Clive Vacher has completed several turnrounds in his career but his latest company seems to have a unique advantage: it can print money.
That may not be enough to save De La Rue, the 189-year-old company that prints notes for the Bank of England.
Parachuted in last month, 49-year-old Mr Vacher is the latest in a line of chief executives to attempt to restore the company’s fortunes. He has the toughest task of all of them. With mounting debt and falling profits, De La Rue warned last month that its future as a going concern may be in doubt.
Worth more than £1bn in 2012, it now has a market value of about £132m, little more than the debt on its balance sheet. Investors look back ruefully at 2010 when a £926m takeover bid from French rival Oberthur was rejected by the board.
“The burning platform is clearly there. We know how — and what — we need to do to fix it,” Mr Vacher said in a recent interview with the Financial Times. “Coming into this business, just a little under two months ago, there is nothing that I’ve seen that A, has surprised me and B, can’t be fixed.”
Once a sprawling conglomerate, De La Rue has sold off most of its businesses, ranging from cash management systems to specialist paper supply, leaving it with little to cushion it from the volatile market of banknote printing.
The latest disposal was De La Rue’s passport-making business. After the Brexit vote in the UK, the government announced that it would be switching from the bloc’s burgundy travel documents back to pre-EU blue.
Notwithstanding the patriotic fervour that accompanied this announcement, the UK Home Office handed the lucrative contract to Franco-Dutch group Gemalto. The switch ended a deal that had contributed £400m in revenues to De La Rue over a decade, sent its shares lower, and prompted the sale of the company’s remaining passport-making business for a mere £42m.
The sale has helped shore up De La Rue’s cash position. But it now finds itself with only two businesses: its mature but unpredictable currency unit and the small but faster-growing authentication business, which helps protect tax revenues for governments by, for example, producing tax stamps and high-spec security labels to authenticate tobacco and eliminate illicit supplies.
That gives cost-cutting — a perennial feature of executive turnround plans for the business — a new urgency.
“When you have a portfolio of five or six businesses . . . then the effect of the lumpiness in currency in some way [can] be absorbed,” said Mr Vacher. “Now that we’re down to two businesses, the urgency and the way that we do [cost-cutting] is much more stark.”
The core currency business is inherently volatile. With most major currencies printed by official printworks, only about 15 per cent of the market is available to four private operators: De La Rue, Oberthur, Crane of the US, and Germany’s Giesecke & Devrient.
That pool includes difficult customers. A successful tender to supply South Sudan’s banknotes after it gained independence in 2011 has been a source of trouble. The company’s operations in the country are now the subject of a Serious Fraud Office probe, De La Rue disclosed in July.
In India, De La Rue had earlier lost one of its most profitable relationships, following the chaotic handling of a fraud by its employees that resulted in substandard banknote paper being used in the country’s currency.
But the biggest recent headache has been Venezuela, which issued a new currency after spiralling inflation and then suddenly stopped paying its bills.
Richard Bernstein, chief executive of activist fund Crystal Amber, De La Rue’s biggest shareholder, has been vocal in his criticism of the board and previous management, with particular scorn for its handling of Venezuela.
US sanctions against the country were stepped up this year as the Trump administration sought to drive president Nicolás Maduro’s government from office. US banks could no longer handle cash from Venezuela, leaving De La Rue with an outstanding £18m bill for notes already delivered and no way to collect.
“We spoke to one of De La Rue’s competitors that said it had stopped printing for the Central Bank of Venezuela because impending sanctions would make being paid impossible,” said Mr Bernstein.
The fiasco was swiftly followed by the departure of Martin Sutherland, chief executive of De La Rue from 2014 until this year.
During his five years as chief executive, Mr Sutherland was paid almost £5m, in spite of overseeing an almost three-quarters drop in the company’s share price in the period. This included a 20 per cent hike in salary in the last year and a £197,000 bonus. He also received an additional £50,000 when he left the company to pay to help him find a new job, sparking outrage among investors and employee representatives. Mr Sutherland could not be reached for comment.
Now printers are confronting a return to the overcapacity that has defined the market for a decade and a reliance on unpredictable orders from a few large customers.
As the sole standalone listed competitor, De La Rue has found itself particularly exposed to the fluctuations.
Alexander Mees, a JPMorgan analyst, said: “De La Rue are the only ones that really feel the pressure of public scrutiny. The other ones are private or part of larger corporations . . . De La Rue doesn’t have that luxury.”
Investors and former employees lay some of the blame for De La Rue’s current woes with former management for a failure to consolidate when offers were on the table or to cut costs aggressively enough as the industry shrank.
“In smaller businesses you have to be nimble, you have to be quick,” said one former employee. “This was an old FTSE business with old glories.”
Analysts are yet to be convinced. “There’s been a number of false dawns . . . Trying to turn around the biggest part of the business, which is clearly underperforming — they’ve got their work cut out,” said Mr Mees.
De La Rue’s collapse would mean the demise of the sole supplier of banknotes to the Bank of England.
That would not be cause for a run on cash machines. Although the Bank of England outsources printing to De La Rue, the central bank owns the facility in Debden, Essex where sterling is printed and all the machinery in it. As operators of the facility, De La Rue could be replaced without disrupting the supply of notes.
Still, there is some optimism about Mr Vacher’s chances. Mr Bernstein doubled Crystal Amber’s stake to 14 per cent after meeting management.
Mr Vacher is due to unveil his detailed turnround plan in the new year. He is confident that the currency business can be restored and that its authentication products can be built up to provide a stream of income to balance out volatility elsewhere.
“Rather than just ride that rollercoaster . . . I want to set this business up to make money in the tough times like today and to make more money when the market comes back strong.”
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