De La Rue Regulatory News (DLAR)

DE LA RUE

2018/19 HALF YEAR RESULTS AND STRATEGY UPDATE

De La Rue plc (LSE: DLAR) (De La Rue, the "Group" or the "Company") announces its half year results for six months ended 29 September 2018 (the period or half year). The comparative period was six months ended 30 September 2017.

FINANCIAL HIGHLIGHTS

· Strong Group 12 month order book at September 2018 of £365m provides good visibility of revenue and profitability for H2, full year expectations unchanged

· Group revenues excluding paper† of £242.0m, 9% growth

· Adjusted operating profit (1) of £17.0m, primarily reflecting a less favourable mix of orders. IFRS operating profit was £10.1m, down 59%

· Adjusted basic EPS of 11.2p; IFRS basic EPS on continuing operations of 5.1p

· IAS 19 UK pension deficit reduced to £77.2m (31 March 2018: £87.6m)

· Net debt of £94.3m was above expectation due to timing of deliveries in the half year

· Interim dividend maintained at 8.3p

KEY FINANCIALS

OPERATIONAL HIGHLIGHTS

· Order intake +30% year on year, benefited from the continued investment in R&D and sales

· Banknote print volumes +3% to 3.6bn notes

· Improved revenue visibility

- Extended two Long Term Agreements (LTAs) with existing customers, including a 3 year contract totalling c£85m with the Central Bank of Kenya

- Signed 3 year banknote contract with new customer Sveriges Riksbank

· Two new security features launched for ID - MyImage™ and Photocolour UV™

· Agreed UK passport preliminary transition timeline - expect to deliver two thirds of the contract's annualised revenue of c£40m and profit of c£8m in FY 2019/20

· Momentum in PA&T- securing two significant contracts paving the way for further expansion in the market. We expect the PA&T business to double in size within the next three years

STRATEGY UPDATE

· In the light of the UK passport decision, we have completed a detailed review of our strategy - which reaffirms the core elements but introduces a change in focus, primarily in Identity Solutions business:

· Optimise and Flex: continue to deliver cost savings and world class manufacturing across the Group

· Invest and build:

- Redirect growth in the identity business on security features and components from prime systems integration

- Continue to grow in Security Features, Polymer and Product Authentication

· Capital allocation priorities:

- Organic growth investments - capital projects, investment in R&D and sales

- Dividend payment - aim to at least maintain dividend per share in the short to medium term

- Mergers and acquisitions - explore value enhancing opportunities

- Leverage not exceeding 1.5x net debt/EBITDA

Martin Sutherland, Chief Executive Officer of De La Rue, commented:

"We continue to make progress in delivering against our strategic plan to transform the Group into a less capital intensive, more technology led business. We have seen good growth in Group revenue in the first half. We are pleased with the growing momentum in Product Authentication & Traceability, having recently secured two important tax stamp solutions contracts, which are both endorsements of our capabilities and excellent references for De La Rue in this fast growing market. These build on the orders secured in the last 12 months which include the five year contract with the Federal Tax Authority in the UAE. We expect our PA&T business to double in size within the next three years.

"Over the last six months we have conducted a thorough review of our strategy and market positions. In the light of the UK passport decision, we have concluded that we will refocus our identity business on the supply of higher margin security features and components. We believe we can continue to drive cost efficiencies across the Group and achieve growth in Security Features, Polymer and PA&T.

"We maintain a strong order book and pipeline which provides good visibility for the second half of this year and into next year. With good revenue coverage from the Group's 12 month order book of £365m and based on the orders planned for production and shipment in the second half, we are confident that we will meet our expectations for the full year."

Enquiries:

A conference call will take place at 9:00 am GMT on 27 November 2018, which is also accessible via webcast on www.delarue.com

For the live webcast, please register at www.delarue.com where a replay will also be available subsequently.

About De La Rue

De La Rue's purpose is to enable every citizen to participate securely in the global economy. As a trusted partner of governments, central banks and commercial organisations, De La Rue provides products and services that underpin the integrity of trade, personal identity and the movement of goods.

As the world's largest designer and commercial printer of banknotes, De La Rue designs, manufactures and delivers banknotes, banknote substrates and security features to customers in a world where currency will continue to be a key part of the developing payments eco-system.

