De La Rue Regulatory News (DLAR)

De La Rue plc - Publication of Documents

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

Annual Report 2015

Notice of Annual General Meeting to be held on 23 July 2015

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

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

In addition, the information below which is extracted from the De La Rue plc Annual Report 2015 is in accordance with the requirements of the DTR 4.1.3 and DTR 6.3.5 to make public an annual financial report.

KEY FINANCIALS

HEADLINES

· Full year results in line with expectations

· Appointment of Martin Sutherland as new CEO

· New Bank of England 10 year print contract signed in October 2014

· Year end 12 month order book of £243m (2013/14: £307m)3

· Banknote print volumes up 5% to 6.5bn, banknote paper volumes down 2% to 9,400 tonnes

· Operational efficiencies yield additional £7m savings

· CPS returned to underlying profitability

· Final dividend of 16.7p per share, giving a total dividend for the year of 25.0p

· Clear Strategic Plan to deliver growth and improved profitability in the long term

· Significant investment in R&D and additional sales resources to develop the business, which will be more than covered by planned operational cost savings

Martin Sutherland, Chief Executive, commented:

"These results are in line with our revised expectations and include the benefit of further operational efficiencies. However, these have been outweighed by the impact of the challenging market conditions on revenue and operating profit across the Group.

 "In my first seven months, I have strengthened the leadership team and restructured the organisation to better align the business with its strategic needs as well as initiating a number of actions to achieve substantial cost savings which will be largely reinvested in the business to drive growth.

"I have completed a review of the business and formulated a clear Strategic Plan to deliver growth and improved profitability in the long term through a greater focus on customers, innovation and delivery."

Enquiries:

A presentation to analysts will take place at 09:00 on 27 May 2015 at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS. There will be a simultaneous audio webcast of the meeting. For the live webcast, please register at www.delarue.com where a replay will also be available subsequently.

A video interview with Martin Sutherland, CEO, is available on the Investors page at http://www.delarue.com/ and on http://video.merchantcantos.com/

27 May 2015

NOTES TO EDITORS

DE LA RUE PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT - PERIOD TO 28 MARCH 2015

The Group's results for 2014/15 reflect the challenging market conditions across all our businesses and hence are, as previously advised, below the level reported in the corresponding period. Within Currency, pricing pressures have continued which has resulted in lower margins, while in Identity Systems and Security Products, the level of new business has been lower than expected. Some mitigation of these conditions has been achieved through operational efficiencies which have realised further benefits of £7m in the period. The actions taken in Cash Processing Solutions (CPS) during the year have returned this business to underlying profitability.

At 28 March 2015, the Group's 12 month closing order book, calculated on a revised basis to include estimated call-off orders for material contracts, was £243m (2013/14 restated: £307m). Pricing in recent tenders continues to reflect the ongoing challenging market conditions.

FINANCIAL RESULTS

As previously announced the Group's results have been impacted by the difficult market environment in Currency, Identity Systems and Security Products, with revenues falling to £472.1m (2013/14: £513.3m) and underlying operating profit (before exceptional items) down at £69.5m (2013/14: £89.3m). Underlying profit before tax was £57.7m (2013/14: £77.3m) and consequently, underlying earnings per share decreased to 45.3p (2013/14: 60.7p). Net exceptional charges, before tax, in the period totalled £18.8m (2013/14: £17.5m) predominantly relating to the invocation of guarantees along with further costs in respect of site relocation, restructuring and asset impairments (more fully described in note 3). As a result profit before tax was £38.9m (2013/14: £59.8m).

Underlying operating cash flow, comprising underlying operating profit adjusted for depreciation and the movement in working capital, was £85.6m (2013/14: £99.1m). This represents a cash conversion ratio of 123 per cent (2013/14: 111 per cent). Net debt at 28 March 2015 was however, up £21.1m at £111.0m (2013/14: £89.9m).

