De La Rue plc

24 May 2016

Solid performance and good early strategic progress

De La Rue plc (LSE: DLAR) (De La Rue, the "Group" or the "Company") announces its full year results for the twelve months ended 26 March 2016 (the period or full year).

KEY FINANCIALS

The table below shows the performance before and after the disposal of the Cash Processing Solutions (CPS) business which was sold on 22 May 2016.

FINANCIAL HIGHLIGHTS

·       Full year results in line with trading update on 13 April 2016

·       Year on year revenue up 7% and underlying operating profit up 2%¹

·       Positive operating cash flow resulting in net debt reduction of £4.9m to £106.1m. Net debt/EBITDA at 1.25x

·       Underlying earnings per share up 4% to 48.1p¹

·       Final dividend maintained at 16.7p. Full year dividend unchanged at 25.0p.

·       Group 12 month order book up 62% year-on-year at £365m¹, providing good visibility for the year ahead

OPERATIONAL HIGHLIGHTS

·       Banknotes volume up 9% to 7.1bn and Banknote Paper up 6% to 10,000 tonnes, benefiting from overspill contracts

·       Currency revenue up 11% and underlying operating profit up 9%

·       Successfully outsourced production of >500m banknotes

·       Product Authentication and Traceability underlying operating profit up 19% due to reduced costs

·       Identity Solutions revenue and underlying operating profit lower as a result of expected contractual reduction

·       Reorganisation from divisional to functional structure completed

·       10% net average headcount reduction to 3,566 from operational improvements

STRATEGIC HIGHLIGHTS

·       Cash Processing Solutions business 'root and branch' review concluded with business sold

·       Encouraging progress in Polymer with a significant new three-year contract and doubling the number of customers to 14 note issuing authorities

·       Doubled number of patent filings. Launched next generation security thread Active™ and two end-to-end software solutions -  DLR Identify™ and DLR Certify™

·       Manufacturing footprint review completed: reducing capacity by 25% and consolidating banknote print production to four sites³ to achieve >£13m savings p.a. from 2018/19

1.         Continuing operations only

2.         Excluding the site managed on behalf of Bank of England

3.         Including  the site managed on behalf of Bank of England

Martin Sutherland, Chief Executive Officer, commented:

"In the last year we have made good progress against our five year strategic plan to transform De La Rue into a technology-led security product and service provider. We have reorganised the business structure, increased investment in product development and new technologies, and successfully completed a manufacturing footprint review.

"Our Currency product lines have performed very well during the year. I am particularly pleased with our progress in Polymer which is a large and growing market. We have doubled our customer base in Polymer over the last year, including securing our first volume customer, and as the only vertically integrated polymer substrate manufacturer, we are well placed to continue to capture this growth opportunity.

"CPS continued to underperform in the second half of the year. Following a 'root and branch' review, we decided to exit the business and have now completed the sale.

"Looking ahead, whilst there is more to do, I am pleased with the progress we have made in the year and I am confident that the right foundations are now in place to develop a more balanced business portfolio and increase profitability. Our 12 month closing order book of £365m provides good visibility for the year ahead. Whilst, as previously announced, a material contract came to an end, we are confident that we can mitigate the impact and our expectations for the current year are unchanged."

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Cautionary note regarding forward-looking statements

These results include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout these results and the information incorporated by reference into these results and include statements regarding the intentions, beliefs or current expectations of the directors, De La Rue or the Group concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy of De La Rue and the industry in which it operates.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond De La Rue's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in these results and/or the information incorporated by reference into these results. In addition, even if the results of operations, financial condition, liquidity and dividend policy of the Group and the development of the industry in which it operates, are consistent with the forward-looking statements contained in these results and/or the information incorporated by reference into these results, those results or developments may not be indicative of results or developments in subsequent periods.

Other than in accordance with its legal or regulatory obligations, De La Rue does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

PRELIMINARY STATEMENT

De La Rue's full year results were in line with the upgraded expectations announced in the trading update on 13 April 2016. With a backdrop of challenging market conditions and significant internal changes, the Group has made good progress in the first year of the five year strategic plan which aims to focus the business into growth markets while driving operational efficiency. The Group has strengthened the 12 month order book to £365m¹ (2015: £226m) as at the end of the period.