De La Rue is the world's largest commercial designer and printer of passports, delivering national and international identity tokens and software solutions for governments in a world that is increasingly focused on the importance of a legal and secure identity for every individual.

De La Rue also creates and delivers secure product identifiers and 'track and trace' software for governments and commercial customers alike to help to tackle the challenge of illicit or counterfeit goods and the collection of revenue and excise duties.

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.

OVERVIEW

The Group reported good revenue growth in the first half of FY 2018/19, with adjusted operating profit in line with our previous guidance that the Group's performance is expected to be weighted towards the second half of the year. Order intake grew by 30% year on year in the first half and the Group's 12 month order book at 29 September 2018 was £365m (31 March 2018: £363m), providing good coverage for the rest of the year and the first half of next year.

We continue to make solid progress against our strategic plan of driving growth, having recently secured a number of new multi-year orders for Currency and Product Authentication & Traceability (PA&T), some of which are for delivery starting in FY 2019/20. These include two strategically important tax stamp solution contracts in Europe and the Middle East, paving the way for further expansion in the PA&T market. With the new orders secured in the last 12 months, which include the five year contract totalling £25m with the Federal Tax Authority in the UAE, we expect our PA&T business to double in size within the next three years.

On the back of the significant strategic progress we have made in the last three years and in the light of the challenge of losing the UK passport contract in FY 2019/20, we have conducted a detailed review of our strategy and market positions and have concluded that we will refocus our identity business on the supply of high margin security features and components. See the "Strategy Update" section for further details.

FINANCIAL RESULTS

Reported Group revenue grew by 5% to £257.6m (H1 2017/18: £244.7m). This includes £15.6m of "pass through" paper revenues and the benefit from the recognition of security feature sales to Portals De La Rue as external revenues. They were previously treated as internal revenues. These are offset by the loss of revenue from the paper business.

Excluding paper, Group revenues grew strongly by 9%, driven by growth across all segments.

The implementation of IFRS 15 increased revenue in the first half by £1.0m with a corresponding increase in cost of goods sold of £0.6m, resulting in a net increase in operating profits of £0.4m.

Adjusted operating profit of £17.0m was down 36% on a reported basis (H1 2017/18: £26.6m), and down 31% excluding paper, as the benefit of the growth in revenues was offset by lower margins in the Currency business due to mix of orders and continued investment in R&D and sales and marketing activities.

Adjusted basic earnings per share of 11.2p were 33% lower than prior year (H1 2017/18: 16.6p) as reduced adjusted operating profit was partially offset by a lower IAS 19 finance charges.

On an IFRS basis, operating profit of £10.1m was 59% lower than the prior year (H1 2017/18: £24.6m) reflecting higher net exceptional charges of £6.6m (H1 2017/18: £1.8m) in addition to the factors driving the lower adjusted operating profit levels. IFRS basic earnings per share were 66% lower at 5.1p (H1 2017/18: 14.8p) on lower reported earnings.

Cash generated from operating activities was an outflow of £19.7m (H1 2017/18: inflow £10.0m) resulting from lower operating profits and adverse working capital movements, including a one-off adverse movement following the sale of the Paper business and a significant build in trade receivable levels reflecting the timing of shipments through H1. Increased special pension contributions partially offset by an increase in the level of advanced payments received from customers. Net debt at 29 September 2018 increased to £94.3m.

STRATEGY UPDATE

In May 2015, we announced a five year plan to transform De La Rue into a less capital intensive, more technology led security product and services provider, with a more balanced business portfolio that will deliver growth and improve quality of earnings. Over the past three years, we have made good progress against our strategic objectives as listed below:

· Reorganised the business to a functional structure and streamlined the management team

· Sold the underperforming Cash Processing Solutions business

· Sold the paper business, reducing our exposure to the volatility of the paper market

· Reduced excess capacity and increased flexibility in our banknote print business

· Established a good position in the polymer market and we are building substantial growth momentum

· Invested in sales and R&D in order to deliver sustainable growth

· Acquired DuPont Authentication to build scale, increased differentiation and support growth in the brand protection market

· Reduced the UK pre-tax pension deficit substantially - £77.2m H1 2018/19 (2014/15: £234.1m), a reduction of £156.9m

On the back of this progress and in the light of the UK passport decision, we have conducted a detailed review of our strategy and market positions in the last six months. We have concluded that De La Rue remains a sound business with a strong foundation and long term growth potential. De La Rue