DIVIDEND

In light of the difficult trading environment, and consistent with the reduction in the 2014/15 interim dividend, the Board is recommending a final dividend of 16.7p per share (2013/14: 28.2p per share). Together with the interim dividend paid in January 2015, this will give a total dividend for the year of 25.0p per share (2013/14: 42.3p per share). Subject to approval by shareholders, the final dividend will be paid on 3 August 2015 to shareholders on the register on 3 July 2015.

The Board is mindful of the importance of dividends to shareholders and will seek to maintain dividends at the 2014/15 level.

STRATEGY

During the past six months we have conducted a strategic review of the Group's businesses and assessed the outlook for the next five years. The review addressed matters such as our customers' changing requirements, a pragmatic appraisal of the Group's capabilities and composition, an assessment of the markets in which the Group operates and an analysis of our competitors. The review has reconfirmed the core strengths and assets of the Group including:

· Powerful brand reputation which engenders longstanding customer relationships

· Leading market positions

· Widely recognised world leading design skills and capabilities

· A long history of product innovation

· A proven track record of delivering operational efficiencies

Having concluded this review we now have a clear Strategic Plan:

· The current integrated portfolio is beneficial and should be maintained

· A differential approach will be applied to products based on market growth opportunities

o Where products are exposed to low growth markets - we will 'Optimise and Flex' our capabilities through modernisation, cost reduction and accessing flexible capacity

o Where products are exposed to higher growth and more profitable markets - we will 'Invest and Build' in new capabilities, technologies and sales resources

· Outcome

o Higher growth, technology led business

o Improved and less volatile profitability

The Strategic Plan has recognised and confirmed that the Group derives significant benefit from its existing integrated portfolio of products which provide complementary security and authentication products and services. However, many of our markets have changed in recent years and are expected to continue to change. Some Currency customers are changing their approach to procurement, not just in adopting a more technical process but in some cases seeking to disaggregate banknotes into their constituent parts, with a growing emphasis on the supply of innovative security components. Our customers in the Identity market often require end-to-end solutions not just a physical token such as a passport or ID card.

In addition to identifying attractive growth opportunities the Strategic Plan will achieve improved profitability, more effective use of capital and reduce the Group's reliance on a small number of material contracts while reducing some of the volatility of the business. The Plan has identified initiatives that will deliver these objectives including seeking to establish longer term contractual commitments from customers, partnering with third parties to provide more flexible capacity to meet surges in demand and a more integrated approach to innovation.

At its core the Strategic Plan has focused our business into product lines and grouped them into those product lines where we will 'Optimise and Flex' and those where we will 'Invest and Build'.

Optimise and Flex: Currency Print, CPS and Currency Paper

As the world's largest commercial banknote printer and a major manufacturer of banknote paper we recognise that these activities are fundamental and core to our brand and also provide the platform from which the other product lines can deliver growth. CPS cash sorting and vault management complements Currency print and shares a common customer base. However, these markets are changing and provide useful but modest growth opportunities.

Accordingly, in Currency print, CPS and Currency paper we will optimise our operations and improve profitability and cash flow through ongoing operational excellence, reducing costs and optimising our production footprint. We will explore opportunities to partner with third parties to provide extra flexibility in our capacities and thereby reduce the impact of unpredictable orders and more efficiently meet short term fluctuations in order demand.

Invest and Build: Polymer, Components, Identity and Security Products

Our market position within Currency print and paper provides us with an enviable platform from which to capture the growth opportunities within the polymer, security components, Security Products and Identity product lines.

We have made good progress since we launched Safeguard®, our polymer substrate, and now have a number of reference customers. We expect demand for polymer substrate to grow at a materially faster rate than demand for paper and as one of only two manufacturers we believe we are well placed to capture this growth.

Within components we see a growing trend from our customers to stipulate specific components in their products. Given the highly technical nature of these components this trend is causing a value shift with an increasing proportion of the total value of a finished banknote residing in the component share and a corresponding decrease in the value share for print. We have an improving pipeline of new products and we intend to increase the level of investment in innovation in this area to ensure we capture an increased share of the growing market for this high margin product line.

