Embattled passport and banknote manufacturer De La Rue is trading at record lows for the year, with more than 600,000 shares changing hands in a single day last week. The bitter days on the trading floor and sinking market capitalisation come on the heels of De La Rue’s announcement that it is being forced to scrap its dividend amid rising debt.
The firm’s plummeting share prices reflect what can only be described as a catastrophic sequence of events for De La Rue, culminating in the centuries-old firm being forced to warn that the company may not be able to stay afloat into the new year.
“We have concluded there is a material uncertainty that casts significant doubt on the group’s ability to continue as a going concern,” De La Rue admitted, despite making a last-ditch effort to execute a turnaround plan which could keep the company on life support.
At the helm of this purported volte-face mission is Clive Vacher, appointed in October after former company head Martin Sutherland was ousted by shareholders. Public sympathy hasn’t exactly poured forth for the disgraced former chief executive officer: as job losses rose into the hundreds and De La Rue’s net company debt increased 58% to £170.7 million, Sutherland managed to walk away with a £50,000 payout.
In his stead stands so-called “turnaround specialist” Vacher, whose background is signed impressively by similar stints at the likes of Dynex Power, Rolls-Royce, Pratt and Whitney, and B/E Aerospace. Despite the initial fanfare at Vacher’s appointment, it seems the leadership at De La Rue have all but given up on survival.
So how exactly did a company which is more than 200 years old and has printed more than a third of all banknotes in global circulation end up in such dire straits?
The answer is a mixture of bad luck, lost contracts and more than a few disastrous errors. The first signs of trouble, it seems, have their origins in a 2011 contract to supply currency to then-newly independent South Sudan. According to a British fraud investigation opened earlier this year, the new government secretly funnelled banknotes from the company into personal bank accounts of high-placed officials, rather than injecting the badly needed cash into the economic system.
In return for helping hide the fraud, De La Rue allegedly received a percentage— to the tune of millions of dollars. The UK Serious Fraud Office is now looking into the allegations, now amounting to major fraud, corruption, and bribery.
The Serious Fraud Office’s investigation only ratcheted up the pressure on De La Rue after the British government decided not to renew its contract with De La Rue for the printing of British passports; instead, French-Dutch competitor Gemalto picked up the 10-year, £490m job, which included the manufacture of post-Brexit blue passports. While many saw the irony in the situation—the blue passports were intended to symbolise the UK breaking free of the EU but will instead be manufactured on the Continent— De La Rue certainly did not. Its failed offer for the contract, which Gemalto easily underbid, cost the company millions.
De La Rue had initially requested that the Home Office grant it an extension on the bid deadline upon learning of its standing compared to Gemalto, before pledging to appeal the decision despite admitting that price was likely a major factor in the British government’s decision to switch suppliers. Weeks later, De La Rue dropped its plans to appeal, and the company’s operating profit took a £4 million hit.
Worse still, De La Rue’s management continues to make the same sort of mistakes which have landed the firm in hot water in the past. Despite increasingly leaning on its product authentication business line to bring in revenue and help cope with an ever-more cashless society, the firm has elected to work with a number of dubious subcontractors which have imperilled its product authentication operations as well.
In what seemed to be a lucky break amid the firm’s escalating financial woes, De La Rue scooped up contracts earlier this year to provide tobacco “tax stamps” to a string of countries in Europe and the Middle East. One of these contracts was to implement London’s rollout of a system to track and trace tobacco. These types of systems— provided for under both the EU Tobacco Products Directive (TPD) and the Framework Convention on Tobacco Control (FCTC)’s associated Protocol to Eliminate Illicit Trade in Tobacco, to which the European Union is a party—are designed to quash the growing, and ever-lucrative, underground tobacco market.
De La Rue pledged that its track and trace system would “be used to fight illicit trade and to reduce risks to citizens’ health”—but when push came to shove, De La Rue swiftly outsourced the gig to IT giant Atos. While relying on a technical subcontractor is not unheard of, Atos’ cosy ties to the tobacco industry mean the subcontracting decision is in direct contravention of World Health Organisation (WHO) transparency and independence standards.
Indeed, Atos’s appointment raises significant doubts about whether the UK’s system is compliant with the WHO’s requirement that parties to the FCTC Protocol “ensure that the generation of [the unique identity codes used in track and trace systems] is kept out of the hands of tobacco companies […] so that tobacco companies cannot access or manipulate this data”. Atos’s extensive history developing and promoting Codentify, a track and trace system developed by the tobacco industry which is not considered by NGOs, academics and public health officials to be fit for purpose, indicates that De La Rue has not learned its lesson from previous missteps.
With private equity vultures already circling what remains of De La Rue, hopeful declarations of a turnaround should be no more believed than the banknote maker’s own authenticity claims. De La Rue is a company on the brink, and its own executives put it there; Vacher’s chances of turning this ship around appear dubious at best.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.
