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De La Rue plc
Annual Report 2020
De La Rue
Annual Report 2020
Contents
Strategic report
Chairman’s statement
At a glance
Our business model
CEO review
Our strategy
Our markets
Review of operations
Non-Financial Information Statement
Financial review
Risk and risk management
Section 172
Responsible business
Corporate Governance
Chairman’s introduction
Leadership
Composition, succession
and evaluation
Audit, risk and internal control
Remuneration
Directors’ report
Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement
of changes in equity
Consolidated cash flow statement
Accounting policies
Notes to the accounts
Company balance sheet
Company statement
of changes in equity
Accounting policies – Company
Notes to the accounts – Company
Non-IFRS measures
Five year record
Shareholder information
Featured image glossary
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171
Our strategy
At the end of calendar 2019 we enacted a
Turnaround Plan to stabilise and grow the business.
We outline our progress so far in our plans for the
next three years.
p12
CEO review
We have opportunities to grow our polymer and
security features within Currency and develop the
customer base in our Authentication business,
at the same time as reducing our costs.
p10
Social responsibility
We are a global business and aim to act for all our
stakeholders in the Company. De La Rue is an active
participant in our communities across the globe.
We outline how we aim to reduce our impact on
the environment.
p32
Chairman’s statement
A challenging year
De La Rue
Annual Report 2020
1
We have been
working to stabilise
the business and
put in place our
Turnaround Plan.”
The Group has had a challenging
year, with a wide range of issues
which have impacted De La Rue,
both financially and operationally.
Weak results for the year reflect
changes in the marketplace,
management disruption and
execution problems. The business
has experienced unprecedented
management change, with
the Chairman, Chief Executive
Officer, Chief Financial Officer,
senior independent director
and most of the executive team
leaving, or resigning, in the
past year.
I joined the Board in September 2019 and
took on the role of Chairman at the beginning
of October. Since that time I have been
working with the Board to support our new
CEO Clive Vacher and the reconstituted
executive team, stabilise the business
and put in place the recently announced
Turnaround Plan.
Company reorganisation
In November 2019, we launched our
new divisional structure, with two divisions,
Currency and Authentication. This is
discussed in more detail by Clive on
page 10. The new organisation is already
proving to be a more effective and efficient
way for De La Rue to operate.
The Turnaround Plan, led by Clive and
developed by an extended executive team,
has the aim of generating improved financial
performance and a more consistent
operating profit and cashflow. This will be
delivered by improved efficiency in Currency
and growth in Authentication. Clive discusses
the changes De La Rue needs to undertake
in more detail on pages 10 and 11.
We completed the sale of International
Identity Solutions business in October 2019,
for which De La Rue received £42m in cash
plus an additional amount for working capital,
following the UK Government announcement
of a phased transition to a new supplier
for the UK Passport production contract
during calendar 2020.
Following the reorganisation, we
report the financial performance during
FY 2019/20 for the Authentication,
Currency and Identity Solutions divisions
and the future strategy for Authentication
and Currency divisions only.
Financial performance
De La Rue’s performance in FY 2019/20
saw weak revenue, profitability and
cashflow compared with the prior year
and budget, with significant weakness
in banknote volumes in the first half.
The banknote market has proven to
be cyclical when there is a reduction
in overspill demand (Overspill is state
printwork demand that cannot be satisfied
by the country’s own internal capacity).
A model that did not adjust quickly enough
to this market reality was the major factor
behind the weak performance.
The Authentication business saw strong
growth in the year. Clive discusses our
performance for the year in more detail
on pages 10 and 11.
The key elements of the financial
performance for the year are – adjusted
Group revenue (which excludes “pass-
through” Paper and International Identity
Solutions revenue on non-novated
contracts post-sale) decreased by 17.4%
to £426.7m (FY 2018/19: £516.6m). (Please
see pages 165 and 166 for full definitions
of adjusted and other financial terms).
Adjusted operating profit declined to
£23.7m (FY 2018/19: £60.1m), while
adjusted earnings per share fell to 12.1p
(FY 2018/19: 42.9p). Cashflow from
operating activities was an inflow of £1.5m
(FY 2018/19: outflow of £4.6m) and net
debt was £102.8m at financial year end
(FY 2018/19: £107.5m). IFRS revenue
(which includes “pass-through” revenue
on paper and International Identity
Solutions non-novated contracts)
was £466.8m (FY 2018/19: £564.8m).
IFRS operating profit of £42.8m (FY 2018/19:
profit £31.5m) was higher than adjusted
operating profit due mainly to a gain on the
sale of the International Identity Solutions
business of £25.3m, a credit of £8.7m
relating to the change in revaluation rates
for certain UK defined benefit pension
deferred scheme members, offset by
£9.3m of restructuring charges. IFRS basic
EPS from continuing operations was
33.1p (FY 2018/19: 18.8p).
It is important to note that we saw a major
contribution to our profits from the UK
Passport contract, which will decline rapidly
in FY 2020/21 and not contribute the year
after, as the contract moves to a new
supplier. Further detail of the Group’s
financial performance is covered on
pages 19 to 21.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 2 De La Rue
Annual Report 2020
Chairman’s statement continued
Key facts1
£426.7m
Revenue excluding paper
(FY 2018/19: £516.6m)
£466.8m
IFRS revenue
(FY 2018/19: £564.8m)
£23.7m
Adjusted operating profit
(FY 2018/19: £60.1m)
£42.8m
IFRS operating profit
(FY 2018/19: £31.5m)
1 Please see Financial Review for full definitions of terms.
We aim to return
to a strong financial
position by investing
in the business.”
Capital Raising
On 17 June 2020, we announced the
terms of a proposed fully underwritten
capital raising, which is intended to raise
gross proceeds of approximately £100m.
The capital raising will be structured by way
a firm placing of 45,410,026 new ordinary
shares and a placing and open offer of
45,499,065 new ordinary shares, at an issue
price of 110 pence per new ordinary share.
The proposed capital raising is required to
provide the Company and its management
with operational and financial flexibility
to implement the Turnaround Plan, in
particular given the investment needed to
achieve the full benefits of the Turnaround
Plan, the upcoming refinancing requirement
of its existing debt facilities, the loss of the
UK Passport production contract during
H1 2020/21, and the current unprecedented
uncertainty in the financial and commercial
markets due to COVID-19. The capital raising
is being fully underwritten by Barclays Bank
PLC, Numis Securities Limited and Investec
Bank plc.
In order to facilitate the capital raise, the
Directors believe it is necessary that existing
Shareholders and new investors have
sufficient certainty around the continued
availability, and terms, of De La Rue’s
financing to successfully implement the
Turnaround Plan and support the future
growth of the business. In order to seek
to provide that certainty, we have agreed
conditional terms with our lenders in
order to secure (among other things) an
extension to the maturity date of the Group’s
existing revolving facility agreement from
1 December 2021 until 1 December 2023
which provides the Group with continued
access to bonding facilities and up to £175m
of cash loans. As part of the amendments to
the revolving facility agreement, the Company
is restricted from making dividends for
a period of 18 months from the date that
the amendments become effective. The
amendments are conditional on (among
other things) the success of the Capital
Raising (such that the gross proceeds of at
least £100m are received by the Company
by 31 July 2020). In the event that gross
proceeds of at least £100m from a capital
raise are not received by 31 July 2020, the
Company must agree an alternative financing
plan with the lenders within 45 days of
31 July 2020 or there will be an immediate
event of default under the existing revolving
facility agreement.
On 31 May 2020, the Trustee and the
Company agreed the terms for a schedule
of contributions and a recovery plan,
setting out a programme for clearing the
UK Pension Scheme deficit (the “Recovery
Plan”). The latest actuarial valuation of the UK
Pension Scheme as at 31 December 2019,
which was based on intentionally prudent
assumptions, revealed a funding shortfall
(technical provisions minus the value of the
assets) of £142.6m. The Recovery Plan
makes an allowance for post-valuation
market conditions up to 30 April 2020 (at
which point there is an estimated funding
shortfall of £190m), including the impact of
COVID-19 on financial markets to that date.
The £190m funding deficit is addressed
by payments of £15m per annum (payable
quarterly in arrears) under the Recovery plan
payable from 1 April 2020 until 31 March
2023 and then payments of £24.5m per
annum (payable quarterly in arrears) from
1 April 2023 until 31 March 2029 (whereas
under the recovery plan agreed with the
trustee in 2016, the payments would have
been £22.2 million between 1 April 2020 and
31 March 2021, £23.1 million between 1 April
2021 and 31 March 2022 and £23 million
per annum thereafter until 31 March 2028).
In exceptional circumstances additional
contingent contributions may also become
payable by way of an acceleration of
the contributions due in later years.
This agreement with the Trustee is
conditional on the success of the Capital
Raising (such that gross proceeds of £100m
are received by the Company by 31 July
2020). Provided that these criteria are
achieved, the Group’s contributions to the
UK Pension Scheme will not change until the
next triennial valuation as at 31 December
2022 (to be completed by 31 March 2024).
Capital allocation and dividend
As a result of our H1 2019/20 financial
performance and uncertainty around the
management outlook at the half year, the
Board suspended dividend payments until
the new executive team was established,
a Turnaround Plan put in place and delivery
begins to be demonstrated against that plan.
At the half year the Group net debt/EBITDA
ratio was 2.72 times, close to our covenant
levels of less than, or equal to, 3.0 times.
The Board has reviewed a plan for
FY 2020/21 that shows the Group
will operate within its banking covenants,
assuming the successful completion of the
fully underwritten equity Capital Raising.
De La Rue
Annual Report 2020
3
We discuss the viability statement for the
business in more detail on page 30 and
Going Concern on pages 107 to 109.
Due to the actions taken by our CEO
and the team in the second half of the year,
the Group operated well within its banking
covenants (which excludes the pension
deficit liability) at 2.24 times debt/EBITDA
at year end. In addition, De La Rue met its
guidance for the year for adjusted operating
profit issued in November 2019.
Following completion of the Capital Raising
the capital allocation of the Company will be:
• Organic investment: De La Rue will invest
in growth-focused R&D and technology,
manufacturing efficiency and cost
optimisation programmes, and the
requirements of new contracts as they
are awarded, where such investment
is demonstrably accretive to value;
• Regular returns to shareholders:
the Directors recognise the importance
of a regular, sustainable dividend to
Shareholders. The Directors intend
to review regularly the reinstatement of
a dividend, with an expectation that a
dividend will be paid within the Turnaround
Plan period once the Company is
generating sustainable positive free
cash flow. Once the Turnaround Plan is
successfully completed, De La Rue will
target a dividend cover of 2 to 3 times
underlying earnings, taking into account
the sustainable free cash flow generated
in the relevant period;
• Acquisitions in line with strategy: the
Directors are focused on the successful
execution of the organic Turnaround Plan
and therefore acquisitions are not a near
term priority. In the medium term, we
will explore value enhancing acquisition
opportunities, which increase our
technology advantage and its ability
to accelerate growth in markets where
we already have a leading position;
• Balance sheet strength: De La Rue is
committed to maintaining a strong and
efficient balance sheet, appropriate for
the Company’s investment requirements.
Accordingly, the Directors will target a
long term gearing policy of below 1 times
net debt/EBITDA (excluding deficits on
retirement benefit schemes), which it
expects to achieve by the end of the
Turnaround Plan period, taking into
account the net proceeds of the
Capital Raising.
Governance
The Board considers leadership, culture
and good governance as essential factors
in the Group’s ongoing transformation.
We discuss our governance policy in
more detail on pages 42 to 53.
There is much to do to create a lean,
efficient and predictable business, as well
as ensuring sound succession planning
and talent development. Our people have
endured significant change and challenge
as well as having to cope with the trials
of COVID-19.
We are mindful of our impact on the
environment and I am pleased that we
have made good progress on our energy
use during the year and further details on
this area can be found on pages 32 to 40.
The Board
In September 2019, I re-joined De La Rue
having been the Managing Director of
De La Rue Card Systems Division from
1997 until it was sold to Oberthur at the
end of 1999. I succeeded Philip Rogerson
as Chairman on his retirement at the start
of October 2019.
In October 2019, Andy Stevens, Senior
Independent Director, stood down, with
Sabri Challah becoming Senior Independent
Director and Maria Da Cunha, Non-executive
Director, succeeding Sabri as Chair of the
Remuneration Committee.
In October 2019, we appointed Clive Vacher
as our new Chief Executive Officer and as
an Executive Director. Clive has more than
16 years’ experience running complex
P&Ls for global industrial companies in the
commercial and government/defence
sectors. He has significant experience of
international business transformation and
operational performance improvement.
In January 2020, our Chief Financial Officer,
Helen Willis stepped down from her role and
ceased to be a Director of the Company.
Rob Harding joined De La Rue as interim
Chief Financial Officer and a member of the
Executive Leadership Team, although not as
a Director of the Company, in March 2020.
As announced on 17 June 2020, Sabri
Challah has informed the Board of his
intention to step down as a Director due
to his other commitments. Sabri will remain
on the Board until such time as a successor
Independent Non-Executive Director
has been appointed, but in any event until
no later than the date of the Company’s
forthcoming annual general meeting.
As we enter the execution phase of the
Turnaround Plan, we will look to bring
further appropriate skills onto the Board
to support the future business direction.
People
The Board would like to thank all those
who work for the Company for their hard
work and dedication to De La Rue, in what
has been a difficult year for many people.
As a company, we have had to reduce the
workforce in many areas of the business
and changes of this kind are regrettable
and unsettling.
At the same time as navigating through
these changes, we have maintained our
commitment to high ethical standards,
which are incorporated in our Code of
Business Principles. We are conscious of the
role we play in many communities around
the world and we discuss our role as a
responsible business on pages 32 to 40.
Outlook
The Directors believe that the Capital
Raising is required to provide the Company
and its management with operational
and financial flexibility to implement the
Turnaround Plan.
We have seen a good start to the year
in both our Authentication and Currency
divisions. Our Turnaround Plan is well
underway and is showing positive results,
which gives us confidence in our abilities to
grow our revenue and reduce our cost base.
At the same time, we are mindful of the
challenges we face in the marketplace and
with ongoing volatility in global markets.
We are confident that we can grow both
our revenue and our operating profits in
the coming year and aim to move the
Company into a cash generating position
shortly thereafter.
Considering the financial impact of the
planned exit of our Identity Solutions
business, we have a target of returning
the Company to a strong, financial position
and an operating platform which will deliver
sustainable growth at high operating
margins and strong cash generation in the
medium term. Following an initial period of
cash outflow to fund the Turnaround Plan,
we aim for the Group to be generating
positive free cash flow and capable of
supporting sustainable cash dividends
to shareholders.
Kevin Loosemore
Chairman
17 June 2020
Strategic reportCorporate GovernanceFinancial statementsShareholder information De La Rue
Annual Report 2020
4 De La Rue
Annual Report 2020
At a glance
Our performance in
financial year 2019/20
Currency
Adjusted Revenue
£281.6m (-29.4%)
IFRS Revenue
£315.1m (-29.5%)
Banknotes
Polymer
Security Features
We design, manufacture and deliver
banknotes to customers around
the world.
We are the only vertically
integrated producer of polymer
substrate and banknotes.
• Increased factory order book
in second half FY 2019/20
• Introduced £20 polymer note
in UK
• Strong growth for
Safeguard® substrate
• Adopted by 25 note issuing
authorities at year end
We create features that underpin
the integrity of our banknotes.
• Ignite® adopted by two
central banks
• Latest Kinetic StarChrome®
thread adoption by central banks
Our global footprint
Employees by region (%)
We have a global footprint
and work with governments,
central banks and commercial
organisations in more than
140 countries.
2,364
UK
Rest of Europe
Asia
Middle East & Africa
The Americas
52.1
19.4
13.1
12.9
2.5
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
5
Authentication
Revenue
£68.5m (+60.4%)
IFRS Revenue
£68.5m (+60.4%)
Identity Solutions
Adjusted Revenue
£76.6m (+2.1%)
IFRS Revenue
£83.2m (+10.9%)
Government Revenue Services (GRS) Brands
Passport and other products
Security features for product
authentication (such as tax stamps)
and software solutions and services.
• Growing GRS volumes
• Good pipeline of contract
opportunities
Brand protection utilising security
components and software solutions.
Retained security features for identity
including polycarbonate.
• Contract for legalised cannabis
• Additional UK Passport volumes
and related industries
with improved margin
• Launch of new suite of services
• Sale of International Identity
Solutions business in October 2019
Gateshead, UK
Banknote and security printing
Westhoughton, UK
Polymer substrate and
security features
Debden, UK
Banknote printing
managed service
Overton, UK
Technology Centre
Basingstoke, UK
Design Centre
Logan, Utah, US
Security features
and printing
Miami, Florida, US
Regional hub
Wilmington,
Delaware, US
Research and
development
Malta
Banknote and
Authentication printing
Beijing, China
Country office
Dubai, UAE
Regional hub
Riyadh, Kingdom
of Saudi Arabia
Country office
Malwana, Sri Lanka
Banknote printing
Country office
Sales support office
Manufacturing facility and regional office
Nairobi, Kenya
Banknote and
security printing
Strategic reportCorporate GovernanceFinancial statementsShareholder information De La Rue
Annual Report 2020
6 De La Rue
Annual Report 2020
Our business model
How we create value
De La Rue is a provider of high security printing and related services
to businesses and governments and operates on a worldwide scale.
It has two customer facing divisions – Authentication and Currency
– with joint support for both divisions from central functions including
Finance, HR and Legal.
Inputs
What we do
Outputs
Enabling
participation
in the
economy
Secure the
world’s tax
revenues
and protect
from fraud
Long term
value for
shareholders
Currency
Authentication
Our
resources
Our
relationships
Key activities
We design, manufacture
and deliver banknotes
to customers around
the world
Key activities
Product authentication
and brand protection using
security features, software
solutions and services
Customers
Customers
Central
banks
State
printworks
Government
Revenue
Solutions
Brands
Channels
Digital
Sales
Value proposition and cost structure
Revenue
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
7
Inputs
Key activities
Key resources
The key resources which we use in
Authentication cover the following main
activities: the design of the physical token
in the UK and secure print, storage and
shipment in Malta; software design and
development; IT support and customer
services providing 24/7 coverage from
our centres in Dubai, Riyadh and the UK;
holographic design and origination in the
UK and production in the UK and the USA;
secure international logistics using full track
and trace from our facility to customer;
cheque and card printing and personalisation
in Kenya and polycarbonate production
in Malta. We have significant capability
and capacity for the tax stamp and secure
brand label market and now supply in
excess of six billion physical markers from
our sites in Malta and the USA, and more
than two billion secure digital codes via our
Traceology and Certify software systems.
In the case of the Currency division, the key
resources are our design studio, origination
and proofing capabilities, our Safeguard®
polymer production facilities in the UK,
banknote print capacity in the UK, Malta,
Kenya and Sri Lanka, security feature
production capabilities in the UK and
software engineering capabilities in the UK.
Our main manufacturing sites have ISO14001
for responsible environmental management
and OHSAS18001 certification for their
health and safety management systems.
Customer relationships
As noted above, our two divisions
have differing customer relationships
due to the variation in product offering
and customer requirements.
Our Authentication division operates in
both government and commercial sectors
operating mainly concession contracts
with governments for the deployment of
tax stamp schemes and selling direction
to commercial entities for brand protection
schemes. We have grown our sales force
to interact directly with customers around
the world such as Government agencies
and major brands and we endeavour to
have sales forces located in the markets
that they support. In general, the revenue
for our Authentication division is delivered
from long term contracts which deliver
relatively stable month on month revenues
and cash flow.
We have well-established customer
relationships in our Currency division,
resulting from the depth of experience
De La Rue has in banknote production.
Our sales force interacts on a continual
basis with central banks and state
printworks worldwide, as do our technical
and product teams. While a major part of
our revenue in Currency is for our integrated
banknote offering, there is increasing
demand for customers towards purchasing
security features independently and we are
re-focusing our sales force towards selling
our security features as standalone products.
Underlying our abilities are our people –
around 2,400 worldwide – and our intellectual
legacy with more than 1,000 patents to
our name. We also have a well-established
global supply chain, honed over many
years of operation.
Key partners and suppliers
In order to be able to deliver products
and solutions to our customers we work
with a set of key partners and suppliers.
Our Authentication division sources
materials from a wide range of suppliers.
We apply security to these materials within
DLR facilities, through the combination,
construction and treatment of the materials,
which transforms them into highly secure,
labels, documents and security components
such as holograms. We also work with
software partners to provide flexible capacity
to augment our in house development
teams, as well as technology partners that
bring capability to enhance the De La Rue
software offer.
De La Rue sold its paper business in 2018
and we have a multi-year partner agreement
to purchase paper in place to supply our
Currency division. We purchase security inks
from Sicpa in Switzerland and our printing
presses are sourced from KBA and Komori.
Central Bank of The Gambia:
GeminiTM
Authentication
The key activities for our Authentication
division are the supply of a range of
physical and digital solutions such as: tax
stamps and supporting software solutions,
authentication labels and associated
brand protection digital solutions, cheques
and bank cards for Africa, and ID security
components including polycarbonate.
Increasingly our physical products are
sold as part of a digital solution underpinned
by our software solutions – DLR Certify
(used for Government Revenue Solutions),
Traceology (used for brand protection)
and a dedicated licensing platform,
used for Microsoft.
Currency
Our key activities for the Currency
division fall in the following areas of Currency
production – the design of banknotes; the
substrate used for the banknote, the printing
of the banknote, application of security
features as well as the provision of analytical
software services. We have our own design
studio in the UK – we produce Safeguard®
polymer substrate, print currency in four
locations worldwide and provide a portfolio
of security features (the main growth
revenue being derived from new security
features such as Ignite and Kinetic
StarChrome®), and we have developed
a suite of software which supports data
analytics in the management of cash in
circulation. Our products are supported
by a worldwide sales force.
Customer segments
Our two divisions have clear differences
in customer segments.
In Authentication, the products and
services which we provide as tax stamp
solutions supplied to governments accounts
for around 50% of revenue for the division,
while the remaining 50% of revenues are
from the brand protection sector and ID
security features. Our Currency division
derives all its revenues from supplying
banknotes, polymer and related services
to central banks, commercial and state
printing works and paper mills.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 8 De La Rue
Annual Report 2020
Our business model continued
De La Rue
Annual Report 2020
Channels to market
Value propositions
De La Rue’s two divisions are organised to serve the different types of solutions
that customers require and their varying buying preferences. By aligning our
structure this way, we aim to optimise the channels to market of each division
to meet the customer’s current and future requirements.
Danske Bank:
Safeguard®
Austria GRS:
Tax Stamps
Currency
Our Currency division’s customers
are central banks, state printworks,
commercial print and paper mills
for which we provide products and
services across the main areas of
banknote production. De La Rue is a
deeply established player in this area
and has an experienced sales force,
knowledgeable technical experts as
well as an established series of carefully
selected partners worldwide. As a result
of growing demand for polymer and
security features, we have increased
our sales capabilities into the state
printing and papermaking sector.
Authentication
Authentication works across the
commercial and government sectors,
with the aim of addressing government,
consumer and brand owner demand for
protection against counterfeit and illicitly
traded goods. As purchasing increasingly
moves online, brand owners are seeking
new and innovative ways of protecting
their consumers against counterfeit and
interacting with them through mobile
applications which enable the digital
verification of the physical
authentication token.
This division has a dedicated global
sales force which interacts directly
with our commercial and government
customers, and works with carefully
selected partners who combine
our solutions into their products
for onward sale.
De La Rue has in-depth experience
in the field of security printing and can
offer either an end-to-end solution and/or
individual components for both divisions.
We have the capability to create bespoke
work for our customers at volume.
In Authentication, our value proposition
is to protect our customers’ revenue
and reputations through the application
of modular physical and digital solutions
which are sufficiently flexible to allow
rapid deployment to reduce time taken
to deliver the benefits to our customers.
We have a strong pipeline of development
of both physical and digital solutions
designed to meet the emerging needs
in the markets that we serve and
to combine De La Rue’s strong print
and holographic heritage with our more
recent, but proven, software capabilities.
De La Rue is the leading commercial
printer of banknotes worldwide and
we have retained that position for
many years, due to our ability to
respond flexibly and quickly to customer
needs. We can supply all, or separate
parts of the five elements of printing
a banknote, as outlined above.
Our ability to successfully integrate
all parts of the banknote production
is an important value proposition
for many of our customers.
Each banknote is a bespoke
product and is a flagship project for
central banks and Governments. As a
result, each banknote needs careful
project management to ensure that it
meets the technical requirements and
specifications of our customers, as well
as providing the desired ‘look and feel’
of the note. We are concentrating our
efforts in developing a new range of
security features in the areas of polymer
and evolving our paper features using
holographics, colour shift and micro-
optics technologies to respond to
customer demand which is growing
substantially in these areas.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
9
Cost structure
Revenue streams
De La Rue has manufacturing and
printing sites in six locations worldwide
which incur fixed costs, with company
headquarters based in Basingstoke, UK.
While both divisions in De La Rue create
physical security products (with digital
services), the cost structure across
them is different.
In the case of Authentication, most
Government Revenue Solutions
contracts are multi-year and incur
start-up costs for IT hardware and
some software customisation to
establish the tax stamp scheme.
For Currency, we have a large-fixed
cost base in the form of machinery
and people. While each contract is
bespoke, they generally have a smaller
upfront cost against revenue.
We are looking to reduce our cost
structure to match changes in the
marketplace and we discuss this
in more detail on pages 12 and 13.
In addition, we continue to look
to reduce our environmental costs
and we discuss this in more detail
on pages 33 and 34.
Brand Protection:
Pure™ Holographic Label;
‘Secure Globe’
In electronics, there is a demand to
track products to end-of-life due to the
circular economy, and we are looking
at digital passporting to support
regulations on the repair of consumer
electronics. Other sectors where we
have developments are in the luxury
items where there is a need for
recyclability and sustainability.
In Currency, our main revenue streams
come from central banks/Governments,
state printworks, commercial printers
and paper mills. While the underlying
Currency and polymer substrate market
continues to grow, the market is
impacted by the more unpredictable
overspill activity (state printwork
demand that cannot be satisfied by
their own internal capacity), customers’
irregular buying patterns and rapid
demand changes.
Central Bank of The Gambia:
PureImage™ Thread
De La Rue’s two divisions are directly
customer-facing and directly generate
their own revenue stream.
Our Authentication division generates
revenue from government contracts and
directly from brands. Within the division,
we see growth in the tax stamp and
traceability market, and we believe we
can expand the solution to other sectors
such as cannabis. De La Rue has already
begun to make progress with our
agreement with KushCo Holdings to
supply anti-counterfeiting labels with
serialisation and track and trace for
the legalised cannabis sector in North
America. Other products that have
potential for track and trace growth
include soft drinks and water.
In the case of Currency, De La Rue
produces for between 40 to 80
customers annually which represents
the majority of the revenue for the
division. During 2018, we introduced
the first banknote with PureImage™
a next-generation holographic thread.
We have also sold Ignite® a combined
micro-optics and colour-shifting thread
to our first central bank and first State
printworks customer in 2019.
We are also beginning to see some
crossover between brand protection
and government regulation as
governments seek to protect their
citizens from counterfeit goods and
importers. Also, manufacturers want to
ensure illicit products can be identified
and removed. In this area, we also see
growth in medicine, auto parts, and
products such as consumer electronics.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 10 De La Rue
Annual Report 2020
CEO review
Addressing the fundamentals
De La Rue
Annual Report 2020
We are operating
in a more integrated
manner and moving
faster, with alignment
at all levels of
the Company.”
Since I joined De La Rue in
October 2019, I have been
immensely impressed by
the quality of our people and
operations globally, despite
what has been a financially
challenging year for the
Company. I am convinced that
we have all the ingredients
necessary to turn the business
around, by streamlining costs,
optimising performance and
capitalising on our significant
growth opportunities.
Business structure
In November 2019, we launched our
new structure, creating two divisions:
Currency and Authentication. These are
led by Ruth Euling, Managing Director,
Currency (previously Global Sales Director
for Currency) and Andrew Clint, Managing
Director, Authentication (previously Global
Business Development Director PA&T).
The two divisions allow our business
activities to be arranged around value
creation, enabling cross-functional working,
speed to market and an even greater
focus on the solutions of our individual
government and commercial customers.
This gives us an opportunity to reduce
and streamline our central functions and
overheads, by placing more of the decision
making with those closest to our customers
and stakeholders.
I can already see the benefit – we are
operating in a more integrated manner,
moving faster, and exhibiting alignment
around a single plan at all levels of
the Company.
Half-Year Results and
Dividend Adjustment
Shortly after my arrival, I conducted an initial
assessment of the business and it quickly
became apparent in October 2019 that our
H1 2019/20 performance was going to be
well below market expectations.
The financial underperformance of the
Company in H1 2019/20 resulted mainly
from insufficient volumes and a reduction
in margins in Currency.
This was mainly due to the sanctions
imposed on Venezuela at the end of the
previous financial year, which stopped
demand from what was a very
substantial customer.
Our H1 2019/20 results showed a sharp
decline in adjusted revenue and margins
for our Currency business. Our net debt
rose to £170.7m (FY 2018/19: £107.5m)
and adjusted operating profit for the
half year was down sharply at £2.2m
(H1 2018/19: £17.0m). The combination of
the decline in profitability and the increase
in net debt resulted in the Board deciding
to suspend future dividend payments.
The suspension of the dividend was one of
several immediate measures taken by the
Company in order to address our issues,
and also to provide the time needed to
design and enact a Turnaround Plan.
Turnaround Plan
I initiated a full review of the business
in November 2019. During the following
months, the extended leadership team and
I designed a comprehensive Turnaround
Plan for the Company, which we announced
in February 2020. Actions from the
Turnaround Plan are now fully underway.
Contributions were sought from across the
Company, and objectives for all employees
are now clear and centred around execution
of the Turnaround Plan.
In summary, De La Rue aims for the
Currency division to return to progressive
margin growth, beginning in FY 2020/21,
driven by cost reductions and investment
in polymer and related features. At the
same time, we will also be targeting
continued strong year-on-year growth of our
Authentication business, driven by further,
largely project related, investment. A more
detailed discussion of our plan is in our
Strategy Review on pages 12 and 13.
Alongside the Turnaround Plan, in
Q4 calendar 2019, we took several
immediate actions including a reduction
in discretionary spend and a deeper
focus on cash items, including inventory
management, accounts receivable and
operational efficiency drivers. As a result of
this and the other actions taken, we expect
the Turnaround Plan to deliver £36m in
annualised savings by FY 2021/22.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
11
Full year performance
In order to deal with the issues faced in
the first half of the year, the Currency teams
worked hard to adjust capacity and seek
out higher margin international contracts.
As a result, Currency volumes and margins
recovered well in the second half of the
year, compared to the first half.
Overall, our adjusted revenue for the year
was £426.7m, down 17.4% year-on-year,
with Currency revenue declining 29.3%
year-on-year, despite our efforts in the
second half, with Authentication revenue
increasing 60.4% in the year.
This delivered a better second half
performance, enabling us to meet our
guidance of adjusted operating profit for
FY 2019/20 of between £20m and £25m,
with full year adjusted operating profit of
£23.7m. Importantly, we made excellent
progress in reducing our net debt during
the second half of the financial year.
Our end-of-year net debt stood at £102.8m
and ensured that we met our banking
covenants in full. Net debt/EBITDA covenant
at year end was 2.24 times, down from 2.72
times at mid-year and comfortably within
the limit of 3.0 times. On an IFRS basis,
revenue was down 17.4% to £466.8m,
Operating profit on an IFRS basis was
up £42.8m from £31.5m in FY 2018/19.
(Please see the financial review on
pages 19 to 21 for more details.)
It should be noted that we expect
the contribution from Identity Solutions
which was an adjusted operating profit
of £22.8m for the year not to repeat
next year as the UK Passport production
contract runs off. The IFRS operating
profit for Identity Solutions was higher
than adjusted operating profit at £47.6m
as it included the profit on the sale of the
International Identity Solutions business.
Further progress
On 1 May 2020, we initiated a consultation
process to reduce roles at our headquarters
by 35 to 40 people, mainly in finance and
supporting functions.
On 17 June 2020, we initiated a collective
consultation process in relation to a
proposal to close our Gateshead site
for future banknote printing.
Under the proposal, the Company will retain
some core services and roles at the site.
We discuss this proposal in more detail
on page 13.
Brexit
On 31 January 2020 the United Kingdom
left the European Union with a negotiated
withdrawal agreement. We have been
undertaking preparations for Brexit
since 2018 and have held frequent risk
reviews and updates, bringing together
key stakeholders within the business
to coordinate and enact contingency
measures to ensure preparedness
and business continuity.
As part of wider mitigation measures, we
have engaged with key suppliers relating
to their Brexit contingency planning,
conducted regular contractual reviews and
analysed known tariff and free trade access
changes. We actively review and adapt to
new HMRC published technical notices
on customs, excise and VAT as applicable.
We have increased contingency stocks and
adapted logistics and delivery timescales
to avoid the potential risks of congestion
and other related supply chain risks.
COVID-19
The COVID-19 pandemic has to
date had only limited impact on the
Company’s operations.
We have implemented the relevant protective,
regulatory and safety procedures for all
employees, including home working, and
there has been limited impact on our global
service, support and operations activities.
De La Rue has seen the timescales for
a small number of Government Revenue
Solution contracts to become somewhat
extended, which has been more than offset
positively recent contract wins. Our factories
have run continually throughout the period,
except for a eight week shutdown of the
Sri Lanka facility, which returned to full
production in May and is working to
make up the production shortfall. We have
experienced limited material problems
regarding raw material supply, while
there have been minor delays to the
transportation of finished product that
are expected to be resolved shortly.
Moving forward
We have had a good start to FY 2020/21.
We have been awarded contracts
representing 80% of our available full-year
Currency printing capacity. As a result,
we continue to expect the Currency division
to reach a mid-teens adjusted operating
margin in FY 2020/21, before allocation
of central costs.
In addition, our Authentication division
has been awarded contracts with total
lifetime value exceeding £100m, which
further underpins our expectation of
our Authentication division revenue
of £100m by FY 2021/22, with strong
operating margins.
I feel both a great sense of pride,
and a great sense of responsibility,
in leading De La Rue into the next
phase of its history. The solutions
that we provide – on a global scale
– assist in international trade, growth
and development, the protection
of legitimate activities and the fight
against illicit trade and counterfeiting.
I take personal responsibility for the
Turnaround Plan and take great comfort
that it has been designed – and is being
implemented – by a strong, global,
customer-focused team. De La Rue
is now an organisation with one single
plan and full alignment of its employees.
In executing the plan, we will create over
the next three years, a company with a
balanced revenue generation consisting
of traditional activities and high margin,
high growth activities, all overlaid by
unmatched global reach.
As an organisation, we have a lot still to
do – meeting our cost reduction targets,
secure and deliver our polymer and
security feature growth plans, together
with signing up new customers in our
Authentication business.
I would like to thank my colleagues who
have worked hard to get De La Rue
where it is today and we all recognise
there is much more work to do.
The Capital Raising will strengthen our
balance sheet and help us deliver the
Turnaround Plan, enabling De La Rue
to create value for our employees,
customers, suppliers and shareholders.
I have confidence that we know what
to do and have the teams, the clarity
and the alignment to do it.
Clive Vacher
Chief Executive Officer
17 June 2020
Strategic reportCorporate GovernanceFinancial statementsShareholder information 12 De La Rue
Annual Report 2020
Our strategy
Reshaping De La Rue
In recent years, several
actions have been taken
to reshape De La Rue and
in November 2019, the
Group was realigned into
two divisions focused on
Authentication and Currency.
We have outlined the
activities and functions
of our two ongoing divisions
in ‘Business Model’.
We completed the sale of our International
Identity Solutions business in October 2019,
from which we received £42m in cash plus
an additional amount for working capital.
Following the loss of the UK Passport
contract in 2018, the UK Government has
announced a phased transition to the new
supplier for the UK Passport production
contract during H1 2020/21. We have
reported Identity Solutions’ financial
performance for FY 2019/20 and do not
discuss the strategy for this division going
forward due to the above.
In order to improve Company performance,
in calendar Q3 2019, we initiated a
detailed review of our operations, costs,
and product and service portfolios, to
create a Turnaround Plan for De La Rue.
The review was led by our CEO Clive
Vacher and his management teams, with
contributions from across the Company.
The Turnaround Plan is based on a clear,
compelling, simple and understandable
vision for both business divisions, which
is inclusive and open.
Turnaround Plan
On 25 February 2020, we announced
details of a turnaround plan for the
Company (the “Turnaround Plan”),
which was based on more than three
months’ data-driven intensive work by
an extended leadership team and covers
the three year period from FY 2020/21
to FY 2022/23 inclusive.
We plan for the Currency division to
return to progressive margin growth,
beginning in FY 2020/21, driven by cost
reductions, and investment in polymer
and related features where there are
attractive market growth opportunities.
We are also targeting continued strong
year-on-year growth of the Authentication
business during the three year period of
the Turnaround Plan, driven by further,
largely project related, investment.
Bank of England £20 note:
Safeguard®
The Turnaround Plan has the following key
elements, which will enable De La Rue
to grow with an efficient and appropriate
cost structure:
Cost reduction: The Company is
enacting an accelerated cost reduction
programme with a substantive proportion
scheduled to complete by August 2020.
Targeted savings on an annualised basis
by FY 2021/22 will be approximately
£36m, including actions realised in
FY 2019/20 which already have secured
£24.8m of annualised savings. This will
significantly exceed and accelerate
previous cost reduction commitments
of £20m by FY 2021/22.
The Company’s cost structure will be
re-based to enable it to compete more
strongly across all its market segments,
allowing it to tender for currency orders
it would previously have declined,
and to improve margins on existing
work. The restructuring cash costs
for this element of the plan will be
approximately £16m in FY 2020/21.
Currency market leadership: The
Turnaround Plan is targeting improved and
sustainable profitability in the Currency
division, focusing on: improving profitability
of banknotes, protecting and growing the
Group’s paper security feature position,
converting the world to polymer and being
the market leader, and investing in R&D in
polymer security features and leapfrogging
the competition. De La Rue has established
a leading position in polymer: since 2013,
83% of issuing authorities who have issued
banknotes on polymer globally have
selected De La Rue Safeguard®.
The Bank of England £20 note released
in February 2020 represented the 42nd
banknote worldwide that De La Rue
has secured on its Safeguard® polymer
substrate. De La Rue will also be
designing and printing the Bank of
England’s new £50 banknote for release
in 2021. At year end, approximately 3% of
the world’s banknotes by volume and 12%
by denomination had moved to polymer.
A cornerstone of the Company’s strategy
is investing in, and supporting customers
with, the significant trend of transition from
paper to polymer notes, including the
development of the most secure features
on polymer. With established products
and recent innovations, De La Rue has
also built a portfolio of industry-leading
paper security features that are the choice
of a growing range of customers and will
continue to be a focus for the business.
In the currency printing market, De La Rue
is already in the process of increasing its
competitiveness and has the world’s most
extensive experience of printing both on
paper and polymer.
Continued strong growth in
Authentication: De La Rue has delivered
significant year-on-year growth in this
division in FY 2019/20 and expects this
to continue for several years as more
countries adopt tobacco tax stamp
schemes to comply with the World
Health Organisation (WHO) Framework
Convention on Tobacco Control (FCTC).
De La Rue is already in discussion with
a number of governments regarding the
roll out of tobacco and drinks tax stamp
schemes and is targeting agreements
with several new countries each year.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
13
In parallel, De La Rue will continue
to invest in technology, especially in its
successful suite of software solutions.
The Authentication division will also
drive a focused geographical and
product segment expansion of the brand
protection business and growth in its
identification security features business.
Under the Turnaround Plan, De La Rue is
targeting Authentication division revenues
of £100m by FY 2021/22, with strong
operating margins.
Capital Raising
In June 2020, we announced a Capital
Raising and the Directors believe that
the Capital Raising is required to provide
the Company and its management
with operational and financial flexibility
to implement the Turnaround Plan.
In particular, given the investment
needed to achieve the full benefits of the
Turnaround Plan, the upcoming refinancing
requirement of its existing debt facilities,
the loss of the UK Passport production
contract during H1 2020/21, and the
current unprecedented uncertainty in
the financial and commercial markets,
the Directors believe that the Capital
Raising is necessary in order to enable
the transformation of the Group’s
operational and financial performance.
The Company has agreed with its
lending banks to extend its existing
financing facilities to December 2023,
conditional on the completion of the
Capital Raising. The principal use
of the proceeds will be to:
• invest in new equipment to double
the Currency division’s capacity for
polymer production;
• provide the investment required
to grow the Authentication division,
especially in respect of the provision of
tobacco tax stamps compliant with the
World Health Organisation’s Framework
Convention on Tobacco Control (FCTC);
• cover the restructuring cash costs
of the Group’s accelerated cost
reduction programme;
• finance footprint related capital
expenditure in respect of the Group’s
overseas manufacturing sites; and
• invest in the expansion of the
Group’s security features businesses
(in respect of both the Currency
and Authentication divisions).
Further progress
In order to progress
our Turnaround Plan, we
announced the following
at our full year results.
In May 2020 we initiated a
consultation process to reduce
roles at our headquarters by 35
to 40 people, mainly in finance
and supporting functions.
In June 2020, we announced
a consultation process to
commence shortly on a proposal
to cease banknote printing at our
Gateshead site and we will start to
engage in a collective consultation
process with impacted employees.
Under the proposal, the Company
will retain some core services and
roles at the site.
Subject to the consultation
process, we would expect the
banknote printing operations to
cease at Gateshead by the end
of this calendar year.
In addition, the UK Passport
operations, also in Gateshead,
will cease operations during
H1 2020/21 as the contract
transfers to a new supplier.
Importantly, this proposal will
not result in a reduction of the
Company’s worldwide printing
capacity. We remain committed to
a strong, growing Currency business,
and will continue to print banknotes
in the UK as well as at its international
sites. Following a period of transition
and the re-location of equipment
from Gateshead to other sites, the
proposal ensures that De La Rue has
the same, or more, capacity as today,
but operates with four currency
print factories, down from five.
This transition period is expected
to be complete by the end of H2
2020/21. The consultation period
is expected to last a minimum of
45 days.
We plan on giving regular updates
on the progress of our turnaround
plan via our website.
Central Bank of Kenya:
Kinetic StarChrome® Thread
Strategic reportCorporate GovernanceFinancial statementsShareholder information 14 De La Rue
Annual Report 2020
Our markets
Focusing on our chosen markets
Currency market
We operate in two main
markets – Currency and
Authentication – and we
outline the activities of both
divisions in more detail
in Our business model
on pages 6 to 9.
Currency is our largest division by
revenue. Looking at its market, we
estimate that the total demand for cash
has been growing at around three to
four percent a year for the past decade
and will continue to do so at that rate.
Population growth and other macro-
economic factors are behind this growth.
While there is a decline in cash in some
economies, this is rarely the case for the
countries to which we supply most of
our banknote production. We expect
that cash will remain central to the global
economy for many years in parallel to
the rise of alternative payment systems.
The global market for banknotes
is approximately 170 billion per year,
with the majority being printed by state
printworks (SPWs). The commercial
banknote market – which is the one
De La Rue operates in for banknote
print – represents around 20-25 billion
banknotes per year. This can be broken
down into two elements – printing
for Governments who do not have a
SPW, and providing additional capacity,
known as overspill, for those who do.
The overspill market historically has
been unpredictable and created volatility
in the commercial printing market.
A trend in the commercial printing
market is that banknote customers
are moving from direct contracts to
tendering, which has created pricing
pressure for commercial printers.
In addition, while many customers
buy finished banknotes from a single
supplier, there is a growing move
towards disaggregating the purchase
to buy from multiple suppliers.
This means that the elements
of banknote provision, such as
substrate, printing, and security
features can be bought separately.
De La Rue can act as an integrated
provider, selling all the components
of a banknote, as an integrator
combining De La Rue and third
party components or as a provider
for individual elements, such as
printing, or security features.
There is a trend towards banknotes
becoming increasingly complex
and De La Rue is producing some
of the more challenging banknotes
in the market, (such as the Bank
of England £20 polymer banknote).
Polymer
De La Rue is one of the two global
providers of polymer substrate
for banknotes. In general, polymer
is longer lasting than paper as a
banknote substrate. While polymer
represents around 3% of the global
market for banknotes, it represents
around 12% of banknote
denominations (a significant increase
on a year ago), both our market
share and the demand for the product
is increasing rapidly. By March 2020,
there were 45 denominations on
De La Rue Safeguard® polymer
substrate and 83% of all denominations
that moved to a new polymer banknote
since 2013 selected De La Rue.
With many more denominations
expected to move to this substrate,
we expect this market to continue to
grow strongly in the next few years.
Print
The print market for banknotes
has more suppliers than the polymer
market and De La Rue represents the
largest market share, at around 30%.
In addition to two other companies
of size, there are several smaller
suppliers in this market.
Royal Bank of Scotland:
Safeguard® with GeminiTM
Security features
The market for security features
is more fragmented, with products
from both integrated providers
such as De La Rue and from
standalone players.
While most banknotes issued in 2019
used security threads and holographic
patches, stripes have grown in popularity
as polymer banknotes increasingly have
an applied foil and as paper banknotes
become more complex. Almost all
countries buy security features or IP
licences from the commercial market.
Currency market
De La Rue
Annual Report 2020
15
Authentication market
Our Authentication division
supplies products and
services to governments
and brands to assure tax
revenues and authenticate
goods as genuine.
It is estimated that the illicit trade in goods
is around $1.7tn per year and growing
rapidly with governments, brand owners
and consumers all being affected
by lost tax revenues, eroded brand
value and lack of consumer confidence
in the products they are buying.
The traditional tax stamp market
covering tobacco and alcohol has
evolved significantly to include digital
solutions and tobacco track and trace.
The combined physical and digital
solution provided by De La Rue
supports governments to protect tax
revenue, and to comply with
government policies and international
treaties such as the EU Tobacco
Products Directive (EUTPD) and the
World Health Organisation Framework
Convention on Tobacco Control (FCTC);
compliance with these regulations is
currently driving growth in this market.
De La Rue is number two by volume
among the suppliers of both physical
tokens and end-to-end software
systems in this market so is well
positioned to capture share during
this growth phase.
ID Secure Feature:
ID Holographic Laminate –
DLR ID Protect™
The brand protection market is highly
fragmented, with many operators
offering partial solutions such as
serialised labels and tamper-evident
packaging. There is a growing move
towards highly secure labels, unique ID
at an item level, consumer and inspector
digital applications and systems that
can track and trace and authenticate
products though the supply chain.
We continue to invest in software
capabilities for both brand and
government clients and are developing
applications that provide greater
functionality and visibility to inspectors
and the public. In addition, we are
developing our service provision
to provide 24/7 coverage to our
Authentication customers, bringing
new embossed holography features
and effects to market for brand labels
and exploring blockchain technologies.
Our application for validation of
holograms, DLR Validate, has been
piloted and will be launched to the
wider market in calendar Q2 of 2020.
In October 2019, we completed
the sale of our International Identity
Solutions business to HID Corporation
Limited, an ASSA ABLOY Group
company, for a cash consideration
of £42m plus an additional amount
for working capital. We have retained
polycarbonate manufacturing and
some ID security features which we
will sell as components to HID and
other ID solution providers. We have
some advanced IP in polycarbonate
data pages which will give us a strong
position in this market and consequently
we expect to see good growth in this
product line. Polycarbonate is used
in passport datapages where it carries
the document holder’s personal details.
The plastic datapage construction
enables the integration and layering
of security features protecting the
page, most notably windows,
holography and hinge technology
alongside security print as well as
the passport chip and antenna.
De La Rue offers one of the more
diverse portfolios in the market (covering
threads, applied features, print features
and covert features, encompassing
colourshift, holographics and micro-
optics technologies).
We expect to grow this market via
a new premium thread offering, new
polymer security features that we are
investing in, and increased sales and
technical resource now focused on
meeting the specific needs of the SPW
market. At present we have around
10% of the security feature market
by volume. Typically, security features
have a long cycle – between five
to fifteen years – as they are usually
integrated into the design.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 16 De La Rue
Annual Report 2020
Review of operations
A mixed performance during year
Authentication
IFRS Revenue (£m)
Adjusted Revenue (£m)
Gross profit (£m)
IFRS operating profit (£m)
IFRS profit margin
Adjusted operating profit* (£m)
Adjusted operating margin*
FY 2019/20
£m
68.5
68.5
28.8
9.7
14.2%
10.8
15.8%
FY 2018/19**
£m
42.7
42.7
19.5
5.1
11.9%
7.9
14.5%
Change
%
+60.4%
+60.4%
+47.7%
+90.2%
+36.7%
Notes:
*
**
Excludes exceptional item charges of £0.2m (FY 2018/19: net charges of £2.1m) and amortisation of acquired intangibles of £0.9m
(FY 2018/19: £0.2m). See page 165 for reconciliation of non-IFRS measures to comparable IFRS measures.
Comparative the Authentication and Identity Solutions results for FY 2018/19 have been restated in line with the adjustment noted
in the current year to present the results of one of the Group’s subsidiaries solely in the Authentication division consistent with
where management of the subsidiary’s business now falls. The impact of this has been the transfer of the following amounts from
the Identity Solutions results to Authentication: Revenue of £3.4m, Gross Profit of £2.1m and operating profit and profit before tax
of £1.6m that would have been presented in the Identity Solutions division previously.
Currency
IFRS Revenue (£m)
Adjusted Revenue (ex-paper) (£m)*
Gross profit (£m)
IFRS operating (loss)/profit (£m)
IFRS operating margin
Adjusted operating (loss)/profit* (£m)
Adjusted operating margin**
FY 2019/20
£m
315.1
281.6
44.2
(9.9)
n/a
(9.4)
n/a
FY 2018/19
£m
447.1
398.9
110.5
21.0
4.7%
41.7
10.4%
Change
%
-29.5%
-29.4%
-60.3%
-147.1%
-122.5%
Notes:
* Excludes “pass-through” revenue of £33.5m related to non-novated paper contracts relating to the Portals De La Rue sale.
**
Excludes exceptional item net charge of £0.5m (FY 2018/19: net charges of £20.7m). See page 165 for reconciliation of non-IFRS
measures to comparable IFRS measures.
Identity Solutions
IFRS Revenue (£m)
Adjusted Revenue (£m)
Gross profit (£m)
IFRS operating profit (£m)
IFRS operating profit margin
Adjusted operating profit* (£m)
Adjusted operating margin**
FY 2019/20
£m
83.2
76.6
33.4
47.6
57.2%
22.8
29.8%
FY 2018/19
£m
75.0
75.0
32.4
10.5
14.0%
10.5
16.2%
Change
%
+10.9%
+2.1%
+3.1%
+353.3%
+117.1%
Notes:
*
**
Excludes “pass-through” revenue of £6.6m related to non-novated contracts relating to the IDS business). Excludes net exceptional
item credit of £24.8m (FY 2018/19: £nil). For reconciliation of non-IFRS measures to comparable IFRS measures see note 165.
Comparative the Authentication and Identity Solutions results for FY 2018/19 have been restated in line with the adjustment noted
in the current year to present the results of one of the Group’s subsidiaries solely in the Authentication division consistent with
where management of the subsidiary’s business now falls. The impact of this has been the transfer of the following amounts from
the Identity Solutions results to Authentication: Revenue of £3.4m, Gross Profit of £2.1m and operating profit and profit before tax
of £1.6m that would have been presented in the Identity Solutions division previously.
We report the operational
performance of the Currency,
Authentication and Identity
Solutions divisions, reflecting
our operating structure after
our alignment of the Group
in November 2019 and the
sale of International Identity
Solutions in October 2019.
Authentication is focused on
providing physical and digital solutions
to authenticate products through the
supply chain and to provide tracking of
excisable goods to support compliance
with government regulations.
Our brand protection business grew
strongly in FY 2019/20, as a result
of increased focus on securing new
customers. We see good momentum
into FY 2020/21, with a strong pipeline
of new opportunities and the expected
launch of new embossed holography
labels in the first quarter of 2020/21,
which will bring novel visual effects
to the brand protection market.
Post the close of the trading period, we
signed a five year agreement to supply
polycarbonate data pages for the new
Australian passport. This follows the
development agreement signed with Note
Printing Australia in 2017, under which
De La Rue has developed several new
security features which will be produced
at our facility in Malta. De La Rue will
complete the manufacturing scale up
of the new data page and start supply
at the end of FY 2020/21.
For our Authentication division, IFRS
and adjusted revenue was £68.5m
(FY 2018/19: £42.7m), a significant
year-on-year increase of 60.4% driven
by growing volumes for our GRS contracts
and ongoing sales to current customers.
IFRS operating profit of £9.7m
(FY 2018/19: £5.1m) and adjusted
operating profit of £10.8m
(FY 2018/19: £7.9m) were driven
by growth in GRS volumes.
IFRS and Adjusted operating profit in
FY 2018/19 was also impacted by £1.2m
of upfront operating expenses associated
with the tax stamp projects in the UAE
and the Kingdom of Saudi Arabia, as well
as a £1.9m impact of the move of our
manufacturing from Gateshead to Malta in
the first half of the year of the prior period.
De La Rue
Annual Report 2020
17
While the underlying Currency market
continues to grow, we saw pricing pressure
as a result of reduced overspill demand and
were impacted by our ability to competitively
bid for contracts in the first half of FY
2019/20, however significant cost reduction
programmes in the second half have
improved our ability to compete and to
respond to rapid market demand changes.
In security features, banknotes containing
our latest security thread Ignite™ were
issued by the central bank of Bangladesh in
March 2020, and a second central bank will
issue new banknotes containing this thread
in late calendar 2020. Our Safeguard®
polymer substrate continues with good
growth and at financial year end, 25 issuing
authorities are issuing 45 circulating
banknotes on this substrate, including the
new Bank of England and Scottish Bank
£20 notes that entered circulation in
February and March this year.
Overall, Currency saw a decline in
banknote and security feature volumes
and price, with good growth in polymer
volumes. Adjusted revenue was £281.6m
(FY 2018/19: £398.9m) and IFRS revenue
was £315.1m, 29.5% lower than the prior
year and includes the recognition of
£33.5m of “pass-through” paper revenue.
At 28 March 2020, the 12 month order
book for Currency was £172m and the
total order book for Currency was £226m.
In June 2020, we noted post the closing
period we had contacts representing 80%
of our available full-year Currency printing
capacity for the year.
We saw a decline in adjusted profit from
£41.7m in FY 2018/19, to a £9.4m loss
in FY 2019/20 due to the reduction in
banknote and security feature volumes and
price, an adverse product mix and negative
manufacturing variances due to lower than
planned lower production volumes.
Currency revenue and operating profit in
FY 2018/19 benefited from the adoption of
IFRS 15 by £11.9m and £6.6m respectively.
The primary driver of this benefit was a
material contract where the revenue was
recognised over time as inventory was
produced rather than on final shipment
in FY 2019/20 due to the contract terms.
Currency operating profits in FY 2018/19
were also impacted net non-recurring credit
of £2.3m due to the release of an accrual
related to a dispute which arose out of the
well-publicised events of 2010 concerning
of De La Rue’s key customer and the
recognition of a net significant bad debt
expense (excluding amounts relating
to Venezuela).
Identity Solutions comprises our passport
and other personal identity products.
We sold our International Identity Solutions
business in October 2019, which impacted
FY 2019/20 revenue and profitability.
IFRS revenue was £83.2m
(FY 2018/19: £75.0m) and adjusted
revenue was £76.6m (FY 2018/19: £75.0m).
Adjusted revenues were broadly flat as
the impact of the sale of the International
Identity Solutions business in October
2019 was mitigated by increased volumes
within our UK Passport business.
Adjusted operating profit of £22.8m,
an increase of £12.3m on FY 2018/19,
was due to additional UK Passport
volumes at an improved margin.
IFRS operating profit of £47.6m, a
substantial increase on FY 2018/19,
was driven by the profit on the sale of the
International Identity Solutions business in
addition to the factors referred to above.
We continue to work with Her Majesty’s
Passport Office on the phased transition
to the new supplier for the UK Passport
production contract and expect revenue
only for H1 2020/21 as the contract runs off.
In FY 2019/20 central costs represented
approximately 8% of Group revenue (these
costs being allocated to divisional adjusted
operating profit by revenue in FY 2019/20).
We expect these central costs to reduce
to approximately 6% of Group revenue in
FY 2022/23. From FY 2020/21, we expect
the allocation of central costs by division
to reflect the ongoing changes in the
organisation as we implement the
Turnaround Plan.
With effect in the FY 2019/20 external
reporting, the Group has revised its
methodology for allocated central costs
to its reporting segments. This change
was considered appropriate considering
the substantial changes that have occurred
in the year with the reorganisation of
the business into the new Currency and
Authentication divisional structure and
the sale of the International Identity
Solutions business. This has resulted
in the Currency and Identify Solutions
segments receiving a lower percentage
of central costs and Authentication
receiving a higher percentage of costs.
Brand Protection:
PURETM Holographic Label;
‘Coloured Knot’
Bangladesh Bank 100 Taka:
IgniteTM Thread
ID Security Feature:
Polycarbonate datapage
Strategic reportCorporate GovernanceFinancial statementsShareholder information 18 De La Rue
Annual Report 2020
Non-Financial Information Statement
Our reporting is compliant
with the Non-Financial
Reporting requirements
contained in sections
414CA and 414CB of the
Companies Act 2006.
The information given in the table
opposite and the information it refers
to is intended to help stakeholders
understand our position on key
non-financial matters. We set objectives
for health and safety and the environment
and report on progress in the annual
report each year. The Board is mindful
of the value of non-financial KPIs and
will consider how they can be used
in a meaningful way to measure the
future performance of the business
as the turnaround plan is executed.
Reporting requirement
Reference
Environment
Responsible Business Report
Carbon Disclosure Project
Employees
Responsible Business Report
Gender Pay Gap Report
Board diversity
See pages 33 and 34
See page 33
See pages 35 to 39
See page 35
See page 46
Social
matters
Human
rights
Anti-corruption
and anti-bribery
Policy embedding,
due diligence and
outcomes
Description of principal
risk and impact on
the business
Description of
business model
Responsible Business Report
See pages 35 to 37
Gender Pay Gap Report
Responsible Business Report
Modern Slavery Statement
Responsible Business Report
Ethics Committee Report
Principal risks and uncertainties
Responsible Business Report
Code of Business Principles
ethical framework
Principal risk and uncertainties
Viability statement
Our business model
See page 35
See page 35
See page 38
See page 40
See pages 62 and 63
See pages 23 to 29
See pages 32 to 40
See page 64
See pages 23 to 29
See page 30
See pages 6 to 9
Financial review
De La Rue
Annual Report 2020
19
Revenue and Gross Profit
We have seen significant changes since
the start of the year in the market for
Currency, including pricing pressure as
a result of reduced overspill demand in
H1 2019/20, the effect of which reduced
during H2 2019/20. This had a material
impact on our volumes and profitability
in FY 2019/20 which has resulted
in adjusted revenue of £426.7m
(FY 2018/19: £516.6m), a decrease of
17.4%, driven by the decline in Currency,
which more than offset the significant
increase in Authentication volumes,
(see below for details and the Review of
Operations section on pages 16 and 17).
We also saw lower revenue for Identity
Solutions due to the sale of International
Identity Solutions in October 2019
the impact of which, however, was
mitigated by higher revenues on the
UK Passport contract.
IFRS revenue reduced by 17.4%
to £466.8m (FY 2018/19: £564.8m),
and was in line with the decline in
adjusted revenue, as lower pass-
through revenue on paper of £33.5m
(FY: 2019/20: £48.2m) was offset by
£6.6m of pass-through revenue relating
to non-novated International Identity
Solutions contracts following the sale
in October 2019.
Revenue in FY 2018/19 benefited from
the impact of the adoption of IFRS 15
(revenue from contracts with customers)
with a net impact of £12.2m being
recognised on an ‘over time basis’
in FY 2018/19 whereas under IAS 18
the majority of this revenue would
have been recognised in FY 2020
on final delivery to the customer.
Gross profit reduced to £105.9m
(FY 2018/19: £162.4m), reflecting
mainly the impact of lower currency
volumes and price, the sale of
International Identity Solutions and
negative manufacturing variances,
which more than offset the positive
impact in Authentication and the
UK Passport production contract.
Operating profit and
operating expenses
Adjusted operating profit was £23.7m
(FY 2018/19: £60.1m) and reflected:
• A loss of £9.4m in Currency
(FY 2018/19: profit of £41.7m) resulting
from lower volumes and margin due to
the reduction in banknote and security
feature volumes and price, an adverse
product mix and negative manufacturing
variances due to lower than planned
lower production volumes;
• A profit in Authentication of £10.8m
(FY 2018/19: £7.9m) driven by increased
volumes, partially offset by upfront
operating expenses; and
• A profit in Identity Solutions of £22.8m
(FY 2018/19: £10.5m), which we do not
expect to repeat next year following the
sale of International Identity Solutions
and the rundown of the UK Passport
production contract.
On an IFRS basis, an operating profit
of £42.8m was recorded (FY 2018/19:
profit £31.5m). In addition to the factors
referred to above, a substantial net
credit on exceptional items of £20.0m
was recorded, (FY 2019/2019 exceptional
charge of £27.9m). Exceptional items
include a £25.3m gain on the sale of the
International Identity Solutions business
(excluding associated disposal costs),
a credit of £8.7m relating to the resolution
of a historical issue in respect to a change
in revaluation rates for certain deferred
pension scheme members, offset by the
recognition of £9.3m of restructuring
charges related to the reorganisation
of the business into the new divisional
structure and other cost out initiatives.
Please see ‘Exceptional Items’ below
for more details.
Adjusted and IFRS operating profit in
FY 2018/19 benefited from the adoption
of IFRS 15 which impacted operating
profit by £6.9m and primarily related to
a material contract where revenue was
recognised over time as the inventory
was produced rather than on final
shipment in FY 2019/20, due the
contract terms.
Adjusted and IFRS operating profit in
FY 2018/19 was also impacted by a
net non-recurring credit of £4.0m due
to the release of an accrual related to
a dispute which arose out of the well-
publicised events of 2010 concerning
of De La Rue’s key customer and the
recognition of a net significant bad
debt expense (excluding amounts
relating to Venezuela).
During the period the Group
implemented IFRS 16 (leases). IFRS 16
has resulted in a benefit to operating
profit of £0.5m. Further detail on
IFRS 16 is provided in note 25.
Note:
With effect in the FY 2019/20 external reporting, the Group
has revised its methodology for allocated central costs to its
reporting segments. This change was considered appropriate
considering the substantial changes that have occurred in
the year with the reorganisation of the business into the new
Currency and Authentication divisional structure and the sale
of the International Identity Solutions business. This has resulted
in the Currency and Identify Solutions segments receiving
a lower percentage of central costs and Authentication
receiving a higher percentage of central costs.
Finance charge
The Group’s net interest charge was
£5.2m (FY 2018/19: £4.4m), excluding
IAS 19 and IFRS 16 finance charges
and interest income due from the loan
notes and preference shares obtained
as part of the disposal of Portals paper.
The increase was attributable to a
higher level of net debt in H1 2019/20
prior to the proceeds from the sale
of the International Identity Solutions
business being received.
The IAS 19 related finance cost,
which represents the difference between
the interest on pension liabilities and
assets, was £1.6m (FY 2018/19: £2.1m).
The lower charge reflects the fall in the
discount rate and the reduction in net
pension liability compared to FY 2018/19.
Following the adoption of IFRS 16
(leases) the Group has also recognised
a finance cost relating to the unwinding
of the discount on the lease liabilities
of £0.6m.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 20 De La Rue
Annual Report 2020
Financial review continued
Interest due on the loan notes and
preference shares held in Mooreco
Limited (obtained as part of the
consideration for the Portals paper
disposal) amounted to £0.7m
(FY 2018/19: £0.6m). The loan notes
and preference shares are included
in the balance sheet as Other
Financial Assets.
The total Group net finance charge
was £6.7m (FY 2018/19: £5.9m).
Exceptional items
Exceptional items during the
period were a net credit of £20.0m
(FY 2018/19: net charge of £27.9m).
These include:
• £25.3m gain on the sale of the
International Identity Solutions
business (excluding costs
associated with the sale)
• £8.7m credit to the resolution of
a historical issue in respect to a
change in revaluation rates for certain
deferred pension scheme members
• £9.3m of restructuring charges related
to the reorganisation into the divisional
structure and other cost out initiatives
• £3.3m of costs associated with the
disposal of the International Identity
Solutions business
• £1.0m relating to the closing of the
hedge position taken out in relation
to Venezuela receivables for which
a credit loss of £18.1m was provided
and reported in exceptional items
in FY 2018/19. The hedge position
was closed out following the further
tightening of sanctions against
Venezuela following the year end.
See note 5 ‘exceptional items’
for further details.
Taxation
The effective tax rate on continuing
operations before exceptional items and
the amortisation of acquired intangibles
was 15.8% (FY 2018/19: 16.1%).
Including the impact of exceptional
items and the amortisation of acquired
intangibles the net tax charge for
the year was £0.0m (FY 2018/19:
tax charge £4.8m). The effective tax
rate for FY 2020/21 on continuing
operations before exceptional items
and amortisation of acquired intangibles
is expected to be between 16-17%.