· enjoys leading positions in our chosen markets with high barriers to entry

· has a respected and trusted brand with longstanding customer relationships - 2/3 of our customers are LTAs or have long term relationships with De La Rue

· is an established innovator with world class design capability - 123 patents granted and 127 patents filed in the last four years; 14 international design awards in the last 10 years

· has long term growth potential - 2017-2022 CAGR: currency market +4%, Identity market +6%, brand protection market +9%, tax stamp market +12% (Source: The Future of Global Security Printing to 2022, Smithers Pira)

We have also concluded that the strategic goal of becoming a less capital intensive and more technology led business is the right one for the Group and that it will deliver value for our shareholders over the long term. We have made good progress against this goal, however a refinement of priorities is now needed to take advantage of growth opportunities and to deal with the challenge of losing the UK passport contract from FY 2019/20.

While physical security features will remain relevant in the markets in which we operate, features combined with digital elements to ensure authentication both online and offline will likely be the norm in the future. We will continue to focus on bringing together our expertise in security print and material science and digital technologies.

The section below outlines the key strategic priorities into which we will prioritise our capital investment and resource allocation in the next five years.

Opitmise & Flex

Driving down costs and improving efficiency continues to be one of our key strategic priorities. The review has highlighted a number of opportunities above and beyond our operational excellence programme. We are currently evaluating a number of initiatives across three main areas to improve efficiency and cut costs:

Corporate cost savings

Following the divestments of the Cash Processing Solutions business and the paper business, we are now a smaller but much stronger business with a better quality of earnings. We are streamlining our operations and realigning the size of certain functions with current business requirements. This includes right-sizing the senior and middle management team and reducing headcount.

Operational efficiency

We continue to focus on driving efficiency in three main areas: 1) supply chain efficiency - to achieve procurement savings through better managing the supplier base and terms of contracts; 2) cost of quality - improve quality management through inspection systems upgrade and process improvement; 3) operational excellence - increase efficiency through design for manufacture and better planning.

Manufacturing optimisation

As the manufacturing footprint restructuring programme launched in 2016 enters its final phase, we are developing a new plan which looks to create a manufacturer of the future, aligning it with our changing product portfolio as well as creating flexibility to meet ever-changing customer needs. Further details will be announced in due course.

Invest & Build

We will continue to invest and strive for technological innovation, aiming to invest at least 3% of the Group's revenue in R&D and product management, in line with the Group's expected growth rate.

The Invest & Build strategy continues to focus on the business lines that are exposed to high growth markets, namely Polymer, Security Features, Identity Solutions (IDS) and PA&T. The priorities for Polymer and Security Features remain unchanged, i.e. continue to build scale for Polymer and for Security Features to accelerate technology platform development and build capability ecosystem around core features. However, the priorities for IDS and PA&T have been refined to reflect the changing market dynamics.

Identity Solutions

Following the decision of the UK passport retender in April 2018, we have conducted a review of the cost base and competitiveness of our identity business. We have concluded that while the identity business has a strong foundation and good growth potential, the market dynamics have changed in the last 18 months and part of it, i.e. the solutions market has consolidated. This change, coupled with our reduced market share post the UK passport contract in FY 2020/21, presents a challenge to our existing strategy of targeting end to end solutions sales.

Unlike the solutions market which is now concentrated, the identity components market remains fragmented and is largely available to commercial operators. There are strong synergies between identity components and the rest of the Group in terms of technology platforms and the markets they serve. To maximise these synergies and optimise capital investment, we have decided to refocus the identity business from solutions sales to high margin components. This means concentrating on physical security components such as polycarbonate, IP, and security features, where we can differentiate. Meanwhile, we will continue to assess all options that will deliver the most value to shareholders from this business.

Product Authentication & Traceability

We seek to expand in the large and versatile brand protection market. The rise of ecommerce has increased the focus on supply chain security and consumer engagement. The brand protection market is expected to grow at 9% per year to 2022. As both the customer base and supplier base are highly fragmented with no clear leadership and established buying behaviour, we see significant opportunities in this market.

