(Sharecast News) - Banknote printer De La Rue said on Tuesday that it swung to a loss in the first half as it scrapped its dividend and warned of "significant doubt" over its ability to continue as a going concern.
In the six months to 28 September, the company swung to a pre-tax loss of £12.1m from a profit of £7.1m in the same period a year ago and to an IFRS operating loss of £9.2m from a profit of £10.1m after "significant" restructuring charges related to the reorganisation announced in May.
Adjusted revenue fell 14.9% to £205.9m and IFRS revenue was down 9.8% to £232.3m, with adjusted revenue from the currency business down 29.5% to £128.7m. De La Rue saw a decline in banknote and security feature volumes and price, but "good" growth in polymer volumes.
Meanwhile, net debt surged to £170.7m from £107.5m the year before and the net debt/EBITDA ratio adjusted for the basis of the banking covenant was 2.72 times. The company said both of these were "significantly higher than previously forecast" and warned that it could breach its banking covenants.
De La Rue - which lost the £490m post-Brexit UK passport printing contract last year to Franco-Dutch firm Gemalto - said it had decided to suspend its dividend in order to manage net debt levels. It also announced a "full review" of the business.
Chief executive officer Clive Vacher said: "The business has experienced an unprecedented period of change with the chairman, CEO, senior independent director and most of the executive team leaving or resigning in the period. This has led to inconsistency in both quality and speed of execution. The new board is working to stabilise the management team, which we believe will take some time.
"At the same time, we have seen significant changes since the start of the year in the market for c currency, including pricing pressure as a result of reduced overspill demand. This has had a material impact on volumes and profitability in H1 2019/20 and it will also take time for the currency market to normalise."
Vacher said that between now and the end of the first quarter of next year, De La Rue will complete a full review of the business and design a "comprehensive" turnaround plan.
"In the meantime, we have already identified and started to implement the urgent actions needed to stabilise the business and allow us to complete the review."
Looking ahead, the group was more upbeat, saying it expects the second half of the year to benefit from cost reduction measures that were implemented in the first as it continues to progress its Authentication contracts.
"As a result of this and a more favourable currency volumes than in the first half, we expect an improving second half performance, leading to adjusted operating profit for FY2019/20 of between £20m and £25m," it said.
Union Unite said the threat to De La Rue's future was "very worrying".
National officer Louisa Bull said the union was seeking "urgent clarification" from the company.
"The employment security of our more than 250 members at Gateshead, and at Debden where we have about 150 members, as well as those at other smaller sites across the UK, is Unite's prime concern," she said.
"We have previously criticised the government's short-sighted and blinkered decision to award the printing of post-Brexit UK passports...to French-Dutch firm Gemalto as it seriously undermined the financial viability of the Gateshead operation."
At 1435 GMT, the shares were down 20% at 140.59p.
Neil Wilson, chief market analyst at Markets.com, said: "De La Rue is teetering on the brink. Far from 'drawing a line' under the previous performance before the arrival of Vacher and Loosemore, the profits warning in October - the second this year - was only the meat in the rather unsavoury sandwich. Today's update is worrying for investors because it suggests there's more damage out there to be done to the shares. Profits warnings tend to come in threes and De La Rue has held to the rule.
"There has been trouble in Venezuela and the SFO investigation remains ongoing - but by far the biggest blow and the source of the company's collapse in market capitalisation was losing the contract to make UK passports.
"I don't buy the argument that printing banknotes in a cashless world makes them structurally irrelevant - cash in circulation is growing all the time. The need for more secure notes that De La Rue makes is becoming more important, not less. Bad management and decisions seem to be the main reason for the malaise."
Russ Mould, investment director at AJ Bell, said: "Just when you thought it couldn't get any worse for De La Rue along comes another wave of bad news.
"Shares in the banknote printer have now sunk to a 19-year low on a warning that it may not be able to stay running as a business if trading conditions keep getting worse, it incurs extra costs linked with various contingent liabilities and growth areas don't achieve forecast margins.
"It is drowning in debt and has this year seen most of the executive team leave or resign, causing further instability in the business.
"In an increasingly cashless world one has to wonder just how long De La Rue can survive without a radical change to its business model. It has already restructured its operations into two divisions - authenticating goods as genuine and currency services - but one has to wonder if this is still enough to secure its future.
"The banknote print and security features markets are highly competitive and De La Rue hasn't had the best track record with contract wins of late. We might have simply reached the point where De La Rue is best positioned as part of a bigger company rather than as a standalone entity."
De La Rue (DLAR)11 Jun 2024 16:01