Net tax credits relating to exceptional
items in the period were £2.5m
(FY 2018/19: £4.2m). A tax credit of
£0.2m (FY 2018/19: £0.3m charge)
was recorded in respect of the
amortisation of acquired intangibles.
Earnings per share
IFRS basic earnings per share (EPS)
was 33.1p (FY 2018/19: 18.8p) and
adjusted basic EPS was a 12.1p
(FY 2018/19: 42.9p).
Loss from discontinued
operations
The Group completed the sale of
the entire issued share capital of Cash
Processing Solutions Limited and related
subsidiaries (together ‘CPS’) to CPS
Topco Limited, a company owned
by Privet Capital on 22 May 2016.
The loss on discontinued operations
in the period of £0.3m relates to the
winding down of remaining activity
related to CPS (net of associated tax
credits) in addition to the impact in the
period of a revision in estimate for the
total net costs of completing a loss
making CPS contract that was not
novated post disposal. This contract is
expected to conclude in FY 2021/22.
The prior period also included the
impact of additional charges of £1.4m
relating to the write-off of receivables
due from CPS as they were determined
as unlikely to be received.
Dividend
In November 2019, the Board decided
to suspend future dividend payments
(see Director’s report for further details).
Cash flow and borrowings
Cash flows from operating activities was
a net inflow of £1.5m, (outflow of £4.6m
in FY 2018/19). Profits from operating
activities were partially offset by:
• an adverse net working
capital movement of £21.1m
(FY 2018/19: £59.9m adverse
working capital movement) due to:
– a build in inventory (negative
impact £12.1m1), mainly within
the Currency division;
– a reduction in receivables
(positive impact £10.2m1) mainly
due to strong cash collections
in the Currency division; and
– a reduction in payables (negative
impact £19.2m1) resulting from a
net reduction in advanced payments
and settlement of trade creditors,
the adverse impact of which
was partially offset by increase
in derivative liabilities due
to currency fluctuations; and
• pension fund contributions of
£21.3m (FY 2018/19: £20.5m).
Operating cashflows benefited from an
increase in provisions (positive impact of
£7.4m) mainly relating to the recognition
of onerous contract provision relating
to two contracts.
Cash generated from operating activities
included approximately £7.3m of
payments relating to exceptional items
and discontinued operations.
Cash inflow from investing activities was
£25.6m (FY 2018/19: outflow £24.5m),
driven by the proceeds from the sale
of the International Identity Solutions
business, which was partially offset
by capital and development asset
expenditure. Capital expenditure
is stated net of cash receipts from
grants received of £3.8m.
De La Rue
Annual Report 2020
21
Cashflows from financing activities were
a net outflow of £27.5m (FY 2018/19:
inflow of £27.2m) due to the repayment
of the revolving credit facility of £1.5m,
dividend payments of £17.9m, interest
payments in relation to the Group’s
borrowings of £6.0m and IFRS 16
lease liability payments of £2.3m.
Management has considered whether
in accordance with IFRIC 14, it is
appropriate to record the full net surplus
on the balance sheet. Their conclusion is
that as the Group has an unconditional
right to any surplus this is appropriate.
As Funding contributions into the
scheme in the period were £21.3m.
As a result, Group net debt decreased
to £102.8m at 28 March 2020, from
£107.5m at 30 March 2019. This reflects
the benefit of proceeds of £42m from the
sale of International Identity Solutions the
benefit of which was offset by an adverse
working capital movement, final dividend
payment, pension funding contributions
and capital expenditure.
Not withstanding the cash outflow
from operating activities, the Board
has reviewed a plan for FY 2020/21 that
shows the Group will operate within its
banking covenants. See Directors’ Report
for further discussion on going concern.
The Group has a revolving credit facility
of £275m that expires in December 2021.
At the period end, the covenant tests
were as follows: EBIT/net interest payable
5.2 times (covenant of ≥4.0 times), net
debt/EBITDA 2.24 times (covenant of
≤3.0 times). The covenant tests use
earlier accounting standards and exclude
adjustments including IFRS 16, IFRS 15
and IFRS 9, or “frozen-GAAP”.
Pension and funding
The valuation of the Group’s UK defined
benefit pension Scheme (the “Scheme”)
under IAS 19 at 27 March 2020 is
a net surplus of £64.8m (30 March
2019: £76.8m deficit). The move into
surplus since 30 March 2019 is due
to pension funding contributions, an
increase in the value of the Scheme’s
assets, due to overall investment returns
across the portfolio, a reduction in
Scheme liabilities, due to a reduction in
inflation rate assumptions, a past service
credit of £8.7m, relating to a change in
revaluation rates for certain deferred
scheme members (reported within
exceptional items) and the impact
of an experience gain due to an
update in actuarial assumptions.
The charge to operating profit in
respect of the administration cost
of the Scheme in the period was
£2.2m (FY 2018/19: £2.7m).
In addition, under IAS 19 there was
a finance charge of £1.6m arising from
the difference between the interest
cost on liabilities and the interest income
on scheme assets (FY 2018/19: £2.1m).
On 31 May 2020, the Trustee and
the Company agreed the terms for a
schedule of contributions and a recovery
plan, setting out a programme for
clearing the UK Pension Scheme deficit
(the “Recovery Plan”). The latest actuarial
valuation of the UK Pension Scheme as
at 31 December 2019, which was based
on intentionally prudent assumptions,
revealed a funding shortfall (technical
provisions minus the value of the assets)
of £142.6m. The Recovery Plan makes
an allowance for post-valuation market
conditions up to 30 April 2020 (at which
point there is an estimated funding
shortfall of £190m), including the
impact of COVID-19 on financial
markets to that date.
The £190m deficit is addressed by
Recovery Plan payments (payable
quarterly in arrears) of £15m per annum
from 1 April 2020 until 31 March 2023
and then payments of £24.5m per annum
from 1 April 2023 until 31 March 2029.
This replaces the recovery plan agreed
with the trustee in 2016 (“2015 Recovery
Plan”) where payments would have been
£22.2 million between 1 April 2020 and
31 March 2021, £23.1 million between
1 April 2021 and 31 March 2022 and
£23 million per annum thereafter until
31 March 2028.
Additional contingent contributions in
exceptional circumstances will become
payable under the Recovery Plan by way
of an acceleration of the contributions
due in later years where: (i) the leverage
ratio (consolidated net debt: EBITDA)
is equal to or greater than 2.5x in either
FY 2021/22 or FY 2022/23, up to a
maximum of £4m in each financial year
and £8m in total and/or (ii) the Company
or any its subsidiaries take any action
which will cause material detriment
(defined in section 38 Pensions Act
2004) to the UK Pension Scheme, of
£23.3m (£7.2m in FY 2020/21, £8.1m
in FY 2021/22 and £8m in FY 2022/23)
over the period up to 31 March 2023.
In addition, the Company will pay
contributions of £1.25m pa to the UK
Pension Scheme to meet its expenses
and will pay on behalf of the UK Pension
Scheme both the PPF’s scheme-
based levy and risk-based levy up
to 31 March 2029.
This agreement with the Trustee of the
UK Pension Scheme is conditional on
an amount in full settlement of the Capital
Raising in the gross amount of at least
£100m having been received by the
Company by no later than 31 July 2020.
If these criteria were not to be met then
the Group’s current obligations in respect
of the UK Pension Scheme under the
2015 Recovery Plan would (subject to the
outcome of a valuation as at 5 April 2018
which would then need to be completed)
continue unaffected.
Capital structure
At 27 March 2020 the Group had net
assets of £93.2m (30 March 2019: net
liabilities £29.2m). The improvement was
primarily caused by the IAS 19 valuation
of the UK pension moving from a deficit
of £76.8m at 30 March 2019 to a surplus
of £64.8m at 27 March 2019.
The Company had shareholders’ funds
of £140.8m (31 March 2018: £190.8m)
and had 104m fully paid ordinary shares
in issue (30 March 2019: 103.8m) at the
year end.
Notes:
*
This is a non-IFRS measure. See further explanations
and reconciliation to the comparable IFRS measure
on page 165.
1
Working capital movements exclude in FY 2019/20
amounts relating to International Identity Solutions
disposal in order to show true cashflows for the period.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 22 De La Rue
Annual Report 2020
Financial review continued
Financial KPIs
Adjusted revenue
Adjusted EBITDA margin
Adjusted EBITDA
2020
2019
2018
2017
2016
426.7*
516.6*
493.9
461.7
454.5
2020
2019
2018
2017
2016
10.2
15.4
17.7
2020
2019
2018
2017
2016
21.1
21.2
43.6
79.3
87.3
97.4
96.4
£426.7m*
Adjusted revenue decreased by 17.4% year
on year. This reduction was driven by lower
sales across Currency product lines and
also reflected the impact of the sale of the
International Identity solutions business.
10.2%
Adjusted EBITDA margin decreased from
15.4% in 2019 to 10.2% in 2020 due to a
decrease in Currency volumes and margin
combined with negative manufacturing
variances due to lower than planned
production volumes.
£43.6m
Adjusted EBITDA is down by 45% reflecting
mainly the impact of lower currency
volumes and price combined with negative
manufacturing variances due to lower than
planned production volumes.
Authentication revenue
Adjusted operating profit
Return on capital employed
2020
2019
2018
2017
2016
42.76
40.1
31.6
28.8
68.5
2020
2019
2018
2017
2016
23.7
14
60.1
62.8
70.7
70.4
2020
2019
2018
2017
2016
2015
45
36
39
39
42
14%
The year on year decrease was primarily driven
by a higher average capital employed through
the period than the prior year and the lower
EBIT achieved in FY 2020.
£68.5m
Revenues increased by 60.4% year on year.
This strong growth is driven by growth in
volumes for our GRS contracts and ongoing
sales to new customers.
£23.7m
Adjusted operating profit was down by
60.6% from £60.1m in 2019 to £23.7m in
2020 driven mainly be a decline in Currency
volumes and margin combined with negative
manufacturing variances due to lower than
planned production volumes.
Net debt/EBITDA covenant ratio
Basic earnings per share
2020
2019
2018
2017
2016
2015
0.66
1.30
1.27
1.25
1.23
2.24
67.3
65.2
93.7
93.7
48.1
46.8
47.2
47.1
46.1
31.8
42.9
38.2
42.9
18.8
33.1
12.1
2014
2015
2016
2017
2018
as
reported
2018
ex
paper
2019
2020
Basic earnings per share
Adjusted earnings per share
Adjusted net debt/EBITDA increased to 2.24 from
1.3 in 2019. This is mainly due to the decrease
in EBITDA in 2020 as Net debt reduced by
£67.9m since H1 2019/20, reflecting the sale of
International Identity Solutions and an improved
operating cash flow compared to prior year.
Notes:
* Excluding “pass through” revenue of £33.5m in Currency and £6.6m in IDS.
1
2
3
Adjusted EBITDA represents earnings before the deduction of interest, tax, depreciation, amortisation and exceptional items.
Adjusted operating profit represents operating profit adjusted to exclude exceptional items and amortisation of acquired intangible assets.
Adjusted basic earnings per share are the earnings attributable to equity shareholders excluding exceptional items and amortisation of acquired intangible assets,
divided by the weighted average number of ordinary shares outstanding during the year.
ROCE is calculated as the ratio of adjusted operating profit over average capital employed (calculation is on page 167).
Cash conversion has not been included in KPIs as in FY 2019/20 it has not been included as a key measure of performance and in the setting of Directors’ remuneration.
4
5
6 Prior period authentication revenues have been restated. See note 1 for further details.
Risk and risk management
How we manage our principal
risks and uncertainties
De La Rue
Annual Report 2020
23
How we manage risk
Risk management is the responsibility
of the Board, supported by the Risk
Committee which comprises members
of our Executive Leadership Team (ELT).
The Risk Committee is accountable for
identifying, mitigating and managing risk.
Further details about the Committee can
be found on page 61. Our formal risk
identification process evaluates and
manages our significant risks in accordance
with the requirements of the UK Corporate
Governance Code. Our Group risk register
identifies the risks, their potential impact
and likelihood of occurrence, the key
controls and management processes
we have established to mitigate these
risks, and the investment and timescales
agreed to reduce the risk to an acceptable
level within the Board’s risk appetite.
The Risk Committee meets twice a year
to review risk management and monitor the
status of key risks as well as the actions we
have taken to address these at both Group
and functional level. Any material changes
to risk are highlighted at the monthly ELT
meetings, while the Audit Committee also
reviews the Group’s risk report. The ELT
undertakes a risk workshop each year
to challenge whether it has identified the
principal risks that could impact the
business in the context of the environment
in which we operate.
Management is responsible for implementing
and maintaining controls, which have been
designed to manage rather than eliminate
risk. These controls can only provide
reasonable but not absolute assurance
against material misstatement or loss.
See page 60 for further information
regarding internal controls.
Principal risks and uncertainties
The following pages set out the principal
risks and uncertainties that could crystallise
over the next three years. The Board has
undertaken a robust risk assessment to
identify these risks. There may be other
risks that we currently believe to be less
material. These could become material,
either individually or simultaneously,
and significantly affect our business
and financial results. We have modelled
potential scenarios of these risks
crystallising to support the disclosures
in the Viability Statement and assess the
Group’s risk capacity. See page 30 for
further details. Due to the nature of risk,
the mitigating factors stated cannot be
viewed as assurance that the actions
taken or planned will be wholly effective.
Risk appetite
The Board has reviewed our principal risks
and considered whether they reflect an
acceptable level of risk. Where this is not
the case, the Board has also considered
what further investment is being made to
reduce the likelihood and potential impact
of the risk. The Board either approves
the level of risk being taken or requires
management to reduce the risk exposure.
For core areas of the business, the Board
uses several methods to ensure that
management operates within an accepted
risk appetite. These include delegated
authority levels, the approval of specific
policies and procedures and the approval
of the annual insurance programme.
The Board receives regular feedback
on the degree to which management is
operating within acceptable risk tolerances.
This feedback includes regular operational
and financial management reports, internal
audit reports, external audit reporting and
any reports to the whistleblowing hotline.
All members of the ELT have individual
ownership for one or more of the principal
risks. Management of those risks’ forms
part of their personal objectives.
De La Rue’s risk management framework
Board of Directors
and Company Secretary
Audit Committee
• Reviews the effectiveness of internal controls
• Approves the annual internal and external audit plans
• Reviews findings from selected assurance providers
Risk Committee
• Reviews and proposes the business risk profile
• Monitors the management of key risks
• Tracks implementation of actions to mitigate risks
Ethics Committee
• Reviews ethical risks, policies and standards
Health, Safety and Environment (HSE) Committee
• Sets HSE standards
• Agrees and monitors implementation of HSE strategy
• Monitors HSE performance
Executive Leadership Team
• Accountable for the design
and implementation of the risk
management process and the
operation of the control environment
Group policies
• Policies for highlighting and
managing risks
• Procedures and internal controls
Functional management
• Ensures that risk management is
embedded into business culture,
practice and operations
Strategic reportCorporate GovernanceFinancial statementsShareholder information 24 De La Rue
Annual Report 2020
Risk and risk management continued
Principal risk and uncertainties
ranked by net possible impact
Key for strategic focus
Key for risk outlook
Cost reduction
Currency market leadership
Continued strong growth
in Authentication
Increasing
Decreasing
No change
Exposure
Impact
Mitigation
Impact Outlook
Quality management and delivery failure
We operate an enhanced end to end quality management
system with defined standards and acceptable limits for
all products across all production sites. The process is run
by dedicated quality professionals. All manufacturing sites
are certified to ISO9001 quality management standards.
The Group seeks to limit the impact of such issues on its
financial performance and has recently adopted a redesigned
budgeting process which, by stipulating that: (i) all budget
revenue must relate to an identified pipeline of opportunities
from designated customers; and (ii) costs must be forecast
in granular detail on the basis of specified cost saving plans,
is expected to mitigate the risk of variances between
budgeted and actual financial performance occurring.
Each of our contracts has a
unique specification on product
quality and delivery. Given the
nature of the Group’s business
and the fact that each product
the Group makes and each
service the Group provides
is bespoke at some level, the
majority of these contracts
demand a high degree of
technical specification.
A shortfall in quality
management could have a
material adverse impact on
the Group’s relationship with
key customers, harm the
Group’s reputation, and may
lead to a material increase
in costs for the Group as
a result of it having to pay
damages in respect of the
late delivery, rectification
and/or the complete remake
of relevant products and/or
the termination of key
contracts. This could have
a material adverse effect
on the Group’s business,
operations and financial
condition and/or prospects.
Reliance on a small number of large orders
The Group’s financial
performance in any particular
financial period is heavily reliant
on a relatively small number of
large orders and the timing of
the completion of production
of such orders.
The revenue and profit of
the Group’s business in any
particular financial period is
often driven by a relatively
small number of large orders.
The precise timing of the
completion of production
of, and therefore the timing
of the recognition of the
revenue and margin earned
from, such orders is difficult
to predict with certainty.
In addition, the timing of the
execution of contracts for
forecast future orders is also
difficult to predict. Although
the Group seeks to limit the
impact of such issues on
its financial performance,
the Group believes that its
financial performance in
particular financial periods
will continue to be affected
in the future by these issues.
De La Rue
Annual Report 2020
25
Exposure
Impact
Mitigation
Impact Outlook
Failure of a key supplier1
We have close trading
relationships with a number
of key suppliers, including
unique producers of
specialised components
that we incorporate into
our finished products.
With the sale of Portals
De La Rue Limited2,
our paper supplier now
moves to become a
third party supplier.
Bribery and corruption
It is possible that our employees
or overseas representatives, either
individually or in collusion with
others, could act in contravention
of our stringent requirements in
relation to bribery and corruption,
anti-competitive behaviours
and management of third party
partners (TPPs). On 23 July
2019, the Company announced
that the SFO had opened an
investigation into the Group and
its associated persons in relation
to suspected corruption in the
conduct of business in South
Sudan. As announced by the
Company on 16 June 2020,
the SFO subsequently informed
the Company of its decision to
discontinue such investigation
For further details see Note 29
on page 155.
Failure of a key supplier,
the inability to source critical
materials or poor supplier
performance in terms of
quality or delivery could
disrupt our supply and ability
to deliver on time and in full.
This could result in the
payment of damages and/
or forfeiting performance
bonds or loss of contracts
and result in material
reputational damage.
Major reputational
and financial damage.
A successful prosecution
under anti-bribery legislation
could see the Company
barred from participating
in major tenders.
Key suppliers are monitored and managed through supplier
analytics and contract management programmes. This ensures
that all key supplier contracts have been reviewed on their
financial strength and their ability to deliver to our quality
standards and security, as well as their business continuity
arrangements as a part of the onboarding process.
Key suppliers are audited on a rotational basis and have
a recovery plan in case of failure.
As a contingency, alternative suppliers are pre-qualified
wherever possible and where necessary we retain higher
levels of stocks.
We are accredited to the Banknote Ethics Initiative, which
provides governments and central banks with assurance
regarding our ethical standards and business practices.
Our commitment to ethical standards is articulated in the Code
of Business Principles. This is supported by underlying policies
which are reviewed regularly and enforced robustly. There is
zero tolerance to non-compliance, and it is dealt with through
disciplinary procedures.
We have a focus on raising awareness through local Ethics
Champions as well as training on anti-bribery and corruption,
and competition law. Our policies and processes are
independently audited.
Our rigorous process for the appointment, management
and remuneration of TPPs 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.
This is further enhanced by external due diligence checks.
Our whistleblowing policy and associated procedures
are integral aspects of the compliance framework, which
is complemented by a whistleblowing hotline.
Failure to implement the Turnaround Plan and run the business
As a result, key processes
may break down and projects
may fail to meet milestones,
resulting in operational
disruption, financial loss
and serious consequences
for the business.
Our business has seen
a considerable level of
organisational change and it is a
possibility that business leaders
may be unable to sustainably
manage the level of change
required to simultaneously
Transform and Fix the business
(enact the Turnaround Plan)
while ensuring that day to day
business goals are achieved.
The business has developed a strong leadership commitment
and an aligned Executive Leadership Team.
We will execute the Turnaround Plan to:
1. Provide clear objectives classified into Run, Fix and Transform.
2. Cascade clear and concise objectives via business units and
support functions, to provide line of sight to strategy and link
business as usual with longer term goals.
3. Provide a robust prioritisation process with regular reviews
of programmes and projects.
Our aim is to provide clear process improvement programmes
across a number of areas of the business.
Notes:
1 The additional impact to the failure of key supplier risk is also articulated within the Q4 emerging risk – COVID-19 on page 29.
2 The Group continues to retain an indirect interest of 10% in Portals De La Rue Limited.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 26 De La Rue
Annual Report 2020
Risk and risk management continued
Key for strategic focus
Key for risk outlook
Cost reduction
Currency market leadership
Continued strong growth
in Authentication
Increasing
Decreasing
No change
Exposure
Impact
Mitigation
Impact Outlook
Loss of a key site or process1
All our manufacturing sites
are exposed to business
interruption risks.
The total loss of any one
of these sites could have
a major financial impact,
particularly where the
site represents a single
source of supply.
Our head office and the banknote production operations in
Debden and Gateshead UK are accredited to the ISO22301
Business Continuity standard. This is supported by site-based
business continuity coordinators who ensure that all other
sites are aligned to ISO22301 and work effectively to the
spirit of the standard.
We maintain a degree of interoperability across our banknote
production and security printing sites. We aim to minimise
risk by adopting the highest standards of risk engineering
in our production processes.
These controls are monitored via internal auditing and
through monthly business continuity forums, quarterly
business continuity management steering committee
meetings and annual ELT/Audit Committee meetings.
In order to facilitate the Capital Raising and provide existing
Shareholders and new investors with sufficient certainty around
the continued availability, and terms, of the Group’s financing
to successfully implement the Turnaround Plan and support
the future growth of the business, the Group has entered
into negotiations and agreed terms with the lenders in order to
secure (among other things) an extension to the maturity date of
the Group’s existing revolving credit facility to 1 December 2023.
In exchange for agreeing to these key changes, the lenders
required that the Company agree to the inclusion of a provision
in the revolving credit facility agreement amendment which,
if the proceeds of an equity capital raise in the gross amount
of at least £100 million have not been received by the Company
on or before 31 July 2020, requires the Company to agree an
alternative financing plan with the lenders as soon as reasonably
practicable and in any event within 45 days of 31 July 2020.
If an alternative financing plan has not been agreed by this
time, this shall constitute an immediate event of default
under the existing revolving credit facility.
We maintain sustained levels of investment in R&D to
ensure a steady flow of ideas into our innovation pipeline.
Our product roadmaps are designed to meet our customers’
needs and to ensure a clear and tested product roadmaps
and lifecycle methodology.
We continue to invest in modern and cost-effective techniques
and emerging technologies to enable us to advance our R&D
and manufacturing capabilities and have increased our focus
on digital technologies.
We operate an active digital scouting for technology and digital
companies, and collaboration with universities to ensure that
we remain aware of new technologies.
The directors do not
believe the Turnaround
Plan could continue to
be executed without the
agreement of the lenders
to waive the financial
covenants under
the Group’s existing
revolving credit facility.
Banking
If the Capital Raising does
not proceed and the net
proceeds of the Capital
Raising are not received by
the Company, executing the
Turnaround Plan is expected,
under the Group’s existing and
un-amended revolving credit
facility agreement, to result
in the Group breaching
the Consolidated Net Debt
to EBITDA ratio covenant,
as the Consolidated Net Debt
to EBITDA ratio is expected
to exceed the three times
multiple threshold for the
testing period ending on
30 September 2020 and
subsequent testing periods.
Failure to convert modernisation into value
Failure to maintain and
exploit technical innovation
and intellectual property
may result in lower demand,
loss of market share and
lower margins.
We operate in competitive
markets. Our products and
services are characterised by
continually evolving industry
standards and changing
technology, driven by the
demands of our customers.
Longer term threats could
include the growth of
e-commerce, the emergence
of cashless societies and lower
barriers to manufacturing.
Note:
1 The additional potential impact to the loss of key site or process risk(s) is also articulated within the Q4 emerging risk – COVID-19 on page 29.
De La Rue
Annual Report 2020
27
Exposure
Impact
Mitigation
Impact Outlook
Loss of material contract
While we operate globally and
have a diversified geographic,
product and customer profile,
we rely heavily on a small
number of medium and longer
term material contracts.
The loss of material
contract could restrict
growth opportunities and
have a material impact on
our financial performance
and reputation.
Breach of information security
A breakdown in the control
environment including collusion,
non-compliance or an external
attack could lead to a cyber
security breach resulting in
the loss of critical data.
Any compromise in the
software functionality
or confidentiality
of information could
impact our reputation
with current and
potential customers.
Breach of product security
Loss of product or high
security components from a
manufacturing site could occur
as a result of negligence or
theft. Loss of product while
in transit, particularly during
transhipment, through the
failure of freight companies
or through the loss of an
aircraft or vessel as a result
of an accident or natural
disaster, is also possible.
Any loss of product or
high security components
has the potential to cause
reputational and financial
damage. In certain
circumstances, customer
contracts may mean
that we are liable for
those losses.
Our business involves tendering for long term contracts
on a constant basis. We have dedicated bid specialists and
where necessary contract in additional resources for the largest
strategic bids. We have continued engagement with national and
international governments to enable expansion of new markets.
We employ complex sales methodologies to identify and qualify
opportunities. These measures, along with our strong focus
on customer service and improving our quality, mean that
we are well-positioned to win or renew strategic or significant
contracts and retain them.
We are focused on retaining key contracts, as and when
they fall due for renewal, and on continued acquisition of new
opportunities as they arise. However, as the UK Passport
contract award announced in March 2018 shows, there can
be no certainty that we will win all major contract tenders.
Our corporate information systems are certified to the
ISO27001 Information Security standard. This is supported
by an independent information security team which is
focused on ensuring that all hardware and software
deployed is compliant with built in security.
We maintain a strict control environment to enforce disciplined
software development and information security practices and
behaviours. A number of key technical controls are in place
to manage this risk, including agile software development
techniques, behaviour analytics, quality reviews, regular
testing, network segregation, access restrictions, system
monitoring, security reviews and vulnerability assessments
of infrastructure and applications.
We also conduct supplier reviews on a risk basis and ensure
all of our employees undertake mandatory information
security e-learning.
Our processes and policies are monitored and audited
internally and externally.
We have dedicated security personnel, robust standardised
physical security and materials control policies and procedures
at our production sites, which reduce the risk of inadvertent loss
or theft during manufacturing. This is overseen and monitored
by Group Security, HSE and Risk to ensure compliance. Vetting
of personnel, training and auditing is conducted in line with the
Group Baseline Security Manual. All manufacturing sites are now
vertically aligned to ISO14298 and INTERGRAF certification.
All the finished product manufacturing sites certified to Central
Bank level, as testament of our commitment to product security.
We apply risk assessed stringent operational procedures –
and use vetted and approved carriers and personnel – to handle
movements of security materials between our sites and onward
delivery to customers. All movements are monitored, risk
managed and conducted in line with TAPA standards. We also
maintain a comprehensive global insurance programme.
We also ensure that product security verification and
reconciliation are embedded and monitored throughout all
sites to ensure that product is stored, shipped, reconciled
and destroyed securely and safely.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 28 De La Rue
Annual Report 2020
Risk and risk management continued
Key for strategic focus
Key for risk outlook
Cost reduction
Currency market leadership
Continued strong growth
in Authentication
Increasing
Decreasing
No change
Exposure
Impact
Mitigation
Impact Outlook
Breach could result
in imprisonment and
substantial fines for
individuals, the leadership
team, the Board and the
Company. In addition, it
may lead to a withdrawal
of our banking facilities,
as well as disbarment
from future tenders.
We utilise strong policies and processes to ensure national and
international sanction compliance. This will be overseen by the
Sanctions Board and external auditing of the programme, such
as BnEI.
Commercial opportunities are considered against the sanction
risk as standard within the RFA process and we utilise customer
relationship management systems to identify medium and high
sanction risk opportunities. If identified these are investigated
by legal, treasury and commercial teams to ensure compliance.
The Group may in the future
be required to increase its
level of contribution to the
UK Pension Scheme if the
assets or liabilities of the
UK Pension Scheme are
adversely effected.
If certain statutory
requirements are met,
the UK Pensions Regulator
has the power to issue
contribution notices
or financial support
directions to the Group
and/or any associated
company. Any requirement
to contribute additional
funds into the UK Pension
Scheme could threaten
the Group’s future capital
expenditure and its ability
to continue or increase
dividend payments and
could in turn have a
material adverse effect
on the Group’s business,
results of operations,
financial condition
and/or prospects.
The £190m funding deficit is addressed by payments of £15m
per annum (payable quarterly in arrears) under the Recovery
Plan payable from 1 April 2020 until 31 March 2023 and then
payments of £24.5m per annum (payable quarterly in arrears)
from 1 April 2023 until 31 March 2029. Additional contingent
contributions in exceptional circumstances will become payable
by way of an acceleration of the contributions due in later years
where: (i) the leverage ratio (consolidated net debt: EBITDA)
is equal to or greater than 2.5x in either FY 2021/22 or
FY 2022/23, up to a maximum of £4m in each financial year and
£8m in total and/or (ii) the Company or any its subsidiaries take
any action which will cause material detriment (defined in section
38 Pensions Act 2004) to the UK Pension Scheme, of £23.3m
(£7.2m in FY 2020/21, £8.1m in FY 2021/22 and £8m in
FY 2022/23) over the period up to 31 March 2023. The funding
of the Recovery Plan is to be sourced from cash generation
of the future business activities, but the trustee has
contractually agreed not to request any portion of the
Capital Raising proceeds.
The agreement with the trustee of the UK Pension Scheme as
described above is conditional on an amount in full settlement
of the Capital Raising in the gross amount of at least £100m
having been received by the Company by no later than
31 July 2020. Provided that these criteria are achieved, the
Group’s contributions to the UK Pension Scheme will not
change until the next triennial valuation of the UK Pension
Scheme as at 31 December 2022 (to be completed by
31 March 2024).
Breach of sanctions
Entering a contract or other
commitment with a customer,
supplier or partner which
is subject to a sanction or
trade embargo could lead
De La Rue to be in breach
of sanctions.
Pension fund liability
The latest actuarial valuation of
the Group’s UK defined benefit
scheme (“UK Pension Scheme”)
as at 31 December 2019, which
was based on intentionally
prudent assumptions, revealed
a funding shortfall (technical
provisions minus the value of
the assets) of £142.6m. On 31
May 2020, the trustee and the
Company agreed the terms for
a schedule of contributions and
a recovery plan, setting out a
programme for clearing the UK
Pension Scheme deficit (the
“Recovery Plan”). The Recovery
Plan makes an allowance
for post-valuation market
conditions up to 30 April 2020
(at which point there is an
estimated funding shortfall
of £190 million), including
the impact of COVID-19 on
financial markets to that date.
The funding level of the UK
Pension Scheme from time
to time is dependent on the
market value of the assets of
the UK Pension Scheme and on
the value placed on its liabilities.
A variety of factors, including
factors outside the Group’s
control, may adversely affect
the value of the UK Pension
Scheme’s assets or liabilities,
including interest rates, inflation
rates, investment performance
(including any further impact
on performance due to
the COVID-19 pandemic),
exchange rates, life
expectancy assumptions,
actuarial data adjustments
and regulatory changes.
De La Rue
Annual Report 2020
29
Exposure
Impact
Mitigation
Impact Outlook
Failure in health, safety and environment controls
All our activities are subject
to extensive internal health,
safety and environmental (HSE)
procedures, processes and
controls. Nevertheless, there is
a risk that any failure of an HSE
management process could
result in a serious incident.
Failure of an HSE
management process could
lead to a serious injury or
an environmental breach.
At all major facilities, we have HSE resources and a robust
management system which is internally audited and certified
to the ISO45001 and ISO14001 standards.
All our activities are subject to extensive internal HSE
procedures, processes and controls.
The Group HSE Committee regularly reviews HSE performance.
This is also monitored at Group level 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.
As part of De La Rue’s response to COVID-19, the business
has invoked a long-standing Pandemic Incident Management
Plan throughout the Group, and all sites are working towards
the following four key objectives:
1. Ensuring the safety of our employees and their families.
2. Playing our part in restricting the spread of the virus.
3. Continuing to run the business, serving our customers
worldwide with the timely provision of high quality products
and services.
4. Ensuring that De La Rue emerges resilient to the impact
of the pandemic.
Our manufacturing sites are spread across several sites in the
UK, Malta, Kenya, North America and Sri Lanka which allows
us the ability to reprioritise and potentially relocate production
in the event of a business continuity incident.
Q4 emerging risk – COVID-191
The COVID-19 pandemic
could have a material
adverse effect on the Group’s
supply chain, distribution
network, manufacturing
operations and/or weakening
customer demand.
If the COVID-19 pandemic
continues and results in a
prolonged period of onerous
restrictions, there is potential
impact to the global supply
and distribution infrastructure
of the business.
If current measures fail to
adequately mitigate the
impact of the COVID-19
pandemic in the countries
in which the Group has a
manufacturing presence,
there is also a risk that one
or more of the Group’s
manufacturing sites may
be forced to partially or
fully cease operations for a
prolonged period as a result
of the introduction of more
stringent restrictions by the
relevant authorities and/or
the absence of a significant
number of employees for
COVID-19 related reasons.
Note:
1
The Company continues to assess the potential for disruption caused by the COVID-19 pandemic and has put in place plans and measures in order to enable the business to maintain normal
operations, to the extent possible, against the backdrop of an evolving situation. The situation could change at any time and there can be no assurance that COVID-19 outbreak will not have
a material adverse impact on the future operations of the Group.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 30 De La Rue
Annual Report 2020
Risk and risk management continued
Viability statement
The Directors have considered the
longer term viability of De La Rue plc
in line with the recommendations under
the UK Corporate Governance Code.
The Group announced a Turnaround
Plan in February 2020 extending to
the end of FY 2023. Notwithstanding the
material uncertainty in an unfunded
scenario as outlined in the Going Concern
statement on pages 107 to 109, the
Directors have a reasonable expectation
the capital raise will proceed and therefore
believe that an appropriate period to
consider the Group’s viability is three
years, in line with the period covered
by the Turnaround Plan. This is also
consistent with the Group’s banking
arrangements which are (subject to the
capital raise and the amendment taking
effect as explained in detail in the Going
Concern section of this report) in place
until at least December 2023.
In assessing the viability of the Group,
the Directors have reviewed the principal
risks and uncertainties as set out in
pages 24 to 29 in the Strategic Report
and considered plausible scenarios of
one or more of the risks crystallising in
the same period in the context of the
Turnaround Plan. The Directors have
also considered key assumptions
on the impact of COVID-19 on the
business in this period and further
plausible downside scenarios that
could occur relating to this.
Consideration was given to the longer-
term prospects and growth for the
Group in line with the Turnaround Plan.
The key elements of the Plan include
cost reduction, currency market
leadership and continued strong
growth in authentication as explained
in further detail on pages 12 to 13
of the Strategic Report.
The Directors have reviewed a detailed
report which sets out the rationale
and basis for the base case forecast
in this three-year period as well as
a ‘reasonable worst case’ forecast
in the same period. The main
considerations in the reasonable
worst-case forecasts include:
• The investments in Polymer and
security features not delivering
the forecast returns;
• Banknote volumes being weaker
in FY 2022 and FY 2023 as a
result of reduced demand;
• Weaker growth in Authentication
due to fewer new contracts won;
• Limited growth on existing contracts;
• Reductions to the cost base
not being achieved; and
• The COVID-19 assumptions in a
reasonable worst-case scenario are
set out in detail in the Going Concern
statement on pages 107 to 109.
Based on the review of these scenarios
over the three-year timeframe and
taking into account the Group’s banking
arrangements and the related covenant
and liquidity headroom under the
amended facility, the Directors are
comfortable, subject to the successful
capital raise, that the Group is able
to operate within its available banking
facilities and therefore have a reasonable
expectation that the Group is viable
and able to meet its obligations as
they fall due up to March 2023.
De La Rue
Annual Report 2020
31
Section 172
When making
decisions, the Board
acts in accordance
with its legal duties
but it also has regard
to the interests of
its stakeholders and
wider community.”
The Companies (Miscellaneous
Reporting) Regulations 2018 require
directors to explain how they have had
regard to various matters in performing
their duty to promote the success
of the company under s.172A of the
Companies Act 2006 (the “Act”).
Under s.172A, a director of a company
must act in the way he considers,
in good faith, would be most likely to
promote the success of the company
for the benefit of its members as a
whole, and in doing so have regard
(amongst other matters) to the
following key factors:
a. The likely consequences of
any decision in the long term;
b. The interests of the
company’s employees;
c. The need to foster the company’s
business relationships with suppliers,
customers and others;
d. The impact of the company’s
operations on the community
and the environment;
e. The desirability of the company
maintaining a reputation for high
standards of business conduct; and
f.
The need to act fairly as between
members of the company.
The table opposite identifies where in
this report the Board has considered
relevant for disclosure in complying
with s.172 of the Act.
The likely consequences of
any decision in the long term
Strategic report
Chairman’s statement
CEO review
– Turnaround
– Moving forward
Our markets
Risk management
Viability statement
The interests of the
company’s employees
Strategic report
Responsible business
– Human rights
– Labour rights
Governance report
Leadership
Workforce engagement
Page
1-3
10
10
11
14-15
23-29
30
Page
35-36
38-39
44
52
The impact of the company’s
operations on the community
and the environment
Strategic report
Responsible business
– Introduction
– Environment
– Case study
– Community
– Case study
Governance report
Group Health, Safety and
Environment Committee
Page
32
33
35
37
38
49
The desirability of the
company maintaining a
reputation for high standards
of business conduct
Strategic report
Anti-corruption
Governance report
Chairman’s introduction
Whistleblowing
Ethics Committee report
Code of Business Principles
Page
40
42
52
62-64
64
The need to act fairly between
members of the company
Governance report
Relations with shareholders
Page
52
The need to foster the
company’s business
relationships with suppliers,
customers and others
Strategic report
Business model
– Customer relationships
– Key partners and suppliers
Principal risks
Governance report
Relations with shareholders
Page
7
7
24-29
52
Strategic reportCorporate GovernanceFinancial statementsShareholder information 32 De La Rue
Annual Report 2020
Responsible business
Responsible business
We are committed to
running our business
sustainably.”
Enabling everyone to participate
securely in the global economy
remains the focus of our
business as we continue to
support economies and financial
systems across the world.
Clear policies on the environment, human
rights, labour rights and ethical issues
including anti-corruption within our
business and its supply chain are integral
to this purpose and ensure that we
continue to run our business sustainably.
De La Rue is a signatory to the UN
Global Compact, and I am pleased
to confirm our ongoing commitment
to the initiative and its principles.
Further information about the ways
in which De La Rue as a business
supports a fairer, more prosperous
and secure future is available on
our website www.delarue.com
Clive Vacher
Chief Executive Officer
We are committed to minimising,
as far as is appropriate, the impact
of our operations on the environment.
We set clear environmental goals
and report against them each year.
We share our commitment and
standards with our suppliers
and partners.
We fully support the principles set
out in the UN Declaration of Human
Rights and the guidelines of the
International Labour Organisation,
including equal opportunity and
freedom from discrimination.
We are committed to preventing
slavery and human trafficking in our
operations and in our supply chain.
We insist on the highest health and
safety standards and provide training
across the organisation to ensure
all employees understand and are
aware of their responsibilities.
We are committed to preventing
our employees, third party partners,
other representatives, contractors,
consultants or other third parties from
engaging in bribery or other corrupt
practices and implement a robust
framework of anti-bribery policies
and processes.
Environment
For more information
see pages 33 and 34
Human rights and
social matters
For more information
see pages 35 to 38
Labour rights
For more information
see pages 38 and 39
Anti-corruption
For more information
see page 40
De La Rue
Annual Report 2020
33
Environment
We are committed to minimising,
as far as is appropriate, the impact
of our operations on the environment
while ensuring the sustainability of the
products we offer and the future of
our manufacturing sites. We set clear
environmental goals and report
against them each year. We share
our commitment and standards
with our suppliers and partners.
We continue to participate in the Carbon
Disclosure Project, a global disclosure
system for investors, companies, cities,
states and regions to manage their
environmental impacts, and have this
year achieved a score of B-, a year on
year improvement. We work with our
customers to reduce environmental
impacts and, in addition to the case
study on Samoa on page 35, examples
of our environmental stewardship
include: aiming towards zero to landfill in
the UK; a move towards science based
goals where possible; commitment to
a Group HSE Sustainability policy and
maintaining ISO 14001 certification.
Our research and development function
reviews and assesses environmental
impacts of new products being
developed according to our technical
manual and we aim to provide our
customers with the opportunity to recycle
our Safeguard polymer notes as an
alternative to landfill or incineration.
We work with our customers to reduce
environmental impacts together.
To reduce the impact of our activities
on the environment, during the year we
offset travel and accommodation costs
for our delegates and exhibitors at
several events in which we participated.
Carbon offsetting projects we have
supported this year, working with Carbon
Footprint Ltd, included a tree planting
project in the Great Rift Valley, Kenya.
Delivering against objectives
Senior management regularly review our environmental management results.
Progress against 2019/20 environmental objectives is detailed below:
Objective
An absolute energy reduction
target of -2.1% per year until 2021
(set on a science based trajectory).
To track our sustainability KPI at
operational sites of energy used
(kWh) per tonne of good output
against a target of -5% per annum.
To improve our waste segregation
and recycling/reuse options for
our polymer waste streams.
To roll out further education
on environmental awareness to
>80% of operational employees
across the Group.
Progress
Over the year we reduced our energy consumption by 12%.
Across the sites we achieved our targets on our Sustainability
KPI with good improvements at Kenya, Sri Lanka, Malta and
Westhoughton sites. Gateshead was affected by the closure of
one production line during the year coupled with a site base load
and Debden with its relatively new machinery was level for most
of the year.
Our polymer printing waste from the Debden site is securely
granulated on site and sent for mono-material recycling and
reprocessing into new BOPP pellets used for new processes.
Our polymer substrate manufacturing waste from the
Westhoughton site is securely granulated on site and sent for
blended material recycling and reprocessing into new plastic
materials used for new processes.
We are reviewing our mixed waste processes at Gateshead
to see if we can segregate polymer-based waste for recycling.
New Environmental Awareness training materials have been
uploaded to our online employee training platform for use
during 2020 across the manufacturing sites.
Our environmental goals/objectives for 2020/21 are:
• To continue driving energy reduction to achieve -2.1% per year until 2021
(set on a science-based trajectory) when we will review across the business
• To roll out the new environmental awareness training to >80% of operational
employees across the Group
• To widen our application of sustainability principles across key areas of our supply
chain and developments
• To ensure that all capital expenditures and product/process developments have
a level of environmental impact analysis to consider the best decisions and options
to be made
Energy efficiency measures
In the period covered by the report, De La Rue has implemented and tracked various
energy saving activities across the business. An overview of the key energy efficiency
measures undertaken by De La Rue are noted below:
• At our Gateshead site in late 2018 significant energy efficiency works occurred with the
replacement of chillers, compressed air system and upgrading the Building Management
System (BMS) control systems. This is the first full year of the site utilising the new systems,
which has resulted in a 2,800,000 kWh (23%) reduction in electricity consumption
• A significant number of energy measures are being undertaken across the site in Malta.
These measures include installing a new chilled water network, installing a centralised
compressed air system and replacing the old chiller system. Combined, these measures
are anticipated to save in the region of 2.5 million kWh per annum
• Sub-metering has been rolled out across our Debden site, which will monitor energy
usage on large process equipment. This will enable the site team to better understand
how the site can operate more efficiently and support the identification of future energy
efficiency measures
Strategic reportCorporate GovernanceFinancial statementsShareholder information 34 De La Rue
Annual Report 2020
Responsible business continued
Greenhouse gas emissions year on year comparison for FY 2019/20
2019/20
2018/19
UK
Global*
UK
Global*
UK
Global*
Type of emissions
Direct (Scope 1)
Indirect (Scope 2)
Total Scope 1 and 2
Indirect other (Scope 3)
Activity
Natural gas
Other fuels
Process emissions
Fugitive emissions
Owned vehicles
Subtotal
Electricity
Subtotal
Subtotal
Rail travel
Air travel
Non-owned vehicles
Business travel
Water
WTT all scopes
Subtotal
Total gross emissions (tCO2e)
Total gross emissions (tCO2e) UK and Global
Energy consumption used to calculate
Scope 1 and 2 emissions/kWh
Note:
* Global represents all sites outside of the UK.
Intensity metric
6
95
46
% of
total
tCO2e
67
385
–
–
82
534
tCO2e
75
452
–
228
88
842
% of
tCO2e
total
0.5% 2,491 13.0%
0.0%
5
3.1%
7.8%
0.0% 1,496
0.0%
0
1.5%
0.1%
21
0.6%
5.7% 4,013 21.0%
% of
% of
total
tCO2e
total
0.4%
2,618 20.1%
2.3%
0.0%
0.0%
1,496 11.5%
0.0%
0.7%
0.5%
0.4%
3.2%
4,262 32.7%
5,304 40.7% 10,244 69.4% 8,006 41.9% 12,048 72.0%
5,304 40.7% 10,244 69.4% 8,006 41.9% 12,048 72.0%
9,566 73.4% 11,087 75.1% 12,019 62.9% 12,582 75.2%
0.0%
3.5%
0.0%
3.5%
0.2%
3,519 21.0%
4,150 24.8%
16,731
0.3
0.0%
2.2% 4,463 23.4% 589.3
–
0.5%
0.0%
590
2.2% 4,560 23.4%
41
0.3%
0.4%
1,790 13.7% 3,303 22.4% 2,466 12.9%
37.1%
3,467 26.6% 3,685 24.9% 7,079
0.0%
1,606 12.3%
0.2%
1,640 12.6%
0.3%
–
329
–
329
52
13,033
19,098
14,772
0.0%
5.4
4.5
28
93
37
53
27,804
35,830
35,208,116
25,613,721
% Difference
in emissions
5%
23%
0%
n/a
118%
11%
17%
n/a
n/a
7%
6% 58%
(15%)
(34%)
(15%)
(34%)
(20%)
(12%)
21% (100%)
(44%)
(64%)
n/a
(69%)
(44%)
(64%)
29%
(30%)
(6%)
(27%)
(11%)
(51%)
(12%)
(32%)
(22%)
2019/20
2018/19
% Difference
Total gross emissions (tCO2e)
Revenue (£m)
Intensity ratio: Tonnes of gross CO2e per million GB £ turnover
Intensity ratio UK and Global: Tonnes of gross CO2e per million GB £ turnover
Note:
* Global represents all sites outside of the UK.
UK
Global*
13,033 14,772
316.9
46.61
109.8
118.70
UK
19,098
101.1
188.90
Global*
16,731
415.5
40.27
UK
(32%)
Global*
(12%)
9% (24%)
16%
(37%)
65.2
69.4
(6%)
Methodology
As a large, quoted company, De La Rue is required to report its energy use and carbon emissions in accordance with
the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
The data detailed in this table represent emissions and energy use for which De La Rue is responsible, including electricity,
gas use, process and fugitive emissions in our offices. We have used the main requirements of the Greenhouse Gas Protocol
Corporate Standard to calculate our emissions, along with the UK Government GHG Conversion Factors for Company
Reporting 2019.
De La Rue
Annual Report 2020
35
First carbon
neutral banknotes
In June 2019, the Central
Bank of Samoa unveiled the
first known carbon neutral
polymer banknote to celebrate
the XVI Pacific Games, leading
the industry and helping to
combat global climate change.
The 10 Tala note was designed
by De La Rue and printed on our
Safeguard® polymer substrate.
The Central Bank of Samoa
and De La Rue are both
extremely proud to have been
able to work with Carbon
Footprint Ltd to make this
banknote Carbon Neutral by
offsetting the emissions from
production used through
funding an equivalent carbon
dioxide saving elsewhere.
For this banknote, the carbon
impact of both the materials
and manufacturing process
have been calculated and
offset by supporting a power
generation project in Indonesia.
Human rights and social matters
We fully support the principles set
out in the UN Declaration of Human
Rights, in particular with regard to
equal opportunity and freedom from
discrimination. We have effective
management systems in place to protect
human rights. Our Code of Business
Principles covers human rights issues
including employment principles, health
and safety, anti-bribery and corruption
and the protection of personal information.
The Code also highlights that we seek to
provide an environment where employees
can raise any concerns via a variety of
mechanisms, including a whistleblowing
hotline known as ‘CodeLine’ which is
managed by an external third party, and
a network of Ethics Champions across
the Group where issues can be raised
in confidence.
The business has remedial processes
in place should there be any human
rights infringements. These include
claims procedures and trade union
engagement procedures.
Equality and diversity
We treat our employees fairly and equally
irrespective of their gender, transgender
status, sexual orientation, religion or
belief, marital status, civil partnership
status, age, colour, nationality, national
origin, disability or trade union affiliation.
We recognise the positive impact that
a diverse and inclusive workforce has on
the success of the business and therefore
actively seek to recruit people with diverse
backgrounds, experience and ways
of thinking and working.
We can see that the initiatives and
policies we have put in place are effective
through an increase in the score in our
engagement survey in response to the
statement ‘De La Rue recognises and
respects the value of human differences’
(71% in 2017 to 81% in 2019).
Our commitment to achieving an inclusive
workforce can be demonstrated by the
following initiatives and activities:
• We celebrate diversity and our Women’s
Networks are well established in many
sites with events such as lunchtime
discussion groups led by employees.
• In March 2020 events were held
at some of our sites to celebrate
International Women’s Day. The theme
this year was ‘Each for Equal’ and
provided an opportunity to raise the
profile of gender and wider diversity
issues across the Group.
• At our head office we have hosted our
local MP who holds regular Inspiring
Women events in the local community.
• Some sites showed support for women
in their local communities by collecting
essential items such as toiletries and
food for women’s refuges.
• Every manager and employee has
responsibility for the implementation
of our inclusivity and associated
policies and procedures such
as stress management, grievance
and fairness and respect.
• Flexible working policies are in place and
every application is carefully considered.
Our long term commitment to eliminate
any gender pay gap remains. As at
5 April 2019 our gender pay gap was
14.10% (mean) or 15.78% (median) and
the bonus gap was 52.62% (mean)
or 12.44% (median).
Analysis has shown us that changes
since the pay gaps were first reported
in 2017 are due primarily to a number
of significant organisational changes
during this period that have impacted
the figures making it premature to
draw any conclusions on trends.
We are confident that we do not
have issues of equal pay and remain
committed to increasing the number
of women in senior roles which we
believe to be the underlying reason
behind the gap.
Strategic reportCorporate GovernanceFinancial statementsShareholder information
36 De La Rue
Annual Report 2020
Responsible business continued
Gender diversity as at
28 March 2020
Employees
Male
Female
1,684
748
Senior Management
Male
Female
Executive Management
Male
Female
17
9
4
3
The male to female ratio for Senior Leaders
at the end of the financial year was 65:35
and we are pleased that we have achieved
alignment with the overall UK workforce
ratio of 69:31 and our aim of increasing
the proportion of women within our senior
leadership to 30% by 2020. Our focus
is maintained on improving the diversity
of our shortlists through our talent and
succession planning processes and
work with our recruitment partners.
Engagement
We engage with our employees on
a regular basis in a variety of ways on
matters of concern to them, including
matters relating to the performance of the
Company to ensure that communications
are accessible by everyone wherever
they are based. Methods include regular
calls hosted by the Chief Executive
Officer, Newsflashes circulated via
email and printed and displayed at
sites, a companywide intranet and
engagement with employee forums.
Feedback is always welcome and
we have a network of communications
champions across our sites who regularly
talk to colleagues to share information
and gather ideas and feedback related
to how we communicate.
Our 2019 engagement survey gave
us valuable insight into our employees’
perspective on where they work.
Generating feedback is a real opportunity
for us to build a deeper understanding
of what matters to our employees,
and how we can improve our business.
With an 84% response rate, we used the
feedback to kick off further discussions
which enabled us to build tailored action
plans at team level.
Since the establishment of our Currency
and Authentication divisions employees
receive regular updates about the area
in which they work through regular
calls where questions are welcome
and answered openly.
Employee recognition remains a key
component of our engagement strategy
and we use a global recognition platform
to enable employees and managers to
send thanks and recognise celebrations
such as work anniversaries and birthdays.
2019 saw our fourth annual Above and
Beyond event take place, celebrating
outstanding achievements by our
employees. This is in addition to local
site recognition events.
Our Sri Lanka site held their Family
Day 2019 for 640 colleagues and
their family members at Jetwing
Lagoon in Negombo.
In 2019 we held our third annual global
art exhibition celebrating the talent of
our people through a variety of mediums
from photography, painting and crafts.
The art is displayed in head office then
shared virtually in our sites.
To enable people to collaborate more
easily wherever they are based we have
rolled out Office 365 and Microsoft Teams
and this is becoming well embedded
as a way of communicating and
working together.
Wherever possible we recognise
significant days across our sites – in
2019 this included World Environment
Day, World Mental Health Day and
International Women’s Day.
In line with the 2018 Corporate
Governance Code, the Board has
appointed a Non-executive Director
responsible for engagement with
the workforce, Maria da Cunha.
Maria is required to support the
Board’s objective of gathering the
views of the workforce at all levels
throughout the organisation
to inform its decision making.
We recognise that different sections
of the workforce will have different
interests and priorities and a combination
of engagement methods are necessary
to gain a thorough insight into the culture
and concerns at different levels within
the organisation.
During the year, Maria has worked with
our national employee forums, meeting
with both the UK Forum and European
Employee Forum (EEF) to agree how
best to ensure meaningful engagement.
De La Rue
Annual Report 2020
37
We conducted a visit to our Debden
site which included a walkaround with
trade union site representatives and
a visit to another UK site is planned
for the coming financial year.
In February 2020 Maria met with
the UK Forum representatives to brief
them specifically on the remuneration
policy changes proposed.
It is expected that we will continue
to utilise established communications
channels on an ongoing basis to
engage with our employees and
seek their views including:
• Ongoing attendance at the UK
Employee Forum and EEF which
are bodies made up of elected
representative from each site
and which meet with senior
management twice each year
• In 2020/21 we propose to extend our
current forums to a wider workforce
engagement team, representing
all sites, in which key information
will be shared and discussed.
Maria will be an invited participant
• Board site visits, which will be
used to engage directly with
the global workforce
• Additional methods of engagement
will be used in line with planned
improvements to employee
communications including:
– Listening groups for frontline
workers and supervisors and/
or focus/consultative groups on
specific topics or subject matter
– Meeting future/emerging leaders
We recognise that engagement
methods are likely to evolve over time
as we establish what is most effective
and we will continue to monitor to
ensure productive and effective
dialogue is maintained.
Corporate culture and strategy
The Board receives annual updates
on corporate culture. For the first time
our employee survey in 2019 included
questions related to culture in order
to inform and shape the culture of
the organisation.
Training and development
There has been significant shift, changes
and challenges in the business this
financial year which have had an impact
on delivering learning and development
initiatives. With a reorganisation and
challenging financial position and now
combating COVID-19, face to face
training initiatives have been withdrawn.
This has given us the opportunity to
look at further utilising our Learning
Management System and we have
continued to build content in a number
of areas to encourage employees’
learning and curiosity. We have added
new content on a wide variety of
subjects every month, including building
resilience, managing change, Code
of Business Principles, diversity and
inclusion, high performing teams and
innovation and effective communication.
Our plans for the 2020/21 financial
year include a complete course on
management fundamentals, leadership
and team effectiveness. We will continue
to build both bite-sized learning and
curriculum to support the Company
and individual objectives.
We lost many apprentices through
the reorganisation and leavers.
The decision was taken to put on hold
all new apprenticeship schemes until
we are in a position to ensure that
further business changes will not
impact the ability to complete
apprenticeships at De La Rue.
Community
We continue to support charities in
the communities where we operate.
Our sites organise their own activities to
support local charities. Activities during
the year have included seed and tree
planting, collections of clothing, food and
essential items for those most in need,
bake sales and quizzes to name but a
few. These activities are encouraged by
the business and provide an opportunity
for employees to engage with each other
in a less formal way and spend time with
colleagues from different teams and
departments. De La Rue also supports
employees who wish to give up their
time to support worthy causes during
work time.
During Easter week our Malta site ran
a number of activities to support local
charities, including the donation of
Easter eggs and toys to orphanages
and a local hospital.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 38 De La Rue
Annual Report 2020
Responsible business continued
Tree planting in Kenya
Labour rights
We directly employ around 2,500 people
and provide livelihoods to thousands
more indirectly. We are committed to
preventing slavery and human trafficking
in our operations and in our supply chain
and our modern slavery statement details
the steps we take to eradicate the
practice and how we comply with the
Modern Slavery Act 2015. Suppliers are
obliged to abide by the United Nations
Convention on the Rights of the Child
and International Labor Conventions
138 and 182. Improving health and safety
and protecting people in our business is
a priority. We insist on the highest health
and safety standards and provide training
across the organisation to ensure all
employees understand and are aware
of their responsibilities. We also work
with our main suppliers and contractors
to ensure that their health and safety
processes are robust. During the
year we have delivered over 1,600
person days training. Our safety policies
ensure accountability and engagement
throughout our business and with
our suppliers.
Wellbeing
We recognise that the health of our
employees includes both mental and
physical wellbeing. We have a network
of Mental Health First Aiders across
our UK and Malta sites whose role is to
provide additional support to employees
and to understand and assist with
any potential mental health issues.
Appropriate support is also provided
in other international sites. We have run
a number of wellbeing events across
our sites during the year, including free
health checks, healthy eating workshops,
cancer awareness talks, and smoking
cessation sessions offering information
and guidance to our employees.
Health and wellbeing is recognised
as being an integral part of our overall
global SAFE initiative.
Pupils and De La Rue staff joined forces to plant 350 trees
To mark World Environment Day in
June 2019 our Kenya site supported
a tree planting activity at Drive Inn
Primary school. Staff from different
departments participated and 350
trees were planted.
World Environment Day has been
celebrated every June since 1973
to raise global awareness about the
importance of the healthy and green
environment, solve environmental
issues by implementing positive actions
and increase awareness worldwide
that everyone is responsible for
saving the environment.
De La Rue has a Charitable Giving
and Sponsorship Policy which is
regularly reviewed and includes
a robust governance policy to be
followed before funding is approved.
Giving is discretionary and the
company targets the majority of
its support towards charities and
charitable activities within countries
where it does business, and which
fall demonstrably into specific
categories including well-researched
causes in under-developed countries,
educational charities which promote
relevant skills and international
understanding, disaster funds
and community or environmental
organisations having activities
directly related to the Company’s
geographical or commercial
areas of operation.
An example of De La Rue’s
engagement with communities
in areas where we do business is
the scholarship programme in the
Caribbean which was started in
Jamaica in 2002 in collaboration
with the Central Bank and the
University of the West Indies.
Since its foundation, the programme
has expanded across the region
and The Association of De La Rue
Scholars was launched in 2015 to
promote the personal and academic
fulfilment of each scholar and to help
build future leaders—young men and
women with a commitment to serving
their community, their country and
their region. There are currently
59 scholars and alumni members
of the Association.
The De La Rue Charitable Trust is
an independent body established
by De La Rue. It provides financial
support in the form of small donations
to help address issues such as relief
of suffering, educational support and
development and self-sufficiency
promotion. The Trust is accountable
to the Governance Standards and
Principles of The Charity Commission
(UK’s governing body for charities)
and audited by an external auditor.
The Charitable Trust Board of Trustees
meets approximately three times
a year to consider applications for
donations and to agree how funds
will be distributed.
Labour rights
De La Rue
Annual Report 2020
39
International Women’s
Day 2020
In recognition of ‘International
Women’s Day 2020’ Westhoughton
held a ‘Time to Shine’ workshop
to explore Life Coaching Skills and
Personal Development Plans to
shine a spotlight on women in the
workplace and encourage them
to share their ideas, aspirations
and goals.
Health and safety
Progress against our 2019/20 objectives is detailed below:
Objective
To maintain our LTIFR per 200,000
worked hours of less than 0.25.
To maintain our strong HSE training
delivery performance of over 1,900
person days per year.
To achieve more than 94%
conformance to our Zone ‘SAFE’
HSE inspection programmes.
To ensure all operational line
managers and process leaders are
trained to IOSH Managing Safely,
an equivalent, or higher qualification.
To ensure our OHS management system
meets all the requirements of the new
international standard ISO45001:2018
(replacing OHSAH18001).
Progress
At the end of the year we achieved 0.37 LTIFR which
fell short of our objective but is still 35% below the
UK HSE All Industry average, a good achievement
in changing and challenging circumstances.
We exceeded the reduced and reset target of 1,680
HSE training days which reflected the reduction in
our workforce during the year.
We achieved over 95% and during the period
relaunched this initiative as SAFE & SECURE
covering some security aspects.
This objective was removed from the training plan
part way into the year due to cost reductions and
travel restrictions, but we have maintained our
NEBOSH General Certificate coverage across
all manufacturing sites at 100%.
All of the sites have been successfully transitioned
across to the new ISO45001:2018 International
Standard during the year.
All our main manufacturing sites have maintained OHSAS18001 certification for
their health and safety management systems, following external audits by accredited
providers. More details on our Company policies and procedures around health and
safety and wider labour rights can be found on our website.
We have set the following new objectives for health and safety
for 2020/21:
• To ensure all operational line managers and process leaders are trained to IOSH
Managing Safely, an equivalent, or higher qualification (a carry forward objective)
• To achieve a reported Near Miss/My Safety Concern closure rate or >90%
at all facilities
• To achieve ≥94% of conformance to our Zone ‘SAFE & SECURE’ HSSE
inspection programmes
• To develop an online health and safety training platform for use by all employees
and target these training modules as identified by the sites’ Training Needs
Analysis frameworks
• To maintain our strong HSE training delivery performance of over 1,500 person
days per year with the lower employee headcount created by the ongoing
business transformation programme
Strategic reportCorporate GovernanceFinancial statementsShareholder information 40 De La Rue
Annual Report 2020
Responsible business continued
Anti-corruption
De La Rue are experts in delivering
complex features and solutions
that help protect against crime and
corruption. We are committed to
preventing our employees, third
party partners, other representatives,
contractors, consultants or other third
parties from engaging in bribery or
other corrupt practices and implement
a robust framework of anti-bribery
policies and processes. All employees
are made aware of our zero tolerance
stance through their acknowledgement
of our Code of Business Principles,
and online anti-bribery and corruption
training is mandatory for those in
relevant roles. The Ethics Committee
of the Board has oversight of our anti-
corruption policies and procedures
(see pages 62 and 63).
Banknote Ethics Initiative
The Banknote Ethics Initiative (BnEI)
is an initiative established to provide
ethical business practice, with a
focus on the prevention of corruption
and on compliance with anti-trust
law within the banknote industry.
Members must adhere to a strict
Code of Ethical Business Practice
and all organisations that have signed
the Code must become accredited
after passing an audit carried out
by a third party auditor.
The BnEI Audit Framework is a
complete evaluation of policies and
procedures a company has in place
covering Leadership, Responsibility,
Policies and Procedures (sales and
marketing, including third party partner
management and remuneration, human
resources, finance, government and
regulatory affairs), Due Diligence,
Training, Compliance Declaration
and Internal Monitoring.
De La Rue was one of the first companies
to receive BnEI accreditation in 2014
after passing an audit carried out by
GoodCorporation, which is recognised
worldwide as one of the leading
organisations working in the field of
corporate responsibility and business
ethics. De La Rue has passed all audits
to date at Level 1, the highest level.
Full audits are conducted every three
years with annual affirmations of
compliance and progress required
between audits.
In addition to the Banknote Ethics
Initiative (BnEI), De La Rue is a
member of various industry bodies
and associations, including Intergraf
and the International Tax Stamp
Association, which provide us with
platforms to drive positive changes in
our industries. We will continue to use
our influence to promote the highest
product and ethical standards and
push for further transparency and
accountability in our sectors.
UK HMRC:
Tax Stamps
Corporate Governance
Chairman’s introduction
Leadership
Composition, succession and evaluation
Audit, risk and internal control
Directors’ remuneration report
Directors’ report
42
44
50
56
65
87
Strategic reportCorporate GovernanceFinancial statementsShareholder information 42 De La Rue
Annual Report 2020
Corporate Governance
Chairman’s introduction
The Board considers
leadership, culture
and good governance
as essential factors in
the Group’s ongoing
transformation.”
Dear Shareholder,
At their core, these reforms:
De La Rue operates globally
in markets where security,
integrity and accountability
are paramount. We aim
to forge an innovative,
responsive and high
performing culture.
Our commitment to high ethical
standards underpins our behaviours
and is incorporated in our Code
of Business Principles which all
employees, business partners and
other third party suppliers must follow.
The Board considers leadership,
culture and good governance as
essential factors in the Group’s ongoing
transformation and in maintaining the
trust of our customers, suppliers and
employees. The restructuring of our
business into two Divisions, Currency
and Authentication, will aim to ensure
the new organisation will have the
management and cultural attributes to
succeed, with the Divisional executive
management teams playing an integral
role in our governance framework by
promoting positive behaviours.
