De La Rue will stop production at its Gateshead factory that has made the UK’s passports for the past decade, with work on post-Brexit documents fully passed to Franco-Dutch company Gemalto from this month.
The 189-year-old company said it would also stop making banknotes at the factory, with 250-260 job losses expected as a result. It will retain about 100 staff that work in its authentication division and IT on the site.
De La Rue, which will now print banknotes for the UK and other countries from only one British site at Debden in Essex alongside its international plants, disclosed on Wednesday that it would raise £100m through a share placing to help complete a crucial turnround strategy.
The company said money raised would also allow it to invest in its authentication and security features divisions. It regards these as crucial for its future amid rising demand from governments and companies to track and verify goods and services, and prevent counterfeiting and fraud.
The “major contribution” to profits from the UK passport contract will come to an end this year, it said. The contract to make British passports was lost to Gemalto in 2018, but production only winds down this year.
Unite, the union which represents the workforce at De La Rue’s Gateshead factory, urged the company to reconsider its banknote printing announcement and called on the UK government to reshore passport production.
Unite said 170 workers at the Gateshead site were made redundant last year, with another 80 to go this month as passport production finally ends. The union argued that UK passport production and banknote printing should be UK-based on grounds of jobs and national security.
Clive Vacher was brought in last year to head De La Rue’s turnround amid warnings by the company that its future as a going concern might be in doubt given high debt and falling profits. He told the FT that the going concern warning would be reversed after the equity raise.
The company said it had already taken actions expected to result in £24.8m of annualised savings, out of the total £35.9m targeted under a three-year plan.
Shares fell almost 8 per cent to 141p, although they are trading around the level before the coronavirus crisis hit equity markets in March.
In its full-year results, De La Rue said revenue had fallen more than 17 per cent to £427m, hit by the steep fall in currency sales after Venezuela left the company with an unpaid bill of £18m.
Mr Vacher was confident about the future of its currency business, saying that coronavirus was expected to spur more governments to turn to cleaner, polymer-based notes rather than traditional paper money.
Demand continued to rise for banknotes despite the increase in online shopping and contactless payments, he said. De La Rue prints about 6bn-7bn notes every year, with an overall market of 172bn worldwide.
Net debt fell by £4.7m to £102.8m, reflecting the proceeds from the sale of its international identity solutions businesses. Adjusted operating profit was £23.7m, down from £60.1m, but the sale also boosted pre-tax profit for the year from £22.8m to £35.9m.
Using money from the share placing, De La Rue will also buy new equipment to double the currency division’s capacity for polymer production to meet demand for the new banknotes increasingly being used in many parts of the world.
The equity raising will also allow De La Rue to secure the support of lenders to extend its financing facility until 2023.
Mr Vacher said: “With this capital we will be able to strengthen our balance sheet, reduce our costs and invest in the exciting growth opportunities we see in authentication, polymer banknote production and security features.”
On Tuesday, the UK’s Serious Fraud Office ended an investigation into De La Rue’s business in South Sudan due to insufficient evidence.
As threats to jobs throughout the UK begin to mount due to the impact of Covid-19, north-east England is highly vulnerable. Its unemployment rate, at 5.2 per cent, is already the highest of any UK region despite decades of job creation to offset losses in traditional industries. The UK’s overall unemployment rate is 3.9 per cent.
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