Annual Financial Report

RNS Number : 4295H

De La Rue PLC

19 June 2013

 



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 2013

Notice of Annual General Meeting to be held on 25 July 2013

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 of the Company's website www.delarue.com

In addition, the information below which is extracted from the Annual Report 2013 is in accordance with the requirements of the DTR 4.1.3 and DTR 6.3.5 to make public an annual financial report.

DE LA RUE PLC ANNUAL FINANCIAL REPORT ANNOUNCEMENT - PERIOD TO 30 MARCH 2013

KEY FINANCIALS

		2012/13	2011/12	Change
Revenue		£483.7m	£528.3m	(8%)
Operating profit *		£63.2m	£63.1m	-
Operating profit margin *		13.1%	11.9%
Underlying profit before tax *		£59.1m	£57.7m	2%
Reported profit before tax		£51.5m	£32.9m	57%
Headline earnings per share *		44.4p	43.5p	2%
Dividend per share		42.3p	42.3p	-
*	Group operating profit and underlying profit before tax are reported before an exceptional charge of £7.6m in 2012/13 (2011/12: £24.8m). Headline EPS is reported before the exceptional charge and exceptional tax credits of £6.5m (2011/12: £13.2m).  The Directors are of the opinion that these give a better indication of underlying performance

HEADLINES

·     Improved operating margin secured largely through Improvement Plan cost savings

·     Operating profit maintained on lower volumes

·     Banknote print volumes similar at 6.3bn, paper volumes down 21%, as expected, to 8,700 tonnes reflecting challenging market conditions, historically low overspill and delayed orders as previously announced

·     Modest net debt at £77m and good operating cash inflow of £40m

·     Year end 12 month order book down at £207m (2011/12: £248m), but strong pipeline of order opportunities, up more than 10 per cent on prior year

·     EPS 2% higher and final dividend unchanged at 28.2p

·     Improvement Plan cost saving target for 2013/14 increased from £30m to £40m

Tim Cobbold, CEO, commented:

"De La Rue delivered an operating profit of £63m, in line with the prior year, despite a much more challenging banknote paper market, which has also had some impact in the printed banknote market.

Overall order intake reflected the difficult market conditions and an historically low level of overspill volume available to the commercial producers.  It was also impacted by the previously announced delay to a number of important orders, some of which have since been received. 

We continue to make good progress in cost reduction as part of the Improvement Plan and are now targeting annual savings of £40m, £10m higher than the original Improvement Plan target. 

We enter the new financial year with increased cost savings identified and a strong pipeline of order opportunities, more than 10 per cent higher than at the same time last year.  Whilst these opportunities must be secured for delivery in the year, the Board remains confident of achieving the 2013/14 Improvement Plan target of an operating profit in excess of £100m."

Enquiries:

De La Rue plc		[phone]
Tim Cobbold	Chief Executive
Colin Child	Group Finance Director
Rob Hutchison	Group Director of Communications
Brunswick		[phone]
Jon Coles
Oliver Hughes

A presentation to analysts will take place at 09:00 on 29 May 2013 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 

An interview with Tim Cobbold, Chief Executive, is available at www.delarue.com or  http://video.merchantcantos.com/

29 May 2013

NOTES TO EDITORS

As the world's largest integrated commercial banknote printer, De La Rue is a trusted partner of governments, central banks, issuing authorities and commercial organisations around the world. The Group has in recent years been involved in the design or production of over 150 national currencies. De La Rue also produces a wide range of security documents including passports, driving licences, authentication labels and tax stamps. In addition, the Group manufactures sophisticated, high speed cash sorting and inspection equipment. De La Rue also offers a range of specialist services and software solutions including government identity schemes, product authentication systems and cash management processing solutions. De La Rue employs approximately 4,000 people worldwide and is listed on the London Stock Exchange. For further information visit De La Rue's website at www.delarue.com

DE LA RUE PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT - PERIOD TO 30 MARCH 2013

FINANCIAL RESULTS

Against a backdrop of a more challenging currency market, including delays in expected orders, the Group has reported an 8 per cent reduction in revenue to £483.7m (2011/12: £528.3m). This reduction primarily reflects lower trading volumes in the Currency business unit. 

Operating profit before exceptional items was in line with the prior year at £63.2m (2011/12: £63.1m) with lower material costs and Improvement Plan savings offsetting the reduced trading volumes and a less favourable product mix. The Improvement Plan savings of £12m realised in the period bring the annual cost reductions under the Plan to £20m.  As a result, the Group operating profit margin (before exceptional items) improved to 13.1 per cent (2011/12: 11.9 per cent).  Foreign exchange movements adversely impacted revenue by £3m and operating profit by £2m (2011/12: £1m and £1m respectively).

Profit before tax and exceptional items increased by 2 per cent to £59.1m (2011/12: £57.7m) reflecting lower finance costs of £4.1m (2011/12: £5.4m). Headline earnings per share, before exceptional items, also increased by 2 per cent to 44.4p (2011/12: 43.5p). Exceptional charges in the year totalled £7.6m (2011/12: £24.8m) predominantly in relation to the ongoing implementation of the Improvement Plan.  Basic earnings per share was 43.3p (2011/12: 31.8p).

De La Rue has continued its track record of good cash generation with net cash of £40.4m generated from operations.  At the year end, the Group had a modest level of net debt of £76.7m (2011/12: £24.8m). Interest cover, before exceptional items, remained strong at 18 times (2011/12: 15 times).

DIVIDEND

The Board is recommending a final dividend of 28.2p per share (2011/12: 28.2p per share), reflecting its continuing confidence in both the strength of the business and in delivering the Improvement Plan. Together with the interim dividend paid in January 2013, this will give a total dividend for the year of 42.3p per share (2011/12: 42.3p per share).  Subject to approval by shareholders, the final dividend will be paid on 1 August 2013 to shareholders on the register on 5 July 2013.

Strategy

In May 2011 the Group announced the three year Improvement Plan, and focus on this will remain the priority for the business until the conclusion of the 2013/14 financial year. In the year to March 2013 we continued to build on De La Rue's fundamental strengths and on addressing the opportunities for improvement in many parts of the business. As is reported below, significant progress, particularly on process improvement and cost reduction, has been delivered and will continue in the 2013/14 financial year.

We are, however, well advanced in developing the Group strategy for the period following completion of the Improvement Plan and expect to be able to share conclusions with investors during the later part of the financial year. The strategy will build further on the Group's fundamental strengths of brand, market access, innovation and geographic reach and will also leverage leaner operating capability, further cost reduction opportunities and enhanced R&D performance post the Improvement Plan.

Delivering the Improvement Plan

We have continued to make good progress on the implementation of the Plan, the benefits of which have become more important in the increasingly challenging currency market. The improvements generated through the revenue initiatives have helped in part to mitigate these challenges. The cost reduction programme is ahead of schedule and is now expected to exceed our original target by £10m and deliver annual savings of £40m by the end of the Plan. We have identified further cost reduction opportunities that will be pursued in the periods beyond 2013/14.