As a Board, we closely monitor the
Company’s corporate policies, practices
and behaviour to ensure that they are
aligned with our values and strategy.
We have also reviewed the incentive
schemes provided to our workforce in
order to support behaviours consistent
with the Company’s purpose, values
and strategy. Further information
on how we do this is set out on
page 35 of the annual report.
The Board and its Committees have
kept abreast of developments in the
legal and governance landscape,
including The Companies (Miscellaneous
Reporting) Regulations 2018 and the
revised 2018 edition of the Financial
Reporting Council’s (FRC) UK Corporate
Governance Code (2018 Code), both
of which have applied to the Company
since 31 March 2019. Both sets of
reforms seek to raise the bar on existing
corporate governance practices and
encourage companies to demonstrate
their broader responsibility within society,
in fulfilment of the Government’s aim
to build trust in business.
• Require boards to report on
how they have taken wider
stakeholders’ needs into account
while performing their duties under
s.172 of the Companies Act 2006
(s.172 statement)
• Introduce new requirements
around employee consultation,
pay practices, board culture,
composition and diversity
• Encourage companies to report
on how the 2018 Code principles
have been applied each year
We have included a s.172 statement
in the Strategic report on page 31.
We have also described in the Strategic
report and the Governance Report
the Company’s purpose, values and
culture, in line with the changes to
the 2018 Code.
The Board has reviewed our
existing practices against those outlined
in the 2018 Code and implemented
improvements to those current practices
where deemed appropriate. One of
those changes was appointing Maria
da Cunha as our workforce engagement
director to enable the Board to gather
the views of the workforce at all levels
throughout the organisation to inform
its decision making. This is particularly
important as De La Rue continues to
navigate through challenges facing
the industry and as it embeds its
strategic Turnaround Plan. Further
information on Maria’s work during
the year in this area is set out on
pages 36 and 37.
As previously, we undertook an
annual review of our governance
framework, examined my role and
that of our Chief Executive Officer,
Clive Vacher, and our Senior
Independent Director, Sabri Challah,
to ensure all our roles continued to
remain relevant and compliant with
the 2018 Code. We also included
in that review the terms of reference
of the Board and of each of its
Committees and made appropriate
amendments to ensure that such
terms of reference continue to remain
compliant with the 2018 Code.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
43
Compliance statement
The Board encourages a culture
of strong governance across the
business and continues to adopt
the principles of good governance
and adhere to the requirements of
the Financial Reporting Council’s
(FRC) UK Corporate Governance
Code 2018 (the Code). The Board
considers that it and the Company
have, throughout the period
to 28 March 2020, complied in
all respects with the provisions of
the Code. The Company’s auditors,
Ernst and Young LLP, are required
to review whether this statement
reflects the Company’s compliance
with those provisions of the Code
specified for their review by the
Financial Conduct Authority’s
Listing Rules.
Board changes and
succession planning
Succession planning is an important
element of good governance, ensuring
that we are fully prepared for planned
or sudden departures from key positions
throughout the year. The business
has experienced unprecedented
management change in the past year,
with the Chairman, Chief Executive
Officer, Chief Financial Officer, Senior
Independent Director and most of the
executive team leaving or resigning,
as further discussed on page 55.
Since I joined the Company as Non-
executive Director and Chairman
Designate in September 2019 and took
over the role of Chairman on 1 October
2019, I have been working extensively
with the Board to stabilise the business
and Executive Leadership Team.
The Nomination Committee and I will
take the lead on the development of a
diverse pipeline for succession planning
both at the Board and amongst our
Executive Leadership Team in order
to ensure that we have highly talented
and qualified individuals to support
the Turnaround Plan.
Board effectiveness
As detailed on page 51, an externally
facilitated evaluation of the Board and its
Committees was once again undertaken.
As a result of the evaluation, the Board
concluded that both it and its Committees
are currently operating effectively.
The Board continues to work closely
with the executive management team
and offers support and robust challenge
as appropriate. All Directors play an
active role in overseeing management
of the business. The Board agenda will
continue to balance the need to improve
oversight and governance of all aspects
of the business with the ability to debate
and examine forward looking strategy,
including changes to the business
environment and markets in which
we operate and compete.
Engagement
One further item I would like to address is
the significant votes received against last
year’s Directors’ remuneration report at the
2019 annual general meeting. The Board
understands that the significant vote
against this resolution was due primarily
to the bonus payment awarded to the
departing Chief Executive Officer in the
context of a decline in financial and share
price performance. We are committed to
taking into account all feedback received
from shareholders and the Board has
engaged with shareholders and proxy
institutions to seek feedback on the
proposed terms of the new Directors’
remuneration policy which will
be put before shareholders for approval
on at this year’s annual general meeting.
Further details of the new policy are set
out on pages 67 to 75 of the Directors’
remuneration report. I will endeavour to
work with Clive and the rest of our Board
to ensure the views of our shareholders
and that of our wider stakeholder group
are being addressed as we move
forward through the year.
Kevin Loosemoore
Chairman
17 June 2020
Structure of the corporate
governance statement
The Company is subject
to the Code
The report that follows provides an overview
of the work undertaken by the Board and
its Committees in fulfilling our governance
responsibilities and describes how the
principles of the Code have been applied
during the period to 28 March 2020.
The Code is issued by the FRC and is
available for review on the FRC website:
www.frc.org.uk
Leadership
The Board is responsible for leading
De La Rue and setting the tone which it
believes is most likely to lead to its long
term success and promoting effective
engagement with our key stakeholders
including employees and shareholders.
See more on pages 44 to 49
See more on relations with
shareholders on page 52
Composition, succession
and evaluation
We aim to ensure that we have
a balanced Board with the skills,
experience and knowledge to govern
the business, together with an effective
evaluation and succession plan.
See more on pages 50 and 51
Division of responsibilities
We ensure we have the right balance
of Executive and Non-executive Directors
for constructive and challenging debate
and decision making.
See more on page 50
Audit, risk and internal control
The Board defines the strategy, which aims
to maximise our performance with minimum
unnecessary or unacceptable risks.
See more on pages 56 to 64
Remuneration
The Remuneration Committee ensures
that there is a formal and transparent
process which aligns executive pay with
performance, which is linked to strategy
and is in the long term interest of the
Company and shareholders.
See more on remuneration pages 65 to 86
Strategic reportCorporate GovernanceFinancial statementsShareholder information 44 De La Rue
Annual Report 2020
Leadership
Board of Directors
Kevin Loosemore
Chairman
Clive Vacher
Chief Executive Officer
Appointment to the Board
Appointed to the Board on
2 September 2019 and became
Chairman on 1 October 2019
Committees
• Ethics Committee (Chairman)
• Nomination Committee (Chairman)
Current directorships and
business interests
• Iris Software Group Limited,
non-executive director
Career, skills and experience
Kevin has served on the boards of a
broad spectrum of businesses, including
as Chairman of both Morse plc, Micro
Focus International plc and as a
non-executive director of Big Food
Group plc and Nationwide Building
Society. He has also held senior
executive positions, including as Chief
Operating Officer of Cable & Wireless
plc and senior positions in Motorola and
IBM. He was Managing Director of one
of De La Rue’s businesses between
1997 and 1999.
Appointment to the Board
Appointed to the Board on
7 October 2019
Committees
• Risk Committee
Career, skills and experience
Clive has more than 16 years’
experience running complex P&Ls
for global industrial companies in the
commercial and government/defence
sectors. He has significant experience
of international business transformation
and operational performance
improvement. Clive was previously
Chief Executive Officer and President
of Dynex Power Inc., a Canadian
publicly listed company, where he led
the privatisation sale of the company
in March 2019. He was also a Director
and Chief Executive Officer of Dynex
Semiconductor Limited to 5 April 2019.
Previously, he has held senior positions
with Pratt and Whitney, Rolls-Royce,
General Dynamics Corporation and
B/E Aerospace Inc. Clive currently sits
on the Advisory Board of the Lincoln
International Business School at the
University of Lincoln.
Sabri Challah
Senior Independent
Director
Appointment to the Board
Appointed to the Board on 23 July 2015
Committees
• Audit Committee
• Remuneration Committee
• Ethics Committee
• Nomination Committee
Current directorships
and business interests
• Robert Kime Limited, advisor
• Actis, senior advisor
Career, skills and experience
Sabri was a Partner at Deloitte from
1991 to 2013, where he had a varied
career. He served as a member of both
the Deloitte UK Board, where he acted
as chairman of the remuneration
committee, and the Deloitte Global
Board, where he was chairman of
the succession planning committee.
Sabri was also chairman of Igneus UK
Limited, a leading provider of welfare
to work services. Sabri has significant
and wide-ranging experience in
organisational design, change
management, strategy, and
corporate development.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
45
Key for committees
Audit
Committee
Ethics
Committee
Nomination
Committee
Remuneration
Committee
Risk
Committee
Committee
Chair
Maria da Cunha
Independent
Non-executive Director
Nick Bray
Independent
Non-executive Director
Appointment to the Board
Appointed to the Board on 23 July 2015
Appointment to the Board
Appointed to the Board on 21 July 2016
Committees
• Audit Committee (Chairman)
• Ethics Committee
• Nomination Committee
• Remuneration Committee
Career, skills and experience
Nick has extensive international
experience in the technology and
information security industries. In 2019,
he was appointed as chief financial
officer of travel technology company,
Travelport. Before joining Travelport,
he served as chief financial officer of
security software firm, Sophos Group
plc, for over nine years. Nick was also
chief financial officer at Micro Focus
International plc, having previously held
CFO roles at Fibernet Group plc and
Gentia Software plc. Prior to that, he
held various senior financial positions
at Comshare Inc. and Lotus Software.
Committees
• Audit Committee
• Ethics Committee
• Nomination Committee
• Remuneration Committee (Chairman)
Current directorships
and business interests
• Royal Mail plc, non-executive director
• Community Integrated Care, trustee
• Competition and Markets Authority,
panel member
Career, skills and experience
Maria has spent her career in a
range of legal roles as a solicitor and
in-house at Lloyds of London and since
2000 to July 2018, with British Airways
where she is director of people and legal
and is a member of the executive board,
corporate security board and pensions
strategy board. Maria is experienced
at working with international regulators
and governments and has a deep
understanding of operational risk,
including cyber security, data and
mobile risk. She also has significant
geo-political, multi-channel
distribution, acquisition and post-
merger integration experience.
Jane Hyde
General Counsel and
Company Secretary
Appointment to the Board
Appointed as General Counsel
on 20 January 2020 and as
Company Secretary with effect
from 22 January 2020
Committees
• Risk Committee (Chairman)
Career, skills and experience
Jane has many years of experience
as a general counsel and an adviser
to publicly quoted businesses, with
a particular focus on strategic projects
and risk management. Her previous
role was with Hikma Pharmaceuticals
plc where she was Head of Corporate
and European Legal. Prior to that, she
spent a number of years in investment
banking, with corporate broking and
corporate finance roles at JPMorgan
Cazenove and in regulatory
compliance at Nomura International.
She trained and practised as a
corporate lawyer at Freshfields
and is a qualified solicitor.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 46 De La Rue
Annual Report 2020
Leadership continued
Governance principle
The Board is collectively accountable
to the Company’s shareholders for
good corporate governance and all
Directors are responsible for complying
with their legal and fiduciary obligations.
The Board is committed to ensuring
the highest standard of corporate
governance which is critical to creating
value. The diverse range of experience
offered by the Chairman and the Non-
executive Directors means that they are
well-qualified to scrutinise performance,
assess the Group’s risk management
and control processes, provide
constructive challenge and support
the Executive Directors.
Board diversity
The Board recognises the importance
of having an inclusive culture and the
value that diversity brings to De La Rue
and aims to reflect this within the
composition of the Board. The Chairman
seeks to ensure that the composition
of the Board includes individuals whose
varied backgrounds, experience,
knowledge and expertise bring a wide
range of perspectives to the business.
As at 28 March 2020, the percentage
of women on the Board is 20% following
the departure of Helen Willis in January.
The Board hopes to improve on this
in the future. More information on how
the Nomination Committee intends
to address this is set out on page 55.
The Group’s inclusion strategy is
discussed further on page 35
The role of the Board
The Board is ultimately responsible
to shareholders for the direction,
management, performance and long
term success of the Company. It sets
the Group’s strategy and objectives
and overseas and monitors internal
controls (in conjunction with the Audit
Committee), risk management, principal
risks, governance and viability of the
Company. In doing so the Directors
comply with their duties under
section 172 Companies Act 2006.
To ensure Directors maintain
overall control over strategic, financial,
operational and compliance issues,
the Board meets regularly throughout
the year and has formally adopted a
schedule of matters which are required
to be brought to it for decision.
Matters reserved for
the Board’s decision
• Group strategy, long term
objectives, annual budgets
• Approval of the annual and
interim results
• Acquisitions, disposals
• Approval of risk appetite
• Ensuring that a sound system
of internal control and risk
management is maintained
• Changes to the Group’s
capital structure
• Approval of dividend policy
The Board has established certain
principal Board Committees to assist it
in fulfilling its oversight responsibilities,
providing dedicated focus on particular
areas, as set out on pages 54 to 86.
The Board Committees play an important
governance role through the work they
carry out to fulfil the responsibilities
delegated to them. The matters reserved
to the Board and the terms of reference
for each of its Committees, which
are reviewed on an annual basis, can
be found on the Company website
at www.delarue.com. These were
last reviewed in June 2020 and were
updated so as to be compliant with the
2018 UK Corporate Governance Code.
Board composition
As at 28 March 2020, the Board was
made up of five members comprising
a Chairman, Chief Executive Officer,
and three independent Non-executive
Directors. Kevin Loosemore was
appointed to the Board on 2 September
2019 and became Chairman on
1 October 2019. Clive Vacher, Chief
Executive Officer, was appointed
to the Board on 7 October 2019.
Brief biographies and skills and
experience of the Directors are set out
on pages 44 and 45 and the role of the
Board is set out here. Other than Kevin
Loosemore, none of the Non-executive
Directors of the Company had any
previous connection with the Company
or its Executive Directors on appointment
to the Board and all of them are
considered by both the Board and
the criteria set out in the Code to be
independent. Kevin Loosemore was
considered independent at the date
of his appointment and continues
to be independent in character and
judgement and there are no relationships
or circumstances which are likely to
affect, or appear to affect his judgement.
His external appointments are set out on
page 44. The Chairman and each of the
Non-executive Directors have a breadth
of strategic, management and financial
experience gained in each of their
own fields in a range of multinational
businesses. Helen Willis stepped down
from the Board on 24 January 2020 and
has been replaced on an interim basis
by Rob Harding who is not a member
of the Board.
In accordance with the Code, both
Kevin Loosemore and Clive Vacher will
be subject to election at the forthcoming
AGM with each of the other Directors,
except Sabri Challah, subject to re-
election. As announced on 17 June 2020,
Sabri Challah has informed the Board of
his intention to step down as a Director
due to his other commitments. Sabri will
remain on the Board until such time as a
successor Independent Non-Executive
Director has been appointed, but in any
event until no later than the date of the
Company’s forthcoming annual general
meeting. Until then, he will continue
as the Senior Independent Director,
but accordingly will not be standing
for re-election at the Company’s
forthcoming annual general meeting.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
47
Board and Board Committee meetings
The Board and Board Committee attendance during the year is shown
in the table below. One of the scheduled Board meetings was held at the Group’s
UK location in Debden, thus enabling all Directors to visit that site’s operations
and meet with employees. In addition to the schedule of Board meetings,
the Board meets for dinners which give the Directors additional time together
to discuss issues more broadly.
Unscheduled meetings
The unscheduled meetings of the Board held during the year related to various
capital expenditure, Board composition, divisional restructuring and major
business initiatives that required consideration by the Board in accordance
with the Group’s internal approvals process.
Non-attendance
Some Board members were unable to participate in Board and Board Committee
meetings as noted in the table below. If any Directors are unable to attend a meeting
they communicate their opinions and comments on the matters to be considered
via the Chairman of the Board or the relevant Board Committee Chairman.
Directors’ attendance 2019/201
Nick Bray
Sabri Challah
Maria da Cunha
Kevin Loosemore3
Philip Rogerson4
Andrew Stevens5
Martin Sutherland6
Clive Vacher 7
Helen Willis8
Board2
8 (9)
9 (9)
9 (9)
6 (6)
4 (4)
4 (4)
4 (4)
5 (5)
6 (6)
Nomination
Committee
0 (1)
1 (1)
1 (1)
–
1 (1)
1 (1)
–
–
–
Ethics
Committee
3 (3)
3 (3)
3 (3)
–
2 (2)
2 (2)
–
–
–
Audit
Committee
4 (4)
4 (4)
4 (4)
–
–
2 (2)
–
–
–
Remuneration
Committee
6 (6)
6 (6)
6 (6)
–
3 (3)
3 (3)
–
–
–
Notes:
1 Figures in brackets denote the maximum number of meetings that could have been attended.
2
In addition to the meetings detailed within the table above, 14 Board meetings were convened on an ad hoc
basis in between scheduled Board meetings to discuss the matters included in the table on page 48.
3 Kevin Loosemore joined the Board on 2 September 2019 and became Chairman on 1 October 2019.
4 Philip Rogerson retired from the Board on 1 October 2019.
5 Andrew Stevens stepped down from the Board on 7 October 2019.
6 Martin Sutherland stepped down from the Board on 7 October 2019.
7 Clive Vacher joined the Board on 7 October 2019.
8 Helen Willis stepped down from the Board on 24 January 2020.
Executive Leadership Team (ELT)
Matters that are not reserved to shareholders, the Board or one of
its Committees are the responsibility of the Chief Executive Officer who
has established and maintains a schedule of delegations of authority to
members of the ELT and other management as approved by the Board.
The Chief Executive Officer reports on the Group’s activities through his
(and the Chief Financial Officer’s) regular reports to the Board. The Board
and each Committee receives sufficient, reliable and timely information in
advance of meetings and is provided with access to all necessary resources
and expertise to enable them to fulfil their responsibilities and undertake
their duties in an effective manner.
The ELT comes together to communicate, review and agree on issues and
actions of Group-wide significance. It develops, implements and monitors
strategic and operational plans, and considers the continuing applicability,
appropriateness and impact of risk. It leads the Group’s culture and aids
decision making of the Chief Executive Officer in managing the business
in the performance of his duties.
Board diversity
Executive and Non-executive
Director balance
1
3
1
3
2
4
1
Executive Director
Non-Executive Directors
Chairman
Board tenure
3 to 5 years
Less than a year
Gender of the Board
Male
Female
See more about the Directors’
careers, skills and experience
on pages 44 and 45
Strategic reportCorporate GovernanceFinancial statementsShareholder information 48 De La Rue
Annual Report 2020
Leadership continued
The Board’s areas of focus
Board activity during the year
The Board has a programme of meetings during the year and also meets on an ad hoc basis as required. In the period
under review, the Board’s focus has been on progress made on the execution and delivery of the strategic objectives including
the Turnaround Plan. The Board held a meeting with the ELT dedicated specifically to this review. Feedback and content
of discussions were shared with the ELT. The Board has received regular reports from both the Chief Executive Officer
and the Chief Financial Officer.
In particular the Board:
For more information
on our strategy
see page 12
For more information
see page 52
For more information
see page 22
For more information
on principal risks
see pages 23 to 29
For more information on
Board Committee reports
see pages 54 to 86
Strategy
• Received presentations from different parts of the business on product portfolios,
progress with agreed strategy and potential business opportunities
• Held the annual strategy review meeting in October 2019, following which
an updated strategy base case was considered and agreed
• Approved updated budget and medium term plans in the context of the
agreed strategy
• Reviewed progress on implementation of the strategy through regular reports
from the Chief Executive Officer
• Reviewed potential strategic transactions
• Reviewed and considered the Turnaround Plan
• Reviewed reports from brokers on shareholder feedback following meetings
with the Chief Executive Officer and Chief Financial Officer during the period
• Received presentations from brokers on the market perception of De La Rue plc
• Consulted with shareholders and proxy voting bodies on resolutions put to the AGM
• Consulted with shareholders to try and understand the outcome of voting results
on the Directors’ remuneration report at the 2019 AGM
• Reviewed and considered feedback from shareholders on the proposed new
remuneration policy 2020
Shareholder
engagement
Performance
monitoring
People
• Reviewed performance reports from the Chief Executive Officer and
Chief Financial Officer
• Reviewed reports on the Group’s financial position
• Reviewed the year end and interim results and trading updates
• Visited the Debden site during the Board meeting in September 2019
• Received an update from the Group Director of Human Resources on people
capability, employee engagement and progress on the culture change journey
Governance
and risk
Other
• Succession planning and Board appointment
• Workforce engagement across the business
• Appointed Maria da Cunha as workforce engagement director
• Board engagement with employees at Debden during the year
• Received reports from the Group Director of Security, HSE and Risk
• Approved principal risks and the risk appetite for those risks
• Discussed the results of the Board performance evaluation
• Received reports from the Chairs of the Audit, Remuneration,
Ethics and Nomination Committees
• Approved changes to the composition of the Board
• Conducted an assessment of the UK Corporate Governance Code 2018
• Carried out the annual corporate governance review and reviewed and agreed
proposed changes to the Terms of Reference for the Board and its principal
Committees to bring these in line with the UK Corporate Governance Code 2018
• Approved the 2019 Annual Report and Accounts and the 2019 notice of AGM
• Approved the 2020/21 annual budget
• Reviewed the Group’s insurance programme renewal
• Reviewed HSE performance
• Approved capital expenditure projects and other matters reserved for the Board
• Considered the Group’s Modern Slavery Transparency Statement
• Approved Non-executive Directors’ fees to reflect Committee changes
and appointments
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
49
Our governance framework
Board responsibilities
Certain Board responsibilities are delegated to formal Board Committees which play an important governance role through
the work they carry out:
Remuneration Committee
Risk Committee
Audit Committee
Sets the remuneration policy for the
Chairman and Executive Directors
and monitors the policies and
practices applied to senior
management remuneration.
Oversees the risk management
framework for the Group. Identifies,
evaluates and monitors principal
risks facing the Group.
Reviews and monitors the integrity
of the Company’s financial reports,
risk processes and internal controls
and the effectiveness of the internal
audit function and external auditors.
see pages 65 to 86
see page 61
see pages 56 to 60
Board of Directors and Company Secretary
Kevin Loosemore
Clive Vacher
Sabri Challah
Maria da Cunha
Nick Bray
Jane Hyde
Chairman
Chief Executive Officer
Senior Independent
Director
Independent Non-
executive Director
Independent Non-
executive Director
General Counsel and
Company Secretary
Nomination Committee
Ethics Committee
Disclosure Committee
Reviews the structure, size and
composition of the Board and its
Committees with regard to diversity
and to ensuring a balance of skills,
knowledge and experience.
Makes recommendations to the
Board on ethical matters and
reinforces the Group’s commitment
to ensuring business ethics are
a fundamental and enduring part
of the Group’s culture.
Oversees the implementation of the
governance procedures associated
with the assessment, control and
disclosure of inside information
in accordance with the Market
Abuse Regulation.
see pages 54 to 55
see pages 62 to 64
Chief Executive Officer
Executive Leadership Team
• Operates under the direction and authority
of the Chief Executive Officer
• Manages the day to day running of the Group
• Develops and implements strategy, monitoring
the operating and financial performance and
the prioritisation and allocation of resources
Group Health, Safety and
Environment Committee
• Makes recommendations on HSE strategy
• Monitors compliance with HSE obligations
• Reports on key HSE KPIs
• Recommends appropriate training and actions
to maintain HSE improvements and performance
Strategic reportCorporate GovernanceFinancial statementsShareholder information 50 De La Rue
Annual Report 2020
Composition, succession and evaluation
Board composition and roles
There is a clear division
of responsibilities between
the Chairman and the
Chief Executive Officer,
which is set out in writing
and has been agreed
by the Board. The table
opposite summarises
the role and responsibilities
of the different members
of the Board.
Chairman
• Providing leadership to the Board,
setting its agenda, style and tone
to promote constructive debate
and challenge between Executive
Directors and Non-executive Directors
• Take overall responsibility for the
composition and capability of the
Board and its Committees
• Ensuring good information flows from
the Executive Directors to the Board, and
from the Board to its key stakeholders
• Supporting and advising the Chief
Executive Officer, particularly in the
development of strategy
• Chairing the Nomination Committee
and building an effective and
complementary Board, regularly
considering its composition and balance,
diversity and succession planning
• Chairing the Ethics Committee
• Ensuring high standards of corporate
governance and probity throughout the
Group are established and maintained
Senior Independent Director
A key role of the Senior Independent
Director is to be available to shareholders
if they have concerns which contact
through the normal channels of Chairman,
Chief Executive Officer or Chief Financial
Officer has failed to resolve, or for which
such contact is inappropriate. The Senior
Independent Director is also available to
the other Directors should they have any
concerns which are not appropriate to
raise with the Chairman or which have
not been satisfactorily resolved by the
Chairman. The Senior Independent
Director will also lead the recruitment of
a new Chairman other than when being
considered for the position himself.
Chief Executive Officer
• Maintaining a senior management
team with the appropriate knowledge,
experience, skills, attitude and
motivation to manage the Group’s
day to day activities
• Exercising personal leadership and
developing a management style
which encourages excellent and
open working relationships at all
levels within the Group
• Ensuring, through the Chief Financial
Officer, the implementation, control
and coordination of the Group’s
financial and funding policies
approved by the Board
• Ensuring that the Group has in place
appropriate risk management and
control mechanisms
• Setting the operating plans and budgets
required to deliver the agreed strategy
for growth in shareholder value
• Implementing and reviewing HSE policy
and, supported by the ELT, overseeing
improvements and performance
• Identifying strategic transactions
and monitoring competitive forces
• Communicating with the Company’s
shareholders and analysts on a day
to day basis as necessary (subject
to the Chairman being made aware
of any such instances)
Independent Non-executive
Directors
The Non-executive Directors play a
key role in corporate governance and
accountability through their attendance
at Board meetings and their membership
of Board Committees. The Non-executive
Directors bring a broad range of business
and financial expertise to the Board
which complements and supplements
the experience of the Executive Directors.
Meetings of the Non-executive Directors
including the Chairman are held where
Executive Directors are not present.
Other Executive Directors
The Chief Financial Officer supports the
Chief Executive Officer and is responsible
for managing the Group’s finance strategy,
financial reporting, risk management
and internal controls, investor relations
programme and the leadership of the
finance function.
General Counsel and
Company Secretary
The General Counsel and Company
Secretary advises the Board on matters
of corporate governance and supports the
Chairman and Non-executive Directors.
She is also the point of contact for investors
on matters of corporate governance and
ensures good governance practices at
Board level and throughout the Group.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
51
Risk management
and internal control
The Board retains overall responsibility
for identifying, evaluating, managing
and mitigating the principal risks faced
by the Group and for monitoring the
Group’s risk management and internal
control systems. However, such systems
are designed to manage rather than
eliminate the risk of failure to business
objectives and can only provide
reasonable and not absolute assurance
against material misstatement or loss.
The Company has established the
procedures necessary to ensure
that there is an ongoing process for
identifying, evaluating, managing and
mitigating the principal risks it is willing
to take to achieve its strategic objectives
(its risk appetite). The Directors confirm
that such procedures have been in place
for the period ended 28 March 2020
and up to the date of approval of these
financial statements and that the Group’s
risk management and internal control
systems have been monitored during the
period. Further details on the ongoing
risk management and internal control
systems can be found in both the risk
management section of this annual
report and the Audit Committee
report on pages 23 to 31 and pages
56 to 60 respectively.
This review does not extend to
associated companies or joint
ventures where the Group does
not have management control.
Conflicts of interests
and independence
The Board has established a process
to review at least annually and, if
appropriate, authorise any conflict
of interest and has carried out such
a review during the year and authorised
all Directors’ situational conflicts.
Any transactional conflicts are reviewed
as they arise. Directors are asked to
review and confirm reported conflicts
of interests as part of the year
end process.
Culture and values
The Board considers leadership,
culture and good governance as
essential considerations in the
Group’s ongoing transformation.
The Turnaround Plan will seek to build
a high performance culture across
the business to deliver our strategy.
The Board recognises the role it plays
in providing leadership and tone from
the top. The Board is developing a
framework through the ELT for regular
oversight of the culture within the
Company. The intention is to ensure
the De La Rue values are integral
to the performance management of
the senior leadership group and other
employees, and that the incentive
structure in place supports and
encourages behaviours consistent
with those values. See page 12
for more information on our strategy
for reshaping De La Rue.
Performance evaluation
The Chairman is responsible, with
support from the Nomination Committee,
for ensuring that the Company has an
effective Board with a suitable range
of skills, knowledge, experience and
diversity. The Company has a formal
performance evaluation process
for the Board, its Committees and
individual Directors. The most recent
performance evaluation involved
the use of an external independent
facilitator, Lintstock Limited.
The review process involved completion
of online questionnaires which focused
on Board composition, expertise and
dynamics, quality of decisions made,
Board support and processes, structure,
behaviours and other key issues such
as strategy and succession. The review
also addressed delivery of the Board’s
objectives and any issues identified
during the previous review or which
became relevant during the year.
A report on the performance of
the Board and each of the principal
Committees was compiled by Lintstock.
The results of the questionnaire
as they applied to the Board were
discussed collectively.
The Chairman and each Committee
Chairman have discussions with each
Director or Committee member based on
the responses. The Senior Independent
Director is responsible for appraising the
Chairman’s performance in discussions
with the Non-executive Directors and
the Executive Directors in the absence
of the Chairman. The Chairman holds
one to one meetings with all Directors.
All of these processes were carried
out satisfactorily during the period.
The reviews undertaken in the year have
concluded that the performance of the
Board, its Committees and individual
Directors was effective.
Induction and professional
development
All new Directors receive a tailored
induction on joining the Board, including
meetings with senior management and
visits to some of the Group’s locations.
They also receive a detailed information
pack which includes details of Directors’
duties and responsibilities, procedures
for dealing in De La Rue plc shares and
a number of other governance related
issues. Directors are continually updated
on the Group’s businesses, their markets
and changes to the competitive and
regulatory environments in which they
operate. All Directors are encouraged
to undertake additional training where
it is considered appropriate for them
to do so and to visit the Group’s
facilities on an ongoing basis.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 52 De La Rue
Annual Report 2020
Composition, succession and evaluation continued
The Board values
the importance
of building strong
relationships
with shareholders
and investors.”
Whistleblowing
A whistleblowing hotline, CodeLine,
allows De La Rue employees to raise
concerns about breaches of the Code
of Business Principles including in
relation to dishonesty or malpractice
on an entirely confidential basis.
Concerns may be raised via telephone,
email or an online portal, on an entirely
confidential basis. The hotline is operated
by a third party which is independent
of De La Rue. Incoming reports are
provided to the General Counsel and
Company Secretary who ensures
that the matters are appropriately
investigated. The Ethics Committee
and the Audit Committee receive
regular reports on any matters raised
through the hotline and monitor
its use throughout De La Rue.
Assessment of the prospects
of the Company and its
viability statement
The Directors set out on page 30
how they have assessed the prospects
of the Company, over what period the
prospects have been assessed, and the
Company’s formal viability statement.
Workforce engagement
Last year, Maria da Cunha was
appointed to be responsible for
workforce engagement and to represent
the Board in this area. In her role, Maria
gathers the views of the workforce at
all levels throughout the organisation
and shares these views with the Board
for discussion. Where appropriate,
actions to address concerns raised
by employees are then addressed and
communicated to employees via various
internal newsletters and personal
addresses made by the Chief Executive
Officer. Further details of progress made
this year are set out in the Responsible
Business report on page 36.
Information in the
directors’ report
Information fulfilling certain requirements
of the corporate governance statement
can be found in the Directors’ report
and is incorporated into this corporate
governance section by reference.
For reference, relevant sections
of the Directors’ report are:
• Substantial shareholdings
• Deadlines for voting rights
• Amendment of the Company’s
articles of association
• Appointment and replacement
of Directors
• Powers of Directors
• Authority to issue shares
• Repurchase of shares
Relations with shareholders
The Company reports formally to
its shareholders twice a year, with the
half year results announced normally
at the end of November and the full year
results which was deferred to June 2020.
In addition, the Board continues to
value the importance of building strong
investor relations, delivered through an
active investor relations communication
programme. The Remuneration
Committee, on behalf of the Board,
actively engaged with the Company’s
major shareholders following the
voting results on the 2019 Directors’
remuneration report. The feedback
was gratefully received and helped
to shape the revised Directors’
remuneration policy which is being
placed before shareholders at this
year’s AGM for approval. Further details
of the new policy can be found in the
Directors’ remuneration report set
out on pages 65 to 86.
In the reporting period, our scheduled
engagement programme focused
on improving investors’ understanding
of the Company’s strategy, product
developments and technology.
An extensive investor programme was
undertaken involving the Chairman, the
Chief Executive Officer, Chief Financial
Officer and Head of Investor Relations.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
53
This included formal events, roadshows
and site visits, along with regular
calls and one to one investor meetings
with representatives of institutional
shareholders and prospective investors.
The Chairman, Senior Independent
Director and other members of the
Board make themselves available
to meet with institutional investors
when requested, taking their
recommendations on board
where appropriate.
In light of the prevailing guidance from
the UK Government in relation to the
COVID-19 outbreak and specifically
the restrictions on unnecessary travel
and large gatherings, the annual
general meeting will be convened with
the minimum quorum of shareholders
(which will be facilitated by De La Rue’s
management) in order to conduct the
business of the meeting. Accordingly,
the Company strongly encourages all
shareholders to submit their proxy form
in advance of the meeting, appointing
the Chairman of the annual general
meeting as proxy rather than a named
person. In the interest of safety,
shareholders will not be allowed to
attend the annual general meeting
in person and anyone who attempts
to do so will be refused entry.
The Company will continue to closely
monitor the developing impact
of COVID-19, including the latest
UK Government guidance, should
it become appropriate to revise the
current arrangements for the annual
general meeting, any such changes
will be notified to shareholders through
our website at www.delarue.com and,
where appropriate, by announcement
made by the Company to a Regulatory
Information Service.
This year’s AGM will be held at 10:30 on
Thursday 6 August 2020 at De La Rue
House, Jays Close, Viables, Basingstoke,
Hampshire RG22 4BS. The notice of
AGM is sent to shareholders together
with a copy of the annual report.
Directors are invited to attend the AGM
and Committee Chairmen present take
questions at the AGM.
The Company normally publishes the
notice of annual general meeting and
relevant related papers to shareholders
at least 20 working days before the
meeting. This year the Board decided
to give shareholders 21 clear days
notice of the AGM as permitted under
the Company’s articles of association
and the Companies Act 2006. This will
allow the Board to convene the AGM
at the earliest opportunity following
the delayed release of the Company’s
audited financial results for the
full year as a consequence of the
COVID-19 pandemic. The notice
of AGM is available to view on the
Company’s website.
A poll is conducted on each resolution
at all Company general meetings.
All shareholders have the opportunity
to cast their vote in respect of
proposed resolutions by proxy, either
electronically or by post (see advice
opposite regarding this year’s annual
general meeting). Following the AGM,
the voting results for each resolution
are published and will be made
available on our website.
By order of the Board
Jane Hyde
Company Secretary
17 June 2020
Shareholders by location
%
UK
North America
Rest of Europe
Rest of World
Shareholders concentration
%
Top 1 to 5
Top 6 to 10
Top 11 to 20
Top 21 to 60
The remainder
74
20
4
2
57
14
12
14
2
Strategic reportCorporate GovernanceFinancial statementsShareholder information 54 De La Rue
Annual Report 2020
Composition, succession and evaluation continued
Nomination Committee
The Nomination Committee ensures that the Board and
its Committees maintain the appropriate balance of skills,
knowledge, experience and diversity to ensure compliance
with all legal and fiduciary obligations and to deliver value
to shareholders and other stakeholders.
Activities during the period
This year the Committee’s main
activity was Board and senior
leadership succession planning,
in particular the search for, and
appointment of, a new Chairman,
Chief Executive Officer and an
interim Chief Financial Officer.
This was achieved through a mixture
of formal meetings and frequent
informal exchanges. Further detail
on the process involved is under
Board changes.
Other areas of focus included:
• Review of the composition of the
Board and the range of skills and
experience on the Board
• Board and management succession
• Review of Board diversity
• Non-executive Directors’ periods
of appointment and confirmation
that all should stand for election
and re-election at the AGM
following a formal performance
appraisal process
• Review of the composition
of Board Committees
• Evaluation and effectiveness review
• External commitments
The Committee’s annual evaluation
involved the use of an external
independent facilitator, Lintstock
Limited. It was concluded that
the Committee continued to
operate effectively.
Kevin Loosemore
Chairman of the
Nomination Committee
17 June 2020
Dear Shareholder,
I am pleased to present the 2020
Nomination Committee report.
Members and attendance
Member
Kevin Loosemore (Chairman)1
Philip Rogerson2
Martin Sutherland3
Nick Bray
Sabri Challah
Maria da Cunha
Andrew Stevens4
Directors’
attendance
2019/205
0 (0)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
Notes:
Figures in brackets denote the maximum number of meetings
that could have been attended.
1
2
3
4
5
Kevin Loosemore became Chair of the Committee
on 1 October 2019.
Philip Rogerson retired from the Board on 1 October 2019.
Martin Sutherland stepped down from the Board on
7 October 2019.
Andrew Stevens stepped down from the Board
on 7 October 2019.
In addition to the scheduled meetings detailed within the
table, further ad hoc Committee meetings were held to
consider matters relating to Board succession planning.
Biographical details of the members
of the Board who held office up to the
date of this report can be found on
pages 44 and 45.
Operation of the Committee
The Committee leads the process
for nominations to the Board, making
recommendations to the Board as
appropriate. It gives full consideration
to the composition of the Board and
succession planning for Directors
and senior executives. The Chairman
and the independent Non-executive
Directors, together with the Chief
Executive Officer, are members
of the Committee.
Committee meetings
The Committee is required, in
accordance with its terms of reference,
to meet at least once a year. During the
year, the Committee formally met once
and held additional informal meetings
to discuss Board succession planning.
The Board recognises
the importance of having
an inclusive and diverse
culture, and we aim
to reflect this within
its composition.”
Principal responsibilities
The key areas of responsibility
of the Committee are:
Board structure
• To review the structure, size
and composition of the Board
and its Committees, to ensure
they remain appropriate, with
regard to maintaining a balance
of skills, experience, knowledge
and diversity and to make
recommendations to the Board
Succession
• To consider succession plans
taking into account challenges
and opportunities facing the
Company and the skills required
Effectiveness
• To review the time commitment
required of Non-Executive
Directors at least once a year
• To review the independence
of the Non-Executive Directors
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
55
Board changes
The Nomination Committee sought
a successor to Chairman of the
Board and retained Russell Reynolds
Associates, an independent executive
search firm which does not have any
other connections with the Company,
to conduct an extensive and thorough
search. This process was led by Andrew
Stevens, Senior Independent Director
at the time and the outgoing Chairman,
Philip Rogerson was not involved in
the selection or appointment process.
I was appointed to the Board as an
Independent Non-executive Director and
Chairman Designate on 2 September
2019 and I became Chairman of the
Board on 1 October 2019.
Martin Sutherland stepped down
as Chief Executive Officer of the Board
on 7 October 2019. The Committee
carried out an executive search for
his successor. Russell Reynolds
was retained again to find a suitable
successor for Martin. Clive was the
preferred candidate based on his
extensive experience working in
a variety of complex businesses
and in particular, his proven track
record of turning businesses around.
Clive Vacher was appointed as Chief
Executive Officer on 7 October 2019.
Helen Willis stepped down from
the Board on 24 January 2020.
Rob Harding was appointed as
interim Chief Executive Officer on
9 March 2020 and is a member
of the Executive Leadership Team
but is not a member of the Board.
An executive search for a permanent
replacement is in progress.
Board Diversity policy
Diversity and inclusion continues
to be an area of focus for the
Nomination Committee and the Board
is committed to promoting an inclusive
and diverse culture in terms of ideas,
skills, knowledge, experience,
education, ethnicity, gender, or
any other relevant measure.
The primary objective and responsibility
of the Board when making new
appointments is to ensure the strength
of the Board’s composition.
Non-executive Directors’ periods of appointment
2015
2016
2017
2018
2019
2020
2021
Director
Kevin Loosemore
Sabri Challah
Maria da Cunha
Nick Bray
First three
year term
Second additional
three year term
Non-executive Directors are appointed for an initial period of three years with the expectation of one further three year term, subject
to satisfactory performance and annual re-election by shareholders. Terms beyond this period are considered on a case by case basis
and only following rigorous review, taking account of performance and ability to contribute to the Board in light of the knowledge, skills,
experience and diversity required.
During the period, the Chief
Executive Officer and Group HR
Director led a comprehensive talent
review and succession planning
process to align with the new
proposed management structure.
The Board meets ELT members
and other key managers formally and
informally to exchange views and ideas.
Election and re-election
Both Kevin Loosemore and Clive Vacher
will stand for election at the 2020 AGM.
As in previous years, and in accordance
with the Code, all other Directors will
stand for re-election at the 2020 AGM
with the exception of Sabri Challah
who will stand down from the Board
at the conclusion of the meeting.
The Board, having carried out the
effectiveness and evaluation process,
considers the performance of each of
the Directors standing for election and
re-election at this year’s AGM to be
effective and that they demonstrate
commitment to their roles and is of
the opinion that all Directors continue
to provide valuable contributions to
the long term success of the
Company. The Board strongly supports
their election and re-election and
recommends that shareholders vote in
favour of the resolutions at the AGM.
The Board will continue to follow a policy
of ensuring that the best people are
appointed for the relevant roles while
ensuring that the Board members are
able to provide the range of perspectives,
insights and challenge required to
support effective decision making.
Appointments will be made based on
merit by assessing candidates against
objective criteria, but recognising
and embracing the benefits of greater
diversity. The Committee may instruct
search consultants to identify candidates
who meet the skills and experience
brief and as with previous appointments,
the Board will consider candidates from
the widest pool.
As at 28 March 2020, the Company has
one female Director (one Non-executive)
which represents 20% of the Board.
We aim to improve on this figure next
year in line with the recommendations
set out in the Hampton-Alexander report.
The Group has formally approved an
Inclusivity policy describing De La Rue’s
commitment to a working environment
where all people feel valued and
respected as individuals. Further details
on the Group’s approach to inclusion
and diversity and the gender pay gap
are set out on pages 35 and 36.
Succession planning and talent
The Committee recognises that
having the right Directors and senior
management is crucial for the Group’s
success and a key task of the Committee
is to ensure that there is a robust and
rigorous succession process to ensure
that there is the right mix of skills and
experience as the Group evolves.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 56 De La Rue
Annual Report 2020
Audit, risk and internal control
Audit Committee
The Audit Committee provides an independent overview
of the effectiveness of the internal financial control systems
and financial reporting processes.
Dear Shareholder,
I am pleased to present the 2020
Audit Committee report. This report
describes the Committee’s ongoing
responsibilities and key tasks as well
as its major activities in the period
ended 28 March 2020.
Members and attendance
Member
Nick Bray (Chairman)
Sabri Challah
Maria da Cunha
Andrew Stevens1
Directors’
attendance
2019/20
4 (4)
4 (4)
4 (4)
2 (2)
Note:
Figures in brackets denote the maximum number of meetings
that could have been attended.
1
Andrew Stevens stepped down from the Board on
7 October 2019.
Operation of the Committee
All members of the Committee are
Independent Non-executive Directors.
The Board is satisfied that the
membership of the Audit Committee
meets the requirement for relevant
and recent financial experience,
by virtue of my current position as
Chief Financial Officer of Travelport.
Biographies and experience of
members of the Committee can
be found on pages 44 and 45.
I have continued with the practice of
inviting the Chairman, Chief Executive
Officer, Chief Financial Officer, General
Counsel and Company Secretary,
and the external and internal auditors
to join meetings of the Committee.
The Group Director of Security, HSE
and Risk also attends Committee
meetings at specific times during the
year. The internal auditors and external
auditors each meet the Committee
without Executive Directors or other
employees being present.
The terms of reference of the Audit Committee
are available on the Group’s website
Committee meetings
The Committee is required, in
accordance with its terms of reference,
to meet at least three times a year.
During the year, the Committee met
four times.
Activities during the period
During the period, the Audit Committee
dealt with the following key matters:
• Group half year results
• Group preliminary announcement
and annual results
• Principal judgemental accounting
matters affecting the Group based
on reports from management and
the external auditors
• External audit plans and reports
• Group disclosure and
whistleblowing policy
• Going concern and
viability assessment
• External auditor effectiveness,
independence, and fees
(including non-audit fee)
• Internal auditor effectiveness
• Review of improvements
made to the Group’s Business
Continuity Plan
• Risk and assurance plans
and reports including:
– Group risk profile
– Internal audit plan
– Internal audit reports
– Follow up of internal
audit recommendations
– Annual review of the system
of internal controls
– Business continuity
– Internal control self
assessment review
– HSE legal assurance
and compliance audits
• Audit Committee effectiveness
Nick Bray
Chairman of the Audit Committee
17 June 2020
Principal responsibilities
The key areas of responsibility
of the Committee are:
Financial reporting
• Reviewing the integrity of the interim
and full year financial statements
• Reviewing significant financial
reporting issues and judgements
• Advising the Board on whether taken
as a whole, the annual report is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the
Group’s performance, business
model and strategy
Risk management
and internal audit
• Monitoring and reviewing the
effectiveness of internal financial
controls and internal control
and risk management systems
• Reviewing the effectiveness
of the internal audit function
• Reviewing the effectiveness
of the Group’s whistleblowing
procedures and arrangements
External audit
• The appointment of the external
auditors including the agreement
of the terms of engagement at
the start of each audit, the audit
scope and the external audit fee
• Reviewing and monitoring
the external auditor’s
effectiveness, independence
and objectivity including the
nature and appropriateness
of any non-audit fees
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
57
Providing rigorous oversight
and challenge of the Group’s
internal controls and risk
management processes
and procedures continues
to be an important part
of the Committee’s role
and an essential aspect
of the Group’s corporate
governance framework.”
Significant accounting matters
The Audit Committee is responsible for
reviewing whether suitable accounting
policies have been adopted and applied
consistently and determining if management
has made appropriate estimates and
judgements in the preparation of the
financial statements. During the period,
the Audit Committee has also overseen
the adoption of the new IFRS 16 Financial
Reporting standard. In addition, the Audit
Committee has reviewed and considered
and challenged a number of key accounting
areas and judgements as set out below.
Adoption of new Financial
Reporting Standards in the period
Implementation of IFRS 16
During the year, the Audit Committee
oversaw the adoption of IFRS 16 (leases).
A detailed assessment of all leases was
undertaken and the Group has recorded
a right of use (ROU) asset representing its
right to use the asset and a lease liability
representing its obligation to make the
lease payments.
The Audit Committee reviewed the analysis
and the impact on the Group’s balance
sheet, reviewed and challenged the lease
terms used and the assumptions regarding
renewals and break options as well as
the incremental borrowing rates used to
discount the lease payments and concluded
that appropriate judgements have been
made. The Audit Committee considered
these judgements to represent critical
accounting judgements and accordingly
these have been included on page 114.
Revenue recognition
The Committee considered the
Group’s revenue recognition policies and
procedures to ensure that they remained
appropriate and that the Group’s internal
controls were operating effectively in this
area. Feedback was also sought from
the external auditors over the application
of the revenue recognition policy
including the ongoing compliance
with IFRS 15 and a specific review of
shipments pre- and post-year end.
Following a review of the varied sources
of information received, the Committee
concluded that the accounting treatments
were reasonable and appropriate.
UK post-retirement
benefit obligations
The Committee received and considered
reports from management based on
analysis prepared by independent actuaries
and the external auditors in relation to the
valuation of the defined benefit pension
scheme and challenged the key actuarial
assumptions used in calculating the
scheme liabilities, especially in relation
to discount rates, RPI and CPI inflation
rates and mortality.
The Committee discussed the reasons
for the movement on the IAS 19 valuation
from a net deficit to a net surplus.
The Committee was satisfied that the
assumptions used were appropriate
and were supported by independent
actuarial specialists. The Committee also
considered whether in accordance with
IFRIC 14 it is appropriate to present the full
net surplus on the balance sheet. The Audit
Committee concluded it was because the
Group has an unconditional right to any
surplus. Details of the key assumptions
used are set out in note 26. The Committee
also noted that approximately £110m of the
UK defined benefit pension scheme assets
were valued at 31 March 2020 as opposed
to the year end date of 28 March 2020
as for these investments a valuation
at the year end date was not available.
The Committee considered reports
presented by management which
estimated the impact of the difference
in valuation date to be less than £1m.
The Committee considered this to not
be significant when compared to total
UK defined benefit pension scheme assets
of in excess of £1bn and that no better
valuation to that at 31 March 2020 was
available. However, the Committee decided
that a critical accounting judgement on this
should be disclosed – see page 114.
Going Concern
The committee gave careful consideration
to the Going Concern statements made in
the half and full year financial statements
and the disclosures given in relation to the
material uncertainty relating to the approval
of the Company’s shareholders in respect
of the Capital Raise. The Committee
has conducted rigorous reviews of the
Group’s financial forecasts challenging
key assumptions and giving careful
consideration to the plausible downside
scenarios included in the base forecasts.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 58 De La Rue
Annual Report 2020
Audit, risk and internal control continued
The Committee has also taken into
consideration the current level of headroom
on the covenants and then considered the
expected covenant ratios going forwards as
disclosed in the Going Concern comments
on page 107. The Committee has reviewed
and challenged the proposed cashflows
presented by management.
Matters that the Committee
considered included:
• the likelihood of the Group’s announced
intention to raise £100m by way of a firm
placing and open offer being successful
and considered that they had a reasonable
expectation that it would proceed,
however they also noted it was
conditional on shareholder approval;
• the status of agreements in principle
with its lenders and pension trustees
and concluded that it had a reasonable
expectation the Equity Raise condition
would be satisfied and thus the Long
Stop Provision should not be invoked;
• the impact of COVID-19 on the
operations and financial position of
the Group and concluded that whilst
the Group’s operations have not been
significantly impacted by COVID-19 so
far, they acknowledged that the global
impact of the Pandemic is still to be fully
understood and the impact to the Group
cannot be reasonably quantified;
• The Committee also considered some
plausible downside scenarios that reflect
the possible impact of key risks as detailed
in the Strategic Report on pages 23 to 29.
They included: investments in Polymer and
security features not delivering the forecast
returns, banknotes volumes being weaker
in FY 2022 as a result of reduced demand,
weaker growth in authentication due to
few new contract wins and limited growth
on existing contracts and reductions
to the cost base not being achieved.
The Directors also considered additional
COVID-19 risks including further site
closures and absenteeism resulting in
loss of volumes and consequent revenue
in Currency and further reduction to
Authentication revenues due to
manufacturing challenges. In the event
that these downsides would occur the
Directors considered mitigating actions
that could be taken. The Committee
concluded that the above modelling of
plausible downsides, additional COVID-19
risks and mitigating actions allowed for
a 32% reduction in adjusted operating
profit in FY 2021 and a 49% reduction
in FY 2022.
The Committee considered the outcome
for the Group if the Shareholder Vote is not
successful and the Capital Raise is not
completed by the Long Stop Date (for
further details see pages 107 to 109), the
company would continue to operate under
its current covenants and the Long Stop
Provision would become effective. In this
scenario, if the Company is not able to
agree an alternative financing plan within 45
days it would constitute an immediate event
of default (see further discussion on page
108). The Committee noted that while the
Directors have a reasonable expectation
that the Shareholder Vote will be successful,
they have identified a material uncertainty
which could cast significant doubt on the
Group and company’s ability to continue as
a going concern, given that the implications
of this not passing (namely the outcome
of an attempt to reach agreement of an
alternative financing plan) would be outside
of the Company’s control and could lead
to an event of default under the terms of
the amended RCF agreement.
In consideration of the above, the
Committee reached the overall conclusion
that despite the material uncertainty detailed
above relating to the Shareholder Vote
on the Capital Raise, the Directors have a
reasonable expectation that the funds will
be received before 31 July 2020 and as
such do not expect the Long Stop Provision
to become effective. On this basis, the
Directors therefore conclude that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. Accordingly, the Directors continue to
adopt the going concern basis in preparing
the annual report and accounts.
COVID-19
The Committee considered a detailed
summary prepared by management on the
potential impact of COVID-19 on the Group
financial position. The Committee noted
that the Group’s operations have not been
significantly impacted by COVID-19 so far,
but carefully considered management’s
assessment of the potential impact on
the 28 March 2020 balance sheet and
financial position.
The presentation by management included
consideration of each line item in the
balance sheet which could be impacted
by COVID-19. The overall conclusion of the
Committee was that given the nature of the
Group’s products, it does not consider any
adjustment to the numbers report in the
period to 28 March 2020 or the balance
sheet at this date. In arriving at this
conclusion the Committee reviewed the
assessment prepared by management
and agreed with their conclusions.
The Committee also considered that
given the nature of the products the
Group supplies and their importance
to the customers they serve, whilst
COVID-19 may cause short to medium
term disruption it does not see a particular
risk to the recoverability of assets on the
balance sheet. The Committee agreed
that as the impact of COVID-19 cannot
be fully identified, it would continue to
closely monitor the impact with regular
updates from Management.
Valuation of inventory
The Committee reviewed the Group’s
policies and procedures over the valuation
and recoverability of inventory (£53.9m).
The Committee received confirmation
that the valuation principles had been
consistently applied and noted that the
majority of inventory items were made
to order rather than held for generic stock
and hence the recoverability risk was low.
Accordingly, the Committee concluded
that the accounting treatments were
reasonable and appropriate.
Estimation of accruals
and provisions
The Group holds a number of provisions
relating to warranties including present
obligations for defective products and
known claims as well as anticipated claims
that had not been reported at the balance
sheet date. The Committee reviewed and
discussed reports from management
and the external auditors concerning the
significant provisions held for such matters
including any provisions with notable
movements and challenged management
over the judgements applied in determining
the value of provisions required.
The Committee enquired of management
and the external auditors as to the existence
of other matters potentially requiring a
provision to be made. The Committee
concluded that it was satisfied with the
value of provisions carried.
The Group is subject to income taxes
in numerous jurisdictions and significant
judgement is required in determining
the worldwide provision for those taxes.
The level of current and deferred tax
recognised is dependent on subjective
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
59
judgements as to the outcome of decisions
to be made by the tax authorities in the
various tax jurisdictions around the world in
which the Group operates. It is necessary to
consider which deferred tax assets should
be recognised based on an assessment
of the extent to which they are regarded as
recoverable, which involves assessment
of the future trading prospects of individual
statutory entities.
The actual outcome may vary from that
anticipated. Where the final tax outcomes
differ from the amounts initially recorded,
there will be impacts upon income tax and
deferred tax provisions and on the income
statement in the period in which such
determination is made.
The Group has current tax provisions
recorded within Current tax liabilities,
in respect of uncertain tax positions.
In accordance with IFRIC 23, tax provisions
are recognised for uncertain tax positions
where it is considered probable that the
position in the filed tax return will not be
sustained and there will be a future outflow
of funds to a taxing authority. Tax provisions
are measured either based on the most
likely amount (the single most likely amount
in a range of possible outcomes) or the
expected value (the sum of the probability-
weighted amounts in a range of possible
outcomes) depending on management’s
judgement on how the uncertainty may be
resolved. The Group is disputing a number
of tax assessments received from the
tax authority of a country in which the
Group operates.
The disputed tax assessments are at
various stages in the local appeal process,
but the Group believes it has a supportable
and defendable position (based upon
local accounting and legal advice), and
is appealing previous judgments and
negotiating with the tax authority in
relation to the disputed tax assessments.
The Company’s expected outcome
of disputed tax assessments is held
within the relevant provisions in the
2020 Financial Statements.
The Committee has considered the
latest available information provided
by management including the latest
view of external advisers and is
confident with the judgements made
in preparing the financial statements
in the current period.
Classification of exceptional items
As part of the Committee’s deliberations
over whether the Annual Report and
Accounts, taken as a whole, is fair, balanced
and understandable, the Committee also
considered the amounts disclosed as
exceptional items. The nature of the items
classified as operating exceptional items
during the period is described in note 4.
The Committee considered the accounting
treatment and disclosure of these items in
the financial statements including seeking
the views of the external auditors.
On the basis of this review, the Committee
concluded that the accounting treatment
and disclosures in relation to these items
were appropriate.
Accounting for the sale of the
International Identity Solutions
business to HID in October 2019
The Committee reviewed the disposal
accounting for the International Identity
Solutions business.
Amongst other matters, the Committee also
reviewed the following key matters during
the reporting period:
• The accounting treatment for the
disposal group under IFRS 5
• That the International Identity Solutions
business did not meet the criteria
for presentation as a discontinued
operation in accordance with IFRS 5
• The formation of the disposal
group and impairment testing
• The completion accounts and
working capital adjustment
Following presentations by management
and discussions with the external auditors,
the Committee was satisfied with the
disclosures relating to the disposal of the
International Identity Solutions business.
FRC letter response
The Company received a letter from the
Financial Reporting Council (FRC) on
10 March 2020 containing a number of
questions, in order to clarify understanding
as to how De La Rue had satisfied certain
reporting requirements. The principle
areas where further information was
required were:
• Revenue recognition
• Specific judgemental accruals
• Other financial assets
• Alternative Performance Measures
‘APMs’
The Audit Committee reviewed the
letter and challenged and developed the
responses to the FRC and oversaw the
development of additional disclosures
for the March 2020 Annual Report and
Accounts. In April the Company received
a response from the FRC advising that
the Company had answered all questions
appropriately enabling the FRC to close
their enquiry. No change to any accounting
policies were required in response to the
comments raised by the FRC.
FRC letters are written on the basis that
the FRC (which includes the FRC’s officers,
employees and agents) accepts no liability
for reliance on them by the Company or
any third party, including but not limited
to investors and shareholders.
Independence and objectivity
of external auditors
The Committee ensures that the external
auditors (Ernst & Young LLP) remain
independent of the Group. The Audit
Committee has a detailed policy covering:
• Choosing the statutory auditors
and approving the audit fee
• Commissioning non-audit work
• Defining circumstances in which it
is appropriate or inappropriate for
incumbent auditors to be allowed
to provide or be prohibited from
providing non-audit work
• De La Rue’s procedures for procuring
non-audit services from external
sources, which specifically prohibits
Ernst & Young LLP from undertaking
certain types of service (including but not
limited to services where it would audit
its own work, where it would act in an
advocacy role for the Group or where it
would participate in activities normally
undertaken by management)
However, it may be cost effective for
Ernst & Young LLP to perform certain
non-audit services, in particular where
the skills and experience required make
Ernst & Young LLP the most suitable
supplier. Certain categories of non-audit
services, including corporation tax
compliance and due diligence services
must be subject to competitive tender
unless it is justifiable in the circumstances
not to do so. Areas which would not
normally be acceptable non-audit
services but in exceptional circumstances
may be considered appropriate, such
as litigation and compliance services,
require my prior approval.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 60 De La Rue
Annual Report 2020
Audit, risk and internal control continued
The selection criteria include detailed
proposals, timescales, local resource,
cost and the safeguards put in place
by Ernst & Young LLP to avoid conflicts
of interest or loss of independence.
In addition, the Group’s policy is for any
individual assignment to be undertaken by
Ernst & Young LLP where the fee is likely
to be in excess of £50,000 to be approved
by me prior to commencement of work.
During 2019/20, the amount of non-
audit fees paid to Ernst & Young LLP
was £0.1m.
Ernst & Young LLP put safeguards in place
to avoid compromising their objectivity
and independence. They provide a written
report to the Audit Committee on how they
comply with professional and regulatory
requirements and best practice designed
to ensure their independence. Key members
of the Ernst & Young LLP audit team rotate
and the firm ensures, where appropriate,
that confidentiality is maintained between
different parts of the firm providing services
to De La Rue.
The Audit Committee places great
emphasis on the objectivity of the
Company’s auditors, Ernst & Young LLP,
in reporting to shareholders.
The Ernst & Young LLP audit partner
is present at Audit Committee meetings
to ensure communication of matters
relating to the audit. The Audit Committee
has regular discussions with the auditors,
without management being present, on the
adequacy of controls and on judgemental
areas and receives and reviews the auditors’
highlights reports and management letters,
which are one of the main outputs from
the external audit.
The scope and key focus of the
forthcoming year’s audit is discussed with,
and approved by, the Audit Committee.
Appointment of auditors
The Audit Committee assesses annually
the qualification, expertise, resources and
independence of the external auditors and
the effectiveness of the audit process.
The Audit Committee’s assessment
is performed by an audit satisfaction
questionnaire completed by the Chairman,
relevant senior management and Audit
Committee members.
Ernst & Young LLP have been the
Company’s auditors since June 2017,
when they were appointed by the Board
following the most recent tender of the
external audit. They have since been
re-appointed at the annual general
meetings held in July 2017, July 2018
and July 2019.
improvements in the overall Group controls
framework. Actions agreed are followed up
by senior management to ensure that
satisfactory control is maintained.
During the year ended 28 March 2020, the
Audit Committee met privately with Ernst
& Young LLP on four occasions, without
executives of the Company being present.
Internal control and
risk management
As noted above, the Committee is
responsible for reviewing, on behalf of the
Board, the effectiveness of the Group’s
internal financial controls and the
assurance procedures relating to the
Group’s risk management systems.
These controls and procedures are
designed to manage, but not eliminate,
the risk of failure of the Group to meet its
business objectives and, as such, provide
reasonable but not absolute assurance
against material misstatement or loss.
The key elements of the Group’s
risk management framework and
procedures are set out on pages 23 to 29.
The Committee reviews these topics at
each meeting and considers that none
of the areas identified for enhancement
during the year constituted a significant
failing or weakness for the Group.
Internal audit
Assurance over the design and operation
of internal controls across the Group
is provided through a combination of
techniques. The Board, through the Audit
Committee, monitors the effectiveness
of internal control systems through reports
received from the internal audit function
during the period. The delivery of the
internal audit function has been outsourced
since 2009. PricewaterhouseCoopers LLP
have performed this role since the start
of 2013/14.
Internal audit continued to ensure that their
efforts were aligned to the operational risks
that the Group faces while maintaining an
emphasis on reviewing the adequacy and
effectiveness of general finance and IT
controls across the Group on a cyclical
basis. In addition to internal audit work,
there is a system of self assessment internal
control reviews by which management are
required to detail and certify that controls
are in operation to ensure the control
environment in their business areas is
appropriate. This self assessment process
has been refreshed in the year to reflect
The internal audit plan is set and reviewed
by the Audit Committee. Additionally, the
Audit Committee reviews reports from the
external auditors on internal control matters
noted as part of their audit work.
The 2020/21 Internal Audit plan was
approved by the Committee in April 2020
and during the year ended 28 March 2020,
the Audit Committee met privately with
PricewaterhouseCoopers LLP on two
occasions, without executives of the
Company being present.
Fair, balanced and
understandable view
At its June 2020 meeting, the Committee
reviewed the content of this Annual Report
and Accounts and advised the Board
that, in its view, taken as a whole, it is
fair, balanced and understandable and
provides the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy.
In making its recommendation to the
Board the Committee continued its robust
existing governance arrangements by:
• Comprehensive Group and subsidiary
accounts process, with written
confirmations provided by business unit
senior management teams on the health
of the financial control environment
• Reviews of the annual report undertaken
at different levels of the Group and by the
senior management team that aim to
ensure consistency and overall balance
• External audit review
• Clear guidance and instruction of the
requirement provided to contributors
• Written confirmation that information
provided by executive management has
been done on a fair and balanced basis
• Additional reviews by the Audit
Committee Chairman of the draft annual
report in advance of the final sign-off
in the context of the Code provision
Final sign-off is provided by the
Board, on the recommendation
of the Committee.
Nick Bray
Chairman of the Audit Committee
17 June 2020
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
61
Risk Committee
The Group sees
the identifying and
management of risk as
critical to achieving its
strategic objectives.”
Principal responsibilities
• Recommend the risk management
policy and strategy
• Oversee development and
maintenance of a Group-wide
risk management framework
for identifying and managing risks
• Identify and review all major risks
faced by the Group and ensure
that appropriate controls are
in place to manage those risks
• Review the Group’s ability to identify
and manage new types of risks
• Promote a risk management
culture and control environment
• Review the effectiveness of the
Group’s non-financial internal
control systems in the management
and reporting of risks
The Board has delegated to the Risk Committee the
responsibility for identifying, evaluating and monitoring
the risks facing the Group and for deciding how these
are managed.
Dear Shareholder,
On behalf of the Risk Committee,
I am pleased to present the 2020 Risk
Committee report. This report sets
out the composition, role and activities
of the Committee in the period ended
28 March 2020.
Members and attendance
Member
Jane Hyde (Chairman)1
Edward Peppiatt
Andrew Davidson2
Jo Easton2
Bryan Gray2
Richard Hird2
Selva Selvaratnam2
Martin Sutherland2
Clive Vacher3
Helen Willis2
Natasha Bishop1
Andrew Clint1
Ruth Euling1
Members’
attendance
2019/20
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
0 (0)
1 (1)
1 (1)
1 (1)
1 (1)
Notes:
Figures in brackets denote the maximum number of meetings
that could have been attended.
