Richard Bernstein asked several difficult questions in a results call for banknote printer De La Rue. The webcast ended abruptly. Proof, perhaps, of the activist’s claim that investor communications are poor? A failure to win a British passport contract last year probably contributed more to the decision of chief executive Martin Sutherland to leave soon. Shares fell by a third, hitting a 15-year low on Thursday.
Many believe cash will endure, despite the rise of electronic money. But printing the stuff commercially has become a dangerously uncertain occupation. Slackening demand for notes from central banks is weighing on the outlook. Margins in De La Rue’s currency division have been under pressure since 2016 and will fall further. Overcapacity remains the industry’s biggest challenge. Consolidation is inevitable.
De La Rue has announced its latest reorganisation. The company is looking to take £20m a year out of overheads by 2022. That follows reductions in capacity started in 2015. The company structure will also be simplified. Currency will be tied with the low margin business of polymer notes. A new authentication division is meant to be the group’s growth driver henceforth; this will include the higher margin security and identity solutions businesses.
That split may be the first step in ending the company’s 150-year role as a bank note printer. The sale of the division would naturally follow the disposal of a lossmaking paper division last year. It would also allow the company to focus on growth unhindered. Accounting for two-thirds of this year’s £60m operating profits, the currency business might fetch £400m based on what US rival Crane Currency sold for in 2017.
But given that De La Rue has a market value of £330m, an acquirer could get the whole lot for £400m. Consumers are clinging on to cash. Investors would relinquish their shares in de La Rue with alacrity.
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