FILE PHOTO: British five pound banknotes.November 14, 2017. REUTERS/Benoit Tessier/File Photo
The sterling five pound banknote produced by De La Rue © Benoit Tessier/Reuters

Banknote printer De La Rue has warned there is “material uncertainty” about the company’s future if a planned turnround fails to tackle the company’s mounting debt pile.

The UK-listed group on Tuesday suspended its dividend as it reported half-year results that showed a sharp increase in its net debt, putting pressure on the company’s banking covenants.

Shares in De La Rue dropped 25 per cent to 131.7p, leaving them 71 per cent lower since the end of May.

De La Rue, which prints notes for the Bank of England, has faced months of upheaval as it struggles to reverse declines across its business. A management clearout has seen a new chairman, chief executive and finance director installed in recent months, after a profit warning in May compounded an activist campaign for leadership change.

Chief executive Clive Vacher, who joined the company barely seven weeks ago, is in the middle of a strategic review that should yield the latest in a series of turnround plans for the business. He said the company was already working to cut costs and boost cash flow, but added that the executive turnover had led to “inconsistency in both quality and speed of execution” in the company’s efforts to overhaul its core currencies business and build up its authentication operations.

The group has suffered a torrid two years, including the high-profile loss of the contract to print British passports to a French company last year and an £18m hit after the Venezuelan central bank failed to pay its bills.

In July, the Serious Fraud Office opened an investigation into the group over suspected corruption in South Sudan, which is still ongoing.

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De La Rue’s latest figures showed revenues in the currencies division tumbled almost 30 per cent during the first half of its financial year to £128m.

The company said the decline was driven by a fall in cyclical “overspill demand”, contracts from central banks used when state-owned printworks are unable to print money fast enough themselves.

Lower demand has resulted in oversupply in the market for banknotes, putting pressure on prices and profits, it said.

The group swung to a £12.1m pre-tax loss in the first half from a profit of £7.1m during the same period a year earlier. Net debt increased to £171m in the six months to the end of September, from £108m at the end of March, as inventory built up and the group paid out cash to fund last year’s dividend and its pension deficit.

De La Rue said its debt position had improved since the start of October. The sale of its international identity solutions business, which completed in mid-October, brought in £42m.

But the company warned that it was heavily dependent on large currency contracts and problems with those could hit earnings and affect the company’s ability to stay within the agreed limits of net debt to earnings required by its lenders.

It suspended the dividend as part of plans to manage net debt levels. It paid dividends of 25p per share in the previous financial year, which ended in March.

Adjusted operating profits, the group’s preferred measure, tumbled from £17m to £2.2m. The group expects an improved second-half performance, leading to full-year adjusted operating profits of between £20m and £25m.

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