The Plan includes an investment programme to improve manufacturing capability, quality and efficiency with capital expenditure in the period of £37.1m, bringing the cumulative spend in the first two years of the Plan to £69.2m. Over the three years of the Plan we expect to have invested c£100m.  This ongoing programme will give the Group greater flexibility and improve its competitive position, allowing it to respond better to market opportunities.

Revenue growth

Customer focus and innovation are two key elements of the Improvement Plan designed to generate sustainable long term growth.  Both aspects are now well established and have considerable momentum throughout the organisation.

Country plans

·       These are now an established part of our sales planning process and are in use throughout the business. They ensure that the Group's sales activities are coordinated as well as providing a strategic perspective on the opportunities in a country or region. As a result we have combined sales responsibilities in a number of territories

Innovation 

·       R&D has become a key focus for the business and this year more qualified ideas have progressed through the development process. We expect the level of investment in R&D to increase to ensure we have a strong pipeline of new technologies, solutions and security features

·       Construction of the new technology centre is well advanced and will be completed on schedule during the summer

·       The development of Safeguard^TM, our polymer banknote substrate, and related security features, has been a priority.  Three polymer note orders have been received during the year from both banknote and substrate customers and the first banknote produced on the Safeguard^TM substrate, the Fiji $5, entered circulation in 2013

·       We have established several promising technical partnerships to accelerate the rate of idea generation and development and to access technologies new to the industry

·       Insight^TM, the next generation of Optiks^TM, was launched in the year and we were honoured to receive the Queen's Award for Enterprise Innovation this year for the Optiks^TM product. This is the twelfth time De La Rue has received a Queen's Award

Cost reduction

The Improvement Plan included targeted cost reductions of £30m (excluding movements in cotton comber pricing) from process improvement, procurement and facility optimisation.   Excellent progress has been made in all areas, and with the experience gained from these initiatives we have now identified opportunities for further savings primarily in process improvement and procurement. Based on current volume expectations, these opportunities are targeted to generate an additional £10m of annual cost reductions by the end of the Plan.

Facility optimisation

·       The relocation of operations from the Stroudley Road and Dunstable factories into the Westhoughton and Gateshead facilities respectively is now complete. This consolidation is generating savings of £6m per annum and we are  already benefiting from improvements in the operating performance of the transferred processes in their new locations

Procurement

·       A strong procurement team has been established and is proving effective at generating cost reductions in the supply chain by deploying skills and techniques developed outside the industry

·       As a result the procurement cost reduction target has been raised by 25 per cent to £15m per annum

·       Supplier quality improvement and relationship management programmes have been introduced, we believe for the first time in the industry.  These have already been successful in driving quality improvement, accelerating innovation and delivering cost reduction in the supply base

Process improvement

·       Significant investment programmes, particularly in Westhoughton and Gateshead, are well underway and proceeding to plan. These, combined with a continued focus on lean manufacturing, are  providing enhanced capability and capacity, reduced cost and improved quality as more up to date technologies are introduced

·       Excellent progress continues to be made in establishing a continuous improvement culture and in creating an industry leading supply chain with the operational flexibility to meet the variability in demand which is a feature of this 'lumpy' market.  A key element of this flexibility has been the negotiation of new labour agreements in some facilities with discussions ongoing in others. These have been complemented by new, flatter management structures where responsibilities and accountabilities are much clearer

·       The strengthened quality team remains focused on implementing world class systems and processes, introducing proven tools and techniques from other industries. This has already delivered a significant improvement in all quality measures, both external and internal. These initiatives have been supported with investment in new, industry leading environmentally controlled quality laboratories and equipment

·       The Improvement Plan anticipated an investment programme of c£100m over the three year period to facilitate quality and productivity improvements. The investment programme is proceeding well with capital expenditure of £37m in the year and tangible benefits already being delivered

OPERATING REVIEWS

From the start of the 2012/13 financial year the Holographics operation, previously included in Security Products, became part of the Currency business on which it largely depends and comparatives have been re-presented accordingly.

Currency

	2012/13		2011/12 (re-presented)	Change
Banknote print volume (bn notes)	6.3		6.4	(2%)
Banknote paper output ('000 tonnes)	8.7		11.0	(21%)
	£m		£m
Revenue	298.1		340.6	(12%)
Operating profit before exceptional items	38.0		45.5	(16%)

Banknote print volume at 6.3bn notes was similar to the prior year (2011/12: 6.4bn) notwithstanding delayed orders and lower overspill volumes in the market.  Paper output volume was, as expected, down 21 per cent at 8,700 tonnes (2011/12: 11,000 tonnes) primarily reflecting more challenging market conditions as a result of excess market capacity.

Revenue decreased by 12 per cent to £298.1m (2011/12: £340.6m) with operating profit down 16 per cent at £38.0m (2011/12: £45.5m).  These results reflect the reduced paper and component volumes, a less favourable product mix and pricing pressure in the currency market as a whole.   These adverse factors have been mitigated in part by the further benefits of the Improvement Plan and lower raw material and component costs, most notably on cotton, which had a favourable impact of £6m compared with 2011/12. 

Order intake in the period was lower than originally expected, reflecting delays in a number of important contracts, lower overspill and the challenging currency market. At the year end, the Currency 12 month order book, excluding currently suspended orders, was down 14 per cent at £158m (2011/12: £183m).  However, the pipeline of order opportunities is strong, more than 10 per cent higher than the prior year, with an increased level of overspill prospects compared with the low level experienced in 2012/13.  We expect that an appropriate proportion of this pipeline will be converted into orders for delivery in 2013/14.

Solutions

	2012/13 £m		2011/12 (re-presented) £m	Change
Revenue:
Cash Processing Solutions	61.2		65.7	(7%)
Security Products	45.1		51.4	(12%)
Identity Systems	84.4		75.2	12%
Total Solutions	190.7		192.3	(1%)
Operating profit before exceptional items:
Cash Processing Solutions	-		2.0	(100%)
Security Products	8.9		7.1	25%
Identity Systems	16.3		8.5	92%
Total Solutions	25.2		17.6	43%

Cash Processing Solutions (CPS)

The decreased revenue and operating profit mainly reflect reduced second half volumes and in particular customer related delays in large sorter installations straddling the period end. Service revenues were slightly lower than the prior year but remain an important source of income.  The first two DLR 9000 single note inspection machines are now in operation in the Gateshead Currency print facility, with a further machine planned for 2013/14.  The level of customer enquiries for this new product has been encouraging. 

Security Products

Revenues were adversely affected by reduced volumes but this was more than offset by an improved product mix and the benefits of the Improvement Plan.   Notably, the project to move the Dunstable operation into the Gateshead factory was successfully completed ahead of schedule.

To meet the customer need for a flexible solution, in a market that we expect to grow strongly, a significantly enhanced tax stamp track and trace solution is being developed. This project is well advanced and the solution is expected to be available to customers during the 2013/14 financial year.