The Identity market continues to grow with governments increasingly concerned about the authentication of the identity of their citizens and also control over the movement of people at their borders. We are already the largest commercial supplier of passports in the world but we see good opportunities to grow our market share in this area. This growth will arise from increased demand for security features within the passport or identity card and the trend towards governments seeking complete end-to-end solutions addressing personalisation, issuance and integration with other government systems.

As governments increasingly seek software solutions to authenticate products either for tax generation or, in the case of tobacco products for health reasons, we anticipate attractive growth prospects for our authentification products. We have considerable experience of producing the physical tax stamp and increasing experience of delivering an end-to-end service with software products and services.

A common theme across all 'Invest and Build' product lines is technology and innovation. We are well placed to capture the growth opportunities and will seek to build on our position through increased investment in innovation and our people and, where appropriate, through joint ventures and partnerships.

Implementation

We have formulated comprehensive and detailed implementation plans with clearly defined milestones and responsibilities assigned to the Executive Leadership Team. We have already redesigned the organisational structure of the Group to align it with our strategic priorities and needs.

In addition we have initiated a culture change programme, a reduction of the Group cost base and a review of the manufacturing footprint. These will realise substantial cost savings which will be largely reinvested in the business to drive growth.

The Group is able to implement the Plan from its existing resources.

Outcome

The successful implementation of the strategy will result in a:

· Better mix of business

· Less volatile performance

· Lower customer concentration

· Higher quality earnings

Which will deliver growth and higher profits.

OPERATING REVIEWS

Currency

Market conditions in both print and paper were challenging throughout the period. Through adopting a more tactical approach to both pricing and the utilisation of spare capacity we have achieved satisfactory volumes. Banknote print volumes were up 5 per cent at 6.5bn notes (2013/14: 6.2bn), while paper volumes at 9,400 tonnes were marginally down reflecting the continuing overcapacity and high level of competition in the banknote paper market. The operational excellence, process improvement and asset care programmes have been maintained and the benefits have partially mitigated the impact of lower pricing.

Revenue decreased by 7 per cent to £317.9m (2013/14: £342.7m) largely caused by lower average print and paper prices, reflecting the challenging Currency market conditions and the continuing overcapacity in the paper market partly mitigated by increased revenues from sales of security components. Operating profit reduced to £50.5m (2013/14: £61.0m) as a result of the lower revenues, partly offset by further operational efficiencies and an improved margin on security components reflecting increased volumes and improved contractual arrangements.

Safeguard®, De La Rue's polymer substrate, is now in circulation in seven countries with a number of successful machine trials with state print works and other commercial banknote printers completed during the period. We continue to be encouraged by the progress made since the launch of Safeguard® and have a good pipeline of further opportunities.

At the period end the 12 month order book, calculated on a revised basis to include estimated call-off orders for material contracts, was £150m (2013/14 restated: £197m) This reflects volatility in short term market demand and a stance of seeking to maintain margins and avoid uneconomic volumes.

During the period, we were delighted to have been successful in winning the new 10 year Bank of England print contract. De La Rue has been printing sterling banknotes for this important and prestigious customer since 2003. The new contract commenced on 1 April 2015.

Two of De La Rue's Currency customers won the leading banknote design awards for notes issued in 2014. Trinidad and Tobago won the 2014 International Banknote Society 'Banknote of the Year Award' for its new commemorative $50 note printed on Safeguard®. Kuwait won the International Association of Currency Affairs 'Excellence in Currency Award' for Best New Banknote Series for 2014. De La Rue's banknote designs have won 14 of these leading annual awards since 2007.

Identity Systems

Identity Systems operating profit fell to £11.1m (2013/14: £21.9m) reflecting lower than expected tenders for new contracts in the International business and also, as previously announced, the corresponding period benefited from a larger than normal number of contract completions.

The trend towards ePassports from machine readable passports has been slower than expected. In addition a number of tenders for prospective orders have not been issued as early as originally anticipated. As authentication of individual identity and border security is a major concern for governments around the world, we will continue to focus on higher value, longer term ePassport and ID schemes and the development of our digital and service offering.

