Last checked at 14 Jun 2010 17:08
De La Rue plc - Continuing Obligations
In accordance with Listing Rules 9.6.1 the following documents are being forwarded to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility:
Annual Report 2010
Notice of Annual General Meeting 2010 - to be held at De La Rue House, Jays Close, Viables, Basingstoke, RG22 4BS on 22 July 2010 at 10.30am.
Form of Proxy
Copies of the above documents may be obtained from the General Counsel and Company Secretary, De La Rue plc, De La Rue House, Jays Close, Viables, Basingstoke, RG22 4BS. Copies are also on the Company's website www.delarue.com.
In addition, in accordance with the requirements of the Disclosure and Transparency Rules 4.1.3 and 6.3.5, a copy of the annual financial results announcement document is attached.
Edward Peppiatt
Company Secretary
14 June 2010
DE LA RUE PLC ANNUAL REPORT ANNOUNCEMENT
YEAR TO 27 MARCH 2010
KEY FINANCIALS
(Continuing Group - excluding the disposed business of Cash Systems but including Cash Processing Solutions)
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| 2009/2010 £m | 2008/2009 £m | Movement % |
| Revenue | 561.1 | 502.4 | 12% |
| Operating profit * | 109.2 | 96.5 | 13% |
| Profit before tax and exceptional items | 104.1 | 105.0 | -1% |
| Profit before tax | 96.6 | 96.1 | 1% |
| Headline earnings per share * | 76.2p | 57.0p | 34% |
| Basic earnings per share from continuing operations | 71.0p | 50.9p | 39% |
| Dividend per share | 42.3p | 41.1p | 3% |
HEADLINES
·; Group operating profit margin* remains strong at 19.5%, underpinned by productivity, mix and foreign exchange benefits
·; Strong operating cash flow of £116m
·; Final dividend increase to 28.2p, making a total of 42.3p for the year, an increase of 3 per cent
·; Secured £400m UK passport contract for delivery over 10 years
·; Sale of Camelot investment, subject to National Lottery Commission approval
·; Share buy back announced
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| * | Operating profit and headline EPS are reported for continuing operations and before exceptional items of £7.5m in 2009/2010 and £8.9m in 2008/2009 |
Nicholas Brookes, Chairman of De La Rue plc, commented:
"The Group had an excellent year, with Currency delivering an outstanding performance due to strong demand and a high quality mix of work. These results underline the Board's rationale for creating a more focused Group and demonstrate De La Rue's resilience in the uncertain economic environment. We will continue to focus on our core strengths whilst driving long term growth, profitability and cash generation.
"As indicated in March, the Board believes that 2010/2011 banknote volumes should remain at similar levels to 2009/2010 but with a greater than normal weighting towards the second half. Pension charges will be £3m higher than the prior year.
"The strong margin mix in Currency will not be repeated in the current financial year. It is expected that this will be offset by productivity gains, by cost reduction, especially in Cash Processing Solutions, and by improved trading in other parts of the business."
For further information, please contact:
| James Hussey | Chief Executive | +44 (0)1256 605222 |
| Simon Webb | Group Finance Director | +44 (0)1256 605222 |
| Clare Lloyd Williams | Group Communications Manager | +44 (0)1256 605222 |
| Richard Mountain | Financial Dynamics | +44 (0)207 269 7291 |
24 May 2010
SUMMARY OF GROUP RESULTS
De La Rue reports an excellent performance for the year ended 27 March 2010. Revenues grew by 12 per cent to £561.1m (2008/2009: £502.4m) and operating profit before exceptional items rose by 13 per cent to £109.2m(2008/2009: £96.5m). Operating profit margins (before exceptional items) were 19.5 per cent (2008/2009: 19.2 per cent), reflecting benefits from productivity improvements, customer mix and foreign exchange. Overall for the Group, movement in the value of sterling against the euro and US dollar contributed £27m to revenue and £7m to operating profit (2008/2009: £25m and £6m respectively).
Profit before tax and exceptional items decreased by 1 per cent to £104.1m (2008/2009: £105.0m) due to the increased interest charges arising from the return of capital in 2008 and lower income from associates. Headline earnings per share increased by 34 per cent to 76.2p (2008/2009: 57.0p) mainly reflecting the benefits of the previous share consolidation. Basic earnings per share from continuing operations were 71.0p compared with 50.9p in 2008/2009, representing an increase of 39 per cent.
Operating cash flow was £116.1m (2008/2009: £69.4m). Management of working capital remains a strength of the Group as demonstrated by the improved working capital ratios. Advance payments of £44.0m (2008/2009: £39.6m) benefited from some large receipts immediately prior to the year-end. The Group ended the year with net debt of £11.0m (2008/2009: £33.1m).
DIVIDENDS
The Board is recommending a final dividend of 28.2p per share (2008/2009: 27.4p per share), subject to shareholders' approval. This will be paid on 5 August 2010 to shareholders on the register on 9 July 2010. Together with the interim dividend paid in January 2010, this will give a total dividend for the year of 42.3p (2008/2009: 41.1p per share).
Overall, this equates to an uplift of 3 per cent in the level of ordinary dividend and reflects the previously announced policy.
STRATEGY
De La Rue intends to build on its position as a world leader in the banknote market to become the premier provider of currency, security and authentication of payment and identity transactions for central banks, governments and international corporations globally.
Over the past twelve months De La Rue has secured key contracts and profitable growth in challenging economic conditions. It continues to implement a strongly integrated strategy, leveraging its customer relationships and investments in technology and assets to drive continuous improvement in performance and sustainable long term growth. Increased productivity remains a key focus for managing short term market variability and delivered a £7m benefit during the period.
BOARD CHANGES
As previously announced, the year has seen a number of changes to the Board.
Simon Webb will step down from the Board as Group Finance Director on 31 May 2010. Philip Nolan and Keith Hodgkinson stepped down as non-executive Directors in July 2009 and December 2009 respectively. The Board wishes to thank all three Directors for their contribution to De La Rue.
The Board is pleased to welcome three new Directors. Colin Child will join the Board on 1 June 2010 as Group Finance Director, bringing a wealth of financial and management experience with large international companies.
Sir Julian Horn-Smith joined as non-executive Director on 1 September 2009 with an impressive track record at senior level in major global companies including Vodafone. Victoria Jarman joined as non-executive Director on 22 April 2010. She has worked closely with the Boards of major FTSE companies and businesses advising them on a variety of strategic options.
OPERATING REVIEWS
| CURRENCY | 2009/2010 £m | 2008/2009 £m |
| Revenue Underlying growth on prior year* | 411.2 +13% | 348.6
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| Operating profit Operating profit margin | 95.3 23.2% | 82.8 23.7% |
*excluding impact of exchange
Currency produced an outstanding performance in 2009/2010 due to a combination of strong demand for its products and a high quality mix. Its manufacturing units operated at very high levels of capacity utilisation throughout the year. Further investment has been made during the year to enhance the capability of the print factory in Sri Lanka.
Banknote volumes increased by 2 per cent year on year. The operating profit margins continued to benefit from volume increases, high specification work and productivity improvements, assisted by the further weakness of sterling exchange rates against the euro and the US dollar.
Banknote paper production again reflected strong capacity utilisation as output rose by 4 per cent driven by ongoing increases in productivity from capital investment in earlier years and a systematic approach to process improvement.
The Currency order book continues to provide good visibility for 2010/2011 and supports the expectation of consistent year on year volumes.
| CASH PROCESSING SOLUTIONS (CPS) | 2009/2010 £m | 2008/2009 £m |
| Revenue | 56.9 | 66.0 |
| Underlying growth on prior year* | -19% |
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| Operating (loss)/profit** Operating profit margin** | (3.5) -6.2% | 0.4 0.6% |
*excluding impact of exchange
**before exceptional items
CPS continued to experience difficult trading as purchases of sorters were deferred; nevertheless the business was cash generative for the year (before exceptional items). Management has made good progress in its actions to focus the business more effectively on its key customer segments, especially central banks, and to rationalise the product and manufacturing base in order to lower the breakeven point. This restructuring is on track and has resulted in exceptional costs of £4.8m, as announced last September, with a payback expected within two years.
| SECURITY PRODUCTS | 2009/2010 £m | 2008/2009 £m |
| Revenue | 74.9 | 69.7 |
| Underlying growth on prior year* | 1% |
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| Operating profit Operating profit margin | 14.8 19.8% | 11.0 15.8% |
*excluding impact of exchange
The Security Products business delivered a strong performance, achieving increases in government revenues, brand licensing and high-margin internal components sales against a backdrop of a difficult economic environment in its markets.
Operating profit growth was driven by continued productivity improvements, cost control and foreign exchange movements.
