De La Rue looks for further savings in print wing

Jo Francis
Tuesday, November 24, 2015

De La Rue is to implement a major restructure of its print manufacturing footprint in a bid to save £13m a year and reduce excess capacity.

The restructuring will involve some £8m of costs and circa £30m of capital investment, with the aim of delivering £13m a year of savings from 2019. It was described as a key part of De La Rue’s “optimise and flex” strategy under its new management team.

The security printing giant announced the news along with its interim results, and said it would provide further details “in the coming weeks”.

De La Rue has five manufacturing sites in the UK: paper mills at Overton and Bathford, banknote printing at Debden (the former Bank of England print works), security printing at Gateshead, and specialist polymer at Westhoughton.

In 2013 it completed the consolidation of two other factories into Gateshead and Westhoughton, to yield annual savings of £6m.

It said the new manufacturing review was almost complete, and that it intended to “modernise banknote print capability” to improve productivity and efficiency. It wants to have the capacity to print 6 billion banknotes in future, and the ability to flex that to up to 7 billion. 

De La Rue’s results for the six months to 26 September were hit by a poor performance from its Cash Processing Systems (CPS) division, where losses increased almost five-fold, from £1m to £4.7m. Competitive pressures also squeezed margins at its Currency wing.

It has launched a “root and branch review” of CPS, which could result in De La Rue offloading the problematic operation.

Group sales were down 5% to £204.8m, while operating profits fell by 29% to £18.9m. It reduced headcount by 6% in the period.

Pre-tax profits were boosted by a £9.5m gain on the sale of surplus land at Overton, and rose 8% to £19.6m. However, underlying pre-tax profits were down 38% to £12.8m.

The group’s share price fell by 10.5p to 434.25p on the news, a new 52-week low (high: 598p).

Banknote paper volumes jumped 9% to 4,900 tonnes after the group picked up some large overspill orders. Banknote printing volumes were flat at 2.7 billion notes. Sales at its currency division rose 2% to £139.8m, while operating profit prior to exceptionals fell 19% to £13.9m.

De La Rue chief executive Martin Sutherland had previously hailed polymer as “the substrate of the future and the group confirmed that it had completed trials on the Bank of England’s new polymer £5 note and production was underway ahead of the note’s roll-out next year. It is also supplying polymer notes for the three banks that issue banknotes in Scotland.

It launched the first family of notes on its own polymer substrate, Safeguard, with the Maldives Monetary Authority at the beginning of this month, and it has also won a three-year polymer note contract worth around £25m with another unnamed customer.

De La Rue also revealed that it outsourced the printing of 500 million banknotes to its third-party security printing partners, as part of its plan to gain greater flexibility and access to “surge capacity”.

Sales at its Identity Systems division, where it has developed the new UK passport design with HM Passport Office, were down 7% to £31.5m, and operating profits fell 22% to £4.6m.

Security Products, which includes cheques, stamps and other secure documents, posted a 13% boost in operating profits to £5.1m on sales of £19.6m (2014: £20.8m).

Group exceptional items included a £10.8m cash charge as part of its settlement with the Bank of India over past banknote paper production irregularities.

De La Rue described the outlook for the second half as “encouraging”, and said its currency order book was up 56% at £318m.



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