Banknote printer De La Rue today revealed its plan to cut £35m in annual costs after it lost a battle to print Britain’s post-Brexit blue passports.
Shares soared 20.5 per cent to 147.2p as investors welcomed the plan.
The company said it has already slashed £10m in annual costs, and it will target a yearly £35m in savings from the second half of its 2020-21 financial year.
This goes deeper than De La Rue’s previous commitment to cut £20m in costs by 2021-22, and the firm said this would allow it “to tender for currency orders it would previously have declined, and to improve margins on existing work”.
The cost savings plan will cost De La Rue £17m to implement this financial year, however. Though the company stuck to a forecast £20 to £25m in adjusting operating profit for 2019-20.
De La Rue will also seek to improve profitability in its currency division, whose technology is used in the Bank of England’s new £20 note. The firm will also design and print the new £50 note.
The turnaround plan targets a mid-teen adjusted operating profit margin for the banknote printing division from 2020-21.
De La Rue has lost around 80 per cent of its market capitalisation value since October 2017. Troubles started after it lost fight to deliver a £490m contract to print Britain’s new blue passports to Franco-Dutch rival Gemalto.
Since then debt has rocketed from £107.5m in 2018 to £170.7m in November, when it failed to pay a dividend as it dropped to a £9m loss and warned of “material uncertainty” over its future.
Lenders including HSBC reportedly called in advisers to review the business earlier this month. A £275m credit facility is set to expire in December 2021.
Chief executive Clive Vacher said today that the loss of its passports contract will hit profitability this year, but hailed the turnaround plan as the right direction for the company.
“I am pleased that we have delivered our review of the business on schedule and are on track with the turnaround plan, which will deliver significant improvement in the operational and financial performance of the company,” he said. “The plan drives extensive cost reduction and, in parallel, offers a substantial investment opportunity for growth.
“For our shareholders, the plan creates value, sustainability and predictability.
“I am confident that this is the right plan for De La Rue. There is a considerable amount of work to be done, and the company has a single, focused plan, a fully aligned leadership team, and a greatly enhanced structure. We are ready to execute. I look forward to providing further details at our full year results in May.”
Picture credit: Bank of England