De La Rue divests paper wing

Jo Francis
Thursday, February 1, 2018

De La Rue has sold a majority stake in its specialist papermaking business to private equity firm Epiris and management in a £68m deal that also marks the return of former De La Rue CFO Colin Child to the paper arm.

Portals has annual production capacity of some 13,000 tonnes
Portals has annual production capacity of some 13,000 tonnes

The deal will result in a reprise of the historic Portals name, with the paper business rebranded as Portals De La Rue. De La Rue acquired Portals, which was founded in 1712 and had supplied banknote paper to the Bank of England since 1724, in 1995.  

The strategic relationship with Epiris involves De La Rue retaining a 10% stake in the business, and the PLC has also agreed a ten-year deal covering most of its paper requirements using an agreed pricing mechanism.  

Epiris will pay £61m in cash for a 90% shareholding in the circa £120m turnover operation, which comprises the specialist cotton banknote paper mill in Overton and the wood pulp mill in Bathford that produces security paper for passports and brand protection applications. Earnings before interest and taxes (EBIT) are expected to be around £10m in the current financial year ending 31 March.  

The senior management team, led by chief executive Ross Holliday, remain in place and former De La Rue CFO Colin Child will become chairman. The management team has a 16% stake. Holliday said: "We fully intend to take advantage of their [Epiris] experience within the market to transform the business in the years ahead." 

The paper business has an annual production capacity of some 13,000 tonnes and makes the paper for around 12bn banknotes a year, and for more than 70m passports. About £50m of Portals De La Rue's sales are currently to other parts of the De La Rue group.  

De La Rue chief executive Martin Sutherland told PrintWeek the deal was a key milestone  in the five-year plan instigated in April 2015. "It secures the future of our paper business and gives us the surety of supply we need. It has removed the slightly volatile paper sales aspect of the business for us, so it's a happy place to be. Our proposition to customers as an integrated supplier is unchanged as we still have a guaranteed supply and access to paper." 

The PLC will have a seat on the board of the new business. "Our intention is to maintain that 10% stake on an ongoing basis. We will be working closely with them for at least ten years," he said. De La Rue will also continue to be a preferred supplier of security features, such as threads, to Portals De La Rue.  

De La Rue had been looking at potential joint ventures for its paper business since 2016, and Sutherland said the talks had involved other papermakers and private equity firms. The group will use the proceeds of the Epiris deal to strengthen its balance sheet and invest in R&D and product development at its currency, identification and product authentication operations.  

The deal will involve around £4m in exceptional costs and De La Rue will also make an additional £4m provision to cover any additional complexities involved in separating the business. 

Epiris had previously been an investor in Innovia Group, which makes banknote polymer substrates. "That's why we think they will be a good owner for the business, they understand the banknote market and its dynamics," Sutherland added.  

Epiris chief investment partner Bill Priestley said the Portals business had "plenty of intrinsic appeal". 

"It has deep expertise in producing a highly technical product to exacting customers standards. It is a leader in a non-cyclical, growth market which we know well from our previous investment in Innovia." 

Despite the growth in the use of polymer substrates for banknotes, which Sutherland said was likely to double in size this year at De La Rue, the PLC reported a 36% increase in banknote paper volumes in its most recent financial year.  

Separately, the outcome of the huge tender for the production of UK passports, which is currently held by De La Rue, is expected to be made known later this month. "We are holding our breath," said Sutherland.  

De La Rue shares rose by 22p, or 3.52%, to 647p on the news. 


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