De La Rue eyes deeper cost cuts as turnaround plan gathers pace

De La Rue’s new chief executive Clive Vacher updated on his turnaround plan for the troubled company, centred on an increase in its cost saving target to £35m (around $45m) a year.

That goes much further than its earlier target if £20m in savings in fiscal 2020/2021, leading to speculation that there may be further job losses at the company as it tries to breathe new life into its banknote operations and tries to grow its emerging authentication business.

The cost-reduction plan will cost it around £17m this year, according to the trading update, but have already trimmed costs by around £10m this fiscal year. The cutbacks will allow De La Rue to tender for currency orders it would previously have declined.

Investors responded positively to the plan, causing a spike in De La Rue’s share price which has been depressed for months as a result of a series of setbacks for the company, including the loss of a contract to make the UK’s new post-Brexit blue passport which was won by Franco-Dutch rival Gemalto.

The company – which has issued a profit-warning, faced down an investor revolt last year and is under investigation by the Serious Fraud Office – said in December that it could be at risk of collapse if its turnaround plan doesn’t work as hoped.

Vacher – who took the helm last October – said the turnaround plan is “on track” and along with “extensive cost reduction…offers a substantial investment opportunity for growth,” although he cautioned there is still a lot of work to be done.

He ruled out any more near-term divestments following the sale of its international identity solutions business last October for £42m.

De La Rue said that authentication business will deliver plenty of growth this year, driven by the adoption of tobacco tax stamp scheme to comply with the World Health Organization’s Framework Convention on Tobacco Control (FCTC). It’s expecting sales to reach £100m in fiscal 2021/2022.

The strategic plan for its currency division involves tapping into the shift from paper to polymer banknotes, which still only account for 3 per cent of the world’s banknotes by volume and 12 per cent by denomination. It currently has orders in hand that account for 70 per cent of its manufacturing capacity for next year.