De La Rue boosted by profit rise, but authentication revenues dip

Cost-cutting amid a turnaround plan propelled De La Rue to a big jump in operating profit in the first half of the financial year, with banknote revenues steady despite the impact of the COVID-19 pandemic on cash spending.

Profit grew seven-fold to £15 million ($20m), fuelled by cost-savings due to reach £23m for the full year implemented by new CEO Clive Vacher, including the closure of De La Rue’s Gateshead facility which is due to shut down finally next month.

De La Rue also raised £100m from an equity round in June, reducing concerns that it may struggle to  continue to operate as a going concern, first voiced after Vacher took the helm last year.

With the UK passport contract now finished and its identity solutions business sold off, De La Rue is ow effectively a company with two divisions – currency and authentication.

Currency revenues stayed reasonably firm at £126m, down 2 per cent, with all polymer and banknote production capacity fully utilised for the year and the division flipping into profitability after making a loss last year.

However, authentication – which covers government tax stamps and other tools to verify commercial brands through the supply chain – saw revenues decline 9 per cent in the first half to just under £32 million, dragging overall revenues down 15 per cent.

The decline stemmed from two brand protection contracts affected by the pandemic, which Vacher said are expected to recover “in due course”. He also expects a return to growth in the second half thanks to a contract for tax stamps from Ghana, as well its role as the ID issuer for the UK’s tobacco track-and-trace system.

The software implementation for the ID issuer contract with HM Revenue and Customs (HMRC) will complete in the next few months, according to De La Rue.

De La Rue says it has signed £120m-worth of contracts for its authentication division year-to-date, and is on course to meet its £100m annual revenue target in fiscal 2021/22.

The main driver for tax stamps in the near future will continue to be tobacco, said Vacher, although he believes there is additional potential in alcoholic beverages and other markets.

“We are doing what we said we were going to do – make a healthy company that is growing in both segments…and we are delivering on that,” said Vacher on a conference call this morning.

COVID-19 potential?

De La Rue also says it is in discussions about providing immunity certification schemes related to COVID-19.

Some governments are considering setting up “immunity passports” for people who have had COVID-19 already, which could be used to free them from lockdown restrictions, and Vacher also sees potential in tracking coronavirus diagnostic kits and vaccines, although that he stressed that area is still in its infancy.

Responding to a question on the call about the potential of blockchain – something the company has said it is exploring for its businesses, Vacher said the technology was interesting and fits quite well with the company’s focus.

He cautioned however that there are still questions about the technology’s speed and scalability, especially given the extraordinary volumes De La Rue deals with in its business. He doesn’t expect the tech to have an impact on its business near-term, “especially as our certified product is still a better solution for the track-and-trace arena.”

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