The one-time king of cash is running out of the stuff. Half-year revenues and profits have slumped at De La Rue, a venerable UK bank note printer. Lower demand for physical currencies from customers means less of it for investors too. New chief executive Clive Vacher has guillotined the dividend. The shares fell by a fifth on Tuesday.
Cutting the payout was the easy bit. Mr Vacher will have to make plenty of tougher decisions if his turnround plan is to succeed. The shares have fallen almost 90 per cent since the start of last year. Investors have lost confidence in the prospects for a business operating in a weakening and fiercely competitive market.
De La Rue is perilously close to breaching covenants on its £171m net debt, after operating profits collapsed 87 per cent in the first half. That pushed it to a pre-tax loss.
Fears of a takeover have turned to distant hopes. That explains the current market worth of just £140m, from around £1bn at peak. Why pay M&A rates to absorb and reduce De La Rue’s output when the market is doing such a good job of this on its own?
Declining cash use in advanced economies means De La Rue has to look further afield for customers. The bulk of revenues now come from emerging markets. But customers here can be tricky; unpaid bills from Venezuela’s government and an investigation into company activities in South Sudan testify to that. Currency revenues fell 30 per cent in the first half of the year.
The sale of the identity business in October has given De La Rue a £42m lifeline. That reduces net debt to £129m. Covenants restricting that to three times ebitda mean it needs to come down further - earnings guidance has dropped. Assuming ebitda this year of £35m, down from £65m last year, then £105m of net debt would be more appropriate.
Without asset sales or an equity injection, that is going to be difficult to achieve, unless the performance of the printing business picks up. The king of cash is not dead yet. But he is very poorly.
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