Appointed 25 February 2020.
1
2 Ceased to be a member during the year.
3 Appointed to the Board on 7 October 2019.
Operation of the Committee
The Committee comprises all
Executive Directors of the Board
and the rest of the ELT members.
The Group Director of Security,
HSE and Risk attend the meetings.
The Committee meets and reports
to the Board at least annually.
Any Director may attend meetings
and the Board may appoint any
other individual as they determine.
Committee meetings
The Committee is required, in
accordance with its terms of reference,
to meet at least twice a year. During the
year, the Committee met twice.
Activities during the period
During the period, the Risk Committee
considered reports on:
• The principal risks of the Group
including emerging risks (see the
risk and risk management report
on pages 23 to 29
• Risks associated with Brexit, including
preparedness and risk ratings under
both ‘Deal’ and ‘No Deal’ scenarios
• Risk appetite
• Controls and mitigations
implemented to manage banking
arrangements effectively
• Improvements made to the Group’s
Business Continuity Plan
• Specific operational risks of concern
and the mitigations in place
• Data protection requirements
• Impact of the COVID-19 virus to the
Group’s operations and employees
The Directors acknowledge that
they have overall responsibility for the
Group’s system of internal control
for managing risks including emerging
risks associated with the business and
markets within which the Company
operates. Further details relating to
how the Directors maintain overall
control of significant strategic, financial,
operational and compliance issues are
set out in the risk and risk management
report on pages 23 to 29.
In addition, the Board has delegated
to the Risk Committee the responsibility
for identifying, evaluating and monitoring
emerging risks facing the Group and
for deciding how these are managed.
At the period end, following review by the
Audit Committee of internal controls and
of the processes covering these controls,
the Board evaluates the effectiveness
of the risk management procedures
conducted by senior management.
The Committee is assisted by Group
Committees, which deal with specific
areas of risk, such as HSE and security.
Jane Hyde
Chairman of the Risk Committee
17 June 2020
Strategic reportCorporate GovernanceFinancial statementsShareholder information 62 De La Rue
Annual Report 2020
Audit, risk and internal control continued
Ethics Committee
The Committee is responsible, on the Board’s behalf,
for considering ethical matters, including reviewing
compliance with the Code of Business Principles.
The Committee makes recommendations to the Board
on how these matters should be addressed, reinforcing
the Group’s commitment to ensuring that sound ethical
practices are embedded in the way we do business.
Activities during the period
During the period to 28 March 2020,
the Committee focused on the
following activities:
• CBP activity update, including
training plans
• The management of the Third
Party Partner programme
• Update on BnEI activities
and progress
• Review of sanctions risks and
actions undertaken or planned
to manage those risks
• Review of the gift register
for Executive Directors
• Review of reports on issues
raised through the whistleblowing
hotline – CodeLine – and other
channels and review of results
of any investigations into ethical
or compliance breaches or
allegations of misconduct
Kevin Loosemore
Chairman of the Ethics Committee
Dear Shareholder,
I am pleased to present the 2020
Ethics Committee report.
Members and attendance
Member
Kevin Loosemoore
(Chairman)1
Philip Rogerson2
Nick Bray
Sabri Challah
Maria da Cunha
Andrew Stevens3
Directors’
attendance
2019/20
1 (1)
1 (1)
2 (2)
2 (2)
2 (2)
1 (1)
Notes:
Figures in brackets denote the maximum number of meetings
that could have been attended.
1
Kevin Loosemore was appointed as Independent
Non-executive Director and Chairman Designate
on 2 September 2019 and he became Chairman
of the Board on 1 October 2019.
2 Philip Rogerson retired from the Board on 1 October 2019.
3
Andrew Stevens stepped down from the Board on
7 October 2019.
Operation of the Committee
The Committee comprises all Non-
executive Directors of the Board.
The Chief Executive Officer and other
Board members may attend meetings
at the invitation of the Committee.
Members of the ELT and other
employees, including heads of both
Divisional businesses, may be asked
to attend from time to time to address
specific matters.
Committee meetings
The Committee is required, in
accordance with its terms of reference,
to meet at least twice a year. During the
year, the Committee met twice.
We must deliver on
our strategic objectives
in the right way.”
Principal responsibilities
The main responsibilities of the
Ethics Committee are to:
• Assist the Board in fulfilling its
oversight responsibilities in respect
of ethical matters
• Ensure that De La Rue conducts
business with integrity and honesty
and in accordance with relevant
legislation and regulations
• Oversee compliance with
the Company’s policies and
procedures on ethical matters
• Advise the Board on the
development of strategy and
policy on ethical matters
• Advise the Board on steps
to be taken to embed a culture
of integrity and honesty in all of
the Group’s business dealings
• Oversee the development and
adoption of Group policies and
procedures for the identification,
assessment, management and
reporting of ethical risk
• Oversee the investigation of any
material irregularities of an ethical
or non-financial fraudulent nature
and review subsequent findings
and recommendations
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
63
De La Rue’s ethical framework
To maintain the trust and confidence
of customers, and everyone it deals with,
it is essential that the Group delivers on
its strategic objectives in the right way,
conducting its business with integrity,
honesty and transparency.
We recognise that our business is
exposed to risks of unethical conduct
because of the nature and value of
many of our contracts and because
the standards of integrity may not be
consistent across all the countries in
which we operate. We have a robust
compliance programme in place
which allows us to manage these
risks effectively as explained below.
The Group’s ethical framework,
summarised here, is underpinned by
our Code of Business Principles, which
is supported by standards, policies,
internal controls and communication.
All employees, consultants and those
acting on the Group’s behalf are
expected to adopt these standards.
The Group ensures that our ethical
credentials are monitored, including
through the Ethics Committee and
via formal internal and external audits,
ensuring that it is maintaining the
highest ethical standards and receiving
recommendations for improvement.
We are also participants in the UN
Global Compact Initiative.
Our ethics and
compliance programme
Code of Business Principles (CBP)
The CBP focuses on nine core
principles which define the way in which
we conduct ourselves and work on a
daily basis. On joining the business,
and at regular intervals, all employees
are required to confirm that they
understand and abide by the Code.
If an employee is found to have acted
in breach of the CBP, the Group takes
appropriate action to address that
breach including disciplinary action
and ultimately terminating employment
in the most serious cases.
Gifts and hospitality
We have a clear approval process
for gifts, entertainment and hospitality
offered by or given to our employees.
All employees are required to comply
with the gifts and hospitality policy
which requires all gifts, entertainment
and hospitality above a nominal value
to be recorded on a central Gift Register
which is reviewed on a monthly basis.
The Committee receives a report
on the gifts received or given by the
Executive Directors.
Banknote Ethics Initiative (BnEI)
De La Rue is one of the founding members
of the BnEI which was established to
promote ethical business practice in the
industry. The initiative sets out a robust
framework for promoting high ethical
standards with a focus on the prevention
of corruption and on compliance with
anti-trust law. Members are required to
commit to the Code of Ethical Business
Practice that was developed in partnership
with the Institute of Business Ethics.
Compliance with the code through
processes, procedures and controls
is rigorously tested through an audit
framework developed in conjunction
with GoodCorporation, recognised
as a leading company in the field of
corporate responsibility assurance
and business ethics.
De La Rue’s re-accreditation was
confirmed at Level 1 in April 2020.
The findings of the triennial BnEI
audit confirmed that De La Rue
continues to perform strongly against
GoodCorporation benchmarks.
Third party partners (TPPs)
We recognise that it is not just our
employees who could be exposed to
ethical risks but also TPPs who represent
us or act on our behalf around the world,
and their conduct remains one of our most
significant risks. There is a continuing
requirement for TPPs to undergo our
mandatory training programme and
to conduct business in compliance
with the standards set by the Company.
Due diligence is undertaken on all our
TPPs before they are engaged and this
process is reviewed on a regular basis.
TPPs are given regular training to ensure
they remain alert to potential risks.
We have risk management measures
and controls in place including in
relation to remuneration of TPPs and
we monitor all payments to ensure
that the remuneration structure does
not incentivise unethical behaviour.
The Committee receives regular reports
on payments made to sales consultants,
together with an update on steps
being taken to manage performance
and ensure appropriate remuneration
structures are in place which are
aligned to BnEI requirements.
Ethics Champions
The Group’s network of Ethics Champions
ensures that each site has local support
and representation for CBP matters
and continues to play an integral part
in ensuring that strong ethical values
are embedded across the business.
Whistleblowing
We encourage all employees and people
acting on our behalf to speak up if they
have any concerns. The Audit Committee
reviews our whistleblowing policy and
procedures each year. Ethical questions
or concerns raised by employees or third
parties through the De La Rue CodeLine
are investigated and all findings and
remedial actions are reported in detail
in periodic reports prepared for and
reviewed by the Ethics Committee.
During the year we commenced the
rollout of an employee awareness
campaign to remind colleagues about
De La Rue’s whistleblowing provision
and promote confidence in the integrity
of the process.
Training
The Committee attaches significant
importance to regular, relevant and
focused training. Training during the
period included:
• Face to face introduction to
TPP training sessions to new
TPP stakeholders
• Anti-bribery and competition
law training where relevant for
new starters
• Online training modules for
TPPs and relevant employees
• Commencement of CodeLine
awareness training for all employees
• One to one training for new site
Ethics Champions
Kevin Loosemore
Chairman of the Ethics Committee
17 June 2020
Strategic reportCorporate GovernanceFinancial statementsShareholder information 64 De La Rue
Annual Report 2020
Audit, risk and internal control continued
Code of Business Principles
Code of Business Principles – 9 Topics
1
2
3
4
5
6
7
8
9
Bribery and
corruption
Competition
and anti-trust
Gifts and
hospitality
Health,
Safety &
Environment
Employment
principles
Records and
reports
Personal
information
Insider
trading
Conflicts of
interest
Backed up by policies
• Anti-bribery
and corruption
• Competition
and anti-trust
• Gifts and
entertainment
• Charitable
giving
• Gifts and
• Group
• Equal
entertainment
• Expenses
• Anti-bribery
and corruption
• Conflict of
interest
opportunities
• Fairness
and respect
• Diversity
• Operational
Delegation
of Authority
• Group finance
manual
• Data
protection
• Information
Security
• Clear desk/
clear screen
• Document
retention
• Share dealing,
market abuse
and insider
trading
• Conflicts
of interest
• Gifts and
entertainment
Supported by processes
• TPP
• Gift register
• Expenses
vetting
• Legal
department
guidelines
• Gift register
• Expenses
vetting
• Grievance
procedure
• Disciplinary
process
• Compliance
declarations
• External
monitoring
• Separation
of duties
• Annual data
protection
returns
• Procedure
for dealing
with inside
information
• Dealing
approvals
• Gifts
register
• Monthly
reporting
• Global HSE
standards
• ISO
management
systems
• SAFE and
secure audits
Underpinned by oversight, controls and communication
Specialist audits
Benchmarking
CodeLine
Employee surveys
Ethics Committee
External audit
Internal audits
Training/induction
Risk reviews
SharePoint
BnEI accreditation
UN Global Compact
Directors’ remuneration report
Chairman’s introduction
De La Rue
Annual Report 2020
65
The Committee’s responsibilities are outlined in its terms
of reference which can be found at www.delarue.com.
The responsibilities are reviewed annually and referred
to the Board for approval.
Committee meetings
The Remuneration Committee
consists exclusively of Non-executive
Directors, all of whom are regarded as
independent. The Committee met six
times during the period and details
of attendance can be found above.
The Chief Executive Officer and the
Group Director of Human Resources
also attended meetings by invitation.
The General Counsel and Company
Secretary, who is also secretary
to the Committee, advised on
governance issues.
No Executive Director or employee is
present for or takes part in discussions
in respect of matters relating directly
to their own remuneration.
Activities during the period
• Approval of the Executive Leadership
Team group and strategic individual
objectives for the year
• Review of performance targets for
short and long term incentive plans
• Approval of pay awards for
Executive Directors and the ELT
• Determination of remuneration for
the new Chief Executive Officer
• Review and approval of the
Directors’ remuneration report
• Review of the proposed changes
to the remuneration policy
statement and consultation
with major shareholders and
institutional bodies
• Review of market trends and latest
developments in governance
• Review of market trends in
relation to treatment of executive
remuneration in light of COVID-19
• Awards under the UK Sharesave
scheme
• Review of the report on gender
pay gap and action plan
Dear Shareholder,
As Chair of the Remuneration
Committee, I am pleased to present
the Directors’ remuneration report for the
period ended 28 March 2020, my first
as Chair which has been prepared by the
Remuneration Committee and approved
by the Board. I would like to extend my
thanks to Sabri Challah, who stepped
down as Chairman of the Committee
on 7 October 2019 to take on the role
of Senior Independent Director for his
hard work and commitment, which
laid the foundation for the proposed
remuneration policy.
This year, I would like to focus on
two themes: the changes that we are
proposing to make to the remuneration
policy which will apply from 2020/21,
if approved by shareholders; and the
performance of the Group in the financial
year that ended on 28 March 2020,
which means that no bonus under the
Annual Incentive Plan will be payable to
Executive Directors this year. I would also
like to outline how we propose to comply
with the changes to the UK Corporate
Governance Code.
Members and attendance
There was a significant change in
the composition of the Committee in
the year. On 7 October 2019, Philip
Rogerson and Andrew Stevens stepped
down from the Board; Sabri Challah
became the Senior Independent Director
and I took over as Chairman of the
Remuneration Committee.
Member
Maria da Cunha (Chairman)1
Philip Rogerson2
Nick Bray
Sabri Challah
Andrew Stevens3
Directors’
attendance 2019/20
6 (6)
3 (3)
6 (6)
6 (6)
3 (3)
Notes:
Figures in brackets denote the maximum number of meetings
that could have been attended.
1
2
3
Maria da Cunha was appointed Chairman
of the Committee on 1 October 2019.
Philip Rogerson stepped down as Chairman
and from the Board on 1 October 2019.
Andrew Stevens stepped down from the Board
on 7 October 2019.
We believe our
remuneration policy is
critical to delivering both
planned performance
each year and the longer
term transformation
of De La Rue.”
Principal responsibilities
A summary of the responsibilities
are as follows:
Remuneration
• Setting and reviewing the remuneration
of the Chairman, Executive Directors
and senior executives who report to
the Chief Executive Officer
• Ensuring that all remuneration paid
to Directors is in accordance with
the Company’s previously approved
remuneration policy
• Ensuring that all contractual terms on
termination, and any payments made, are
fair to the individual and the Company
• Monitoring the reward policies and
practices throughout the business
Incentive plans
• Determination of the design, conditions
and coverage of annual and long-term
incentive plans for Directors and senior
executives and approval of total and
individual awards under the plans
• Determination of targets for any
performance related pay plans
Governance and compliance
• Ensuring that provisions relating to
disclosure of remuneration as set
out in the relevant legislation, the UK
Listing Rules and the UK Corporate
Governance Code are fulfilled
Strategic reportCorporate GovernanceFinancial statementsShareholder information 66 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Compliance statement
This report has been prepared on
behalf of, and has been approved
by, the Board. It complies with the
Large and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008 (SI 2008/410)
as amended, the UK Corporate
Governance Code and the FCA’s
Listing Rules and takes into account
the policies of shareholder representative
bodies. The Companies Act 2006
and the Listing Rules require the
Company’s auditor to report on
the audited information in their report
on pages 92 to 101 and to state
that this section has been properly
prepared in accordance with
these regulations.
Proposed remuneration policy
Our remuneration policy remains a
critical catalyst to delivering both in-year
performance and the longer term
transformation of De La Rue. This year
we have carried out our triennial review
of the policy. The proposed policy is
designed to support the delivery of
the Turnaround Plan in its ambition to
return to progressive margin growth
in Currency and strong year on year
growth in Authentication by bringing
sharp focus on a small number of
critical measures required to:
• Drive efficiency, cost competitiveness
and balanced profitable growth
• Ensure cash is managed and
generated from sustainable sources
to fund investment in the chosen
growth markets
• Continuing to align executive
and shareholder interests
• We are also proposing a number
of changes to reflect evolving
shareholder attitudes on a number
of remuneration elements, namely:
– Reducing the cash pension
allowance for Executive Directors
to be in line with the employer
pension contribution for the
majority of the UK workforce;
– Increasing the shareholding
requirement from 100%
to 200% of salary;
– Introducing a post-employment
shareholding requirement for
Executive Directors; and
– This new policy, full details of
which are set out in the policy
section of the report, will be
subject to a binding shareholder
vote at the AGM on 6 August 2020.
The Company’s existing Performance
Share Plan (PSP) and Annual Bonus Plan
(ABP), approved by shareholders at the
2010 AGM, come to the end of their 10
year life in accordance with best practice
guidelines this year. Accordingly, we have
put forward for shareholder approval
rules for a replacement Performance
Share Plan and Deferred Bonus Plan
for approval at the 2020 AGM.
These plans are in materially the same
form as those approved by shareholders
at the 2010 AGM, other than to update
them for best practice in light of the
new UK Corporate Governance Code
and, in respect of awards made to the
Company’s Executive Directors, will be
operated in line with the remuneration
policy also submitted to shareholders
for their approval at the 2020 AGM and
which is contained within this report.
Remuneration outcomes 2019/20
As discussed elsewhere in the Annual
Report and Accounts, the business
faced a number of significant challenges
in the year. Insufficient volumes and
a reduction in margins in currency
in H1 2019/20 resulted in financial
underperformance.
While the new Executive Team made
substantial progress in H2, through
a variety of actions, which led to a
recovery of volumes and margins
and a reduction in net debt, overall the
performance did not achieve the level
at which an annual bonus would have
been payable and accordingly no ABP
will be paid for 2019/20. Further details
on our performance against bonus
measures is set out on page 79.
The 2017 PSP is due to vest in June
2020, following the conclusion of the
performance period on 28 March 2020.
However, as under the terms of the
departure arrangements for Martin
Sutherland and Helen Willis, PSP
awards for 2017 and subsequent
years lapsed, no portion of the
2017 PSP vests for current or
former Executive Directors.
The Remuneration Committee engages
in regular dialogue with shareholders
to discuss and take feedback on its
remuneration policy and governance
matters. During the last year the
Committee has actively consulted
with our largest shareholders and the
main UK institutional investor bodies
on both the reasons for the low vote
in favour of the remuneration report
at last year’s AGM and the proposals
for the new Directors’ remuneration
policy. The Board understands that the
significant vote against was due primarily
to the bonus payment awarded to the
departing Chief Executive Officer in
the context of a decline in financial
and share price performance. We are
grateful for the views received on the
revised policy. Our aim is to achieve
an appropriate balance between
incentivising Executive Directors and
ensuring that variable remuneration
will only be payable on performance
that delivers sustainable value to
shareholders. We believe that the
changes in our policy along with
the new metrics will meet that aim.
Maria Da Cunha
Chairman of the
Remuneration Committee
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
67
Current structure and weighting
%
Revenue
Profit
Net debt
Strategic personal objectives
20
30
20
30
Proposed structure and weighting
%
Revenue
Profit
Net debt
Strategic personal objectives
20
30
30
20
Structure of Directors’
remuneration report
This report is presented in three main
sections: an annual statement from
the Chairman of the Committee; the
Directors’ remuneration policy to be
approved by shareholders at the
2020 AGM; and the annual report
on remuneration for 2019/20.
In accordance with the regulations
we will be asking shareholders to
vote on two separate remuneration
resolutions as follows:
• The binding triennial vote on the
proposed Directors’ remuneration
policy as set out on page 69 to
74 which will, subject to shareholder
approval, become formally effective
as at the date of the 2020 AGM
• An advisory vote on the annual
report on remuneration as set out
on pages 77 to 86 which provides
details of the remuneration earned
by Directors for performance in
the period to 28 March 2020
A copy of the remuneration policy
approved in 2017 can be found in the
annual report 2017 on the Company’s
website: www.delarue.com
2019 AGM vote on the
remuneration report
The Committee were disappointed
that the resolution for the approval
of last year’s Directors’ remuneration
report was passed at the AGM
with only 51.99% votes in favour.
We understand that the significant
vote against this resolution was due
primarily to the payments awarded to
the departing Chief Executive Officer
in the context of a decline in financial
and share price performance. We are
committed to taking into account all
feedback received from shareholders
and have engaged with investors over
the past year both on the reasons for
the low vote and as part of the review
of the Directors’ Remuneration Policy.
Board changes
There were a number of changes
to the executive team over the year:
• Martin Sutherland stepped down from
the Board as Chief Executive Officer
with effect from 7 October 2019.
• Clive Vacher was appointed
Chief Executive Officer to the Board
with effect from 7 October 2019.
• Helen Willis stepped down from
the Board as Chief Financial Officer
with effect from 24 January 2020.
The full details of the leaver
arrangements for Martin and Helen
are set out in full on page 82.
The details of the remuneration
package put in place for Clive are
set out on page 78, including the PSP
award made in connection with his
appointment. This award will vest
based on the Company’s three year
TSR outperformance of the constituents
of the FTSE 250 and will be subject
to a further two year holding period.
2019/20 performance and
remuneration outcomes
Annual Bonus Plan (ABP)
For 2019/20, annual bonus was based
on Revenue (20% weighting), Operating
Profit (30%), Average Net Debt (20%),
and personal strategic measures (30%).
Unless a minimum operating profit
threshold is achieved, no bonus is
payable and this was the case this year.
We remain committed to clear disclosure
for achievement against set performance
objectives. Full details are on page 79.
Performance Share Plan (PSP)
Awards under the PSP in 2016/17
had three year performance criteria
based on EPS (75%) and ROCE (25%).
The EPS performance criteria were
not met. Average ROCE over the three
years was above the threshold target
and will vest in part. The 2016/17 PSP
therefore vested at 9%.
2016/17 PSP awards made to Martin
Sutherland and Helen Willis lapsed under
their termination arrangements, so there
was no vesting of any PSP awards to
current or former Executive Directors
during the financial year.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 68 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Revised remuneration policy
During the year, the Committee
conducted a thorough review of the
current remuneration policy (as approved
by shareholders in 2017) to ensure
that it remains appropriate to support
the business and takes into account
evolving best practice and regulatory
developments. We also considered
feedback previously received from
our shareholders following the low
vote on the 2018/19 Directors’
remuneration report.
We have concluded that the current
policy remains overall fit for purpose,
apart from a few relatively minor
changes, which are summarised below.
The full policy can be found on pages
69 to 74.
Key proposed remuneration
policy changes
• Pension: Any newly appointed
Executive Directors will receive
pension contributions in line with
the majority of the UK workforce.
The pension contribution of the
Chief Executive Officer (CEO), Clive
Vacher, was set at 12% of salary on
appointment in October 2019 in line
with contribution levels for the UK
workforce. In the financial year 2020/21
Clive Vacher will receive a pension
contribution of 10% on the basis of
a 6% individual contribution in line
with negotiated changes for the UK
workforce effective May 2020.
• PSP: Previously awards under the
PSP were subject to three year vesting
period, with 60% vesting after three
years and the balance vesting after a
further one year, subject to continued
employment. Under the new policy,
PSP will be extended to five years
– three year performance period
followed by two year holding period.
• In-employment shareholding
requirement: The current shareholding
requirement for Executive Directors
of 100% of salary will be increased
to 200% of salary, to be built up
over a five year period.
• Post-employment shareholding
requirement: The new policy will
introduce a post-employment
shareholding requirement under which
shares equivalent to 200% of salary
(or the actual shareholding if lower)
must be held for the first year following
exit and 50% of this guideline level
for the second year following exit.
Implementation of the policy
in 2020/21
If approved by shareholders at the
forthcoming AGM, the Committee
intends to apply the revised
remuneration policy as follows:
• Base salary and benefits: No change
to the CEO’s base salary level or
pension and benefits arrangements.
• Annual Bonus Plan (ABP): For 2020/21
the current maximum opportunity level of
135% of salary for the CEO will continue
to apply, with 60% of any bonus payable
immediately in cash and 40% deferred
into shares released half after one year
and the remaining half after a further
year. The Committee has carefully
considered bonus performance
measures for 2020/21 and concluded
that the current measures remain highly
relevant for the current turnaround
situation. It is proposed to increase
the weighting for the Average Net
Debt measure to 30% and reduce
the weighting for personal strategic
measures to 20%, on the basis that
internal alignment will be critical to
the turnaround process and will be
encouraged by placing greater emphasis
and a larger proportion of the bonus on
a set of shared goals to promote and
reward the concept of achieving as a
team rather than at an individual level.
Operating profit and revenue will be
weighted 30% and 20%, respectively.
• Performance Share Plan (PSP)
awards: The Remuneration Committee
has given detailed consideration to the
most appropriate LTIP performance
measures that provide a strong link
between the Turnaround Plan execution,
business performance and executive
reward. For awards in 2020/21, the
Committee is minded to introduce
Total Shareholder Return (TSR) relative
to the constituents of the FTSE 250
as a performance measure to ensure
that appropriate focus is placed on the
key business imperative of restoring
value to shareholders. This growth
measure would sit alongside the
existing EPS measure and replace
ROCE. The current weighting of
measures will be retained at 50:50.
The final decision on performance
measures will be deferred until we are
able to calibrate appropriate targets
considering volatility of the markets.
The Committee carried out a consultation
exercise in relation to the proposed new
policy with our largest shareholders.
The feedback we received was both
constructive and in a large measure
supportive and it was clear that our
shareholders have a good appreciation
of the challenges that De La Rue is
dealing with and the need for significant
change through the execution of the
Turnaround Plan under the leadership
of CEO Clive Vacher.
I hope you will welcome the conclusions
the Committee has reached on this
matter as a result of the consultation
process which we believe acknowledges
the challenges facing the business
and demonstrates our commitment
to a high level of alignment between
the interests of shareholders and the
senior management of the business.
The Committee believes that the
above Policy is in the best interests
of shareholders as it will encourage,
reinforce and reward the delivery
of sustainable shareholder value.
Priorities for 2020/21
The work of the Committee in 2020/21
will focus on ensuring that reward and
incentives are aligned to behaviours
that will drive a culture consistent
with delivering the organisation’s
Turnaround Plan.
I would like to thank shareholders
who contributed to the Committee’s
discussions during the year.
Maria Da Cunha
Chairman of the
Remuneration Committee
17 June 2020
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
69
Directors’ remuneration policy
This section of the report
contains details of the
Directors’ remuneration
policy that will govern
the Company’s future
remuneration payments.
The Remuneration Committee
has established the policy on the
remuneration of the Executive
Directors and the Chairman.
The Board has established the
policy on the remuneration of the
other Non-executive Directors.
Awards and benefits granted under
the previous Directors’ remuneration
policy will be honoured.
Proposed remuneration policy
The Group’s remuneration policy aims
to align the interests of the Executive
Directors and other senior executives
with those of shareholders.
The policy will take effect from 6 August
2020, subject to shareholder approval
at the AGM. The remuneration policy
is designed to ensure execution of the
Group’s strategy and to align with the
interests of shareholders.
As indicated in the annual statement
from the Chairman of the Remuneration
Committee, we are not proposing
fundamental changes to our existing
remuneration policy. The overriding
objective is to ensure that the executive
remuneration policy encourages,
reinforces and rewards the delivery
of sustainable shareholder value.
The Remuneration Committee
believes that performance related pay
and incentives should account for a
significant proportion of the overall
remuneration package of Executive
Directors so that their reward is
aligned with shareholder interests
and the Group’s performance, without
encouraging excessive risk-taking.
Performance related elements
of remuneration therefore form a
significant proportion of the total
remuneration packages. This is
illustrated on page 75.
The Committee maintains discretion
to take into account performance on
environmental, social and governance
matters for example to adjust the
outcomes of incentive arrangements
in light of any ESG issues.
Policy table
The remuneration package for Executive Directors consists of fixed base salary, pension and other benefits and a significant
proportion of variable pay including annual bonus and long term share based incentives. The following table summarises
each element of the proposed remuneration policy for the Executive Directors and explains how each works and is linked
to the corporate strategy.
Fixed remuneration
Purpose and link to strategy Operation
Maximum potential opportunity
Performance metrics
Base Salary
Fixed competitive remuneration
set at levels to recruit and retain
talent. Determination informed,
but not led, by reference to the
market place for companies
of similar size and complexity.
Reflects individual skills,
experience and responsibility
necessary to deliver business
strategy.
Rewards individual
performance.
Reviewed annually and fixed for 12 months
(but may be reviewed more frequently).
Influenced by:
• Role, experience, responsibilities
and performance
• Change in broader workforce salary
• Group profitability and prevailing
market conditions
• Salary levels across the Group generally
• Eliminating the gender pay gap
• Increases are not automatic
Individual performance is the
primary consideration in setting
salary alongside overall Group
performance, affordability and
market competitiveness.
To avoid creating expectations
of Executive Directors and other
employees, no maximum base
salary has been set. Increases will
not normally exceed the average
of increases awarded within the
rest of the Group in the UK.
Larger increases may be awarded
in certain circumstances including,
but not limited to:
• Increases in scope or responsibility
• Where market conditions indicate
a lack of competitiveness and risk
to attracting or retaining executives
Where the Remuneration Committee
exercises its discretion to award
increases above the average for other
employees, a full explanation will be
provided in the next annual report
on remuneration.
Benefits
Market competitive benefits
sufficient to recruit and
retain the talent necessary
to develop and execute
the business strategy.
Provision of car allowance, life assurance and
private medical scheme. Executive Directors are
also provided with permanent health insurance.
Executive Directors can also participate in the
annual leave flexibility scheme.
While the Remuneration Committee
has not set an absolute maximum,
benefits will be market competitive
taking into account role and
individual circumstances.
Not applicable.
Other benefits may be provided on an individual
basis such as, but not limited to, relocation
allowances including transactional and legal costs,
disturbance and travel and subsistence costs.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 70 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Purpose and link to strategy Operation
Maximum potential opportunity
Performance metrics
Pension
To provide market
competitive post-retirement
income sufficient to recruit
and retain executives.
Executive Directors are offered membership of a
defined contribution pension plan or choice of cash
in lieu (for example, where contributions to the plan
would cause an Executive Director to exceed the
HM Revenue and Customs (HMRC) annual allowance
or lifetime allowance limits.) The contribution rates
offered are aligned with pension contributions for
the wider workforce and based on base salary only.
Not applicable.
The contribution rates for newly
appointed Executive Directors will
be aligned to rates for the wider
workforce at the date of appointment.
The Executive Directors may choose
to receive a cash allowance in lieu
of contributions. The allowance is
equal to the pension contribution that
would otherwise have been paid less
the Company’s national insurance
contribution to ensure cost neutrality.
Variable remuneration
Purpose and link to strategy Operation
Maximum potential opportunity
Performance metrics
The current annual maximum bonus
opportunity of 135% of salary for the
Chief Executive Officer and 115% of
salary for the Chief Financial Officer
linked to business performance
will continue to apply.
The Remuneration Committee
has the discretion to increase
the overall maximum bonus level
to 150% of salary, subject to this
not being above the competitive
market range.
The bonus payout level is
determined by achievement
of Group financial performance
measures with an element
based on personal objectives.
The metrics, while stretching,
do not encourage inappropriate
risks to be taken.
The Remuneration Committee
will maintain discretion to
consider the financial underpin
in respect of awards under
the ABP.
Financial targets and weightings
will be disclosed in the annual
report on remuneration.
Annual Bonus Plan (ABP)
To incentivise and reward
delivery of financial and
personal performance
targets that address the
distinct commercial and
strategic needs of the
business, and align with
shareholder interests.
To ensure a consistent
and stable reward structure
throughout the management
group that will remain fit
for purpose.
To support a pay for
performance philosophy.
To help attract and retain top
talent and be cost effective.
Compulsory deferral of
shares supports alignment
with shareholder interests
and also provides a
retention element.
The Remuneration Committee sets Group
financial targets and agrees personal objectives
for each Executive Director at the start of each
year. Reference is made to the prior year and to
budgets and business plans while ensuring the
levels set are appropriately challenging but do
not encourage excessive risk-taking.
Payments are determined by the Remuneration
Committee after the year end. The bonus plan
is non-contractual and may be offered on a
year by year basis.
Sixty per cent of annual bonus is payable
immediately in cash. Forty per cent of annual
bonus is payable in deferred shares (deferred
bonus plan) and released in tranches, subject
to continued employment (with early release
in certain circumstances). There are no further
performance conditions.
Fifty per cent of deferred shares are released
one year after cash payout and the remaining
50% two years after cash payout.
The Remuneration Committee may increase
the number of shares subject to a deferred share
award to reflect dividends that would have been
paid over the deferral period on shares that vest.
The deferred share element (DBP) will be
disclosed in the annual report on remuneration.
The cash and deferred share element are subject
to malus and clawback provisions to allow the
Company to recoup three years from award in the
event of material financial misstatement of results,
gross misconduct, other acts or omissions that
could bring the business into disrepute and or
cause reputational damage or corporate failure.
The Committee may also make discretionary
adjustments, up and down, to the formulaic
outcome of short and long term plans if there
is misalignment with the Group’s strategic
goals or shareholder interests.
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71
Purpose and link to strategy Operation
Maximum potential opportunity
Performance metrics
The maximum number of shares
which may be subject to an award
granted to eligible employees in
respect of any financial year will not
have a value (as determined by the
Remuneration Committee) exceeding
100% of salary as at the award date.
The Committee retains discretion
in exceptional circumstances to
grant awards with a face value
of up to 150% of salary.
Performance Share Plan (PSP)
A share-based long term
incentive is aligned closely
with business strategy and
interests of shareholders
through the performance
measures chosen.
Under the new policy,
consistent with market
practice, awards will vest,
subject to group performance,
at the end of a three year
performance period, and
will be subject to a two year
post-vesting holding period.
This supports a pay for
performance philosophy.
To retain key executives
over a longer term
measurement period.
To ensure a consistent
and stable reward structure
throughout the management
group that will remain fit
for purpose.
To attract and retain top
talent and continue to
be cost-effective.
To ensure overall
cost-efficiency.
To ensure any payout
is supported by
sound profitability.
To support the
strategic focus on
growth and margins.
Directors receive share awards in respect of each
financial year with a three year performance period
and performance metrics which, while challenging,
will not encourage excessive risk-taking.
Awards will vest after three years provided Group
performance criteria are met. This will be followed
by an additional two year holding period before
awards are released to participants.
The Remuneration Committee may determine
that the award holder will receive additional shares
equal to the value of any dividends which would have
been paid (by reference to the period beginning on
the grant date and ending at the end of the holding
period) on the shares subject to an award which vest.
Vesting of awards is subject to continued employment
until the vesting date but, as described on page 73, PSP
awards may also vest in ‘good leaver’ circumstances.
Awards under the PSP will vest early on a change of
control (or other similar event) subject to satisfaction
of the performance conditions and, unless the
Remuneration Committee determines otherwise,
pro-rating for time in the performance period.
The Remuneration Committee has the right to claw
back any PSP awards within three years of the vesting
of an award to the extent there has been material
financial misstatement of results, gross misconduct,
any act or omission that could bring the business
into disrepute and or cause reputational damage
or corporate failure. Malus provision also applies.
The Committee may also make discretionary
adjustments, up and down, to the formulaic
outcome of short and long term plans if there
is misalignment with the Group’s strategic
goals or shareholder interests.
All employee share plans
To encourage employees
including the Executive
Directors to build a
shareholding through the
operation of all employee
share plans such as
the HMRC approved
De La Rue Sharesave
scheme in the UK.
Executive Directors may participate in the Sharesave
scheme on the same terms as other employees.
Under the UK Sharesave scheme, the option price
may be discounted by up to 20%. Accumulated
savings through payroll may be used to exercise
an option to acquire shares.
Under the Employee Share Purchase Plan,
employees in the US may be offered the opportunity
to purchase the Company’s shares at a 15%
discount to the market price. Any purchases are
funded through accumulated payroll deductions.
Shareholders approved the Rules of Sharesave
and the ESPP at the 2012 AGM.
The maximum savings is in line with
the legislative limit which is currently
£500 per month over a three or five
year period under the Company’s
Sharesave scheme. The rules of the
scheme provide for savings up to the
legislative limit of £500 per month.
Awards will normally vest
subject to the achievement
of Group performance over a
period of three years against key
metrics set by the Remuneration
Committee which are aligned
to commercial business needs
and strategy.
The Remuneration Committee
must be satisfied that vesting
reflects the underlying
performance of the Group and
retains the flexibility to adjust
the vesting amount to ensure
it remains appropriate to the
business performance achieved.
The Remuneration
Committee regularly reviews
the performance conditions and
targets to ensure they continue
to be aligned with the Group’s
business objectives and strategy
and retains the discretion to
change the measures and their
respective weightings to ensure
continuing alignment with such
objectives and strategy.
The Remuneration Committee
maintains the ability to adjust
or set different performance
measures if events occur or
circumstances arise which
cause the Committee to
determine that the performance
conditions have ceased to
be appropriate. If varied or
replaced, the amended
performance conditions must,
in the opinion of the Committee,
be materially no more or less
difficult than the original
condition when set and these
will be disclosed in the annual
report on remuneration.
No performance measures but
employment conditions apply.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 72 De La Rue
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Directors’ remuneration report continued
Shareholding requirement
for Executive Directors
The Remuneration Committee believes
that it is important that the interests of
Executive Directors should be closely
aligned with those of shareholders.
The Committee has adopted a policy
that Executive Directors are required
to build up a shareholding equivalent
to two times salary. It is intended that
this is met by Executive Directors
retaining 100% of vested post-tax
Deferred Bonus shares, restricted
shares and performance shares
until the requirement is met in full.
A post-employment shareholding
requirement will apply of two times
salary (or the actual shareholding at
date of exit if lower) for the first year
following exit and 50% of this level
for the second year following exit.
For the purposes of the in-employment
shareholding requirement, the following
types of shares will be included:
• Fully beneficially owned shares,
including shares purchased by
the individual out of own funds
and vested PSP shares after
the end of the holding period
• Deferred Bonus shares (on a
net-of-tax basis)
• PSP shares after the three year
performance conditions have been
achieved, during the holding period
(on a net-of-tax basis)
For the purposes of the post-
employment holding requirement,
the above categories of shares
will be required to be held, with
the exception of shares purchased
by the individual out of own funds,
so as to avoid potentially
disincentivising share purchases.
Employee considerations
Although employees have not directly
been consulted on the proposed
remuneration policy or its application,
when determining the remuneration
arrangements for Executive Directors,
the Remuneration Committee
takes into consideration the pay and
conditions of employees throughout
the Group.
In particular, the Committee is
kept informed of the structure and
application of reward policies across
the Group, including:
• Salary increases for the general
employee population
• Overall spend on variable pay,
including annual bonus and other
incentive and commission schemes
in operation across the Group
• Participation in the ABP and PSP
• Gender pay gap
• CEO pay ratio analysis
Pay review budgets for senior managers
and executives are set at levels which
are typically lower or the same as
those agreed with our trade unions
for employees whose pay is collectively
bargained. The remuneration policy
applied to the Executive Leadership
Team and the most senior executives in
the Group is similar to the policy for the
Executive Directors in that a significant
element of remuneration is variable
and dependent on Group and individual
performance. The Group aims to offer
competitive levels of remuneration,
benefits and incentives to attract and
retain talented individuals at all levels
with the experience and capability
to deliver the business strategy.
This year we strengthened our approach
to communication with our employees
in line with the provisions of the UK
Corporate Governance Code, through
the appointment of a Non-executive
Director with direct accountability for
listening to employee views. In February
2020, the Chair of the Committee,
in her role of Non-executive Director
responsible for employee engagement,
met with UK elected employee
representatives to explain the proposed
policy. The views gathered were
discussed and considered by the
Remuneration Committee prior to
adoption of the proposed policy.
The Chief Executive Officer consults
with the Remuneration Committee
on the remuneration of executives
directly reporting to him and other
senior executives and seeks to ensure
a consistent approach across the
Group taking account of seniority,
market practice and the key principles
of remuneration outlined above.
On authority of the Committee, the
Chief Executive Officer has discretion
to make PSP awards to a limited
number of employees not being
Executive Directors or Executive
Leadership Team members.
These arrangements ensure that
the application of the policy is
heavily influenced by remuneration
arrangements for all employees.
Remuneration Committee
discretion
The Remuneration Committee reserves
the right to adjust or set different
performance measures for both
short and long term plans if events
occur or circumstances arise in which
performance conditions have ceased
to be appropriate. These events include
substantial changes in business structure
or strategy, acquisition or divestment.
The Committee may also make
discretionary adjustments, up and down,
to the formulaic outcome of short and
long term plans if there is misalignment
with the Group’s strategic goals or
shareholder interests. Any use of
discretion will be carefully considered
by the Committee and fully disclosed.
Shareholder views
The Remuneration Committee
engages in regular dialogue with
shareholders to discuss and take
feedback on its remuneration policy
and governance matters. During the last
year the Committee has consulted with
De La Rue’s largest UK shareholders and
the main UK institutional investor bodies
on the proposals for the new Directors’
remuneration policy subject to a binding
vote at the AGM on 6 August 2020.
The Committee welcomes an open
dialogue with shareholders and intends
to continue to consult with major
shareholders before implementing
any significant change to the
Directors’ remuneration policy.
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Annual Report 2020
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73
Service contracts
Current and new Executive Directors
are employed on contracts that
have a notice period that should
not exceed 6 months.
Non-executive Directors
Kevin Loosemore, Chairman, was
initially appointed as a Non-executive
Director and Chairman designate
on 2 September 2019.
The Remuneration Committee
recognises that in the case of
appointments to the Board from
outside the Group, it may be
necessary to offer a longer initial
notice period, which would
subsequently reduce to 6 months
after that initial period.
All Directors offer themselves for annual
re-election at each AGM in accordance
with the UK Corporate Governance
Code. Service contracts for Executive
Directors and letters of appointment for
Non-executive Directors are available
for inspection at the registered office
address of the Company.
Payment for loss of office
In determining compensation for early
termination of a service contract, the
Remuneration Committee carefully
considers the specific circumstances,
the Company’s commitments under the
individual’s contract and the individual’s
obligation to mitigate loss. The table below
outlines the framework for contracts for
Executive Directors. Should additional
compensation matters arise, such as
a settlement or compromise agreement,
the Remuneration Committee will exercise
judgement and will take into account
the specific commercial circumstances.
Policy
Notice period on
termination by
the Company
Termination payment
at the Company’s
sole discretion
Change of control
Vesting of incentives
for leavers
Maximum of 6 calendar months. The Remuneration Committee recognises that in the case of appointments to the Board
from outside the Group, it may be necessary to offer a longer initial notice period, which would subsequently reduce to
6 months or less.
On termination by either the Company or the relevant Executive Director, the Company retains the discretion to make a
payment in lieu of notice not exceeding 6 months’ basic salary, excluding bonus but including benefits in kind (which may
include company car or car allowance and private health insurance) and pension contributions, or cash in lieu of pension).
Benefits provided in connection with termination payments may also include, but are not limited to, outplacement and
legal fees.
Under the ABP, share awards will vest in full on change of control. Awards under the PSP will vest early on a change
of control (or other similar event) taking into account the satisfaction of the performance conditions and, unless the
Remuneration Committee determines otherwise, pro-rating for time elapsed in the performance period.
The Remuneration Committee has the discretion to determine appropriate bonus amounts taking into consideration
the circumstances in which an Executive Director leaves. Typically for ‘good leavers’, bonus amounts (as estimated by
the Remuneration Committee) will be pro-rated for time in service to termination and will be subject to performance, paid
at the usual time. ‘Good leavers’ will be those individuals who die in service or leave De La Rue as a result of their ill-health,
injury, disability or the sale of their employing company or business out of the Group or in any other circumstances at the
discretion of the Committee.
The vesting of share awards is governed by the rules of the appropriate incentive plan approved by shareholders.
Typically for ‘good leavers’:
• Under the ABP, the provisions allow awards to vest in full at the normal vesting date or earlier at the discretion of the
Remuneration Committee
• Under the PSP, awards pro-rated over the performance period to the date of departure (unless the Remuneration
Committee determines otherwise), will vest at the normal vesting date taking into account the extent to which the relevant
performance targets have been met. The Remuneration Committee has the discretion to test the performance targets
early and accelerate vesting
• Good leavers under the Sharesave scheme, which is HMRC approved, are entitled to exercise options, pro-rated to the
savings made
• If awards are made on recruitment the treatment on leaving would be determined at the time at the Remuneration
Committee’s discretion in accordance with the relevant plan rules.
Pension benefits
These will be paid in accordance with the rules of the pension scheme. Where an early retirement pension is paid from
a legacy UK defined benefit pension scheme, a reduction will be made to the pension to reflect early receipt using factors
determined and set by the Trustees from time to time.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 74 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Remuneration policy for the Chairman and Non-executive Directors
Element
Chairman fees
Non-executive
Director fees
Operation by the Company
The remuneration of the Chairman is set by the Remuneration Committee. Fees are set at a level which reflects the skills,
knowledge and experience of the individual, while taking into account market data.
Non-executive Directors do not have service contracts but are appointed for fixed terms of three years renewable
for a further three years. Terms beyond this period are considered on a case by case basis.
The Board (excluding Non-executive Directors) is responsible for setting Non-executive Directors’ fees. Fees are structured
as a basic fee for Board and Committee membership. Committee Chairmen and the Senior Independent Director receive
an additional fee. Reasonable expenses for attending Board meetings are reimbursed by the Company and the Group
may pay any tax due on such benefits. Fees may be paid in the form of De La Rue shares.
Total fees paid to Non-executive Directors will remain within the limit set out in the Company’s articles of association
of £750,000 per annum.
Non-executive Directors are not eligible for pension scheme membership and do not participate in any of the Group’s
annual incentive plans, or share option schemes. No compensation is payable to the Chairman or to any Non-executive
Director if the appointment is terminated.
Remuneration policy
for new appointments
When considering the appointment
of Executive Directors, the Committee
balances the need to attract candidates
of sufficient calibre while remaining
mindful of the need to pay no more than
necessary. The Committee will typically
align the remuneration package with the
above remuneration policy. Base salary
may be set at a higher or lower level than
previous incumbents. Where possible,
salary may be set at an initially lower level
with the intention of increasing it over
the following two years dependent on
performance in the role and experience
gained. In certain circumstances, to
facilitate the recruitment of individuals
of the required calibre, incentive
arrangements and awards may also be
higher. The Remuneration Committee
retains the discretion to make payments
or awards which are outside the policy
to facilitate the recruitment of candidates
of the appropriate calibre to implement
the Group’s strategy. In addition,
remuneration forfeited on resignation
from a previous employer may
be compensated.
The form of this compensation would
be considered on a case by case basis
and may comprise either cash or shares.
Generally (though not necessarily in
all circumstances) the Committee will
favour share awards with appropriately
stretching performance targets attached
and, at a minimum, expects that:
• If forfeited remuneration was in the
form of shares, compensation will
be in the form of shares
• If forfeited remuneration was subject
to achievement of performance
conditions, compensation will be
subject to no less challenging
performance conditions
• The timing of any compensation will,
where practicable, match the vesting
schedule of the remuneration forfeited.
A newly-appointed Executive Director
may be provided with reasonable
relocation support.
Internal appointments will receive
a remuneration package that is
consistent with the remuneration policy.
Legacy terms and conditions would be
honoured, including any outstanding
incentive awards. Company pension
contribution rates would be set in line
with the rates available to the wider
workforce at the date of appointment.
Subject to the limit on additional
maximum variable remuneration set
out below, incentive awards may be
granted within the first 12 months of
appointment above the maximum award
opportunities set out in the policy table
above. Excluding payments or awards
to compensate for remuneration
forfeited on resignation from a previous
employer, the maximum level of variable
remuneration which may be awarded
to a new Executive Director, above the
maximum levels set out in the policy
table above, is one times base salary.
The Remuneration Committee will
ensure that variable remuneration is
linked to the achievement of appropriate
and challenging performance measures
and will be forfeited if performance
or continued employment conditions
are not met.
Fees payable to a newly-appointed
Chairman or Non-executive Director
will be in line with the fee policy in
place at the time of appointment.
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Annual Report 2020
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Annual Report 2020
75
Summary of our remuneration policy
Fixed Pay
Variable Pay
Base Salary
Annual Incentive Plan
Performance Share Plan
Benefits
Pension
80% Group
financial
performance*
20% strategic
personal
objectives*
50% EPS*
50% TSR*
60% cash
40% deferred shares
100% vesting year 3
2 year post-vesting holding period
Malus and clawback and shareholding requirements
Note:
* We are minded to apply the policy in this format for year 1 of the plans with discretion to adjust in future years.
Illustration of the application of remuneration policy
The following charts illustrate the potential value of the Executive Directors’ remuneration package in various scenarios in a typical
year. Salary levels are as at 1 July 2020.
Performance scenarios for the ABP and PSP assume the following:
Minimum
Target
Maximum
Maximum with share growth of 50%
There is no cash bonus or
deferred share award under the
ABP or vesting under the PSP
Target cash bonus and deferred
shares under the ABP, target
vesting under PSP
Maximum cash bonus, maximum
deferred shares under the ABP,
maximum vesting under the PSP
Maximum cash bonus, maximum deferred
shares under ABP, maximum vesting
under PSP with 50% share growth
Scenario chart
Maximum*
Maximum
Target
Minimum
28%
34%
56%
100%
19%
23%
19%
13% 12%
19%
35%
Fixed remuneration
15%
28%
Annual Incentive Plan (Cash)
Annual Incentive Plan (Deferred Shares)
Performance Share Plan
0
400
800
1,200
1,600
2,000
Note:
* +50% share price growth.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 76 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Illustrative scenario charts
Performance scenarios for the ABP and PSP assume the following:
Minimum
Target
Maximum
Maximum with share growth of 50%
There is no cash bonus or
deferred share award under the
ABP or vesting under the PSP
Target cash bonus and deferred
shares under the ABP, target
vesting under PSP
Maximum cash bonus, maximum
deferred shares under the ABP,
maximum vesting under the PSP
Maximum cash bonus, maximum deferred
shares under ABP, maximum vesting
under PSP with share price growth of 50%
Assumptions for the scenario charts
Minimum
Target
Fixed pay (base salary,
benefits and pension)
No bonus payout
No vesting under ABP or PSP
Fixed pay (base salary,
benefits and pension)
50% of maximum bonus
opportunity (67.5% of salary for
CEO, 57.5% of salary for CFO)
60% will be payable immediately
in cash and 40% will be deferred
in shares
Maximum
Fixed pay (base salary,
benefits and pension)
Maximum with share growth of 50%
Fixed pay (base salary,
benefits and pension)
100% of maximum bonus
opportunity (135% of salary for
CEO, 115% of salary for CFO)
100% of maximum bonus
opportunity (135% of salary for
CEO, 115% of salary for CFO)
60% will be payable immediately
in cash and 40% will be deferred
in shares
60% will be payable immediately
in cash and 40% will be deferred
in shares. 40% of ABP deferred
shares vesting valued at 60%
25% of PSP shares vesting
(25% of salary for CEO and CFO)
100% of PSP shares vesting
(100% of salary for CEO and CFO)
100% of PSP shares vesting
valued at 150%
Executive Director remuneration mix 2020/21
Based on the above performance scenarios the table below illustrates that a significant proportion of Executive Directors’
remuneration is biased towards variable pay at maximum:
CEO
CFO
Fixed
Variable
Fixed
Variable
% of pay at
minimum achieved
100
–
100
–
% of pay at
target achieved
59
41
60
40
% of pay at
maximum achieved
36
64
36
64
The remuneration mix above is based on the remuneration policy as it is intended to be operated for 2020/21.
De La Rue
Annual Report 2020
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Annual Report 2020
77
Annual report on remuneration
This section of the Directors’ remuneration report shows how the Remuneration Committee implemented the policy on
Directors’ remuneration for the financial year 2019/20 including all elements of remuneration received by Executive Directors
and the incentive outturns for 2019/20.
Single figure of remuneration for each Director (audited)
The table below shows how we have applied the current remuneration policy during 2019/20. It discloses all the elements
of remuneration received by the Directors during the period.
Executive Directors
Clive Vacher
(appointed to the Board 7 October 2019)
Martin Sutherland
(stepped down from the Board 7 October 2019)
Helen Willis
(stepped down from the Board 24 January 2020)
Chairman
Kevin Loosemore
(appointed to the Board 2 September 2019
as Chairman Designate and became Chairman
on 1 October 2019)
Philip Rogerson
(retired from the Board 1 October 2019)
Non-executive Directors
Nick Bray
Sabri Challah
Maria da Cunha
Andrew Stevens
(stepped down from the Board 7 October 2019)
Aggregate emoluments
Salary and
feesa
Benefits
(excluding
pensions)b
2020
£’000
2019
£’000
2020
£’000
2019
£’000
2020
£’000
Long term
incentive (PSP)
(vested)d
Pensionse
2020
£’000
2019
£’000
2020
£’000
2019
£’000
2020
£’000
Total
2019
£’000
Bonusc
2019
£’000
220
–
256
490
283
759
225
715
104
–
97
194
58
58
54
58
58
50
8
15
19
42
–
–
–
–
–
–
29
14
43
–
–
–
–
–
30
58
1,160 1,133
–
42
–
43
–
–
–
–
–
–
–
–
–
–
–
–
197
77
274
–
–
–
–
–
–
274
–
–
–
–
–
–
–
–
–
–
–
–
106
–
106
21
69
48
138
–
249
–
132
39
171
340
954
355
350
939 1,309
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
104
–
97
194
58
58
54
58
58
50
–
106
–
138
–
171
30
58
1,340 1,727
Notes:
The figures in the single figure table above are derived from the following:
a Base salary and fees: the actual salary and fees received during the period. The Executive Directors’ salaries are normally reviewed, but not necessarily increased, with effect from 1 July each year.
i
Martin Sutherland has a salary of £502,000 per annum effective 1 July 2019 and the salary shown above is for the period to 7 October 2019. Martin Sutherland took advantage of the annual
leave flexibility scheme and purchased an additional five days’ annual leave entitlement during the period at a cost of £5,012 which is reflected in the table above.
ii Clive Vacher has a notional salary of £450,000 per annum effective 1 October 2019 and the salary shown above is for the period to 28 March 2020.
iii
Helen Willis has a salary of £330,000 per annum effective 1 July 2019 and the salary shown above is for the period to 24 January 2020. The figure also includes an additional payment
of £12,566 to compensate for an underpayment in relation to the cash and deferred share component of the 2019 bonus paid in July of that year.
b Benefits (excluding pensions): the gross value of all taxable benefits received in the period, including for example car or car allowance and private medical and permanent health insurance.
c
Bonus: A description of the performance measures that applied for the year 2019/20 is provided on page 79. Executive Directors (past and present) did not qualify for a bonus payment for the
year 2019/20.
PSP: the 2019 figure shown is the estimated value of the shares that was due to vest in June 2019 (as the vesting price was not known at the date of the 2019 Directors’ remuneration report).
The table showing vested, lapsed and unvested share awards on page 83 also gives details of the share price on the vesting date and exercise date respectively.
Pension allowance and contributions to defined contribution section. See page 82 for further details of pension arrangements.
d
e
Strategic reportCorporate GovernanceFinancial statementsShareholder information 78 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Changes in Executive Directors during the year
Martin Sutherland
Martin Sutherland stepped down from the Board as Chief Executive Officer with effect from 7 October 2019. Further details are
disclosed on page 82.
Clive Vacher appointment
Clive Vacher was appointed Chief Executive Officer to the Board with effect from 7 October 2019. Clive receives a base salary
of £450,000. In his first year following recruitment Clive Vacher received a PSP award of 326,245 shares which represents
approximately 100% of salary, the policy allows awards of up to 150% of salary however the Committee was mindful of share
price at point of award and scaled back accordingly. The award has specific performance targets intended to align the CEO’s
interests with those of shareholders and motivate and reward directly in proportion to the delivery of the Turnaround Plan.
The award is subject to specific performance criteria:
Rank of the Company’s TSR within the FTSE 250
Upper quartile or above
Between upper quartile and median
Median
Below median
Extent to which the Performance Targets have been satisfied
100%
Pro-rata between 25% and 100% on a ranking basis
25%
0%
All other pay and remuneration awards were in line with our remuneration policy, pension was set at 12% company contribution
level subject to a 6% employee contribution in line with contributions to the wider workforce. For the financial year 2020/21,
Clive Vacher will receive a pension contribution of 10% on the basis of a 6% individual contribution in line with negotiated
changes to the UK workforce effective May 2020.
No bonus award under the Annual Bonus Plan (ABP) for the 2019/20 financial year was made.
Helen Willis
Helen Willis stepped down from the Board as Chief Financial Officer with effect from 24 January 2020. Further details can
be found on page 82.
Individual elements of remuneration
Base salary and fees (audited)
Base salaries for Executive Directors are normally reviewed annually by the Remuneration Committee and are set with reference
to individual performance, experience and responsibilities, Group performance, affordability and market competitiveness.
The Committee determined that Clive Vacher’s salary should remain unchanged for 2020:
Clive Vacher1
Helen Willis1
Base salary
level 2020
£’000
450
–
Base salary
level 2019
£’000
–
330
Increase
%
–
–
Note:
1
Clive Vacher was appointed to the Board on 7 October 2019 and Helen Willis stepped down from the Board on 24 January 2020. The actual pro-rate amounts paid to Clive Vacher was £220,384
for 2019/20.
The Directors’ remuneration policy approved by shareholders at the 2017 AGM and that to be put to shareholders at the
2020 AGM is that increases in salary for Executive Directors will not normally exceed the range of increases awarded to other
employees in the Group except in the specific circumstances listed in the remuneration policy.
The remuneration policy for Non-executive Directors, other than the Chairman, is determined by the Board. The Remuneration
Committee determines the Chairman’s fee. Fees reflect the responsibilities and duties of Non-executive Directors while also
having regard to the marketplace. The Non-executive Directors do not participate in any of the Group’s share incentive plans
nor do they receive any benefits or pension contributions. The Chairmen of the Remuneration Committee and Audit Committee
and the Senior Independent Director each received a further fee of £8,000 to reflect their additional duties in 2019/20.
Fees payable to Non-executive Directors remain unchanged since 2017/18 and no fee increase is proposed for 2020.
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79
The fees for 2020 are as follows:
Non-executive Director fees
Basic fee
Additional fee for chairmanship of Audit and Remuneration Committees and Senior Independent Director
2020
£’000
50
8
2019
£’000
50
8
The Chairman’s fee will remain at £200,000 for 2020 and will be reviewed again in the normal way in April 2021.
External directorships of Executive Directors
The Board considers whether it is appropriate for an Executive Director to serve as a non-executive director of another company.
Clive Vacher holds no external directorship appointments.
Variable remuneration (audited)
Annual bonus for 2019/20
The Annual Bonus Plan for FY 2019/20 was issued with the following financial structure and targets:
Measure
Group revenue
Group adjusted operating profit
Average Net Debt
Threshold
£520m
£53m
£140m
Target
£525m
£55m
£138m
Maximum
£545m
£59m
£128m
Actual
£426.7m
£23.7m
£155.1m
% of maximum
achieved
0%
0%
0%
The Committee did not exercise any discretion to adjust bonus outcomes. As the performance criteria for the plan were unmet,
no payment is due to any of the Executive Directors for the 2019/20 year.
Long term incentive – Performance Share Plan (PSP)
The PSP is a share based long term incentive aligned closely with business strategy and the interests of shareholders through
the performance measures chosen and the link to share price. The PSP is designed to provide Executive Directors and selected
senior managers with a long term incentive that promotes annual and long term performance and reinforces alignment between
participants and shareholders.
Performance measures applying to PSP awards
Awards made under the PSP 2016-2019 were subject to a combination of compound average growth in underlying basic EPS and
average ROCE. EPS growth ensures any payout is supported by sound profitability. ROCE supports the strategic focus on growth
and margins ensuring cash is reinvested to generate the appropriate returns.
All awards are made as performance shares based on a percentage of salary and the value is divided by the average share price
over a period before the date of grant in accordance with the rules of the PSP. In addition, the Remuneration Committee must be
satisfied that the vesting reflects the underlying performance of the Group and retains the flexibility to adjust the vesting amount
to ensure it remains appropriate. Any adjustments will depend on the nature, timing and materiality of any contributory factors.
A summary of the performance measures and award vesting levels that apply to awards under the PSP is shown in the table below:
Year of award
2016
2017
2018
2019
2020
Measure
EPS1
ROCE2
EPS1
ROCE
EPS1
ROCE
EPS1
ROCE
EPS1
TSR3
Vesting % of element
at threshold
25
25
25
25
25
25
25
25
25
25
Vesting % of element
at maximum
100
100
100
100
100
100
100
100
100
100
Growth % required
for threshold
5
30
5
30
4
34
4
32
–
–
Growth % required
for maximum
10
36
10
36
12
40
12
38
–
–
Notes:
1 Underlying earnings per share. Based on average annual cumulative growth during the performance period.
2
The vesting levels under ROCE was adjusted to take account of the impact of a discontinued operation held for sale as described in note 2 to the financial statements (as reported in 2018).
The Remuneration Committee is satisfied that the performance measures which are appropriately weighted support the Group’s strategy and business objectives.
3 The issuance of 2020 PSP and the final decision on performance measures will be deferred until we are able to calibrate appropriate targets considering volatility of the markets.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 80 De La Rue
Annual Report 2020
Directors’ remuneration report continued
PSP award vesting in 2020
Awards under the PSP had three year performance criteria based on EPS and ROCE. Seventy-five per cent of the award was
based on underlying EPS average compound growth above 5% and twenty-five per cent was based on ROCE of over 30%.
The performance period for the 2017 PSP awards ended on 31 March 2020. Over the period:
• The Group’s underlying EPS growth was below the threshold growth of 5% per annum. Under this performance measure
this element of the PSP will not vest
• De La Rue’s average ROCE for the period was above the threshold of 30%. Resulting in 9% of the PSP award vesting against
the 2017 plan
• The Committee did not exercise any discretion to adjust PSP vesting outcomes
Awards made to Martin Sutherland and Helen Willis under the 2017 PSP have or will lapse under their termination arrangements,
so there will be no vesting of any PSP awards for current or former Executive Directors in respect of the performance period
ending 2019/20 financial year.
PSP awards made in July 2019 (audited)
Awards will lapse so there are no outstanding 2019 awards to current or former Executive Directors.
Executive Directors as listed below received PSP awards in line with the existing Directors’ remuneration policy as follows:
Helen Willis
Number of
shares awarded
110,887
Date of
award
10 July 2019
% of
salary
100
Face value
£’000
330
Vesting at threshold
(as a % of maximum)
25
Performance
period end date
March 2022
All awards are made as performance shares based on a percentage of salary and the value is divided by the average share
price over a five day period prior to the date of award, being 297.60p for the award on 10 July 2019. Face value is the
maximum number of shares that would vest multiplied by the share price 291.4850p on 10 July 2019) at the date of grant.
The Remuneration Committee may add dividend shares accrued only on vested shares during the performance period
and extended vesting period.
The Remuneration Committee decided that the measures of EPS growth and ROCE remained the most appropriate measures
for De La Rue.
The Remuneration Committee decided that PSP would remain at the same target levels, and that performance would be
measured against two Group targets: EPS (50% weighting) and ROCE (50% weighting). In determining the appropriate target
ranges, the Committee decided that the range for EPS of 4% to 12% remained appropriate and that the target range for
ROCE performance at threshold and maximum would be changed from 34–40% to 32–38%, to reflect sensitivities in the
Group’s strategic plan and to ensure that management actions to drive performance continue to be aligned with the interests
of shareholders.
Implementation of the remuneration policy in 2020/21
As described earlier in this report, a proposed new remuneration policy will be put to shareholders at the AGM in 2020.
Subject to shareholder approval, remuneration arrangements in 2020/21 will then operate in line with this policy.
Salary and benefits
There will be no change to the salary level or benefits for the Chief Executive Officer in 2020/21. In line with pension levels available
to the workforce, at appointment, Clive Vacher received a pension contribution of 12% of salary on the basis of a 6% individual
contribution. In the financial year 2020/21 Clive Vacher will receive a pension contribution of 10% on the basis of a 6% individual
contribution in line with negotiated changes to the UK workforce effective May 2020. Any new Executive Director will receive
a pension in line with levels available to the workforce.
ABP 2020/21
The Remuneration Committee has carefully considered bonus performance measures for FY 2020/21 and concluded that the
current measures set out in the table below remain highly relevant for the current turnaround situation. Cost competitiveness,
improved efficiency and strong cash management are required to support growth in both Currency and Authentication.
Revenue targets will ensure focus on top line growth and maintaining profit and net debt targets ensuring growth is balanced
and profitable supporting strong cash management. A return to a 20% weighting on personal strategic targets ensures that
Executive Directors are incentivised primarily on the delivery of clear and tangible financial metrics that remain underpinned
by transparent personal strategic objectives explicitly linked to ensure the achievement of the financial metrics and delivery
of the Turnaround Plan.
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Annual Report 2020
De La Rue
Annual Report 2020
81
The current maximum entitlement of the Chief Executive Officer under the ABP remains 135% of salary. The structure and
weightings will be as follows:
Proposed structure & weighting
Revenue
Adjusted operating profit
Average net debt1
Group strategic personal objectives
Note:
1 Average of the 12 month end net debt positions over the course of the year.
20%
30%
30%
20%
No payment will be made on any element of bonus (including the personal element) if a minimum operating profit is not achieved.