Revenue in Currency product lines, encompassing Banknotes, Banknote Paper, Polymer and Security Features, grew 11% whilst underlying operating profit was up 9%. These increases were primarily driven by higher banknote volumes, partly from overspill orders, and from greater operational efficiencies.  As previously announced, a material security features contract which contributed annual revenue of c£30m came to an end during the year.

There was encouraging progress in Polymer with the winning of a significant three year contract and the doubling of the number of customers to 14 issuing authorities. The Currency product lines' closing order book was up 85% year on year.

Identity Solutions has performed as expected with lower revenue and margin due to a contractual reduction in contribution from a large contract. With the launch of our first identity software solution DLR Identify™, we have strengthened our digital and service offerings which will help us to capture a larger share of the passport value chain. Revenue in Product Authentication & Traceability (PA&T) was flat year on year with higher margins due to cost savings from the Dulles site closure.

Cash Processing Solutions (CPS) continued to underperform in the second half. Following the 'root and branch' review of CPS, we have sold the business. 

FINANCIAL RESULTS

On a pre disposal basis, group revenue grew 3% to £488.2m (2014/15: £472.1m). Underlying operating profit fell by 10% to £62.5m (2014/15: £69.5m), mainly due to a loss of £7.9m in CPS (2014/15: profit £0.4m). Underlying profit before tax was 13% lower at £50.4m (2014/15: £57.7m) and underlying earnings per share decreased to 41.0p (2014/15: 47.9p).

On a continuing operations basis, group revenue was up 7% to £454.5m (2014/15: £422.8m). Underlying operating profit increased by 2% to £70.4m (2014/15: £69.1m). Underlying profit before tax was £58.5m (2014/15: £57.5m) and underlying earnings per share were up 4% to 48.1p (2014/15: 46.1p).

On a pre disposal basis, net exceptional charges before tax in the period were £29.6m (2014/15: £18.8m) of which £26.0m related to the CPS discontinued activities (more fully described in notes 3 and 4). As a result, profit before tax was 47% lower at £20.8m (2014/15: £38.9m).On a continuing operations basis, profit before tax was up 35% to £54.9m (2014/15: £40.6m).

DIVIDEND

The Board proposes to maintain the dividend at the 2014/15 level and is recommending a final dividend of 16.7p per share (2014/15: 16.7p per share). Together with the interim dividend paid in January 2016, this will give a total dividend for the year of 25.0p per share (2014/15: 25.0p per share). Subject to shareholders' approval, the final dividend will be paid on 3 August 2016 to shareholders on the register on 24 June 2016.

The Board also recommends the introduction of an alternative scrip dividend scheme. The proposed scheme will give shareholders the option to receive new fully paid Ordinary Shares in the Company in place of their cash dividend payments. The Board intends that the necessary resolution to introduce the scrip dividend scheme will be put to shareholders at the AGM on the 21 July 2016. Further details will be provided with the AGM documentation when it is sent to shareholders. If the scheme is approved by shareholders, the last date for receipt of Scrip elections will be 13 July 2016.

STRATEGIC PROGRESS

In May 2015, we announced a clear strategic plan to transform De La Rue in the five years to 2020 into a technology-led security product and service provider, with a more balanced business portfolio that will deliver growth and increased profits, as well as reduce performance volatility. Changes in the market and customers' shift towards more technology-based, value driven procurement mean we must be more flexible and agile in our approach to managing our customer relationships, product pipelines and delivery.

During the year, we reorganised the business from a divisional to a functional structure. We strengthened the Executive Leadership Team with a number of new hires, including Chief Financial Officer Jitesh Sodha, Chief Technology Officer Selva Selvaratnam and Chief Commercial Officer Richard Hird. In addition, we streamlined and reshaped our Senior Leadership Team to align with the functional structure. We also established a product management team to ensure focus on the development of each product line.

We are one year into our five year plan and have already made good progress expanding our polymer product line and enhancing our product and service offerings with the launch of two end-to-end software solutions. We have also taken actions to address the overcapacity in Banknotes and sold the underperforming cash processing business. We are pleased with the progress we have made in the first year and are confident that the right foundations are now in place to grow the business. However, there is still much more to do in order to deliver our strategic goals.

