De La Rue accentuates the positives

Jo Francis
Wednesday, May 30, 2018

Underlying sales and profits are up at De La Rue, but the group’s results were overshadowed by the ongoing fall-out over the UK passport contract loss, which has resulted in one investor viewing the group as again being a potential takeover target.

In the year to 31 March group sales were up 7% to £493.9m, while adjusted operating profit (excluding the £60.9m gain from the sale of its specialist paper business) fell 11% to £62.8m.

If paper is excluded from the figures, turnover increased by 4% and adjusted operating profits were up 7% to £56.9m.

Chief executive Martin Sutherland highlighted the strength of the PLC’s underlying results and order book, and said that divesting the paper business had helped the firm achieve “its strongest balance sheet for years” with net debt reduced by £71m to £49.9m.

The security printer was also boosted by a huge reduction in its pension deficit, which fell from £237m to £87.6m thanks to a decision by the trustees of the scheme to change the indexation from the Retail Prices Index to the Consumer Prices Index.

However, the controversial loss of the UK passport contract – which still has another 18 months to run – understandably loomed large over the figures.

De La Rue wrote off £3.7m of bid costs in the results for its Identity Solutions division, although Sutherland said that despite the blow the group had “good forward momentum” in that part of its business, with a number of international business wins.

After losing out to a much lower bid from Franco-Dutch firm Gemalto for new UK passports, the PLC stated that it was “reassessing our capabilities and cost base in order to remain competitive in this market”.

“That was a significant contract and we do want to make sure we learn lessons from the bidding process and ensure we are offering a compelling proposition for customers,” Sutherland told PrintWeek.

There was no specific update on whether the 600-employee Gateshead passport production facility will need to be downsized as a result of the loss.

“We have 18 months to go so there is plenty of time to replace that work or think about what to do next,” he stated.

Sutherland also pointed out that the group had already done a lot of work to iron out the “lumpiness” caused by very large contracts, by targeting a more diversified revenue base. The number of £10m-plus contracts it handles has doubled since 2015.

“We have large accounts spread over more customers, and although we still need to bid for large contracts we will be pick and choose the contracts we go for,” he added.

Sales at the Product Authentication & Traceability division (excluding paper) grew by 31% to £38m and adjusted operating profit increased by 16% to £9.3m.

At De La Rue’s biggest division, Currency, sales excluding paper were up 2% to £312m, while adjusted operating profits increased by 11% to £40.5m. Banknote printing volume increased by 3% to 7.3bn notes, and De La Rue’s polymer business more than doubled in volume to 810 tonnes. “We think it will continue to be a growing business and we are quite excited about it moving forward,” he added.

It will supply 25% of the initial polymer required for the Bank of England’s new £20 note, which will be issued in 2020.

The prospect of another hostile takeover bid for the PLC has been raised by activist investor Crystal Amber. It acquired a stake of 3.11% in the business at the end of April, with fund manager Richard Bernstein reported as describing De La Rue as “highly vulnerable” to a potential takeover bid due to its low share price.  

In response to the speculation, Sutherland said the group’s five-year transformation plan that began in 2015 was “playing out well”.

“We’ve got a good strategy for the business and our underlying results show good momentum. I think we have the right approach to drive value for shareholders,” he stated.

French rival Oberthur unsuccessfully attempted to take over De La Rue seven years ago

De La Rue’s shares rose by 21p, or 4.17%, to 524p following the results announcement (52-week high: 711.5p low: 438.13p). Its market capitalisation is currently £536.7m.

The firm is yet to appoint a permanent successor for CFO Jitesh Sodha, and has appointed Helen Willis as interim CFO in the meantime.


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