The business is well positioned in the niche markets in which it operates, providing proven, effective and robust solutions to meet a variety of customer needs. In addition it continues to benefit from increased collaboration with other Group entities via internal component sales and sharing of Group technology.
| IDENTITY SYSTEMS (IDS) | 2009/2010 £m | 2008/2009 £m |
| Revenue | 32.0 | 30.4 |
| Underlying growth on prior year* | 0% |
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| Operating profit Operating profit margin | 2.6 8.1% | 2.3 7.6% |
*excluding impact of exchange
IDS' results reflect its continued development of offerings in eID and ePassports as well as ongoing sales of non-chipped solutions. The new ePassport factory in Malta reached full operational status in the year positioning the business well for further expansion into eSystems as well as existing machine readable documents.
The award of the UK passport contract in June 2009 clearly demonstrates IDS' ability to leverage De La Rue's customer understanding, reputation and technology offerings in high growth identity markets.
Preparation for the implementation of the UK passport contract is on schedule for sales to commence in the second half of 2010/11. At the present time, the precise volume requirement for passport deliveries in 2010/11 is subject to final confirmation by the customer.
ASSOCIATES
Profit from associates after tax was £6.3m (2008/2009: £8.9m) representing the contribution from Camelot, the UK lottery operator. This reduction was anticipated following the grant of the third lottery licence with effect from 1 February 2009.
As previously announced, De La Rue is to dispose of its shareholding in Camelot for approximately £77.8m to the Ontario Teachers Pension Plan, subject to the approval of the National Lottery Commission. The proceeds, which are expected to be tax-free, will be used to reduce the pension fund deficit by £35m as well as returning surplus cash to shareholders via a share buy back.
The investment in Camelot is shown as an asset held for sale in the balance sheet as at 27 March 2010. As a result there will be no further income from this associate shown in the 2010/2011 income statement.
INTEREST
The Group's net interest charge was £5.1m (2008/2009: income £1.4m), which reflects the debt taken on in connection with the return of capital in 2008. In addition the IAS19 related finance item, arising from the difference between the interest on liabilities and the expected return on assets rose to £6.3m (2008/2009: £1.8m) as a result of lower expected returns on the reduced market valuation of pension assets at the 2008/2009 year end.
EXCEPTIONAL ITEMS AND DISCONTINUED OPERATIONS
In accordance with the basis of preparation outlined in note 1, the following exceptional items are included within the income statement.
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| 2009/2010 | 2008/2009 |
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| £m | £m |
| Reorganisation of central operations | - | (8.9) |
| Legacy overseas indirect tax | (2.7) | - |
| CPS reorganisation | (4.8) | - |
| Exceptional items - continuing operations | (7.5) | (8.9) |
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| Exceptional items - tax | 2.4 | 0.9 |
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| Profit from discontinued operations | - | 296.5 |
Exceptional charges of £7.5m in the period reflect the resolution of a legacy overseas indirect tax issue and the reorganisation of CPS, the latter expected to have a payback within two years. Reorganisation costs principally covered redundancy charges and rationalisation of products and site capabilities. These charges gave rise to a related tax credit of £1.0m. In addition £1.4m of tax credit arose when the tax treatment of some prior year exceptional items was determined.
During 2008/2009, De La Rue announced its intention to reduce central costs by approximately 50 per cent following the disposal of Cash Systems. This programme was completed ahead of schedule. Central reorganisation costs relating to this programme principally covered redundancy, separation costs and site rationalisation charges.
The Group completed the sale of its Cash Systems activities on 1 September 2008. Profit from discontinued operations (after tax) was £296.5m, which included £12.6m (after tax) from the trading of the discontinued activities for the five months to 1 September 2008.
TAXATION
The tax charge for the year was £26.2m (2008/2009: £28.5m). The effective tax rate pre exceptional items, was 27.5 per cent, broadly in line with the previous year's rate. The effective tax rate excluding associate income (shown post-tax) would have been 29 per cent. A credit of £2.4m arises on the exceptional charges noted above.
CASH FLOW AND BORROWINGS
Operating cash flow was £116.1m (2008/2009: £69.4m) with a strong cash conversion* of 99% (2008/2009: 98%).
Management of working capital remains a strength of the Group as demonstrated by the improvement in stock days to 47 (2008/2009: 58) and debtor days to 34 (2008/2009: 39). Advance payments of £44.0m (2008/2009: £39.6m) benefited from some large receipts immediately prior to the year-end.
Capital expenditure of £33.1m (2008/2009: £29.3m) was higher than depreciation, reflecting the investment programme directed at enhancing the future capability of the business, including the preparation for delivery of the UK passport contract.
The Group ended the year with net debt of £11.0m (2008/2009: £33.1m).
During the year, the Group negotiated a new borrowing facility running to September 2013. Key financial covenants on this facility are unchanged and require that the interest cover be greater than four times, and the net debt to EBITDA ratio be less than three times.
* Cash conversion equals operating cash flow excluding exceptional items, special pension contributions and the movement in advance payments, less capital expenditure, divided by operating profit
UK PENSION SCHEME
Pension Deficit and Funding
The Group's last formal (triennial) funding valuation of its UK defined benefit pension scheme took place on 5 April 2009 and identified the scheme had a deficit of £204m (5 April 2006: £56m deficit). The deficit increased despite special contributions of £51m over the three years prior to April 2009, primarily as a result of a fall in asset values following the financial crisis and continued improvements in life expectancy.
In April 2006, the Group agreed with the Trustee to make additional special contributions of £12m per annum until 2012 or until the deficit was cleared, if sooner. Following the completion of the latest triennial valuation and in addition to the one-off contribution resulting from the Camelot sale (£35m), agreement has been reached with the Trustee to increase the annual funding plan to £15m per annum (commencing in 2010/2011 and running for approximately 11 years) with a 4 per cent annual increment.
During 2009/2010, special funding payments of £17m were made to the Group pension fund, comprising the scheduled contribution of £12m and an early payment of part of the 2010/2011 contribution for reasons of tax efficiency.
Pension Scheme Changes
After a consultation process with members the following agreed changes to the pension scheme will be implemented:
·; A new defined contribution scheme, open to all employees, to be created from the summer of 2010
·; The Final Salary and Retirement Plan defined benefit schemes to be closed to future accrual for all employees with effect from 1 April 2013
Closing the defined benefit scheme will result in a one off exceptional benefit in the income statement for 2010/2011 of c£16m and a reduction in the deficit of c£20m.
IAS 19 Accounting
The valuation of the UK Pension scheme under IAS 19 principles indicates a scheme deficit pre-tax at 27 March 2010 of £124.8m (March 2009: £67.5m). This significant increase in deficit during the period has mainly arisen due to the reduction, from 6.8 per cent to 5.8 per cent, in the bond discount rate used to value the scheme liabilities. This is partly offset by the increased asset values from the market low point in March 2009 and the Group's ongoing regular contributions. The charge to operating profits in respect of the UK Pension Scheme for 2009/2010 was £4.5m (2008/2009: £5.8m). In addition, under IAS 19 there was a finance charge of £6.3m arising from the difference between the expected return on assets and the interest on liabilities (2008/2009: £1.8m).
OUTLOOK
As indicated in March, the Board believes that 2010/2011 banknote volumes should remain at similar levels to 2009/2010 but with a greater than normal weighting towards the second half. Pension charges will be £3m higher than the prior year.
The strong margin mix in Currency will not be repeated in the current financial year. It is expected that this will be offset by productivity gains, by cost reduction, especially in Cash Processing Solutions, and by improved trading in other parts of the business.
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Notes to Editors
| 1 | De La Rue is the world's largest commercial security printer and papermaker, involved in the production of over 150 national currencies and a wide range of security documents such as passports, authentication labels and fiscal stamps. The Company is also a leading provider of cash sorting equipment and software solutions to central banks, helping them to reduce the cost of handling cash. De La Rue also pioneers new technologies in government identity solutions for national identification, driver's licence and passport issuing schemes. De La Rue employs approximately 4,000 people worldwide and is a member of the FTSE250. For further information visit De La Rue's website at www.delarue.com | ||||
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| 2 | A presentation to analysts will take place at 9:00am on 25 May 2010 at JP Morgan Cazenove, 20 Moorgate, London, EC2R 6DA. | ||||
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| 3 | High resolution photographs are available to the media free of charge at http://www.newscast.co.uk/ (+44 (0) 207 608 1000). | ||||
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| 4 | Foreign Exchange Principal exchange rates used in translating the Group's results: | ||||
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| 2009/2010 | 2008/2009 | ||
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| Avg | Year End | Avg | Year End |
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| US dollar | 1.58 | 1.49 | 1.73 | 1.43 |
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| euro | 1.13 | 1.11 | 1.21 | 1.08 |
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| 5 | De La Rue Financial Calendar : 2010/2011 | ||||
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| Ex-dividend date | 7 July 2010 |
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| Record date (ordinary dividend) | 9 July 2010 |
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| Annual General Meeting | 22 July 2010 |
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| Payment of 2009/10 final dividend | 5 August 2010 |
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| 2010/11 Interim Results | 23 November 2010 |
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Risk and risk management
De La Rue's reputation is based on security, integrity and trust. This section summarises the types of risks which are either specific to De La Rue or which could have a material adverse effect on the Group, together with the controls which have been put in place to manage those risks. The risks outlined in this section represent the principal major uncertainties and trends which may have an impact on De La Rue's ability to implement effectively its future strategy. It is not an exhaustive list as some risks may be as yet unknown and other risks, currently regarded as immaterial, could turn out to be material.