Optimise and Flex

Currency is core to our business and our brand. The number of banknotes in circulation is expected to grow at 3-4% a year, but with ongoing oversupply in both the banknotes and paper making industries, we must optimise our capabilities by continuing to drive operational efficiencies and cost reduction. The volatility of the banknote market means it is essential that we build flexibility into our production capacity.

Banknotes

We made good progress in achieving production cost reduction through our ongoing Operational Excellence programme. We finished rolling out the Advanced Product Quality Planning system, giving us a standardised process across all manufacturing sites. This enables us to share best practice, improve productivity and reduce spoilage.

In December 2015, we announced the results of our manufacturing footprint review. The review concluded that we can achieve more than £13m of annual savings from FY2018/19 by reducing the number of print lines and consolidating banknote production into four centres of excellence³. This will reduce our banknote print production capacity from eight billion to six billion² notes a year, matching current and long term average market demand, as well as increasing our machine utilisation. The implementation of the restructuring plan is now under way following the conclusion of the consultation with affected employees.

We plan to gain access to additional capacity, as and when required, through external partnerships. During the year, we have successfully outsourced the printing of 500 million banknotes to three commercial and state banknote printers. We are now looking to build stronger relationships with selected third parties.

Banknote Paper

In the past year we saw increased demand for Banknote Paper though pricing remained competitive as a result of industry overcapacity. We made good progress in reducing production costs by driving efficiency and reducing overheads. We will continue to drive down cost and focus on growing direct sales. We are also seeking strategic partnerships in this market and exploratory discussions with a number of parties are ongoing, though they are complex and will take time.

Cash Processing Solutions

In November 2015, we announced a 'root and branch' review of CPS to address ongoing underperformance. We have completed the review and concluded that whilst CPS has a strong product profile and excellent long term customer relationships, we do not believe that this is a business which should form part of our portfolio. In order to focus on our core businesses, we have decided to exit the cash processing market by selling CPS to Privet Capital LLP following an auction process. We believe that the business will benefit from standalone ownership.

Invest and Build

We continue to build on De La Rue's long history of innovation, investing in differentiating features, new technologies and digital solutions. We have restructured our R&D team and prioritised our efforts in high growth and high margin product lines. We plan to double our R&D investment by 2020.

In order to accelerate growth in Identity Solutions and Product Authentication and Traceability (PA&T), we plan to invest in new capabilities and skills to create a centre of excellence for identity and security print at the De La Rue site in Malta. We have also put in place a dedicated team with new skills to strengthen our sales effort for both Identity Solutions and PA&T.

Polymer

Launched in 2012, sales of our polymer substrate Safeguard^® have started to gain traction. We built on the progress made in 2014 by growing the number of customers from seven to 14, including all three Scottish note issuing banks. We reached an important milestone by winning our first volume customer, with a significant three year contract for polymer substrate and a technology partnership. This raises our nominal market share to c5% by volume. We aim to continue to grow our market share by targeting customers who already use polymer as well as those looking to convert paper and coins to polymer.

We continue to focus much of our R&D efforts on developing our polymer capability, expanding the number of polymer-suited security features and enhancing the process for substrate manufacturing and banknote printing. There is a growing interest in polymer banknotes as central banks look for ways to reduce the overall cost of banknote ownership. As the only integrated polymer substrate manufacturer and experienced polymer banknote printer, we are well placed to capture this growth opportunity.

Security Features

We believe that continuous innovation will give us greater differentiation and a unique advantage in a competitive market.

In 2015 we made good progress in security feature development, with the launch of a micro-optics security thread - Active™ - which has already won its first two customers. The combination of cutting edge lenticular technology with microscopic fine line printing gives the new feature a distinctive 3D colour shifting effect that is simple to verify but difficult for counterfeiters to replicate. 

To maximise the value of our existing product capabilities, we have started to explore cross-product utilisation, such as applying polymer and holographic features to passports. We also leverage our award winning design capabilities to enhance the sales channel for our new features by incorporating them into banknote and passport designs. In order to be at the forefront of technological progress and to accelerate product development, we continue to seek partnerships with research institutes and universities.