The UK Passport contract continues to perform well and successfully met all performance measures in a period of unusually high demand. During the period, the milestone of issuing the 20 millionth passport under this contract, which commenced in October 2010, was achieved.

Security Products

Operating profit decreased to £7.5m (2013/14: £10.6m) caused by lower volume call-offs on a number of mature market products. During the period, in addition to ongoing cost reduction initiatives, we further rationalised our manufacturing footprint with the closure of our Dulles facility, with its operations relocating into other existing sites.

The rate of adoption of new tax stamp schemes during the period has been disappointing. This has meant that contracts for tax stamps have not mitigated the expected declines in some of the other more mature product lines.

Cash Processing Solutions (CPS)

As a result of the completion during the period of the restructuring programme, notwithstanding reduced large sorter and machine upgrades, CPS has moved back into an underlying profitable position reporting an operating profit of £0.4m (2013/14: operating loss £4.2m).

FINANCE CHARGE

The Group's net interest charge was £4.8m (2013/14: £4.7m) 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 £7.0m (2013/14: £7.3m).

EXCEPTIONAL ITEMS  

During the period exceptional items, summarised below, totalling £18.8m net, have been charged (2013/14: £17.5m net - see note 3 for details).

Site relocation and restructuring costs in 2014/15 were £4.7m net (2013/14: £3.5m net). Relocation costs were incurred in connection with the transfer of operations from our Dulles facility into other existing sites. In addition, restructuring costs have been incurred on the reorganisation of CPS and certain operations within Currency.

As previously announced, the Group has had unresolved issues since 2010 with a major customer regarding banknote paper production contracts. In April 2015, the Group was advised that guarantees, which have been in place since the contracts were entered into, with a value of £13.3m, had been invoked by the customer concerned. As this cost related to a matter pre‑existing at the balance sheet date it has been accounted for as an adjusting post-balance sheet event. The Board considers this to be a material step towards resolution of this issue and discussions continue with this important customer. The warranty provision relating to this matter, previously charged as an exceptional item, has been reviewed resulting in a £3.0m release.

Following an impairment review of capitalised development costs, £3.8m of intangible assets within Security Products were identified as having a carrying value in excess of the recoverable amount. The amounts written off represent the first generation of software that is no longer being marketed as it has been superseded by an enhanced software product.

The net cash cost of exceptional items paid in the year (excluding the £13.3m above, which was paid in April 2015) was £6.6m of which £1.6m related to prior periods.

Net tax credits relating to exceptional items arising in the period were £2.6m (2013/14: £0.9m).

In respect of the 2015/16 financial year, an exceptional gain of c£9m will be recognised on the disposal of surplus land (see note 9).

TAXATION

The net tax charge for the year was £3.8m (2013/14: £11.9m). The effective tax rate, before exceptional items, was 19.3 per cent (2013/14: 20.8 per cent), predominantly reflecting the reduction in the UK statutory tax rates.

Net tax credits relating to exceptional items arising in the period were £2.6m (2013/14: £0.9m). In addition there was an exceptional credit of £4.7m (2013/14: £3.3m) in respect of the determination of the tax treatment of prior year exceptional items, of which £4.5m credit related to tax matters retained by the Group following the disposal of a discontinued operation a number of years ago.

CASH FLOW AND BORROWINGS

Underlying operating cash flow, comprising underlying operating profit adjusted for depreciation and the movement in working capital, was £85.6m (2013/14: £99.1m). This represents a cash conversion ratio (underlying operating cash flow divided by underlying operating profit) of 123 per cent (2013/14: 111 per cent).

Net debt increased by £21.1m to £111.0m (2013/14: £89.9m) mainly reflecting the reduced operating cash flow, continued capital expenditure, special pension contributions in line with the agreed deficit funding arrangement and dividend payments.

