De La Rue management 'confident' despite third profit warning

Jo Francis
Wednesday, November 23, 2022

Shares in De La Rue have slumped again after the group issued its third profit warning this year and said it could breach its banking covenants if it is unsuccessful in securing key contracts at its Currency wing.

De La Rue: success at Currency wing will be key to future
De La Rue: success at Currency wing will be key to future

The security printing PLC issued its half-year results today (23 November). Exceptional charges of £21.4m – mainly related to the termination of its supply agreement with Portals – propelled the group to an operating loss of £12.6m compare with the prior year’s £13.8m profit. 

De La Rue CEO Clive Vacher said the Portals deal had removed what would have been a £119m obligation over six years “for just £16.7m”.

Sales at its Currency division fell by 12.3% to £116.4m “due to subdued market”. Authentication sales were up 2.5% to £44.5m but margins were lower due to “adverse sales mix and supply chain headwinds”.

Legacy activities at its Identity Solutions business resulted in sales up 14.3% to £2.4m. 

Overall group sales were down 8.3% at £164.3m.

De La Rue management said that the full-year adjusted operating profit was expected to be £30m-£33m, compared with analyst estimates of around £36m.

Shares in De La Rue fell by 20.55% on the news, to 79.45p (52-week high: 169.26p, low: 71.10p). 

Although De La Rue has extended its banking facilities to 1 January 2025, the group warned that in a “severe but plausible downturn scenario” regarding its Currency contracts, and without sufficient cost mitigation, it would breach its EBIT/Net interest covenant, which casts a material uncertainty on the group’s ability to continue as a going concern. 

De La Rue stated: “Notwithstanding the above, management is confident in its ability to secure and deliver key contracts in line with the assumed quarterly phasing as well as executing the planned cost saving initiatives modelled within the base forecast.”

De La Rue said it was “rightsizing the Currency division for the softer conditions in the banknote market that currently prevail”, while fresh leadership in the Authentication division has restructured the business to drive sales and growth opportunities. 

Following the end of its supply deal with Portals, De La Rue is conducting a tender process for its future paper requirements, with the aim of establishing a suite of contracted suppliers around the world. 

Five orders have been placed already, with the group on track to achieve the anticipated £4m in annual cash savings.

These initiatives will generate additional savings of £12m per year by the end of its 2024 financial year. More jobs will go as a result, but details were not available at the time of writing. 

Activist investor Richard Bernstein of Crystal Amber Fund, which holds one of the biggest stakes in De La Rue and has called for chairman Kevin Loosemore to resign, reacted to the interims announcement by tweeting: “De La Rue 3rd profit warning of 2022. Material uncertainty going concern audit qualification. Management fails to take responsibility. Instead blaming Crystal Amber "distraction" for articulating shortcomings. Staff and shareholders are the losers here. Chairman needs to go now.”

Vacher said the 2020 Turnaround Plan had “saved De La Rue”.  

The group’s future plans include capitalising in on its “world-leading offering” for highly secure polycarbonate data pages for passports, where it is investing in a second production line. 

It also expects to bring “game-changing polymer security features” to its expanded banknote polymer product. 

“By 2028 if successful in our plans, De La Rue will be a transformed group. Legacy issues would be fully resolved, including the pension scheme deficit, though we are considering options for improving the overall position before the final deficit reduction payment is made in 2029.”

In a reference to Crystal Amber’s suggestion that the group should “participate in industry consolidation”, De La Rue also stated: “As a normal course of business, the board annually reviews how to deliver the highest value for shareholders, including evaluating possible corporate actions. The latest review, which was the subject of independent assessment, concluded that the greatest value generation comes with executing the existing strategy and retaining the current group structure.”

Shareholders will vote on Crystal Amber’s proposal on 2 December. 



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