Authentication a bright spot but De La Rue warns about its future

Shares in De La Rue plunged today after the company warned that it could be at risk of collapse if its turnaround plan doesn’t work as hoped.

Newly-appointed chief executive Clive Vacher said the period of “unprecedented change” at De La Rue in the last few months – particularly in senior management – had led to “inconsistency in both quality and speed of execution.”

There is now “material uncertainty that casts significant doubt on the group's ability to operate as a going concern”, although Vacher said the authentication business is showing good growth and offsetting the weakness at De La Rue’s banknote printing operations.

Overall, De La Rue’s revenue in the first half came in at just under £206m ($265m), down almost 15 per cent on the prior year, with its currency business falling to £129m from £183m. It posted an operating loss of £10m.

While much smaller, De La Rue’s authentication and traceability business grew 70 per cent to £33m in the same period, and it is still expecting the business to double in size by the 2021/22 fiscal year. It’s seeing growth in tobacco as well as emerging markets like legalised cannabis.

Revenues at its recently identity document business – recently divested for £42m - grew 10 per cent to £44m in the six-month period.

The company is already facing a tougher competitive environment in its traditional businesses – witnessed by the loss of a contract to produce the UK passport to rival Gemalto last year – but has faced other challenges including a written off debt in Venezuela and an investigation by the Serious Fraud Office over activities in South Sudan.

Vacher said the company intends to accelerate a cost-cutting drive aimed at saving £20m over three years and is “working to stabilise the management team, which we believe will take some time.”

The risk of business failure is a “worst-case scenario” according to De La Rue, which has suspended the dividend for shareholders this year.

De La Rue prints banknotes for the UK and around 140 other companies, but its currency business has been affected by pricing pressure and a more competitive environment as it bids for contracts with rivals such as Germany’s Giesecke & Devrient, Crane Currency and others.

On the plus side, the company says is seeing strong demand for its polymer substrate for banknotes, which it says is “exceeding our expectations.”

In its interim update, De La Rue said that it is continuing to invest in new technology for its authentication business, including blockchain technologies, and has completed pilot testing of DLR Validate, a consumer application for validating holograms.

Shares in De La Rue were down 22% at the time of writing.

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