To provide finance for future growth and investment the Group has increased its revolving credit facility by £50m to £250m and extended the term by three years to December 2019, the financial covenants remain unchanged. The covenants require that the ratio of EBIT to net interest payable be greater than four times and the net debt to EBITDA ratio be less than three times. At the period end the specific bank covenant tests were as follows: EBIT/net interest payable of 13.5 times, net debt/EBITDA of 1.23 times.

PENSION SCHEME

Pension deficit and funding

During 2014/15, special funding payments of £18.6m (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 latest formal (triennial) funding valuation of the UK defined benefit pension scheme took place on 5 April 2012 and identified that the scheme had a deficit of £180m. A new valuation as at 5 April 2015 has commenced. The Group has agreed, with the scheme Trustees and the Pensions Regulator, deficit funding payments to the scheme of £18.2m in 2015/16, rising by 4 per cent per annum. The special funding arrangements, agreed in 2012, remain unchanged and are aimed to eliminate the deficit by 2022.

Recognition of the current deficit in accordance with IFRS results in the negative net assets shown on the Group balance sheet.

The valuation of the pension scheme under IAS 19 principles indicates a pre-tax scheme deficit at 28 March 2015 of £236.7m (29 March 2014: £168.0m). The increase of £68.7m is largely a reflection of the significant decrease in the discount rate used to project the value of the scheme liabilities (3.2 per cent in 2014/15 compared with 4.5 per cent in the prior year). The increase has been partly mitigated by a reduction in the RPI inflation rate, returns on scheme assets and Group funding contributions.

In common with other final salary schemes, the scheme valuation is very sensitive to any movement in the discount rate, with a 0.25 per cent increase in discount rate resulting in a £56m 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 2014/15 was £1.1m (2013/14: £1.2m). In addition, under IAS 19 there was a finance charge of £7.0m arising from the difference between the interest cost on liabilities and the interest income on scheme assets (2013/14: £7.3m).

PEOPLE

De La Rue benefits enormously from its experienced and loyal employees and the Board would like to thank everyone involved in the business for their contribution and hard work.

BOARD CHANGES

On 13 October 2014 Martin Sutherland joined the Company as Chief Executive and Philip Rogerson returned to his Non-executive role and Colin Child reverted to Chief Financial Officer.

Two of our Non-executive Directors, Warren East, who has served for over eight years, and Gill Rider, who has served for nine years, have informed the Board of their intention to stand down after the Company's AGM on 23 July 2015. The Board would like to thank each of them for their significant and valuable contribution to the business, and to wish them well for the future.

Two new Non-executive Directors, Sabri Challah and Maria da Cunha will join the Board after the AGM on 23 July 2015, and we are delighted to welcome them.

Rupert Middleton, Chief Operating Officer, will also join the Board as an Executive Director after the AGM, and we are looking forward to benefiting from his great experience.

As previously announced, Colin Child, Chief Financial Officer, has informed the Board of his intention to step down from the Board after the AGM on 23 July 2015. Colin joined the Company as Chief Financial Officer in June 2010, and in the five years he has served in that role has also acted as Chief Operating Officer for two separate periods of six months. He will leave with the thanks of the Board, and the acknowledgement of his willingness to take on extra responsibilities in times of need. We expect to make an announcement about Colin's successor in the near future.

OUTLOOK

As anticipated in September 2014, the difficult market conditions have continued into the new financial year. More recently however, the weakness of the euro against sterling has given the euro zone suppliers a commercial advantage putting some further pressure on the Group's profitability.

With the completion of the recent strategic review, the Group has a clear plan to deliver growth and improved profitability in the long term. The Board is confident that the Strategic Plan can be delivered and yield benefits for shareholders, employees and customers.

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Risk and risk management

While collective responsibility and engagement across the entire business are required for the effective management of risk, the Board has overall responsibility for risk management.

The Risk Committee, comprising members of De La Rue's Executive Leadership Team, supports the Board and is accountable for identifying, mitigating and managing risk. Further details of this Committee can be found on page 38 of the De La Rue plc Annual Report 2015.

