A licence to print money, but De La Rue still can't make any
Wednesday 24 November 2010
De La Rue might have a licence to print money – but it is having a hard time making it and last night the crisis-wracked banknote printer's shares plumbed fresh depths amid fears of that one of its biggest customers is preparing to cash in its chips.
The revelation came as the company, bruised by production problems at its Overton plant, published the latest in a series of grim updates. Its executive chairman Nicholas Brookes declined to identify the customer but reports have suggested it could be the Reserve Bank of India, the country's central bank.
De La Rue, which prints currency, supplies banknote paper to governments around the world and worked on the new Iraqi bank notes, said it had "not heard" whether it will "continue or not continue supplying this customer," said to be one of its company's biggest.
The company's woes date back to the summer, when it said quality and production irregularities would hit sales. Weeks later, its chief executive James Hussey resigned and, in September, the company revealed that some employees had "deliberately falsified certain paper specification test certificates for a limited number of customers". As might be expected, banknote paper must meet certain detailed standards. but De La Rue said its probe had shown that in certain cases "a small number" of parameters had "fallen marginally short of specification". The company put on a brave face, telling investors that it had fixed the issues and was confident that "neither the physical security nor the security features in the paper have been compromised".
The errors have hit half yearly pre-tax profits by £35m – in line with a warning in September – and depressed banknote paper output by nearly 29 per cent. Banknote print volumes were down nearly 30 per cent over the same period.
De La Rue also confirmed that an internal investigation conducted with the City law firm Herbert Smith had concluded and that "it will continue its dialogue and co-operation with the appropriate authorities", including the Serious Fraud Office. On the management front, its finance director, Colin Child, continues to act as chief operating officer. Mr Child will continue in that role, and Mr Brookes will remain as executive chairman, until De La Rue appoints a new chief executive officer.
Looking ahead, the company said its outlook remains clouded as "customer discussions are yet to be concluded", adding: "Pending this, the financial impact on the group for the full year and subsequent years remains unclear."
The disclosures sent De La Rue shares down 11 per cent to 557.5p. The stock has fallen by around 40 per cent since the beginning of July.
JP Morgan Cazenove analysts said that while yesterday's results offered some answers, "material uncertainty remains". "The statement addresses some of the many unanswered questions, but the most important aspect remains unclear – whether the group will suffer the loss of a material contract," they explained.
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