De La Rue confirms plans to cut banknote production
Wednesday, December 2, 2015
De La Rue has announced plans to reduce its banknote production and invest more in passport work, after completing its manufacturing footprint review.
The business announced it wanted to optimise its manufacturing in a bid to save £13m a year and reduce excess capacity alongside its interim results last week.
Following the review it has decided to halve its number of banknote production lines, from eight to four, and invest “less than £30m”, mostly in modernising print equipment over the next two years. The business has not yet confirmed what new machinery it plans to buy.
This, the firm said, will reduce core production capacity from current 8 billion to 6 billion banknotes a year, but with the flexibility to output up to 7 billion if necessary. Volumes in excess of 7 billion notes will be achieved through external partnerships.
The company’s banknote production will be consolidated into three 'centres for excellence', one in Gateshead and others in Kenya and Sri Lanka. Its existing banknote production in Malta will discontinue, putting 300 jobs at the Malta site at risk of redundancy.
De La Rue said the restructuring will bring its production capacity in line with current market demand, and “greatly enhance” the efficiency and flexibility of its banknote print business.
The business also said it is seeking to accelerate its growth in the identity and security products markets, where it sees growth opportunities. A significant portion of the overall capital investment wil go to a centre for excellence for identity and security print at De La Rue’s current site in Malta.
The current security print capability in Gateshead will be relocated to Malta. However, a De La Rue spokesperson told PrintWeek that UK passport production will continue at Gateshead under the existing contract agreement.
“The main focus in Malta will be our global capability in passport and ID and security print, which is the tax stamp business – effectively the tokens that get put onto taxable items like tobacco and alcohol to make sure that the revenues are collected.”
De La Rue said its restructuring plan will involve some £8m of costs over the next two years alongside the “less than £30m” total capital investment, with the aim of delivering in excess of £13m a year of annual cost savings from financial year 2018/19, in addition to existing ongoing cost-saving initiatives.
Under current plans, around 400 jobs will be affected, including the 300 at risk of redundancy in Malta. The expectation is that the other 100 people will be redeployed. The group said that the impact on UK jobs will be minimal and there will be a slight increase of around five jobs in Gateshead.
A formal consultation is now underway and the proposed plan is due to be completed in the first half of financial year 2018/19.
The group’s banknote printing site at Debden, which is owned by the Bank of England and managed by De La Rue, was not mentioned in the firm’s conclusions.
“The main focus for this review has been the direct footprint – our own owned and controlled – and maximising the capacity within our existing footprint,” the spokesperson said.
Chief executive Martin Sutherland said the plans would lead to "a more streamlined De La Rue, in line with the future needs of our global customers".
De La Rue announced its results for the six months to 26 September last week. Group sales were down 5% to £204.8m, while operating profits fell by 29% to £18.9m.
Pre-tax profits were boosted by a £9.5m gain on the sale of surplus land at its Overton paper mill, and rose 8% to £19.6m. However, underlying pre-tax profits were down 38% to £12.8m.
The group’s share price rose by 24.5p to 486.25p at the time of writing, (52-week low: 424p; high: 598p).