The Elizabeth Tower, also known as Big Ben, and a portrait of Queen Elizabeth II are seen on a British five pound banknote, in this arranged photograph in London, U.K., on Thursday, Oct. 13, 2016. The U.K. currency is getting harder to trade, and to predict, because the nation’s exit from the European Union has changed the rules of engagement. Photographer: Miles Willis/Bloomberg
© Bloomberg

De La Rue’s polymer banknotes make it hard for magicians to perform the “torn £10” trick. But shareholders may feel the printing group is achieving much the same result. Wednesday’s profit warning cut another 20 per cent off its share price and meant that, since it lost its £490m contract to print UK passports last year, the business has lost three-quarters of its market value.

To some, this second warning in five months appeared to be a “Kodak moment” — an example of a market leader in an old, physical technology failing to adapt to a digitising world, just like the US photographic film company. As analysts at broker AJ Bell put it: “Being a specialist banknote printer looks anachronistic in an increasingly cashless world.”

It also looks like too much of De La Rue’s focus, if you believe a licence to print money has become anything but. In the year to March 30, the group’s currency division accounted for 77 per cent of its £517m revenue, and 69 per cent of its £60m adjusted operating profit — which also showed what had been happening to margins in banknote printing, compared with those in the faster-growing product authentication division. Now, half-year adjusted profit will be “low-to-mid single-digit millions”.

However, any Kodak excuses are quickly exposed by De La Rue’s own statistics. Its annual report states: “The value of cash in circulation continues to rise in nearly every country around the world . . . the growth in value of cash in circulation over time continues to remain closely correlated with growth in GDP and population.”

Making less money from making money must therefore reflect past management failings. In May’s warning, the then departing chief executive Martin Sutherland blamed “competitive pressures in banknote print”. But surely a company that still prints one-third of the world’s notes should have the knowhow and business relationships to compete a lot harder.

Shareholders seem to think so. Activist Crystal Amber, which has a 6 per cent holding, recently broke with convention to publicly criticise the ex-CEO’s “awful commercial judgment” — probably a reference to a banknote deal with Venezuela that became an £18m bad debt, and an overly-relaxed attitude to other exceptional items in the adjusted accounts. Some 48 per cent of investors also protested against the former CEO’s £132,000 pension contribution, and a £197,000 bonus partly based on the Venezuela deal.

So all eyes will now be on what tricks new CEO Clive Vacher can pull from the hat. News of a “detailed review” by the turnround specialist led some to expect a costly restructuring or a spin-off of the authentication business. But any attempt to tear up previous management’s paper numbers, and present the bad news all at once, may only cut the share price to a level where a bidder swoops. Investors might not wait for Mr Vacher to produce a dove from up his sleeve if they can see a premium offered by US rival Crane.

Ashley’s Trump tactics?

Mike Ashley of Sports Direct has been busy campaigning to be champion of the high street and protector of the proletariat, writes Kate Burgess.

On Wednesday, he weighed in on a Competition and Markets Authority probe into rival JD Sports Fashion’s purchase of Footasylum. But his complaint this time was that the CMA had overestimated Sports Direct’s share of the athleisurewear market. “Our market share of Adidas Originals in Sports Direct is virtually zero,” he said. At first glance, it looked as if, to Mr Ashley, everything was about him.

There is a pattern. Last week, Sports Direct kicked off at the board of Goals Soccer Centres — a business it had considered buying — saying: “The current rules and regulations do not do enough to protect independent shareholders or to prevent fiscal irresponsibility”. This from a company dominated by majority shareholder Mr Ashley, who owns close to two-thirds of the shares, and which was slow to tell its former auditor of a €674m tax bill. It is almost Trumpian as a defence against critics who know the blokeish billionaire better for his deviations from the book of good governance and shareholder observances.

Equally pugnacious was Sports Direct’s correspondence with Rachel Reeves, chair of the Treasury select committee, published on Monday. The letter — which pegged the collapse of Thomas Cook to Mr Ashley’s thwarted efforts to take control of Debenhams — rants about the self-interest of politicians and regulators as well as the ineptitude of regulation and advisers.

However, he may have a higher purpose in playing down Sports Direct’s market power, playing up its anti-establishment credentials, and aligning it against “must have” sports brands and with ordinary shoppers.

Should the CMA decide that JD must divest of its Footasylum acquisition, Sports Direct has prepared the ground well to step in to buy it. And should that happen, the trust buster’s politically-attuned masters will have to pick a side.

matthew.vincent@ft.com

Sports Direct: kate.burgess@ft.com

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