The company that prints money for T&T money is having problems making money.
And one of the issues that they have identified as impacting on their profit margins is the “customers’ irregular buying patterns and rapid demand changes”.
British company De La Rue is also being investigated by the Serious Fraud Office over “suspected corruption” in Africa.
According to the latest financial statements, the British company made an operating loss of £9.2 million for the six-month period ended September 30.
For the comparative period last year De la Rue made £10.1 million.
“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,” De La Rue’s chief executive officer Clive Vacher stated.
“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,” he stated.
“At the same time, we have seen significant changes since the start of the year in the market for 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 stated.
“Our authentication business continues to show good growth and provides some degree of balance to the currency headwinds, while demand for polymer substrate is also exceeding our expectations,” he stated.
Vacher said the company will be reviewing its cost base.
“In response, we are reviewing our cost base and will make the structural changes that will further strengthen our competitiveness in a challenging market. We continue to focus on building momentum in the higher-margin security feature market and continue to innovate to improve our position in this fast-growing area,” he stated.
He said a comprehensive turnaround plan will be established by the first quarter of next year.
“Between now and the end of calendar Q1 2020, we will complete a full review of the business and design a comprehensive turnaround plan for the Company. 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,” Vacher said.
“With strong emphasis on cost control and cash management, coupled with a focus on innovation and reversing the revenue decline, we will become a leaner, more efficient company and drive shareholder value,” he stated.
De La Rue stated it has taken several actions in recent years to reshape the company, including divesting our cash processing solutions (CPS), paper and international identity solutions businesses and, in May 2019, we announced our intention to realign the group into two divisions focused on authentication and currency.
Authentication will focus on “encompassing security features for product authentication and brand protection; software solutions and services for customer revenue protection and identity security components. The division is focused on the supply of solutions to authenticate goods as genuine and to assure tax revenues.”
Currency will focus on “encompassing our banknote print, security features for currency and polymer product lines, focused on the provision of finished banknotes, as well as security features/banknote substrate into central banks and state print works”
“While the underlying currency market continues to grow, the market is impacted by the more unpredictable overspill activity (state print work demand that cannot be satisfied by their own internal capacity), customers’ irregular buying patterns and rapid demand changes.
“Current customer demand is resulting in over-capacity in the industry, which has led to lower margins and a weaker pipeline of orders. We aim to maintain a leading market position in banknote print and security features, and to focus our innovation in developing technology and products customers want to buy. We will continue to grow our polymer substrate business,” the company stated.
“With overspill volumes in banknote print expected to reduce year-on-year, we are continuing with our programme to optimise our banknote print capacity with expected long-term demand,” it stated.
The currency division made a loss of £12.5 million in the first half of this financial year.
For the comparative period last year a profit of £6.5 million was made.
This change resulted from “lower volumes and margin due to adverse product mix”, De La Rue stated.
“Throughout its global operations De La Rue faces various risks, both internal and external, which could have a material impact on the group’s performance. The group manages the risks inherent in its operations in order to mitigate exposure to all forms of risks, where practical, and to transfer risk to insurers, where cost effective,” the company’s directors report stated.
“The group analyses the risks that it faces under the following broad headings: strategic risks (technological revolution, strategy implementation, changes to the market environment and economic conditions), operational risks, legal/ regulatory, information risks and financial risks (currency risk, credit risk, liquidity risk, interest rate risk and commodity price risk),” it stated.
“As described in the 2019 annual report, the principal risks include:
• bribery and corruption,
• failure to integrate and execute M&A activity,
• failure to innovate and modernise to be competitive,
• quality management failure,
• failure of a key supplier,
• inability to accurately forecast financial information,
• failure to win or renew a material contract,
• management lack of bandwidth and clear prioritisation to execute the strategy and run the business,
• pension fund liability,
• loss of a key site or process,
• failure in health, safety and environmental control,
• breach of information security,
• breach of product security and breach of sanctions.
“All of these risks listed above, along with the risk management systems and processes used to manage them, remain unchanged since the 2019 Annual Report was published,” it stated.
“Since the report was issued there are two additional notable risk factors. Firstly, the SFO have opened up an investigation into De La Rue Group and, secondly, there has been a rapid change in market conditions which is impacting on our debt covenant ratios,” the directors report stated.