Personal strategic objectives for the Chief Executive Officer are focused on the key strategic priorities and may include
addressing the cost base of the Company, targeted growth and efficiency measures in the different business lines and a strong
focus on value stream excellence across the Group, as well as the successful refinancing of the business in order to continue
to fund the execution of the Turnaround Plan. The Committee is committed to assessing the achievement of these objectives
on a quantifiable and objective basis and to clear retrospective disclosure in the Directors’ remuneration report.
The Committee will rigorously review incentive outturns and will consider the overall performance of the business, not just the
outcome of each measure.
The specific performance targets are not disclosed while still commercially sensitive, but will be disclosed the following year.
Performance measures applying to PSP awards to be made in 2020
The Remuneration Committee has given detailed consideration to the most appropriate LTIP performance measures that
provide a strong link between the Turnaround Plan execution, business performance and executive reward. For awards
in FY 2020/21 under the new share plans to be introduced following shareholder approval at the next annual general
meeting, it is envisaged that Total Shareholder Return (TSR) relative to the constituents of the FTSE 250 will be introduced
as a performance measure. This will ensure that appropriate focus is placed on the key business imperative of restoring value
to shareholders. This growth measure will sit alongside the existing EPS measure and replace ROCE. The current weighting
of measures will be retained at 50:50. The final decision on performance measures will be deferred until we are able to
calibrate appropriate targets considering volatility of the markets.
The award will vest fully on the third anniversary of award subject to meeting performance criteria, but shares will be held
for a further two years and become eligible for release on the fifth anniversary of award.
Shareholding requirements
Under the proposed policy, Executive Directors are required to build up a shareholding equivalent to 200% of salary
(increased from 100% in previous policy) over a five year period. It is intended that this is met by Executive Directors retaining
100% of vested post-tax Deferred Bonus shares, restricted shares and performance shares until the requirement is met in full.
The new policy will also introduce a new post-employment shareholding requirement of 200% of salary (or the actual
shareholding if lower) for the first year following exit and 50% of this guideline level for the second year following exit.
Executive Directors’ service contracts
The table below summarises the notice periods contained in the service contracts for Executive Directors in office as at
28 March 2020.
Clive Vacher
Date of
contract
6 October 2019
Date of
appointment
7 October 2019
Notice from
Company
6 months
Notice from
Director
6 months
Non-executive Directors’ letters of appointment
The Chairman and Non-executive Directors have letters of appointment rather than service contracts.
Non-executive Director
Nick Bray
Sabri Challah
Maria da Cunha
Kevin Loosemore
Date of
appointment
21 July 2016
23 July 2015
23 July 2015
1 October 2019
Current letter of
appointment end date
20 July 2022
22 July 2021
22 July 2021
30 September 2022
Strategic reportCorporate GovernanceFinancial statementsShareholder information 82 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Total pension entitlements (audited)
The Group’s UK pension schemes are funded, HMRC registered and approved schemes. They include both defined contribution
and defined benefit pension schemes.
None of the Executive Directors in the period were a member of the legacy defined benefit schemes. All the Executive Directors
have opted out of the defined contribution plan and receive a cash allowance in lieu of a pension contribution.
During the year, Helen Willis received a cash allowance of 20% of basic salary in lieu of pension contributions, with the allowance
reduced by the amount of the Company’s national insurance contribution to ensure cost neutrality with making the same
contribution to the pension plan.
Clive Vacher received a pension contribution of 12% of salary on the basis of a 6% individual contribution, in line with levels
available to UK-based employees. Any new Executive Director will likewise receive pension contributions in line with levels
available to the workforce.
Payments for loss of office (audited)
There were no payments for loss of office during the period.
Payments to past Directors (audited)
Martin Sutherland stepped down from the Board as Chief Executive Officer with effect from 7 October 2019. Martin was paid in
accordance with his contract up to his cessation of employment with the Company on 13 March 2020. As previously disclosed,
deferred share awards granted under prior year bonus plans plus dividend shares will continue to vest on their usual scheduled
date as per current rules. The second tranche of the share award granted in June 2016 under the Performance Share Plan,
pro-rata to date of ceasing employment plus dividend shares will also vest on its normal vesting date in June 2020. PSP awards
granted in 2017 and 2018 lapsed in full. As previously disclosed, Martin received a contribution of £3,500, plus VAT, towards
legal fees and a contribution of £50,000 plus VAT towards outplacement fees.
Helen Willis stepped down from the Board as Chief Financial Officer with effect from 24 January 2020. Helen will be paid in
accordance with her contract up to her cessation of employment with the Company on 24 July 2020. In accordance with the
Company’s Annual Bonus Plan, the first tranche of the 2018/19 award made to Helen on 25 June 2019 will vest on 10 July 2020.
All other outstanding awards under this Plan and under the Performance Share Plan will lapse.
Directors’ interests in shares (audited)
The Directors and their connected persons had the following interests in the ordinary shares of the Company at 28 March 2020:
Subject to
performance
conditions
Unvested awards
Not subject to
performance
conditions
Executive Director
Clive Vacher
Non-executive Chairman
Kevin Loosemore
Non-executive Directors
Nick Bray
Sabri Challah
Maria da Cunha
Current
shareholding
ordinary shares
(held outright)
Current
shareholding
as %
of salary
Performance
Share Plan
Performance
Share Plan
Annual
Bonus Plan
48,750
6.2
326,245
20,000
18,348
3,400
4,735
n/a
n/a
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Vested shares
Vested
SAYE shares
unexercised
during the
period
Vested
shares
exercised
during the
period
–
–
–
–
–
–
–
–
–
–
SAYE
1,334
–
–
–
–
There have been no changes in Directors’ outright interests in ordinary shares in the period 28 March 2020 to 17 June 2020.
All interests of the Directors and their families are beneficial.
The current shareholdings as a percentage of salary during the period are calculated using the closing De La Rue plc share
price of 57p on 28 March 2020.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
83
Directors’ interest in vested and unvested share awards (unaudited)
The awards over De La Rue plc shares held by Executive Directors under the ABP and PSP and Sharesave scheme during the
period are detailed below:
Total
award as at
30 March
2019
Date of
award
Awarded
during
year
Exercised
during
year
Lapsed
during
year
Awards
held at
28 March
2020
Awards
vested
(unexercised)
during year
Share price at
date of award
(pence)
Market price
per share at
exercise date
(pence)
Date of
vesting
Expiry
date
Clive Vacher
(appointed to the Board on 7 October 2019)
Annual
Bonus Plan1
Performance
Share Plan
Sharesave options1
Martin Sutherland
(stepped down from the
Board 7 October 2019)
Annual
Bonus Plan1
Jan 20
Jan 20
Performance
Share Plan
Jun 17
Jun 19
Jun 19
Jun 15
Jun 16
Jun 16
Jun 17
Jun 17
Jun 18
Jun 18
Total
Sharesave options1
Helen Willis
(stepped down from the
Board on 24 January 2020)
Annual
Bonus Plan1
Performance
Share Plan
Total
Sharesave options1
Jan 16
Jan 19
Jun 19
Jun 19
Aug 18
Aug 18
Jul 19
Jul 19
Jan 19
–
–
– 326,245
1,334
–
–
–
–
–
–
– 326,245
–
1,334
7,438
8,5114
1,0734
–
–
– 13,050
–
– 13,050
–
–
13,051
13,051
–
1,6157
10,1827
–
–
8,567
1,4078 15,0298 40,866
–
54,488
8,3249
– 28,001
36,325
– 42,346
–
42,346
– 28,231
–
28,231
– 53,357
–
53,357
– 35,572
35,572
–
33,722 228,873 34,425
266,324
1,567
–
1,567
1,796
–
1,796
–
–
–
–
–
30,196
–
–
–
–
–
–
39,759
26,506
66,532
44,355
177,152
1,796
5,083
5,084
–
–
–
–
10,167
–
–
–
–
–
–
–
–
–
5,083
5,08410
–
– 39,75910
– 26,50610
– 66,53210
– 44,35510
187,319
–
1,796
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131.802
118.673
Jan 25
Jan 30
–
– Mar 23 Aug 23
680.105
301.605
301.605
541.005
520.855
520.855
680.105
680.105
551.005
551.005
344.403
372.673
301.605
301.605
498.005
498.005
297.605
297.605
210.106
–
–
Jul 19
Jul 20
Jul 21
210.106 Jun 19
210.106 Jun 19
Jun 20
Jun 20
Jun 21
Jun 21
Jun 22
–
–
–
–
–
Jul 27
Jun 29
Jun 29
Jun 25
Jun 26
Jun 26
Jun 27
Jun 27
Jun 28
Jun 28
– Mar 19
Aug 19
– Mar 22 Aug 22
Jul 20
–
Jul 21
–
– Aug 21
– Aug 22
Jul 22
–
Jul 23
–
Jul 29
Jul 29
Aug 28
Aug 28
Jul 29
Jul 29
372.673
– Mar 22
Aug 22
Notes:
1 These awards do not have any performance conditions attached.
2 Mid market share value of a De La Rue plc ordinary share as at 6 January 2020.
3 For Sharesave options the share price shown is the exercise price which was 80% of mid-market value of an ordinary share averaged over the three dealing days immediately preceding award date.
4
Includes an additional 1,073 dividend shares on vesting. Martin Sutherland made an aggregate taxable gain (after dealings costs excluding PAYE/NI) of £17,745.44. The balance of shares 4,496 following
disposal to meet all liabilities was retained by Martin Sutherland.
5 Mid-market share value of a De La Rue plc ordinary share averaged over the five dealing days immediately preceding award date.
6 The closing mid-market price of the Company’s ordinary share on 5 September 2019 was 210.10p (the vesting date).
7
8
Includes an additional 1,615 dividend shares on vesting. Martin Sutherland made an aggregate taxable gain (after dealing costs excluding PAYE/NI) of £21,229.47. The balance of shares 5,379 following
disposal to meet all liabilities was retained by Martin Sutherland.
Includes an additional 1,407 dividend shares on vesting. Martin Sutherland made an aggregate taxable gain (after dealing costs excluding PAYE/NI) of £31,335.47. The balance of shares 7,941 following
disposal to meet all liabilities was retained by Martin Sutherland.
9 Award pro-rated to date of leaving see page 82 for more information.
10 Awards will lapse see page 82 for more information.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 84 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Chief Executive Officer pay, total shareholder return (TSR) and all employee pay
This section of the report enables our remuneration arrangements to be seen in context by providing:
• De La Rue’s TSR performance for the ten years to 28 March 2020
• A history of De La Rue’s Chief Executive Officer’s remuneration for the current and previous nine years
• A comparison of the year on year change in De La Rue’s Chief Executive Officer’s remuneration with the change in the average
remuneration across the Group
• A year on year comparison of the total amount spent on pay across the Group with profit before tax and dividends paid
Chief Executive Officer pay
Period ended March
Chief Executive Officer
Single figure of total
remuneration £’000
Annual bonus payout
as a % of maximum
opportunity
LTIP vesting
against maximum
opportunity (%)
2011
James
Hussey1
2011
Tim
Cobbold2,3
2012
2013
2014
2015
2016
2017
2018
2019
2020
2020
Tim
Cobbold
Tim
Cobbold
Tim
Cobbold2
Martin
Sutherland4
Martin
Sutherland
Martin
Sutherland
Martin
Sutherland
Martin
Sutherland
Martin
Sutherland4
Clive
Vacher5
433
604
1,053
634
1,071
1,107
998
899
783
954
340
249
44
100
Nil
Nil
80
Nil
Nil
Nil
Nil
60
14
Nil
57
Nil
40
Nil
Nil
25
29
25
Nil
Nil
Nil
Nil
Notes:
1 Role as Chief Executive Officer ended on 12 August 2010.
2 Appointed Chief Executive Officer on 1 January 2011 and resigned on 29 March 2014.
3
4 Appointed 13 October 2014, resigned on 7 October 2019.
5 Appointed 7 October 2019.
Includes award to the value of £450,000 at the date of award under the Recruitment Share Award (which vested on 31 January 2014).
TSR performance
This graph shows the value, by 28 March 2020, of £100 invested in De La Rue plc on 31 March 2010, compared with the value
of £100 invested in the FTSE 250 Index (excl. Investment Trusts) on the same date. The other points plotted are the values at
intervening financial year ends. De La Rue was a constituent of the FTSE 250 Index for the majority of the period under review.
Total shareholder return
Source: FactSet
300
250
200
150
100
50
)
d
e
s
a
b
e
r
–
£
(
e
u
a
V
l
March 10
March 11
March 12
March 13
March 14
March 15
March 16
March 17
March 18
March 19
March 20
De La Rue plc
FTSE 250 (excluding Investment Trusts)
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
85
Chief Executive Officer pay ratio
The table below sets out the CEO pay ratios from the financial year 2019/20 comparing the single total figure of the remuneration
with the equivalent figures for lower quartile, median and upper quartile UK employees.
We have used Option B methodology (based on gender pay reporting) as an established data set which accurately represents
the distribution of pay within the 25th, 50th and 75th percentiles of UK employees. The three quartile individuals were identified
using the gender pay gap data set and then their pay was calculated as single total figure of remuneration include benefits on
a comparable basis with that used for the CEO. The CEO figures used were the combined values for both CEOs employed
during the Financial year 2019/20.
As the quartile individuals are representative of the companies pay distribution the ratios presented are consistent with the pay,
reward and progression policies for the UK employees. A significant portion of the CEO remuneration is delivered through variable
incentives where awards are linked to business performance over a longer term. This means that ratios may fluctuate year to year.
Year
2019/2020
Method
Option B
25th percentile pay ratio
19:1
Median pay ratio
14:1
75th percentile pay ratio
9:1
Total pay and benefits amounts used to calculate ratio.
Financial year
2019/2020
25th percentile ratio
50th percentile ratio
75th percentile ratio
Method
Total pay and
benefits
Option B £32,002.75
Total
salary
£27,510.84
Total pay and
benefits
£44,450.36
Total
salary
£39,316.30
Total pay and
benefits
Total
salary
£65,907.38 £54,000.00
Percentage change in Chief Executive Officer remuneration
The table below compares the percentage change in the Chief Executive Officer’s salary, bonus and benefits to the average
change in salary, bonus and benefits for all UK employees between 2018/19 and 2019/20. UK employees were chosen as
a comparator group to avoid the impact of exchange rate movements over the year. UK employees make up approximately
51.31% of the total employee population. Martin Sutherland and Clive Vacher’s salaries were combined for the 2019/20 period.
Sales incentive only was paid in 2019/20.
Chief Executive Officer
UK employee average
Salary
%
-2.86%
0.28%
Benefits
%
-20%
0
Annual bonus
%
-100%
-49.15%
Relative spend on pay
The following table sets out the percentage change in payments to shareholders and the overall expenditure on pay across
the Group.
Dividends (note 10 to the financial statements)
Overall expenditure on pay (note 27 to the financial statements)
2020
£m
17.3
129.4
2019
£m
25.7
126.4
Change
%
48.6
2.3
Strategic reportCorporate GovernanceFinancial statementsShareholder information 86 De La Rue
Annual Report 2020
Directors’ remuneration report continued
Statement of shareholder voting
The remuneration policy was last approved by shareholders at our AGM on 20 July 2017. The remuneration report was last
approved by shareholders at our AGM on 25 July 2019. Details are shown below.
Approval of remuneration policy (2017 AGM)
Approval of remuneration report (2019 AGM)
Total votes cast
81,796,628
82,417,408
For1
80,461,069
42,846,302
(%)
98.37
51.99
Against
1,335,559
39,571,106
(%) Votes withheld2
1,544,071
20,311
1.63
48.01
Notes:
1 The votes ‘For’ include votes given at the Chairman’s discretion.
2 A vote ‘Withheld’ is not a vote in law and, as such, is not counted in the calculation of the proportion of votes ‘For’ and ‘Against’.
De La Rue carefully monitors shareholder voting on the remuneration policy and implementation and the Company recognises the
importance of ensuring that shareholders continue to support the remuneration arrangements. All voting at the AGM is undertaken
by poll. See the Chairman of the Remuneration Committee Statement (pages 66 and 67) on how the Company has dealt with the
voting in respect of the 2019 Directors’ remuneration report.
Remuneration advice
The Remuneration Committee consults with the Chief Executive Officer on the remuneration of executives directly reporting to him
and other senior executives and seeks to ensure a consistent approach across the Group taking account of seniority and market
practice and the key remuneration policies outlined in this report. During 2019/20, the Committee also received advice from Willis
Towers Watson. Willis Towers Watson has been formally appointed by the Remuneration Committee and advised on the structure,
measures and target setting for incentive plans, executive remuneration levels and trends, corporate governance developments
and Directors’ remuneration report preparation. The Remuneration Committee requests Willis Towers Watson to attend meetings
periodically during the year.
Willis Towers Watson is a member of the Remuneration Consultants’ Group and has signed up to the code of conduct relating
to the provision of executive remuneration advice in the UK. In light of this, and the level and nature of the service received,
the Committee remains satisfied that the advice has been objective and independent.
Total fees for advice provided to the Remuneration Committee during the year by Willis Towers Watson were £120,183.
Dilution limits
The share incentives operated by the Company comply with the institutional investors’ share dilution guidelines.
The Directors’ remuneration report was approved by the Board on 17 June 2020 and signed on its behalf.
Maria da Cunha
Chair of the Remuneration Committee
17 June 2020
Directors’ report
The Directors present their
annual report on the affairs
of the Group, together with
the financial statements
and auditor’s report, for the
period ended 28 March
2020. The following also
form part of this report:
• Pages 44 and 45, which show the
names of all persons who served as
Directors of the Company during the
year, together with their biographical
details, at 28 March 2020
• The reports on corporate
governance set out on pages
42 to 86
• Information relating to financial
instruments and financial risk
management, as provided in note
16 to the financial statements
• Related party transactions
as set out in note 30 to the
financial statements
• Greenhouse gas emissions,
set out on page 34
• Details of Committee membership
for each Director are set out on
page 47
• Details of Directors’ interests
are set out on page 82 of the
Directors’ remuneration report
De La Rue
Annual Report 2020
87
Strategic report
The Board has prepared a Strategic
report which provides an overview
of the development and performance
of the Group’s business for the period
ended 28 March 2020 and which
covers likely future developments in the
Group. The Chairman’s overview, Chief
Executive Officer’s statement, business
overviews, the strategic priorities,
key performance indicators, review
of operations, responsible business,
financial review and managing our risks
sections together provide information
which the Directors consider to be of
strategic importance to the Group.
Dividends
In November 2019, the Board decided
to suspend future dividend payments.
No interim dividend was paid in
respect of the 2019/20 financial year.
The Directors’ do not recommend a
final dividend to be paid for 2019/20
(2018/19: 16.7.0p per share making a
total of 25.0p per share for the full year).
See the Chairman’s Statement on
page 1 and the CEO review on page
10 for further details.
Share capital
As at 28 March 2020, there were
103,997,862 ordinary shares of 44152⁄175p
each and 111,673,300 deferred shares
of 1p each in issue.
Deferred shares carry limited economic
rights and no voting rights. They are not
transferable except in accordance with
the articles of association.
The ordinary shares are listed on the
London Stock Exchange.
Introduction
De La Rue plc is a public limited
company, registered in England
and Wales incorporated under the
Companies Act 1985 with registered
number 3834125 and has its registered
office at De La Rue House, Jays Close,
Viables, Basingstoke, Hampshire
RG22 4BS.
Directors’ report and
Strategic report
The Directors of the Company are
aware of their responsibilities in respect
of the Annual Report and Accounts.
The Directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy. Further information
regarding related processes can be
found in the Audit Committee report
and Risk management sections of this
annual report on pages 56 and 23
respectively. The Statement of Directors’
Responsibilities appears on page 90.
Under the Companies Act 2006, a safe
harbour limits the liability of Directors in
respect of statements in and omissions
from the Strategic report and the
Directors’ report. Under English law,
the Directors would be liable to the
Company, but not to any third party, if the
Strategic report or the Directors’ report
contain errors as a result of recklessness
or knowing misstatement or dishonest
concealment of a material fact, but
would not otherwise be liable.
Management report
The Strategic report and this Directors’
report together with other sections
of this annual report incorporated by
reference, when taken as a whole, form
the management report as required
for the purposes of Disclosure Guidance
and Transparency Rule 4.1.5R.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 88 De La Rue
Annual Report 2020
Directors’ report continued
Rights and restrictions on
shares and transfers of shares
The rights and obligations attaching to
the Company’s ordinary and deferred
shares, in addition to those conferred
on their holders by law, are set out in
the Company’s articles of association,
copies of which can be obtained from
Companies House in the UK or the
Group’s website www.delarue.com.
The key points are summarised below.
Voting
On a show of hands at a general
meeting of the Company, each holder
of ordinary shares present in person
and entitled to vote shall have one vote
and, on a poll, every member present
in person or by proxy and entitled
to vote shall have one vote for every
ordinary share held. Electronic and
paper proxy appointments, and voting
instructions, must be received by the
Company’s Registrar no later than
48 hours before a general meeting.
Exercise of rights of shares
in employee share schemes
Awards held by relevant participants
under the Company’s various share
plans carry no voting rights until the
shares are issued. The Trustee of the
De La Rue Employee Share Ownership
Trust does not seek to exercise voting
rights on existing shares held in
the employee trust. No shares are
currently held in trust.
Dividends and distributions to
shareholders on winding up
Holders of ordinary shares may receive
interim dividends approved by Directors
and dividends declared in general
meetings. On a liquidation and subject
to a special resolution of the Company
the liquidator may divide among
members in specie the whole or any
part of the assets of the Company and
may, for such purpose, value any assets
and may determine how such division
shall be carried out.
Transfers of shares
The Company’s articles of association
place no restrictions on the transfer
of ordinary shares or on the exercise
of voting rights attached to them except
in very limited circumstances (such as
a transfer to more than four persons).
Certain restrictions, however, may from
time to time be imposed by laws and
regulations, such as the FCA’s Listing
Rules, the City Code on Takeovers
and Mergers or any other regulations.
Dealings subject to the
Listing Rules and EU Market
Abuse Regulation
In accordance with the Listing Rules
of the FCA and EU Market Abuse
Regulation, Directors and other persons
discharging managerial responsibilities
of the Company, and in each case, any
persons closely associated with them,
are required to seek the prior approval
of the Company to deal in the ordinary
shares of the Company.
Shareholder agreements
and consent requirements
There are no known arrangements
under which financial rights carried
by any of the shares in the Company
are held by a person other than holders
of the shares. The Company is not
aware of any agreements between
shareholders that may result in any
restriction on the transfer of shares
or exercise of voting rights.
Power to issue and allot
The Directors are generally and
unconditionally authorised under
authorities granted at the 2019 AGM
to allot shares in the Company up
to approximately one third of the
Company’s issued share capital or
two thirds in respect of a rights issue.
The Directors were also given the
power to allot ordinary shares for cash
up to a limit representing 10% of the
Company’s issued share capital as
at 30 May 2019, without regard to
the pre-emption provisions of the
Companies Act 2006 (however,
more than 5% can only be used
in connection with an acquisition
or specified capital investment).
No such shares were issued or allotted
under these authorities and at present
the Directors have no intention of
exercising this authority, other than
to satisfy share options under the
Company’s share option schemes and,
if necessary, to satisfy the consideration
payable for businesses to be acquired.
These authorities are valid until the
conclusion of the forthcoming AGM
and the Directors again propose
to seek equivalent authorities at
such AGM.
Details of shares issued during the
year and outstanding options are
given in notes 22 and 23 on pages 147
to 149 which form part of this report.
Details of the share incentives in place
are provided on pages 79 to 83 of
the Directors’ remuneration report.
Authority to purchase own shares
At the 2019 AGM, shareholders gave
the Company authority to purchase up
to 10,384,421 of its own ordinary shares
representing 10% of its issued ordinary
share capital either for cancellation or to
be held in treasury (or a combination of
these). No purchases have been made
pursuant to this authority and a resolution
will be put to shareholders at the 2020
AGM to renew the authority for a further
period of one year.
Directors
Details of Directors’ remuneration are
provided in the Directors’ remuneration
report on pages 77 to 86. The interests
of the Directors and their families in
the share capital of the Company are
shown on page 82 of the Directors’
remuneration report which also includes
information on the Company contracts
of service with its Directors on page 81.
Appointment and removal
of Directors
Rules regarding the appointment and
removal of Directors are set out in the
Company’s articles of association.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
89
Substantial shareholdings
As at 17 June 2020, the Company had received formal notification of the following
holdings in its shares under the Disclosure and Transparency Rules of the FCA.
It should be noted that these holdings may have changed since the Company was
notified, however notification of any change is not required until the next notifiable
threshold is crossed.
Persons notifying
Crystal Amber Fund Limited
Brandes Investment Partners, L.P.
Schroders plc
Aberforth Partners LLP
Royal London Asset Management Limited
Neptune Investment Management Limited
Majedie Asset Management Limited
Powers of Directors
Subject to the Company’s articles of
association, the Companies Act 2006
and any directions given by the Company
in general meeting by a special
resolution, the business of the Company
is managed by the Board who may
exercise all the powers of the Company,
whether relating to the management of
the business of the Company or not.
The powers of the Board are described
in the corporate governance statement
on pages 46 to 49.
Indemnity
At the date of this report, the Company
has agreed, to the extent permitted by
the law and the Company’s articles of
association, to indemnify Directors and
officers in respect of all costs, charges,
losses, damages and expenses arising
out of claims made against them in the
course of the execution of their duties
as a Director or officer of the Company or
any associated company. The Company
may advance defence costs in civil or
regulatory proceedings on such terms
as the Board may reasonably determine
but any advance must be refunded if
the Director or officer is subsequently
convicted. The indemnity will not provide
cover where the Director or officer has
acted fraudulently or dishonestly.
The Group also maintains Directors’
and officers’ liability insurance
cover for its Directors and officers.
This cover extends to directors
of subsidiary companies.
Date last TR1
notification made
26/03/2020
09/03/2020
07/10/2019
09/04/2018
22/08/2019
13/09/2019
11/09/2019
Nature of
interest
Direct
Indirect
Indirect
Indirect
Direct
Direct
Indirect
% of issued ordinary
share capital held at
notification date
19.14
11.84
5.83
5.11
4.98
4.98
4.93
Amendment of articles
of association
The articles of association may be
amended by special resolution of
the shareholders.
Change of control
Contracts
There are a number of contracts
which allow the counterparties to alter
or terminate those arrangements in
the event of a change of control of the
Company. These arrangements are
commercially sensitive and confidential
and their disclosure could be seriously
prejudicial to the Group.
Financial risk management
See note 16 on page 134.
Banking facilities
The credit facility between the Company
and its key relationship banks contains
a provision such that, in the event of
a change of control, any lender may,
if it so requires, notify the agent that
it wishes to cancel its commitment
whereupon the commitment of that
lender will be cancelled and all its
outstanding loans, together with
accrued interest, will become
immediately due and payable.
At the 2017 AGM, shareholders
approved a proposal to increase
the borrowing limit from £250m
(as stated in the Company’s articles
of association) to £325m.
Employee share plans
In the event of a change of control,
vesting would occur in accordance
with the relevant scheme or plan rules.
Political donations
The Group’s policy is not to make
any political donations and none were
made during the period. However, it is
possible that certain routine activities
may unintentionally fall within the broad
scope of the Companies Act 2006
provisions relating to political donations
and expenditure. As in previous years,
the Company will therefore propose
to shareholders at the forthcoming
AGM that the authority granted at
the AGM in July 2019 regarding
political donations be renewed.
Essential contracts or
other arrangements
The Group has a number of suppliers
of key components, the loss of which
could disrupt the Group’s ability to
deliver on time and in full. See more
details on pages 24, 25 and 27.
Branches
De La Rue is a global company and
our activities and interests are operated
through subsidiaries, branches of
subsidiaries and associates which
are subject to the laws and regulations
of many different jurisdictions.
Our subsidiaries and associates
are listed on pages 157 and 158.
Acquisitions and disposals
In October 2019, the Group disposed
of its International Identity Solutions
business. Please see note 6 on page
123 for further information.
Post-balance sheet events
Post-balance sheet events are disclosed
in note 31 to the financial statements on
page 157.
Going concern
As described on page 107, the Directors
continue to adopt the going concern
basis (in accordance with the guidance
‘Going Concern and Liquidity Risk
Guidance for Directors of UK Companies
2009’ issued by the FRC) in preparing
the consolidated financial statements.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 90 De La Rue
Annual Report 2020
Directors’ report continued
Employment of disabled persons
The Group gives full consideration
to applications for employment from
disabled persons where the requirements
of the job can be adequately fulfilled
by a disabled person. Where existing
employees become disabled, it is the
Group’s policy, wherever practicable,
to provide continuing employment under
normal terms and conditions and to
provide training and career development
and promotion to disabled employees
wherever appropriate.
Disclosures required under
UK Listing Rule 9.8.4
There are no disclosures required to
be made under the UK Listing Rule 9.8.4
not already reported by reference within
the annual report.
Auditor and disclosure
of information to auditor
Each of the persons who is a Director
at the date of approval of this report
confirms that:
• So far as the Director is aware, there is
no relevant audit information of which
the Company’s auditor is unaware
• The Director has taken all the steps
that he or she ought to have taken
as a Director in order to make himself
or herself aware of any relevant audit
information and to establish that
the Company’s auditor is aware
of that information
This confirmation is given, and should
be interpreted, in accordance with
the provisions of section 418 of the
Companies Act 2006.
Auditors
Ernst & Young LLP have expressed
their willingness to be re-appointed
as auditor of the Company. A resolution
to re-appoint Ernst & Young LLP as the
Company’s auditor will be proposed
at the forthcoming AGM.
Statement of Directors’
responsibilities in respect
of the annual report and
the financial statements
The Directors are responsible for
preparing the annual report and the
Group and Parent Company financial
statements in accordance with
applicable law and regulations.
Under that law they are required to
prepare the Group financial statements
in accordance with IFRS as adopted
by the EU and applicable law and have
elected to prepare the Parent Company
financial statements in accordance with
UK Accounting Standards, including FRS
102 The Financial Reporting Standard
applicable in the UK and Republic of
Ireland, and applicable law.
Under company law the Directors must
not approve the financial statements
unless they are satisfied that they give
a true and fair view of the state of affairs
of the Group and Parent Company and
of their profit or loss for that period.
In preparing each of the Group and
Parent Company financial statements,
the Directors are required to:
• Select suitable accounting policies
and then apply them consistently
• Make judgements and estimates
that are reasonable and prudent
• For the Group financial statements,
state whether they have been
prepared in accordance with
IFRS as adopted by the EU
• For the Parent Company financial
statements, state whether applicable
UK Accounting Standards have
been followed, subject to any
material departures disclosed and
explained in the Parent Company
financial statements
• Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the Parent Company
will continue in business
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Parent Company and Group’s
transactions and disclose with
reasonable accuracy at any time the
financial position of the Parent Company
and enable them to ensure that its
financial statements comply with the
Companies Act 2006. They have
general responsibility for taking such
steps as are reasonably open to them
to safeguard the assets of the Group
and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic report, Directors’
report, Directors’ remuneration report
and corporate governance statement
that comply with that law and
those regulations.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Group’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Directors’ responsibility
statement
Each of the persons who is a Director
at the date of approval of this report
confirms that to the best of his or
her knowledge:
• 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
• The Strategic report on pages 1 to
32 and the Directors’ report on pages
87 to 90 include 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 Annual Report and Accounts,
taken as a whole, are fair, balanced
and understandable and provide
the information necessary for
shareholders to assess the Group’s
financial position, performance,
business model and strategy
The Strategic report and the Directors’
report were approved by the Board
on 17 June 2020.
By order of the Board
Jane Hyde
Company Secretary
17 June 2020
Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Accounting policies
Notes to the accounts
Company balance sheet
Company statement of changes in equity
Accounting policies – Company
Notes to the accounts – Company
Non-IFRS measures
Five year record
Shareholders’ information
Featured image glossary
92
102
103
104
105
106
107
118
160
161
162
164
166
169
170
171
Strategic reportCorporate GovernanceFinancial statementsShareholder information 92 De La Rue
Annual Report 2020
Independent auditor’s report
to the members of De La Rue plc
Opinion
In our opinion:
• De La Rue plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and
fair view of the state of the group’s and of the parent company’s affairs as at 28 March 2020 and of the group’s profit for the year
then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards
the group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of De La Rue Plc which comprise:
Group
Consolidated income statement for the period ended 28 March 2020 Company Balance sheet as at 28 March 2020
Consolidated statement of comprehensive income for the period
ended 28 March 2020
Consolidated balance sheet as at 28 March 2020
Company Statement of changes in equity for the period ended
28 March 2020
Related notes 1 to 9a to the financial statements including a summary
of significant accounting policies
Parent company
Consolidated statement of changes in equity for the period ended
28 March 2020
Consolidated cash flow statement for the period ended 28 March 2020
Related notes 1 to 33 to the financial statements, including a summary
of significant accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that
has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting
Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report below. We are independent of the group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Accounting Policies (page 107) in the financial statements which indicates that the ability of the Group and
Company to continue as a going concern is subject to a material uncertainty which could cast significant doubt on the Group
and company’s ability to continue as a going concern.
The material uncertainty relates to the outcome of the shareholder vote for the Capital Raise. The completion of the Capital Raise
is dependent on approval from the Company’s shareholders, in addition to the fulfilment of other customary conditions which
are set out in full in the Company’s going concern disclosure in Accounting Policies (page 107) of the financial statements. If the
Capital Raise is not completed and the proceeds of an equity capital raise in the gross amount of at least £100 million are not
received by the Company on or before 31 July 2020, the Long Stop Provision under the RCF amendment agreement would be
triggered. This would require the Company to agree an alternative financing plan with the relevant lenders within 45 days (or such
longer period as the Company and the lenders may agree), failing which an immediate event of default under the facility agreement
would be automatically triggered. As a result, the lenders would have the right to immediately withdraw and cancel the Group’s
facility and demand repayment of any drawings on the facility, which, at the Balance Sheet Date, amounted to £117 million.
As such, if the shareholder vote, along with other customary conditions of the Capital Raise, is not completed before 31 July 2020
and if an alternative financing plan could not be agreed the lenders could withdraw the Group’s facility and demand repayment of
any drawings on the facility. In this scenario and assuming an alternative financing plan could not be agreed, the Group would not
be expected to have sufficient cash resources to repay the amounts drawn and/ or continue trading. This would cast significant
doubt on the Group and the Company’s ability to continue as a going concern.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
93
Our opinion is not modified in respect of this matter.
We describe below how our audit responded to the risks related to going concern:
• The audit engagement partner and associate partner increased their time directing and supervising the audit procedures in
respect of going concern and utilised Corporate Finance specialists to assist their assessment of the going concern model
and related assumptions.
• We confirmed our understanding of De La Rue’s going concern assessment process as well as the review controls in place over
the preparation of the group’s going concern model and the memoranda on going concern presented to the board of directors.
• We discussed with the appointed legal counsel and Sponsor in respect of the Capital Raise the feasibility of, and process in
respect of, the Capital Raise including the customary nature of the conditions to the Capital Raise other than the shareholder
vote to which the material uncertainty relates. We also inspected a copy of the relevant underwriting agreement. We were
supported in this work by our Corporate Finance specialists.
• Inspected an advanced draft of the prospectus/circular in respect of the Capital Raise ahead of its publication date to
determine the consistency of the disclosure in such document and those in the annual report and financial statements.
• We obtained the cash flow and covenant forecasts and sensitivities prepared by management and tested for arithmetical
accuracy of the models as well as checking the net debt position at the year-end date which is the starting point for the model.
• We challenged the appropriateness of management’s base and reasonable worst case forecasts, which included:
– We inspected evidence (such as contracts) and made enquiries of management to assess the reasonableness of the
forecasts including an assessment of secured orders and the status of cost-out initiatives.
– We considered the adequacy of management’s COVID-19 assumptions (which are discussed in the going concern section
of Accounting Policies (page 107) taking into account the nature of the business, the possible impact on both supply and
demand and considering the actual trading performance post year-end versus the base forecasts adjusted for COVID-19.
– We evaluated those accounting judgements which we identified that could impact either forecast profit or cash flows in
the going concern period. This included assessing, through discussions with key management personnel assisted where
appropriate by our own specialists, the likelihood that any contingent liabilities or uncertain tax positions could give rise
to a cash outflow in the going concern period. We also assessed the proposed classification of forecast exceptional
items against the Company’s accounting policy and terms agreed with representatives of the lenders.
– We performed a ‘reverse stress’ test to determine the difference between the results that would be required to happen in
this scenario (one where a covenant is breached) and those modelled in management’s reasonable worst case scenario
and performed our own sensitivities on this difference (or ‘headroom’) to identify any unmodelled downsides, taking into
consideration our knowledge of the company’s historical forecasting accuracy (historically and in the current year under
new management).
• We understood each of the available mitigating actions and obtained analysis to determine if these were in the control
of management and evaluated the expected impact of the mitigation in the light of our understanding of the business
and its cost structures.
• We reviewed the working capital report prepared by the Company’s reporting accountants and discussed the basis for
their conclusions with them and compared those conclusions with our own conclusions from our own testing procedures.
• We read the covenant definition within the existing Revolving Credit Facility agreement and checked to ensure that
calculations were in line with the terms of the agreement.
• We inspected the latest draft (subject to Capital Raise) of the amendment to the existing RCF agreement and assessed
its impact on the forecasts as prepared by testing the revised model prepared by the company against its terms.
• We inspected the signed (subject to Capital Raise) deficit reduction contribution plan agreed with the pension trustee and
assessed its impact on the forecasts as prepared by testing the revised model prepared by the company against its terms.
• We held discussions with the Audit Committee and full board of Directors to corroborate the forecasts and their basis as
prepared by management.
• We assessed the disclosures in the Annual Report & Accounts relating to going concern, including the material uncertainty
to ensure they were fair, balanced and understandable and in compliance with IAS1.
We draw attention to the Viability Statement in the Annual report on page 30, which indicates that an assumption to the
Viability Statement is that the Capital Raise completes. The Directors consider that the material uncertainty referred to in
respect of going concern may cast significant doubt over the future viability of the Group and Company, should the Capital
Raise not complete. Our opinion is not modified in respect of this matter.
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Independent auditor’s report
to the members of De La Rue plc continued
Conclusions relating to principal risks, going concern and viability statement
Aside from the impact of the matters disclosed in the material uncertainty relating to going concern section, we have nothing
to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to
you whether we have anything material to add or draw attention to:
• the disclosures in the annual report set out on pages 23 to 29 that describe the principal risks and explain how they are
being managed or mitigated;
• the directors’ confirmation set out on page 61 in the annual report that they have carried out a robust assessment of the
emerging and principal risks facing the entity, including those that would threaten its business model, future performance,
solvency or liquidity;
• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
• the directors’ explanation set out on page 89 in the annual report as to how they have assessed the prospects of the entity,
over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Overview of our audit approach
Key audit matters
Audit scope
– The adoption of IFRS 16 (Leases)
– Revenue recognition (cut-off)
– Post-retirement benefits – Liabilities
– Virtual audit procedures and inventory counts in response to COVID-19
– We performed an audit of the complete financial information of four components, an audit of specific
balances of three components and performed specified procedures for a further 11 components.
– The components where we performed full, specific or specified audit procedures accounted for 106.2% of
adjusted EBITDA (being EBITDA adjusted for exceptional items), 100.0% of Revenue and 103.0% of Total assets.
Materiality
– Overall group materiality of £850,000 which represents 2% of Adjusted EBITDA (being EBITDA adjusted
for exceptional items). A full reconciliation of EBITDA to application of materiality” section below.
Key audit matters
In addition to the material uncertainty related to going concern section, we have determined the matters described below to be
the key audit matters to be communicated in our report. Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the
greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Risk
The adoption of IFRS 16 (Leases) – £1.1m
transition adjustment to reserves (2019 – nil)
Our response to the risk
We have evaluated the application of IFRS 16 and tested the
resulting impact on the balance sheet and income statement.
Refer to the Audit Committee Report (page 57);
Accounting policies (page 109); and Note 25 of the
Consolidated Financial Statements (page 150).
We assessed whether the accounting regarding leases
is consistent with the definitions of IFRS 16 including factors such
as the assessment of the lease term and measurement principles.
IFRS 16 ‘Leases’ has been adopted by the Group
from 31 March 2019. On the initial accounting for,
and in the re-assessment of accounting for leases
there are accounting judgements, estimates and
assumptions that impact the amounts recognised
as right of use assets and lease liabilities.
There is a risk of inappropriate assumptions
being applied, which could have a significant
impact on the valuation of amounts recognised
in the balance sheet.
We performed a completeness analysis to ensure Management’s
calculation was consistent with company accounting and legal
records, locations listed in the annual report and specific
responses from the Company’s finance sites.
Due to the degree of management judgment in establishing the
underlying assumptions we have involved a Treasury specialist
in assessing the appropriateness of the incremental borrowing
rates applied by Management in the IFRS 16 calculations.
Key observations
communicated to the
Audit Committee
Based on our audit
procedures we have
concluded that
management’s
judgements in relation
to accounting for the
impact of IFRS 16 is
in accordance with
the Group’s stated
accounting policy and
the related disclosure
of these items
is appropriate.
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Key observations
communicated to the
Audit Committee
Based on our
audit procedures
we have concluded
that revenue is
appropriately
recognised in
the period and
appropriately
accrued or deferred
at 28 March 2020.
Based on our audit
procedures, we have
concluded that the
actuarial assumptions
applied within the
valuation of post-
retirement benefits
at period-end are
appropriate.
Risk
Our response to the risk
Revenue recognition (cut-off) – £466.8m
(FY 2019 – £564.8m)
Refer to the Audit Committee Report (page 57);
Accounting policies (page 112); and Note 2 of the
Consolidated Financial Statements (page 120).
We have identified that there is a risk that revenue
is manipulated at or near to the period end to meet
income statement targets through management
override of controls. This cut-off risk manifests itself
in different ways based on the terms of the contract
and the associated accounting policy under IFRS 15.
For contracts where revenue is recognised ‘over time’
the risk relates to the accuracy of the cost incurred
position at year-end as well as the forecast margin
for the contract. For contracts where revenue is
recognised at a ‘point in time’ the risk relates to
evidencing that control has passed to the customer.
In particular certain contracts include specific terms,
for example, complex acceptance criteria or “bill
and hold” criteria which adds to the risk that revenue
may be recorded in the incorrect reporting period.
Misstatements that occur in relation to this risk
would impact the revenue recognised in the income
statement as well as any revenue related balance
sheet account such as trade debtors, deferred
income etc.
Post-retirement benefit Liabilities
– £982.1m (FY 2019 – £1,081.6m)
Refer to the Audit Committee Report (page 57);
Accounting policies (page 116); and Note 26 of the
Consolidated Financial Statements (page 151).
The valuation of the pension liabilities requires
significant levels of judgement and technical
expertise in choosing appropriate assumptions.
A number of the key assumptions (including
salary increases, inflation, discount rates and
mortality) can have a material impact on the
calculation of the liability.
Misstatements that occur in relation to this risk
would affect the retirement benefit obligations
account in the balance sheet as well as related
accounts in the income statement and statement
of other comprehensive income.
We have performed testing using the lowest end of the
performance materiality range applicable for addressing the
occurrence assertion impacted by a significant risk. We focused
on revenue recognised around the period end date ensuring that,
for our sample selected, where revenue has been recognised
there is appropriate evidence to support that control has passed
to the customer. This includes third party evidence of delivery
as applicable.
For ‘bill and hold’ contracts we ensured that this process (referred
to as “invoicing into stock” by the Company) was stipulated in
the contractual terms, the related goods had been manufactured
at the year-end date (including physically verifying a sample of
these items) and that control had passed to the customer.
We inspected significant revenue generating contracts at the
period end, to ensure the accounting treatment is in line with
the contract terms, including that acceptance and “bill and hold”
conditions have been satisfied.
We performed journal entry testing procedures to identify unusual
journal entry postings. We obtained supporting audit evidence
including invoices and credit notes for unusual and/or material
revenue journals.
At each full scope audit location with significant revenue streams
(4 components) including (where relevant) consolidation
adjustments, we performed audit procedures which covered
94.0% of the Group’s Revenue.
Together with our EY pension specialists, we have
coordinated with the actuaries of the pension scheme to
thoroughly understand the valuation process and challenged
the basis for setting key assumptions, such as the salary
increases and mortality rates which we compared to national
and industry averages.
We agreed the discount and inflation rates used in the valuation
of the pension liability to our internally developed benchmarks.
We sought to understand the actuarial valuation used as the
basis for the Companies IAS 19 valuation through enquiry
with the Company’s external actuaries.
We assessed the competency of the third parties used
in determining the actuarial valuation.
We verified the basis of recognition of the UK pension surplus by
obtaining Management’s legal advice in respect of the scheme
rules and considered this against the requirements of IFRIC 14.
We obtained the Company’s legal advice with respect to the
Pension Underpin, considered the disclosure of this matter
against the requirements of IAS 37 (refer to Note 5 of the
Consolidated Financial Statements).
We have evaluated the competency of the third parties
engaged to provide the legal advice, as an expert.
We assessed the appropriateness of Management’s
retirement benefit obligation disclosure in reference to
the applicable accounting standards.
We obtained Management’s calculation and related legal advice
for the £8.7m indexation gain relating to deferred members and
compared it to our own independent recalculation performed
by our specialists. We assessed Management’s judgement in
respect of the treatment of the indexation gain as an income
statement item, taking into account the time lapsed since the
UK government changed its main rate of indexation to CPI.
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Independent auditor’s report
to the members of De La Rue plc continued
Risk
Our response to the risk
Virtual audit procedures and inventory
counts in response to COVID-19
The global Coronavirus (COVID-19) pandemic has
caused disruption to the business operations of
the Group and posed unique auditing challenges.
Due to the various restrictions imposed in different
countries in which the group operates, as part of
the measures to combat the COVID-19 outbreak,
we were not able to visit audited entity premises for
the year end execution and conclusion phase of the
audit. This created practical challenges including
how to manage company personnel availability,
the collection of sufficient and appropriate audit
evidence and challenges in communication.
The mandatory “lockdowns” in various countries
also resulted in certain physical inventory counts
not being possible, with virtual counts performed
in some locations.
There is a risk that sufficient audit evidence
could not be obtained to conclude on the
appropriateness of the inventory balance at
year end.
We increased the involvement of more senior and experienced
engagement team members in performing procedures related to
complex issues. We developed alternative approaches for the
direction and supervision of audit team members and maintained
regular and effective communication within the audit team and
with the Company via video conferencing, discussing issues
timely thereby allowing for appropriate intervention when required.
We revised our audit strategy in respect of testing the existence
of inventory.
We observed physical (in person) inventory counts in Malta and
Kenya based on the appropriate ‘social distancing’ guidelines
in those countries. During our observations we conducted
sample testing to validate the existence of inventory.
In locations where physical inventory count observations were
not possible (UK and Sri Lanka), we observed inventory counts
virtually using video conferencing technology and conducted
test counts virtually. This excluded work in progress which
could not be counted virtually for security reasons (see below).
In response to the heightened risk of attending counts virtually;
– The virtual inventory counts were conducted by two senior,
more experienced EY team members
– Sample sizes were increased from the standard mandated
sample size for physical inventory counts.
– We revisited a sample of inventory counted to validate it
was in the same location. We traced the location of the
operative holding the electronic device conducting the
virtual inventory count.
For the uncounted work in progress which amounted to £2.5m,
we tested, on a sample basis direct materials to actual delivery
receipts, traced the accounting of the materials from production
to finished goods and the subsequent shipment of these goods
to the customer.
We verified, either physically or virtually, 74% of bill and hold
inventory. For the remainder of bill and hold related inventory,
we vouched the associated revenue to payment and
completion certificates distributed to the customer.
Key observations
communicated to the
Audit Committee
Based on the
procedures
performed, including
those in respect of
inventory existence,
we did not identify any
evidence of material
misstatement in the
inventory balance
recognised at
28 March 2020
and appropriate
disclosures have
been provided.
In the prior year, our auditor’s report included the following key audit matters which have been removed due to the specified basis;
• Specific judgemental accruals: In the current year, it was concluded that this no longer represented a key audit matter as
Management released the remainder of a material accrual relating to a historic dispute concerning agency commissions
in the prior year.
• The adoption of IFRS 15 ‘Revenue from contracts with customers’: The assessment and implementation of this standard
was completed in the prior year and as such there are no further complex judgements to be made by Management in
reference to adopting this standard.
• Recoverability of trade and other receivables: In the current year, it was concluded that this no longer represented a key
audit matter as this was specifically in relation to a receivable due from Banco Central de Venezuela which was provided
for in full in the prior year (and remains so as disclosed in the financial statements).
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An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements.
We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the
business environment when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of the 51 reporting components of the Group, we selected seven
components as full or specific scope covering entities within United Kingdom, Malta, Sri Lanka, Kenya and Group consolidation
adjustments, which represent the principal business units within the Group.
Of the seven components selected, we performed an audit of the complete financial information of four components (“full scope
components”) which were selected based on their size or risk characteristics. For the remaining three components (“specific
scope components”), we performed audit procedures on specific accounts within that component that we considered had
the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these
accounts or their risk profile.
The reporting components where we performed full and specific audit procedures accounted for 137.2% (2019: 115.2%) of
the Group’s adjusted EBITDA (a full reconciliation of EBITDA to the adjusted EBITDA figure is set out in the “Our application of
materiality” section below), 96.2% (2019: 98.9%) of the Group’s Revenue and 96.0% (2019: 96.9%) of the Group’s Total assets.
For the current year, the full scope components contributed 123.6% (2019: 131.2%) of the Group’s adjusted EBITDA, 94.0%
(2019: 98.8%) of the Group’s Revenue and 76.0% (2019: 81.4%) of the Group’s Total assets. The specific scope component
contributed 13.6% (2019: (16.0%)) of the Group’s adjusted EBITDA, 2.2% (2019: 0.1%) of the Group’s Revenue and 20.0%
(2019: 15.5%) of the Group’s Total assets. The audit scope of these components may not have included testing of all significant
accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. The remaining
coverage (being (31.0%) of adjusted EBITDA) related to specified procedures performed through a combination of centralised
testing by the group team and instructions to component teams in 11 further locations. These typically represent cost centres
and specifically, we performed specified procedures on certain aspects of Revenue; Other operating expenses; interest income
and expense, provisions, intangible assets and amortisation in response to our risk assessment for these individual financial
statement captions.
Of the remaining 33 components that together represent (6.2%) of the Group’s adjusted EBITDA, none are individually greater
than 1.1% of the Group’s adjusted EBITDA. For these components, we performed other procedures, including cash and
borrowings verification testing on balances material to the group, analytical review, testing of consolidation journals and
intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of material
misstatement to the Group financial statements.
The table below illustrates the coverage obtained from the work performed by our audit teams.
Full Scope (4 Locations)
Specific Scope (3 Locations)
Specified Procedures (11 Locations)
Testing Total
Other Procedures (33 Locations)
Group Total
Adjusted
EBITDA
(%)
123.6
13.6
(31.0)
106.2
(6.2)
100.0
Revenue
(%)
94.0
2.2
3.8
100.0
–
100.0
Total Assets
(%)
76.0
20.0
7.0
103.0
(3.0)
100.0
Changes from the prior year
For the current year, we evaluated that the overseas manufacturing locations in Malta, Sri Lanka and Kenya were specific scope
locations whereas in 2019, Malta, Sri Lanka and Kenya were full scope locations. This determination was made through our
updated risk assessment and a reflection of the number of misstatements identified in the prior year across these three locations
which had reduced significantly compared to our initial audit in 2018. Furthermore, we have refined the scope of these locations
to focus specifically on the accounts which are significant in size relative to the overall group (predominantly inventory and
property, plant and equipment) and/or pertain to the key audit matters described above.
Furthermore, we have extended the number of specified procedures performed centrally by the group audit team to perform
testing on locations which we have not performed substantive procedures on in previous audits, in order to add an element
of unpredictability into our scoping. For example, we have performed specified procedures on Operating Expenses in cost
centres in Saudi Arabia and the United Arab Emirates for the first time.
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to the members of De La Rue plc continued
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each
of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms
operating under our instruction. The audit procedures on the four full scope components were performed directly by the primary
audit team. For the three specific scope components, where the work was performed by component auditors, we determined
the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for
our opinion on the Group as a whole.
During the year the Group audit team determined not to undertake any planned visits to the specific scope overseas locations.
This decision was taken based on the relative contribution of the full scope UK locations to the overall Group (123.6% of the
Group’s adjusted EBITDA, 94.0% of the Group’s Revenue and 76.0% of the Group’s Total assets). Detailed instructions were sent
to all specific scope overseas locations which covered the significant areas that should be addressed by the component team
auditors and the information which should be reported by to the Group audit team. Furthermore, as described above, the number
of misstatements identified in the prior year across the three locations reduced significantly compared to our initial audit in 2018
and remained low in the current year. The primary team interacted regularly with the component teams during various stages of
the audit including attending planning, update and closing meetings via conference calls. The primary team reviewed key working
papers and were responsible for the scope and direction of the audit process. This, together with the additional procedures
performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and
extent of our audit procedures.
We determined materiality for the Group to be £850,000 (2019: £2.6 million), which is 2% of adjusted EBITDA (2019: 4.9% of profit
before tax adjusted for exceptional items).
We changed our basis for materiality (from the 2019 audit) from adjusted Profit before Tax to adjusted EBITDA. Given the material
uncertainty related to going concern as disclosed by Management in the half year results for the six months ended 28 September
2019, there is an increased focus on the banking covenants applicable to the Company which are based on adjusted EBITDA.
As such, we believe that adjusted EBITDA provides us with a reasonable basis for determining materiality and is the most
relevant performance measure to the stakeholders of the entity.
We determined materiality for the Parent Company to be £2.8 million (2019: £3.8 million), which is 2% (2019: 2%) of equity.
Our materiality is based on the Group’s EBITDA adjusted for exceptional items in order to exclude items which are non-recurring
in nature. We have determined the final materiality amount applied in our audit procedures below:
Starting basis
• Group EBITDA £63.6m
Adjustments
• Add back net exceptional items of £20m as disclosed on the Group Income statement
Materiality
• Totals £43.6m
• Materiality of £850,000 (2% of adjusted EBITDA)
During the course of our audit, we reassessed initial materiality due to a significant reduction in the Group’s profitability.
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Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement
was that performance materiality was 50% (2019: 50%) of our planning materiality, namely £425,000 (2019: £1.3m). We have
set performance materiality at this percentage due to an expectation of possible audit misstatements in the current year driven
by the volume and quantum of audit misstatements identified in the prior year.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts
is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is
based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement
at that component. In the current year, the range of performance materiality allocated to components was £85,000 to £400,000
(2019: £329,000 to £1,304,000).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £42,500
(2019: £130,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 90, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the
other information and to report as uncorrected material misstatements of the other information where we conclude that those
items meet the following conditions:
• Fair, balanced and understandable set out on page 60 – the statement given by the directors that they consider the
annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the group’s performance, business model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
• Audit committee reporting set out on page 56 – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 43 – the parts
of the directors’ statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2)
do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
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to the members of De La Rue plc continued
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Annual Report 2020
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements and those reports have been prepared in accordance with applicable
legal requirements;
• the information about internal control and risk management systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules
sourcebook made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has
been prepared in accordance with applicable legal requirements; and
• information about the company’s corporate governance code and practices and about its administrative, management
and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the
course of the audit, we have not identified material misstatements in:
• the strategic report or the directors’ report; or
• the information about internal control and risk management systems in relation to financial reporting processes and about
share capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit
• a Corporate Governance Statement has not been prepared by the company
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 90, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of these financial statements.
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Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial
statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement
due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both
those charged with governance of the entity and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that
the most significant are those that relate to the reporting framework (IFRS, Companies Act 2006, the UK Corporate Governance
Code, and the Listing Rules of the UK Listing Authority) and the relevant tax compliance regulations in the jurisdictions in which
De la Rue plc operates.
• We understood how De La Rue plc is complying with those frameworks by understanding how De La Rue’s own oversight
mitigates risk through driving a culture of honesty and ethical behaviour (by placing a strong emphasis on fraud prevention).
We also made enquiries of management, internal audit, those responsible for legal and compliance procedures and the
Company Secretary. We corroborated our enquiries through our review of Board minutes, papers provided to the Audit
Committee and correspondence received from regulatory bodies and noted that there was no contradictory evidence.
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur
by considering the risk of fraud through management override and, in response, we incorporated data analytics across manual
journal entries into our audit approach. Where instances of risk behaviour patterns were identified through our data analytics,
we performed additional audit procedures to address each identified risk. These procedures included testing of transactions
back to source information and were designed to provide assurance that the financial statements were free from fraud or error.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations.
Our procedures involved journal entry testing, with a focus on journals meeting our defined risk criteria based on our
understanding of the business; enquiries of legal counsel, group management, internal audit and all full and specific
scope management.
• If any instance of non-compliance with laws and regulations were identified, these were communicated to the relevant local
EY teams who performed sufficient and appropriate audit procedures supplemented by audit procedures performed at the
group level.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the company on 20 July 2017 to audit the financial statements for the year ending 31 March 2018 and
subsequent financial periods. We were appointed as auditors by the Board of Directors and signed an engagement letter on
21 September 2017.
The period of total uninterrupted engagement including previous renewals and reappointments is 3 years, covering the years
ending 31 March 2018 to 28 March 2020.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company
and we remain independent of the group and the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Kevin Harkin (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Reading
17 June 2020
Strategic reportCorporate GovernanceFinancial statementsShareholder information
102 De La Rue
Annual Report 2020
Consolidated income statement
for the period ended 28 March 2020
Revenue from customer contracts
Cost of sales
Gross Profit
Adjusted operating expenses
Adjusted operating profit
Adjusted Items:
– Amortisation of acquired intangibles
– Net exceptional items
Operating profit
Interest income
Interest expense
Net retirement benefit obligation finance expense
Net finance expense
Profit before taxation from continuing operations
Taxation
Profit from continuing operations
Loss from discontinued operations
Profit for the year
Attributable to:
– Owners of the parent
– Non-controlling interests
Profit for the year
Earnings per ordinary share
Basic
Basic EPS continuing operations
Basic EPS discontinued operations
Total Basic EPS
Diluted
Diluted EPS continuing operations
Diluted EPS discontinued operations
Total Diluted EPS
Notes
2
4
7
7
7, 26
8
3
9
9
2020
£m
466.8
(360.9)
105.9
(82.2)
23.7
2019
£m
(restated*)
564.8
(402.4)
162.4
(102.3)
60.1
(0.9)
20.0
42.8
1.0
(6.1)
(1.6)
(6.7)
36.1
–
36.1
(0.3)
35.8
34.1
1.7
35.8
33.1p
(0.3)p
32.8p
33.0p
(0.3)p
32.7p
(0.7)
(27.9)
31.5
0.6
(4.5)
(2.1)
(6.0)
25.5
(4.8)
20.7
(2.4)
18.3
17.0
1.3
18.3
18.8p
(2.3)p
16.5p
18.8p
(2.3)p
16.5p
Note:
*
The prior year column has been restated to show cost of sales separate from total operating expenses as reported in previous periods, thus allowing presentation of gross profit. The inclusion of this
level of information is considered useful for the users of the Annual Report and Accounts and will provide greater insight into the performance of the business. For FY 2018/19 total operating expenses
– ordinary of £505.4m was originally reported. This was made up of costs of inventories recognised as an expense of £403.6m, positive manufacturing variances of £1.2m (credit) and adjusted operating
expenses of £102.3m. Consistent with the new presentation format above, the prior year amounts of cost of inventories recognised as an expense and the positive manufacturing variances have been
presented combined on the cost of sales line (net value £402.4m and adjusted operating expenses of £102.3m have been presented separately.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
103
Consolidated statement of comprehensive income
for the period ended 28 March 2020
Profit for the year
Other comprehensive income
Items that are not reclassified subsequently to profit or loss:
Remeasurement gain/(loss) on retirement benefit obligations
Tax related to remeasurement of net defined benefit liability
Other movements
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations
Foreign currency translation difference reclassified to income statement on disposal of subsidiary
Change in fair value of cash flow hedges
Other movements
Change in fair value of cash flow hedges transferred to profit or loss
Income tax relating to components of other comprehensive income
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
Comprehensive income for the year attributable to:
Equity shareholders of the Company
Non-controlling interests
Notes
26
8
8
2020
£m
35.8
114.1
(20.5)
–
3.3
1.3
1.4
–
1.4
–
101.0
136.8
135.1
1.7
136.8
2019
£m
18.3
(4.8)
1.5
0.7
(0.9)
(2.6)
−
0.4
0.7
(5.0)
13.3
12.0
1.3
13.3
Strategic reportCorporate GovernanceFinancial statementsShareholder information 104 De La Rue
Annual Report 2020
Consolidated balance sheet
at 28 March 2020
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use assets
Retirement benefit obligations
Other financial assets
Investments in associates and joint ventures
Deferred tax assets
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Contract assets
Current tax assets
Derivative financial assets
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Contract liabilities
Current tax liabilities
Derivative financial liabilities
Lease liabilities
Provisions for liabilities and charges
Non-current liabilities
Retirement benefit obligations
Deferred tax liabilities
Derivative financial liabilities
Provisions for liabilities and charges
Lease liabilities
Other non-current liabilities
Total liabilities
Net assets/(liabilities)
EQUITY
Share capital
Share premium account
Capital redemption reserve
Hedge reserve
Cumulative translation adjustment
Other reserve
Retained earnings
Total equity attributable to shareholders of the Company
Non-controlling interests
Total equity
Approved by the Board on 17 June 2020.
Kevin Loosemore
Chairman
Clive Vacher
Chief Executive Officer
Registered number: 3834125
Notes
2020
£m
2019
£m
11
12
25
26
13
18
16
14
15
2
16
17
20
19
2
16
25
21
26
18
16
21
25
22
114.6
31.0
12.9
64.8
8.0
–
5.5
2.1
238.9
53.9
67.1
18.3
0.3
14.5
14.6
168.7
407.6
(116.6)
(133.3)
(0.3)
(12.5)
(14.0)
(2.8)
(10.6)
(290.1)
(1.8)
(8.8)
(2.1)
–
(11.1)
(0.5)
(24.3)
(314.4)
93.2
47.8
42.2
5.9
0.1
9.6
(83.8)
56.2
78.0
15.2
93.2
115.0
33.3
–
–
7.3
−
18.4
0.2
174.2
42.3
114.4
24.9
3.3
4.0
12.2
201.1
375.3
(118.7)
(175.0)
(6.0)
(11.7)
(6.7)
–
(3.5)
(321.6)
(78.6)
(3.4)
(0.2)
(0.7)
–
–
(82.9)
(404.5)
(29.2)
47.7
42.1
5.9
(2.5)
5.0
(83.8)
(53.5)
(39.1)
9.9
(29.2)
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
105
Consolidated statement of changes in equity
for the period ended 28 March 2020
Balance at 1 April 2018
Profit for the year
Other comprehensive income for the year, net of tax
Other movements
Total comprehensive income for the year
Transactions with owners of the Company
recognised directly in equity:
Share capital issued
Employee share scheme:
– value of services provided
Income tax on income and expenses recognised
directly in equity
Dividends paid
Balance at 30 March 2019 as previously reported
Accounting policy restatement – IFRS 16
Balance at 31 March 2019 (restated)
Profit for the year
Other comprehensive income for the year, net of tax
Other movements
Total comprehensive income for the year
Transactions with owners of the Company
recognised directly in equity:
Transactions with non-controlling interests (see note 33)
Share capital issued
Employee share scheme:
– value of services provided
Income tax on income and expenses recognised
directly in equity
Other
Dividends paid
Balance at 28 March 2020
Attributable to
equity shareholders
Non-
controlling
Interests
Total
equity
Share
capital
£m
47.1
–
–
–
–
Share
premium
account
£m
38.4
–
–
–
–
Capital
redemption
reserve
£m
5.9
–
–
–
–
Hedge
reserve
£m
(0.5)
–
(2.0)
–
(2.0)
Cumulative
translation
adjustment
£m
7.2
–
(0.4)
(1.8)
(2.2)
Other
reserve
£m
(83.8)
–
–
–
–
Retained
earnings
£m
(44.4)
17.0
(2.6)
1.6
16.0
0.6
3.7
–
–
–
–
47.7
–
47.7
–
–
–
–
–
0.1
–
–
–
–
–
42.1
–
42.1
–
–
–
–
–
0.1
–
–
–
–
–
–
–
5.9
–
5.9
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.5)
–
(2.5)
–
2.6
–
2.6
–
–
–
–
–
–
–
–
–
5.0
–
5.0
–
4.6
–
4.6
–
–
–
–
–
–
–
–
–
(83.8)
–
(83.8)
–
–
–
–
–
–
–
–
–
47.8
42.2
5.9
0.1
9.6
(83.8)
–
0.9
(0.3)
(25.7)
(53.5)
(1.1)
(54.6)
34.1
93.8
–
127.9
0.8
–
(0.7)
(0.4)
0.5
(17.3)
56.2
£m
8.9
1.3
–
0.2
1.5
–
–
–
(0.5)
9.9
–
9.9
1.7
–
–
1.7
4.2
–
–
–
–
(0.6)
15.2
£m
(21.2)
18.3
(5.0)
–
13.3
4.3
0.9
(0.3)
(26.2)
(29.2)
(1.1)
(30.3)
35.8
101.0
–
136.8
5.0
0.2
(0.7)
(0.4)
0.5
(17.9)
93.2
Share premium account – This reserve arises from the issuance of shares for consideration in excess of their nominal value.
