Banknote manufacturer De La Rue announced plans to cut costs on Tuesday as it attempts to revitalise its printing and authentication businesses after setbacks, including the loss of a contract to make Britain’s post-Brexit blue passports.
The cuts, which will reach £35m in annual savings, are part of a turnround plan that will focus on investing in its polymer currency printing, as more countries use longer-lasting plastic banknotes, and its authentication business for goods such as tobacco.
The cost cuts, which are higher than previous commitments, helped send shares 21 per cent higher to 147.6p on Tuesday.
The company, which prints banknotes for the Bank of England and used to make the UK’s burgundy red passports, also reconfirmed its guidance for adjusted operating profit of £20m-£25m for 2019-20.
Clive Vacher, chief executive, said the company was going “much quicker and deeper in cost cutting”, but said there was no intention to sell off any more parts of the business.
“M&A is certainly going to be part of our future at some point . . . On the disposal side, we don’t want to break up the company any more,” he said.
Mr Vacher, who took charge in October, shrugged off fears about the threat of a cashless society, citing increasing demand in developing countries. “We do not see the market as any problem at all for us over the next few years,” he said.
Richard Bernstein, head of activist investor and De La Rue’s largest shareholder Crystal Amber, described Tuesday’s announcement as “the polar opposite of what shareholders suffered from previous management”.
Alexander Mees, head of European business services research at JPMorgan, said the share price jump reflected “a little bit of relief” but that the currency printing market remains “incredibly difficult”.
He added: “There’s new management, an apparently stable balance sheet, a plan to improve profits . . . It looks a lot more interesting — or perhaps a little less scary is a better way of putting it — than it did before.”
Last July, the Serious Fraud Office opened an investigation into the group over suspected corruption in South Sudan, while, in May, De La Rue revealed an £18m hit after the Venezuelan central bank failed to pay its bills, a payment which is still outstanding and is not assumed to be made in the turnround plan.
In 2018, the company had been hit by the high-profile and £490m loss of the post-Brexit blue passport contract to a French company, which led to 170 job cuts at its Gateshead factory in the North East of England and prompted the sale of the company’s remaining passport-making business for a mere £42m.
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