Banknote printer De La Rue raises £100 million for turnaround plan to invest in plastic notes that survive the washing machine and "beat covid"
Troubled banknote printer De La Rue is raising £100 million from investors to back its new chief executive's turnaround plan, including doubling its capacity to print plastic banknotes better able to be cleaned to fight covid.
The announcement followed yesterday's decision by the Serious Fraud Office to drop a corruption probe over its activities in South Sudan.
De La Rue, which famously lodged a petulant appeal when it lost the contract to print the UK's new blue "Brexit" passports, has been struggling for several years amid tough competition and perceived weak management. But shareholders today backed new chief executive Clive Vacher's strategy to rebuild the business. Most of the proceeds of the fundraiser will go towards investing in rolling out durable polymer banknotes and sophisticated authentication stamps for tax authorities on goods such as cigarettes, as well as anti-counterfeiting stickers on laptops and other devices .
Those two elements of the business form the basis of Vacher's three-year turnaround project.
The funds will also be used to pay for the restructuring and cost reduction plans, likely to include redundancy payments.
After the investment, De La Rue's capacity to print polymer banknotes will double from current levels. Plastic notes, famed in the UK for being "washing machine-proof" are expected to replace paper notes around the world in the coming years as countries prefer their durability.
Vacher, whose company primarily makes notes in emerging market countries outside Europe and North America, said demand had held strong despite the covid epidemic which drove UK shops to contactless card-only transactions as part of social distancing.
"Cash demand continued to rise through covid very strongly in our regions of the Middle East, Asia, South America and Africa where we're seeing very rapid population growth. What we are seeing, though is a trend from paper to polymer because the evidence is that polymer is cleaner."
In the next 18 months, De La Rue will double its polymer note capacity, building a second production line processing the film that is used to print the notes on. This is likely to be in the UK due to the expertise built up at its current plant outside Bolton. Once prepared, the film is exported to the country printing the notes or to De La Rue's print sites in the UK, Malta, Kenya and Sri Lanka.
Vacher hoped De La Rue's authentication business would capture market share from the number one player Sicpa. De La Rue is currently the number two player in a fast growing market increasingly using smart track and trace systems, particularly in tax stamps on products such as cigarettes.
On the SFO probe, Vacher said he was unable to comment as the investigators had not detailed what the alleged infringements had been. He said the fundraiser had not been dependent on the SFO announcement, adding that he had not been expecting it.
As part of the fundraising deal, Vacher has secured an agreement from De La Rue's pension trustees to cut the company's contribution from £23 million to £15 million a year and secured an extension in its bank credit facilities to 2023.
The package relieves the dire financial situation for the company and would mean it no longer carries a "going concern" warning from its auditors.
The proposed fundraiser will be in the form of a placing of new shares at 110p a share, underwritten by Numis and Barclays bank. That represents a discount of 28% to closing price of 152.8p last night.
