Passport maker De La Rue suspends dividend after 87% profit plunge

Edmund Heaphy
·Finance and news reporter
Antibes, France - September 29, 2018: Man holds new maroon UK passport, and invalidated UK passport with cut off top right corner.
De La Rue last year lost the contract to print UK passports. Photo: Getty

De La Rue (DLAR.L) on Tuesday said that half-year profits fell 87% to £2.2m, with the banknote and passport maker announcing a suspension of dividend payments amid an investigation for suspected corruption.

Shares plunged by more than 20% in early trading after the company said it had concluded that, amid significant risks and “material uncertainty”, there was “significant doubt” over the group’s ability to continue as a business.

The profit plunge was mainly driven by a near 300% decline in profits in its banknote business, which lost £12.5m in the six months to the end of September.

De La Rue blamed “lower volumes and margin due to adverse product mix” in the “increasingly competitive” market. Overall, revenue fell nearly 15% to £206m in the period.

The company last month warned that profits would come in “significantly lower” than expectations, its fourth profit warning in less than two years.

READ MORE: UK passport and banknote maker De La Rue caught in corruption probe

The warning came just weeks after De La Rue appointed former Rolls-Royce executive Clive Vacher as CEO, but the company gave no explanation for why profits were due to come in so far below expectations.

Shares in the banknote maker fell by more than 20% in early trading on Tuesday. Chart: Yahoo Finance
Shares in the banknote maker fell by more than 20% in early trading on Tuesday. Chart: Yahoo Finance

The company lost the contract to print UK passports in 2018 and it disclosed in July that the Serious Fraud Office had opened a probe into “suspected corruption” relating to its work in South Sudan.

The company has also significantly revised its forecasts for the current financial year, warning that there was a risk that the company would not be able to make the cost savings required to deliver a “significant” contract, which would dent profits.

This “material uncertainty”, in combination with the company’s current debt levels, prompted De La Rue to suspend dividend payments.

The banknote maker intends to complete its “full review” of the business by the end of March in order to 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,” said Vacher on Tuesday.

The company’s authentication division, where profits jumped 114% to £7.7m, “continues to show good growth”, Vacher said. The company provides security features and software solutions for revenue, brand protection, and identity verification.

READ MORE: Embattled banknote and passport maker De La Rue gets new CEO

The company has been at the centre, however, of several probes by the Serious Fraud Office, including a 2010 examination of falsification of banknote quality certificates by employees.

In 2011, it spent six months designing and manufacturing the currency for South Sudan, which was then the newest country in the world.

It is the largest commercial printer of passports in the world, and has designed around a third of the banknotes in circulation globally.

The UK government in March 2018 decided not to renew its contract with De La Rue to print British passports, prompting a fiery response from the company.

French-Dutch competitor Gemalto was picked for the 10-year, £490m contract. The government later said that Gemalto would also manufacture the much-anticipated post-Brexit blue passports.