Identity Systems (IDS)

The Identity Systems operation has performed strongly throughout the year, reflecting increased revenues and operating profit within the international part of the business. Performance on the underlying UK ePassport contract remained strong, benefiting from further process improvements within the Improvement Plan. In addition the roll out of a local print solution to Her Majesty's Passport Office's seven UK regional issuing offices was completed. During the period the business achieved the notable milestone of producing the ten millionth UK ePassport since the contract commenced.

Solutions Order Book

At the year end, the Solutions 12 month order book was £49m (2011/12: £65m).  These figures exclude order volumes which have yet to be confirmed on committed contracts.

INTEREST

The Group's net interest charge was £3.6m, down on the prior year (2011/12: £4.1m).  The IAS 19 related finance cost, which represents the difference between the interest on pension liabilities and the expected return on assets, has reduced to £0.5m (2011/12: £1.3m) as a result of the lower discount rate used to calculate the interest charge.

EXCEPTIONAL ITEMS

Exceptional costs of £7.6m were incurred in 2012/13 in connection with the ongoing costs of implementing the Improvement Plan (2011/12: £24.8m).  This brings the cumulative exceptional charges taken in respect of the Improvement Plan to a total of £31.7m. The cash cost of exceptional items in the period was £17.3m (2011/12: £3.7m) bringing the cumulative cash cost under the Improvement Plan to date to £21.0m.

The £7.6m exceptional operating charge reported in 2012/13 (2011/12: £24.8m) comprised £0.8m (2011/12: £11.3m) in staff compensation, £0.2m (2011/12: £1.1m) of fixed asset impairment charges, £4.3m (2011/12: £8.8m) for site exit costs and £2.3m (2011/12: £2.9m) in other associated reorganisation costs.  The exceptional charge in 2011/12 also included additional costs of £0.7m associated with the paper quality issue that arose in 2010/11.

TAXATION

The net tax charge for the year was £7.4m (2011/12: £0.7m). The effective tax rate, before exceptional items, was 23.5 per cent (2011/12: 24.1 per cent), predominantly reflecting the reduction in the UK statutory tax rates.  

A credit of £2.1m (2011/12: £6.2m) arises on the exceptional items noted above.  In addition there was an exceptional credit of £4.4m (2011/12: £7.0m) in respect of the determination of the tax treatment of prior year exceptional items.

CASH FLOW AND BORROWINGS

Cash inflow from operations was £40.4m (2011/12: £78.4m) primarily reflecting the high level of cash spend on exceptional items and an increase in year end working capital.  The movement in working capital predominantly reflects an increase in trade debtors resulting from the timing of shipments around the year end.  Advance payments increased to £42.7m (2011/12: £40.9m).

Capital expenditure of £37.1m (2011/12: £32.1m) was higher than depreciation, reflecting expenditure on Improvement Plan projects.

The Group ended the year with modest net debt of £76.7m (2011/12: £24.8m).

During the period the Group renewed and increased its revolving credit facility from £175m to £200m.  The key financial covenants on this facility, which expires in December 2016, remain unchanged and require that the ratio of EBIT to net interest payable be greater than four times and the net debt to EBITDA ratio be less than three times.  At the year end the specific bank covenant tests were as follows: EBIT/Net interest payable of 16.1 times, Net debt/EBITDA of 0.97 times.

UK PENSION SCHEME

Pension deficit and funding

During 2012/13, special funding payments of £16.2m were made to the Group's defined benefit pension fund (closed to new members in 2010 and future accrual from April 2013).   The Group's latest formal (triennial) funding valuation of the UK defined benefit pension scheme took place on 5 April 2012 and identified the scheme had a deficit of £180m (5 April 2009: £204m deficit). The arrangements in respect of the special funding payments remain unchanged and are expected to eliminate the deficit in line with the original timetable by 2022.

IAS 19 - Employee Benefits

The valuation of the UK pension scheme under IAS 19 principles indicates a scheme deficit pre tax at 30 March 2013 of £166.7m (31 March 2012: £143.3m) an increase of £23.4m. This change primarily reflects increased scheme liabilities resulting from increased longevity assumptions and reduced discount rates applied to the scheme valuation being partly offset by asset growth. The charge to operating profit in respect of the UK pension scheme for 2012/13 was £7.8m (2011/12: £7.8m). In addition, under IAS 19 there was a finance charge of £0.5m arising from the difference between the expected return on assets and the interest on liabilities (2011/12: £1.3m).

Amendments to the IAS 19 accounting standard will be effective for the 2013/14 financial year.  This requires the replacement of the expected return on assets and interest charge on pension scheme liabilities with a net financing cost based on the discount rate.  IAS 19 requires retrospective adoption and therefore prior periods will be restated. 

The Group estimates the impact of the change, had it been effective in 2012/13, would have been to increase operating costs by £1.4m, increase the net interest expense by £6.2m, with compensating adjustments in other comprehensive income leaving equity unchanged.  This would therefore, reduce profit after tax by £7.6m, and reduce headline and basic EPS by 7.6p. 

The estimated impact for the 2013/14 year is to reduce operating profits by £1.7m (the Improvement Plan operating profit target will be impacted by the same amount) and increase the net interest expense by £6.7m and hence reduce headline and basic EPS by 8.4p. 

2010 PAPER PRODUCTION ISSUES

Discussions remain ongoing with the principal customer concerned and the authorities, and therefore there remains uncertainty as to the ultimate outcome of these issues, including their financial impact (described more fully in note 8).

PEOPLE

De La Rue is proud of the quality of its employees who are relied upon by customers around the world for their knowledge, dedication and expertise. In a period of ongoing change they have continued to meet the needs of our customers and embrace the necessary changes in the business and the Board thank them for their contribution and support.

BOARD CHANGES

Sir Julian Horn-Smith, who was appointed a Non-executive Director of the Company on 1 September 2009, stepped down as a Director on 31 December 2012 owing to his other business commitments.  The Board would like to thank Julian for his wise counsel and significant contribution to the business.

Andrew Stevens (former CEO of Cobham plc) joined as a Non-executive Director of the Company on 2 January 2013, bringing extensive international experience in the technology and engineering sectors, having spent over thirty years operating across the globe.

Sir Jeremy Greenstock, who was appointed a Non-executive Director of the Company on 1 March 2005, and has served as the Senior Independent Director since January 2010, has decided to retire from the Board following the Annual General Meeting in July 2013.  Jeremy has made an invaluable contribution during his time on the Board and the Group has benefited greatly from his sound advice and international experience.  The Board thanks Jeremy for his commitment and guidance and wishes him well.

Warren East will become the Senior Independent Director with effect from 25 July 2013.

OUTLOOK

We enter the new financial year with increased cost savings identified and a strong pipeline of order opportunities, more than 10 per cent higher than at the same time last year.  Whilst these opportunities must be secured for delivery in the year, the Board remains confident of achieving the 2013/14 Improvement Plan target of an operating profit in excess of £100m (excluding the impact of  IAS 19).