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

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

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

Management is responsible for implementing and maintaining controls which are designed to mitigate the risks to which the business is exposed. Controls by their nature are designed to manage rather than eliminate risk and can only provide reasonable but not absolute assurance against material misstatement or loss. See page 35 of the De La Rue plc Annual Report 2015 for further information regarding internal controls.

System of internal control

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

• The Board and its various sub committees

• Annual strategic planning and budgeting

• Group central functions: finance, human resources, company secretariat and legal, health, safety and environment, security and global information services

• Delegated levels of authority

• A Group policy framework which contains the core polices covering finance, operational, people, legal and IS policies

• A system of monthly financial and operational reporting

• Annual objective setting and performance reviews for each employee 

• A detailed financial, operational, compliance, security, people and Information security control environment

• Site based control environments that meet Group, customer and local legal and regulatory requirements

• Operational processes governing quality management, research and development, enquiry to delivery management, health, safety and environment and security

• Annual control self assessment declarations process

• Assurance provision through activities of internal HSE, quality, security and business continuity teams

• External audit activities

• Customer audits

• ISO audits

• Internal audit, which is subject to the controlling direction of the Audit Committee

• A 24/7 Whistleblowing hotline

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

Financial risk management

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

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

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

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

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

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

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

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

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

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

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

All material financial assets and liabilities are maintained at floating rates of interest. Where the Group has forecast average levels of net debt above £50m on a continuing basis, floating to fixed interest rate swaps have been used to fix the interest rate on a minimum of50 per cent of the Group's forecast average levels of net debt for a period of at least 12 months.

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

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

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

Principal risks and uncertainties

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

Strategic risks

Failure to maintain competitive and technologically advanced products and services.

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

Failure to maintain technical innovation and intellectual property may result in loss of market shareand lower margins.

We maintain sustained levels of investment in research and development to ensure a pipeline of ideas generation.

Our product roadmaps, which are developed by our marketing functions, ensure that our innovation delivers to customers' needs.

We centralise our materials science expertise at our Technology Centre in Overton and our software science team in Gateshead. These teams deliver through defined technology management processes, which include regular pipeline and portfolio reviews.

We continue to invest in new technologies to enable us to advance our R&D capabilities.

Strategy and organisational change execution.

In order to ensure that De La Rue remains positioned for continued success and growth, there were changes to the Executive Leadership Team, a strategy review and the commencement of an organisational redesign in 2014/15.

There is the potential for any change initiative to fail to deliver anticipated benefits due to implementation failure.

A new Executive Leadership Team is in place, and their introduction to the business is assisted by an induction and development programme. Both the new strategy and organisational design to support the strategy execution have been concluded and are now being implemented.

Detailed execution plans have been produced with clearly defined accountability and responsibility for measurement by the Executive Leadership Team and the senior leadership teams.

Effective Group wide communication and updates keep employees informed of progress.

Financial risks

The timing and size of substantial contract awards can be uneven and unpredictable.

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

The timing and size of contract awards can be uncertain and delays in awards may result in volatility in the order book and our operating performance.

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

The Group monitors its sales activity, order pipeline and forward order book in order to ensure that our production planning is optimised to deliver on time and in full to our customers.

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

Failure to win or renew a material contract.

While the Group operates globally and has a diversified geographic, product and customer profile, it relies heavily on a small number of medium and longer term material contracts.

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

Operational risks

Financial loss and/or damage to reputation as a result of failing to deliver product to the customers either on time or to specification.

Each of our contracts requires a unique product to be specified and delivered. Some of these contracts demand a high degree of technical specification. On a contract by contract basis we will be required to deliver to exacting quality standards.

A shortfall in quality management may expose us to additional cost to remake and/or to warranty costs in the event of the need to remake.

The Group has an established quality management system operating across all of our production sites. Our major sites are all certified to ISO9001 quality management standards.

In 2013, an operational excellence programme was introduced to further drive continuous improvement across our manufacturing sites. This programme continues to drive enhancements to the operation of our quality management system.

Supplier failure.

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

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

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

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

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

Product security.