Risk management and governance structure
Risk owners and managers• Responsible for operational management and oversight of risk within individual businesses or functional areas
• Allocation of appropriate levels of resource for individual risk controls
Risk Committee• Approves risk management framework
• Reviews business and Group risk registers
• Composition includes Chief Executive, Group Finance Director, Company Secretary, business unit managing directors and Group Director of Business Continuity
• Considers actions to improve management of risk
• Considers new or emerging risks
Audit Committee• Considers adequacy of internal controls and risk management framework
• Receives and reviews reports on risk management from Risk Committee
• Receives and reviews reports from internal and external audit on status of internal controls
Board• Responsible for governance structure
• Approves high level risk appetite
• Receives reports from Audit and Risk Committees on risk and internal controls
Combined Code
The Combined Code on Corporate Governance requires the Board to maintain a sound system of internal control to safeguard shareholders' investment and the Group's assets and at least annually to conduct a review of the effectiveness of the Group's system of internal controls. During the year, the Board carried out its annual review which covered all material controls, including financial, operational and compliance controls and risk management systems. Additionally, the Board received information about the Group's operations throughout the year enabling it regularly to evaluate the nature and extent of the risks to which the Group is exposed. The Board is therefore able to confirm that an effective system of internal control has been in place throughout 2009/2010.
Internal Control
The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. It relies on the Audit and Risk Committees to assist in this process. Over the course of the last year, a comprehensive review of risk management and reporting structures has been undertaken and changes to the risk assessment procedures introduced to improve the management of risks at the business unit and functional levels and to strengthen the role of the Risk Committee. Details of the Audit and Risk Committees are set out in the Corporate Governance Statement on pages 45 and 46 of the De La Rue plc Annual Report 2010.
Management is responsible for implementing the controls which are designed to meet the particular needs of the Group, and the risks to which it is exposed, with procedures intended to provide effective internal control. The controls by their nature are designed to manage rather than eliminate risk and can only provide reasonable but not absolute assurance against material misstatement or loss. The processes used by the Board and, on its behalf, by the Audit and Risk Committees have been in place throughout the year, and include reviewing:
• Monthly finance, operational and development reports
• Internal and external audit plans
• Significant issues identified by internal and external audits
• Significant Group risks and risk mitigation actions reported by the Risk Committee including updates to the Group's risk register
• Annual compliance statements in the form of self-audit questionnaires
• Reports on other matters such as security, health, safety and environmental issues and fire risks
Internal Financial Control
The financial control framework includes the following key features:
• An annual strategic planning process
• An annual budget
• A system of monthly reporting by each business unit which involves comparison of actual results with the original budget and the updating of a full year forecast
• Monthly reporting of performance to the Board
• Audited annual Financial Statements
• Interim Financial Statements reviewed by the auditors
The main controls which address the financial implications of the major business risks are centred on strict approval procedures. These are reviewed annually, approved by the Board and apply to all subsidiaries. They include:
• Executive Directors' approval of all major non-routine revenue expenditure
• Board approval of all major capital expenditure
• Board approval of all acquisitions and disposals
• A system of authorisation limits which cascades throughout the Group
• Board consideration of any matter having a material effect on the Group
Capital management
The Board's policy is to maintain a strong capital base and modest levels of net debt in order to maintain investor, creditor and market confidence and to sustain future development of the business. The Group finances its operations through a mixture of equity funding and debt financing. The Board of Directors monitors earnings per share, which the Group defines as the earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the year. The Board also monitors the level of dividends to ordinary shareholders. There were no changes to the Group's approach to capital management during the year and the Group is not subject to any externally imposed capital requirements.
Treasury, foreign exchange and borrowing facilities
The Group Treasury department provides a central service to Group companies and conducts its operations in accordance with clearly defined guidelines and policies, which have been reviewed and approved by the Board. Treasury transactions are only undertaken as a consequence of underlying commercial transactions or exposures and do not seek to take active risk positions. It is Group Treasury's role to ensure that the Group has sufficient available borrowing facilities to meet its needs in the foreseeable future.
Specific operational risks
CurrencyThe Currency business operates within a defined market and the business is exposed to the short term ordering cycles of central banks. Significant year on year changes in volume or customer mix could affect profitability. The loss of key customers, either in banknotes or banknote paper, could have a major effect on the Group's results and prospects which the business mitigates by achieving diversity in its customer base.
Although the overall level of banknote counterfeiting around the world remains low, analysis of counterfeit notes indicates that criminals are attempting increasingly to simulate some of the security features introduced over the last ten to fifteen years. Currency undertakes extensive analysis of counterfeits to assess this trend and has a continuing programme of innovation, in many cases involving novel materials and processes, to develop new features to remain ahead of the counterfeiter.
CPSWhilst the underlying business drivers remain strong, the CPS business is exposed to long ordering processes of central and commercial banks, frequently for customers in the developing world. Significant year on year changes in volume or customer mix could affect profitability, which the business mitigates by achieving a diversity of its customer base. One of the strengths of the CPS business is that a significant part of the business is annual service and maintenance of the installed base. These are very stable, long term contracts to maintain mission critical machine operation.
CPS' total solution package typically represents a major investment by its customers. Therefore, the profitability of the CPS business in any given period can fluctuate significantly, depending upon the customer demand and the specific solutions delivered in that period.
Security ProductsSecurity Products' customers are principally governments, major commercial organisations and financial institutions constantly threatened by counterfeiting and illicit trade issues. Solutions need to be continually upgraded to meet these threats.
Sales cycles can be lengthy, but once contracts are secured the business benefits from significant stability and good forward visibility. Managing the customer relationship over time becomes critical.
Government spending continues to be under scrutiny and the implementation of tax stamp schemes must demonstrate the ability to increase revenue collections. Without this evidence schemes may be delayed.
Our commercial customers are more vulnerable to weak economic conditions but there is some evidence that growth is returning.
Digital authentication remains the long term objective for many progressive customers and Security Products has developed solutions that provide functionality today and a roadmap towards future upgrades.
IDSDue to the expanding nature of the service proposition around ePassports and eID systems, IDS is seeing continued competition from players who do not come from a security print heritage. It is also seeing increasingly sophisticated sales processes often involving partnership and contact with a wider range of stakeholders. Typically contract values may increase but also the sales process grows in length and complexity.
As an integrator of services from other companies, IDS must ensure it manages risks in its supply chain. Finding the right partners and putting in place strategies to ensure it manages the risk of supplier failure are key to success.
IDS is a contract-based business focusing on government customers. As such its revenues can be lumpy in nature. Government contracts can be prone to cancellation or delay at short notice and the business aims to ensure it has a sufficiently strong pipeline and range of ongoing contracts to ensure it maintains steady growth.
Financial risk management
Overview
The Group has exposure to the following risks from its use of financial instruments:
• Credit risk
• Liquidity risk
• Market risk
- Currency risk
- Interest rate risk
The Group's exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk and the management of capital are set out below.
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Group's risk management policies. The committee reports regularly to the Board of Directors on its activities.
The Group's risk management policies are established 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. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group's overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Financial risk management is carried out by Group Treasury under policies approved by the Board of Directors.
Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group's operating units. Group Treasury provides written principles for overall 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.
The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by the Internal Audit function. The Internal Audit function undertakes both regular and ad hoc reviews of risk management controls and procedures, the result of which are reported to the Audit Committee.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and investment securities.
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Geographically, there is no concentration of credit risk. The Group has one major customer where revenue attributable to sales transactions is significant. Where appropriate, letters of credit are used to mitigate the credit risk from customers.
The Group has established a credit policy that ensures that wholesale 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.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
• Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, euro and the UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities, unrecognised firm commitments and net 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.
• Interest rate risk
All material financial assets and liabilities are maintained at floating rates of interest. Where the Group has forecast average levels of debt above £50m on a continuing basis floating to fixed interest rate swaps will be used to fix the interest rate on a minimum of 50 per cent of the Group's debt for a period of at least 12 months.