Capital redemption reserve – This reserve represents the nominal value of shares redeemed by the Company.
Hedge reserve – This reserve records the portion of any gain or loss on hedging instruments that are determined to be effective
cash flow hedges. When the hedged transaction occurs, the gain or loss on the hedging instrument is transferred out of equity to
the income statement. If a forecast transaction is no longer expected to occur, the gain or loss on the related hedging instrument
previously recognised in equity is transferred to the income statement. When a hedged forecast transaction subsequently results
in the recognition of a non-financial asset, the amount is removed from the cash flow hedge reserve and included directly in the
initial cost or other carrying amount of the asset as a basis adjustment.
Other reserve – On 1 February 2000, the Company issued and credited as fully paid 191,646,873 ordinary shares of 25p each
and paid cash of £103.7m to acquire the issued share capital of De La Rue plc (now De La Rue Holdings Limited), following the
approval of a High Court Scheme of Arrangement. In exchange for every 20 ordinary shares in De La Rue plc, shareholders
received 17 ordinary shares plus 920p in cash. The other reserve of £83.8m arose as a result of this transaction and is a
permanent adjustment to the consolidated financial statements.
Cumulative translation adjustment (CTA) – This reserve records cumulative exchange differences arising from the translation
of the financial statements of foreign entities since transition to IFRS. Upon disposal of foreign operations, the related accumulated
exchange differences are recycled to the income statement. This reserve also records the effect of hedging net investments in
foreign operations. During the prior period an amount of £1.5m was reclassified to the cumulative translation adjustment reserve
from retained earnings which was been included on the other movements line.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 106 De La Rue
Annual Report 2020
Consolidated cash flow statement
for the period ended 28 March 2020
Cash flows from operating activities
Profit before tax*
Adjustments for:
Finance income and expense
Depreciation of property plant and equipment and right-of-use assets
Amortisation of intangible assets
Increase in inventory
Decrease/(increase) in trade and other receivables and contract assets
(Decrease)/increase in trade and other payables and contract liabilities
Increase/(decrease) in provisions
Special pension fund contributions
Share based payment expense
(Deduct)/add back of non-cash pension liability adjustment
(Gain)/Loss on disposal of subsidiary (net of associated costs)
Add back of non-cash credit loss provision for Venezuela
Add back of non-cash credit loss provision
Add back impairment of Property, plant and equipment and intangible assets
Other non-cash movements
Cash generated from operating activities
Net tax refund/(paid)
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from the sale of subsidiary (net of cash disposed and associated disposal costs)
Purchases of property, plant and equipment
Purchase of software intangibles and development assets capitalised
Proceeds from sale of property, plant and equipment
Interest received
Receipt of RDEC
Net cash flows from investing activities
Net cash flows before financing activities
Cash flows from financing activities
Proceeds from issue of share capital
Net draw down of borrowings
Repayment of principle portion of IFRS 16 lease liabilities
Interest paid
Dividends paid to shareholders
Dividends paid to non-controlling interests
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Exchange rate effects
Cash and cash equivalents at the end of the year
Cash and cash equivalents consist of:
Cash at bank and in hand
Short term deposits
Bank overdrafts
Note:
* Profit before tax includes continuing and discontinued operations. The cash flows relating to discontinued operations are included within note 3.
Notes
2020
£m
2019
£m
35.9
22.8
6.7
16.9
3.9
(12.1)
10.2
(19.2)
7.4
(21.3)
(0.6)
(8.7)
(22.7)
–
1.0
2.3
1.9
1.5
3.5
5.1
42.0
(11.4)
(5.8)
–
0.2
0.6
25.6
30.7
0.2
(1.5)
(2.3)
(6.0)
(17.3)
(0.6)
(27.5)
3.2
11.3
–
14.5
14.6
–
(0.1)
14.5
6.0
16.7
3.2
(7.3)
(67.3)
14.7
(2.0)
(20.5)
0.7
1.7
3.0
18.1
4.4
–
1.2
(4.6)
(2.0)
(6.6)
0.2
(18.9)
(6.5)
0.7
–
–
(24.5)
(31.1)
4.3
53.5
–
(4.4)
(25.7)
(0.5)
27.2
(3.9)
15.2
–
11.3
12.2
–
(0.9)
11.3
17
17
24
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
107
Accounting policies
Reporting entity
De La Rue plc (the Company) is a
public limited company incorporated
and domiciled in the United Kingdom.
The address of its registered office is
disclosed on page 169 of this Annual
Report. The consolidated financial
statements of the Company for the
period ended 28 March 2020 comprise
the Company and its subsidiaries
(together referred to as the Group).
The principal activities of the Group
are described in note 1.
Statement of compliance
European Union (EU) law (IAS
Regulation EC 1606/2002) requires
that the consolidated financial
statements, for the period ended
28 March 2020, be prepared in
accordance with international financial
reporting standards (IFRS) as adopted
by the EU. These consolidated financial
statements have been approved by the
Directors and prepared in accordance
with IFRS including interpretations
issued by the International Accounting
Standards Board.
Basis of preparation
The consolidated financial statements
of the Group have been prepared in
accordance with International Financial
Reporting Standards (IFRS) as issued by
the International Accounting Standards
Board (IASB).
The consolidated financial statements
have been prepared under the historical
cost convention with the exception of
certain items which are measured at fair
value as disclosed in the accounting
policies below. The financial statements
have been prepared as at 28 March 2020,
being the last Saturday in March.
The comparatives for the 2018/19 financial
period are for the period ended 30 March
2019. The prior year income statement
has been restated to show cost of sales
separate from total operating costs thus
allowing presentation of gross profit.
The inclusion of this level of information
is considered useful for the users of
the Annual Report and Accounts and
will provide greater insight into the
performance of the business.
The Company has elected to prepare
its entity only financial statements in
accordance with FRS 102 Financial
Reporting Standard applicable in the
UK and Republic of Ireland.
They are set out on pages 160 and 161
and the accounting policies in respect
of the Company financial statements
are set out on page 162.
The principal accounting policies
adopted in the preparation of these
consolidated financial statements
are set out below or have been
incorporated with the relevant notes
to the accounts where appropriate.
These policies have been consistently
applied to all the periods presented,
unless otherwise stated.
Going concern
Background and relevant facts
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out on pages 1 to 17 of the
Strategic report. In addition, pages 134
to 142 include the Group’s objectives,
policies and processes for financial risk
management, details of its financial
instruments and hedging activities and
its exposure to credit risk, liquidity risk
and commodity pricing risk. The financial
position of the Group, its cash flows,
liquidity position and borrowing facilities
are described in pages 20 to 21 of the
Strategic report.
The Group currently has a revolving
credit facility (‘RCF’) of £275m that
expires on 1 December 2021, which
allows the drawing down of cash
and the committed use of bonds and
guarantees up to the level of £100m,
which reduces the available cash facility.
These are subject to the overall RCF
limit and six-monthly covenant tests.
At 28 March 2020, the covenant tests
were as follows: EBIT/net interest
payable 5.2 times (covenant of ≥4.0
times), net debt/EBITDA 2.24 times
(leverage covenant of ≤3.0times).
At the balance sheet date, net
debt was £102.8m and none of the
committed bonds and guarantees
facility was utilised. However, in addition
there were £61.5m of bonds and
guarantees in place under bilateral
uncommitted bonding facilities,
where certain of the lending banks
have the ability to request, at their
sole discretion, that outstanding and
futures bonds issued under those
facilities are cash collateralised.
If such cash collateralisation were to
be requested under the uncommitted
bonding facilities in any scenario where
the Company continued to operate
under the existing terms of the RCF,
there would likely be a breach of the
leverage covenant in the existing
RCF agreement at the next testing
date in September 2020.
In order to determine the appropriate
basis of preparation for the financial
statements for the year ended March
2020 the Directors must consider whether
the Group can continue in operational
existence for the foreseeable future,
being at least 12 months from the
approval date of these financial
statements, taking into account the
liquidity headroom afforded by the
Group’s banking and bonding facilities.
As detailed in the Chairman’s statement
on page 2 and the CEO review on page 10,
the Group has announced its intention
to raise £100m by way of a firm placing
and placing and open offer of shares
(‘Capital Raise’). The Capital Raise is fully
underwritten by Barclays Bank PLC,
Investec Bank plc and Numis Securities
Limited (the ‘Joint Bookrunners’).
The receipt of the £100m is conditional on:
(i)
the passing by the Company’s
shareholders of the resolutions to
be proposed at the general meeting
(scheduled for 6 July 2020);
(ii) the relevant placing and placing
and open offer and underwriting
agreement having become
unconditional in all respects, save
for the condition relating to the
admission of the Company’s new
ordinary shares to the premium
listing segment of the Official List
and to trading on the main market
for listed securities of the London
Stock Exchange (‘Admission’),
and not having been terminated in
accordance with its terms before
Admission occurs; and
(iii) Admission having become effective
by not later than 8:00 a.m. on 7 July
2020 (or such later time and/or
date as the Company and the
Joint Bookrunners may agree,
not being later than 21 July 2020).
If any of the conditions are not satisfied
or, if applicable, waived, then the Capital
Raise will not take place.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 108 De La Rue
Annual Report 2020
Accounting policies continued
In order to facilitate the Capital Raise,
the Group has entered into an agreement
with its lenders amending the terms of its
existing RCF agreement (‘Revolving Facility
Agreement Amendment’). The relevant
amendments, among other things,
extend the maturity date of the RCF to
December 2023, reset the interest cover
ratio (covenant of ≥ 2.4 times for FY 2021,
≥ 2.8 times for FY 2022 and ≥ 3 times
beyond that date) and provide available
committed bonding facilities that do
not need to be cash collateralised.
The Company has also separately reached
an agreement with the trustee of its UK
defined benefit pension scheme (‘Trustee’)
to reduce the amount of the Group’s
annual contributions to such scheme
from £23m to £15m per annum during
2020 to 2023 inclusive (subject to
additional contingent contributions which
would be accelerated from later years in
exceptional circumstances). Full details of
the new pension arrangement and these
exceptional circumstances are set out
in note 26 to the financial statements.
The agreement with the Trustee and, save
for the Long Stop Provision (defined below),
the amendments to the RCF envisaged
by the Revolving Facility Agreement
Amendment are conditional, among other
things, upon the Company receiving the
proceeds of an equity capital raise in the
gross amount of at least £100 million no
later than 31 July 2020 (the ‘Equity Raise
Condition’). Should the Capital Raise not
take place and the Equity Raise Condition
fail to be satisfied: (i) the reduction in the
contributions due to the pension scheme
would not take effect; and (ii) pursuant to the
Revolving Facility Agreement Amendment,
a provision would be triggered meaning that
the Company would be required to agree
an alternative financing plan with the
relevant lenders (acting reasonably) within
45 days of 31 July 2020 (‘Plan Deadline’)
(such provision being the ‘Long
Stop Provision’).
Unfunded Assessment
If the Capital Raise were not to be
completed by 31 July 2020 such that the
Equity Raise Condition were not fulfilled, the
Group would continue to operate under the
terms of its existing RCF (with no change to
its covenants) and the Long Stop Provision
would become effective. In this scenario, the
ability of the Company to operate as a going
concern would not be entirely within the
control of the Directors. The Company
would seek to agree an alternative
financing plan with its lenders before the
Plan Deadline. This would be subject to
negotiation and there can be no certainty
that an alternative financing plan would be
agreed with the relevant lenders by the Plan
Deadline and there can be no certainty as to
the terms of any agreement and the impact
on the Company’s strategy and ownership
structure. In this scenario, if the Company
is not able to agree an alternative financing
plan by the Plan Deadline, this would
constitute an immediate event of default
under the RCF (pursuant to the Revolving
Facility Agreement Amendment) and as a
result, the relevant lenders would have the
right to immediately withdraw and cancel
the Group’s facility and demand repayment
of any drawings on the facility (£117.0m at
the balance sheet date). In this scenario and
assuming an alternative financing plan could
not be agreed, the Group is not expected to
have sufficient cash resources to repay the
amounts drawn and/or to continue trading
and the Group could be forced into
insolvent liquidation.
The Directors believe that the key
condition to the Capital Raise relates to
the shareholder vote, given the customary
nature of the other conditions to the Capital
Raise and the value of the firm placing
commitments and conditional placing
commitments (underpinning the open offer
element) which have been procured from
investors as at the approval date of these
financial statements.
While the Directors have a reasonable
expectation that shareholder approval for
the Capital Raise will be obtained, given
such approval has not yet been obtained,
they have identified the securing of such
approval as a material uncertainty which
could cast significant doubt on the Group
and Company’s ability to continue as
a going concern.
Funded Assessment
Having undertaken a rigorous assessment
of the Group’s financial forecasts, taking
into account the amended agreements
with its lenders and the Trustee,
considering the anticipated proceeds from
the Capital Raise (subject to the conditions
above), the anticipated impact (and
additional downside risks) of COVID-19
and other plausible downside scenarios,
the Board has concluded that it is
appropriate to adopt the going concern
basis for the preparation of the accounts.
As the original forecasts were prepared
before the pandemic in respect of
COVID-19 was announced, the Directors
considered the potential impact of
COVID-19 on the Group’s forecasts and
modelled the expected impact on revenue
and profit and related impact on working
capital and capital expenditure, of reduced
banknote production in some key sites in
H1 2021 and delays in certain Authentication
contract wins during FY 2021.
In addition to adjusting the original ‘base’
forecast for the expected impact of
COVID-19, the Directors have then
considered and modelled (i) plausible
downside scenarios that reflect the possible
impact of key risks as detailed in the risk
report on page 30 of the Strategic report,
as well as (ii) potential additional downside
risks as a result of COVID-19, which are
discussed further below.
The plausible downside scenarios
modelled include: the investments
in Polymer and security features not
delivering the forecast returns, banknote
volumes being weaker in FY 2022 as
a result of reduced demand, weaker
growth in Authentication due to fewer
new contracts won, limited growth on
existing contracts and reductions to
the cost base not being achieved.
Additional downside COVID-19 risks
modelled include further site closures and
absenteeism resulting in loss of volumes
and consequent revenue in Currency
and further reductions in Authentication
revenues due to manufacturing challenges.
In the event these downsides were
to occur, the Directors have considered
and modelled the mitigating actions they
would take. These include a reduction
in temporary staff commensurate with
reduced activity levels in a downside
scenario and a short term reduction
in travel and marketing expenses.
The result of the above modelling of the
base case, adjusted for the expected
impact of COVID-19, plausible downside
scenarios, further downside COVID-19
risks and mitigating actions results in a
‘reasonable worst case scenario’ that
has been used as the basis of the going
concern conclusion. This model shows
a 32% reduction in adjusted operating
profit in FY 2021 and a 49% reduction
in adjusted operating profit in FY 2022
(both measured against the base case
forecast in each of these years).
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
109
This ‘reasonable worst case’ forecast,
which covers a period of more than
12 months, show that the Group can
operate within its available banking facilities
(under the amended RCF agreement),
assuming the Capital Raise completes.
The Directors believe that the possibility
of the actual results being sufficiently
worse to erode the liquidity and covenant
headroom shown in this ‘reasonable worst
case’ forecast is remote.
As at the date of the approval of these
financial statements, COVID-19 has had
only a limited impact on the operations
of the Group. However, the modelling
performed above takes into account the
risk of additional disruption post the period
to 17 June 2020. The Company believes
that it is appropriate to provide additional
disclosure on the key COVID-19
assumptions modelled in relation to the
prospective impact of, and business
disruption during, the COVID-19 pandemic.
The assumptions listed below are the
aggregate impact modelled in the Group’s
‘reasonable worst case’ scenario (so are
reflected in the conclusions reached above)
and are each relevant to the period post
17 June 2020:
• In respect of the manufacturing sites which
service the Group’s Currency division:
– Production output at each of the
UK-based sites is reduced to 75
percent of Company budget forecast
levels for a period of two months;
– Production output at the Group’s
Malta site remains at the Company’s
budget forecast level; and
– The Group’s Sri Lanka-based and
Kenya-based sites each record
production output equal to zero
percent of Company budget forecast
levels for a period of two months, 25
percent of Company budget forecast
levels for a further period of one month,
50 percent of Company budget
forecast levels for a further period of
one month and 75 percent of Company
budget forecast levels for a further
period of one month.
• Within the Group’s Authentication division:
– Entry into new contracts in the
Government Revenue Solutions (“GRS”)
market is delayed by three months
compared to the relevant original
budgeted date, with corresponding
impacts to Group revenue anticipated to
accrue from those contracts of up to 2
percent of Company budget forecasts
for Group revenue in FY 2020/21 and
the capital expenditure anticipated to be
spent in service of those contracts of
up to 4 per cent. of Company budget
forecasts for Group capital expenditure
in FY 2020/21;
– The Group’s Kenya-based site records
production output equal to zero per
cent. of Company budget forecast
levels for a period of one month and 75
percent of Company budget forecast
levels for a further period of one month;
– Production output from the Group’s
UK-based site at Westhoughton is
reduced to 75 percent of Company
budget forecast levels for a period
of one month; and
– GRS production output from the
Group’s Malta-based site is reduced to
75 percent of Company budget forecast
levels for a period of one month.
Overall conclusion
There is a material uncertainty relating to the
approval of the Company’s shareholders in
respect of the Capital Raise, which at the
time of issuing these financial statements
has not yet been obtained. Failure to obtain
such shareholder approval would mean
that the ability of the Company to operate
as a going concern would not be entirely
within the Directors’ control (as explained
further above).
Despite this, the Directors have
a reasonable expectation that the
Company’s shareholders will approve
the Capital Raise and that funds will
be received by 31 July 2020 such that,
accordingly, they do not expect the Long
Stop Provision (as described above) to
become effective. On this basis and taking
into account the reasonable worst case
forecasts described above on a funded
basis, the Directors therefore conclude
that the Group has adequate resources
to continue in operational existence
for the foreseeable future.
Accordingly, the Directors continue to
adopt the going concern basis in preparing
the annual report and accounts but note
that a material uncertainty exists that casts
significant doubt upon the Company and
Group’s ability to continue as a going
concern. The financial statements do not
contain the adjustments that would result
if the Company or Group was unable
to continue as a going concern.
Adoption of new International
Reporting Standards adopted
by the Group
Several new or amended standards
became applicable for the current
reporting period, and the Group changed
its accounting policies as a result of
adopting IFRS 16 Leases.
The impact of the adoption of the new
leasing standard is disclosed below.
In addition, IFRIC 23 (uncertainty over
income tax treatments) has been effective.
IFRIC 23 has been adopted and is effective
for the group from 31 March 2019 but has
not had a material impact.
The other standards did not have
any impact on the Group’s accounting
policies and did not require
retrospective adjustments.
IFRS 16 ‘Leases’
IFRS 16 Leases (‘IFRS 16’) became
effective for reporting periods beginning
on or after 1 January 2019 and replaced
IAS 17 Leases and related interpretations.
It results in a substantial number of leases
being recorded on the balance sheet,
as the distinction between operating and
finance leases is removed. There are
exemptions for short-term leases and
leases of low-value items which permit
such leases to be excluded from the
balance sheet and the lease payments
to be recognised as an expense on
a straight-line basis over the term
of the lease.
IFRS 16 introduces a single, on-balance
sheet, lease accounting model for lessees.
The Group will recognise a right-of-use
(‘ROU’) asset representing its right to use
the underlying asset and a lease liability
representing its obligation to make
lease payments.
The Group has applied the modified
retrospective transition approach.
On a lease by lease basis the Group
has either measured the right to use
asset at the amount of the liability
adjusted for any prepaid or accrued
lease payments or has followed the
asset recalculated approach.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 110 De La Rue
Annual Report 2020
Accounting policies continued
The determination of treatment has been made based on the availability of historical lease data. Under the asset recalculated
approach, the right to use asset recorded on transition was measured as if IFRS 16 had been applied at the start of the lease,
but using the incremental borrowing rate as at the transition date. Under both methods the lease liability will be calculated
based on future lease payments. The cumulative effect of adopting IFRS 16 has been recognised as an adjustment to
retained earnings as at 31 March 2019, with no restatement of comparative information.
The Group has taken the following practical expedients on transition:
• to exclude initial direct cost from the measurement of the right to use asset;
• to not recognise a right to use asset and lease liability where the lease expires within 12 months;
• to apply the portfolio approach where a group of leases has similar characteristics including applying the same incremental
borrowing rate;
• to not record a right to use asset or related lease liability for low-value items; and
• to grandfather the definition of a lease on transition.
Impact on adoption
The cumulative effect of adopting IFRS 16 has been recognised as an adjustment to retained earnings as at 31 March 2019,
with no restatement of comparative information:
Impact on the Balance Sheet as previously reported at 31 March 2019:
Right to use asset – property
Right to use asset – plant and machinery
Prepayments and accrued income
Lease liability
Deferred tax assets
Total impact on net assets
Impact on retained earnings:
Total impact on retained earnings
As at
31 March 2019
£m
–
–
3.4
–
18.4
As at
31 March 2019
restated for
IFRS 16
£m
12.6
0.7
3.2
(14.3)
18.5
Impact of
IFRS 16
£m
12.6
0.7
(0.2)
(14.3)
0.1
(1.1)
(1.1)
(1.1)
The following summarises the impacts of adopting IFRS 16 on the Group’s income statement in 2019/20. The adoption of IFRS 16
has had an impact on several of the Group’s key metrics due to operating lease payments under IAS 17 being replaced with
depreciation and interest charges:
The impact on the income statement for the period to 28 March 2020
Adjusted operating expenses*1
Adjusted operating profit
Operating profit
Adjusted EBITDA1
Net finance charges
Profit before tax
Pre the
impact of
IFRS 16
£m
(82.7)
23.2
42.3
40.7
(6.1)
36.1
Impact of
IFRS 16
£m
0.5
0.5
0.5
2.9
(0.6)
–
As reported
post adoption
of IFRS 16
£m
(82.2)
23.7
42.8
43.6
(6.7)
36.1
Note:
* Comprises reversal of rental expense previously recognised under IAS 17 of £2.9m and the recognition of depreciation on the right to use asset of £2.4m.
1 See page 166 for reconciliation to the nearest equivalent IFRS measure.
Reconciliation between operating lease commitments and lease liability:
Total minimum lease payments reported at 30 March 2019 under IAS 17
Impact of discounting
Change in assessment of lease term under IFRS 16
Lease Liability recognised on transition to IFRS 16 at 31 March 2019
£m
34.8
(22.4)
1.9
14.3
De La Rue
Annual Report 2020
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111
In order to hedge its exposure to certain
foreign exchange risks, the Group enters
into forward contracts. Refer to note 16
for details of the Group’s accounting
policies in respect of such derivative
financial instruments.
Translation of foreign operations
on consolidation
Assets and liabilities of foreign
operations, including goodwill and
intangible assets, are translated into
GBP (the presentational currency of the
Group) at the exchange rate prevailing
at the balance sheet date. Income and
expenses are translated at average
exchange rates (which approximate
to actual rates). Exchange differences
arising on re-translation are recognised
in the Group’s currency translation
reserve, which is a component of equity.
When a foreign operation is sold,
exchange differences that were
recorded in equity are recognised in
the income statement as part of the
gain or loss on sale.
Net investment in
foreign operations
Foreign currency differences arising
on the re-translation of a financial
liability designated as a hedge of a net
investment in foreign operations are
recognised in the currency translation
reserve to the extent the hedge is
effective. To the extent that the hedge
is ineffective, such differences are
recognised as finance income or costs
in the income statement. When a foreign
operation is sold, exchange differences
that were recorded in equity are
recognised in the income statement
as part of the gain or loss on sale.
The adoption of IFRS 16 has resulted in
an improvement of £2.9m to operating
cashflows as lease payments are now
shown within finance activities split
between interest payments and
repayment of principal. The overall
impact on the net cash outflow
to the Group in FY 2019/20 is nil.
The weighted average incremental
borrowing rate used for discounting the
lease liabilities under IFRS 16 is 4.0%.
During 2019/20 an amount of less than
£0.1m has been recorded to the income
statement in relation to leases where
the low value or short term practical
expedients have been applied.
See below for further details on the
Group’s lease accounting policy.
International Financial
Reporting Standards issued
but not yet effective
The standards that are issued but not
yet effective are not expected to have
any material impact on the Group.
Basis of consolidation
The consolidated financial statements
incorporate the financial statements
of the Company and entities controlled
by the Company (its subsidiaries) up
to 28 March 2020. Subsidiaries are
entities controlled by the Group.
The Group is considered to control an
entity when it is exposed to, or has rights
to, variable returns from its involvement
with an entity and has the ability to affect
those returns through exerting control
over the entity. The results of subsidiaries
acquired or disposed of during the period
are included in the consolidated financial
statements from the date that control
commences or until the date that
control ceases. Intra-group balances
and transactions are eliminated on
consolidation. The majority of the
subsidiaries prepare their financial
statements up to 28 March 2020.
The results of subsidiaries where the
financial statements are not prepared
to 28 March are still included in the
consolidation as at 28 March with the
income statement and other financial
information being also prepared for
the year ended 28 March 2020.
Business combinations
Acquisitions of subsidiaries and
businesses are accounted for using
the acquisition method of accounting.
The Consideration transferred in the
acquisition is measured at fair value
as are the identifiable assets and
liabilities acquired.
The excess of the fair value of
consideration transferred over the
fair value of net assets acquired
is accounted for as goodwill.
Any goodwill that arises is tested
annually for impairment.
Transaction costs are expensed
as incurred.
Significant accounting policies
The significant accounting policies
adopted in the preparation of these
consolidated financial statements have
been incorporated into the relevant notes
where possible. General accounting
policies which are not specific to
an accounting are set out below.
Foreign currency
Foreign currency transactions
These financial statements are presented
in sterling, which is the functional and
presentational currency of the Company.
The functional currency of Group entities
is principally determined by the primary
economic environment in which the
respective entity operates.
Transactions in foreign currencies
entered into by Group entities are
translated into the functional currencies
of those entities at the rates of
exchange at the date of the transaction.
Monetary assets and liabilities
denominated in foreign currencies at
the balance sheet date are translated at
the rate of exchange ruling at that date.
Foreign exchange differences arising
on translation are recognised in the
income statement.
Foreign currency non-monetary items
measured in terms of historical cost
are translated at the rate of exchange
at the date of the transaction.
Exchange differences on non-monetary
items measured at fair value are
recognised in line with whether the
gain or loss on the non-monetary item
itself is recognised in the income
statement or in equity.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 112 De La Rue
Annual Report 2020
Accounting policies continued
Revenue recognition
The Group accounts for revenue under IFRS 15. IFRS 15 provides a single, five-step principles-based model to be applied to
all contracts with customers which requires identification of the contract for accounting purposes, the separate performance
obligations within the contract, the transaction price for the contract, allocation of the transaction price and recognition of
revenue on satisfaction of performance obligation.
The following table provides information for the current period (under IFRS 15) about the nature and timing of the satisfaction of performance
obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies.
Type of product/
service/segment
Currency segment:
Supply of banknotes
Nature and timing of satisfaction
of performance obligations
The Group has determined that for certain banknote contracts
(given the highly bespoke nature of the products) with enforceable
right to payment, the customer controls all of the work in progress
as the products are being manufactured.
This is because under those contracts, currency products are
made to a customer’s specification and if a contract is terminated
by the customer, then the Group is entitled to reimbursement of
the costs incurred to date, plus a reasonable margin.
For other banknote contracts, where customers do not take
control of the goods until they are completed or delivered,
revenue is recognised at the point in time when control transfers
to the customer.
If the Group has recognised revenue, but not issued an invoice,
then the entitlement to consideration is recognised as a contract
asset. The contract asset is transferred to receivables when the
entitlement to payment becomes unconditional.
Currency segment:
Supply of banknotes
along with other
services
In addition to the supply of banknotes, which is a separate
performance obligation (see above), additional and separate
performance obligations such as design and storage services
have been identified.
Authentication
segment
Multiple performance obligations are included in some
Authentication contracts. Where multiple performance obligations
exist, the transaction price for the contract is allocated to each
performance obligation separately identified. Performance
obligations include access to systems, build of systems and
the provision of authentication products such as tax stamps.
IDS segment:
IDS contracts
including supply
of passports,
hardware and
software and
other services
Multiple performance obligations are included in some
IDS contracts including supply of passports, hardware and
software services. For contracts where an enforceable right
to payment exists, the customer is considered to control all of
the work in progress as the products are being manufactured
or installed and the services as they are delivered.
Hence, these performance obligations meet the over time
criteria for revenue recognition.
For other IDS contracts, where customers do not take control of the
goods until they are completed or delivered, revenue is recognised
at the point in time when control transfers to the customer.
In addition to the above, additional and separate performance
obligations such as design, training and shipping and consultancy
services have been identified in such contracts which also meet
the over time criteria.
If the Group has recognised revenue, but not issued a bill,
then the entitlement to consideration is recognised as a
contract asset. The contract asset is transferred to receivables
when the entitlement to payment becomes unconditional.
Revenue recognition
under IFRS 15
Revenue for certain banknote contracts
with enforceable right to payment will
be recognised over time for banknotes
produced to date and ahead of delivery
to the customer.
Revenue is recognised progressively
based on the cost to cost method.
Revenue for other banknote contracts, where
customers do not take control of the goods
until they are completed is recognised based
on contractual terms which will determine
when control has passed to the customer.
This might include recognition of revenue
on inventory placed into storage for the
customer, so long as it is demonstrated
that control of the product has passed
to the customer.
The value attributable to the additional
performance obligations is deemed to be
immaterial. Accordingly, no separate value
will be attributed to these performance
obligations; instead, the consideration in
the contract will be entirely allocated to
the single performance obligation of
supplying currency.
Revenue on the sale of authenticity products,
including tax stamps, is recognised when
control passes to the customer based on
the standalone selling price of the product.
Control generally passes on delivery of the
physical product to the customer or the
issuance of a digital security key.
Revenue will be allocated to the
performance obligations identified and
revenue will be recognised over time
as control of the contract deliverables
is passed to the customer.
Revenue is recognised progressively
using the input method based on the cost
incurred relative to the expected total cost.
Revenue for other IDS contracts, where
customers do not take control of the goods
until they are completed is recognised on
formal acceptance by the customer.
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Annual Report 2020
De La Rue
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113
Costs to obtain contracts:
Sales commissions:
Management expects that incremental
commission fees paid to intermediaries
and employees as a result of obtaining
long term sales contracts are
recoverable. The Group therefore
capitalises them as contract costs
where the contract signed with the
customer creates enforceable rights and
obligations. If a sales contract takes the
form of an over-arching agreement which
does not create such enforceable rights
and obligations (ie committed sales
volumes and values from the customer)
then sales commission payments are
not made.
Capitalised commission fees are
amortised when the related revenues
are recognised.
The Group applies the practical
expedient in paragraph 94 of IFRS 15
and recognises the incremental costs of
obtaining contracts as an expense when
incurred, if the amortisation period of the
assets that the Group otherwise would
have recognised is one year or less.
Bid costs:
Bid costs are capitalised only when
they relate directly to a contract and
are incremental to securing the contract,
and would not have been incurred had
the contract not been won. There were
no capitalised bid costs in FY 2020
(FY 2019: £nil) as no costs met
this requirement.
Other revenue recognition
matters:
Bill and hold revenue:
Certain customers require the Group
to store completed inventory for them
ahead of them taking delivery once
they require it. Revenue is recognised
on a bill and hold basis when:
1) It can first be demonstrated that
control of the product has passed to
the customer – principally because the
customer now has risk for the product
transferred to them and the Group has
an enforceable right to payment; and
2) It can be demonstrated that the
arrangement is substantive.
Accounting for profit limits
on revenue contracts:
The Group has a small number of
contracts where the terms with the
customers place a limit on the profit
margin that can be earned under these.
As these profit margin impacts the
amount of revenue that the Group can bill
the customers, detailed reconciliations
of the profit margins earned on these
contracts at each reporting period end
are completed to ensure that amount
of revenue recorded in the year is not
overstated (ie to ensure the transaction
price is “constrained” in accordance
with IFRS 15). Any adjustment required
is recorded as a reduction to revenue.
Warranties:
All warranties are considered to be
of a standard nature (assurance type)
and as such are accounted for under
IAS 37 rather than IFRS 15.
Lease accounting
At the inception of a contract, the
Group assesses whether a contract
is or contains a lease. A contract is or
contains a lease if the contract conveys
the right to control the use of an identified
asset for a period of time in exchange
for consideration. The Group accounts
for identified leases in accordance with
IFRS 16 (‘Leases’).
Previously, the Group recognised
operating lease payments as an expense
on a straight-line basis over the term
of the lease, and recognised assets and
liabilities only to the extent that there was
a timing difference between actual lease
payments and the expense recognised.
Management has made certain
judgements on lease terms based on
the Group’s current expectations of
whether break or renewal options will
be taken. Judgements have also been
made in estimating the incremental
borrowing rates to use when
discounting lease payments.
From 31 March 2019, leases are
recognised on the balance sheet (unless
they are low value or for a term of less
than 12 months) with a right to use asset
and corresponding lease liability being
recorded at the date the lease asset
is available for use.
The right to use asset is depreciated
over the shorter of; the assets useful
economic life and the lease term.
Each lease payment is allocated
between repayment of the lease
liability and finance cost.
The finance cost is charged to the
income statement over the lease term
to produce a constant periodic rate of
interest on the remaining lease liability.
At commencement date of the lease
liability is initially recognised on the
balance sheet at the present value of
future lease payments (including fixed
payments and variable lease payments
that depend upon an index) and any
lease penalties payable on the early exit
of a lease if management anticipates
taking these, discounted using the
incremental borrowing rate appropriate
for that lease, absent of the interest rate
implicit in the lease being available.
The right to use asset is initially
measured at cost, being; the initial value
of the lease liability, any lease payments
made (net of any incentives received from
the lessor) before the commencement
of the lease and any initial direct costs
and any restoration costs. Payments in
respect of short term leases (duration of
less than 12 months) or low value leases
continue to be charged to the income
statement on a straight line basis over
the lease term. Right of use assets are
tested for impairment when indicators
of impairment exist.
Critical accounting
judgements and key sources
of estimation uncertainty
Management has discussed with
the Audit Committee the development,
selection and disclosure of the Group’s
critical accounting policies and estimates
and the application of these policies
and estimates. Management is required
to exercise significant judgement in
the application of these policies.
Estimates are made in many areas
and the outcome may differ from
that calculated.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 114 De La Rue
Annual Report 2020
Accounting policies continued
The key assumptions concerning
the future and other key sources of
estimation uncertainty at the balance
sheet date that have a significant risk
of causing a material adjustment
to the carrying amounts of assets
and liabilities within the next financial
year are set out below.
Critical accounting judgements
Determination of lease term
Management has made certain
judgements on lease terms based
on the Group’s current expectations
of whether break or renewal options
will be taken. In arriving at these
judgements, management has
considered it current business plans
including the locations in which it
wants to operate in addition to the
impact of any cost-out programmes
it is considering.
Determination of the incremental
Valuation date of certain fund
assets in the UK defined benefit
pension scheme
The UK defined benefit pension scheme
assets are made up of a number of
separate funds. For the majority of these
funds valuations have been available
as at the Group’s year end of 28 March
2020. However, the Multi Asset Credit
funds held by the UK Pension Scheme
are valued on a monthly basis only at
calendar month ends and the 31 March
2020 fund valuation has been used to
determine the IAS19 position as at the
28 March 2020 as it is not practicable to
obtain a valuation as at 28 March 2020.
The UK Multi Asset Credit funds account
for approximately £110m of the pension
assets. If a valuation for these funds were
to be conducted as at 28 March 2020
it is estimated the impact would be
less than £1m, compared to total UK
Pension Scheme assets of over £1bn.
The potential impact has been estimated
by observing what were considered to be
the most relevant comparable indices to
establish the level of day to day volatility
in the market.
The Multi Asset Credit funds are largely
composed of sub-investment grade
corporate debt and the most relevant
indices were determined to be those
which measure the return on high yield
corporate bonds. Management has
therefore made the judgement that
valuing the pension assets using the
31 March 2020 valuation for these funds
is reasonable given there is no practical
way of obtaining a better estimate and
a less than £1m difference is not
considered significant compared
to the total value of the assets in
the pension scheme.
Consideration of whether the IDS
disposal required discontinued
operation presentation
The Group has considered whether
the sale of the IDS business in, October
2019, would require that business
to be presented as discontinued
operations in the financial statements.
Management has considered whether
the business being sold is considered
a clear independent component of the
Group operationally, a separate CGU
for financial reporting purposes and if
it is deemed to be major line of business.
Management has determined that the
IDS business being sold only represents
part of the total IDS segment and
it does not therefore represent a
separate major line of business.
As such disclosure as discontinued
is not considered appropriate.
Revenue recognition and cut-off
Customer contracts will often include
specific terms that impact the timing
of revenue recognition. The timing
of the transfer of control varies
depending on the individual terms
of the sales agreement.
For sales of products the transfer
usually occurs on loading the goods
onto the relevant carrier, however the
point at which control passes may be
later if the contract includes customer
acceptance clauses or control passes
on arrival at the customer location.
Specific consideration is needed at year
end to ensure revenue is recorded
within the appropriate financial year.
This judgement is particularly important
in the Currency division due to the
material nature of certain contracts which
may ship near to a reporting period end.
Management has carefully reviewed
material customer contracts with
particular focus on those shipping in
the last quarter of the financial period
to ensure revenue has been recorded
in the correct year.
Revenue recognition and determination
of whether an enforceable right to
payment exists
For certain customer contracts,
revenue is recognised over time in
accordance with IFRS 15, as the Group
has an enforceable right to payment.
Determination of whether the Group had
an enforceable right to payment requires
careful analysis of the legal terms and
conditions included within the customer
contract and consideration of applicable
laws and customary legal practice in
the territory under which contract is
enforceable. External legal advice is
obtained if considered necessary to allow
management to make this assessment.
Management has carefully reviewed
material contracts relating to revenue
recognised in the period to determine if
an enforceable right to payment exists
which results in revenue being recorded
‘over-time’ rather than ‘point in time’.
In FY 2019/129 the Group has had
customer contracts where revenue is
recognised ‘over-time’ in the Currency
and the IDS divisions.
Accounting treatment
for sales to Portals
The Group provides Security Features
to Portals for inclusion in the paper
which they manufacture and which the
Group subsequently purchases back.
The Group has carefully considered the
nature of this arrangement and considers
it appropriate to record the Security
Features sales to Portals as revenue
since Portals is not an associate of the
Group and does not constitute a related
party and the relationship is that of
a third party with full control of the
product passing to Portals upon sale.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
115
Classification of exceptional items
The Directors consider items of
income and expenditure which are
material by size and/or by nature and
not representative of normal business
activities should be disclosed separately
in the financial statements so as to help
provide an indication of the Group’s
underlying business performance.
The Directors label these items
collectively as ‘exceptional items’.
Determining which transactions
are to be considered exceptional in
nature is often a subjective matter.
However, circumstances that the
Directors believe would give rise
to exceptional items for separate
disclosure would include: gains or
losses on the disposal of businesses,
curtailments on defined benefit
pension arrangements or changes to
the pension scheme liability which are
considered to be of a permanent nature
and non-recurring fees relating to the
management of historical scheme
issues; restructuring of businesses;
asset impairments and costs associated
with the acquisition and integration of
business combinations. All exceptional
items are included in the appropriate
income statement category to which
they relate.
Refer to note 5 on pages 122 and 123
for further details.
COVID-19
The Group is monitoring developments
related to COVID-19 as referred to
on page 29 of the Annual Report.
The Directors’ have made their Going
Concern and Viability assessments
including scenarios which model the
potential impact of COVID-19, see
pages 107 to 109 for further details.
In addition, management have
assessed the potential impact of
COVID-19 on the financial position
of the Group as at March 2020:
Property, plant and equipment
As required by IAS 16 Property, plant
and equipment depreciation continued
to be charged in the income statement
while the assets were temporarily idle.
It is also the case that given the long
term UEL’s of De La Rue’s machines,
the current disruption to production
is short term is not considered to
represent an indicator of impairment
as asset values are still expected to
be recovered through value in use.
Based on the going concern forecasts
(including the COVID-19 base case)
PPE value in use still support the
NBVs as at 28 March 2020.
Intangible assets
Intangible asset recoverability was
reviewed at year end as part of the
Group’s normal process.
Development costs, software
assets, Distribution rights and
assets in course of construction
A number of assets in this grouping were
identified during the period as no longer
being core to the Group’s strategy under
the Turnaround plan and consequently
their value could not be supported
as they were no longer going to be
developed and/or brought to market.
Total impairments of £1.6m were recorded.
Management therefore considers that
assets in this grouping on the balance
sheet with remaining value are those
which are central to the Group’s
strategy. These assets relate to both the
Authentication and Currency divisions
and given the core importance of
products that the Group is selling and
these technologies being fundamental
to the Group servicing the needs of
customer, COVID-19 is considered to
be a short to medium terms issue and
does not represent an impairment trigger.
Management’s forecasts used in the
Going concern assessment include short
term disruption to sales but management
expects sales to recover post COVID-19
thus not suggesting that longer term
cashflows will be materially lower.
Management considers that the Business
performance at the start of FY 2021 is
supportive of this as at the current time
it has not seen a notable change in
sales levels.
Goodwill, intellectual property,
Customer Relationships and
Trade names
These assets were recognised
following the acquisition of De La Rue
Authentication Inc in January 2017.
Management has considered the
impact of COVID-19 on the De La Rue
Authentication Solutions Inc.
intangible assets. Whilst a COVID-19
downside has not been applied,
management are confident that the
any potential disruption to the business
will be short term and the long-term
profitability of the business remains as
forecasted. Currently the discount rate
of 12.3% represents the break-even
point on the DCF impairment test.
Even reducing revenues by 33%
in FY 2021 and FY 2022, the break-
even discount rate is still at 10.8%.
The discount rate used in the base case
impairment test was 8.5%. This stress
test demonstrates that the Group
can be comfortable the assets do not
require impairment due to COVID-19.
Inventories
Management have reviewed the
potential impact of COVID-19 on the
value of inventory as at 28 of March
2020 and concluded that there was
no indication of impairment at that time.
Due to the site closure in Sri Lanka,
there was a built up of raw materials
and WIP, however as stated above the
site is now operational. Going forward,
there is the potential for a delay in
shipments due to the restrictions in
relation to the COVID-19, however
management expects this to be
temporary. It is noted that given the
nature of De La Rue’s products (that
they are bespoke, non-perishable and
required by Countries to ensure their
economies can operate) it is not
expected, and we have not seen
any customers try to cancel orders.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 116 De La Rue
Annual Report 2020
Accounting policies continued
Trade and other receivables
Trade and other receivables are
recognised net of allowance for ECL.
In accordance with IFRS9, the Group
calculates an allowance for potentially
uncollectable accounts receivable
balances using the ECL model and
follows the simplified approach.
The total accounts receivable for
IFRS 9 consideration as at the FY 2020
is £47.3m, £28.0m is from Government
Departments and National banks and
£19.3m from private or publicly traded
organisations. As part of the review
of the potential impact of COVID-19
on the trade and other receivables the
management have assessed whether
COVID-19 has an impact on the level
of allowance for ECL.
For private or publicly traded organisations
the Group uses the total balance on
accounts receivable and split it between
categories based on the age of the
receivable. To each category an
appropriate percentage rate is applied
to estimate the ECL.
Following the review on the impact of
COVID-19 to the non-government debt,
it was concluded that the current level
of the provision is sufficient to cover
any potential effects of the pandemic.
It is also noted that cash collections
towards the end of FY 2020 were strong
and the accounts receivable balance
is currently at a five year low.
For the Government debt the Group
applies country credit ratings issued by
Moody’s, and all debt from the countries
in the ‘speculative’ grade is then split
between different categories based
on the age of the receivable and an
appropriate percentage rate is then
applied to estimate the ECL.
Due to the global pandemic, there is
a possibility that some countries rating
will be downgraded, therefore it was
assumed that all countries which are
currently in the ‘medium’ grade move
one band below to ‘speculative’
grade, therefore increasing the IFRS9
provision. The impact of this would
be an increase of £5.5k.
In addition to the above, the Group
considers it appropriate for FY 2021
to introduce a new bucket to include
all countries with the ‘medium risk’ and
then following the same methodology
of grouping receivables by age and
then applying an appropriate percentage
to determine the ECL. This is considered
an appropriate change in policy as it
will pick up sooner if there is worsening
in credit risk which in turn increases
the potential ECL the Group will need
to record.
The potential impact of downgrading
of all high grade rated Government
bank debtors as at 28 March 2020 to
medium grade is increase of £35.6k.
Therefore, the potential impact of
COVID-19 to the government debt
as at 28 March 2020 is considered
not material.
Derivatives and hedging
Derivative financial instruments are
recognised at fair value at the date
a derivative contract is entered into
and are subsequently remeasured
to their fair value at each balance
sheet date. Based on the fair value
measurements applied, it is considered
that the reported values naturally reflect
the financial impact of COVID-19 on
these balances.
Other financial assets
Other financial assets comprise of loan
notes and preference shares related
to interests held in MooreCo Limited
(obtained as part of the consideration
for the Portals paper disposal).
At the current time, management has
no reason to believe that these are not
collectable or that an ECL is required
for this. The management notes the
long-term nature of these instruments
but it is considered that, like De La Rue,
Portals has a long-term business model,
which will be able to trade through the
current COVID-19 challenges.
Other matters
The Group has not identified COVID-19
at the current time to result in any
contracts being onerous.
COVID-19 has also not had an
impact on any lease extension
or termination decisions.
Critical accounting estimates
Incremental borrowing rate
for a lease
The incremental borrowing rate for a
lease reflects a rate to borrow over a
similar lease term, with similar security
funds to a similar value to the right-of-use
asset in a similar economic environment.
The Group has estimated the incremental
borrowing rate using the 1) The risk of the
asset and similar economic environment
has been calculated by reference to the
Treasury Bond Curve for the country
the lease asset is located in. This is
considered to derive the risk-free rate
plus the appropriate level of country risk
premium. 2) The credit risk factor was
calculated based on the credit risk factor
of similar corporate bond with a term of
50% of the lease term which is standard
convention for the purposes of setting
an IBR under IFRS 16.
Management has modelled the impact
of change the discount rates for three of
its most material leases, with the longest
remaining durations by an additional
plus and minus 1% and 2% and this
demonstrated that the impact on the
P&L was immaterial, however the
impact on the right of use asset
and liability was material.
Post-retirement
benefit obligations
Pension costs within the income
statement and the pension obligations
as stated in the balance sheet are
both dependent upon a number of
assumptions chosen by management.
These include the rate used to discount
future liabilities, the expected longevity
for current and future pensioners and
estimates of future rates of inflation.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
117
The Group has current tax provisions
recorded within Current tax liabilities,
in respect of uncertain tax positions.
In accordance with IFRIC 23, tax
provisions are recognised for uncertain
tax positions where it is considered
probable that the position in the filed tax
return will not be sustained and there will
be a future outflow of funds to a taxing
authority. Tax provisions are measured
either based on the most likely amount
(the single most likely amount in a range
of possible outcomes) or the expected
value (the sum of the probability-
weighted amounts in a range of possible
outcomes) depending on management’s
judgement on how the uncertainty may
be resolved.
The Group is disputing a number of
tax assessments received from the
tax authority of a country in which
the Group operates.
The disputed tax assessments are
at various stages in the local appeal
process, but the Group believes it has
a supportable and defendable position
(based upon local accounting and legal
advice), and is appealing previous
judgments and negotiating with the
tax authority in relation to the disputed
tax assessments.
The Company’s expected outcome of
the disputed tax assessments is held
within the relevant provisions in the
2020 Financial Statements.
The discount rate is the interest rate that
should be used to determine the present
value of estimated future cash outflows
expected to be required to settle the
pension obligations. In determining the
appropriate discount rate, the Group
considers the interest rates of high
quality corporate bonds that are
denominated in the currency in which
the benefits will be paid, and that have
terms to maturity approximating to the
terms of the related pension liability.
The Group engages the services
of professional actuaries to assist
with calculating the pension liability.
See page 154 for detail of the relative
sensitivity of the value of the scheme
liabilities to changes in the discount
and inflation rates.
Tax
The Group is subject to income taxes
in numerous jurisdictions and significant
judgement is required in determining
the worldwide provision for those taxes.
The level of current and deferred tax
recognised is dependent on subjective
judgements as to the outcome of
decisions to be made by the tax
authorities in the various tax jurisdictions
around the world in which the Group
operates. It is necessary to consider
which deferred tax assets should be
recognised based on an assessment
of the extent to which they are
regarded as recoverable, which
involves assessment of the future
trading prospects of individual
statutory entities.
The actual outcome may vary from that
anticipated. Where the final tax outcomes
differ from the amounts initially recorded,
there will be impacts upon income tax
and deferred tax provisions and on the
income statement in the period in which
such determination is made.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 118 De La Rue
Annual Report 2020
Notes to the accounts
1 Segmental analysis
The continuing operations of the Group have three main operating units: Currency, Authentication and Identity Solutions.
The Board, which is the Group’s Chief Operating Decision Maker, monitors the performance of the Group at this level and
there are therefore three reportable segments. The principal financial information reviewed by the Board is revenue and
adjusted operating profit.
The Group’s segments are:
• Currency – provides printed banknotes, polymer substrates and banknote security components
• Authentication – the supply of a range of physical and digital solutions such as: tax stamps and supporting software solutions,
authentication labels and associated brand protection digital solutions, cheques and bank cards for Africa, and ID security
components including polycarbonate
• Identity Solutions – involved in the provision of passport, ePassport, national ID and eID, driving licence and voter
registration schemes
Inter-segmental transactions are eliminated upon consolidation.
On 14 October 2019, the Group completed the sale of the International Identity Solutions business to HID Corporation Limited.
The results of the International Identity business are included within the identity solutions segment until the date of disposal.
Please see note 6 for further details.
The segment note is focused on three divisions which reflects what has been reported to the Chief Operating Decision Maker,
this is in line with the commentary in the front half on the financial performance. The commentary in the front half relating to
the future strategy only refers to the Currency and Authentication divisions.
2020
Total revenue from contracts with customers
Less: inter-segment revenue
Revenue from contracts with customers
Cost of sales
Gross Profit
Adjusted operating expenses
Adjusted operating profit
Adjusted items:
– Amortisation of acquired intangible
– Net exceptionals
Operating profit
Interest income
Interest expense
Net retirement benefit obligation finance expense
Net finance expense
Profit before taxation
Segment assets
Segment liabilities
Capital expenditure on property, plant and equipment
Capital expenditure on intangible assets
Impairment of Property, plant and equipment on intangible assets
Depreciation of PPE and right-of-use-assets
Amortisation of intangible assets
Currency
£m
315.1
–
315.1
(270.9)
44.2
(53.6)
(9.4)
Authentication
£m
68.5
–
68.5
(39.7)
28.8
(18.0)
10.8
Identity
Solutions
£m
83.2
–
83.2
(49.8)
33.4
(10.6)
22.8
Unallocated
£m
–
–
–
(0.5)
(0.5)
–
(0.5)
Total of
Continuing
operations
£m
466.8
–
466.8
(360.9)
105.9
(82.2)
23.7
–
(0.5)
(9.9)
0.7
(0.8)
–
(0.1)
(10.0)
199.6
(81.3)
(6.9)
(0.2)
(1.0)
(12.2)
(0.7)
(0.9)
(0.2)
9.7
–
(0.1)
–
(0.1)
9.6
28.9
(28.6)
(2.7)
(0.5)
(0.1)
(1.9)
(1.5)
–
24.8
47.6
–
–
–
–
47.6
46.8
(11.8)
(1.2)
(0.8)
–
(1.2)
–
–
(4.1)
(4.6)
0.3
(5.2)
(1.6)
(6.5)
(11.1)
132.3
(192.7)
(0.6)
(4.2)
(1.2)
(1.7)
(1.7)
(0.9)
20.0
42.8
1.0
(6.1)
(1.6)
(6.7)
36.1
407.6
(314.4)
(11.4)
(5.7)
(2.3)
(17.0)
(3.9)
Unallocated assets principally comprise UK defined benefit obligation net surplus of £64.8m deferred tax assets of £5.5m
(FY 2019: £17.4m), cash and cash equivalents of £14.6m (FY 2019: £12.2m) which are used as part of the Group’s financing offset
arrangements and derivative financial instrument assets of £16.6m (FY 2019: £4.2m) as well as current tax assets, associates and
centrally managed property, plant and equipment.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
119
1 Segmental analysis continued
Unallocated liabilities principally comprise overseas retirement benefit obligations of £1.8m (FY 2019: £78.6m), borrowings
of £116.6m (FY 2019: £118.7m), current tax liabilities of £12.5m (FY 2019: £11.7m) and derivative financial instrument liabilities
of £16.1m (FY 2019: £6.9m) as well as deferred tax liabilities and centrally held accruals and provisions.
2019
Total revenue from contracts with customers
Less: inter-segment revenue
Revenue from contracts with customers
Cost of sales
Gross profit
Adjusted operating expenses
Adjusted operating profit
Adjusted items:
Currency
£m
(restated)
447.5
(0.4)
447.1
(336.6)
110.5
(68.8)
41.7
Authentication*
£m
(restated)
42.7
–
42.7
(23.2)
19.5
(11.6)
7.9
Identity Solutions*
£m
(restated)
75.0
–
75.0
(42.6)
32.4
(21.9)
10.5
Unallocated
£m
(restated)
–
–
–
–
–
–
–
– Amortisation of acquired intangible assets
– Net exceptional items
Operating profit
Interest income
Interest expense
Net retirement benefit obligation finance expense
Net finance expense
Profit before taxation
Segment assets
Segment liabilities
Capital expenditure on property, plant and equipment
Capital expenditure on intangible assets
Impairment of Property, plant and equipment on intangible assets
Depreciation of property, plant and equipment
Amortisation of intangible assets
–
(20.7)
21.0
0.6
(0.7)
–
(0.1)
20.9
195.0
(84.3)
11.2
1.4
–
10.4
2.2
(0.7)
(2.1)
5.1
–
–
–
–
5.1
34.0
(7.2)
4.2
2.0
–
0.9
0.5
–
–
10.5
–
–
–
–
10.5
59.1
(47.1)
–
2.9
–
3.8
0.5
–
(5.1)
(5.1)
–
(3.8)
(2.1)
(5.9)
(11.0)
87.2
(265.9)
3.5
0.2
–
1.6
–
Total of
Continuing
operations
£m
(restated)
565.2
(0.4)
564.8
(402.4)
162.4
(102.3)
60.1
(0.7)
(27.9)
31.5
0.6
(4.5)
(2.1)
(6.0)
25.5
375.3
(404.5)
18.9
6.5
–
16.7
3.2
Note:
*
The above prior year comparatives have been restated to show cost of sales separate from total operating expenses as reported in previous periods, thus allowing presentation of gross profit by
segment. The inclusion of this level of information is considered useful to the users of the Annual Report and Accounts and will provide greater insight into the performance of the business. In addition,
the Authentication and Identity Solutions results for FY 2018/19 have been restated in line with the adjustment noted in the current year to present the results of one of the Group’s subsidiaries solely
in the Authentication division consistent with where management of the subsidiary’s business now falls. The impact of this has been the transfer of the following amounts from the Identity Solutions
results above to Authentication: Revenue of £3.4m, Gross Profit of £2.1m and Adjusted operating profit of £1.6m that would have been presented in the Identity Solutions division previously.
Geographic analysis of non-current assets
UK
Malta
USA
Sri Lanka
Other countries
2020
£m
176.7
19.9
19.3
13.2
9.8
238.9
2019
£m
96.4
21.7
17.0
15.2
5.3
155.6
Deferred tax assets and derivative financial instruments are excluded from the analysis shown above.
Major customers
The Group had two major customers from which it derived total revenues in excess of 10% of Group revenue. One customer
was in the Currency segment with revenue £46.6m which equates to 10.0% of Group revenue and one in the IDS segment
with revenue of £53.2m which equates to 11.4% of Group revenue. (FY 2019: £101.0m and 17.9% – this customer was in the
Currency segment).
Strategic reportCorporate GovernanceFinancial statementsShareholder information 120 De La Rue
Annual Report 2020
Notes to the accounts continued
2 Revenue from contracts with customers
Information regarding the Group’s major customers, and a segmental analysis of revenue is provided in note 1.
Timing of revenue recognition across the Group’s revenue from contracts with customers is as follows:
2020
Timing of revenue recognition:
Point in time
Over time
Total revenue from contracts with customers
2019
Timing of revenue recognition:
Point in time
Over time
Total revenue from contracts with customers
Geographic analysis of revenue by destination
Middle East and Africa
Asia
UK
The Americas
Rest of Europe
Rest of world
Currency
£m
Authentication
£m
Identity
Solutions
£m
Total of
Continuing
operations
£m
273.6
41.5
315.1
68.5
–
68.5
65.7
17.5
83.2
407.8
59.0
466.8
Currency
£m
Authentication
£m
435.2
11.9
447.1
39.3
–
39.3
Identity
Solutions
£m
Total of
Continuing
operations
£m
78.1
0.3
78.4
2020
£m
188.4
86.5
109.8
41.5
24.8
15.8
466.8
2019
£m
119.2
(25.3)
93.9
24.9
(6.0)
552.6
12.2
564.8
2019
£m
154.1
83.7
149.2
153.6
20.1
4.1
564.8
2018
£m
68.8
(5.5)
63.3
3.2
(14.1)
Contract balances
The contract balances arising from contracts with customers are as follows:
Trade receivables
Provision for impairment
Net trade receivables
Contract assets
Contract liabilities
2020
£m
72.8
(19.9)
52.9
18.3
(0.3)
Trade receivables have fallen compared to 2019 reflecting cash collections made in the year and the impact of lower revenue.
Contract assets have fallen compared to 2019 primarily due to the fact that 2019 included a material balance related to a customer
contract where revenue was recorded on an “over-time” basis and the customer was not invoiced until post year end in 2020.
Contract liabilities have fallen as result of the International Identity Business sale as contract liabilities in the prior year primarily
related to that segment.
Set out below is the amount of revenue recognised from:
Amounts included in contract liabilities at the beginning of the year
Performance obligations satisfied in previous years
2020
£m
6.0
–
2019
£m
–
–
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
121
2 Revenue from contracts with customers continued
Performance obligations
Information about the Group’s performance obligations is summarised in the Accounting policies section on page 114.
The following table shows the transaction price allocated to remaining performance obligations for contracts with original expected
duration of more than one year. The group has decided to take the practical expedient provided in IFRS15.121 not to disclose the
amount of the remaining performance obligations for contracts with original expected duration of less than one year.
Within 1 year
Between 2 – 5 years
5 years and beyond
Note:
* All within the currency division.
Total*
£m
23.0
24.0
–
47.0
3 Discontinued operations
The Group completed the sale of the entire issued share capital of Cash Processing Solutions Limited and related subsidiaries
(together ‘CPS’) to CPS Topco Limited, a company owned by Privet Capital on 22 May 2016.
The loss on discontinued operations in the period of £0.3m relates to the winding down of remaining activity related to CPS
(net of associated tax credits) in addition to the impact in the period of a revision in estimate for the total net costs of completing
a loss making CPS contract that was not novated post disposal. This contract is expected to conclude in FY 2021/22. The prior
period also included the impact of additional charges of £1.4m relating to the write-off of receivables due from CPS as they
were determined as unlikely to be received. The tax charge relating to discontinued operations was immaterial.
During the prior period there was a £0.6m release of a historical provision for post-retirement benefits (net of associated tax
credits), following an updated valuation. The release of this provision was recorded in reserves rather than discontinued
operations in the income statement as the release was considered to be consistent with that of an actuarial gain.
4 Adjusted operating expenses by nature
Depreciation of property, plant and equipment
Impairment of inventories
Amortisation of intangibles
Cost of sales relating to inventory
Leases:
– Hire of property (pre-transition to IFRS 16)
– Expenses related to short-term and low value leases
– Depreciation of right-to-use assets
Amounts payable to EY and its associates:
– Audit of these consolidated financial statements
– Audit of the financial statements of subsidiaries pursuant to legislation
– Non-Audit Services
– Taxation services
Research and non-capitalised development expense
Employee costs (including Directors’ emoluments) (note 27)
Foreign exchange loss/(gains)
2020
£m
14.6
2.3
3.9
355.2
–
0.1
2.4
0.6
0.4
0.1
–
9.1
129.4
1.0
2019
£m
16.7
1.7
3.2
403.6
3.0
–
–
0.3
0.4
−
−
12.4
126.4
5.0
Strategic reportCorporate GovernanceFinancial statementsShareholder information 122 De La Rue
Annual Report 2020
Notes to the accounts continued
5 Exceptional items
Accounting policies
Exceptional items are disclosed separately in the financial statements to provide readers with an increased insight into the
underlying performance of the Group.
Site relocation and restructuring
Gain/(loss) on disposal of subsidiary (net of costs associated with disposal)
Pension underpin costs
Guaranteed minimum pension adjustment
Gain on resolution of a historical issue relating to UK defined benefit pension scheme
Venezuela expected credit loss provision
Acquisition related
Exceptional items in operating profit
Tax (charge)/credit on exceptional items
2020
£m
(9.3)
22.7
(1.1)
–
8.7
(1.0)
–
20.0
2.5
2019
£m
(4.8)
(2.6)
(0.5)
(1.7)
–
(18.1)
(0.2)
(27.9)
4.2
Site relocation and restructuring costs
Site relocation and restructuring costs in FY 2019/20 included: Charges of £8.9m relating to the reorganisation during the period
of the Group into our new divisional structure and other cost out programmes, primarily being redundancy costs and in addition
to consultant and advisor fees. Costs in relation to this programme are expected to be incurred until the end of FY 2021/22.
£0.2m (H1 2018/19: £1.2m) relating to the finalisation of the manufacturing footprint review announced in December 2015,
the costs are associated to employees working on project completion.
£0.2m (H1 2018/19: £0.5m) in relation to the finalisation of the upgrade to our finance systems and processes comprising
personnel costs for individuals solely employed to work on the project and consultancy fees.
Gain/(Loss) on disposal of subsidiary and associated costs
Following the sale of the Group’s International Identify Solutions business on 14 October 2019, the Group has recorded a gain
of £25.3m before the deduction of costs associated with the disposal. The gain has been calculated included an estimate for the
working capital adjustment which remains subject to agreement with HID in accordance with the sales agreement. See note 6
for further details. Costs associated with the disposal of the subsidiary were £3.3m. In addition during the year a £0.7m gain was
made in H1 2019/20 on the final release of the recompense provision provided for in relation to the sale of the Portals De La Rue
business. Delivery against the remaining contracts for which a recompense provision was recognised has now been satisfactorily
completed and as such no further risk of the recompense provision being triggered is considered to exist.
The loss on disposal in FY 2018/19 related to the sale of the Portals De La Rue business, following finalisation of the
disposal accounting on confirmation of the final working capital adjustment and update of the estimated liability under
the recompense clause.
Pension underpin costs
Legal fees of £1.1m were incurred in the rectification of certain discrepancies identified in the Scheme’s rules. The Directors do
not consider this to have an impact on the UK defined benefit pension liability at the current time but they continue to assess this.
Gain on resolution of a historical issue relating to the UK defined benefit pension scheme
A gain of £8.7m has been recorded following the resolution of a historical issue in respect to a change in revaluation rates for
certain deferred pension scheme members. This resulted in an equivalent reduction to the liabilities in the pension scheme.
See note 26 for further details.
Venezuela Credit loss provision
£1.0m were recognised relating to the close out of the hedge position taken out in relation to Venezuela receivables for which
a credit loss of £18.1m was provided and reported in exceptional items in FY 2018/19. The hedge position was closed out in
H1 2019/20 as subsequent to year end sanctions have further tightened against Venezuela.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
123
5 Exceptional items continued
Guaranteed minimum payment adjustment
On 26 October 2018, a landmark pension case involving the Lloyds Banking Group’s defined benefit pension schemes was
handed down by the High Court. The judgement brings some clarity to defined benefit pension schemes in general and requires
schemes to equalise pension benefits between men and women relating to Guaranteed Minimum Pensions (or ‘GMP’). This has
resulted in an increase of £1.7m to our obligation in the prior period which was accounted for in the income statement as a past
service cost but presented within exceptional items. The estimate was performed based on method C2 (under the terminology
of the High Court Judgement), which compares each member’s accumulated benefits, with interest, to the same benefits if the
member were the ‘opposite sex’ and ensuring the higher of the two accumulated amounts has been paid in each year.
The policy for exceptional items described in these Financial Statements is used when calculating our financial covenants
as agreed with our lenders.