We currently operate in the two largest segments of the brand protection market - product authentication (product focused) and product traceability (supply chain focused). We look to strengthen our position in this market by:

· using our extensive security features portfolio and Traceology® solution to drive expansion in the commercial product authentication (brand protection) market

· building on our government track and trace solution, DLR Certify™, to underpin growth in government revenue services (tax stamps)

· developing new market positioning and routes into brands by expanding into brand enhancement, i.e. integrating authentication with product packaging

Building on our existing product and service offering and leveraging our core strengths, we will develop some of these capabilities in house, and where necessary we will obtain through acquisitions and partnerships.

CAPITAL ALLOCATION PRIORITIES

The Board's capital allocation framework is designed to deliver increasing shareholder value, driven by the execution of the Group's strategy. The Group's capital allocation priorities are:

· Organic growth investments - capital projects, investment in R&D and sales

· Dividend payment - aim to at least maintain dividend per share in the short to medium term

· Mergers and acquisitions - explore value enhancing opportunities

The Board is committed to maintaining an efficient balance sheet, appropriate to the Group's medium term investment requirements. Accordingly, the Board has adopted a leverage policy not exceeding 1.5x net debt/EBITDA (excluding pension deficits). It intends to keep the Group's capital structure under regular review.

OPERATING REVIEWS

Currency

The Currency business comprises Banknote Print, Polymer and Security Features.

The Currency market continues to be buoyant even in the light of anticipated pricing pressures, reflecting both the long term growth trend as well as short term demands, driven by political and economic uncertainties in certain regions.

Excluding paper†, revenues grew by 11%, reflecting the underlying growth in banknote revenues on increased volumes, and strong sales in security features.

Excluding paper† adjusted operating profit declined by 60% in the first half compared to the prior year. This was driven by the mix of a higher volume of lower margin jobs shipping in the first half and the planned investment in R&D and sales and marketing activities.

Reported revenue was £198.1m, 7% higher than the prior year, which included the exited paper business. H1 2018/19 revenue includes the recognition of £15.6m of "pass through" paper revenues, where customer contracts have not yet been novated to Portals, and the benefit from the recognition of security features sales to Portals as external sales (previously all internal to the Group).

Reported adjusted operating profit of £6.5m was 61% lower than H1 2017/18, for the reasons noted above.

Based on orders planned for production and shipment in the second half, we expect to see an improved mix and enhanced margins in the remainder of the year.

At the end of September, the 12 month order book for Currency was £231m, representing a reduction of £41m from the year end. Since the period end, we have secured a significant contract with the Central Bank of Kenya to print its new series of banknotes, to the value of c£85m (£19m of which we expect to deliver in the next 12 months).

Our proprietary cash cycle management software DLR Analytics™, which is being used by more than 70 central banks, has expanded its service offering with the launch of its forecasting functionality in June 2018. The new module provides a flexible approach to scenario planning, enabling central banks to forecast demand and better control their cash cycle, thus smoothing the demand peaks and troughs. Following its success at the Central Banking Awards in January 2018, De La Rue Analytics™ was awarded the 'Currency Technology Provider of the Year' at the Central Banking's FinTech and RegTech Global Awards which celebrate those leading in both the public and private sector for their work in financial and regulatory technology.

Banknote Print

Banknote Print performed strongly, with sales volumes at 3.6bn notes (H1 2017/18: 3.5bn). Revenue was up 11%, reflecting the higher volumes.

Printing of the Bank of England's new £20 notes is now underway following a successful production trial.

We continue to improve revenue visibility with the extension of two LTAs as well as the acquisition of a new LTA customer recently. These include a three year contract with the Central Bank of Kenya to design and produce its new series of banknotes. De La Rue has had a presence in Kenya for over 25 years. We are investing in expanding and upgrading our site as part of the long term plan to become a regional hub for East Africa and the wider continent. In September 2018, we added a new customer - Sveriges Riksbank - to our banknote portfolio, winning a contract to produce the Swedish Krona for the next three years, with the option to extend by another four years. As the world's oldest central bank, Sveriges Riksbank is one of the very few in the developed world that outsources banknote printing. This award is both an endorsement of our capability, and an excellent reference for De La Rue.

Polymer

Polymer volumes increased by 10% to 440 tonnes (H1 2017/18: 400 tonnes) in the first half and it is expected to report a doubling of volumes for the full year. The trial of our Safeguard® substrate for the Bank of England's £20 note was completed successfully in August 2018 and production of the first order totalling 520 tonnes over two years has begun.