Principal risks
| Each business unit and every Group function has developed and maintains a risk register, capturing significant risks to which the relevant business unit is exposed or which have been identified as a risk to the Group by the relevant function. These risks are reviewed by the Risk Committee, which identifies those risks which could have a material adverse impact in the context of the Group as a whole, and which are then reported to the Board. The principal risks identified by the Risk Committee and reported to the Board in 2009/2010 are set out below but do not appear in any particular order of potential materiality or probability of occurrence. | ||
| Risk |
| Mitigation |
Loss of key siteThere are a number of key manufacturing sites across the business. The total loss of any one of these key sites could have a major financial impact, particularly where the site forms a source of supply for the business. | | The Group aims to achieve the highest standards of health, safety and environmental management. Risk engineering to minimise risks, particularly from fire hazards and the use of flammable solvents, is a key focus to ensure that site risks are clearly prioritised, resourced and actions taken, wherever possible, to terminate or minimise these risks. The development, updating and testing of business continuity plans is also an essential component in maintaining assurance for the continuity of supply. |
Contract issuesCustomer contracts contain a range of obligations and conditions. If liabilities were to be triggered, significant penalties could be incurred. Quality failures could also trigger liability claims that may require re-manufacturing. | | Commercial and contract risks are managed through a variety of means. Contracts are reviewed by the internal legal team and material exposures, together with identified means of mitigating them, are submitted to the Board (sometimes through its General Business Committee) for approval. Supplier performance is also kept under regular review with rigorous testing and quality control applied to products. |
Product securityThere is the potential for reputational damage in the event of the loss of materials from a manufacturing site as a result of negligence or theft. Loss of product whilst 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. | | Security is a key focus across De La Rue. Robust physical and audit security procedures at production sites minimise the risk of an inadvertent loss or theft during manufacturing. Movement of security materials between De La Rue sites and for 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. Procedures are kept under continuous review and any incident or non-compliance is fully investigated. |
Pension fundingThe Group operates a defined benefit pension scheme in the UK. Presently there is a deficit between the projected liability on the scheme and the assets held by the scheme. The size of the deficit may be materially impacted by a number of factors including inflation, investment returns, changes in interest rates and life expectancy. An increase in the deficit may require the Group to increase the cash contributions to the scheme which would reduce the Group's available cash for other purposes. | | The performance of the pension scheme is reviewed regularly by Group management in conjunction with the scheme's Trustee. External actuarial and investment advice is taken on a regular basis to ensure that the scheme is managed in the best interests of both the Group and the scheme's members. Following consultation with the members, Trustee and advisors, agreement has been reached to close the defined benefit plan to all members with effect from April 2013, with a replacement defined contribution scheme being brought into operation. |
Environmental breachOur main banknote paper manufacturing site is at Overton mill which is located in an environmentally sensitive area. Any significant breach of operations, such as unauthorised discharges, could result in immediate suspension of operations at the site. | | Environmental awareness is afforded high priority at all De La Rue manufacturing sites and particularly at Overton. To ensure continued compliance with regulations, constant monitoring of all key operating parameters is in place with regular testing of discharge water against performance criteria agreed by the Environment Agency. Controls and specialist personnel are in place on a continuous basis throughout the year with regular training and awareness programmes in place for all employees. |
Foreign exchangeThe Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and euro. Any material exposure to foreign exchange risk could have a major effect on the Group's profits. | | The Group aims to hedge between 60 and 100 per cent of foreign exchange exposure risk arising from future commercial transactions and recognised assets and liabilities. An annual review of hedging policy is presented to the Board. |
Health and safety failureAll De La Rue's activities are subject to extensive internal Health, Safety and Environmental (HSE) procedures, processes and controls. Nevertheless, there is a risk that failure of process could in the worst case lead to a serious injury or fatality. | | The Group has detailed corporate health and safety standards which are internally audited and supplemented by certification to the OHSAS18001 standard in all major facilities, requiring independent external audit verification. The Health, Safety and Environment Committee has Operating Board representatives from each business unit and reviews HSE performance regularly. Each 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. HSE performance is reported to the Board each month. |
Breach of competition regulationsBreach of competition regulations could result in significant financial penalties as well as reputational damage. | | Regular training takes place for all sales and other personnel who may have contact with competitors, for example at industry forums or during formal tender processes. |
Information securityThe confidentiality, integrity and availability of information systems could be affected by factors that include human error, ineffective design or operation of key controls or through malfunction or deliberate attack. Outages and interruptions could affect our ability to conduct day to day operations and any compromise of the confidentiality of information could impact our reputation with current and potential customers. | | De La Rue keeps all aspects of its security arrangements under regular review. There are a number of controls in place to manage this risk including network segregation, access restrictions, system monitoring, security reviews and vulnerability assessments of infrastructure and applications. Business continuity plans are in place to help recover from significant outages or interruptions. |
Non-compliance/illegal behaviour by third parties acting outside the law or De La Rue policiesIn some countries De La Rue relies on the services of third parties to represent its interests. There is a risk that third parties such as suppliers or agents could operate in a manner contrary to the Group's strict policies on ethical business conduct or the law, exposing us to potential financial and reputational damage. | |
During the year, the Group implemented the recommendations of Lord Woolf arising out of the investigation into allegations of corrupt payments by BAE Systems, insofar as they relate to the use of agents. A rigorous assessment of all processes involving third party appointments is conducted and audited independently of the sales team. In addition, a number of further control measures have been introduced such as dedicated training for sales personnel, senior managers and agents on the Code of Conduct, anti-bribery and corruption issues. Controls on the use of cash and advance payments are in place and external advisers are engaged to undertake due diligence on sensitive agents identified as a result of a full risk assessment. Greater visibility has also been given to the Whistleblowing policy to encourage employees to report any suspicious conduct. |
Responsibility Statement of the Directors in respect of the Annual Report Announcement
| The 2010 Annual Report and Accounts, which will be issued on June 14th 2010, contains a responsibility statement in compliance with Rule 4.1.12 of the Financial Services Authority's Disclosure & Transparency Rules. This states that each of the directors as at 24 May 2010, the date of approval of the 2010 Annual Report and Accounts, confirms that to the best of their knowledge: (a) the Financial Statements prepared in accordance with International Financial Reporting Statements as adopted by the EU (adopted IFRS), give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole (b) the Parent Company Financial Statements in this report, which have been prepared in accordance with UK Accounting Standards (UK Generally Accepted Accounting Practice) and applicable law, give a true and fair view of the assets, liabilities, financial position and profit of the Company (c) the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face |
The Board
The Board of Directors that served during the year to 27 March 2010 and their respective responsibilities can be found on pages 36 and 37 of the De La Rue plc Annual Report 2010.
