De La Rue warns on covenants, new CEO takes urgent action

Jo Francis
Tuesday, November 26, 2019

Shares in De La Rue have plunged to a ten-year low after the struggling security printer warned that a further deterioration in trading could cast “significant doubt” over its future – however its new CEO believes "the ingredients are there to turn the company around".

Vacher: the ingredients are there to turn the company around
Vacher: the ingredients are there to turn the company around

The group has scrapped its dividend and admitted that it could breach its banking covenants if trading conditions continue to deteriorate and it fails to boost profitability in areas targeted for growth.

It filed a "material uncertainty" over its ability to continue as a going concern as a result. 

De La Rue shares fell by 25% to a new ten-year low of 131.40p after the half-year results announcement.

Adjusted sales (excluding pass-through paper revenue) in the six months to 28 September were down nearly 15% at £205.9m, and within that turnover at its biggest division – Currency – slumped by 29.5% to £128.7m.

The group posted an operating loss of £9.2m compared with an operating profit of £10m the prior year.

Adjusted operating profit (excluding exceptionals and goodwill writedowns) fell from £17m to £2.2m.

The £42m proceeds from the sale of its International Identity Solutions business came in after the half-year. 

Turmoil at the group has involved an exodus at board and senior management, which De La Rue said would “take some time” to stabilise.

New chief executive and business turnaround specialist Clive Vacher joined the firm in October after the reporting period.

He said he expected to put together a comprehensive turnaround plan by the end of Q1 2020, but urgent actions were being taken in the meantime to stabilise the company.

“We are reviewing how we optimise our production footprint to match the environment we find ourselves in. And we are looking to reduce the cost of goods sold through renegotiations with our suppliers,” he stated.

A full-scale review of operations is underway. This is likely to raise a further question mark over the future for its Gateshead plant, with the relocation of a security printing line from Gateshead to De La Rue’s Malta plant completed during to the period and the loss of 170 jobs already announced at the Tyne & Wear facility

Regarding the review, Vacher added: “While this is being led by the management team and myself, I’m encouraging all of the company to participate so that we have one plan we all buy into.”

Following the disastrous loss of the £490m UK passport contract, mainly handled at Gateshead, De La Rue is also reviewing its contract bid strategy and the “viability of historic contracts”.

It is still printing passports for Her Majesty’s Passport Office as part of the phased transition to new supplier Gemalto, and this will continue in the second-half. 

Ironically, the Identity Solutions division grew sales by 10.2% to £44.2m on the back of increased demand for passports due to Brexit.

Regarding the Serious Fraud Office investigation launched over the summer into suspected corruption related to De La Rue’s activities in South Sudan, the group said it continued to co-operate with the investigation and it was “not yet possible to estimate any potential financial impact” so no provisions have been made.

De La Rue will make a £21.3m contribution to its pension scheme, which has a £37.9m deficit, in the current financial year and is in discussions with the scheme’s trustees in light of its current financial position and the cancellation of its dividend.

Vacher also acknowledged that morale at the beleaguered group was an issue.

“I have come from a number of turnaround experiences and there obviously is concern in the company – it would be strange not to have some concern. However,  what I have observed is a real depth of capability and real passion among employees.

“I believe the ingredients are there to turn the company around. I would say there is quite a lot of hope in the organisation at this point, that we actually can do this and emerge stronger over time.”

Bright spots in the report included an increase in banknote polymer volumes above expectations, and an exclusive deal with legalised cannabis product supplier KushCo in North America for the supply of anti-counterfeit security labels.

De La Rue has also designed and is printing the new polymer £20 note, featuring artist JMW Turner, which will enter circulation on 20 February 2020. The £20 note is the Bank of England’s most-used banknote and accounts for 60% of all notes in circulation.


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