Sat. May 28th, 2022

The largest shareholder in De La Rue has criticized management strategy and pushed the board to consider a break-up or sale of the British currency printer after a profit warning this week.

Richard Bernstein, head of activist investor Crystal Amber, said the company had lost money for shareholders by focusing on volume sales of its currency rather than on gross profit.

Close to a quarter was wiped off the value of De La Rue after it said on Monday its turnround would take a year longer than planned and that pandemic-induced supply chain disruption would hit full-year profits.

Bernstein said the company had sacrificed most of its £ 36m of cost savings by reducing prices, leading to a commodification of its banknotes.

The industry required consolidation, he told the Financial Times, saying it was “highly likely” that in the coming months De La Rue “will be the subject of a takeover bid from one or more of its overseas competitors”.

Bernstein said he had held talks with a number of rival groups about a potential bid. Crystal Amber had been in talks with De La Rue’s chief executive Clive Vacher and chair Kevin Loosemore, he added.

Bernstein predicted that a sale of the company’s authentication business alone would generate significantly more than the company was worth after this week’s share price slump.

Shares in De La Rue fell sharply on Tuesday to 111p, a level last hit in June 2020. During 2021, Crystal Amber reduced its shareholding in De La Rue from 15.1 per cent to 10 per cent.

De La Rue said on Monday that adjusted operating profit would probably be £ 36m- £ 40m for the year to March 26, broadly similar to the previous financial year but below the market consensus of £ 45m- £ 47m.

The company’s travails come after it brought in new management in 2019 to oversee a three-year turnround plan having been forced to warn over its future.

Bernstein also urged the board to resolve issues with its pension scheme to reduce future contributions and increase free cash flow, and to strengthen the teams internally to push gross profits rather than volume sales.

Vacher told the FT the board had confidence in its strategy, and rejected the criticism of its sales policy.

He added that it was not reasonable to compare profits with 2010, when the business had five divisions, and that there would still be “substantial” growth in its core businesses of currency and authentication of 35-45 per cent this year.

“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 declined to comment on takeover rumors or progress on its pension talks.

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