For and on behalf of the Board
Nicholas Brookes
Chairman
24 May 2010
GROUP INCOME STATEMENTFor the year ended 27 March 2010
|
|
|
|
|
| Notes | 2010 £m | 2009 £m |
| Continuing operations |
|
|
|
| Revenue |
| 561.1 | 502.4 |
| Operating expenses |
| (451.9) | (405.9) |
| Operating profit before exceptional items |
| 109.2 | 96.5 |
| Exceptional items - operating | 3 | (7.5) | (8.9) |
| Operating profit |
| 101.7 | 87.6 |
| Share of profits of associated companies after taxation |
| 6.3 | 8.9 |
| Profit before interest and taxation |
| 108.0 | 96.5 |
| Interest income |
| 0.3 | 7.8 |
| Interest expense |
| (5.4) | (6.4) |
| Retirement benefit obligation finance income |
| 26.4 | 33.3 |
| Retirement benefit obligation finance cost |
| (32.7) | (35.1) |
| Net finance cost |
| (11.4) | (0.4) |
| Profit before taxation |
| 96.6 | 96.1 |
| Taxation | 4 | (26.2) | (28.5) |
| Profit for the year from continuing operations |
| 70.4 | 67.6 |
| Discontinued operations |
|
|
|
| Profit for the year from discontinued operations |
| - | 296.5 |
| Profit for the year |
| 70.4 | 364.1 |
| Profit attributable to equity shareholders of the Company |
| 69.9 | 363.0 |
| Profit attributable to minority interests |
| 0.5 | 1.1 |
|
|
| 70.4 | 364.1 |
| Earnings per share attributable to the Company's equity holders |
|
|
|
| From continuing operations |
|
|
|
| Basic | 5 | 71.0p | 50.9p |
| Diluted | 5 | 70.5p | 50.4p |
| From discontinued operations |
|
|
|
| Basic | 5 | - | 226.8p |
| Diluted | 5 | - | 224.6p |
| On profit for the year |
|
|
|
| Basic | 5 | 71.0p | 277.7p |
| Diluted | 5 | 70.5p | 275.0p |
GROUP STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 27 March 2010
|
|
|
|
|
| Notes | 2010 £m | 2009 £m |
| Profit for the financial year |
| 70.4 | 364.1 |
| Other comprehensive income |
|
|
|
| Foreign currency translation differences for foreign operations |
| 0.1 | 3.6 |
| Actuarial losses on retirement benefit obligations |
| (72.3) | (75.0) |
| Effective portion of changes in fair value of cash flow hedges, net of amounts recycled to the income statement |
| 6.6 | (13.0) |
| Income tax relating to components of other comprehensive income |
| 21.4 | 24.7 |
| Foreign exchange recycled to the income statement on disposal of subsidiary undertakings |
| - | (13.3) |
| Other comprehensive income for the year, net of tax |
| (44.2) | (73.0) |
| Comprehensive income for the year |
| 26.2 | 291.1 |
| Comprehensive income for the year attributable to: |
|
|
|
| Equity shareholders of the Company |
| 25.7 | 290.0 |
| Minority interests |
| 0.5 | 1.1 |
|
|
| 26.2 | 291.1 |
GROUP BALANCE SHEETAt 27 March 2010 |
|
|
|
|
| Notes | 2010 £m | 2009 £m |
| ASSETS |
|
|
|
| Non-current assets |
|
|
|
| Property, plant and equipment | 8 | 165.6 | 148.3 |
| Intangible assets |
| 19.3 | 18.3 |
| Investments in associates and joint ventures |
| 0.1 | 21.1 |
| Deferred tax assets |
| 36.5 | 29.3 |
| Derivative financial instruments |
| 0.8 | 11.6 |
|
|
| 222.3 | 228.6 |
| Current assets |
|
|
|
| Inventories |
| 61.0 | 65.3 |
| Trade and other receivables |
| 76.5 | 82.5 |
| Current tax assets |
| 3.9 | 0.4 |
| Derivative financial instruments |
| 20.4 | 23.3 |
| Cash and cash equivalents |
| 41.6 | 58.5 |
| Non-current assets held for sale |
| 20.5 | - |
|
|
| 223.9 | 230.0 |
| Total assets |
| 446.2 | 458.6 |
| LIABILITIES |
|
|
|
| Current liabilities |
|
|
|
| Borrowings |
| (51.7) | (40.1) |
| Trade and other payables |
| (164.2) | (158.5) |
| Current tax liabilities |
| (34.5) | (40.4) |
| Derivative financial instruments |
| (24.7) | (27.7) |
| Provisions for other liabilities and charges |
| (26.1) | (32.5) |
|
|
| (301.2) | (299.2) |
| Non-current liabilities |
|
|
|
| Borrowings |
| (0.9) | (51.5) |
| Retirement benefit obligations | 9 | (127.1) | (69.7) |
| Deferred tax liabilities |
| (0.3) | - |
| Derivative financial instruments |
| (2.1) | (14.3) |
| Other non-current liabilities |
| (5.1) | (3.3) |
|
|
| (135.5) | (138.8) |
| Total liabilities |
| (436.7) | (438.0) |
| Net assets |
| 9.5 | 20.6 |
| EQUITY |
|
|
|
| Share capital |
| 45.5 | 45.0 |
| Share premium account |
| 28.4 | 26.5 |
| Capital redemption reserve |
| 5.9 | 5.9 |
| Hedge reserve |
| (3.9) | (8.6) |
| Cumulative translation adjustment |
| 3.8 | 3.7 |
| Other reserves |
| (83.8) | (83.8) |
| Retained earnings |
| 10.4 | 29.0 |
| Total equity attributable to shareholders of the Company |
| 6.3 | 17.7 |
| Minority interests |
| 3.2 | 2.9 |
| Total equity |
| 9.5 | 20.6 |
GROUP STATEMENT OF CHANGES IN EQUITYFor the year ended 27 March 2010 |
|
| |||||||
|
| Attributable to equity shareholders | Minority interest | Total equity | ||||||
|
| Share capital £m | Share premium account £m | Capital redemption reserve £m | Hedge reserve £m | Cumulative translation adjustment £m | Other reserve £m | Retained earnings £m | £m | £m |
| Balance at 29 March 2008 | 44.6 | 22.5 | 5.5 | 0.7 | 13.4 | (83.8) | 210.3 | 2.3 | 215.5 |
| Comprehensive income for the year | - | - | - | (9.3) | (9.7) | - | 309.0 | 1.1 | 291.1 |
| Share capital issued | 0.8 | 4.0 | - | - | - | - | - | - | 4.8 |
| Purchase of shares for cancellation | (0.4) | - | 0.4 | - | - | - | (119.3) | - | (119.3) |
| Allocation of treasury shares | - | - | - | - | - | - | 2.2 | - | 2.2 |
| Employee share scheme: |
|
|
|
|
|
|
|
|
|
| - value of services provided | - | - | - | - | - | - | 2.8 | - | 2.8 |
| Income tax on income and expenses recognised directly in equity | - | - | - | - | - | - | 0.7 | - | 0.7 |
| Dividends paid | - | - | - | - | - | - | (376.7) | (0.5) | (377.2) |
| Balance at 28 March 2009 | 45.0 | 26.5 | 5.9 | (8.6) | 3.7 | (83.8) | 29.0 | 2.9 | 20.6 |
| Comprehensive income for the year | - | - | - | 4.7 | 0.1 | - | 20.9 | 0.5 | 26.2 |
| Share capital issued | 0.5 | 1.9 | - | - | - | - | - | - | 2.4 |
| Employee share scheme: |
|
|
|
|
|
|
|
|
|
| - value of services provided | - | - | - | - | - | - | 1.5 | - | 1.5 |
| Income tax on income and expenses recognised directly in equity | - | - | - | - | - | - | (0.1) | - | (0.1) |
| Dividends paid | - | - | - | - | - | - | (40.9) | (0.2) | (41.1) |
| Balance at 27 March 2010 | 45.5 | 28.4 | 5.9 | (3.9) | 3.8 | (83.8) | 10.4 | 3.2 | 9.5 |
GROUP CASH FLOW STATEMENTFor the year ended 27 March 2010 |
|
|
|
|
|
| Notes | 2010 £m | 2009 £m |
|
| Cash flows from operating activities |
|
|
|
|
| Profit before tax |
| 96.6 | 96.1 |
|
| Adjustments for: |
|
|
|
|
| Finance income and expense |
| 11.4 | 0.4 |
|
| Depreciation and amortisation |
| 23.0 | 21.3 |
|
| Decrease/(increase) in inventory |
| 4.3 | (0.1) |
|
| Decrease/(increase) in trade and other receivables |
| 16.6 | (30.4) |
|
| (Decrease)/increase in trade and other payables |
| (9.9) | 17.5 |
|
| (Decrease)/increase in reorganisation provisions |
| (5.0) | 4.4 |
|
| Special pension fund contributions |
| (17.0) | (27.0) |
|
| Loss/(profit) on disposal of property, plant and equipment |
| 0.9 | (0.1) |
|
| Share of income from associates after tax |
| (6.3) | (8.9) |
|
| Other non-cash movements |
| 1.5 | (3.8) |
|
| Cash generated from continuing operations |
| 116.1 | 69.4 |
|
| Cash generated from discontinued operations |
| - | (2.2) |
|
| Tax paid - continuing operations |
| (21.0) | (20.5) |
|
| Tax paid - discontinued operations |
| - | (10.0) |
|
| Net cash flows from operating activities |
| 95.1 | 36.7 |
|
| Cash flows from investing activities |
|
|
|
|
| Disposal of subsidiary undertakings |
| (1.0) | 333.7 |
|
| Purchases of property, plant and equipment (PPE) & software intangibles - continuing operations |
| (33.1) | (29.3) |
|
| Purchases of property, plant and equipment (PPE) & software intangibles - discontinued operations |
| - | (0.7) |
|
| Development assets capitalised - continuing operations |
| (2.3) | (3.3) |
|
| Development assets capitalised - discontinued operations |
| - | (1.1) |
|
| Proceeds from sale of PPE |
| 0.5 | 0.5 |
|
| Loans made to associates |
| (0.6) | - |
|
| Dividends received from associates |
| 6.8 | 10.3 |
|
| Net cash flows from investing activities |
| (29.7) | 310.1 |
|
| Net cash inflow before financing activities |
| 65.4 | 346.8 |
|
| Cash flows from financing activities |
|
|
|
|
| Proceeds from issue of share capital |
| 2.4 | 7.0 |
|
| Return of capital |
| - | (119.3) |
|
| (Repayment of)/proceeds from borrowings |
| (32.9) | 77.6 |
|
| Finance lease principal payments |
| (3.1) | (3.9) |
|
| Interest received |
| 0.4 | 7.6 |
|
| Interest paid |
| (3.7) | (4.1) |
|
| Dividends paid to shareholders |
| (40.4) | (376.7) |
|
| Dividends paid to minority interests |
| (0.2) | (0.5) |
|
| Net cash flows from financing activities |
| (77.5) | (412.3) |
|
| Net decrease in cash and cash equivalents in the year |
| (12.1) | (65.5) |
|
| Cash and cash equivalents at the beginning of the year |
| 50.1 | 116.7 |
|
| Exchange rate effects |
| (0.2) | (1.1) |
|
| Cash and cash equivalents at the end of the year |
