respect of prior years (0.1) (1.2)
========================================================= ===== ========
8.2 4.9
========================================================= ===== ========
Overseas tax charges:
- Current year 2.2 2.8
- Adjustment in respect of prior years (0.7) (0.3)
========================================================= ===== ========
1.5 (2.5)
========================================================= ===== ========
Total current income tax charge 9.7 7.4
========================================================= ===== ========
Deferred tax:
========================================================= ===== ========
- Origination and reversal of temporary differences,
UK (3.3) 0.3
- Origination and reversal of temporary differences, (0.1) -
overseas
========================================================= ===== ========
Total deferred tax (credit)/charge (3.4) 0.3
========================================================= ===== ========
Income tax expense reported in the consolidated
income statement in respect of continuing operations 6.3 7.7
========================================================= ===== ========
Income tax expense in respect of discontinued operations
(note 3) (3.1) (3.9)
========================================================= ===== ========
Total income tax charge in the consolidated income
statement 3.2 3.8
========================================================= ===== ========
Tax on continuing operations attributable to:
- Ordinary activities 8.6 10.1
- Exceptional items (2.3) (2.4)
Tax on discontinuing operations attributable to:
- Ordinary activities (0.9) (1.6)
- Exceptional items (2.2) (2.3)
========================================================= ===== ========
Consolidated statement of comprehensive income:
========================================================= === ======
- On remeasurement of net defined benefit liability 5.4 (16.0)
- On cash flow hedges 1.4 (0.1)
- On foreign exchange on quasi-equity balances 0.4 0.2
Income tax charge/(credit) reported within comprehensive
income 7.2 (15.9)
========================================================= === ======
Consolidated statement of changes in equity:
========================================================= === ======
- On share options 0.3 0.5
========================================================= === ======
Income tax charge reported within equity 0.3 0.5
========================================================= === ======
The tax on the Group's consolidated profit before tax for continuing
operations differs from the UK tax rate of 20 per cent as follows:
2016 Restated 2015
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------- -------------- -------- ------------- -------------- --------
Profit before tax 58.5 (3.6) 54.9 57.5 (16.9) 40.6
--------------------------------- ------------- -------------- -------- ------------- -------------- --------
Tax calculated at UK tax
rate of 20 per cent (2014/15:
21 per cent) 11.7 (0.7) 11.0 12.1 (3.5) 8.6
Effects of overseas taxation (1.1) - (1.1) (1.4) - (1.4)
(Credits)/charges not allowable
for tax purposes (1.5) 0.8 (0.7) 1.1 0.9 2.0
Increase in unutilised tax
losses - (1.9) (1.9) - 0.4 0.4
Adjustments in respect of
prior years (0.1) (0.5) (0.6) (1.5) (0.2) (1.7)
Change in UK tax rate (0.4) - (0.4) (0.2) - (0.2)
--------------------------------- ------------- -------------- -------- ------------- -------------- --------
Tax charge/(credit) 8.6 (2.3) 6.3 10.1 (2.4) 7.7
--------------------------------- ------------- -------------- -------- ------------- -------------- --------
The underlying effective tax rate excluding exceptional items was
14.7 per cent (restated 2014/15: 17.6 per cent).
6 Earnings per share
2016 2016 2016 Restated Restated Restated
Continuing Discontinued Total 2015 2015 2015
operations operations pence Continuing Discontinued Total
pence pence per operations operations
per per share pence pence pence
share share per per per
share share share
=========================== ============ ============== ======= =========== ============= ========
Earnings per share
Basic earnings per share 46.8 (30.6) 16.2 31.8 2.2 34.0
Diluted earnings per share 46.2 (30.2) 16.0 31.3 2.1 33.4
=========================== ============ ============== ======= =========== ============= ========
Underlying earnings per
share
Basic earnings per share 48.1 (7.1) 41.0 46.1 1.8 47.9
Diluted earnings per share 47.5 (7.0) 40.5 45.5 1.8 47.3
--------------------------- ------------ -------------- ------- ----------- ------------- --------
Basic earnings per share is calculated by dividing the profit attributable to
equity 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 the dilutive effect of share options.