Identity Solutions

In collaboration with Her Majesty's Passport Office in the UK, we redesigned the UK passport. The redesign was launched in November 2015. The passport won the prestigious London Design Award for its intricate design and sophisticated security layering. It includes one of our latest inventions, the Continuous Bio-Data Page™ construction method which makes the passport much harder to counterfeit. To further enhance our passport offering we also acquired laminate capability by partnering with Japanese printer Dai Nippon Printing Co.

As countries increasingly look for secure and technology based population authentication and border control, there is expected to be a growing demand for end-to-end solutions and services. In June, we launched our first identity software suite - DLR Identify™ which provides an end-to-end solution for governments to manage and monitor the process for authenticating and issuing a passport. The second module of the DLR Identify™, which enables electronic registration of births, is expected to launch in July 2016.

Product Authentication and Traceability

We made steady progress in PA&T during the year, with the launch of our next generation digital solution - DLR Certify™. The end-to-end solution provides a track and trace capability, helping governments and commercial organisations to protect tax revenue and the integrity of their products and brands. We have already secured our first customer and will continue to focus on building credibility by securing reference customers. We have also initiated discussions with a number of potential technology partners to strengthen our digital platform.

OPERATING REVIEWS

Currency

The Currency segment comprises Banknotes, Banknote Paper, Polymer, and Security Features.

The segment grew its revenue by 11% to £353.3m (2014/15: £317.9m) and operating profit by 9% to £55.1m (2014/15: £50.5m), primarily reflecting the increased volumes in Banknotes.

While volatility in the banknote market continued and orders remained lumpy, overall margins in the year were stable. Banknote volumes increased by 9% to 7.1bn notes (2014/15: 6.5bn) partly due to winning overspill orders. Following extensive trials, production of the new £5 Sterling polymer notes began in October 2015 and is progressing well.

Banknote Paper volumes were up 6% to 10,000 tonnes (2014/15: 9,400 tonnes), also benefiting from overspill contracts. Margins, however, continued to face downward pressure from oversupply in the industry.

Polymer gained encouraging momentum marked by the significant three year contract with a large customer, which resulted in a modest revenue contribution and a small operating loss for the year.

Security Features performed as expected, though an important five year contract, which contributed annual revenue of £30m, came to an end and was not renewed. While this is expected to affect the profitability of this product line in 2016/17, we are confident that we can mitigate the impact through other opportunities that we are actively pursuing. We remain optimistic about the long term growth prospect of this business.

At the year end the 12 month order book for Currency including estimated call-off orders for material contracts was up 85% at £278m on a like for like basis (2014/15: £150m). This provides good visibility for 2016/17.

Identity Solutions (previously Identity Systems)

Revenue was 5% lower at £65.8m (2014/15: £69.0m) and operating profit was down to £6.4m (2014/15: £11.1m. The decline in both revenue and operating profit was expected and predominantly due to contractual reduction in contribution on a large contract.

The ten year contract with HMPO in the UK to produce and issue passports continues to perform well. Volumes were up 2% year on year. A new design of the passport was launched in November 2015 which included our latest security features Continuous Bio-Data Page™ and SkyLight™.

Sales of ePassports were slower than anticipated as a number of expected tenders were delayed, although the sales pipeline remained good. Our main focus in the next 12 months is to convert some of the pipeline to revenue and profit.

In June 2015, we launched our first identity software suite, DLR Identify™. During the year, we sold and successfully installed the software with its first customer.

Product Authentication & Traceability (PA&T, formerly Security Products)

Revenue was flat year on year at £39.5m (2014/15: £39.6m), with operating profit up 19% to £8.9m (2014/15: £7.5m). The higher operating margin was due to cost savings from the closure of the Dulles site in 2014/15.

We continued to focus on building reference customers in both the public and private sectors, aiming particularly at central governments and enterprises that produce high value goods or operate in highly regulated industries. 

Our first track and trace solution DLR Certify™ was launched in April 2015 and successfully delivered to its first customer in November 2015.