| 37.8 | 50.1 |
|
| Cash and cash equivalents consist of: |
|
|
|
|
| Cash at bank and in hand |
| 35.1 | 43.4 |
|
| Short term bank deposits |
| 6.5 | 15.1 |
|
| Bank overdrafts |
| (3.8) | (8.4) |
|
|
|
| 37.8 | 50.1 |
|
1 Basis of preparation and accounting policies
| ||||
| The preliminary announcement for the year ended 27 March 2010 has been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (collectively "IFRSs") as adopted by the European Union (EU) at 27 March 2010. Details of the accounting policies applied are those set out in De La Rue plc's Annual Report 2009, as updated for the following changes in accounting policies: | ||||
| • IAS 1 (Presentation of Financial Statements) amendments require a number of changes to the presentation of financial statements. These include a requirement to present, in a statement of changes in equity, all owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). As a result, the Group has elected to present a consolidated income statement, a consolidated statement of comprehensive income and a consolidated statement of changes in equity. | ||||
| • IFRS 7 (Financial Instruments: Disclosures) amendments expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected, on a voluntary basis, to provide comparative information for these expanded disclosures in the current year in order to aid comparability between periods. | ||||
| • IFRS 8 (Operating Segments) requires segment disclosures based on the components that the Chief Operating Decision Maker (i.e. the Board) monitors in making decisions about operating matters. Such components are identified on the basis of internal reports that the Board reviews regularly in allocating resources to segments and in assessing performance. This results in a segmental analysis which is similar to that presented previously under IAS 14 (Segmental Reporting) as the Group had previously given additional voluntary disclosures of segmental information. However, the comparatives have been restated for the effects of the different disclosure requirements of current and deferred tax assets and liabilities. | ||||
| • IAS 23 (Borrowing Costs) amendments have removed the option of immediately recognising as an expense borrowing costs relating to assets that take a substantial period of time to get ready for use or sale. The revised standard requires such borrowing costs to be capitalised as part of the cost of the asset. This does not change the Group's current accounting policy. | ||||
| The financial information presented in this preliminary announcement does not constitute the statutory accounts of De La Rue plc for the years ended 27 March 2010 or 28 March 2009 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies, and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2009 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2010. These consolidated financial statements have been prepared on the going concern basis and using the historical cost convention, modified for certain items carried at fair value, as stated in the Group's accounting policies.
Those items that the Group present as exceptional are items which, in the judgement of the Directors, need to be disclosed separately by virtue of their size or incidence in order to obtain a proper understanding of the financial information. | ||||
2 Segmental analysis
|
| The Group's international operations are managed and reported internally on a divisional basis that reflects the different characteristics of each business. These divisions have been disclosed as reportable segments because they are the components that the Board monitors regularly in making decisions about operating matters such as allocating resources to businesses and assessing performance. Each division has its own managing director who reports directly to the Chief Executive. The principal financial information reviewed by the Board, which is the Group's Chief Operating Decision Maker, is revenue and operating profit before exceptional items, measured on an IFRS basis. The Group's segments are: |
| • Currency - provides banknote paper, printed banknotes and banknote security features. |
| • Cash Processing Solutions - primarily focused on the production of large sorters for central banks, complementing the Currency business. |
| • Security Products - produces security documents, including authentication labels, travellers' cheques and fiscal stamps. |
| • Identity Systems - involved in the production of passports, including ePassports, together with other secure identity products. |
| 2010 | Currency | Cash Processing Solutions | Security Products | Identity Systems | Exceptional items / Discontinued operations | Total |
|
| £m | £m | £m | £m | £m | £m |
| Total revenue | 411.2 | 56.9 | 74.9 | 32.0 | - | 575.0 |
| Less: Inter-segment revenue | (1.1) | - | (12.8) | - | - | (13.9) |
| Revenue | 410.1 | 56.9 | 62.1 | 32.0 | - | 561.1 |
| Operating profit/(loss) before exceptional items | 95.3 | (3.5) | 14.8 | 2.6 | - | 109.2 |
| Exceptional items - operating (note 3) | - | (7.5) | - | - | - | (7.5) |
| Operating profit/(loss) | 95.3 | (11.0) | 14.8 | 2.6 | - | 101.7 |
| Share of profits of associated companies after taxation |
|
|
|
|
| 6.3 |
| Net interest expense |
|
|
|
|
| (5.1) |
| Retirement benefit obligations net finance expense |
|
|
|
|
| (6.3) |
| Profit before taxation |
|
|
|
|
| 96.6 |
| Segment assets | 194.4 | 39.5 | 24.9 | 30.2 | - | 289.0 |
| Unallocated assets |
|
|
|
|
| 157.2 |
| Total assets |
|
|
|
|
| 446.2 |
| Segment liabilities | (120.3) | (20.9) | (13.4) | (14.6) | - | (169.2) |
| Unallocated liabilities |
|
|
|
|
| (267.5) |
| Total liabilities |
|
|
|
|
| (436.7) |
| Capital expenditure on property, plant and equipment | 31.5 | 1.7 | 0.9 | 7.2 | - | 41.3 |
| Capital expenditure on intangible assets | 3.2 | - | 0.2 | 0.7 | - | 4.1 |
| Depreciation of property, plant and equipment | 14.4 | 2.7 | 2.3 | 0.8 | - | 20.2 |
| Amortisation of intangible assets | 1.5 | 1.0 | 0.1 | 0.2 | - | 2.8 |
| 2009 | Currency | Cash Processing Solutions | Security Products | Identity Systems | Exceptional items / Discontinued operations | Total |
|
| £m | £m | £m | £m | £m | £m |
| Total revenue | 348.6 | 66.0 | 69.7 | 30.4 | - | 514.7 |
| Less: Inter-segment revenue | (0.9) | - | (11.4) | - | - | (12.3) |
| Revenue | 347.7 | 66.0 | 58.3 | 30.4 | - | 502.4 |
| Operating profit before exceptional items | 82.8 | 0.4 | 11.0 | 2.3 | - | 96.5 |
| Exceptional items - operating (note 3) | - | - | - | - | (8.9) | (8.9) |
| Operating profit | 82.8 | 0.4 | 11.0 | 2.3 | (8.9) | 87.6 |
| Share of profits of associated companies after taxation |
|
|
|
|
| 8.9 |
| Net interest income |
|
|
|
|
| 1.4 |
| Retirement benefit obligations net finance expense |
|
|
|
|
| (1.8) |
| Profit before taxation |
|
|
|
|
| 96.1 |
| Segment assets | 186.2 | 48.0 | 26.5 | 14.9 | - | 275.6 |
| Unallocated assets |
|
|
|
|
| 183.0 |
| Total assets |
|
|
|
|
| 458.6 |
| Segment liabilities | (100.7) | (20.0) | (14.3) | (15.5) | - | (150.5) |
| Unallocated liabilities |
|
|
|
|
| (287.5) |
| Total liabilities |
|
|
|
|
| (438.0) |
| Capital expenditure on property, plant and equipment | 22.0 | 3.8 | 2.0 | 0.4 | 0.7 | 28.9 |
| Capital expenditure on intangible assets | 1.2 | 2.6 | 0.1 | - | 1.1 | 5.0 |
| Depreciation of property, plant and equipment | 14.9 | 1.4 | 2.6 | 0.7 | 1.3 | 20.9 |
| Amortisation of intangible assets | 1.1 | 0.4 | 0.1 | 0.1 | 1.1 | 2.8 |
| Unallocated assets principally comprise centrally managed property, plant and equipment, associates and other investments, deferred tax assets, current tax assets, derivative financial instrument assets and cash and cash equivalents which are used as part of the Group's financing offset arrangements. Unallocated liabilities comprise borrowings, derivative financial instrument liabilities, current and non-current tax liabilities, deferred tax liabilities, retirement benefit obligations, and centrally held accruals and provisions. |
3 Exceptional items |
|
|
|
| 2010 £m | 2009 £m |
| CPS reorganisation | (4.8) | - |
| Legacy overseas indirect tax | (2.7) | - |
| Reorganisation of central operations | - | (8.9) |
| Exceptional items | (7.5) | (8.9) |
| Exceptional items - tax | 2.4 | 0.9 |
| Exceptional charges of £7.5m in the period reflect the resolution of a legacy overseas indirect tax issue and the reorganisation of CPS, the latter expected to have a payback within two years. Reorganisation costs principally covered redundancy charges and rationalisation of products and site capabilities.
|
| During 2008/2009, De La Rue announced its intention to reduce central costs by approximately 50 per cent following the disposal of Cash Systems. This programme was completed ahead of schedule. Central reorganisation costs relating to this programme principally cover redundancy, separation costs and site rationalisation charges.