We have made solid progress in gaining market share in the first half of the year. Including the notes in order, our Safeguard® substrate is currently or will be adopted by 26 note issuing authorities across 60 denominations.

Security Features

Security thread revenues increased 16% on a like for like basis, benefiting from new contracts as well as higher volumes from existing customers.

Our banknote features launched in May 2018 - Ignite™ and PureImage™ - are gaining traction, securing the first customer for PureImage™ in September. During the period, we also released two more new features for identity documents - MyImage™ and Photocolour UV™. MyImage™ is a polycarbonate feature jointly developed by De La Rue and its strategic partner Opalux, which enables personalisation of passports and ID cards by using standard laser engraving systems, making it easier to integrate into existing processes. Photocolour UV™ is a print feature that combines the best of security design and the vibrant full colour UV inks to create a life-like 3D effect imagery.

Identity Solutions

*Excludes amortisation of acquired intangibles of £0.2m (H1 2017/18: £nil).

† Like for like performance adjusts for the impact on our results of exiting the paper business. In H1 2017/18 this excludes the results of the exited paper business.

Excluding paper†, Identity Solutions performed well, with revenue up 7% and adjusted operating profit up 57%. This was driven by good growth in international ID on increased volumes and improved margin on mix of business.

Reported revenues in Identity Solutions increased slightly at £40.1m (H1 2017/18: £39.4m). Reported adjusted operating profit increased by 28% to £6.9m.

Following on from last year's success, we have added three new contracts in the first half of the year: Malta ID cards, Qatar ePassport and Libya which is a new addition to our customer portfolio.

Following the conclusion of the UK passport retender in April 2019, we are in the process of agreeing a transition plan with Her Majesty's Passport Office. A preliminary timeline for service transfer has been agreed, starting from October 2019. Based on this timeline, the UK passport contract is expected to deliver around two thirds of its annualised revenue and profit in the financial year of FY19/20.

Product Authentication & Traceability

*Excludes exceptional item charges of £0.1m (H1 2017/18: net changes of £0.4m) and amortisation of acquired intangibles of £0.1m (H1 2017/18: £nilm).

† Like for like performance adjusts for the impact on our results of exiting the paper business. In H1 2017/18 this excludes the results of the exited paper business.

Excluding paper†, revenues increased by 2% on increased Microsoft sales being partially offset by a long term contract coming to an end in 2017/18. Adjusted operating profit was down 14% at £3.6m, primarily due to the continued investment in this area.

Reported revenue was 4% lower than prior year at £19.4m and reported adjusted operating profit decreased by 22%, in part due to the exit from the paper business, and on the reasons noted above.

Preparation work for the roll out of the UAE tax stamp contract, which begins in early 2019, continues. The contract has an initial five year term under a build, operate, transfer (BOT) model to implement a full Framework Convention to Tobacco Control (FCTC) compliant track and trace tax stamp solution for the Federal Tax Authority in the UAE.

Momentum in government revenue solutions (GRS) continues to build as we have recently been awarded a significant contract to deliver a digital tax stamp solution with full track and trace for tobacco and soft drinks and a code issuance contract for tobacco products. We are in the process of finalising the contract terms and will update the market in due course. With the new orders secured in the past 12 months, benefiting from the continuing investment in R&D and sales, we expect our PA&T business to double in size within the next three years.

Driven by regulations such as the World Health Organisation's FCTC (effective in September 2018) and EU's Tobacco Products Directive (EUTPD) (coming into force in May 2019), the GRS market is expected to grow by c12% per annum in the next five years. The regulations specify that tobacco manufacturers shall work with third party system providers to ensure full traceability and authentication of tobacco products. As one of the few tax stamp scheme providers that offer full track and trace solutions, De La Rue is well placed to respond to this opportunity.

During the period, we migrated the remaining security print line from Gateshead, UK to Malta as part of the footprint restructuring plan set out in 2015. Malta, as one of our centres of excellence for security printing, now has full capability to produce identity documents, secure labels, and banknotes.

FINANCE CHARGE

The Group's net interest charge of £1.9m (H1 2017/18: £2.5m), was lower than the prior half year due to the lower average net debt balance during the period.