Cash Processing Solutions (CPS)

Sales volumes in Cash Processing Solutions (CPS) was affected by increased competition and adverse foreign exchange movement, which resulted in a 33% decline in revenue to £33.9m (2014/15: £50.7m) and an operating loss of £7.9m (2014/15: operating profit of £0.4m).

Following a 'root and branch' review initiated in November 2015, we decided to exit the cash processing market. The sale of the CPS business was completed on 22 May 2016.

FINANCE CHARGE

On a continuing operations basis, the Group's net interest charge was £4.8m (2014/15: £4.6m) reflecting an increase in the average level of net debt during the period. The IAS 19 related finance cost, which represents the difference between the interest on pension liabilities and assets was £7.1m (2014/15: £7.0m).

EXCEPTIONAL ITEMS

During the period exceptional items on continuing operations, summarised below, totalling £3.6m net, have been charged (2014/15: £16.9m net - see note 4 for details).

Site relocation and restructuring costs in 2015/16 were £9.2m net (2014/15: £2.8m net).  Restructuring costs were incurred as part of the redesign of the organisation structure and the optimisation of manufacturing capabilities including the impact of the manufacturing footprint review which will reduce our banknote print production capacity from eight billion to six billion² notes a year.

The sale of surplus land in Overton generated a profit of £9.5m while surplus warranty provisions of £1.3m, previously charged as exceptional items (2014/15: £3.0m) were released in the period.

Following a review of capitalised assets, £5.2m of tangible assets within the Currency segment were written down representing assets linked with specific products whose future income streams are forecast to be insufficient to support the current carrying value.

The net cash cost of exceptional items for continuing operations in the period was £12.5m. £17.6m of cash costs related to prior periods and predominantly reflected the settlement of the invocation of guarantees provided for as a post balance sheet event in 2014/15. 

Exceptional charges on discontinued operations were £26.0m - see note 3 for details. These related to the Cash Processing Solutions which was sold on 22 May 2016.

Site closure and restructuring costs in 2015/16 were £2.6m (2014/15: £1.9m) mainly reflecting the closure of the Brazil operation.

Asset impairments of £23.4m arising on the remeasurement of the disposal group to fair value less costs to sell have been recognised. The impairment has been applied to software intangibles of £1.6m, goodwill of £4.0m and inventories of £17.8m.

The cash costs for exceptional items, on discontinued operations, was £1.0m (2014/15: £1.7m).

CASH FLOW AND BORROWING

Underlying operating cash flow, comprising underlying operating profit adjusted for depreciation and the movement in working capital, was £100.2m (2014/15: £85.6m). This represents a cash conversion ratio (underlying operating cash flow divided by underlying operating profit) of 160% (2014/15:123%).

Net debt decreased by £4.9m to £106.1m (2014/15: £111.0m).  This was predominantly from improved working capital with increased payments in advance received from customers.

The Group utilises a £250m revolving credit facility which expires in December 2019. The Group has operated well within the key financial covenants on this facility. These are that the ratio of EBIT to net interest payable be greater than four times and the net debt to EBITDA ratio be less than three times. At the period end the specific bank covenant tests were as follows: EBIT/net interest payable of 12.9 times and Net debt/EBITDA of 1.25 times.

CAPITAL STRUCTURE

At 26 March 2016 the Group had net liabilities of £145.6m (28 March 2015: £146.9m) mainly due to the recognition of the long term retirement benefit obligations of £219.9m (2014/15: £236.7m) in accordance with IAS 19.

The Company had shareholders' funds of £174.4m (2014/15: £199.6m) and had 101.4m fully paid ordinary shares in issue (2014/15: 101.1m) at the year end.

TAXATION

On a continuing operations basis, the net tax charge for the year was £6.3m (2014/15: £7.7m). The effective tax rate before exceptional items was 14.7% (2014/15: 17.6%). The tax rate is lower than the prior year primarily as a result of favourable changes to UK tax rates, reducing from 21% to 20% in the current year and further reducing to 18% from April 2020. The Group has also benefited from the increasing relief available under the UK Patent Box regime.

Net tax credits relating to exceptional items, on continuing operations, arising in the period were £1.8m (2014/15 £2.4m). In addition there was an exceptional credit of £0.5m (2014/15: £nil) in respect of the determination of the tax treatment of a prior year exceptional restructuring item.