-ends-

Risk management framework

Board

• Responsible for risk management and internal control

• Defines De La Rue's risk appetite and tolerance

• Approves the business risk profile

Audit Committee

• Reviews the effectiveness of internal control

• Approves the annual internal and external audit plans

• Reviews findings from selected assurance providers

Ethics Committee

• Reviews ethical policies and standard

• Oversees the development and adoption of, and compliance with, the Company's ethical due diligence policies and procedures

Risk Committee

• Reviews and proposes the business risk profile

• Monitors the management of key risks

• Tracks implementation of actions to mitigate risks

Executive Committee

• Accountable for the design and implementation of the risk management process and the operation of the control environment

All of the above are supported by the Security Steering Committee, the Health, Safety & Environment Committee, Business unit leadership and functional experts.

UK Corporate Governance Code

The UK Corporate Governance Code requires the Board to maintain a sound system of internal control to safeguard shareholders' investment and the Group's assets and at least annually to conduct a review of the effectiveness of the Group's system of internal control. During the year, the Board carried out its annual review which covered all material controls including financial, operational, legal and technology controls and risk management systems. The Board also received information about the Group's operations throughout the year enabling it to evaluate regularly the nature and extent of the risks to which the Group is exposed. An Ethics Committee was established by the Board, further details of which can be found on page 45 of the De La Rue plc Annual Report 2013.

Committed to effective risk management

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

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

The Risk Committee assists management in conducting risk reviews, analysing risk information and reviewing De La Rue's risk management. The internal audit function plays an important role in advising and producing guidance on risk related matters and integrating risk management into business processes.

Risk management processes

With the appointment of a Group Director of Risk and Internal Audit in April 2012, the Group's risk management framework has been enhanced to provide greater clarity on key risks, the effectiveness of key controls and accountability for actions.

De La Rue management conducted a number of risk reviews throughout the year in preparation for the Board's annual internal controls and risk management assessment. In 2012 risk review activities included the following:

• Business unit risk workshops focused on operational risks and uncertainties, which could affect the achievement of business objectives

• Functional risk workshops with various centralised departments, including central finance, security, legal, human resources and information services

• Updating the consolidated risk register, discussed and approved by the Risk Committee, which paid particular attention to ensuring that additional mitigating actions were determined and agreed as appropriate

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. Details of these Committees are set out in the corporate governance statement on page 45 and 46 of the De La Rue plc Annual Report 2013.

Management is responsible for implementing the controls which are designed to meet the particular needs of the Group, and the risks to which it is exposed, with procedures intended to provide effective internal control. The controls by their nature are designed to manage rather than eliminate risk and can only provide reasonable but not absolute assurance against material misstatement or loss.

System of internal control

The principal elements of the Group's system of internal control are:

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

• Management reporting including monthly finance, operational and development reports

• Group wide policies and procedures which define expected standards and behaviours and which have been redefined and updated. Our policy framework includes policies on finance, operations, people, regulatory and IT business controls

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

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

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 codes. A Group risk register identifies the risks the business faces, their potential impact and likelihood of occurrence. The key controls and management processes established to mitigate these risks include:

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

• Risk registers maintained by each of the Group's business units and central functions. The management team together with the Group Director of Risk and Internal Audit meet to consider the status of risks and progress against implementing actions on a quarterly basis

• Annual compliance statements in the form of self audit questionnaires and management certification, which are completed for each of De La Rue's main sites on the operation of financial control

• Reviews by the Audit Committee, which assist the Board in discharging its responsibility to review the system of internal control (see page 46 of the De La Rue plc Annual Report 2013 for further details)

• An internal audit function, which is subject to the controlling direction of the Audit Committee, and which provides the Audit Committee with an assessment of the Group's system of internal control, through reviewing how effectively key risks are being managed, and assists management in the effective discharge of their responsibilities by carrying out appraisals and making recommendations for improvement (see page 46 of the De La Rue plc Annual Report 2013 for further details)

The overall system of internal control is supplemented by an operating financial control framework which includes the following key features:

• An annual strategic planning process

• An annual budget

• A system of monthly reporting by each operating unit which involves comparison of actual results with the original budget and the regular updating of full year forecasts

• Monthly reporting of performance to the Board

• Audited annual financial statements

• Interim financial statements reviewed by the auditors

• Capital management (see note 12 of the De La Rue plc Annual Report 2013 for further information)

• Treasury, foreign exchange and borrowing facilities (see note 12 of the De La Rue plc Annual Report 2013 for further information)

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 likely to have a material effect on the Group

Financial risk management

Overview

The Group's Treasury department, acting in accordance with policies approved by the Board, is responsible for the management of financial risks faced by the Group.  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.

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

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when 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.

A maturity analysis of the carrying amount of the Group's borrowings is shown in the reporting of financial risk section of note 12 of the De La Rue plc Annual Report 2013 together with associated fair values.

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:

(a) Currency risk

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

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

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

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

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

(b) Interest rate risk

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

Credit risk

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

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

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

 

Principal risks

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

Strategic risks

Risk

Failure to maintain competitive and technologically advanced products and services.

Exposure

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

Failure to maintain technical innovation may result in loss of market share and lower margins.

Mitigation/Comment

The Group invests in R&D to create new technologies, products and services to sustain or improve its competitive position.

The Group has made a number of improvements to the organisation of R&D including: centralising innovation expertise, developing a product roadmap, investing £4m in a new R&D technology centre and formalising a new technology management process.

The Group regularly reviews its R&D portfolio as part of the strategic planning process.

 

Financial risks

Risk

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

Exposure

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

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

Mitigation/Comment

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

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 supply chain remains flexible and is able to accommodate required production planning changes.

 

Risk

Failure to win or renew a material contract.

Exposure

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

Mitigation/Comment

Our relationship with issuers, many of whom are currently or have been customers, together with our detailed country plans, ensures we are aware of opportunities as they arise. Our sales and commercial management teams focus on tender responses which are governed through a stage gate process" which includes financial, technical, production, commercial and contractual reviews.

Our track record of delivering product innovation and our commitment to quality, when combined with a commercial approach to tendering, places us in a good position to win or renew strategic or significant contract opportunities.

 

Operational risks

Risk

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

Exposure

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

Mitigation/Comment

The Group has an established quality management system operating across all of our supply chain manufacturing sites which are all certified to ISO9001 quality management standards.

 

Risk

Supplier failure.

Exposure

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

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

Mitigation/Comment

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

Where external supply is required, either at the request of the customer or where the Group does not have the required manufacturing capability, 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 creditworthiness, ability to deliver to our quality standards and security and business continuity arrangements. Suppliers are audited on a rotational basis.

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

 

Risk

Product security.

Exposure

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

Mitigation/Comment

Robust physical and audit security 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.

 

Risk

Health, safety or environmental failure.

Exposure

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

Mitigation/Comment

The Group operates a robust HSE management system which is internally audited and certified to the OHSAS18001 and ISO14001 standards in all major facilities. The Group HSE Committee regularly reviews HSE performance which is also monitored monthly by the supply chain leadership 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.

 

Risk

Loss of a key site.

Exposure

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

Mitigation/Comment

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

In anticipation of increasing customer requirements we continue to enhance our business continuity resilience to a consistent good practice standard across all of our major facilities.

 

Legal and regulatory risks

Risk

Breach of legal and regulatory requirements.

