UK specialist printing company De La Rue said the sale of its struggling paper business had “significantly strengthened its balance sheet” after a challenging year where it lost the contract to print the UK’s new blue post-Brexit passports and came under pressure from an activist investor who labelled it a takeover target.

In its full-year results published on Wednesday, a one-off £81m gain from switching to a less generous method of calculating annual pension increases helped boost profits, while the paper business, which De La Rue sold after the end of the financial year in March, dragged the figure down.

De La Rue’s adjusted operating profits, including the paper business but excluding the pension gain, were down 11 per cent from the previous year to £62.8m, despite a 7 per cent rise in group revenue to £493.9m. Excluding the paper business, adjusted operating profit rose 7 per cent to £53.3m.

The company has had a tough start to the year — it lost out on the £260m British passport contract to a French company, issued two profit warnings and its share price fell 22 per cent.

In April, after the second profit warning, the company downgraded its expected underlying operating profit for the year to about £60m.

“A significant reduction in the profitability of the paper business was the major factor causing the profit decline,” the group said, while an £80.5m reduction in the value of its defined benefit pension deficit following a move to link annual increases in benefits to the consumer price index rather than the generally higher retail price index measure of inflation boosted reported profits.

Statutory profits increased 75 per cent to £123m including the paper business and more than doubled with it excluded.

Earlier this month, De La Rue announced a change in strategy and said it planned to boost its anti-counterfeiting business and wanted to focus more on technology and services.

The non-printing parts of the business, which include security, identity and anti-counterfeiting now contribute more than a third of the group’s revenue and more than half of its operating profit.

Chief executive Martin Sutherland said: “The sale of the paper business and the associated long term paper supply agreement have reduced our exposure to the volatility of the oversupplied paper market, while securing the surety of supply for our print business.

Through this, and good cash generation from the business, we have significantly strengthened our balance sheet with net debt now at its lowest in five years.”

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