PENSION DEFICIT AND FUNDING

During 2015/16, special funding payments of £19.1m (including scheme administration fees) were made to the Group's UK defined benefit pension scheme (closed to new members in 2010 and future accrual from April 2013). The Group's formal triennial funding valuation of the UK defined benefit pension scheme as at 5 April 2015 has not been finalised as the company and scheme Trustees continue discussions with the Pensions Regulator. The previous valuation took place on 5 April 2012 and identified that the scheme had a deficit of £180m. The Group had agreed with the scheme Trustees and Pension Regulator deficit funding payments to the scheme of £18.9m in 2016/17, rising by 4% per annum. Pending finalisation of the 2015 valuation, the special funding arrangements agreed in 2012 which aim to eliminate the deficit by 2022 remain unchanged.

Recognition of the current deficit in accordance with IFRS when combined with overseas unfunded obligations results in the negative net assets shown on the Group balance sheet.

The valuation of the UK pension scheme under IAS 19 principles indicates a pre-tax scheme deficit at 26 March 2016 of £217.6m (28 March 2015: £234.1m). The decrease of £16.5m is largely a reflection of the increase in the discount rate used to project the value of the scheme liabilities (3.5% in 2015/16 compared with 3.2% in the prior year) and the Group funding contributions. The decrease has been partly offset by an increase in the life expectancy of members and lower than expected returns of scheme assets.

In common with other final salary schemes the scheme valuation is very sensitive to any movement in the discount rate, with a 0.25% increase in discount rate resulting in a £49m decrease in liabilities or vice versa and hence the deficit would reduce should interest and discount rates increase in the future.

The charge to operating profit in respect of the UK defined benefit pension scheme for 2015/16 was £1.2m (2014/15: £1.1m). In addition, under IAS 19 there was a finance charge of £7.1m arising from the difference between the interest cost on liabilities and the interest income on scheme assets (2014/15: £7.0m).

EVENTS SINCE THE BALANCE SHEET DATE

Since the year end the following material non adjusting event has occurred:

On 22 May 2016 the sale of the Cash Processing Solutions business was completed. The sale is expected to result in a profit on disposal in the range of £nil to £3m, which will be recognised in the half year ending 24 September 2016. This estimated loss includes the loss on disposal of certain current assets and liabilities held for sale (refer to note 3), and the recycling through the income statement of accumulated foreign exchange translation losses recorded in reserves and the estimated costs of disposal.

In addition to the cash payment upon completion and deferred cash payments there is also a contingent element of consideration which is dependent upon the disposed business meeting certain future targets. This contingent element of the consideration has not been factored into the estimated loss on disposal.

BOARD CHANGES

There have been significant changes to both the Board and the executive management team in the past year.

We have welcomed four new Board members since the AGM on 23 July 2015. Sabri Challah and Maria da Cunha joined the Board as Non-executive Directors to replace Warren East and Gill Rider who stood down after serving eight years and nine years respectively. Sabri Challah was appointed Chair of the Remuneration Committee in July 2015, replacing Gill Rider.

Jitesh Sodha, appointed in August 2015 to replace Colin Child as Chief Financial Officer, and the Group's Chief Operating Officer Rupert Middleton also joined the Board as an Executive Director after the AGM.

Victoria Jarman has informed the Board of her decision to step down after the AGM having served six years as a Non-executive Director. We are in the advanced stages of recruiting a new Non-executive Director to the Board whom we anticipate will succeed Victoria as Chair of the Audit Committee. We would like to thank Victoria for the significant contribution she has made during her time on the Board.

We believe that the current Board composition offers the right balance of experience and skills to provide insightful strategic guidance as well as robust corporate governance to the business.

OUTLOOK

The Group's 12 month closing order book of £365m¹ provides good visibility for the year ahead.  Whilst, as previously announced, a material contract came to an end, we are confident we can mitigate the impact and our expectations for the current year are unchanged.