Loss of product or high security components from a manufacturing site could occur as a result of negligence or theft. Loss of product while in transit, particularly during transhipment, through the failure of freight companies or through the loss of an aircraft or vessel as a result of an accident or natural disaster, is also possible.

There is the potential for reputational and financial damage in the event of the loss of product or high security components. Under contracts with its customers, the Group may be liable for those losses.

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

Health, safety or environmental failure.

All of De La Rue's activities are subject to extensive internal health, safety and environmental (HSE) procedures, processes and controls. Nevertheless, there is a risk that failure of process could result in a serious incident.

Failure of HSE management process could lead to a serious injury or an environmental breach.

The Group operates a robust HSE management system which is internally audited and certified to the OHSAS18001 and ISO14001 standards in all major facilities.

All of De La Rue's activities are subject to extensive internal HSE procedures, processes and controls.

The Group HSE Committee regularly reviews HSE performance which is also monitored monthly by the supply chain leadership and reported to the Board monthly.

Each manufacturing facility has clear HSE action plans which are prioritised, monitored and subject to review by local senior management to ensure that health and safety standards are maintained.

Loss of a key site.

There are a number of manufacturing sites across the business which are exposed to business interruption risks.

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

De La Rue is accredited to ISO22301:2012 Business Continuity standard for its Head Office and Debden banknote production operations.

The business has a high degree of interoperability between sites for banknote production and security printing. We aim to minimise risk by adopting the highest standards of risk engineering in our production processes.

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

Legal and regulatory risks

Breach of legal and regulatory requirements.

It is possible that employees or overseas representatives of De La Rue acting either individually or in collusion with others could act in contravention of the Group's stringent requirements in relation to bribery and corruption, anti-competitive behaviours and management of third party partners (TPPs).

Major reputational and financial damage to the business.

De La Rue is accredited to the Banknote Ethics Initiative. This accreditation provides governments and central banks with assurance in respect of maintenance of high ethical standards and business practices.

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

Particular focus is given to ongoing awareness raising and training on anti bribery and corruption and competition law. Our policies and processes are independently audited.

The Group has a process for the appointment, management and remuneration of TPPs which operates independently of the sales function. The behaviours of TPPs are strictly monitored and the TPP process is overseen by the General Counsel and Company Secretary who reports directly to the Board on these matters.

The Group's whistleblowing policy and procedure forms an integral part of the compliance framework.

Information risks

Information security risk.

The confidentiality and integrity of our customer, employee and business data could be affected by factors that include human error, ineffective design or operation of key data security controls or through breakdown of IT control processes.

Any compromise of the confidentiality of information could impact our reputation with current and potential customers.

The Group maintains accreditation to the ISO27001 Information Security standard in respect of its corporate information systems.

A strict control environment exists to enforce disciplined information security practices and behaviours. There are a number of key technical controls in place to manage this risk including network segregation, access restrictions, system monitoring, security reviews and vulnerability assessments of infrastructure and applications.

The Group keeps all aspects of information security arrangements under regular review and employees undertake mandatory information security e learning.

Systems and IT disaster recovery.

Given the nature of the business there is a reliance on availability of key IT systems and applications. The business operates a complex system and application portfolio.

System or application failure could lead to production issues or disruption of service to customers, resulting in financial penalties and damage to reputation.

Our data centres are resilient and secure. Disaster recovery plans are in place to assist in prompt recovery from any significant system outages.

The top 75 applications, as highlighted in the business impact analysis assessments, have near full resilience between our primary and secondary data centres. These applications benefit from a 30 minute Recovery Time Objective and a one hour Recovery Point Objective. All disaster recovery processes are fully tested annually.

All data centres benefit from physical security controls and highly sensitive information and systems are segregated and are hosted in physical caged environments, only accessible to Security Cleared personnel. All data centre facilities are subject to annual physical and logical security audits.

The Board

The Board of Directors that held office at 28 March 2015 and their respective responsibilities can be found on pages 28 and 29 of the De La Rue plc Annual Report 2015.

For and on behalf of the Board

Philip Rogerson

Chairman

27 May 2015