Results and Reports

Half year results

27 November 2018

De La Rue announces good strategic progress with strong revenue growth.

  • Strong Group 12 month order book at September 2018 of £365m provides good visibility of revenue and profitability for H2, full year expectations unchanged
  • Group revenues excluding paper† of £242.0m, 9% growth
  • Adjusted operating profit (1) of £17.0m, primarily reflecting a less favourable mix of orders. IFRS operating profit was £10.1m, down 59%
  • Adjusted basic EPS of 11.2p; IFRS basic EPS on continuing operations of 5.1p
  • IAS 19 UK pension deficit reduced to £77.2m (31 March 2018: £87.6m)
  • Net debt of £94.3m was above expectation due to timing of deliveries in the half year
  • Interim dividend maintained at 8.3p
  • Order intake +30% year on year, benefited from the continued investment in R&D and sales
  • Banknote print volumes +3% to 3.6bn notes
  • Improved revenue visibility
    • Signed 3 year banknote contract with new customer Sveriges Riksbank
  • Two new security features launched for ID – MyImage™ and Photocolour UV™
  • Agreed UK passport preliminary transition timeline – expect to deliver two thirds of the contract’s annualised revenue of c£40m and profit of c£8m in FY 2019/20
  • Momentum in PA&T- securing two significant contracts paving the way for further expansion in the market. We expect the PA&T business to double in size within the next three years
  • In the light of the UK passport decision, we have completed a detailed review of our strategy – which reaffirms the core elements but introduces a change in focus, primarily in Identity Solutions business:
  • Optimise and Flex: continue to deliver cost savings and world class manufacturing across the Group
  • Invest and build:
    • Redirect growth in the identity business on security features and components from prime systems integration
    • Continue to grow in Security Features, Polymer and Product Authentication
  • Capital allocation priorities:
    • Organic growth investments – capital projects, investment in R&D and sales
    • Dividend payment – aim to at least maintain dividend per share in the short to medium term
    • Mergers and acquisitions – explore value enhancing opportunities
    • Leverage not exceeding 1.5x net debt/EBITDA
  Including Paper Excluding Paper
  H1 2018/19
H1 2017/18
H1 2018/19
H1 2017/18
Revenue  257.6 244.7  +5%  242.0 221.7  +9%
   Currency 198.1 185.1 +7% 182.5 165.1 +11%
   Identity Solutions 40.1 39.4 +2% 40.1 37.5 +7%
   Product Authentication & Traceability 19.4 20.2 -4% 19.4 19.1 +2%
Adjusted operating profit*(1) 17.0 26.6 -36% 17.0 24.7 -31%
IFRS operating profit 10.1 24.6 -59% 10.1 22.7 -56%
EPS basic adjusted*(2) 11.2 16.6 -33%
EPS basic reported 5.1 14.8 -66%
Dividend per share 8.3p 8.3p -

† Reported figures included in this release include the paper business results in H1 2017/18 as originally reported and in H1 2018/19 they include a benefit of £15.6m of revenue on non-novated contracts with nil profit margin. Figures reported on the “excluding paper” basis have been adjusted to exclude revenue from non-novated contracts in H1 2018/19. In H1 2017/18 “excluding paper” figures exclude the results of the paper business. In addition Security Feature sales, which would have previously been treated as internal, have been added back to present the comparative numbers in 2017/18 on a basis consistent with the IFRS accounting treatment applied in H1 2018/19.

*The impact of the adoption of IFRS15 (revenue from contracts with customers) has been a net increase in revenues of £1.0m in HY2018/19 and a net increase in cost of sales of £0.6m, resulting in an £0.4m increase in operating profits (both on an IFRS and adjusted basis). Prior year comparatives are not restated (see note 1 for more details).

**This is a non-IFRS measure. Amortisation of acquired intangible assets is a non-cash item while exceptional items are non-recurring in nature. By excluding these items from the adjusted operating profit and EPS metrics, the Directors are of the opinion that these measures give a more meaningful understanding of the underlying performance of the business. See note 15 for further explanations and reconciliation to the comparable IFRS measures.

(1) Excludes exceptional item net charges of £6.6m (H1 2017/18: net charges of £1.8m) and amortisation of acquired intangible assets of £0.3m (H1 2017/18: £0.2m).

(2) Excludes exceptional items net of tax being net charges of £6.0m (H1 2017/18: net charges of £1.8m), amortisation of acquired intangible assets net of tax of £0.2m (H1 2017/18: £0.2m).

Martin Sutherland, Chief Executive Officer of De La Rue, commented:

“We continue to make progress in delivering against our strategic plan to transform the Group into a less capital intensive, more technology led business. We have seen good growth in Group revenue in the first half. We are pleased with the growing momentum in Product Authentication & Traceability, having recently secured two important tax stamp solutions contracts, which are both endorsements of our capabilities and excellent references for De La Rue in this fast growing market. These build on the orders secured in the last 12 months which include the five year contract with the Federal Tax Authority in the UAE. We expect our PA&T business to double in size within the next three years

“Over the last six months we have conducted a thorough review of our strategy and market positions. In the light of the UK passport decision, we have concluded that we will refocus our identity business on the supply of higher margin security features and components. We believe we can continue to drive cost efficiencies across the Group and achieve growth in Security Features, Polymer and PA&T.

“We maintain a strong order book and pipeline which provides good visibility for the second half of this year and into next year. With good revenue coverage from the Group’s 12 month order book of £365m and based on the orders planned for production and shipment in the second half, we are confident that we will meet our expectations for the full year.”

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