-ends-

Martin Sutherland                                                               Jitesh Sodha

Chief Executive Officer                                                      Chief Financial Officer

24 May 2016

3 Discontinued operations

The Cash Processing Solutions business (CPS) is presented as a disposal group held for sale following the conclusion of a root and branch review.  The Board concluded that whilst CPS has a good product profile and long term customer relationships, it does not believe that this is a business which should form part of the Group's portfolio and has therefore decided to exit this market. This will enable the continuing Group to focus on its core business and future growth areas, as well as allow CPS to achieve its full potential under new dedicated ownership.

The CPS assets and liabilities that the group plans to dispose of were transferred into the disposal group at their carrying value. A charge of £23.4m arising on the remeasurement of the disposal group to the lower of the carrying amount and its fair value less costs to sell has been recognised in exceptional items. This has been applied first to non-current assets and then to inventory within the disposal group.

In line with IFRS 5 no remeasurement has been applied to financial assets. The fair value reflects the anticipated sales price to be achieved upon completion.

No UK pension liability will transfer with the disposal group.

Results of the discontinued operation including the disposal group held for sale

Assets/liabilities held for sale/disposal group

Site closure and restructuring costs in 2015/16 were £2.6m (2014/15: £1.9m) comprising £0.7m (2014/15: £1.5m) in staff compensation, and £1.9m (2014/15: £nil) for site exit costs and £nil (2014/15: £0.4m) in other associated reorganisation costs.

Asset impairments of £23.4m arising on the remeasurement of the disposal group to fair value less costs to sell have been recognised. The impairment has been applied to software intangibles of £1.6m, goodwill of £4.0m and inventories of £17.8m.

The cash cost for exceptional items in the period was £1.0m (2014/15: £1.7m).

Tax credits relating to the exceptional items arising in the period were £0.3m (2014/15: £0.4m). In addition there was an exceptional credit of £1.9m in respect of the determination of the tax treatment of prior year discontinued exceptional items (2014/15: £1.9m).

Accumulated foreign currency translation gains and losses within the disposal group held for sale

The Group has accumulated foreign currency translation gains and losses in relation to the entities included within the disposal group. IAS 21 requires recycling of these foreign currency translation gains or losses, which have previously been taken direct to reserves, through the income statement at the point of disposal. At 26 March 2016 these foreign exchange gains or losses have not been recycled. If a sale of the disposal group had been completed as at 26 March 2016 the amount that would have been recycled through the income statement is c£3.5m gain.

Subsequent to the year end the disposal of the CPS business has been completed, refer to note 10.

9 Contingent liabilities

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, contingent liabilities can arise. While the outcome of litigation and disputes can never be predicted with certainty, having regard to legal advice received and the insurance arrangements of the Company and its subsidiaries, the Directors believe that adequate provision has been made to cover these matters. The Group also provides guarantees and performance bonds which are issued in the ordinary course of business.  In the event that a guarantee or bond is called, provision may be required subject to the particular circumstances, including an assessment of its recoverability.

The Company has received notification from the relevant UK law enforcement authorities that they have closed their investigation related to certain paper mis-certification issues in 2010. No action has been taken against the Company.

10 Events since the balance sheet date

Since the year end the following material events have occurred:

Non-adjusting event

On 22 May 2016 the sale of the Cash Processing Solutions business was completed. The sale is expected to result in a profit on disposal in the range of £nil to £3m, which will be recognised in the half year ending 24 September 2016. This estimated profit includes the loss on disposal of certain current assets and certain liabilities held for sale (refer to note 3), and the recycling through the income statement of accumulated foreign exchange translation gains recorded in reserves and the estimated costs of disposal.

In addition to the cash payment upon completion and deferred cash payments there is also a contingent element of consideration which is dependent upon the disposed business meeting certain future targets. This contingent element of the consideration has not been factored into the estimated profit on disposal.

11 Dates

The consolidated accounts have been prepared as at 26 March 2016, being the last Saturday in March. The comparatives for the 2014/15 financial year are for the period ended 28 March 2015.

12 Statutory accounts

Statutory accounts for the period ended 26 March 2016 will be made available to shareholders for subsequent approval at the Annual General Meeting and copies will be available from the Company Secretary at De La Rue plc, De La Rue House, Jays Close, Viables, Hampshire, RG22 4BS.

13 Foreign exchange

14 De La Rue financial calendar 2016/17