The exceptional charges in the year gave rise to a related tax credit of £1.0m. In addition £1.4m of tax credit arose when the tax treatment of some prior year exceptional items was determined. In 2008 tax credits relating to exceptional items were £0.9m, with a credit of £1.9m in relation to the central reorganisation being partly offset by a £1.0m charge in respect of the phasing out of Industrial Buildings Allowances. |
4 Taxation
|
|
|
|
| 2010 £m | 2009 £m |
| Consolidated income statement |
|
|
| Current tax |
|
|
| UK Corporation tax |
|
|
| - Current tax | 14.8 | 11.6 |
| - Double tax relief | - | (0.5) |
| - Adjustment in respect of prior years | (4.3) | 0.2 |
|
| 10.5 | 11.3 |
| Overseas tax charges |
|
|
| - Current year | 5.2 | 6.3 |
| - Adjustment in respect of prior years | (0.7) | 0.2 |
|
| 4.5 | 6.5 |
| Total current income tax expense | 15.0 | 17.8 |
| Deferred tax |
|
|
| UK |
|
|
| - Origination and reversal of temporary differences | 10.8 | 10.5 |
| Overseas |
|
|
| - Origination and reversal of temporary differences | 0.4 | 0.2 |
| Total deferred tax expense | 11.2 | 10.7 |
| Income tax expense reported in the consolidated income statement in respect of continuing operations | 26.2 | 28.5 |
| Income tax expense in respect of discontinued operations (note 6) | - | 5.0 |
| Total income tax expense in the consolidated income statement | 26.2 | 33.5 |
| Consolidated statement of comprehensive income |
|
|
| - On pension actuarial adjustments | (20.3) | (21.0) |
| - On cash flow hedges | 1.9 | (3.7) |
| - On foreign exchange on quasi-equity balances | (3.0) | - |
| Income tax income reported within comprehensive income | (21.4) | (24.7) |
| Consolidated statement of changes in equity |
|
|
| - On share options | 0.1 | (0.7) |
| Income tax expense/(income) reported within equity | 0.1 | (0.7) |
| The tax on the Group's consolidated profit before tax differs from the UK tax rate of 28 per cent as follows: | ||||||
|
| 2010 | 2009 | ||||
|
| Before exceptionals £m | Exceptional items £m | Total £m | Before exceptionals £m | Exceptional items £m | Total £m |
| Profit before tax | 104.1 | (7.5) | 96.6 | 105.0 | (8.9) | 96.1 |
| Tax calculated at UK tax rate at 28% | 29.1 | (2.1) | 27.0 | 29.4 | (2.5) | 26.9 |
| Effects of overseas taxation | (1.9) | - | (1.9) | (1.5) | - | (1.5) |
| Expenses not deductible for tax purposes | 2.4 | 1.1 | 3.5 | 3.6 | 0.6 | 4.2 |
| Adjustment for tax on profits of associate | (1.8) | - | (1.8) | (2.5) | - | (2.5) |
| Adjustments in respect of prior years | 0.8 | (1.4) | (0.6) | 0.4 | - | 0.4 |
| Industrial Buildings Allowances | - | - | - | - | 1.0 | 1.0 |
| Tax charge | 28.6 | (2.4) | 26.2 | 29.4 | (0.9) | 28.5 |
| The underlying effective tax rate excluding one-off items was 27.5 per cent (2009: 28.0 per cent). In 2009, a charge of £1.0m related to the impact on deferred tax balances of the phasing out of Industrial Buildings Allowances, included in the Finance Act 2008. | ||||||
5 Earnings per share |
|
|
|
| 2010 pence per share | 2009 pence per share |
| Total operations |
|
|
| Basic earnings per share | 71.0 | 277.7 |
| Diluted earnings per share | 70.5 | 275.0 |
| Continuing operations |
|
|
| Basic earnings per share | 71.0 | 50.9 |
| Diluted earnings per share | 70.5 | 50.4 |
| Discontinued operations |
|
|
| Basic earnings per share | - | 226.8 |
| Diluted earnings per share | - | 224.6 |
| Headline |
|
|
| Basic earnings per share | 76.2 | 57.0 |
| Diluted earnings per share | 75.7 | 56.4 |
| Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the impact of all dilutive potential ordinary shares. During 2008 the Company returned cash of £460 million to shareholders and at the same time carried out a consolidation of its share capital. These transactions were conditional on each other. They were specifically designed to achieve the same overall effect on the Company's capital structure as a buy back of shares in a way in which all shareholders could participate. Accordingly, earnings per share is presented on the basis that in substance a share buy back has occurred.
| ||
| The Directors are of the opinion that the publication of the headline earnings is useful to readers of annual accounts as they give an indication of underlying business performance. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. |
| Earnings |
|
|
|
| 2010 £m | 2009 £m |
| Earnings for basic and diluted earnings per share | 69.9 | 363.0 |
| Deduct: Profit for the year from discontinued operations | - | (296.5) |
| Earnings for basic and diluted earnings per share from continuing operations | 69.9 | 66.5 |
| Add: Exceptional items | 7.5 | 8.9 |
| Less: Tax on exceptional items | (2.4) | (1.9) |
| Add: Tax effect of phasing out of Industrial Buildings Allowances | - | 1.0 |
| Earnings for headline earnings per share | 75.0 | 74.5 |
| Weighted average number of ordinary shares |
|
|
|
| 2010 Number m | 2009 Number m |
| For basic earnings per share | 98.4 | 130.7 |
| Dilutive effect of share options | 0.7 | 1.3 |
| For diluted earnings per share | 99.1 | 132.0 |
6 Equity dividends |
|
|
|
| 2010 £m | 2009 £m |
| Final dividend for the year ended 28 March 2009 of 27.4p paid on 31 July 2009 | 27.0 | - |
| Interim dividend for the period ended 26 September 2009 of 14.1p paid on 13 January 2010 | 13.9 | - |
| Final dividend for the year ended 29 March 2008 of 14.87p paid on 1 August 2008 | - | 22.3 |
| B share dividend of 305.0p paid on 28 November 2008 | - | 340.6 |
| Interim dividend for the period ended 27 September 2008 of 13.7p paid on 14 January 2009 | - | 13.8 |
|
| 40.9 | 376.7 |
| A final dividend per equity share of 28.2 pence has been proposed for the year ended 27 March 2010, payable on 5 August 2010. In accordance with IFRS accounting requirements this dividend has not been accrued in these consolidated financial statements. | ||
7 Group cash flow statement | | |
|
| 2010 £m | 2009 £m |
| Analysis of net cash |
|
|
| Cash at bank and in hand | 35.1 | 43.4 |
| Short term bank deposits | 6.5 | 15.1 |
| Bank overdrafts | (3.8) | (8.4) |
| Total cash and cash equivalents | 37.8 | 50.1 |
| Other debt due within one year | (47.9) | (31.7) |
| Borrowings due after one year | (0.9) | (51.5) |
| Net debt end of period | (11.0) | (33.1) |
8 Property, plant and equipment | | | | | |
|
| Land and buildings £m | Plant and machinery £m | Fixtures and fittings £m | In course of construction £m | Total £m |
| Cost or valuation |
|
|
|
|
|
| At 30 March 2008 | 58.1 | 256.6 | 44.1 | 13.6 | 372.4 |
| Exchange differences | 1.6 | 13.3 | 1.0 | 0.1 | 16.0 |
| Additions | - | 10.7 | 1.1 | 17.1 | 28.9 |
| Disposal of business | (6.1) | (5.0) | (31.3) | (1.7) | (44.1) |
| Transfers from assets in the course of construction | - | 13.2 | 1.4 | (14.6) | - |
| Disposals | - | (6.8) | (0.3) | - | (7.1) |
| At 29 March 2009 | 53.6 | 282.0 | 16.0 | 14.5 | 366.1 |
| Exchange differences | (0.1) | 0.3 | 0.1 | (0.5) | (0.2) |
| Additions | - | 17.9 | 0.6 | 22.8 | 41.3 |
| Transfers from assets in the course of construction | - | 13.2 | 1.7 | (14.9) | - |
| Disposals | - | (6.9) | (0.6) | (1.9) | (9.4) |
| At 27 March 2010 | 53.5 | 306.5 | 17.8 | 20.0 | 397.8 |
| Accumulated depreciation |
|
|
|
|
|
| At 30 March 2008 | 21.2 | 171.9 | 36.1 | - | 229.2 |
| Exchange differences | 0.6 | 6.7 | 0.8 | - | 8.1 |
| Depreciation charge for the year | 1.3 | 17.3 | 2.3 | - | 20.9 |
| Disposal of business | (3.1) | (3.2) | (27.3) | - | (33.6) |