Exposure

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

Mitigation/Comment

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

The Group's whistleblowing policy and procedure forms an integral part of the compliance framework. Particular focus is given to the operation and development of our anti bribery and corruption and competition law control frameworks.

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.

Competition law compliance is driven through regular training for sales personnel and senior managers together with oversight by the Group legal function.

 

Information risks

Risk

Breach of data security or confidentiality.

Exposure

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

Mitigation/Comment

The Group keeps all aspects of information 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.

 

Risk

Loss of core IT systems availability.

Exposure

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

Mitigation/Comment

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

 

 

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

The 2013 Annual Report and Accounts, which will be issued to shareholders on 19 June 2013, contain a responsibility statement in compliance with Rule 4.1.12 of the Financial Services Authority's Disclosure & Transparency Rules. This states that each of the Directors as at 29 May 2013, the date of approval of the 2013 Annual Report and Accounts, confirms that to the best of their knowledge: (a)  The Group Financial Statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole (b)  The management report represented by the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

The Board

The Board of Directors that held office at 30 March 2013 and their respective responsibilities can be found on pages 36 and 37 of the De La Rue plc Annual Report 2013.

For and on behalf of the Board

Philip Rogerson

Chairman

29 May 2013

GROUP INCOME STATEMENT For the period ended 30 March 2013
	Notes	2013 £m	2012 £m
Revenue		483.7	528.3
Operating expenses - ordinary		(420.5)	(465.2)
Operating expenses - exceptional	3	(7.6)	(24.8)
Total operating expenses		(428.1)	(490.0)
Operating profit		55.6	38.3
Comprising:
Operating profit before exceptional items		63.2	63.1
Exceptional items	3	(7.6)	(24.8)
Profit before interest and taxation		55.6	38.3
Interest income		0.2	0.3
Interest expense		(3.8)	(4.4)
Retirement benefit obligation finance income		39.3	39.4
Retirement benefit obligation finance cost		(39.8)	(40.7)
Net finance expense		(4.1)	(5.4)
Profit before taxation		51.5	32.9
Comprising:
Profit before tax and exceptional items		59.1	57.7
Exceptional items		(7.6)	(24.8)
Taxation	4	(7.4)	(0.7)
Profit for the year		44.1	32.2
Comprising:
Profit for the year before exceptional items		45.2	43.8
Loss for the year on exceptional items		(1.1)	(11.6)
Profit attributable to equity shareholders of the Company		43.1	31.6
Profit attributable to non controlling interests		1.0	0.6
		44.1	32.2

Profit for the year attributable to the Company's equity holders		2013 £m	2012 £m
Earnings per share Basic	5	43.3p	31.8p
Diluted	5	42.8p	31.5p

 

GROUP STATEMENT OF COMPREHENSIVE INCOME For the period ended 30 March 2013
		2013 £m	2012 £m
Profit for the financial year		44.1	32.2
Other comprehensive income
Foreign currency translation differences for foreign operations		1.0	(3.9)
Net actuarial losses on retirement benefit obligations		(37.3)	(63.6)
Change in fair value of cash flow hedges		(0.9)	(0.8)
Change in fair value of cash flow hedges transferred to the income statement		2.1	(2.5)
Ineffective portion of change in fair value of cash flow hedges transferred to the income statement		-	0.3
Income tax relating to components of other comprehensive income		7.4	13.5
Other comprehensive income for the year, net of tax		(27.7)	(57.0)
Comprehensive income for the year		16.4	(24.8)
Comprehensive income for the year attributable to:
Equity shareholders of the Company		15.4	(25.4)
Non controlling interests		1.0	0.6
		16.4	(24.8)

 

GROUP BALANCE SHEET At 30 March 2013
	Notes	2013 £m	2012 £m
Assets
Non current assets
Property, plant and equipment	8	179.7	160.9
Intangible assets		26.0	24.2
Investments in associates and joint ventures		0.1	0.1
Deferred tax assets		45.5	40.4
		251.3	225.6
Current assets
Inventories		73.4	68.6
Trade and other receivables		89.2	83.6
Current tax assets		0.3	0.6
Derivative financial instruments		4.9	5.9
Cash and cash equivalents		24.8	24.0
		192.6	182.7
Total assets		443.9	408.3
Liabilities
Current liabilities
Borrowings		(101.5)	(48.8)
Trade and other payables		(167.4)	(170.2)
Current tax liabilities		(29.1)	(33.6)
Derivative financial instruments		(3.9)	(5.6)
Provisions for other liabilities and charges		(26.0)	(40.2)
		(327.9)	(298.4)
Non current liabilities
Retirement benefit obligations	9	(169.1)	(145.6)
Deferred tax liabilities		(2.8)	(1.3)
Derivative financial instruments		(1.2)	(0.9)
Provisions for other liabilities and charges		(4.5)	(6.9)
Other non current liabilities		(5.0)	(0.8)
		(182.6)	(155.5)
Total liabilities		(510.5)	(453.9)
Net liabilities		(66.6)	(45.6)
Equity
Share capital		45.8	45.7
Share premium account		31.9	30.7
Capital redemption reserve		5.9	5.9
Hedge reserve		(0.3)	(1.2)
Cumulative translation adjustment		(0.4)	(1.4)
Other reserves		(83.8)	(83.8)
Retained earnings		(70.4)	(45.4)
Total equity attributable to shareholders of the Company		(71.3)	(49.5)
Non controlling interests		4.7	3.9
Total equity		(66.6)	(45.6)

GROUP STATEMENT OF CHANGES IN EQUITY For the period ended 30 March 2013
	Attributable to equity shareholders							Non controlling 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 26 March 2011	45.6	29.1	5.9	1.0	2.5	(83.8)	13.0	3.5	16.8
Comprehensive income for the year	-	-	-	(2.2)	(3.9)	-	(19.3)	0.6	(24.8)
Share capital issued	0.1	1.6	-	-	-	-	-	-	1.7
Employee share scheme:
- value of services provided	-	-	-	-	-	-	2.5	-	2.5
Income tax on income and expenses recognised directly in equity	-	-	-	-	-	-	0.4	-	0.4
Dividends paid	-	-	-	-	-	-	(42.0)	(0.2)	(42.2)
Balance at 31 March 2012	45.7	30.7	5.9	(1.2)	(1.4)	(83.8)	(45.4)	3.9	(45.6)
Comprehensive income for the year	-	-	-	0.9	1.0	-	13.5	1.0	16.4
Share capital issued	0.1	1.2	-	-	-	-	-	-	1.3
Employee share scheme:
- value of services provided	-	-	-	-	-	-	3.0	-	3.0
Income tax on income and expenses recognised directly in equity	-	-	-	-	-	-	0.6	-	0.6
Dividends paid	-	-	-	-	-	-	(42.1)	(0.2)	(42.3)
Balance at 30 March 2013	45.8	31.9	5.9	(0.3)	(0.4)	(83.8)	(70.4)	4.7	(66.6)

 

