De La Rue warns on profits, CEO to depart

By Jo Francis, Thursday 30 May 2019

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Shares in De La Rue fell by nearly 30% after the security printing group warned on its outlook and announced further restructuring, together with the departure of CEO Martin Sutherland.

martin-sutherland

Sutherland in happier times

De La Rue's share price fell by 131.5p, or 28.7%, to 326p following the announcement.

De La Rue said it expected "significant headwinds" in the year ahead, with margins in banknote printing impacted by competitive pressures. "Overall, the board expects operating profit for FY20 to be somewhat lower than the current year".

It’s the third profit warning in 15 months for the PLC, and the share price crash has revived speculation that the business could again be viewed as a potential takeover target by a foreign rival.

Sutherland has been with the company for five years, overseeing substantial strategic change at the group including the disposal of its banknote paper business last year. However, his tenure will be remembered for the high-profile loss of the UK passport contract to Franco-Dutch rival Gemalto, which resulted in a huge fall-out

He will remain in post until a successor is appointed.

Alongside its results for the year ending 30 March 2019, De La Rue announced plans to reorganise under two divisions: Authentication and Currency, as well as a new three-year cost reduction programme.

“We are mindful of our consultation obligations and we expect to finalise our proposals within weeks. This is expected to include a reduction in corporate overheads and manufacturing optimisation,” the firm said in a statement.

The strategic review of its up for sale International Identity Business remains ongoing.

Sutherland commented: "As we look ahead, the conclusion of the UK passport contract in 2020 and the growing competitive pressure in the banknote print market present some significant challenges for our business. 

“To partially mitigate against this, today we have set out a three year cost reduction programme intended to deliver in excess of £20m in annual savings by FY22. In addition, we will be proposing a reorganisation of our business over the next twelve months designed to enhance our strategic focus and generate greater efficiencies.”

Contingency planning with the Home Office for possible emergency passport requirements in the case of a hard Brexit is ongoing, Sutherland said.

The transition arrangements have also been agreed, with De La Rue’s existing contract extended from July to the end of October this year as part of the arrangement.

“There will be a transitional arrangement until February/March 2020 for co-production with the new supplier, so it will ramp down with us and up with them, so the Home Office can flex how that transitional arrangement could work,” he explained.

De La Rue is currently in joint consultation with Gemalto and employees who may be affected by the changes, and said this consultation process would conclude by the end of September. 

Sales for the full year, excluding paper, rose by 12% to £516.6m, while adjusted operating profits (excluding exceptionals) rose 6% to £60.1m.  

An exceptional charge of £27.9m including an £18.1m hit on a bad debt owed by a customer in Venezuela, currently unable to transfer the necessary funds to pay its bill “due to non UK related sanctions”.

De La Rue shares had a 52-week high of 567p, low: 317.5p.

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