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 2016 2016 2016 Restated Restated Restated
Continuing Discontinued Total 2015 2015 2015
operations operations Continuing Discontinued Total
GBPm GBPm GBPm operations operations
GBPm GBPm GBPm
================================= ============ ============== ======= =========== ============= ========
Earnings for basic and diluted
earnings per share 47.4 (31.0) 16.4 32.1 2.2 34.3
Exceptional items 3.6 26.0 29.6 16.9 1.9 18.8
Less: Tax on exceptional items (2.3) (2.2) (4.5) (2.4) (2.3) (4.7)
Earnings for underlying earnings
per share 48.7 (7.2) 41.5 46.6 1.8 48.4
================================= ============ ============== ======= =========== ============= ========
Weighted average number of ordinary shares 2016 2015
Number Number
m m
=========================================== ======= =======
For basic earnings per share 101.3 101.0
Dilutive effect of share options 1.3 1.5
=========================================== ======= =======
For diluted earnings per share 102.6 102.5
=========================================== ======= =======
7 Equity dividends
===================================================================== ========= =========
2016 2015
GBPm GBPm
===================================================================== ========= =========
Final dividend for the period ended 29 March 2014 of
28.2p paid on 1 August 2014 - 28.5
Interim dividend for the period ended 27 September
2014 of 8.3p paid on 7 January 2015 - 8.3
Final dividend for the period ended 28 March 2015 of
16.7p paid on 1 August 2015 16.9 -
Interim dividend for the period ended 26 September
2015 of 8.3p paid on 6 January 2016 8.4 -
25.3 36.8
===================================================================== ========= =========
A final dividend per equity share of 16.7p has been proposed for the period
ended 26 March 2016. If approved by shareholders the dividend will be paid on
3 August 2016 to ordinary shareholders on the register at 24 June 2016. In accordance
with IFRS accounting requirements this dividend has not been accrued in these
consolidated financial statements.
8 Analysis of net debt
===================================================================== ========= =========
2016 2015
GBPm GBPm
===================================================================== ========= =========
Cash at bank and in hand 40.5 28.6
Short term bank deposits - 2.2
Bank overdrafts (2.6) (1.9)
===================================================================== ========= =========
Total cash and cash equivalents 37.9 28.9
Borrowings due within one year (144.0) (139.9)
Net debt (106.1) (111.0)
===================================================================== ========= =========
9 Contingent liabilities
De La Rue has extensive international operations and is subject
to various legal and regulatory regimes, including those covering
taxation matters from which, in the ordinary course of business,
contingent liabilities can arise. While the outcome of litigation
and 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 also
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.
The Company has received notification from the relevant UK law
enforcement authorities that they have closed their investigation
related to certain paper mis-certification issues in 2010. No
action has been taken against the Company.
10 Events since the balance sheet date
Since the year end the following material events have
occurred:
Non-adjusting event
On 22 May 2016 the sale of the Cash Processing Solutions
business was completed. The sale is expected to result in a profit
on disposal in the range of GBPnil to GBP3m, which will be
recognised in the half year ending 24 September 2016. This
estimated profit includes the loss on disposal of certain current
assets and certain liabilities held for sale (refer to note 3), and
the recycling through the income statement of accumulated foreign
exchange translation gains recorded in reserves and the estimated
costs of disposal.
In addition to the cash payment upon completion and deferred
cash payments there is also a contingent element of consideration
which is dependent upon the disposed business meeting certain
future targets. This contingent element of the consideration has
not been factored into the estimated profit on disposal.
11 Dates
The consolidated accounts have been prepared as at 26 March
2016, being the last Saturday in March. The comparatives for the
2014/15 financial year are for the period ended 28 March 2015.
12 Statutory accounts
Statutory accounts for the period ended 26 March 2016 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.
13 Foreign exchange
Principal exchange rates used in translating the
Group's results:
2015/16 2014/15
Average Year End Average Year End
US dollar 1.50 1.41 1.61 1.49
Euro 1.36 1.27 1.28 1.37
14 De La Rue financial calendar 2016/17
Ex-dividend date for 2015/16 final 23 June 2016
dividend
Record date for final dividend 24 June 2016
Annual General Meeting 21 July 2016
Payment of 2015/16 final dividend 3 August 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AJMMTMBITTTF
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May 24, 2016 02:01 ET (06:01 GMT)
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