GROUP CASH FLOW STATEMENT For the period ended 30 March 2013
	Notes	2013 £m	2012 £m
Cash flows from operating activities
Profit before tax		51.5	32.9
Adjustments for:
Finance income and expense		4.1	5.4
Depreciation and amortisation		26.3	26.6
Increase in inventory		(4.1)	(2.1)
(Increase)/decrease in trade and other receivables		(6.9)	6.6
(Decrease)/increase in trade and other payables		(3.8)	11.6
(Decrease)/increase in reorganisation provisions		(10.4)	17.3
Special pension fund contributions		(16.2)	(23.1)
Loss on disposal of property, plant, equipment and software intangibles		0.3	3.0
Other non cash movements		(0.4)	0.2
Cash generated from operating activities		40.4	78.4
Tax (paid)/received		(7.5)	7.1
Net cash flows from operating activities		32.9	85.5
Cash flows from investing activities
Purchases of property, plant, equipment and software intangibles		(37.1)	(32.1)
Development assets capitalised		(3.7)	(3.7)
Proceeds from sale of property, plant and equipment		0.2	0.4
Net cash flows from investing activities		(40.6)	(35.4)
Net cash (outflow)/inflow before financing activities		(7.7)	50.1
Cash flows from financing activities
Proceeds from issue of share capital		1.3	1.7
Proceeds from/(repayments of) borrowings		50.9	(7.3)
Interest received		0.2	0.3
Interest paid		(3.5)	(3.5)
Dividends paid to shareholders		(42.1)	(42.0)
Dividends paid to non controlling interests		(0.2)	(0.2)
Net cash flows from financing activities		6.6	(51.0)
Net decrease in cash and cash equivalents in the year		(1.1)	(0.9)
Cash and cash equivalents at the beginning of the year		22.5	23.4
Exchange rate effects		0.3	-
Cash and cash equivalents at the end of the year		21.7	22.5
Cash and cash equivalents consist of:
Cash at bank and in hand	7	24.8	24.0
Bank overdrafts	7	(3.1)	(1.5)
	7	21.7	22.5

1 Basis of preparation and accounting policies

The preliminary announcement for the period ended 30 March 2013 has been prepared in accordance with International Accounting Standards and International Financial Reporting Standards (collectively "IFRS") as adopted by the European Union (EU) at 30 March 2013. Details of the accounting policies applied are those set out in De La Rue plc's Annual Report 2012.

During the period the Group has adopted a number of revised and amended standards and interpretations, none of which has had a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

The financial information set out above does not constitute the Group's statutory accounts for the periods ended 30 March 2013 or 31 March 2012. The financial information for the period ended 30 March 2013 is derived from the statutory accounts for the period ended 30 March 2013 which will be delivered to the registrar of companies. The auditor has reported on the accounts for the period ended 30 March 2013; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. These consolidated financial statements have been prepared on the going concern basis and using the historical cost convention, modified for certain items carried at fair value, as stated in the Group's accounting policies.

2 Segmental analysis

The Group has two business units, Currency and Solutions.  Currency is a single operating unit.  Solutions consists of three operating units: Cash Processing Solutions, Security Products and Identity Systems.  The Board, which is the Group's Chief Operating Decision Maker, monitors the performance of the Group at an operating unit level and there are therefore four reportable segments.  The principal financial information reviewed by the Board, is revenue and operating profit before exceptional items, measured on an IFRS basis. The Holographics operation, previously part of Security Products, became part of the Currency business on which it largely depends from the first day of the 2012/13 financial year and comparatives have been re‑presented accordingly. The Group's segments are:

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

·       Solutions

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

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

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

		Solutions
2013	Currency	Cash Processing Solutions	Security Products	Identity Systems	Exceptional Items	Total
	£m	£m	£m	£m	£m	£m
Total revenue	298.1	61.2	45.1	84.4	-	488.8
Less: Inter segment revenue	(1.9)	-	(3.2)	-	-	(5.1)
Revenue	296.2	61.2	41.9	84.4	-	483.7
Operating profit before exceptional items	38.0	-	8.9	16.3	-	63.2
Exceptional items - operating	(1.8)	-	(2.1)	-	(3.7)	(7.6)
Operating profit/(loss)	36.2	-	6.8	16.3	(3.7)	55.6
Net interest expense						(3.6)
Retirement benefit obligations net finance expense						(0.5)
Profit before taxation						51.5
Segment assets	220.8	21.8	45.5	49.3	-	337.4
Unallocated assets						106.5
Total assets						443.9
Segment liabilities	(112.2)	(8.9)	(23.8)	(21.9)	-	(166.8)
Unallocated liabilities						(343.7)
Total liabilities						(510.5)
Capital expenditure on property, plant and equipment	33.3	1.7	6.8	0.4	-	42.2
Capital expenditure on intangible assets	3.1	1.0	-	0.1	-	4.2
Depreciation of property, plant and equipment	17.6	1.8	0.9	3.1	-	23.4
Amortisation of intangible assets	1.3	1.0	-	0.6	-	2.9

		Solutions
2012	Currency (re-presented)	Cash Processing Solutions	Security Products (re-presented)	Identity Systems	Exceptional Items	Total
	£m	£m	£m	£m	£m	£m
Total revenue	340.6	65.7	51.4	75.2	-	532.9
Less: Inter segment revenue	(1.6)	-	(3.0)	-	-	(4.6)
Revenue	339.0	65.7	48.4	75.2	-	528.3
Operating profit before exceptional items	45.5	2.0	7.1	8.5	-	63.1
Exceptional items - operating	(11.8)	-	(9.0)	-	(4.0)	(24.8)
Operating profit/(loss)	33.7	2.0	(1.9)	8.5	(4.0)	38.3
Net interest expense						(4.1)
Retirement benefit obligations net finance expense						(1.3)
Profit before taxation						32.9
Segment assets	200.2	40.7	17.3	48.6	-	306.8
Unallocated assets						101.5
Total assets						408.3
Segment liabilities	(103.3)	(25.4)	(11.0)	(27.0)	-	(166.7)
Unallocated liabilities						(287.2)
Total liabilities						(453.9)
Capital expenditure on property, plant and equipment	25.8	0.9	1.6	2.8	-	31.1
Capital expenditure on intangible assets	1.6	2.1	-	0.4	-	4.1
Depreciation of property, plant and equipment	17.3	1.9	1.9	3.0	-	24.1
Amortisation of intangible assets	0.9	0.5	-	1.1	-	2.5

Unallocated assets principally comprise deferred tax assets of £45.5m (2011/12: £40.4m), cash and cash equivalents of £24.8m (2011/12: £24.0m) which are used as part of the Group's financing offset arrangements and derivative financial instrument assets of £4.9m (2011/12: £5.9m) as well as current tax assets, associates and centrally managed property, plant and equipment. Unallocated liabilities principally comprise retirement benefit obligations of £169.1m (2011/12: £145.6m), borrowings of £101.5m (2011/12: £48.8m), current tax liabilities of £29.1m (2011/12: £33.6m) and derivative financial instrument liabilities of £5.1m (2011/12: £6.5m) as well as deferred tax liabilities and centrally held accruals and provisions.

