De La Rue is one of the most prestigious banknote printers in the world. The 200-year-old British firm was once responsible for a third of all banknotes printed worldwide. For many years, it has supplied the raw materials for banknote production to over 140 countries. Recently, however, several crises have pushed the firm toward the edge of catastrophe.
In 2015, a rise in mobile internet-based payments led to falling profit margins. The firm was then forced to close half its production lines and slash its workforce. In 2018, it announced that it would no longer manufacture British passports from its Team Valley factory.
Dire profit warnings rattle shareholders
At the end of January 2022, The Financial Times reported that Richard Bernstein, founder of Crystal Amber, an activist investment fund, had openly called for a sale. He said that it was “highly likely” that De La Rue “will be the subject of a takeover bid from one or more of its overseas competitors” in the coming months. Coronavirus-related staff absences and supply chain issues resulted in another 25% slump in share price. Further, the company warned that its annual profit was expected to miss market expectations.
The firm estimated that operating profit would be around £36–40 million ($40–50 million) for the year to March 26. While the figure was around the same mark as the previous financial year, it was still below the market consensus of £45–47 million ($56–59 million). De La Rue’s chief executive, Clive Vacher, dismissed Bernstein’s claims, telling The Financial Times that he rejected the continued criticism of its sales policy. “We do not have a strategy to drive down prices. We have driven competence at De La Rue so that we are a force to be reckoned with in the market,” he said.
By November, De La Rue delivered its third profit warning of the year. The company’s shares took a harrowing nosedive, plummeting a staggering 23%. Notably, Crystal Amber, which holds the second-largest stake at 9.9%, described the profit warning as a “Liz Truss moment,” and Bernstein called for the resignation of the chairman, Kevin Loosemore. There were (and still are) serious concerns that the firm was on the brink of collapse. With growing apprehension looming, speculations of a potential sale began to emerge.
In April 2023, De La Rue issued another profit warning, lamenting the low demand for banknotes generally. “The demand for banknotes has been at the lowest levels for over 20 years, resulting in a low order book going into” the 2024 fiscal year, it said in a filing to the London Sbanknotestock Exchange. The firm followed this up by adjusting its operating profit outlook for the 2024 fiscal year to nearly £20 million ($25 million), half of its previous unadjusted estimates of £40.1 million ($50 million), according to Refinitv data published in Insider.
“The challenge at the moment is that there simply isn’t quite the demand there to be where we want to be, which is disappointing,” Vacher told Reuters. The company has however noted a more positive outlook for its authentication business, which is expected to exceed £100 million ($125 million) for the first time in the coming fiscal year.
Allegations and a desperate offer
In addition to these tumultuous events, the firm found itself ensnared in a criminal investigation involving India’s former finance secretary, Arvind Mayaram. The Central Bank of India accused Mayaram of illegally granting a three-year contract to De La Rue in 2013 for supplying exclusive security thread for Indian bank notes.
The situation compelled De La Rue to release a statement to the London Stock Exchange denying any involvement with the Indian government or its central bank since 2016. “The company believes that there is no merit to the allegations that relate to De La Rue, and is seeking legal advice in this regard,” the statement said.
The same month, the firm announced that it was also suspending printing in Kenya due to reduced global demand for banknotes and the ongoing investigation involving Mayaram.
The firm stated: “Importantly, the joint venture between De La Rue and the government of Kenya remains active, and the company continues to explore further business opportunities, both in Kenya and for export from Kenya, with a view to restarting production if the economic climate permit.”
Furthermore, De La Rue’s answer to the Bank of Tanzania’s 822 billion-shilling ($328 million) tender in late April proves that the company has definitely lost its mind in a desperate search to recover its profitability. The financial offer from De La Rue for each denomination banknote appears to be 2 to 3 times the price offered by serious contenders like Germany’s Giesecke+Devrient or the USA’s Crane Currency.
This chaotic behavior is akin to a headless chicken running around. A surprising position, given that De La Rue fought hard on the legal front to ensure that its offer was not excluded from the pre-selection process. It won the legal battle, but the result is a commercial proposal that seems completely out of step with the competition and with reality.
It remains to be seen if the firm can recover and alleviate the concerns of its shareholders. Retaining client confidence in this niche sector is crucial if banknote printing firms are to maintain long-term success. De La Rue, as it tackles crisis after crisis and continues to lose contracts and value, is facing a crisis of confidence. A real restart may be required if the firm is to survive.
[Naveed Ahsan edited this piece.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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