Taxation relating to exceptional items
Tax charges relating to continuing exceptional items arising in the period were £2.5m (FY 2019: tax credit of £4.2m).
Included in the exceptional tax charge is a deferred tax credit of £1.1m (2018:19 £nil). This relates to the recognition of a deferred
tax asset in relation to UK tax interest losses that under IAS12 must be recognised even though there is no expected future
utilisation of these losses. This is because the large movement in the pension from a deficit to a surplus in the year has led to an
overall net deferred tax liability position in the UK and any potential deferred tax assets must be recognised against this deferred
tax liability. As the majority of the deferred tax in relation to the pension movement is recognised directly in the Statement of
Comprehensive Income, to recognise the creation of this asset as an operating item would distort the Operating Effective Tax
Rate and therefore considered to be unhelpful for users of the accounts. This movement and any future unwind of this asset
is therefore considered to be an Exceptional item for financial reporting purposes.
6 Disposal of International Identity Solutions business
On 12 June 2019, the Group announced it had agreed the sale of its International Identity Solutions business to HID Corporation,
an ASSA ABLOY Group company, for cash consideration of £42m plus an amount for working capital. Under the terms of
the agreement, HID Global will acquire De La Rue’s International Identity Solutions contracts, associated software, passport
assembly facilities in Malta, and certain printing contracts of security documents such as visas and birth/death/marriage
certificates. A separate supply agreement for De La Rue to supply printed paper and polycarbonate to HID Global until
March 2022 was also signed. The UK passport contract is outside the scope of the agreement.
This transaction will allow the Group to refocus on identity-related security features and components where the market
opportunities are more accessible. Strong synergies in technology and customer relations between identity security features
and the rest of the Group will enable it to generate better returns on investment. The sale proceeds will strengthen the Group’s
balance sheet, providing it with greater flexibility to invest in other strategic growth areas.
The Group’s International Identity Solutions business does not meet the IFRS 5 definition of a discontinued operation and as
such its results have been included within continuing operations. The Group tested the disposal Group for impairment prior
to the completion of the transaction and concluded that no impairment of the disposal group was required.
On 23 August 2019, prior to the external sale to HID, the Group transferred the trade and assets associated with its International
Identity Solutions business from its wholly owned subsidiary De La Rue International to a newly created and also wholly owned
subsidiary ID Global Solutions Limited. On the final sale to HID on 14 October 2019, the Group sold the ID Global Solutions Limited
subsidiary in addition to a number of other subsidiaries which were engaged in the International Identify Solutions business.
These subsidiaries were De La Rue Services Limited; De la Rue Caribbean Limited, De La Rue Angola Limitada and De La Rue
Kenya Limited.
On 14 October 2019, the Group completed the final sale to HID and in addition to the £42m referred to above the Group received
an additional amount in relation to working capital which was estimated at £5.0m but which remains subject to agreement with
HID management in accordance with the sales agreement. The working capital adjustment included amounts related to cash
that was included in the net assets disposed of at the point of final sale.
No UK defined benefit pension liability transferred as part of the disposal.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 124 De La Rue
Annual Report 2020
Notes to the accounts continued
6 Disposal of International Identity Solutions business continued
The carrying amounts of assets and liabilities as at the date of sale (14 October 2019) were:
Property, plant and equipment
Right to use assets
Intangibles
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Trade and other payables
Lease liabilities
Provisions
Total liabilities
Net assets
The gain on disposal on the sale of the subsidiary was:
Amounts paid by purchaser:
Cash
Estimated working capital adjustment
Total disposal consideration
Net assets and liabilities disposed
CTA reclassified on disposal
Gain on disposal (before associated costs)
Costs associated with disposal of subsidiary
Gain on disposal (after associated costs)
£m
1.9
0.4
4.7
1.3
26.6
2.5
37.4
(17.4)
(0.4)
(0.3)
(18.1)
19.3
£m
47.2
(1.3)
45.9
(19.3)
(1.3)
25.3
(3.3)
22.0
Proceeds from sale of subsidiary in the consolidated cashflow statement are stated net of cash received of £47.2m, cash disposed
of £2.5m payments for costs associated with the disposal of £2.7m.
7 Interest income and expense
Accounting policies
Interest income/expense is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset/
liability to the net carrying amount of that asset/liability.
Recognised in the income statement
Interest income:
– Interest on loan notes and preference shares
– Cash and cash equivalents
Interest expense:
– Bank loans
– Other, including amortisation of finance arrangement fees
– Interest on lease liabilities
Total interest expense calculated using the effective interest method
Retirement benefit obligation net finance expense (note 26)
2020
£m
2019
£m
0.7
0.3
1.0
(4.8)
(0.7)
(0.6)
(6.1)
(1.6)
0.5
0.1
0.6
(3.4)
(1.1)
–
(4.5)
(2.1)
All finance income and expense arises in respect of assets and liabilities not restated to fair value through the income statement.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
125
7 Interest income and expense continued
Interest due on the loan notes and preference shares relates to interests held in Mooreco Limited (obtained as part of the
considered for the Portals paper disposal). The loan notes and preference shares are included in the balance sheet as Other
Financial Assets. In accordance with the terms of the instruments, the interest has not been paid in the year but accrued and
added to the value of the Other Financial Asset.
The gain to the income statement in respect of the ineffective portion of derivative financial instruments was £nil (FY 2018: £nil).
8 Taxation
Accounting policies
The tax expense included in the income statement comprises current and deferred tax. Current tax is the expected tax payable
on the taxable income for the year, including adjustments in respect of prior periods, using tax rates enacted or substantively
enacted by the balance sheet date. Tax is recognised in the income statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Deferred tax is provided on temporary differences arising between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is measured using tax rates that have been
enacted or substantively enacted by the balance sheet date and that are expected to apply when the asset is realised or
the liability is settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from goodwill not deductible for tax purposes,
or result from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except
where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and deferred tax liabilities are only offset to the extent that there is a legally enforceable right to offset current
tax assets and current tax liabilities, they relate to taxes levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis or to realise an asset and settle a liability simultaneously.
De La Rue has extensive international operations and is subject to various legal and regulatory regimes, including those covering
taxation matters from which, in the ordinary course of business, uncertainty over the tax treatment can arise. De La Rue assesses
whether it is probable or not the tax authority will accept the tax treatment; if probable that the treatment will be accepted then the
potential tax effect of the uncertainty is a tax-related contingency. If it is not probable of being accepted, the most likely amount
or the expected value is recognised. There is one tax assessment where a provision has been made for the estimated most likely
amount on the basis of current communications with the tax authority that is less than the assessments received. In the possible
event that there was an adverse outcome to negotiations this could result in a material outflow.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 126 De La Rue
Annual Report 2020
Notes to the accounts continued
8 Taxation continued
Consolidated income statement
Current tax
UK corporation tax:
– Current tax
– Adjustment in respect of prior years
Overseas tax charges:
– Current year
– Adjustment in respect of prior years
Total current income tax charge
Deferred tax:
– Origination and reversal of temporary differences, UK
– Origination and reversal of temporary differences, overseas
Total deferred tax charge/(credit)
Income tax expense reported in the consolidated income statement in respect of continuing operations
Income tax expense/(credit) in respect of discontinued operations (note 2)
Total income tax charge in the consolidated income statement
Tax on continuing operations attributable to:
– Ordinary activities
– Amortisation of acquired intangible assets
– Exceptional items
Consolidated statement of comprehensive income:
– On remeasurement of net defined benefit liability
– On cash flow hedges
– On foreign exchange on quasi-equity balances
Income tax (credit)/charge reported within other comprehensive income
Consolidated statement of changes in equity:
– On share options
Income tax charge reported within equity
2020
£m
2019
£m
4.7
0.6
5.3
1.8
(0.3)
1.5
6.8
(6.4)
(0.4)
(6.8)
–
–
–
2.7
(0.2)
(2.5)
20.5
0.2
(0.2)
20.5
0.4
0.4
3.8
(0.3)
3.5
2.2
(0.3)
1.9
5.4
(1.6)
0.6
(1.0)
4.8
(0.4)
4.4
8.7
0.3
(4.2)
(1.5)
(0.2)
(0.5)
(2.2)
0.3
0.3
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
127
8 Taxation continued
The tax on the Group’s consolidated profit before tax differs from the UK tax rate of 19% as follows:
Profit before tax
Tax calculated at UK tax rate of 19%
(FY 2018: 19%)
Effects of overseas taxation
(Credits)/charges not allowable
for tax purposes
(Utilisation)/increase in unrecognised
tax losses
Adjustments in respect of prior years
Change in UK and overseas tax rate
Tax charge/(credit)
Underlying effective tax rate
(Tax charge/Profit before tax)
2020
2019
Before
exceptional
items
£m
17.0
Exceptional
items
£m
20.0
Movement
on acquired
intangibles
£m
(0.9)
3.8
–
(6.2)
–
(0.1)
–
(2.5)
(0.2)
–
–
–
–
–
(0.2)
3.2
(1.0)
0.9
–
(0.6)
0.2
2.7
15.8%
Total
£m
36.1
6.8
(1.0)
(5.3)
–
(0.7)
0.2
–
Before
exceptional
items
£m
54.2
Exceptional
items
£m
(27.9)
Movement
on acquired
intangibles
£m
(0.7)
(5.3)
–
1.6
–
(1.1)
0.6
(4.2)
(0.1)
–
–
–
0.4
–
0.3
10.3
(1.1)
(0.6)
–
–
0.1
8.7
16.1%
Total
£m
25.6
4.9
(1.1)
1.0
–
(0.7)
0.7
4.8
The Group is subject to income taxes in numerous jurisdictions and significant judgement is required in determining the
worldwide provision for those taxes. The level of current and deferred tax recognised is dependent on subjective judgements as
to the outcome of decisions to be made by the tax authorities in the various tax jurisdictions around the world in which the Group
operates. It is necessary to consider which deferred tax assets should be recognised based on an assessment of the extent to
which they are regarded as recoverable, which involves assessment of the future trading prospects of individual statutory entities.
The actual outcome may vary from that anticipated. Where the final tax outcomes differ from the amounts initially recorded,
there will be impacts upon income tax and deferred tax provisions and on the income statement in the period in which such
determination is made.
The Group has current tax provisions recorded within Current tax liabilities, in respect of uncertain tax positions. In accordance
with IFRIC 23, tax provisions are recognised for uncertain tax positions where it is considered probable that the position in the
filed tax return will not be sustained and there will be a future outflow of funds to a taxing authority. Tax provisions are measured
either based on the most likely amount (the single most likely amount in a range of possible outcomes) or the expected value
(the sum of the probability-weighted amounts in a range of possible outcomes) depending on management’s judgement on
how the uncertainty may be resolved.
The Group is disputing a number of tax assessments received from the tax authority of a country in which the Group operates.
The disputed tax assessments are at various stages in the local appeal process, but the Group believes it has a supportable
and defendable position (based upon local accounting and legal advice), and is appealing previous judgments and negotiating
with the tax authority in relation to the disputed tax assessments.
The Company’s expected outcome of the disputed tax assessments is held within the relevant provisions in the 2020
Financial Statements.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 128 De La Rue
Annual Report 2020
Notes to the accounts continued
9 Earnings per share
Accounting policies
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number
of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted for the impact of the dilutive
effect of share options.
The Directors are of the opinion that the publication of the adjusted earnings per share, before exceptional items, is useful
to readers of the accounts as it gives an indication of underlying business performance.
IFRS earnings per share
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
Basic earnings per share
2020
Continuing
operations
pence
per share
2020
Discontinued
operations
pence
per share
2020
Total pence
per share
2019
Continuing
operations
pence
per share
2019
Discontinued
operations
pence
per share
2019
Total pence
per share
33.1
33.0
12.1
(0.3)
(0.3)
n/a
32.8
32.7
n/a
18.8
18.8
42.9
(2.3)
(2.3)
n/a
16.5
16.5
n/a
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Earnings
Earnings for basic and diluted earnings per share
Amortisation of acquired intangible assets
Exceptional items
Less: tax on amortisation of acquired intangibles
Less: tax on exceptional items
Earnings for adjusted earnings per share
Weighted average number of ordinary shares
For basic earnings per share
Dilutive effect of share options
For diluted earnings per share
2020
Continuing
operations
£m
34.4
0.9
(20.0)
(0.2)
(2.5)
12.6
2019
Continuing
operations
£m
19.4
0.7
27.9
0.3
(4.2)
44.1
2020
Number
m
104.0
0.2
104.2
2019
Number
m
102.9
0.3
103.2
10 Equity dividends
Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the financial statements until
they have been approved by the shareholders at the annual general meeting. Interim dividends are recognised in the period that
they are paid.
Final dividend for the period ended 31 March 2018 of 16.7p paid on 3 August 2018
Interim dividend for the period ended 29 September 2018 of 8.3p paid on 3 January 2019
Final dividend for the year ended 30 March 2019 of 16.7p paid on 03 August 2019
No dividends are proposed on ordinary shares in 2020.
2020
£m
–
–
17.3
17.3
2019
£m
17.1
8.6
–
25.7
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
129
11 Property, plant and equipment
Accounting policies
Property, plant and equipment are stated at cost, less accumulated depreciation and any accumulated provision for impairment
in value. Assets in the course of construction are included in property, plant and equipment on the basis of expenditure incurred
at the balance sheet date.
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions
will be complied with. The grant reduces the carrying amount of the asset and then is recognised in profit or loss over the useful
life of the depreciable asset by way of a reduced depreciation charge.
No depreciation is provided on freehold land. Building improvements are depreciated over their estimated useful economic lives
of 50 years. Other leasehold interests are depreciated over the lease term.
Plant and machinery are depreciated over their estimated useful lives which typically range from 10 to 20 years. Fixtures and
fittings and motor vehicles are depreciated over their estimated useful lives which typically range from two to 15 years.
No depreciation is provided for assets in the course of construction until they are ready for use.
Depreciation methods, residual values and useful lives are reviewed at least at each financial year end, taking into account
commercial and technical obsolescence as well as normal wear and tear, provision being made where the carrying value
exceeds the recoverable amount.
Cost
At 31 March 2018
Exchange differences
Additions
Transfers from assets in the course of construction
Disposals
At 30 March 2019
Exchange differences
Additions
Transfers from assets in the course of construction
Disposals
Disposal of subsidiary
At 28 March 2020
Accumulated depreciation
At 31 March 2018
Exchange differences
Depreciation charge for the year
Disposals
Impairments
At 30 March 2019
Exchange differences
Depreciation charge for the year
Disposals
Disposal of subsidiary
Impairments
At 28 March 2020
Net book value at 28 March 2020
Net book value at 30 March 2019
Net book value at 31 March 2018
Land and
buildings
£m
Plant and
machinery
£m
Fixtures and
fittings and
Motor Vehicles
£m
In course of
construction
£m
49.1
(0.2)
1.1
0.1
−
50.1
0.3
–
0.2
–
(1.9)
48.7
26.5
(0.2)
1.8
−
−
28.1
0.2
1.4
–
(1.5)
–
28.2
20.5
22.0
22.6
242.4
(2.1)
9.7
10.2
(17.2)
243.0
3.8
0.8
6.3
(3.0)
(9.5)
241.4
172.5
(1.8)
13.2
(17.0)
0.7
167.6
3.0
10.3
(3.2)
(8.1)
(0.1)
169.5
71.9
75.4
69.9
27.3
(0.1)
1.0
0.8
(0.3)
28.7
0.3
0.8
1.5
2.7
(0.5)
33.5
18.4
−
1.7
(0.3)
−
19.8
0.2
2.9
2.9
(0.5)
–
25.3
8.2
8.9
8.9
11.4
−
8.5
(11.1)
−
8.8
0.1
15.5
(9.2)
(0.6)
(0.1)
14.5
–
−
−
−
−
−
–
–
–
–
0.5
0.5
14.0
8.8
11.4
Total
£m
330.2
(2.4)
20.3
−
(17.5)
330.6
4.5
17.1
(1.2)
(0.9)
(12.0)
338.1
217.4
(2.0)
16.7
(17.3)
0.7
215.5
3.4
14.6
(0.3)
(10.1)
0.4
223.5
114.6
115.1
112.8
During the year £3.8m of government grants were received by De La Rue Currency & Security Print Limited for the purchase of
certain items of property, plant and equipment, which is offset against Plant and machinery. The following conditions are attached
to these grants: to retain an average employment level of 250 workers for a period of 8 years and retain the investment project
in Malta for a minimum of 8 years. The investment project began on 1 September 2015.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 130 De La Rue
Annual Report 2020
Notes to the accounts continued
12 Intangible assets
Intangible assets purchased separately, such as software licences that do not form an integral part of related hardware, are
capitalised at cost less accumulated amortisation and impairment losses. Software intangibles are amortised on a straight line
basis over the shorter of their useful economic life or their licence period at rates which vary between three and five years.
Expenditure incurred in the development of products or enhancements to existing product ranges is capitalised as an intangible
asset if the recognition criteria in IAS 38 ‘Intangible Assets’ have been met. Development costs not meeting these criteria are
expensed in the income statement as incurred. Capitalised development costs are amortised on a straight line basis over their
estimated useful economic lives, which vary between five and 10 years, once the product or enhancement is available for use.
Product research costs are written off as incurred.
Distribution rights are capitalised at cost less accumulated amortisation and impairment losses and are amortised over their
useful economic lives as determined by the life of the products to which they relate.
Intangible assets purchased through a business combination are recognised separately from goodwill and are initially recognised
at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial acquisition, intangible assets
acquired through a business combination are reported at cost less accumulated amortisation and impairment losses.
Intellectual property recorded on the balance sheet relates to the acquisition of De La Rue Authentication Solutions Inc. and is
amortised over its expected life of 15 years. Customer relationships, relating to those acquired in the acquisition of De La Rue
Authentication Solutions Inc. are amortised over their expected lives of 10 to 15 years. Trade names relating to the acquisition
of De La Rue Authentication Solutions Inc. are amortised over their expected lives of 15 years.
Assets in course of construction relates to internally generated software which is not yet completed.
Goodwill relates to the acquisition in FY 2017 of De La Rue Authentication Inc. (previously DuPont Authentication Inc). The goodwill
has been tested for impairment during the year as IAS 36 requires annual testing for assets with an indefinite life. For the purposes
of impairment testing the Cash Generating Unit (CGU) for the Goodwill has been determined as the De La Rue Authentication
entity as a whole. This is consistent with the fact that the entity is not fully integrated into the Group and the integrated nature
of the Intellectual Property and other assets which collectively generate cash flows. The key sensitivities in the impairment test
are discount rate, future growth in revenue and the level of profit margin generated by De La Rue Authentication. Based on the
impairment test performed no impairment of the goodwill is considered necessary.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
131
12 Intangible assets continued
Goodwill
£m
Development
costs
£m
Software
assets
£m
Distribution
rights
£m
Intellectual
property
£m
Customer
relationships
£m
Trade names
£m
In course of
construction
£m
Total
£m
Cost
At 31 March 2018
Exchange differences
Additions
Reclassification
At 30 March 2019
Exchange differences
Additions
Disposals
Disposal of subsidiary
Reclassification
At 28 March 2020
Accumulated amortisation
At 31 March 2018
Exchange differences
Amortisation for the year
Impairment
At 30 March 2019
Exchange differences
Amortisation for the year
Impairment*
Disposals
Disposal of subsidiary
At 28 March 2020
Carrying value at 28 March 2020
Carrying value at 30 March 2019
Carrying value at 31 March 2018
8.0
0.6
–
–
8.6
0.6
–
–
–
–
9.2
–
–
–
–
–
–
–
–
–
–
–
9.2
8.6
8.0
21.6
–
–
(3.5)
18.1
–
–
–
–
3.2
21.3
10.0
–
1.6
0.4
12.0
–
1.7
0.3
–
–
14.0
7.3
6.1
11.6
9.5
–
0.7
0.3
10.5
–
0.5
(0.2)
–
4.8
15.6
5.8
–
1.0
–
6.8
–
1.4
0.7
(0.2)
–
8.7
6.9
3.7
3.7
0.1
–
–
–
0.1
–
–
–
–
–
0.1
0.1
–
–
–
0.1
–
–
–
–
–
0.1
–
–
–
3.1
0.1
–
–
3.2
0.3
–
–
–
–
3.5
0.3
–
0.2
–
0.5
0.1
0.3
–
–
–
0.9
2.6
2.7
2.8
3.7
0.1
–
–
3.8
0.3
–
–
–
–
4.1
0.5
–
0.4
–
0.9
0.1
0.5
–
–
–
1.5
2.6
2.9
3.2
0.2
–
–
–
0.2
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
0.2
0.2
0.2
–
–
6.7
3.2
9.9
–
5.3
(0.2)
(4.7)
(6.7)
3.6
–
–
–
0.8
0.8
–
–
0.6
–
–
1.4
2.2
9.1
–
46.2
0.8
7.4
–
54.4
1.2
5.8
(0.4)
(4.7)
1.3
57.6
16.7
–
3.2
1.2
21.1
0.2
3.9
1.6
(0.2)
–
26.6
31.0
33.3
29.5
Note:
*
A number of assets were identified during the period as no longer being core to the Group’s strategy under the Turnaround plan and consequently their value could not be supported as they were no
longer going to be developed and/or brought to market.
Accounting policies
Impairment of intangible assets
Intangible assets that are subject to amortisation are reviewed for impairment whenever events or circumstances indicate that
the carrying value may not be recoverable. In addition, goodwill is tested at least annually for impairment. Impairment tests are
performed for all Cash Generating Units (CGUs) to which goodwill has been allocated at the balance sheet date or whenever
there is indication of impairment.
An impairment loss is recognised immediately in the income statement for the amount by which the asset’s carrying value exceeds
its recoverable amount, the latter being the higher of the asset’s fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
In testing intangible assets for impairment, a number of assumptions must be made when calculating future cash flows.
These assumptions include growth in customer numbers, market size and sales prices and volumes, all of which will determine
the future cash flows.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 132 De La Rue
Annual Report 2020
Notes to the accounts continued
13 Other financial assets
Accounting policies
As part of the consideration received for the disposal of the Portals De La Rue paper business, the Group received loan notes,
preference shares and ordinary shares in Mooreco Limited, a parent company of the purchaser. The instruments relating to
the loan notes and preference shares are being held solely to collect principal and interest payments on specified dates (SPPI)
and they meet the business test model to be held at amortised cost. Amortised cost approximated fair value at the date these
instruments were received, as they were obtained in an arms-length transaction with a third party and priced accordingly as part
of the sales negotiation process. The Group has not chosen to fair value these through the income statement, they are accounted
for on an amortised cost basis. The ordinary shares are accounted for as fair value through profit and loss (FVPL) and the value
of these represents £0.2m of the amounts shown below.
Opening balance
Interest accrued in the period
Closing balance
28 March 2020
£m
7.3
0.7
8.0
30 March 2019
£m
6.6
0.7
7.3
In accordance with the terms of the instruments, the interest has not been paid in the year but accrued and added to the value
of the Other Financial Asset. See note 7 for further details.
No expected credit loss (ECL) has been recognised for this balance as based on the information available, it is management’s
opinion that these amounts are expected to be recovered in full.
14 Inventories
Accounting policies
Inventories and work in progress are valued at the lower of cost and net realisable value. Cost is determined on a weighted
average cost basis and comprises directly attributable purchase and conversion costs, including direct labour and an allocation
of production overheads based on normal operating capacity that have been incurred in bringing those inventories to their present
location and condition. Net realisable value is the estimated selling price less estimated costs of completion and selling costs.
Raw materials
Work in progress
Finished goods
2020
£m
24.7
11.9
17.3
53.9
2019
£m
18.7
12.9
10.7
42.3
The replacement cost of inventories is not materially different from original cost.
An income statement charge in respect of the recognition of inventory provisions of £2.3m was recognised in operating expenses
– ordinary in FY 2020 (FY 2019: £1.7m).
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
133
15 Trade and other receivables
Accounting policies
Trade receivables that do not contain a significant financing component are recognised at the transaction price and other
receivables are measured at amortised cost. Trade and other receivables are recognised net of allowance for ECL. In accordance
with IFRS 9, the Group calculates an allowance for potentially uncollectable accounts receivable balances using the ECL model
and follows the simplified approach. The Group has calculated the ECL by segmenting its accounts receivable balances into
different segments representing the risk levels applying to those customer groupings and thus allowing for the calculation of
the ECL by applying the expected loss rate to each segment. The loss rates applied to each segment are based on the Group
historical experience of credit losses in addition to available knowledge of potential future credit risk based on available data
such as country credit ratings. The Group reviews the account receivable ledger on a monthly basis to identify if there are any
collectability issues which might require the recognition of an expected credit loss allowance (ie a specific bad debt provision)
in addition to the expected credit loss allowance calculated based on historical experience. The Group’s policy for managing
credit risk is set out in note 16.
Trade receivables
Provision for impairment
Net trade receivables
Other receivables
Prepayments
The Group has three customers that account for approximately 46% of the trade receivables at 28 March 2020.
The ageing of trade and other receivables (excluding prepayments) at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-120 days
Past due more than 120 days
Gross
2020
£m
48.7
4.8
7.5
20.8
81.8
ECL
allowance
2020
£m
(0.2)
–
(0.1)
(19.6)*
(19.9)
2020
£m
72.8
(19.9)
52.9
9.0
5.2
67.1
Gross
2019
£m
77.5
16.7
20.5
21.6
136.3
2019
£m
119.2
(25.3)
93.9
17.1
3.4
114.4
Provision
2019
£m
(0.3)
(1.0)
(11.0)
(13.0)
(25.3)
Note:
*
The ECL amount included in the past due more than 120 days bucket primarily relates to the £18.1m recorded in relation to Venezuela in 2019. The remaining unprovided balances is still
considered collectable.
The provision for impairment in respect of trade receivables is used to record losses unless the Group is satisfied that no
recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the
financial asset directly.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at beginning of year
Impairment losses recognised
Impairment losses reversed
Balance at end of year
There is no expected credit loss on contract assets.
2020
£m
(25.3)
(1.9)
7.3
(19.9)
2019
£m
(5.5)
(24.2)
4.4
(25.3)
Strategic reportCorporate GovernanceFinancial statementsShareholder information 134 De La Rue
Annual Report 2020
Notes to the accounts continued
16 Financial risk
Financial risk management
The Group’s activities expose it to a variety of financial risks, the most significant of which are liquidity risk, market risk and
credit risk.
The Group’s financial risk management policies are established and reviewed regularly to identify and analyse the risks faced by
the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The use of financial derivatives
is governed by the Group’s risk management policies approved by the Board of Directors, which provide written principles on the
use of financial derivatives consistent with the Group’s risk management strategy. The Group’s treasury department is responsible
for the management of these financial risks faced by the Group.
Group treasury identifies, evaluates and in certain cases hedges financial risks in close 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.
16(a) Financial instruments
As permitted by IFRS 9, the Group has continued to apply the requirements of IAS 39 at the current time. Derivative financial
instruments are recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to
their fair value at each balance sheet date. The gain or loss on subsequent fair value measurement is recognised in the income
statement unless the derivative qualifies for hedge accounting when recognition of any resultant gain or loss depends on the
nature of the item being hedged.
Cash flow hedges
Changes in the fair value of derivative financial instruments that are designated and are effective as hedges of future
cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled to the income statement in the period in which the hedged item also affects
the income statement. However, if the hedged item results in the recognition of a non-financial asset or liability, the amounts
accumulated in equity on the hedging instrument are transferred from equity and included in the initial measurement of the cost
of the asset or liability. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised,
or no longer qualifies for hedge accounting. At that time, for forecast transactions, any cumulative gain or loss on the hedging
instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. Changes in the
fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement
as they arise.
Fair value hedges
For an effective hedge of an exposure to changes in fair value of a recognised asset or liability or an unrecognised firm
commitment, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding
entry in net income. Gains or losses from remeasuring the derivative or, for non-derivatives, the foreign currency component
of its carrying value, are recognised in net income.
Embedded derivatives
Derivatives embedded in other financial liability instruments or other non-financial host contracts are treated as separate
derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are
not carried at fair value. Any unrealised gains or losses on such separated derivatives are reported in the income statement
within revenue or operating expenses, in line with the host contract.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
135
16 Financial risk continued
16(a) Financial instruments continued
Fair values
The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Fair value
hierarchy
Total fair
value
2020
£m
Carrying
amount
2020
£m
Total fair
value
2019
£m
Carrying
amount
2019
£m
Financial assets
Trade and other receivables1
Contract assets
Other financial assets2
Cash and cash equivalents
Derivative financial instruments:
– Forward exchange contracts designated as cash flow hedges
– Short duration swap contracts designated as fair value hedges
– Foreign exchange fair value hedges – other economic hedges
– Embedded derivatives
– Interest rate swaps
Total financial assets
Financial liabilities
Unsecured bank loans and overdrafts3
Trade and other payables4
Derivative financial instruments:
– Forward exchange contracts designated as cash flow hedges
– Short duration swap contracts designated as fair value hedges
– Foreign exchange fair value hedges – other economic hedges
– Embedded derivatives
– Interest rate swaps
Total financial liabilities
Notes:
1 Excluding prepayments.
2 Excluding ordinary shares of £0.2m which are accounted for as fair value through profit and loss.
3 Excluding unamortised pre-paid borrowing.
4 Excluding contract liabilities/deferred income and taxes.
All derivatives
Hedge of the Group’s functional cash flows
Asset b/f
Fair/value (losses)/gains recognised in equity
Fair/value (losses)/gains recognised in income statement
Cash settlement on maturity of cash flow hedges
Asset c/f
Level 3
Level 3
Level 3
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
61.9
18.3
7.8
14.6
6.7
1.0
2.1
6.8
–
119.2
(117.4)
(130.7)
(6.5)
(0.1)
(9.2)
(0.1)
(0.2)
(264.2)
61.9
18.3
7.8
14.6
6.7
1.0
2.1
6.8
–
119.2
(117.4)
(130.7)
(6.5)
(0.1)
(9.2)
(0.1)
(0.2)
(264.2)
114.4
24.9
7.1
12.2
2.0
–
1.2
1.0
–
162.8
(119.7)
(170.3)
(4.7)
(0.5)
(0.8)
(0.8)
(0.1)
(296.9)
114.4
24.9
7.1
12.2
2.0
−
1.2
1.0
−
162.8
(119.7)
(170.3)
(4.7)
(0.5)
(0.8)
(0.8)
(0.1)
(296.9)
2020
£m
2019
£m
0.2
–
1.9
–
2.1
0.2
(0.2)
0.2
–
0.2
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair
value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.
• Level 1 valuations are derived from unadjusted quoted prices for identical assets or liabilities in active markets
• Level 2 valuations use observable inputs for the assets or liabilities other than quoted prices
• Level 3 valuations are not based on observable market data and are subject to management estimates
There has been no movement between levels during the current or prior periods.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 136 De La Rue
Annual Report 2020
Notes to the accounts continued
16 Financial risk continued
16(a) Financial instruments continued
Fair value measurement basis for derivative financial instruments
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate
of interest at the reporting date. The valuation bases are classified according to the degree of estimation required in arriving
at the fair values. See fair value hierarchy above.
Forward exchange contracts used for hedging
The fair value of forward exchange contracts has been determined using quoted forward exchange rates at the balance
sheet date.
Interest rate swaps
Interest rate swaps are measured by reference to third party bank confirmations and discounted cash flows using the yield
curves in effect at the balance sheet date.
Embedded derivatives
The fair value of embedded derivatives is calculated based on the present value of forecast future exposures on relevant sales
and purchase contracts and using quoted forward foreign exchange rates at the balance sheet date.
Determination of fair values of non-derivative financial assets and liabilities
Non-derivative financial assets at fair value through profit or loss are measured at fair value and changes therein, including
any interest, are recognised in profit or loss. Directly attributable transaction costs are recognised in profit or loss as incurred.
Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.
Hedge reserves
The hedge reserve balance on 28 March 2020 was gain £0.1m, (30 March 2019: loss £2.5m). Net movements in the hedge reserve
are shown in the Group statement of changes in equity. Comprehensive income after tax was £2.6m comprising a loss of £1.0m
of fair value movements on new and continuing cash flow hedges, a loss of £0.4 on maturing cash flow hedges and a £1.4m loss
to the income statement to match the recognition of the related cash flows in effective cash flow hedge relationships. Deferred tax
on the net loss of £2.8m amounted to £0.2m. Hedge reserve movements in the income statement were as follows:
28 March 2020
– Maturing cash flow hedges
– Ineffectiveness on de-recognition of cash flow hedges
30 March 2019
– Maturing cash flow hedges
– Ineffectiveness on de-recognition of cash flow hedges
Revenue
£m
Operating
expense
£m
Interest
expense
£m
(0.9)
–
(0.9)
(0.3)
0.1
(0.2)
(0.7)
0.2
(0.5)
(0.2)
–
(0.2)
–
–
–
–
–
–
Total
£m
(1.6)
0.2
(1.4)
(0.5)
0.1
(0.4)
The ineffective portion of fair value hedges that was recognised in the income statement amounted to £nil (FY 2019: £nil).
The ineffective portion of cash flow hedges that was recognised in the income statement within operating expenses was
a £0.2m gain (FY 2019: gain of £0.1m within revenue).
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
137
16 Financial risk continued
16(b) 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 where due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages this risk by ensuring that it maintains sufficient levels of committed borrowing facilities and cash and cash
equivalents. The level of headroom needed is reviewed annually as part of the Group’s planning process.
A maturity analysis of the carrying amount of the Group’s borrowings is shown below in the reporting of financial risk section
together with associated fair values.
The following are the contractual undiscounted cash flow maturities of financial liabilities, including contractual interest payments
and excluding the impact of netting agreements.
28 March 2020
Non-derivative financial liabilities
Unsecured bank loans and overdrafts
Trade and other payables
Obligations under leases
Derivative financial liabilities
Gross amount payable from currency
derivatives:
– Forward exchange contracts designated
as cash flow hedges
– Short duration swap contracts designated
as fair value hedges
– Fair value hedges – other economic
hedges
Interest rate swaps
30 March 2019
Non-derivative financial liabilities
Unsecured bank loans and overdrafts
Trade and other payables
Derivative financial liabilities
Gross amount payable from currency
derivatives:
– Forward exchange contracts designated
as cash flow hedges
– Short duration swap contracts designated
as fair value hedges
– Fair value hedges – other economic
hedges
Interest rate swaps
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
After
5 years
£m
Total
undiscounted
cash flows
£m
Impact of
discounting
and netting
£m
Carrying
amount
£m
117.4
130.7
2.8
133.2
7.0
144.9
0.2
536.2
–
–
2.5
0.2
–
21.3
–
24.0
–
–
6.4
–
–
–
–
6.4
–
–
24.2
–
–
–
–
24.2
117.4
130.7
35.9
–
–
(22.0)
117.4
130.7
13.9
133.4
(126.9)
7.0
(6.9)
6.5
0.1
166.2
0.2
590.8
(157.0)
–
(312.8)
9.2
0.2
278.0
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
After
5 years
£m
Total
undiscounted
cash flows
£m
Impact of
discounting
and netting
£m
Carrying
amount
£m
119.7
170.3
156.7
70.3
62.1
0.1
579.2
−
−
–
–
0.1
–
0.1
−
−
–
–
15.8
–
15.8
−
−
−
−
−
−
−
119.7
170.3
−
−
119.7
170.3
156.7
(152.0)
70.3
(69.8)
78.0
0.1
595.1
(77.2)
–
(299)
4.7
0.5
0.8
0.1
296.1
Strategic reportCorporate GovernanceFinancial statementsShareholder information 138 De La Rue
Annual Report 2020
Notes to the accounts continued
16 Financial risk continued
16(b) Liquidity risk continued
The following are the contractual undiscounted cash flow maturities of financial assets, including contractual interest receipts
and excluding the impact of netting agreements.
28 March 2020
Non-derivative financial assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Other financial assets1
Derivative financial assets
Gross amount receivable from currency
derivatives:
– Forward exchange contracts designated
as cash flow hedges
– Short duration swap contracts designated
as fair value hedges
– Fair value hedges – other economic hedges
Interest rate swaps
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
Due after
5 years
£m
Total
undiscounted
cash flows
£m
Impact of
discounting
and netting
£m
Carrying
amount
£m
14.6
81.8
18.3
–
152.3
50.2
61.2
378.4
–
–
–
–
0.4
–
0.1
0.5
–
–
–
–
0.1
–
–
0.1
–
–
–
7.8
–
–
–
14.6
81.8
18.3
7.8
–
–
–
–
152.8
(146.1)
50.2
61.3
(49.2)
(59.2)
14.6
81.8
18.3
7.8
6.7
1.0
2.1
7.8
386.8
(254.5)
132.3
Note:
1 Excludes ordinary shares of £0.2m which are accounted for as fair value through profit and loss.
30 March 2019
Non-derivative financial assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Other financial assets1
Derivative financial assets
Gross amount receivable from currency
derivatives:
– Forward exchange contracts designated
as cash flow hedges
– Short duration swap contracts designated
as fair value hedges
– Fair value hedges – other economic
hedges
Interest rate swaps
Due within
1 year
£m
Due between
1 and 2 years
£m
Due between
2 and 5 years
£m
Due after
5 years
£m
Total
undiscounted
cash flows
£m
Impact of
discounting
and netting
£m
Carrying
amount
£m
12.2
135.9
24.9
−
79.5
17.0
90.6
360.1
–
−
−
−
1.6
–
23.4
25.0
–
−
−
−
–
–
3.4
3.4
–
–
–
7.1
–
–
–
12.2
135.9
24.9
–
–
−
−
−
12.2
135.9
24.9
7.1
81.1
17.0
(79.1)
(17.0)
117.4
(116.2)
2.0
–
1.2
7.1
388.5
(212.3)
183.3
The fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged instrument
is more than 12 months and as a current asset or liability if the maturity of the hedged instrument is less than 12 months.
Cash and cash equivalents, trade and other current receivables, bank loans and overdrafts, trade payables and other current
liabilities have fair values that approximate to their carrying amounts due to their short term nature.
As at 28 March 2020, the Group has a total of undrawn committed borrowing facilities, all maturing in more than one year,
of £158m (30 March 2019: £156.5m in more than one year). The amount of loans drawn on the £275m facility is £117m
(30 March 2019: £118.5m). Guarantees of £nil (30 March 2019: £nil) have been drawn using the facility.
The financial covenants require that the ratio of EBIT to net interest payable be greater than four times and the net debt to EBITDA
ratio be less than three times. At the period end the specific covenant tests were as follows: EBIT/net interest payable of 5.2 times,
net debt/EBITDA of 2.24 times. The covenant tests use earlier accounting standards and exclude adjustments including IFRS 16,
IFRS 15 and IFRS 9.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
139
16 Financial risk continued
16(b) Liquidity risk continued
Forward foreign exchange contracts
The net principal amounts of the outstanding forward foreign exchange contracts at 28 March 2020 are US dollar 170.1m,
euro 27.7m, Swiss franc 25.3m, Japanese yen 68.0m and Saudi Arabian riyal 6.3m.
The net principal amounts outstanding under forward contracts with maturities greater than 12 months are US dollar 25.5m.
These forward contracts are designated as cash flow hedges or fair value hedges as appropriate.
Gains and losses recognised in the hedging reserve in equity on forward foreign exchange contracts at 28 March 2020 will
be released to the income statement at various dates between one month and 25 months from the balance sheet date.
As at 28 March 2020
Forward exchange forward contracts
USD
EUR
CHF
30 March 2019
Forward exchange forward contracts
USD
EUR
CHF
Notes:
Hedges vs GBP shown only.
Forward sales shown as positive and purchases shown as negative.
Short duration swap contracts
Notional
amount in
currency
Notional
amount in
£m
Maturity
Average
forward
rate
172.9
(36.1)
(18.9)
126.4
(39)
(29)
(133.0)
31.9
15.4
(94.9)
35.2
22.8
2022
2021
2021
2022
2021
2020
1.2993
1.1303
1.2265
1.3314
1.1059
1.2687
(i) Cash management swaps
The Group uses short duration currency swaps to manage the level of borrowings in foreign currencies. The fair value of cash
management currency swaps at 28 March 2020 was £0.1m (FY 2019: £nil). Gains and losses on cash management swaps are
included in the consolidated income statement.
The principal amounts outstanding under cash management currency swaps at 28 March 2020 are US dollar 8.4m, euro 14.4m,
Swiss franc 3.0m, United Arab Emirates dirham 0.2m and Saudi Arabian riyal 8.8m.
(ii) Balance sheet swaps
The Group uses short duration currency swaps to manage the translational exposure of monetary assets and liabilities
denominated in foreign currencies. The fair value of balance sheet swaps as at 28 March 2020 was £0.8m (FY 2019: loss £0.5m).
Gains and losses on balance sheet swaps are included in the consolidated income statement.
The principal amounts outstanding under balance sheet swaps at 28 March 2020 are US dollar 31.5m, euro 4.7m, Swiss franc
0.7m, South African rand 0.7m.
Embedded derivatives
Embedded derivatives relate to sales and purchase contracts denominated in currencies other than the functional currency of
the customer/supplier, or a currency that is not deemed to be a commonly used currency of the country in which the customer/
supplier is based. The net fair value of embedded derivatives at 28 March 2020 was £6.7m (FY 2019: £0.2m).
Gains and losses on fair value hedges
The gains and losses recognised in the year on the Group’s fair value hedges were £1.3m gain relating to balance sheet hedges
(FY 2019: loss £0.3m), loss £2.4m relating to other fair value hedges (FY 2018: loss £1.6m), and gain £0.1 relating to cash
management hedges (FY 2019: £nil).
Strategic reportCorporate GovernanceFinancial statementsShareholder information 140 De La Rue
Annual Report 2020
Notes to the accounts continued
16 Financial risk continued
16(c) 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 Group uses a range of derivative instruments, including forward
contracts and swaps to hedge its risk to changes in foreign exchange rates and interest rates with the objective of controlling
market risk exposures within acceptable parameters, while optimising the return. Derivative financial instruments are only used
for hedging purposes.
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 in full, and between 60% and 100% 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.
Exposure to currency risk
The following significant exchange rates applied during the year:
US dollar
Euro
Average rate
Reporting date spot rate
2020
1.27
1.14
2019
1.32
1.13
2020
1.22
1.11
2019
1.31
1.17
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 £50.0m on a continuing basis, the policy is to use floating to fixed interest rate swaps to fix the interest rate on
a minimum of 50% of the Group’s forecast average levels of net debt for a period of at least 12 months.
At the reporting date the interest rate profile of the Group’s interest bearing financial instruments was:
Variable rate instruments
Financial assets
Financial liabilities
Carrying amount
2020
£m
14.6
(117.4)
(102.8)
2019
£m
12.2
(119.7)
(107.5)
At the year ending 28 March 2020 the Group had £65m of floating to fixed interest rate swaps with financial institutions
and of these £10m had a maturity of October 2020 and £55m had a maturity of November 2020.
Excluded from the above analysis is £13.9m of amounts payable under leases, which are subject to fixed rates of interest.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
141
16 Financial risk continued
16(c) Market risk continued
Sensitivity analysis
A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit and loss
by the amounts shown below. The analysis assumes that all other variables, in particular foreign currency rates, remain constant.
Variable rate instruments cash flow sensitivity (net)
28 March 2020
30 March 2019
Profit and loss
100bp
increase
£m
100bp
decrease
£m
(0.8)
(0.3)
1.1
0.7
100bp
increase
£m
–
–
Equity
100bp
decrease
£m
–
–
16(d) 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 by various factors, largely pertaining to the profile of the customer as
acknowledged in our IFRS 9 Receivables segmentation, in particular the customer’s status as a Government or Banking institution
as compared to that of a private or publicly owned entity. Due to the large make up of Government or central banks at around
80% of the Group’s revenues, measuring credit risk is largely driven by factors including the country’s sovereign rating, historic
knowledge, local market insights, and political factors in country and industry credit risk is not an influencing factor. The Group’s
long standing historic trade with Government and central bank institutions guides strongly towards the lower credit or doubtful
debt risk that these customers represent. Where private or publicly owned Business Trade applies, the Business adopts a
conventional and in depth trading entity credit review. Where appropriate, letters of credit are used to reduce the credit risk
for the Business and where possible advanced payments are also requested.
All credit assignment risk is mitigated through a threshold based sign-off matrix, where larger value credit exposures require
multiple and more senior Business sign-off. The Group has processes in place to ensure appropriate credit limits are set for
customers and for ensuring appropriate approval is given for the release of products to customers where any perceived risk
has been highlighted.
Exposure to credit risk
The carrying amount of financial assets represents the credit exposure at the reporting date. The exposure to credit risk at the
reporting date was:
Trade and other receivables (excluding prepayments)
Other financial assets
Cash and cash equivalents
Forward exchange contracts used for hedging
Embedded derivatives
Interest rate swaps
Notes
15
17
Carrying amount
2020
£m
61.9
7.8
14.6
9.8
6.8
–
100.9
The maximum exposure to credit risk for trade and other receivables (excluding prepayments) by geographic region was:
UK
Rest of Europe
The Americas
Rest of world
Carrying amount
2020
£m
8.1
17.5
2.9
33.4
61.9
2019
£m
111.0
7.3
12.2
3.2
1.0
–
134.7
2019
£m
27.3
17.1
9.0
57.6
111.0
Strategic reportCorporate GovernanceFinancial statementsShareholder information 142 De La Rue
Annual Report 2020
Notes to the accounts continued
16 Financial risk continued
16(d) Credit risk continued
The maximum exposure to credit risk for trade and other receivables (excluding prepayments) by type of customer was:
Banks and financial institutions
Government institutions
Other
Carrying amount
2020
£m
21.1
16.2
24.6
61.9
2019
£m
66.7
34.7
34.9
136.3
Fair value adjustment to credit risk on derivative contracts
The impact of credit related adjustments being made to the carrying amount of derivatives measured at fair value and used for
hedging currency and interest rate risk has been assessed and considered to be immaterial. These derivatives are transacted with
investment grade financial institutions. Similarly, the impact of the credit risk of the Group on the valuation of its financial liabilities
has been assessed and considered to be immaterial.
16(e) Capital management
The Board’s policy is to maintain a strong capital base 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, which represent the Group’s definition
of capital for this purpose.
Total equity attributable to shareholders of the Company
(Deduct)/add back long term pension surplus/(deficit)
Adjusted equity attributable to shareholders of the Company
Net debt
Group capital
Note
24
2020
£m
78.0
(64.8)
13.2
102.8
116.0
2019
£m
(39.1)
78.6
39.5
107.5
147.0
The long term pension deficit has been removed as a separate agreement is in place regarding the funding for this deficit
which is paid out of cash flows from continuing operations. The Group’s debt financing is also analysed in notes 20 and 24.
Included within the Group’s net debt are certain cash and cash equivalent balances that are not readily available for use by the
Group. These balances are not significant, and are not readily available due to restrictions within some of the countries in which
we operate.
Earnings per share and dividend payments are the two measures which, in the Board’s view, summarise best whether the
Group’s objectives regarding equity management are being met. The Group’s earnings and dividends per share and relative
rates of growth illustrate the extent to which equity attributable to shareholders has changed. Both measures are disclosed
and discussed within the strategic report and notes 9 and 10.
The Group’s objective is to maximise sustainable long term growth of the earnings per share.
De La Rue’s dividend policy is to provide shareholders with a competitive return on their investment, while assuring sufficient
reinvestment of profits to enable the Group to achieve its strategy. During the period, the Group invested £26.3m in ongoing
research and development expenditure and total capital expenditure. There is no proposed dividend for the year.
The decision to pay dividends, and the amount of the dividends, will depend on, among other things, the earnings,
financial position, capital requirements, general business conditions, cash flows, net debt levels and share buyback plans.
There were no changes to the Group’s approach to capital management during the year.
16(f) Changes in liabilities arising from financing activities
The analysis in Note 24 provides a reconciliation between the opening and closing positions in the balance sheet for liabilities
arising from financing activities together with movements in cash loan receivables and derivatives relating to the items included
in Net Debt.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
143
17 Cash and cash equivalents
Accounting policies
Cash and cash equivalents comprise bank balances and cash held by the Group and short term deposits with an original maturity
of three months or less. Bank overdrafts that are repayable on demand and form part of the Group’s cash management are
included as a component of cash and cash equivalents for the purpose of the cash flow statement.
Cash at bank and in hand
Short term bank deposits
2020
£m
14.6
–
14.6
2019
£m
12.2
–
12.2
An analysis of cash, cash equivalents and bank overdrafts is shown in the Group cash flow statement.
Certain cash and deposits are of a floating rate nature and are recoverable within three months.
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 16.
18 Deferred taxation
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
Deferred tax assets
Deferred tax liabilities
The gross movement on the deferred income tax account is as follows:
Beginning of the year
Exchange differences
Income statement credit/(charge)
Tax credit/(charge) to OCI and equity
End of the year
2020
£m
5.5
(8.8)
(3.3)
2020
£m
15.0
0.2
6.8
(25.3)
(3.3)
2019
£m
18.4
(3.4)
15.0
2019
£m
16.8
(0.3)
1.0
(2.5)
15.0
Strategic reportCorporate GovernanceFinancial statementsShareholder information 144 De La Rue
Annual Report 2020
Notes to the accounts continued
18 Deferred taxation continued
The movement in deferred tax assets and liabilities during the period, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
Liabilities
At 31 March 2018
Recognised in the income statement
Recognised in OCI and equity
At 30 March 2019
Recognised in the income statement
Recognised in OCI and equity
Exchange differences
At 28 March 2020
Assets
At 31 March 2018
Recognised in the income statement
Recognised in OCI and equity
Exchange differences
At 30 March 2019
Recognised in the income statement
Recognised in OCI and equity
Exchange differences
At 28 March 2020
Property,
plant and
equipment
£m
Fair value
gains (restated)
£m
Development
costs
£m
Retirement
benefits
£m
(3.6)
1.5
–
(2.1)
0.8
–
(0.1)
(1.4)
(1.4)
(0.4)
–
(1.8)
0.2
–
(0.1)
(1.7)
(1.6)
0.5
–
(1.1)
(0.8)
–
–
(1.9)
–
–
–
–
–
(12.3)
–
(12.3)
Share
options
£m
Retirement
benefits
£m
Tax losses
£m
Other
£m
1.2
(0.2)
(0.3)
–
0.7
(0.2)
(0.4)
–
0.1
15.3
0.6
(2.4)
(0.1)
13.4
(0.4)
(12.5)
–
0.5
0.2
(0.1)
–
–
0.1
5.0
–
–
5.1
6.7
(0.9)
0.2
(0.2)
5.8
2.2
(0.1)
0.4
8.3
Total
£m
(6.6)
1.6
–
(5.0)
0.2
(12.3)
(0.2)
(17.3)
Total
£m
23.4
(0.6)
(2.5)
(0.3)
20.0
6.6
(13.0)
0.4
14.0
Other deferred assets and liabilities include tax associated with provisions of £0.7m (FY 2019: £0.6m) and in respect of overseas
tax credits £5.7m (FY 2019: £5.3m).
Deferred tax assets are recognised for tax losses available to carry forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable.
The Group has not recognised deferred tax assets of £6.9m (2018/19: £6.8m) in respect of losses amounting to £26.0m
(2018/19: £25.5m) that can be carried forward against future taxable income. Similarly, the Group has not recognised deferred
tax assets of £5.4m (2018/19: £6.8m) in respect of overseas tax credits that are carried forward for utilisation in future periods.
Unremitted foreign earnings totalled £161.8m at 28 March 2020 (2018/19: £168.8m). Deferred tax liabilities have not been
recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries where
the timing of the reversal can be controlled and it was considered unlikely that dividends would be paid from those subsidiaries.
UK capital losses of £319m are carried forward at 28 March 2020 (2018/19: £320m). No deferred tax asset has been recognised
in respect of these losses.
With respect to IFRS 16 (Leases), if tax deductions are based on the lease payments made rather than on deprecation on
the right-of-use assets and finance costs on the lease liability, then deferred tax is recognised based on the right-of-use asset
and lease liability balances. The deferred tax balances are recognised on a net basis where the criteria for offsetting the
balances is met.
UK tax rate
The UK tax rate was due to reduce from 19% to 17% from April 2020, however this reduction was reversed in March 2020
so the rate will remain at 19%. The UK deferred tax assets and liabilities at 28 March 2020 have been calculated based
on the rate of 19%, being the substantively enacted rate at the balance sheet date.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
145
19 Trade and other payables
Accounting policies
Trade and other payables are measured at carrying value which approximates to fair value.
Payments received on account relate to monies received from customers under contract, as per individual contract agreements,
prior to commencement of production of goods or delivery of services. Once the obligation has been fulfilled the revenue is
recognised in accordance with IFRS 15.
Current liabilities
Payments received on account
Trade payables
Social security and other taxation
Accrued expenses1
Other payables2
2020
£m
2019
£m
38.2
45.4
2.6
37.7
9.4
133.3
46.7
56.6
4.7
54.4
12.6
175.0
Notes:
1 Accrued expenses include commissions £5.0m, rebate accruals £4.5m, wages and salaries £2.4 and freight accruals £1.9m.
2 Other payables include capex creditors £4.4m and interest payable £1.2m.
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 16.
20 Borrowings
Accounting policies
Borrowings are recognised at amortised cost.
For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see note 16.
Current liabilities
Unsecured bank loans and overdrafts
Unsecured bank loans and overdrafts
Unsecured bank loans and overdrafts
Unsecured bank loans and overdrafts
Total interest bearing liabilities
Currency
EUR
GBP
USD
Other
Nominal
interest
rate
–
2.62%
–
–
Year of
maturity
2020
2020
2020
2020
Face
value
2020
£m
Carrying
amount
2020
£m
117.0
117.0
0.4
117.4
0.4
117.4
Face
value
2019
£m
−
119.1
−
0.6
119.7
Carrying
amount
2019
£m
−
119.1
−
0.6
119.7
The total interest bearing liabilities above is presented excluding unamortised pre-paid borrowing fees of £0.8m.
As at 28 March 2020, bank overdrafts of £154.7m (FY 2019: £182.8m) were offset for interest purposes against bank accounts in
a credit balance position. Overdrafts are presented net in the balance sheet where there is a right of offset against a cash balance.
As at 28 March 2020, the Group has committed borrowing facilities, all maturing in more than one year, of £275m. Up to £100m
of the £275m facility can be utilised for either loans or guarantees.
As the draw downs on these loans are typically rolled over on terms of between one and three months subject to conditions,
the borrowings are disclosed as a current liability. This is notwithstanding the long term nature of this facility which expires
in December 2021.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 146 De La Rue
Annual Report 2020
Notes to the accounts continued
21 Provisions for liabilities and charges
Accounting policies
Provisions are recognised when the Group has a present obligation in respect of a past event, it is probable that an outflow of
resources will be required to settle the obligation, and where the amount can be reliably estimated. Provisions are measured at
the Directors’ best estimate of the amount required to settle the obligation at the balance sheet date and are discounted where
the time value of money is considered material.
At 30 March 2019
Exchange differences
Charge for the year
Utilised in year
Disposal of subsidiary
Released in year
At 28 March 2020
Expected to be utilised within 1 year
Expected to be utilised after 1 year
Restructuring
£m
–
–
8.9
(6.5)
–
–
2.4
2.4
–
Warranty
£m
0.5
–
2.3
(0.7)
–
(1.5)
0.6
0.6
–
Other
£m
3.7
–
6.9
(1.2)
(0.3)
(1.5)
7.6
7.6
–
Total
£m
4.2
–
18.1
(8.4)
(0.3)
(3.0)
10.6
10.6
–
Restructuring provisions
Restructuring provisions relate to the reorganisation announced in May 2019 and other cost out programmes and primarily relate
to redundancy and other employee related termination costs. These restructuring programmes are expected to complete by the
end of FY 2021/22.
Warranty provisions
Warranty provisions relate to present obligations for defective products and include known claims as well as anticipated claims
that had not been reported at the balance sheet date. The provisions are management judgements based on information currently
available, past history and experience of the products sold. However, it is inherent in the nature of the business that the actual
liabilities may differ from the provisions. The precise timing of the utilisation of these provisions is uncertain but is generally
expected to fall within one year.
Other provisions
Other provisions comprise a number of liabilities with varying expected utilisation rates. The charge in the period includes the
recognition of an onerous contract provision relating to a significant customer contract and is based on management’s best
estimate of the expected economic outflow. An amount of £0.7m has been released upon the updated valuation of the
recompense clause relating to the paper disposal which has been accounted for as part of the additional gain on disposal
recorded within exceptional items in FY 2020.
Valuation of inventory
At any point in time, the Group has significant levels of inventory, including work in progress. Manufacturing is a complex process
and the final product is required to be made to exacting specifications and tolerance levels. In valuing the work in progress
at the balance sheet date, assessments are made over the level of waste contained within the product based on the production
performance to date and past experience.
In assessing the recoverability of finished stock, assessments are made to validate that inventory is correctly stated at the lower
of cost and net realisable value and that obsolete inventory, including inventory in excess of requirements, is provided against.
The effect of these matters is that, as part of our risk assessment, we determined that the valuation of inventory has a high degree
of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements
as a whole.
Estimation of warranty provisions
The Group measures warranty provisions at the Directors’ best estimate of the amount required to settle the obligation at the
balance sheet date, discounted where the time value of money is considered material. These estimates take account of available
information, historical experience and the likelihood of different possible outcomes. Both the amount and the maturity of
these liabilities could be different from those estimated.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
147
22 Share capital
Issued and fully paid
103,997,862 ordinary shares of 4452⁄175p each (2018/19: 103,796,134 ordinary shares of 4452⁄175p each)
111,673,300 deferred shares of 1p each (2018/19: 111,673,300 deferred shares of 1p each)
Allotments during the year
Shares in issue at 30 March 2019/31 March 2018
Issued under Savings Related Share Option Scheme
Issued under Annual Bonus Plan
Issued under Performance Share Plan
Shares in issue at 28 March 2020/30 March 2019
Ordinary
shares
’000
103,796
48
21
133
103,998
2020
Deferred
shares
’000
111,673
–
–
–
111,673
2020
£m
46.7
1.1
47.8
Ordinary
shares
’000
102,390
1,178
149
79
103,796
2019
£m
46.6
1.1
47.7
2019
Deferred
shares
’000
111,673
–
–
–
111,673
The deferred shares carry limited economic rights and no voting rights. They are unlisted and are not transferable except
in accordance with the articles.
23 Share based payments
Accounting policies
The Group operates various equity settled and cash settled option schemes. For equity settled share options, the services
received from employees are measured by reference to the fair value of the share options. The fair value is calculated at grant
date and recognised in the consolidated income statement, together with a corresponding increase in shareholders’ equity,
on a straight line basis over the vesting period, based on the numbers of shares that are actually expected to vest, taking
into account non-market vesting conditions (including service conditions). Vesting conditions, other than non-market based
conditions, are taken into account when estimating the fair value.
For cash settled share options, the services received from employees are measured at the fair value of the liability for options
outstanding and recognised in the consolidated income statement on a straight line basis over the vesting period. The fair value
of the liability is remeasured at each reporting date and at the date of settlement with changes in fair value recognised in the
consolidated income statement.
At 28 March 2020, the Group has a number of share based payment plans, which are described below. The compensation
cost and related liability that have been recognised for the Group’s share based plans are set out in the table below:
Annual Bonus Plan
Performance Share Plan
Savings Related Share Option Scheme
Note:
The FY 2020 Performance Share Plan above includes cash settled share based payments income of £11,356 (FY 2019 expense £7,381).
Expense recognised for the year
2020
£m
0.2
(0.6)
(0.2)
(0.6)
2019
£m
0.1
0.4
0.2
0.7
Strategic reportCorporate GovernanceFinancial statementsShareholder information 148 De La Rue
Annual Report 2020
Notes to the accounts continued
23 Share based payments continued
The fair value of share options is estimated at the date of grant using a lattice based option valuation model. The significant
assumptions used in the valuation model are disclosed below:
Arrangement
Dates of current year grants
Number of options granted
Exercise price
Contractual life (years)
Settlement
Vesting period (years)
Dividend yield
Risk free interest rate
Share price volatility
Share price at grant (pence)
Fair value per option at grant date
Performance
Share Plan
10 July 2019
459,339
n/a
9
Share
3
n/a
n/a
n/a
298.0
298.00
Performance
Share Plan
06 January 2020
326,245
n/a
10
Share
5
n/a
n/a
n/a
206.89
206.89
Annual Bonus
Plan
25 June 2019
132,363
n/a
8
Share
1 or 2
n/a
n/a
n/a
301.60
301.60
Savings Related
Share Option Scheme
7 January 2020
847,033
118.67
3
Share
3
Nil
0.55% pa
40% pa
139.40
48.00
For the Savings Related Share Option Scheme (SAYE) an expected volatility rate of 40% (FY 2019: 30%) has been used for grants
in the period. This rate is based on historical volatility over the last three years to 7 January 2020. The expected life is the average
expected period to exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent
with the assumed option life. The rate applied during the year was 0.55% per annum for a period of three years (FY 2019: 0.77%).
Reconciliations of option movements over the period to 28 March 2020 for each class of share awards are shown below:
Annual Bonus Plan
For details of the Annual Bonus Plan, refer to the Directors’ remuneration report on pages 65 to 86.
Share awards outstanding at start of year
Granted
Forfeited
Vested
Outstanding at end of year
During the period the weighted average share price on share awards exercised in the period was 487.04p.
Performance Share Plan
For details of the Performance Share Plan, refer to the Directors’ remuneration report on pages 65 to 86.
Share awards outstanding at start of year
Granted
Forfeited
Vested
Outstanding at end of year
2020
Number of
awards
’000
27
132
(36)
(18)
105
2019
Number of
awards
’000
160
–
(6)
(127)
27
2020
Number of
awards
’000
1,942
786
(1,123)
(67)
1,538
2019
Number of
awards
’000
1,946
854
(790)
(68)
1,942
During the period the weighted average share price on share awards exercised in the period was 517.93p.
The awards have been allocated based on a share price of 892.90p for the 4 December 2013 grants, 830.00p for the 27 June
2014 grants, 541.00p for the 29 June 2015 grants, 476.95p for the 23 September 2015 grants, 520.85p for the 27 June 2016
grants, 680.10p for the 27 June 2017 grants, 551.00p for the 27 June 2018 grants and 498.00p for the August 2018 grants,
298.00p for the 10 June 2019 grants and 206.89 for the 6 January 2020 grants.
De La Rue
Annual Report 2020
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149
23 Share based payments continued
Savings Related Share Option Scheme
The scheme is open to all UK employees. Options are granted at the prevailing market price at the time of the grant (with a
discretionary discount to the market price) to employees who agree to save between £5 and the maximum savings amount
offered per month over a period of three or five years.
There are no performance conditions attaching to the options. After the three or five year term has expired, employees normally
have six months in which to decide whether or not to exercise their options. A pre-vesting forfeiture rate of 5% has been assumed
on new options granted in the year based on historic experience.
Options outstanding at start of year
Granted
Forfeited
Exercised
Expired
Outstanding at end of year
2020
2019
Weighted
average
exercise
price pence
per share
404.76
118.67
402.23
344.40
359.34
252.67
Number of
options
’000
1,791
847
(976)
(48)
(80)
1,534
Weighted
average
exercise
price pence
per share
410.18
372.67
391.94
357.96
–
404.76
Number of
options
’000
2,856
849
(761)
(1,153)
–
1,791
The range of exercise prices for the share options outstanding at the end of the year is 118.67p-520.26p (2019: 372.67p-705.7p).
The weighted average remaining contractual life of the outstanding share options is 2.15 years (2019: 1.92 years).
During the period the weighted average share price on options exercised in the period was 426.5p.
Market share purchase of shares by Trustee De La Rue Employee Share Ownership Trust
The De La Rue Employee Share Ownership Trust (Trust) is a separately administered trust established to administer shares
granted to Executive Directors and senior employees under the various discretionary share option plans established by the
Company. Liabilities of the Trust are guaranteed by the Company and the assets of the Trust mainly comprise shares in the
Company. Equiom (Guernsey) Limited is the Trustee. The own shares held by the Trust are shown as a reduction in shareholders’
funds. The shares will be held at historical rates until such time as they are disposed of. Any profit or loss on the disposal of own
shares is treated as a movement in reserves rather than as an income statement item.
The Trustee held no shares at 28 March 2020 (30 March 2019: nil).
24 Analysis of net debt
The analysis below provides a reconciliation between the opening and closing positions in the balance sheet for liabilities arising
from financing activities together with movements in cash and cash equivalents. Net debt is presented excluding unamortised
pre-paid borrowing fees of £0.8m (FY 2019: £1.0m).
Borrowing due within one year
Cash and cash equivalents
Net debt1
At 30 March
2019
£m
(118.8)
11.3
(107.5)
Cash flow
£m
1.5
3.2
4.7
At 28 March
2020
£m
(117.3)
14.5
(102.8)
Note:
1 Net debt above is presented excluding unamortised pre-paid borrowing fees of £0.8m. Net debt also excludes £13.9m of lease liabilities recognised following the adoption of IFRS 16.