The IAS 19 related finance cost, which represents the difference between the interest on pension liabilities and assets was £1.1m (H1 2017/18: £3.2m), the lower charge reflecting the substantial reduction in the pension deficit following the change in the indexation methodology which became effective in the second half of FY 2017/18. We expect this reduced run rate to continue.

The total Group net finance charge was £3.0m (H1 2017/18: £5.7m).

EXCEPTIONAL ITEMS

The exceptional items during the period were net charges of £6.6m (H1 2017/18: net charges of £1.8m).

These comprise site relocation and restructuring costs of £3.3m relating to the ongoing manufacturing footprint review and charges relating to the recently announced review of our cost base to deliver cost savings and £2.9m additional loss on disposal relating to the sale of the paper business due to finalisation of the disposal accounting post year end.

TAXATION

The net tax charge for the first half was £1.7m (H1 2017/18: £3.1m). The effective tax rate on continuing operations before exceptional items and the movement on acquired intangibles was 16.7% (H1 2017/18: 15.9%). The effective tax rate for FY 2018/19 is expected to remain at 15-16%.

Net tax credits relating to exceptional items in the period were £0.6m (H1 2017/18: £0.2m). A tax credit of £0.1m (H1 2017/18 £nil) was recorded in respect of amortisation of acquired intangibles.

CASH FLOW AND BORROWING

Cash generated from operations was an outflow of £19.7m for the half year (H1 2017/18: inflow £10.0m) and is stated after special pension contributions of £10.3m which are higher than £4.2m paid in H1 last year. There was a one off outflow following the disposal of the paper business (now Portals De La Rue) with £16m converted to third party working capital immediately following the disposal. This was partially offset by a cash inflow in the period from the new trading arrangement between the Group and Portals De La Rue. Trade receivables (excluding the amounts due from Portals De La Rue) increased by £37m resulting from the timing of shipments in the period. Advanced payments from customers increased by £16m.

Capital expenditure for the half year was £10.4m. Capital expenditure for FY 2018/19 is expected to be around £30m, ahead of the normal run rate of £25m excluding the paper business.

Net debt increased by £44.4m to £94.3m at the end of the period (30 March 2018: £49.9m) primarily driven by the adverse working capital movements.

The Group has a revolving credit facility of £275m which expires in December 2021. At the period end the covenant tests were as follows: EBIT/net interest payable 13.8 times (covenant of ≥4.0 times), net debt/EBITDA 1.37 times (covenant of ≤3.0 times).

PENSION DEFICIT AND FUNDING

The valuation of the Group's UK defined benefit pension scheme (the "Scheme") under IAS 19 indicated a pre-tax deficit at 29 September 2018 of £77.2m (31 March 2018: £87.6m; 30 September 2017: £189.1m). The decrease since year end was primarily driven by an increase in the discount rate assumption used in the valuation, in addition to the impact of the £10.3m of special pension funding payments made in the half.

The charge to operating profit in respect of the Scheme in the period was £0.8m (H1 2017/18: £1.1m). In addition, under IAS 19 there was a finance charge of £1.1m arising from the difference between the interest cost on liabilities and the interest income on scheme assets (H1 2017/18: £3.2m).

Cash contributions to the Scheme, agreed in June 2016, will be £20.5m for FY 2018/19, of which £10.3m has already been paid in the first half. The triennial funding valuation was initiated on 5 April 2018. The results are yet to be finalised by the Trustees and the Company will be engaging with the Trustees on future funding arrangements.

SENIOR MANAGEMENT CHANGES

On 19 July 2018, the Group appointed Helen Willis as Chief Financial Officer and subsequently as an Executive Director of the Company effective on expiry of the AGM on 26 July 2018. Helen is a qualified accountant and has a wealth of finance experience, with her latest role as Chief Financial Officer of Premier Farnell PLC. Helen joined De La Rue as Interim Chief Financial Officer on 16 April 2018.

DIVIDEND

The Board proposes to leave the dividend unchanged and is recommending an interim dividend of 8.3p per share. The interim dividend will be paid on 3 January 2019 to shareholders on the register on 7 December 2018.

OUTLOOK

The Board is encouraged by the strong order book position at the end of the first half, which provides good visibility of revenue and profitability for the rest of the year. Based on the orders planned for production and shipment in the second half, the Board is confident that the business will meet its expectation for the full year.