| Disposals | - | (6.5) | (0.3) | - | (6.8) |
| At 29 March 2009 | 20.0 | 186.2 | 11.6 | - | 217.8 |
| Exchange differences | - | 0.3 | 0.1 | - | 0.4 |
| Depreciation charge for the year | 1.2 | 17.4 | 1.6 | - | 20.2 |
| Disposals | - | (5.8) | (0.4) | - | (6.2) |
| At 27 March 2010 | 21.2 | 198.1 | 12.9 | - | 232.2 |
| Net book value at 27 March 2010 | 32.3 | 108.4 | 4.9 | 20.0 | 165.6 |
| Net book value at 29 March 2009 | 33.6 | 95.8 | 4.4 | 14.5 | 148.3 |
| Net book value at 30 March 2008 | 36.9 | 84.7 | 8.0 | 13.6 | 143.2 |
9 Retirement benefit obligations | | |
| The Group operates pension plans throughout the world covering the majority of employees. These plans are devised in accordance with local conditions and practices in the country concerned. The assets of the Group's plans are generally held in separately administered trusts or are insured. | ||
|
| 2010 £m | 2009 £m |
| UK retirement benefit obligations | (124.8) | (67.5) |
| Overseas retirement benefit obligations | (2.3) | (2.2) |
| Retirement benefit obligations | (127.1) | (69.7) |
| Deferred tax | 35.5 | 19.4 |
| Net retirement benefit obligations | (91.6) | (50.3) |
|
|
|
|
| The largest defined benefit pension plan operated by the Group is in the UK: | ||
|
| 2010 £m | 2009 £m |
| At 29 March 2009/30 March 2008 | (67.5) | (20.7) |
| Current service cost included in operating profit | (4.5) | (5.8) |
| Curtailments | - | 0.8 |
| Net finance cost | (6.2) | (1.8) |
| Actuarial gains and losses arising over the year | (72.4) | (75.1) |
| Cash contributions and benefits paid | 25.9 | 35.5 |
| Transfers | (0.1) | (0.4) |
| At 27 March 2010/28 March 2009 | (124.8) | (67.5) |
|
|
|
|
| Amounts recognised in the consolidated balance sheet: |
|
|
| Fair value of plan assets | 569.2 | 427.3 |
| Present value of funded obligations | (687.3) | (489.3) |
| Funded defined benefit pension plans | (118.1) | (62.0) |
| Present value of unfunded obligations | (6.7) | (5.5) |
| Net liability | (124.8) | (67.5) |
|
|
|
|
| Amounts recognised in the consolidated income statement: |
|
|
| Included in employee benefits expense: |
|
|
| - Current service cost | (4.5) | (5.8) |
| Included in profit from discontinued operations: |
|
|
| - Curtailments | - | 0.8 |
| Included in net finance cost: |
|
|
| - Expected return on plan assets | 26.4 | 33.2 |
| - Interest cost | (32.6) | (35.0) |
|
| (6.2) | (1.8) |
| Total recognised in the consolidated income statement | (10.7) | (6.8) |
| Actual return on plan assets | 143.8 | (90.5) |
|
|
|
|
| Amounts recognised in the statement of comprehensive income: |
|
|
| Actuarial gains/(losses) on plan assets | 117.4 | (123.7) |
| Actuarial (losses)/gains on defined benefit pension obligations | (189.8) | 48.6 |
| Amounts recognised in the statement of comprehensive income | (72.4) | (75.1) |
|
|
|
|
| Principal actuarial assumptions: |
|
|
|
| 2010 UK % | 2009 UK % |
| Future salary increases | 4.10 | 3.50 |
| Future pension increases - past service | 3.70 | 3.30 |
| Future pension increases - future service | 3.50 | 2.90 |
| Discount rate | 5.80 | 6.80 |
| Inflation rate | 3.50 | 2.90 |
| Expected return on plan assets: |
|
|
| Equities | 8.25 | 8.30 |
| Bonds | 5.80 | 6.80 |
| Gilts | 4.60 | 4.00 |
|
|
|
|
| The expected rate of return on plan assets has been determined following advice from the plans' independent actuary and is based on the expected return on each asset class together with consideration of the long term asset strategy. | ||
|
|
|
|
| The mortality assumptions used to assess the defined benefit obligation for the UK plan are based on tables issued by the Continuous Mortality Investigation Bureau. At 27 March 2010 and 28 March 2009 mortality assumptions are based on the PxA92 birth year tables multiplied by a rating of 125 per cent and allowance for medium cohort mortality improvements in future, with a 0.5 per cent mortality improvement underpin. The resulting life expectancy for a 65 year old pensioner is 20.5 years (2009:20.2 years). | ||
10 Related party transactions | | |
| During the year the Group traded on an arms-length basis with the associated company Fidink (33.3 per cent owned) The Group's trading activities with this company included £12.7m (2009: £9.2m) for the purchase of ink and other consumables. At the balance sheet date there were creditor balances of £1.1m (2009: £1.6m) with Fidink. Intra-group transactions between the parent and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation. Such transactions were contracted on an arms-length basis. | ||
|
| 2010 £m | 2009 £m |
| Salaries and other short-term employee benefits | 2,661.4 | 5,457.4 |
| Termination benefits | 1,578.9 | 114.2 |
| Retirement benefits: |
|
|
| - Defined contribution | 31.2 | 11.2 |
| - Defined benefit | 422.8 | 410.1 |
| Share-based payments | 801.0 | 2,209.0 |
|
| 5,495.3 | 8,201.9 |
|
|
|
|
| Key management comprises members of the Board (including fees of non-executive Directors) and the Operating Board. Key management compensation includes compensation for loss of office, ex-gratia payments, redundancy payments, enhanced retirement benefits and any related benefits-in-kind connected with a person leaving office or employment. | ||
11 Share based payments | | | ||||
| At 27 March 2010, De La Rue plc have a number of share based payment plans, which are described below. These plans have been accounted for in accordance with the fair value recognition provisions of IFRS 2, 'Share Based Payments', which means that IFRS 2 has been applied to all grants of employee share based payments granted after 7 November 2002 that had not vested at 1 January 2005 and cash settled awards outstanding at 1 January 2005. The compensation cost and related liability that have been recognised for De La Rue's share based compensation plans are set out in the table below: | ||||||
|
| Expense recognised for the year | Liability at end of year | ||||
|
| 2010 £m | 2009 £m | 2010 £m | 2009 £m | ||
| Deferred bonus and matching plan | 0.9 | 2.5 | - | - | ||
| Savings related share option plan | 0.6 | 0.6 | - | - | ||
| US employee share plan | 0.1 | 0.1 | - | - | ||
|
| 1.6 | 3.2 | - | - | ||
12 Contingent liabilities | | |
| There are contingent liabilities, arising in the ordinary course of business, in respect of litigation and guarantees in various countries, for which the directors believe adequate provisions have been made in the accounts. Pursuant to the provisions of Section 17 Companies (Amendment) Act 1986 of the Republic of Ireland, the Company has guaranteed the liabilities of certain of its Irish subsidiaries and as a result such subsidiaries have been exempted from the provisions of Section 17 Companies (Amendment) Act 1986 of the Republic of Ireland. | ||
13 Capital commitments | | |
|
| 2010 £m | 2009 £m |
| The following commitments existed at the balance sheet date: |
|
|
| Contracted but not provided for in the accounts | 22.1 | 2.5 |
14 Dates |
| The consolidated accounts have been prepared as at 27 March 2010, being the last Saturday in March. The comparatives for the 2008/2009 financial year are for the year ended 28 March 2009. |
15 Statutory accounts |
| Statutory accounts for the year ended 27 March 2010 will be posted to shareholders on 14 June 2010 for subsequent approval at the Annual General Meeting and copies will be available from the Company Secretary at De La Rue plc, De La Rue House, Jays Close, Viables, Hampshire, RG22 4BS. |