May 30, 2019 / 6:44 AM / 9 months ago

Passport maker De La Rue stock plummets after profit warning, CEO departure

(Reuters) - Banknote and passport printer De La Rue said its chief executive would quit as it warned on Thursday of a profit downturn this year, sending its shares down 29% to a near 15-year low.

FILE PHOTO: A mock-up of a British passport is held by an anti-Brexit protester outside of the Houses of Parliament, in London, Britain, March 18, 2019. REUTERS/Toby Melville/File Photo

The glum statement from the group, which last year lost the contract for Britain’s new blue passports, contrasts with a year ago when it said the sale of its struggling paper business and technology investments would help it recover from a profit plunge.

“De La Rue is starting to feel like an analogue stock in a digital age,” AJ Bell investment director Russ Mould said, noting its new boss would not face an easy task. “After all, the company prints bank notes in an increasingly cashless world.”

Martin Sutherland had agreed to step down as chief executive after nearly five years in the post and a process to identify a successor had begun, De La Rue said.

It did not say if Sutherland would get a payoff but said further details of his remuneration would be published later on its website.

The group, which prints some 7 billion banknotes and 15 million passports a year, announced cost cuts aimed at saving more than 20 million pounds ($25 million) by fiscal year 2022 and said it would reorganise its business to sharpen its focus on currency and authentication services.

De La Rue, which produces passports for 40 countries, also took a one-off 18.1 million pound charge related to a Venezuelan customer unable to transfer funds due to sanctions imposed on the country.

CONTRACT DELAYS

The company lost the 400 million pound contract to make UK passports in the traditional blue colour, announced last year in a move the government said was an expression of British independence and sovereignty after the vote to leave the EU, to Franco-Dutch group Gemalto.

That contract loss led to a 3.7 million pound write-off and together with delays in some contracts prompted a profit warning in April last year.

To offset weakness in its traditional businesses the company has been moving into new areas and it recently secured a contract with the UK tax authority HMRC to implement a track-and-trace system for all tobacco products sold in the UK.

It also won a contract with Saudi Arabia to implement and operate a digital tax stamp system for all tobacco products and soft drinks sold in the country.

For the time being however it remains prey to a squeeze in its mainstay operations, and it warned its margin would be impacted by competitive pressures in banknote printing. It expected operating profit for the current year would be “somewhat lower” than the previous year.

Mould noted passport contracts could also disappear. “Its other core activity printing passports is reliant on government contracts which can be lost, as was the case in the UK a year ago,” he added.

The company reported a 6% rise in adjusted operating profit for the year ended March 31 to 60.1 million pounds ($76 million). Analysts on average had expected 62.2 million, according to company compiled estimates.

De La Rue shares were down 29% at 324 pence by 1010 GMT.

Reporting by Sangameswaran S in Bengaluru; Additional writing by Noor Zainab Hussain; Editing by Susan Fenton and David Holmes

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