Borrowings due within one year
Cash and cash equivalents
Net debt
At 1 April
2018
£m
(65.1)
15.2
(49.9)
Cash flow
£m
(53.7)
(3.9)
(57.6)
At 30 March
2019
£m
(118.8)
11.3
(107.5)
Strategic reportCorporate GovernanceFinancial statementsShareholder information 150 De La Rue
Annual Report 2020
Notes to the accounts continued
25 Leases
Accounting policies
The Group has lease contracts for various properties and ground leases in addition to other equipment used in its operations.
Leases for property and ground leases range from 2 years to in excess of 100 years in certain cases. Leases for other equipment
used in operations are typically for periods of 2 to 5 years. There are several lease contracts which include extensions and
termination options and these are discussed below.
The Group also has certain leases that have terms of less than 12 months or lease or where equipment is of a low value.
The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions.
For further details on lease accounting see Accounting Policies on page 109.
Set out below are the carrying amounts of right-to-use assets recognised and the movement during the period:
At 31 March 2019
Additions (see page 110) – on transition to IFRS 16
Additions – change in lease assessment
Depreciation expense
Disposal of subsidiary
Exchange differences
At 28 March 2020
Set out below are the carrying amounts of lease liabilities and the movement during the period:
At 31 March 2019
Additions (see page 110) – on transition to IFRS 16
Additions – change in lease assessment
Accretion of interest
Lease payments
Disposal of subsidiary
Exchange differences
At 28 March 2020
The following amounts have been recognised in the income statement:
Depreciation of right to use assets
Interest expense on lease liabilities
Expense relating to short term leases
Expenses relating to leases of low-value assets
Land and
buildings
£m
Plant and
equipment
£m
12.6
2.2
(2.3)
(0.4)
0.2
12.3
0.7
–
(0.1)
–
–
0.6
Land and
buildings
£m
Plant and
equipment
£m
(13.6)
(2.2)
(0.6)
2.8
0.4
(0.1)
13.3
(0.7)
–
–
0.1
–
–
0.6
Total
£m
13.3
2.2
(2.4)
(0.4)
0.2
12.9
Total
£m
(14.3)
(2.1)
(0.6)
2.9
0.4
(0.1)
13.9
2020
£m
(2.4)
(0.6)
(0.2)
(0.1)
The Group had total cash outflows for lease of £2.9m in 2020. The Group also had non-cash additions to right-of-use assets
(£12.6m) and liabilities (£13.6m) in 2020. At 28 March 2020, there are no leases entered into which have not yet commenced.
The Group has certain leases that include extension or termination options. Management exercises judgement in determining
whether these extensions and termination options are reasonably certain to be exercised (see page 110).
Set out below are the undiscounted potential future rental payment relating to period following the exercise date of extension
and termination options that are not included in the lease term:
Extension options expected not to be exercised
Termination options expected to be exercised
Within
five years
£m
0.2
0.2
More than
five years
£m
1.5
–
Total
£m
1.7
0.2
De La Rue
Annual Report 2020
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151
26 Retirement benefit obligations
Accounting policies
The Group operates retirement benefit schemes, devised in accordance with local conditions and practices in the country
concerned, covering the majority of employees. The assets of the Group’s schemes are generally held in separately administered
trusts or are insured. The major schemes are defined benefit pension schemes with assets held separately from the Group.
The cost of providing benefits under each scheme is determined using the projected unit credit actuarial valuation method.
The major defined benefit pension scheme is based in the UK and is now closed to future accrual. The current service cost and
gains and losses on settlements and curtailments are included in operating costs in the Group income statement. The interest
income on the plan assets of funded defined benefit pension schemes and the imputed interest on pension scheme liabilities
are disclosed as retirement benefit obligation net finance expense respectively in the income statement.
Return on plan assets excluding assumed interest income on the assets, changes in the retirement benefit obligation due
to experience and changes in actuarial assumptions are included in the statement of comprehensive income in full in the
period in which they arise.
The net surplus/liability recognised in respect of defined benefit pension schemes is the present value of the defined benefit
obligation less the fair value of the scheme assets, as determined by actuarial valuations carried out at the balance sheet date.
Any net pension surplus is recognised at the lower of the net surplus in the defined benefit pension valuation under IAS 19
and the asset ceiling.
The Group’s contributions to defined contribution plans are charged to the income statement in the period to which the
contributions relate.
A trustee board has been appointed to operate the UK defined benefit scheme in accordance with its governing documents
and pensions law. The scheme meets the legal requirement for member nominated trustees representation on the trustee board
and a professional independent trustee has been appointed as chair of the Board. The members of the trustee board undertake
regular training to ensure they are able to fulfil their function as trustees and have appointed professional advisers to give them
specialist expertise where required.
The Group has calculated the value of the minimum funding commitments to its schemes and determined that no additional
liability under IFRIC 14 is required at 28 March 2020 as the Group has an unconditional right to any surplus. No significant
judgements were involved in making this determination. As the Group has assessed that it has an unconditional right to any
surplus, it is also considered appropriate to record the full net surplus on an IAS 19 basis within non-current assets on the
balance sheet. As the Group does not intend to recover the pension surplus from the pension scheme as a refund, it has been
recognised gross of the potential withholding tax if the surplus was to be recovered in this way. Instead, a deferred tax liability
has been recognised on the pension surplus, and is included within deferred tax liabilities (see Note 18).
On 31 May 2020, the Trustee and the Company agreed the terms for a schedule of contributions and a recovery plan, setting out
a programme for clearing the UK Pension Scheme deficit (the “Recovery Plan”). The latest actuarial valuation of the UK Pension
Scheme as at 31 December 2019, which was based on intentionally prudent assumptions, revealed a funding shortfall (technical
provisions minus the value of the assets) of £142.6m. The Recovery Plan makes an allowance for post-valuation market conditions
up to 30 April 2020 (at which point there is an estimated funding shortfall of £190m), including the impact of COVID-19 on financial
markets to that date.
The £190m deficit is addressed by Recovery Plan payments (payable quarterly in arrears) of £15m per annum from 1 April 2020
until 31 March 2023 and then payments of £24.5m per annum from 1 April 2023 until 31 March 2029. This replaces the recovery
plan agreed with the trustee in 2016 (“2015 Recovery Plan”) where payments would have been £22.2 million between 1 April 2020
and 31 March 2021, £23.1 million between 1 April 2021 and 31 March 2022 and £23 million per annum thereafter until 31 March
2028. Additional contingent contributions in exceptional circumstances will become payable under the Recovery Plan by way of
an acceleration of the contributions due in later years where: (i) the leverage ratio (consolidated net debt: EBITDA) is equal to or
greater than 2.5x in either FY 2021/22 or FY 2022/23, up to a maximum of £4m in each financial year and £8m in total and/or (ii)
the Company or any its subsidiaries take any action which will cause material detriment (defined in section 38 Pensions Act 2004)
to the UK Pension Scheme, of £23.3m (£7.2m in FY 2020/21, £8.1m in FY 2021/22 and £8m in FY 2022/23) over the period up to
31 March 2023. In addition, the Company will pay contributions of £1.25m pa to the UK Pension Scheme to meet its expenses
and will pay on behalf of the UK Pension Scheme both the PPF’s scheme-based levy and risk-based levy up to 31 March 2029.
This agreement with the Trustee of the UK Pension Scheme is conditional on an amount in full settlement of the Capital Raising
in the gross amount of at least £100m having been received by the Company by no later than 31 July 2020. If these criteria were
not to be met then the Group’s current obligations in respect of the UK Pension Scheme under the 2015 Recovery Plan would
(subject to the outcome of a valuation as at 5 April 2018 which would then need to be completed) continue unaffected.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 152 De La Rue
Annual Report 2020
Notes to the accounts continued
26 Retirement benefit obligations continued
In November 2017 the Trustee of the Scheme decided to change indexation of future increases to the Scheme benefits from
the RPI to the CPI, effective from April 2018. The decision was made following a request from the Company and a detailed legal
review upon which the Trustee concluded that CPI is currently a more suitable index for the calculation of annual increases in the
Scheme. This change led to a past service credit of £80.5m reported in the 31 March 2018 full year results which was recorded
within exceptional items. In addition during FY 2019/20 a past service credit of £8.7m relating to the resolution of a historical issue
in respect to a change in revaluation rates for certain UK defined benefit pension deferred scheme members was recorded
in the income statement within exceptional items. The Directors continue to assess any residual impact from these changes.
On 26 October 2018, a landmark pension case involving the Lloyds Banking Group’s defined benefit pension schemes was
handed down by the High Court. The judgement brings some clarity to defined benefit pension schemes in general and requires
schemes to equalise pension benefits between men and women relating to GMPs. The Group estimated the impact of this
in relation to the Scheme is £1.7m and this was charged to the income statement and recorded within exceptional items in
FY 2018/19. The estimate was performed based on method C2 (under the terminology of the High Court Judgement), which
compares each member’s accumulated benefits, with interest, to the same benefits if the member were the ‘opposite sex’
and ensuring the higher of the two accumulated amounts has been paid in each year.
In addition during FY 2020 legal fees of £1.1m have been incurred in the rectification of certain discrepancies identified in the
Scheme’s rules. The Directors do not consider this to have an impact on the UK defined benefit pension liability at the current
time but they are continuing to assess this.
(a) Defined benefit pension schemes
Amounts recognised in the consolidated balance sheet:
Equities
Bonds
Diversified Growth Fund
Secured/fixed income
Liability Driven Investment Fund
Multi Asset Credit
Other
Fair value of scheme assets
Present value of funded obligations
Funded defined benefit pension schemes
Present value of unfunded obligations
Net surplus/(liability)
Amounts recognised in the consolidated income statement:
Included in employee benefits expense:
– Current service cost
Past service cost
– Administrative expenses and taxes
Included in interest on retirement benefit obligation
net finance expense:
– Interest income on scheme assets
– Interest cost on liabilities
Retirement benefit obligation net finance expense
Total recognised in the consolidated income statement
Return on scheme assets excluding assumed interest income
Remeasurement (losses)/gains on defined benefit
pension obligations
Amounts recognised in other comprehensive income
2020
UK
£m
86.7
112.4
46.5
210.5
457.7
108.8
24.3
1,046.9
(977.6)
69.3
(4.5)
64.8
2020
Overseas
£m
–
–
–
–
–
–
–
–
–
–
(1.8)
(1.8)
2020
Total
£m
86.7
112.4
46.5
210.5
457.7
108.8
24.3
1,046.9
(977.6)
69.3
(6.3)
63.0
2019
UK
£m
101.8
194.4
185.9
–
440.9
74.2
7.6
1,004.8
(1,076.4)
(71.6)
(5.2)
(76.8)
2019
Overseas
£m
–
–
–
–
–
–
–
–
–
–
(1.8)
(1.8)
2019
Total
£m
101.8
194.4
185.9
–
440.9
74.2
7.6
1,004.8
(1,076.4)
(71.6)
(7.0)
(78.6)
2020
UK
£m
2020
Overseas
£m
–
8.7
(2.2)
23.7
(25.3)
(1.6)
(4.9)
44.4
69.4
113.8
–
–
–
–
–
–
–
–
0.3
0.3
2020
Total
£m
–
8.7
(2.2)
23.7
(25.3)
(1.6)
(4.9)
44.4
69.7
114.1
2019
UK
£m
2019
Overseas
£m
–
(1.7)
(2.7)
25.6
(27.7)
(2.1)
6.5
26.5
(31.5)
(5.0)
–
–
–
–
–
–
–
–
0.2
0.2
2019
Total
£m
–
(1.7)
(2.7)
25.6
(27.7)
(2.1)
6.5
26.5
(31.3)
(4.8)
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
153
26 Retirement benefit obligations continued
Major categories of scheme assets as a percentage of total scheme assets:
Equities
Bonds
Diversified Growth Fund
Secured/fixed income
Liability Driven Investment Fund
Multi Asset Credit
Other
2020
UK
%
8
11
4
21
44
10
2
2020
Overseas
%
–
–
–
–
–
–
–
2020
Total
%
8
11
4
21
44
10
2
2019
UK
%
10
19
18
–
44
8
1
2019
Overseas
%
–
–
–
–
–
–
–
2019
Total
%
10
19
18
–
44
8
1
The Diversified Growth Fund is a diversified asset portfolio which includes investments in equities, emerging market bonds,
property, high yield credit and structured finance and smaller holdings in other asset classes. The Liability Driven Investment
(LDI) fund consists of fixed interest bond holdings (approximately 42%), index linked bond holdings (approximately 24%) and cash
(approximately 34%). Interest rate swaps and floating rate notes are employed to complement the role of the LDI fund for liability
risk management. Derivatives have been valued on a mark to market basis. The LDI is designed to proportionally counterbalance
the effect/impact of a decrease/increase in interest rates/inflation on 75% of the funded obligations. The Multi Asset Credit Fund
invests in a variety of debt instruments. Multi Asset Credit, Diversified Growth Funds, Secured income and LDI asset categories
include certain assets which are not quoted in an active market and are stated at fair value estimates provided by the manager
of the investment fund.
As required by IAS19, the Group has considered the extent to which the pension plan assets should be classified in accordance
with the fair value hierarchy of IFRS13. Virtually all equity and debt instruments have quoted prices in active markets. Multi Asset
Credit, Diversified Growth Funds and LDI asset categories include certain assets which are not quoted in an active market and
are stated at fair value estimates provided by the manager of the investment fund, therefore are classified as Level 3.
Other UK assets comprise cash, interest rate swaps and floating rate notes.
Principal actuarial assumptions:
Discount rate
CPI inflation rate
RPI inflation rate
2020
UK
%
2.40
1.60
2.60
2020
Overseas
%
–
–
–
2019
UK
%
2.40
2.05
3.15
2019
Overseas
%
Discount rate
–
–
–
The financial assumptions adopted as at 28 March 2020 reflect the duration of the scheme liabilities which has been estimated
to be broadly 16 years.
At 28 March 2020 mortality assumptions were based on tables issued by Club Vita, with future improvements in line with the
CMI model, CMI_2019 (2019: CMI_2018) with a smoothing parameter of 7.5 and a long term future improvement trend of 1.25%
per annum (2018/19: long term rate of 1.25% per annum). The resulting life expectancies within retirement are as follows:
Aged 65 retiring immediately (current pensioner)
Aged 50 retiring in 15 years (future pensioner)
Male
Female
Male
Female
2020
22.0
23.3
22.9
24.6
2019
22.0
23.3
22.9
24.6
The defined benefit pension schemes expose the Group to the following main risks:
Mortality risk – An increase in the life expectancy of members will increase the liabilities of the schemes. The mortality
assumptions are reviewed regularly, and are considered appropriate.
Interest rate risk – A decrease in bond yields will increase the liabilities of the scheme. Liability driven investment strategies
are used to hedge part of this risk.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 154 De La Rue
Annual Report 2020
Notes to the accounts continued
26 Retirement benefit obligations continued
Investment risk – The value of pension scheme assets vary with changes in interest rates, inflation expectations, credit spreads,
exchange rates, and equity and property prices. There is a risk that asset returns are volatile and that the value of pension scheme
assets may not move in line with changes in pension scheme liabilities. To mitigate against investment risk the pension scheme
invests in derivatives which aim to hedge a proportion of the movements in assets and liabilities. The pension scheme invests in a
wide range of assets to provide diversification in order to reduce the risk that a single investment or type of asset class could have
a materially adverse impact on total scheme assets. The investment strategy and performance of investment funds are reviewed
regularly to ensure the asset strategy of the pension schemes continues to be appropriate.
Inflation risk – The liabilities of the scheme are linked to inflation. An increase in inflation will result in an increase in liabilities.
There are caps in place for UK scheme benefits to mitigate the risk of extreme increases in inflation. Liability driven investment
strategies are used to hedge part of this risk. Any increase in the retirement benefit obligation could lead to additional funding
obligations in future years.
The table below provides the sensitivity of the liability in the scheme to changes in various assumptions:
Assumption change
0.25% decrease in discount rate
0.25% increase in CPI inflation rate
Increasing life expectancy by one year
Approximate impact on liability
Increase in liability of c.£38m
Increase in liability of c.£16m
Increase in liability of c.£44m
The liability sensitivities have been derived using the duration of the scheme based on the membership profile as at 5 April 2018
and assumptions chosen for the 2020 year end. The sensitivity analysis does not allow for changes in scheme membership since
the 2018 actuarial valuation or the impact of the Scheme or Group’s risk management activities in respect of interest rate and
inflation risk on the valuation of the Scheme assets.
The largest defined benefit pension scheme operated by the Group is in the UK. Changes in the fair value of UK scheme assets:
At 30 March 2019/31 March 2018
Assumed interest income on scheme assets
Scheme administration expenses
Return on scheme assets less interest income
Employer contributions and other income
Benefits paid (including transfers)
At 28 March 2020/30 March 2019
Changes in the fair value of UK defined benefit pension obligations:
At 30 March 2019/31 March 2018
Interest cost on liabilities
Past service cost
Effect of changes in financial assumptions
Effect of changes in demographic assumptions
Effect of experience items on liabilities
Benefits paid (including transfers)
At 28 March 2020/30 March 2019
2020
£m
1,004.8
23.7
(2.2)
44.3
23.2
(46.9)
1,046.9
2020
£m
(1,081.6)
(25.3)
8.7
29.7
0.9
38.6
46.9
(982.1)
2019
£m
980.0
25.6
(2.7)
26.5
22.5
(47.1)
1,004.8
2019
£m
(1,067.6)
(27.7)
(1.7)
(46.4)
15.2
(0.6)
47.1
(1,081.6)
(b) Defined contribution pension plans
The Group operates a number of defined contribution plans for which the charge in the consolidated income statement for the
year was £5.8m (FY 2019: £7.8m).
27 Employee information
Average number of employees
United Kingdom and Ireland
Rest of Europe
The Americas
Rest of World
Employee costs (including Directors’ emoluments)
Wages and salaries
Social security costs
Share incentive schemes
Sharesave schemes
Pension costs
De La Rue
Annual Report 2020
155
2020
number
2019
number
1,213
465
58
615
2,351
2020
£m
111.8
10.5
(0.4)
(0.2)
7.7
129.4
1,628
504
63
645
2,840
2019
£m
107.2
10.4
0.6
0.4
7.8
126.4
More detailed information regarding the Directors’ remuneration, shareholdings, pension entitlement, share options and other long
term incentive plans is shown in the Directors’ remuneration report on pages 65 to 86.
28 Capital commitments
Capital expenditure contracted but not provided
Property, plant and equipment
Other commitments
2020
£m
2019
£m
2.3
492.5
494.8
22.7
559.6
582.3
Other commitments in the table above is an amount in relation to the sale of Portals De La Rue Limited to EPIRIS Fund II on 29 March 2018.
As part of the transaction Portals De La Rue Limited will supply security paper to meet the Group’s anticipated internal requirements
with pre-agreed volumes and price mechanisms until March 2028. Based on the terms of the agreement the Group had a capital
commitment of approximately £626.9m over 10 years from the date of sale. The contract is assessed to be at market rates.
29 Contingent liabilities
SFO investigation
On 23 July 2019, the Group announced that the SFO had opened an investigation into the Group and its associated persons in
relation to suspected corruption in the conduct of its business in South Sudan. As announced by the Company on 16 June 2020,
the SFO subsequently informed the Company of its decision to discontinue such investigation. No provision was included in the
Balance Sheet at 28 March 2020 for any potential economic outflow under the SFO investigation as the recognition criteria under
IAS 37 were not met at this time.
Bathford Paper Mill
During 2017 an employee at the Paper Mill in Bathford suffered a serious injury. The investigation and prosecution by the enforcing
authorities Health and Safety Executive has concluded in the period and the Group incurred a fine which was not material.
Accrual for the fine was included in the balance sheet at 28 March 2020 and has been paid after year end.
Arbitration proceedings
De La Rue International Limited has commenced arbitration proceedings in London against Pastoriza SRL, a company which
provided agency and sales consultancy services to the Group in the Dominican Republic from 2016 to 2019. The proceedings were
commenced in connection with the termination of an agency agreement and the sales consultancy agreement entered into between
De La Rue International Limited and Pastoriza SRL. Pastoriza SRL has contested jurisdiction of the arbitration and has otherwise not
engaged in the arbitration. An arbitration award may still be granted to De La Rue International Limited in Pastoriza SRL’s absence.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 156 De La Rue
Annual Report 2020
Notes to the accounts continued
29 Contingent liabilities continued
In response to De La Rue International Limited terminating the agency agreement and the sales consultancy agreement, Pastoriza SRL
commenced a commercial lawsuit in the Dominican Republic for a claimed amount of approximately US$8million (plus monthly interest).
De La Rue International Limited has filed documentary evidence to the courts in the Dominican Republic. The points disputed by De La Rue
International Limited in respect of Pastoriza SRL’s claim include whether the courts of the Dominican Republic should have jurisdiction in
relation to the claim. The hearing on the claim scheduled for 30 March 2020 was postponed (without a new date being set) due to the
ongoing COVID-19 pandemic.
As at 17 June 2020, the Group had not received any further information on the outcome of the arbitration proceedings in London and no
new date had been set for the proceedings in the Dominican Republic. The Group does not consider it probable that an economic outflow
will occur under this claim and accordingly under IAS 37 no provision has been made in the 2020 Financial Statements in respect of the
proceedings in the Dominican Republic.
The Group also provides guarantees and performance bonds which are issued in the ordinary course of business. In the event that a
guarantee or performance bond is called, provision may be required subject to the particular circumstances including an assessment
of its recoverability.
30 Related party transactions
During the year the Group traded on an arms length basis with the associated company Fidink S.A. (33.3% owned). The Group’s trading
activities with this company included £30.9m (FY 2019: £17.6m) for the purchase of security ink and other consumables. At the balance
sheet date there were creditor balances of £2.5m (FY 2019: £4.1m) with Fidink S.A.
Intra-group transactions between the Parent and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated
on consolidation.
Key management compensation
Salaries and other short term employee benefits
Retirement benefits:
– Defined contribution
Share based payments
Dividends received
Termination benefits
2020
£m
2.9
0.4
–
–
1.1
4.4
2019
£m
2.7
0.4
–
–
–
3.1
Key management comprises members of the Board (including the fees of Non-executive Directors) and the ELT. Termination benefits
include 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.
31 Subsequent events
The Group has commenced an equity raise process to raise gross proceeds of at least £100m, which is subject to a shareholder vote
to be held on or around 6 July 2020. At the same time, the Group has entered into the following agreements with its lenders and with the
Pension Trustees.
Revolving Facility Agreement Amendment
The Group has entered into an amendment and restated agreement dated 17 June 2020 in respect of the Revolving Facility Agreement
(the “Revolving Facility Agreement Amendment”). The Revolving Facility Agreement Amendment has a number of conditions which must be
satisfied prior to the amendments to the Revolving Facility Agreement becoming effective, including proceeds of an equity raise in the gross
amount of at least £100,000,000 being received by the Company by no later than 31 July 2020 (the “Equity Raise Condition”). Once effective,
the Revolving Facility Agreement Amendment will make a number of amendments to the Revolving Facility Agreement including:
(1) an extension of the maturity date to 1 December 2023;
(2) an amendment to the financial covenants pursuant to which the Company must ensure that the ratio of EBIT to Net Interest Payable
in FY 2020/21, FY 2021/22 and FY 2022/23 will not be less than 2.4 to 1, 2.8 to 1, and 3.0 to 1 respectively;
(3) amendments to increase the margin by 150 basis points; and
(4) being subject to certain restrictions on making payments to Shareholders for a period of 18 months of the effective date of the
amendments to the Revolving Facility Agreement.
In addition, it is the intention of the Group and the Lenders that, once the amendments to the Revolving Facility Agreement are effective, the
Group shall cease to utilise the Uncommitted Bonding Facility Agreements provided by the Lenders and shall instead utilise the committed
letter of credit line in the Revolving Facility Agreement (as amended by the Revolving Facility Agreement Amendment). The Group has the
ability to elect to re-allocate up to £50m (in increments of £25m) of the cash loan tranche to the committed letter of credit tranche under
the Revolving Facility Agreement (with the option to subsequently re-allocate such amounts back to the cash loan tranche).
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
157
31 Subsequent events continued
In the event that the Equity Raise Condition is not satisfied, the Company has 45 days to agree an alternative financing plan with the
Lenders (or a longer period agreed between the Company and the Lenders) (the “Alternative Plan Period”) and in the absence of such
agreement, an immediate event of default will arise under the Revolving Facility Agreement. During the Alternative Plan Period, utilisations
under the Revolving Facility Agreement will be restricted subject to certain conditions.
Deficit Reduction Plan Amendment Agreement with Pension Trustees
The Group has entered into an amendment agreement dated 31 May 2020 in respect of the Deficit Reduction Plan (the “Deficit Reduction
Plan Amendment Agreement”), with a reduction in the payments to be made under the Deficit Reduction Plan, subject to a number of
conditions which must be satisfied prior to the amendments to the Deficit Reduction Plan Amendment Agreement becoming effective.
For further details see note 26.
SFO investigation
On 16 June 2020, the Group has announced that it was informed by the SFO, that the SFO decided to discontinue its investigation into
De La Rue and its associated persons. The SFO investigation was first announced on 23 July 2019. For further details see note 29.
32 Subsidiaries and associated companies as at 28 March 2020
A full list of subsidiary and associated undertakings is below. Unless otherwise stated all Group owned shares are ordinary.
Country of incorporation and operation
Europe
United Kingdom
DLR (No.1) Limited
DLR (No.2) Limited*
De La Rue Holdings Limited
De La Rue International Limited
De La Rue Overseas Limited
De La Rue Finance Limited
De La Rue Investments Limited
Portals Group Limited
Bradbury Wilkinson Holdings Limited (in liquidation)
De La Rue Consulting Services Limited
De La Rue Healthcare Trustee Limited
De La Rue Pension Trustee Limited
De La Rue Scandinavia Limited
Harrison & Sons Limited
Portals Holdings Limited
Portals Property Limited
De La Rue House, Jays Close, Viables, Basingstoke, Hampshire RG22 4BS,
United Kingdom
The Burnhill Insurance Company Limited
Level 5, Mill Court, La Charroterie, St Peter Port, GY1 1EJ, Guernsey
De La Rue (Guernsey) Limited
PO Box 142, The Beehive, Rohais, St Peter Port, GY1 3HT, Guernsey
Thomas De La Rue and Company (Ireland) Limited
Suite 3, One Earlsfort Centre, Lower Hatch Street, Dublin 2, Ireland
De La Rue Currency and Security Print Limited
B40/43 Industrial Estate, Bulebel, Zejtun, Malta
De La Rue BV
Hoogoorddreef 15, 1101 BA, Amsterdam, Netherlands
Harrison & Sons Sp. Z o.o
Mokotowska 24, 00-561, Warsaw, Poland
De La Rue (Sverige) AB
Box 14055, 104 40, Stockholm, Sweden
Thomas De La Rue A.G.
Rue de Morat 11, 1700 Fribourg, Switzerland
Channel Islands
Ireland
Malta
The Netherlands
Poland
Sweden
Switzerland
Activities
De La Rue interest %
Holding company
Holding company
Holding and general
commercial activities
Trading
Holding company
Internal financing
Holding company
Holding company
(in liquidation)
Trading
Dormant
Dormant
Holding company
Non-trading
Dormant
Trading
Insurance
Non-trading
Dormant
Trading
Trading
Dormant
Non-trading
Holding company
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Strategic reportCorporate GovernanceFinancial statementsShareholder information 158 De La Rue
Annual Report 2020
Notes to the accounts continued
32 Subsidiaries and associated companies as at 28 March 2020 continued
Country of incorporation and operation
North America
USA
De La Rue North America Holdings Inc.b
8333 N.W. 53rd Street, Suite 502, Doral, Florida 33166, USA
De La Rue Authentication Solutions Inc.
1750 North 800 West, Logan, Utah 84321, USA
De La Rue Canada One Limited
1400-340 Albert Street, Ottawa, ON KIR 0AS, Canada
Holding company
Trading
Trading
Activities
De La Rue interest %
Canada
South America
Brazil
Africa
Kenya
Nigeria
Senegal
De La Rue Cash Systems Industrias Limitadac
De La Rue Cash Systems Limitadac
Non-trading
Trading
Rua Boa Vista, 254, 13th Floor, Suite 41, Centro, Sao Paulo, 01014-907,
Meridan Place, Choc Estate, Castries, Saint Lucia
De La Rue Currency and Security Print Limited
De La Rue Kenya EPZ Limited
ABC Towers, 6th Floor, ABC Place, Waiyaki Way, Nairobi, Kenya
De La Rue Commercial Services Limited
7th Floor, Marble House, 1 Kingsway Road, Ikoyi, Lagos, Nigeria
De La Rue West Africa SARL
Trading
Trading
Trading
Trading
South Africa
VDN Keur Gorgui Imm Hermes 1, 2e Etage No 16 Dakar-Liberte, BP 10700, Senegal
De La Rue Global Services (SA) (Pty) Limited
Non-trading
3rd Floor, 54 Melrose Boulevard, Melrose Arch, Gauteng, 2196, South Africa
Australia and Oceania
Australia
De La Rue Australia Pty Limited
Level 22, MLC Centre, 19 Martin Place, Sydney, NSW 2000, Australia
Far East and Asia
China
Hong Kong
Sri Lanka
India
Singapore
United Arab Emirates
Saudi Arabia
Associates
Switzerland
De La Rue Security Technology (Beijing) Co. Ltd
1011, 10F Office Building No.1 Guanghua Road Chaoyang District, Beijing, China
Thomas De La Rue (Hong Kong) Limited
Suite 1106-8, 11/F Tai Yau Building, No 181 Johnson Road, Wanchai, Hong Kong
De La Rue Lanka Currency and Security Print (Private) Limited
No 9/5 Thambiah Avenue, Colombo 7, Sri Lanka
De La Rue India Private Limited
1404, 14 Floor, Tower B, Signature Towers, South City 1, Gurgaon, Haryana, India
De La Rue Currency and Security Print Pte Ltd
Non-trading
80 Raffles Place, #32-01, UOB Plaza, 048624, Singapore
De La Rue FZCO
Dubai Airport Free Zone Authority, Building 6 West Wing A, Office #820,
PO Box 371683, Dubai
De La Rue Communication and Information Technology Limited
Akaria Plaza, Gate “D”, Level 6, Olaya Main St, Riyadh, Kingdom of Saudi Arabia
Fidink S.A.
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Notes:
* Ordinary shares held directly by De La Rue plc.
a Ordinary shares, cumulative preference shares and deferred shares.
b Common stock.
c Quotas.
As part of the sale of the International Identity Solutions business to HID announced on 14 October 2019, the Group sold the
following subsidiaries: De La Rue Services Limited; De la Rue Caribbean Limited, De La Rue Angola Limitada and De La Rue
Kenya Limited.
100
100
100
100
100
100
60
100
100
100
100
100
100
60
100
100
100
100
33
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
159
33 Non-controlling interest
The Group has two subsidiaries with material non-controlling interests. The are De La Rue Lanka Currency and Security Print
(Private) Limited, whose country of incorporation and operation is Sri Lanka and De La Rue Kenya EPZ Limited, whose country of
incorporation and operation is Kenya. De La Rue Kenya EPZ Limited was 100% owned until 16 April 2019, see further disclosure
below. The accumulated non-controlling interest of the subsidiary at the end of the reporting period is shown in the Group balance
sheet. The following table summarises key information relating to this subsidiary, before intra-group eliminations:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets (100%)
Revenue
Profit for the year
Non-controlling interest percentage
Profit allocated to non-controlling interest
Dividends paid to non-controlling interest
Cash flows from operating activities
Cash flows from investment activities
Cash flows from financing activities
Net increase in cash and cash equivalents
2020
£m
2020
£m
2019
£m
De La Rue
Lanka
Currency
13.2
22.0
(0.5)
(8.7)
26.0
6.1
2.4
40%
0.9
0.6
6.0
(0.3)
(0.6)
5.1
De La Rue
Kenya EPZ
Limited
7.2
20.5
–
(14.6)
13.1
3.3
2.2
40%
0.8
–
1.6
(1.8)
–
(0.2)
De La Rue
Lanka
Currency
15.2
16.9
(0.4)
(7.0)
24.6
4.8
3.4
40%
1.4
0.5
1.1
(0.7)
(0.5)
(0.1)
Transactions with non controlling interests
On 16 April 2019 the Group commenced a commercial partnership with the Government of Kenya on our currency and secure
printing site in Nairobi, Kenya. Under the terms of the agreement, the National Treasury of Kenya has taken a 40% stake in
De La Rue’s wholly owned subsidiary De La Rue Kenya EPZ Limited, for a consideration of £5 million.
The £5m was received in advance in September 2017 and was reported in FY 2019 within advanced payments on the balance
sheet as at 30 March 2019.
De La Rue have a long history of supporting governments in Africa with currency and identity solutions and this commercial
partnership enhances our position in East Africa. Management believes the transaction provides an opportunity to create greater
long term value for shareholders and this joint venture fits with our strategy of expanding into key growth markets through long
term partnerships and local investment.
De La Rue continues to operate and manage the business day to day and appoints three of the five directors on the commercial
partnership’s Board. In applying the definitions of control identified in IFRS 10, it has been determined that the Group retains
outright control over De La Rue Kenya EPZ Limited and as such the results of the subsidiary are fully consolidated in to the
Group’s financial statements.
The Group recognized an increase in non controlling interests of £4.2m and an increase in equity attributable to owners of the
parent of £0.8m. The effect on the equity attributable to the owners of De La Rue plc during the period is summarised as follows:
Consideration received
Carrying amount of non controlling interests disposed of
Excess of consideration received recognised in the transactions with non controlling interests reserve
within equity
2019/20
£m
5.0
(4.2)
2018/19
£m
–
–
0.8
–
Strategic reportCorporate GovernanceFinancial statementsShareholder information 160 De La Rue
Annual Report 2020
Company balance sheet
at 28 March 2020
Fixed assets
Investments in subsidiaries
Current assets
Debtors receivable within one year
Cash at bank and in hand
Creditors:
Amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Retained earnings
Total shareholders’ funds
The loss for the year of the Company was £32.5m (FY 2019: profit £0.8m).
Approved by the Board on 17 June 2020.
Kevin Loosemore
Chairman
Clive Vacher
Chief Executive Officer
Notes
2020
£m
2019
£m
4a
5a
6a
7a
123.2
123.2
33.1
1.9
35.0
(17.4)
(17.4)
17.6
140.8
140.8
47.8
42.2
5.9
44.9
140.8
155.0
155.0
40.5
1.7
42.2
(6.4)
(6.4)
35.8
190.8
190.8
47.7
42.1
5.9
95.1
190.8
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
161
Company statement of changes in equity
for the period ended 28 March 2020
Balance at 31 March 2018
Share capital issued
Profit for the financial year
Dividends paid
Other movements
Employee share scheme:
– value of services provided
Balance at 30 March 2019
Share capital issued
Loss for the financial year
Dividends paid
Other movements
Employee share scheme:
– value of services provided
Balance at 28 March 2020
Share
capital
£m
47.1
0.6
–
–
–
–
47.7
0.1
–
–
–
–
47.8
Share
premium
account
£m
38.4
3.7
–
–
–
Capital
redemption
reserve
£m
5.9
–
–
–
–
–
42.1
0.1
–
–
–
–
42.2
–
5.9
–
–
–
–
–
5.9
Retained
earnings
£m
119.1
–
0.8
(25.7)
–
0.9
95.1
–
(32.5)
(17.3)
0.3
(0.7)
44.9
Total
equity
£m
210.5
4.3
0.8
(25.7)
–
0.9
190.8
0.2
(32.5)
(17.3)
0.3
(0.7)
140.8
Share premium account
This reserve arises from the issuance of shares for consideration in excess of their nominal value.
Capital redemption reserve
This reserve represents the nominal value of shares redeemed by the Company.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 162 De La Rue
Annual Report 2020
Accounting policies – Company
Basis of preparation
The financial statements of De La Rue
plc (the Company) have been prepared
in accordance with the revised Financial
Reporting Standard 102 for the triennial
review 2017. This did not result in any
impact to the Company’s accounting
policies. The presentation and functional
currency of these financial statements
is GBP.
Under section s408 of the Companies
Act 2006 the Company is exempt from
the requirement to present its own
profit and loss account.
In accordance with FRS 102, the
Company meets the definition of a
qualifying entity and has therefore
taken advantage of the exemptions
from the following disclosure
requirements listed below:
• Disclosures in respect of transactions
with wholly owned subsidiaries
• Cash Flow Statement
and related notes
• Key Management
Personnel compensation
As the consolidated financial statements
of the Company include the equivalent
disclosures, the Company has also taken
the exemptions under FRS 102 available
in respect of the following disclosures:
• Share based payment – share based
payment expense charged to profit
or loss, reconciliation of opening and
closing number and weighted average
exercise price of share options, how
the fair value of options granted was
measured, measurement and carrying
amount of liabilities for cash settled
share based payments, explanation
of modifications to arrangements
• The disclosures required by FRS
102.11 Basic Financial Instruments
and FRS 102.12 Other Financial
Instrument Issues in respect of
financial instruments not falling
within the fair value accounting rules
of Paragraph 36(4) of Schedule 1
• The Company proposes to continue
to adopt FRS 102 with the above
disclosure exemptions in its next
financial statements
Judgements made by the Directors,
in the application of these accounting
policies that have significant effect
on the financial statements and
estimates with a significant risk of
material adjustment in the next year
are discussed on page 113.
Critical accounting estimates
and judgement
Impairment of subsidiary
During the period, the Company
booked an impairment in its
subsidiary of £31.3m based on
an equity valuation of £123.7m.
The impairment was calculated based
on an equity value calculated by
management with support from external
experts. Management calculated
two equity values one assuming the
proposed capital raising referred to
in the strategic report was successful
(the funded scenario) and one that
it was not (the unfunded scenario).
The judgements made in assessing
the impairment to record were:
• The probability weightings to
be applied to the funded and
unfunded scenarios;
• The discount rate used; and
• The terminal growth rate of 3%
used in the funded scenario.
Management based its probability
weightings for the likelihood of the
funded and unfunded scenarios
occurring based on the best
information it had available to them.
Management noted that increasing/
decreasing the weighting to the
unfunded scenario by 5% (and
increasing/decreasing the weighting
to the funded by the same amount)
would have increased/decreased
the impairment by £1.15m.
The post-tax discount rate of 12.5%
(comparable rate on a pre-tax basis
would be in the range of 14.2 to 15.4%)
used in the impairment calculation was
based on advice from external experts.
Management ensured it was comfortable
with the discount rate by reviewing
the inputs used in the discount rate
calculation and ensuring that they were
within a reasonable range for comparable
companies. Management noted that
increasing the post-tax discount rate to
13% would have decreased the equity
valuation to £96.7m. Decreasing the
post-tax discount rate to 12% would
have increased the equity valuation
to £153.7m.
A terminal growth rate of 3% was
assumed in the funded scenario.
The Directors consider a 3% terminal
growth rate reasonable, as currency
circulation is expected to continue to
grow at a modest rate in the long term
with growth in the Currency division
further enhanced by the Group’s Polymer
growth and Security Features on Polymer
strategy. In addition, continued growth
in Authentication is expected at a rate
that supports a terminal growth rate of
3%. In addition the Directors consider
that a 3% terminal growth rate can be
supported by the ability to maintain
operating margins in later years.
The combination of these factors
led the Directors to be comfortable
with a 3% terminal growth rate.
The directors noted that decreasing
the terminal rate in funded scenario
from 3% to 2% would have reduced
the equity valuation to £85m.
The Directors note that the equity
valuation of £123.7m is at a significant
premium to the market capitalisation
as at the balance sheet date of
28 March 2020. However, the Directors
considered that the market capitalisation
as at 28 March 2020 was low due
to the impact of stock market
performance following COVID-19
concerns. Subsequent, to year end
the Group’s market capitalisation
has risen substantially to a level
as at 12 June of around £127m.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
163
Share based payment
transactions
Full details of the share based payments
Schemes operated by the Group are
found in note 23 to the consolidated
financial statements.
Taxation
The charge for taxation is based on
the result for the year and takes into
account taxation deferred because
of timing differences between the
treatment of certain items for taxation
and accounting purposes.
Deferred tax is recognised, without
discounting, in respect of all timing
differences between the treatment
of certain items for taxation and
accounting purposes which have
arisen but not reversed by the
balance sheet date, except as
otherwise required by FRS 102.
Financial guarantee contracts
Where the Company enters into
financial guarantee contracts to
guarantee the indebtedness of other
companies within the Group, the
Company considers these to be
insurance arrangements and accounts
for them as such. In this respect, the
Company treats the guarantee contract
as a contingent liability until such
time as it becomes probable that the
Company will be required to make
a payment under the guarantee.
The Directors also noted that the Group’s
6 month market capitalisation average
was around £105m.
The Directors therefore concluded
that the equity valuation of £123.7m
based on management’s calculation
was in line with the market capitalisation
as at 12 June 2020 and the average
6 month market capitalisation.
Consequently, the Directors were
satisfied that notwithstanding the
premium of the equity valuation to
market capitalisation as at 28 March
2020, recording an impairment
based of an equity valuation of
£123.7m was appropriate.
Based on management’s careful
assessment of the assumptions and
judgements made in the impairment
calculation, it was concluded that the
impairment recorded was appropriate.
The accounts have been prepared
as at 28 March 2020, being the last
Saturday in March. The comparatives
for the 2018/19 financial period are
for the period ended 30 March 2019.
The following accounting policies have
been applied consistently to all periods
presented in these financial statements.
Measurement convention
The financial statements are prepared
on the historical cost basis.
Foreign currencies
Amounts receivable from overseas
subsidiaries which are denominated
in foreign currencies are translated into
sterling at the appropriate period end
rates of exchange. Exchange gains and
losses on translating foreign currency
amounts are included within the interest
section of the profit and loss account
except for exchange gains and losses
associated with hedging loans that are
taken to reserves.
Transactions in foreign currencies are
translated into the functional currency
at the rates of exchange prevailing at
the dates of the individual transactions.
Monetary assets and liabilities
denominated in foreign currencies
are subsequently retranslated at the
rate of exchange ruling at the balance
sheet date. Such exchange differences
are taken to the profit and loss account.
Dividends
Under FRS 102, final ordinary dividends
payable to the shareholders of the
Company are recognised in the
period that they are approved by
the shareholders. Interim ordinary
dividends are recognised in the
period that they are paid.
Investments in subsidiaries
These are separate financial statements
of the Company. In the transition to
FRS 102 the Company took the first time
adoption exemption for separate financial
instruments and as such the carrying
amount of the Company’s cost of
investment in subsidiaries is its deemed
cost at transition date, 30 March 2014.
Employee benefits
Defined benefit plans
The pension rights of the Company’s
employees are dealt with through a
self administered scheme, the assets
of which are held independently of
the Group’s finances. The scheme is
a defined benefit scheme and is largely
closed to future accrual. The Group
agrees deficit funding with the scheme
Trustees and Pension Regulator.
The Company is a participating employer
but the Group has adopted a policy
whereby the scheme funding and deficit
are recorded in the main UK trading
subsidiary of the Company, De La Rue
International Limited, which pays all
contributions to the scheme and hence
these are not shown in the Company
accounts. Full details of the scheme
and its deficit (measured on an IAS
19R basis) can be found in note 26 to
the consolidated financial statements.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 164 De La Rue
Annual Report 2020
Notes to the accounts – Company
1a Employee costs and numbers
Employee costs are borne by De La Rue Holdings Limited. For details of Directors’ remuneration, refer to disclosures in the
Directors’ remuneration report on pages 65 to 86.
Average employee numbers
2020
Number
4
2019
Number
4
2a Auditor’s remuneration
Auditor’s remuneration is borne by De La Rue Holdings Limited. For details of auditor’s remuneration, see note 4 to the
consolidated financial statements.
3a Equity dividends
For details of equity dividends, see note 10 to the consolidated financial statements.
4a Investments
Investments are stated at deemed cost in the balance sheet, less provision for impairment.
Investments comprise:
Investments in subsidiaries
Cost at 28 March 2020 and 30 March 2019
Additions
Impairment
Cost at 28 March 2020 and 30 March 2019
2020
£m
2019
£m
155.0
155.0
(0.5)
(31.3)
123.2
154.5
154.5
0.5
–
155.0
Where the Company grants share options over its own shares to the employees of its subsidiary undertakings these awards
are accounted for by the Company, as an additional investment in its subsidiary. The costs are determined in accordance with
FRS 102. Any payments made by the subsidiary undertaking in respect of these arrangements are treated as a return of
this investment.
Share based payments prior to the period ended 30 March 2019 were recharged to subsidiaries and recorded via the
intercompany loan account.
For further details on the impairment, see the ‘Critical accounting estimates and judgements’ section on page 162 of Account Policies.
For details of investments in Group companies, refer to the list of subsidiary and associated undertakings on pages 157 and 158.
5a Debtors
Other receivables are measured at amortised cost, which approximates to fair value. Trade and other receivables are discounted
when the time value of money is considered material.
Amounts due within one year
Amounts owed by Group undertakings
2020
£m
2019
£m
33.1
40.5
De La Rue
Annual Report 2020
6a Other creditors
Amounts falling due within one year
Bank overdrafts
Accruals and deferred income
Other creditors
De La Rue
Annual Report 2020
165
2020
£m
17.1
0.3
17.4
2019
£m
6.0
0.4
6.4
7a Share capital
For details of share capital, see note 22 to the consolidated financial statements.
8a Share based payments
The Company operates various equity and cash settled option schemes although the majority of plans are settled by the issue
of shares. The services received from employees are measured by reference to the fair value of the share options. The fair value
is calculated at grant date and recognised in the profit and loss account, together with a corresponding increase in shareholders’
funds, on a straight line basis over the vesting period, based on an estimate of the number of shares that will eventually vest.
Vesting conditions, other than market conditions, are not taken into account when estimating the fair value. FRS 102 has been
applied to share settled share options granted after 7 November 2002.
Where the Company grants options over its own shares to the employees of its subsidiary undertakings these awards are
accounted for by the Company, as an additional investment in its subsidiary. The costs are determined in accordance with
FRS 102. Any payments made by the subsidiary undertaking in respect of these arrangements are treated as a return of
this investment.
For details of share based payments, see note 23 to the consolidated financial statements and the Directors’ remuneration
report on pages 65 to 86.
9a Related party transactions
The Company has no transactions with or amounts due to or from subsidiary undertakings that are not 100% owned either
directly by the Company or by its subsidiaries. For details of key management compensation, see note 30 to the consolidated
financial statements.
Strategic reportCorporate GovernanceFinancial statementsShareholder information 166 De La Rue
Annual Report 2020
Non-IFRS measures
De La Rue plc publishes certain additional information in a non-statutory format in order to provide readers with an increased
insight into the underlying performance of the business. These non-statutory measures are prepared on a basis excluding
the impact of exceptional items and amortisation of acquired intangibles. Amortisation of acquired intangible assets and
exceptional items are excluded as they are not considered to be representative of underlying business performance.
The measures the Group uses along with appropriate reconciliations to the equivalent IFRS measures where applicable
are shown in the following tables.
The Group’s policy on classification of exceptional items is also set out below:
The Directors consider items of income and expenditure which are material by size and/or by nature and not representative
of normal business activities should be disclosed separately in the financial statements so as to help provide an indication
of the Group’s underlying business performance. The Directors label these items collectively as ‘exceptional items’.
Determining which transactions are to be considered exceptional in nature is often a subjective matter. However, circumstances
that the Directors believe would give rise to exceptional items for separate disclosure would include: gains or losses on the
disposal of businesses, curtailments on defined benefit pension arrangements or changes to the pension scheme liability which
are considered to be of a permanent nature such as the change in indexation or the GMPs, and non-recurring fees relating to
the management of historical scheme issues, restructuring of businesses, asset impairments and costs associated with the
acquisition and integration of business combinations.
All exceptional items are included in the appropriate income statement category to which they relate.
Adjusted revenue
Adjusted revenue excludes “pass through” revenue relating to non-novated contracts following the paper and international
identify solutions business sales. The following amounts of “pass through” revenue have been excluded: Paper £33.5m
(FY 2018/19: £48.2m) and Identify Solutions: £6.6m (FY 2018/19: £nil).
Revenue on an IFRS basis
– exclude pass-through revenue
Adjusted revenue
2019
564.8
(48.2)
516.6
2020
466.8
(40.1)
426.7
Adjusted operating profit
Adjusted operating profit represents earnings from continuing operations adjusted to exclude exceptional items and amortisation
of acquired intangible assets.
Operating profit from continuing operations on an IFRS basis
– Amortisation of acquired intangible assets
– Exceptional items
Adjusted operating profit from continuing operations
20181
Excluding
paper
£m
131.5
0.7
(75.3)
56.9
2018
£m
123.0
0.7
(60.9)
62.8
2019
£m
31.5
0.7
27.9
60.1
2020
£m
42.8
0.9
(20.0)
23.7
Note:
1 2018 excluding paper removes £14.4m of exceptional cost in relation to the Portals paper disposal and removes the operating profit made from the paper business in 2018 of £5.9m.
De La Rue
Annual Report 2020
De La Rue
Annual Report 2020
167
Adjusted basic earnings per share
Adjusted earnings per share are the earnings attributable to equity shareholders, excluding exceptional items and amortisation of
acquired intangible assets and discontinued operations divided by the weighted average basic number of ordinary shares in issue.
It has been calculated by dividing the De La Rue plc’s adjusted operating profit from continuing operations for the period by the
weighted average basic number of ordinary shares in issue excluding shares held in the employee share trust.
Profit attributable to equity shareholders of the Company
from continuing operations on an IFRS basis
– Exceptional items
– Amortisation of acquired intangibles
– Tax on amortisation of acquired intangibles
– Tax on exceptional items
Adjusted profit attributable to equity shareholders of the Company
from continuing operations
Weighted average number of ordinary shares for basic earnings
Basic earnings per ordinary share continuing operations on an IFRS basis
Basic adjusted earnings per ordinary share for continuing operations
2018
£m
95.4
(60.9)
0.7
(1.2)
9.7
43.7
101.9
2018
pence per
share
93.7
42.9
2018
excluding
paper
£m
101.8
(75.3)
0.7
(1.2)
12.9
38.9
101.9
2018
pence per
share
excluding
paper
n/a
38.2
2019
£m
19.4
27.9
0.7
0.3
(4.2)
44.1
102.9
2020
£m
34.4
(20.0)
0.9
(0.2)
(2.5)
12.6
104.0
2019
pence per
share
18.8
42.9
2020
pence per
share
33.1
12.1
Adjusted EBITDA and adjusted EBITDA margin1
Adjusted EBITDA represents earnings from continuing operations before the deduction of interest, tax, depreciation, amortisation
and exceptional items. The adjusted EBITDA margin percentage takes the applicable EBITDA figure and divides this by the
continuing revenue in the period of £426.7m which excludes the Portal pass through revenue of £40.1m in 2020 (FY 2019: £48.2m).
The EBITDA margin on an IFRS basis is a percentage against the reported revenue of £466.8m (FY 2019: £564.8m).
As previously noted, the Group has adopted the modified retrospective approach available within the new IFRS 16 accounting
standard and therefore have not restated the comparative disclosures for the impact of IFRS 16, which came into effect from
1 January 2019. The statutory results have been split out to show the IFRS 16 impact to aid comparison period on period.
Profit before interest and taxation from
continuing operations on an IFRS basis
– Depreciation2
– Amortisation
EBITDA on an IFRS basis
– Exceptional items
Adjusted EBITDA
EBITDA margin on an IFRS basis
Adjusted EBITDA margin
Notes:
1 Adjusted EBITDA margin is a percentage against adjusted revenues.
2 FY 2020 includes IFRS16 Right-of-use asset depreciation of £2.4m.
2018
excluding
paper
£m
131.5
18.9
3.3
153.7
(75.3)
78.4
n/a
17.0%
2018
£m
123.0
21.9
3.3
148.2
(60.9)
87.3
30.0%
17.7%
Pre the
impact of
IFRS 16
2020
£m
42.3
14.5
3.9
60.7
(20.0)
40.7
13.0%
9.5%
Impact of
IFRS 16
£m
0.5
2.4
–
2.9
–
2.9
n/a
n/a
2019
£m
31.5
16.7
3.2
51.4
27.9
79.3
9.1%
15.4%
2020
£m
42.8
16.9
3.9
63.6
(20.0)
43.6
13.6%
10.2%
Strategic reportCorporate GovernanceFinancial statementsShareholder information 168 De La Rue
De La Rue
Annual Report 2020
Annual Report 2020
Non-IFRS measures continued
Cash Conversion
Cash conversion is the ratio of adjusted operational cash flow divided by the adjusted operating profit. This metric has not been
included as a key measure of performance in FY 2020 and in the setting of Directors’ remuneration, as it was replaced with an
average net debt target.
Return on capital employed (ROCE)
ROCE is the ratio of the operating profit before exceptional items and adjusting items over capital employed.
Adjusted operating profit
– Property, plant and equipment
– Intangible assets
– Right of use assets
– Investments
– Inventories
– Trade and other debtors
– Contract assets
– Derivative financial assets
– Trade and other creditors
– Contract liabilities
– Derivative financial liabilities
Capital Employed
ROCE = EBIT/Average Capital Employed
EBIT
Average Capital Employed
ROCE
2019
£m
60.1
115.0
33.4
–
7.3
42.3
114.4
24.9
4.0
(175.0)
(6.0)
(6.7)
153.6
60.1
133.6
45%
2020
£m
23.7
114.6
31.0
12.9
8.0
53.9
67.1
18.3
14.5
(133.3)
(0.3)
(14.0)
172.7
23.7
163.2
14%
De La Rue
De La Rue
Annual Report 2020
Annual Report 2020
De La Rue
Annual Report 2020
169
Five year record
Income statement
Revenue
Operating profit
– Adjusted operating profit
– Amortisation of acquired intangible assets
– Exceptional items – operating
Profit before interest
Interest expense
Interest income
Retirement benefit obligation net finance expense
Profit before taxation
Taxation
Profit after taxation from continuing operations
Profit/(loss) from discontinued operations
Equity non-controlling interests
Profit for the year attributable to equity shareholders
Dividends
Retained (loss)/profit for the period
Basic earnings per ordinary share continuing operations
Basic earnings per ordinary share discontinued operations
Diluted earnings per share continuing operations
Diluted earnings per share discontinued operations
Adjusted basic earnings per ordinary share continuing operations
Dividends per ordinary share
Balance sheet
Non-current assets
Net current liabilities1
Net debt
Non-current liabilities
Equity non-controlling interests
Total equity attributable to shareholders of the Company
Note:
1 Excludes amounts included in net debt.
2016
£m
454.5
(restated)
2017
£m
461.7
2018
£m
493.9
2019
£m
564.8
2020
£m
466.8
70.4
–
(3.6)
66.8
(4.8)
–
(7.1)
54.9
(6.3)
48.6
(31.0)
(1.2)
16.4
(25.3)
(8.9)
46.8p
(30.6p)
46.2p
(30.2p)
48.1p
25.0p
70.7
(0.1)
(0.4)
70.2
(4.6)
–
(7.4)
58.2
(8.7)
49.5
(6.4)
(1.6)
41.5
(25.4)
16.1
47.2
(6.3)
46.6
(6.2)
47.1
25.0p
62.8
(0.7)
60.9
123.0
(3.8)
–
(5.6)
113.6
(16.8)
96.8
(1.8)
(1.4)
93.6
(25.4)
68.2
93.7
(1.8)
92.8
(1.8)
42.9
25.0p
60.1
(0.7)
(27.9)
31.5
(4.5)
0.6
(2.1)
25.5
(4.8)
20.7
(2.4)
(1.3)
17.0
(25.7)
(8.7)
18.8
(2.3)
18.8
(2.3)
42.9
25.0p
23.7
(0.9)
20.0
42.8
(6.1)
1.0
(1.6)
36.1
–
36.1
(0.3)
(1.7)
34.1
33.1
(0.3)
32.8
(0.3)
12.1
n/a
£m
£m
£m
£m
£m
226.5
(35.0)
(106.1)
(231.0)
(6.6)
(152.2)
242.9
(16.2)
(120.9)
(248.6)
(7.9)
(150.7)
169.0
(43.2)
(49.9)
(96.6)
(8.9)
(29.6)
174.2
(13.0)
(107.5)
(82.9)
(9.9)
(39.1)
233.2
(19.2)
(102.8)
(22.8)
(15.5)
72.2
Strategic reportCorporate GovernanceFinancial statementsShareholder information 170 De La Rue
De La Rue
Annual Report 2020
Annual Report 2020
Shareholder information
Warning to shareholders –
investment fraud
We are aware that some of our
shareholders have received unsolicited
telephone calls or correspondence,
offering to buy or sell their shares at very
favourable terms. The callers can be very
persuasive and extremely persistent and
often have professional websites and
telephone numbers to support their
activities. These callers will sometimes
imply a connection to De La Rue and
provide incorrect or misleading information.
This type of call should be treated as an
investment scam – the safest thing to
do is hang up.
You should always check that any firm
calling you about potential investment
opportunities is properly authorised by the
FCA. If you deal with an unauthorised firm
you will not be eligible for compensation
under the Financial Services Compensation
Scheme. You can find out more about
protecting yourself from investment scams
by visiting the FCA’s website
www.fca.org.uk/consumers, or by calling
the FCA’s helpline on 0800 111 6768.
If you have already paid money to share
fraudsters contact Action Fraud
immediately on 0300 123 2040
(www.actionfraud.police.uk).
Registered office
De La Rue House, Jays Close, Viables,
Basingstoke, Hampshire RG22 4BS
Telephone: +44 (0)1256 605000
Fax: +44 (0)1256 605336
Registered number: 3834125
Company Secretary: Miss J C Hyde
Registrar
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol
BS99 6ZZ
Telephone: +44 (0)370 703 6375
Fax: +44 (0)370 703 6101
Annual general meeting
The AGM will be held at 10:30 on 6 August
2020 at De La Rue House, Jays Close,
Viables, Basingstoke, Hampshire RG22 4BS.
In response to the current COVID-19 crisis,
the UK Government has established stay
at home guidelines prohibiting large public
gatherings. Consequently, this year’s
meeting will be run as a closed meeting
and shareholders will not be able to attend
in person. Shareholders attempting to
attend will be refused entry on the day.
The notice of AGM can also be found in the
investors section on the Group’s website.
Electronic shareholder
communications
Shareholders can register online at
www.investorcentre.co.uk/ecomms
to receive statutory communications
electronically rather than through the post.
Shareholders who choose this option
will receive an email notification each time
the Group publishes new shareholder
documents on its website.
Shareholders will need to have their
shareholder reference number (SRN)
available when they first log in. This 11
character number (which starts with
the letter C or G) can be found on share
certificates and dividend tax confirmations.
Shareholders who subscribe for electronic
communications can revert to postal
communications or request a paper
copy of any shareholder document
at any time in the future.
Electronic voting
All shareholders can submit proxies
for the AGM electronically by logging
onto Computershare’s website at
www.investorcentre.co.uk/eproxy
Shareholder enquiries
Enquiries regarding shareholdings or
dividends should, in the first instance,
be addressed to Computershare Investor
Services PLC. Details of shareholdings
and how to make amendments to
personal details can be viewed online
at www.investorcentre.co.uk
Shareholder helpline telephone:
+44 (0)370 703 6375
Consolidation of shares
Where registered shareholdings are
represented by several individual share
certificates, shareholders may wish to have
these replaced by one consolidated certificate.
The Company will meet the cost for this
service. Share certificates should be sent
to the Company’s registrar together with
a letter of instruction.
Internet
The Group has a wide range of
information that is available on its website
www.delarue.com including:
• Finance information – annual and interim
reports, financial news and events
• Share price information
• Shareholder services information
• Press releases both current and historical
Capital gains tax
March 1982 valuation
The price per share on 31 March 1982
was 617.5p.
Shareholders are advised to refer to their
brokers/financial advisers for detailed advice
on individual capital gains tax calculations.
Share dealing facilities
Computershare Investor
Services PLC
Computershare, the Company’s registrar,
provides a simple way to sell or purchase
De La Rue plc shares.
Internet share dealing
Available 24 hours a day/seven days a
week with real time pricing in market hours.
Commission is charged at 1%, subject to
a minimum charge of £30, with no set-up or
annual management fees. Further information
can be obtained by logging on to:
www.computershare.trade
Telephone share dealing
Commission is charged at 1% plus £35,
with no set-up or annual management fees.
The telephone share dealing service is
available from 08:00 to 16:30 Monday
to Friday, excluding bank holidays, on
telephone number: +44 (0)370 703 0084.
Analysis of shareholders at 28 March 2020
By range of holdings
0 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 500,000
500,001 and above
Total
Shareholders
Shares
Number
3,841
993
106
134
51
31
5,156
%
74.50
19.26
2.06
2.60
0.99
0.60
100.00
Number
1,231,170
2,050,885
742,758
5,063,398
11,913,668
82,995,983
103,997,862
%
1.18
1.97
0.71
4.87
11.46
79.81
100.00
De La Rue
De La Rue
Annual Report 2020
Annual Report 2020
De La Rue
Annual Report 2020
171
Glossary
Images featured
in this year’s report
Banknotes
Specialist Technology:
Safeguard® with GeminiTM
Client:
Royal Bank of Scotland
Featured:
Inside front cover
and pages 14 to 15
Banknotes
Specialist Technology:
Safeguard® window
Banknotes
Specialist Technology:
Safeguard®
Client:
The Central Bank of Samoa
Client:
Eastern Caribbean Central Bank
Featured:
Inside front cover
and page 35
Featured:
Page 4
Polymer
Specialist Technology:
Safeguard® Integrate
Security Features
Specialist Technology:
Safeguard® with GeminiTM
GRS
Specialist Technology:
Tax Stamps
Banknotes
Specialist Technology:
Safeguard® with GeminiTM under UV
Client:
General
Featured:
Page 4
Client:
General
Featured:
Page 4
Client:
Cyprus
Featured:
Page 5
Client:
Ulster Bank
Featured:
Front cover
Brand Protection
Specialist Technology:
Pure™ Holographic Label;
‘Genuine Shield’
Client:
Brand Protection
Featured:
Page 5
ID Secure Components
Specialist Technology:
Polycarbonate datapage
Client:
ID Security Feature
Featured:
Pages 5 and 6
Banknotes
Specialist Technology:
Paper banknotes
Client:
Central Bank of Kenya
Featured:
Page 6
GRS
Specialist Technology:
Tax Stamps
Client:
Austria
Featured:
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Brand Protection
Specialist Technology:
Pure™ Holographic Label;
‘Secure Globe’
Client:
Brand Protection
Featured:
Page 9
ID Secure Components
Specialist Technology:
PureImageTM Thread
Client:
Central Bank of The Gambia
Featured:
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Banknotes
Specialist Technology:
GeminiTM
Client:
Central Bank of The Gambia
Featured:
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Banknotes
Specialist Technology:
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Featured:
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Strategic reportCorporate GovernanceFinancial statementsShareholder information 172 De La Rue
Annual Report 2020
Glossary continued
Banknotes
Specialist Technology:
Safeguard®
Banknotes
Specialist Technology:
Kinetic StarChrome® Thread
Client:
Bank of England
Featured:
Page 12
Client:
Central Bank of Kenya
Featured:
Page 13
ID Secure Components
Specialist Technology:
ID Holographic Laminate –
DLR ID Protect™
Client:
ID Security Feature
Featured:
Page 15
Brand Protection
Specialist Technology:
Pure™ Holographic Label;
‘Coloured Knot’
Client:
Brand Protection
Featured:
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Banknotes
Specialist Technology:
IgniteTM Thread
ID Secure Components
Specialist Technology:
Polycarbonate datapage
GRS
Specialist Technology:
Tax Stamps
Client:
Bangladesh Bank 100 Taka
Client:
ID Security Feature
Featured:
Page 17
Featured:
Page 17
Client:
UK HMRC
Featured:
Page 40
Banknotes
Specialist Technology:
Safeguard® Illuminate
Client:
General
Featured:
Page 41
Security Features
Specialist Technology:
Safeguard® with GeminiTM
Client:
General
Featured:
Page 4
De La Rue is a registered trademark
of De La Rue Holdings Limited.
DLR Analytics™, DLR Certify™,
and PureImage™ are trademarks
of De La Rue International Limited.
Safeguard®, IgniteTM, Enigma®, Izon®,
Traceology® are registered trademarks
of De La Rue International Limited.
This report is printed on Magno
Satin paper. This paper has been
independently certified as meeting the
standards of the Forest Stewardship
Council (FSC®), and was manufactured
at a mill that is certified to the ISO14001
and EMAS environmental standards.
Designed and produced by
Radley Yeldar
www.ry.com
Photography and images by
Andy Sharp – Technical Photography
DLR Design™
Dan Eynon – Pencil Portraits
DLR Design™
Printed at
CPI Colour Printing Company which
is ISO14001 certified, CarbonNeutral®,
Alcohol Free Printer, FSC and PEFC
chain of custody certified. The inks
used are all vegetable oil based.
D
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De La Rue plc
De La Rue House
Jays Close
Viables
Basingstoke
Hampshire
RG22 4BS
T +44 (0)1256 605000
F +44 (0)1256 605004
www.delarue.com
Visit us online
www.delarue.com