- ends -

Martin Sutherland Helen Willis

Chief Executive Officer Chief Financial Officer

27 November 2018

DIRECTORS REPORT

Principal risks and uncertainties

Throughout its global operations De La Rue faces various risks, both internal and external, which could have a material impact on the Group's performance. The Group manages the risks inherent in its operations in order to mitigate exposure to all forms of risks, where practical, and to transfer risk to insurers, where cost effective.

The Group analyses the risks that it faces under the following broad headings: strategic risks (technological revolution, strategy implementation, changes to the market environment and economic conditions), operational risks, legal/ regulatory, information risks and financial risks (currency risk, credit risk, liquidity risk, interest rate risk and commodity price risk).

As described in the 2018 Annual Report, the principal risks include breach of legal and regulatory requirements, failure to win or renew a material contract, capacity change, product security, mergers and acquisitions, pension fund deficit, failure to maintain and exploit competitive and technologically advanced products and services, failure to adopt performance driven culture, failure to secure strategic partnerships to address key issues, information security risk, loss of a key site, health safety or environmental failure, quality management failure, supply chain failure, and unpredictability in the timing and size of substantial contract awards. These risks, along with the risk management systems and processes used to manage them remain unchanged since the Annual Report was published.

The main risks and uncertainties faced by the Group for the remaining six months of the year and the risk management systems and processes used to manage them are unchanged from those described further in the 2018 Annual Report, a copy of which is available on request from the Company's registered office at De La Rue House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out on pages 4 to 22 of the strategic report in the 2018 Annual Report. In addition, pages 111 to 113 of the 2018 Annual Report include the Group's objectives, policies and processes for financial risk management, details of its financial instruments and hedging activities and its exposure to credit risk, liquidity risk and commodity pricing risk. The financial position of the Group, its liquidity position and borrowing facilities are described on page 33 of the 2018 Annual Report. As described on page 33 of the 2018 Annual Report, the Group meets its funding requirements through cash generated from operations and a revolving credit facility which expires in December 2021.

The Group's updated forecasts and projections, which cover a period of more than twelve months from the date of the interim statement, taking into account reasonably possible changes in normal trading performance, show that the Group should be able to operate within its currently available facilities. The Group has sufficient financial resources together with assets that are expected to generate cash flow in the normal course of business. As a consequence and notwithstanding the net liability position being reported in the consolidated balance sheet, which has primarily arisen due to the value of the deficit in the retirement benefit obligations, the Directors have a reasonable expectation that the Company and the Group are well placed to manage their business risks and to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed interim financial statements

A copy of the 2018 Annual Report is available at www.delarue.com or on request from the Company's registered office at De La Rue House, Jays Close, Viables, Basingstoke, Hampshire, RG22 4BS.

Statement of Directors' responsibilities

The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the Disclosure Guidance and Transparency Rules ("DTR") of the United Kingdom's Financial Conduct Authority ("FCA").

The DTR require that the accounting policies and presentation applied to the half yearly figures must be consistent with those applied in the latest published annual accounts, except where the accounting policies and presentation are to be changed in the subsequent annual accounts, in which case the new accounting policies and presentation should be followed, and the changes and the reasons for the changes should be disclosed in the Interim report, unless the United Kingdom's FCA agrees otherwise.

The Directors confirm that to the best of their knowledge the condensed set of financial statements, which have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the European Union give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group, as required by DTR 4.2 and in particular include a fair review of:

• the important events that have occurred during the first six months of the financial year and their impact on the interim condensed consolidated set of financial statements as required by DTR 4.2.7R;

• the principal risks and uncertainties for the remaining half of the year as required by DTR 4.2.7R; and

• related party transactions that have taken place in the first half of the current financial year and changes in the related party transactions described in the previous annual report that have materially affected the financial position or performance of the Group during the first half of the current financial year as required by DTR 4.2.8R.

The Board

The Board of Directors of De La Rue plc at 31 March 2018 and their respective responsibilities can be found on page 98 of the De La Rue plc Annual Report 2018. Since that date the following changes have taken place:

· On 19 July 2018, the Company announced the appointment of Helen Willis as Chief Financial Officer with immediate effect and as an Executive Director of the Company to take effect on expiry of the Company's Annual General Meeting on 26 July 2018.