3 Exceptional items
	2013 £m	2012 £m
Site relocation and restructuring	(7.6)	(24.1)
Costs relating to paper production quality issues	-	(0.7)
Total exceptional items	(7.6)	(24.8)
Tax credit on exceptional items	6.5	13.2

Exceptional costs of £7.6m have been incurred in 2012/13 in connection with the ongoing costs of implementing the Improvement Plan (2011/12: £24.8m).  This brings the cumulative exceptional charges taken in respect of the Improvement Plan to a total of £31.7m. The cash cost of exceptional items in the period was £17.3m (2011/12: £3.7m) bringing the cumulative cash cost under the Improvement Plan to date of £21.0m. The £7.6m exceptional operating charge reported in 2012/13 (2011/12: £24.8m) comprised £0.8m (2011/12: £11.3m) in staff compensation, £0.2m (2011/12: £1.1m) of fixed asset impairment charges, £4.3m (2011/12: £8.8m) for site exit costs and £2.3m (2011/12: £2.9m) in other associated reorganisation costs.  The exceptional charge in 2011/12 also included additional costs (reported under the Currency segment) of £0.7m associated with the paper quality issue that arose in 2010/11.

Tax credits relating to exceptional items arising in the period were £2.1m (2011/12: £6.2m).  In addition there was an exceptional credit of £4.4m (2011/12: £7.0m) in respect of the determination of the tax treatment of prior year exceptional items.

4 Taxation
	2013 £m	2012 £m
Consolidated income statement
Current tax:
UK corporation tax:
- Current tax	8.2	7.6
- Adjustment in respect of prior years	(3.8)	(6.8)
	4.4	0.8
Overseas tax charges:
- Current year	3.9	3.7
- Adjustment in respect of prior years	(1.0)	1.0
	2.9	4.7
Total current income tax expense	7.3	5.5
Deferred tax:
- Origination and reversal of temporary differences, UK	(1.2)	(6.3)
- Origination and reversal of temporary differences, Overseas	1.3	1.5
Total deferred tax expense/(credit)	0.1	(4.8)
Total income tax expense in the consolidated income statement	7.4	0.7
Attributable to:
- Ordinary activities	13.9	13.9
- Exceptional items	(6.5)	(13.2)
Consolidated statement of comprehensive income:
- On pension actuarial adjustments	(7.5)	(12.7)
- On cash flow hedges	0.3	(0.8)
- On foreign exchange on quasi equity balances	(0.2)	-
Income tax credit reported within comprehensive income	(7.4)	(13.5)
Consolidated statement of changes in equity:
- On share options	(0.6)	(0.4)
Income tax credit reported within equity	(0.6)	(0.4)

The tax on the Group's consolidated profit before tax differs from the UK tax rate of 24 per cent as follows:

	2013			2012
	Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
	£m	£m	£m	£m	£m	£m
Profit before tax	59.1	(7.6)	51.5	57.7	(24.8)	32.9
Tax calculated at UK tax rate of 24 per cent (2012: 26 per cent)	14.2	(1.8)	12.4	15.0	(6.4)	8.6
Effects of overseas taxation	(0.7)	-	(0.7)	(1.3)	-	(1.3)
Expenses/(credits) not allowable for tax purposes	1.3	(0.3)	1.0	1.2	0.5	1.7
Increase in/(usage of) unutilised tax losses	0.3	-	0.3	0.1	(0.3)	(0.2)
Adjustments in respect of prior years	(1.1)	(4.4)	(5.5)	(0.7)	(7.0)	(7.7)
Change in UK tax rate	(0.1)	-	(0.1)	(0.4)	-	(0.4)
Tax charge/(credit)	13.9	(6.5)	7.4	13.9	(13.2)	0.7
The underlying effective tax rate excluding exceptional items was 23.5 per cent (2011/12: 24.1 per cent).

5 Earnings per share
	2013 pence per share	2012 pence per share
Total operations
Basic earnings per share	43.3	31.8
Diluted earnings per share	42.8	31.5
Headline
Basic earnings per share	44.4	43.5
Diluted earnings per share	43.9	43.1
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the impact of all dilutive potential ordinary shares.
The Directors are of the opinion that the publication of the headline earnings per share, before exceptional items, is useful to readers of the accounts as it gives an indication of underlying business performance. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

Earnings	2013 £m	2012 £m
Earnings for basic and diluted earnings per share	43.1	31.6
Exceptional items	7.6	24.8
Less: Tax on exceptional items	(6.5)	(13.2)
Earnings for headline earnings per share	44.2	43.2

Weighted average number of ordinary shares	2013 Number m	2012 Number m
For basic earnings per share	99.6	99.3
Dilutive effect of share options	1.1	0.9
For diluted earnings per share	100.7	100.2

6 Equity dividends
	2013 £m	2012 £m
Final dividend for the period ended 31 March 2012 of 28.2p paid on 2 August 2012	28.1	-
Interim dividend for the period ended 29 September 2012 of 14.1p paid on 9 January 2013	14.0	-
Final dividend for the period ended 26 March 2011 of 28.2p paid on 4 August 2011	-	28.0
Interim dividend for the period ended 24 September 2011 of 14.1p paid on 6 January 2012	-	14.0
	42.1	42.0
A final dividend per equity share of 28.2p has been proposed for the period ended 30 March 2013, payable on 1 August 2013. In accordance with IFRS accounting requirements this dividend has not been accrued in these consolidated financial statements.
7 Analysis of net debt
	2013 £m	2012 £m
Cash at bank and in hand	24.8	24.0
Bank overdrafts	(3.1)	(1.5)
Total cash and cash equivalents	21.7	22.5
Borrowings due within one year	(98.4)	(47.3)
Net debt	(76.7)	(24.8)

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 26 March 2011	54.1	314.9	20.7	19.2	408.9
Exchange differences	(0.2)	(4.8)	(0.2)	(0.1)	(5.3)
Additions	2.2	6.3	2.9	19.7	31.1
Transfers from assets in the course of construction	5.1	12.6	1.9	(22.6)	(3.0)
Disposals	(1.0)	(8.8)	(1.4)	(0.4)	(11.6)
At 31 March 2012	60.2	320.2	23.9	15.8	420.1
Exchange differences	0.2	1.2	0.1	-	1.5
Additions	0.4	6.5	1.4	33.9	42.2
Transfers from assets in the course of construction	0.4	25.7	3.8	(29.9)	-
Disposals	(1.3)	(15.8)	(2.9)	(0.3)	(20.3)
At 30 March 2013	59.9	337.8	26.3	19.5	443.5
Accumulated depreciation
At 26 March 2011	22.5	208.1	16.3	-	246.9
Exchange differences	(0.1)	(3.1)	(0.2)	-	(3.4)
Depreciation charge for the year	1.5	19.7	2.9	-	24.1
Disposals	-	(7.5)	(0.9)	-	(8.4)
At 31 March 2012	23.9	217.2	18.1	-	259.2
Exchange differences	0.1	0.8	0.1	-	1.0
Depreciation charge for the year	1.6	19.9	1.9	-	23.4
Disposals	(1.3)	(15.7)	(2.8)	-	(19.8)
At 30 March 2013	24.3	222.2	17.3	-	263.8
Net book value at 30 March 2013	35.6	115.6	9.0	19.5	179.7
Net book value at 31 March 2012	36.3	103.0	5.8	15.8	160.9
Net book value at 26 March 2011	31.6	106.8	4.4	19.2	162.0