For and on behalf of the Board

Philip Rogerson

Chairman

27 November 2018

INDEPENDENT REVIEW REPORT TO DE LA RUE PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the period ending 29 September 2018 which comprises the Group condensed consolidated interim income statement, the Group condensed consolidated interim statement of comprehensive income, the Group condensed consolidated interim balance sheet, the Group condensed consolidated interim statement of cash flows, the Group condensed consolidated interim statement of changes in equity and the related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the period ending 29 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Reading, UK

27 November 2018

*Profit before tax includes continuing and discontinued operations.

Share premium account

This reserve arises from the issuance of shares for consideration in excess of their nominal value.

Capital redemption reserve

This reserve represents the nominal value of shares redeemed by the Company.

Hedge reserve

This reserve records the portion of any gain or loss on hedging instruments that are determined to be effective cash flow hedges. When the hedged transaction occurs, the gain or loss on the hedging instrument is transferred out of equity to the income statement. If a forecast transaction is no longer expected to occur, the gain or loss on the related hedging instrument previously recognised in equity is transferred to the income statement.

Other reserve

On 1 February 2000, the Company issued and credited as fully paid 191,646,873 ordinary shares of 25p each and paid cash of £103.7m to acquire the issued share capital of De La Rue plc (now De La Rue Holdings Limited), following the approval of a High Court Scheme of Arrangement. In exchange for every 20 ordinary shares in De La Rue plc, shareholders received 17 ordinary shares plus 920p in cash. The other reserve of £83.8m arose as a result of this transaction and is a permanent adjustment to the consolidated financial statements.

Cumulative translation adjustment (CTA)

This reserve records cumulative exchange differences arising from the translation of the financial statements of foreign entities since transition to IFRS. Upon disposal of foreign operations, the related accumulated exchange differences are recycled to the income statement. This reserve also records the effect of hedging net investments in foreign operations.

During the period an amount of £1.5m has been reclassified to the cumulative translation adjustment reserve from retained earnings. Balances as at 25 March 2017 and 30 September 2017 have been restated, for further details see note 1.

Unallocated assets principally comprise deferred tax assets of £18.0m, cash and cash equivalents of £9.8m which are used as part of the Group's financing offset arrangements and derivative financial instrument assets of £5.4m as well as current tax assets, associates and centrally managed property, plant and equipment.

Unallocated liabilities principally comprise retirement benefit obligations of £79.3m, borrowings of £99.0m, current tax liabilities of £13.1m and derivative financial instrument liabilities of £5.0m as well as deferred tax liabilities and centrally held accruals and provisions.

Unallocated assets principally comprise deferred tax assets of £19.8m, cash and cash equivalents of £15.5m which are used as part of the Group's financing offset arrangements and derivative financial instrument assets of £3.6m as well as current tax assets, associates and centrally managed property, plant and equipment.

Unallocated liabilities principally comprise retirement benefit obligations of £89.7m, borrowings of £63.9m, current tax liabilities of £13.3m and derivative financial instrument liabilities of £4.5m as well as deferred tax liabilities and centrally held accruals and provisions.

3 Discontinued operations

The Group completed the sale of the entire issued share capital of Cash Processing Solutions Limited and related subsidiaries (together 'CPS') to CPS Topco Limited, a company owned by Privet Capital on 22 May 2016.

Under the terms of the CPS sale agreement, De La Rue received £2.1m upon completion of the transaction. During FY18, a deferred consideration payment of £0.8m was received. In addition to £0.9m relating to a closing working capital adjustment and a further £1.4m was received in relation to additional consideration for the sale of CPS for which a receivable was not recorded to the likelihood of this being paid. A further deferred consideration amount of £0.8m is due and included on the Group balance sheet. The Group is entitled to further contingent consideration following the sale of up to £6m if certain performance related and event driven milestones are achieved by CPS.

The loss on discontinued operations in the period, of £0.4m (comprising net charges of £0.9m and £0.5m associated to tax credits), relates to the reassessment of the provision associated with a loss making CPS contract that was not novated post disposal and other costs associated with the winding down of remaining activity related to CPS (net of associated tax credits).

In addition during the year there has been a release of a historical provision for post-retirement benefits (net of associated tax credits), following an updated valuation. The release of this provision has been recorded in reserves rather than discontinued operations in the income statement as the release is considered to be consistent with that of an actuarial gain.