 

9 Retirement benefit obligations
The Group operates retirement benefit schemes covering the majority of employees. These plans are devised in accordance with local conditions and practices in the country concerned. The assets of the Group's plans are generally held in separately administered trusts or are insured.
	2013 £m	2012 £m
UK defined benefit pension	(166.7)	(143.3)
Overseas defined benefit pension	(2.4)	(2.3)
Gross defined benefit pension	(169.1)	(145.6)
Deferred tax	39.0	35.0
Net defined benefit pension	(130.1)	(110.6)
The largest defined benefit pension plan operated by the Group is in the UK:
	2013 £m	2012 £m
At 31 March 2012/ 26 March 2011	(143.3)	(100.5)
Current service cost included in operating profit	(7.8)	(7.8)
Net finance expense	(0.5)	(1.3)
Actuarial losses arising over the year	(37.5)	(63.6)
Cash contributions and benefits paid	22.4	29.9
At 30 March 2013 / 31 March 2012	(166.7)	(143.3)
Amounts recognised in the consolidated balance sheet:
Fair value of plan assets	761.1	697.6
Present value of funded obligations	(920.2)	(833.8)
Funded defined benefit pension plans	(159.1)	(136.2)
Present value of unfunded obligations	(7.6)	(7.1)
Net liability	(166.7)	(143.3)
Amounts recognised in the consolidated income statement:
Included in employee benefits expense:
- Current service cost	(7.8)	(7.8)
Included in net finance expense:
- Expected return on plan assets	39.3	39.4
- Interest expense	(39.8)	(40.7)
	(0.5)	(1.3)
Total recognised in the consolidated income statement	(8.3)	(9.1)
Actual return on plan assets	74.3	60.8
Amounts recognised in the statement of comprehensive income:
Actuarial gains on plan assets	35.0	21.4
Actuarial losses on defined benefit pension obligations	(72.5)	(85.0)
Amounts recognised in the statement of comprehensive income	(37.5)	(63.6)
Principal actuarial assumptions:
	2013 UK %	2012 UK %
Future salary increases	-	-
Future pension increases - past service	3.70	3.70
Future pension increases - future service	3.30	3.20
Discount rate	4.50	4.80
Inflation rate	3.40	3.30
Expected return on plan assets:
- Equities	8.00	8.50
- Bonds	4.50	4.80
- Gilts	2.80	2.90
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 30 March 2013 mortality assumptions were based on the SAPS All lives tables, with future improvements in line with the CMI model, CMI_2011 and a long term rate of 1.0 per cent per annum. At 31 March 2012 mortality assumptions were 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 22.1 years (2011/12: 20.6 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 £17.4m (2011/12: £16.3m) for the purchase of security ink and other consumables. At the balance sheet date there were creditor balances of £1.7m (2011/12: £0.3m) with Fidink. Intra Group transactions between the parent and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation. Such transactions were contracted on an arms length basis.
Key management compensation
	2013 £m	2012 £m
Salaries and other short-term employee benefits	2,968.2	3,612.3
Termination benefits	549.2	-
Retirement benefits:
- Defined contribution	149.6	276.1
- Defined benefit	33.2	57.2
Share based payments	1,959.8	1,290.6
	5,660.0	5,236.2
Key management comprises members of the Board (including the fees of Non-executive Directors) and the Executive Committee. Termination benefits includes compensation for loss of office, ex gratia payments, redundancy payments, enhanced retirement benefits and any related benefits in kind connected with a person leaving office or employment.

11 Share based payments
At 30 March 2013, De La Rue plc has a number of share based payment plans, which are noted 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 the Group's share based plans are set out in the table below:
	Expense recognised for the year			Liability at end of year
	2013 £m	2012 £m		2013 £m		2012 £m
Annual Bonus Plan	0.7	0.2		-		-
Deferred Bonus and Matching Plan	(1.0)	(0.1)		-		-
Performance Share Plan	3.6	2.2		-		-
Recruitment Share Award	0.1	0.1		-		-
Retention Share Award	0.1	0.1		-		-
Savings related share option scheme	0.3	0.3		-		-
US Employee Share Plan	-	-		-		-
	3.8	2.8		-		-

12  Contingent liabilities

De La Rue has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation matters. While the outcome of litigation and other disputes can never be predicted with certainty, having regard to legal advice received and the insurance arrangements of the Company and its subsidiaries, the Directors believe that adequate provision has been made to cover these matters.   The Group provides guarantees and performance bonds which are issued in the ordinary course of business.  In the event that a guarantee or bond is called, provision may be required subject to the particular circumstances, including an assessment of its recoverability. In July 2010 the Board commissioned an investigation by external lawyers into issues that had been brought to its attention internally. The investigation, which was completed in October 2010, found nothing of substance to support the matters raised other than in respect of some paper production issues where it was found that a small number of the many detailed specification parameters of some paper had fallen marginally short of specification. It was also established that certain paper specification test certificates had been deliberately falsified. The Board reported the findings of the investigation to the appropriate authorities, who are considering the matter, and has implemented a number of measures arising from the findings of the investigation. Provision has been made in prior years for the costs associated with the paper production issues identified at this stage including the write off of trade receivables and other costs relating to the investigation, production and rectification of these matters. Provision has not been made for the potential cost of resolutions or for potential fines from regulatory authorities. The nature and extent of these resolutions will be the subject of ongoing discussions, the outcome of which cannot be estimated reliably at present. The timing, response and outcome of the consideration by the authorities of the reported findings of the investigation is also uncertain and the financial consequences, if any, cannot be estimated reliably at present.

13 Capital commitments
	2013 £m	2012 £m
The following commitments existed at the balance sheet date:
- Contracted but not provided for in the accounts	19.9	22.0

14 Dates

The consolidated financial statements have been prepared as at 30 March 2013, being the last Saturday in March. The comparatives for the 2011/12 financial year are for the period ended 31 March 2012.

15 Statutory accounts

Statutory accounts for the period ended 30 March 2013 will be made available to shareholders for subsequent approval at the Annual General Meeting and copies will be available from the Company Secretary at           De La Rue plc, De La Rue House, Jays Close, Viables, Hampshire, RG22 4BS.

16 Foreign exchange
Principal exchange rates used in translating the Group's results:
	2012/13		2011/12
	Avg	Year End	Avg	Year End
US dollar	1.58	1.52	1.60	1.60
Euro	1.22	1.18	1.16	1.20

17 De La Rue financial calendar : 2013/14
Ex-dividend date for 2012/13 final dividend	3 July 2013
Record date for 2012/13 final dividend	5 July 2013
Annual General Meeting	25 July 2013
Payment of 2012/13 final dividend	1 August 2013

 

END

 

 

ACSBUGDLXXBBGXC