De La Rue sheds its sicknote at last

Proof shareholder activism works. Rewind to April last year and a company with a licence to print money was, once again, demonstrating that it was far better at torching it.
De La Rue had just issued its fourth profits warning in 16 months. The shares were down to 40½p, valuing the group at just £79 million — less than the £100 million it had raised from investors at 110p in July 2020. And the double act at the top — chairman Kevin Loosemore and chief executive Clive Vacher, who’d arrived within days of each other in October 2019, with the shares at 190p — were sounding delusional.
A few months before then, auditor EY had slapped a “material uncertainty” alert over the group’s “going concern” status: a move that had prompted a rant from Vacher that its analysis was “neither plausible nor realistic”. Yet, here he was, admitting to talks with its lenders over “an amendment to its banking covenants” and demanding that the pension trustees defer “£18.75 million of deficit repair contributions”.
In short, De La Rue was out of control: a situation likely to have got far worse if the shareholders hadn’t done something about it. Richard Bernstein, the manager of the activist fund Crystal Amber — then with 10 per cent — had long been gunning for Loosemore: the former Micro Focus boss mainly famous for buying $8.8 billion of assets from Hewlett-Packard and discovering it wasn’t quite the “click and repeat” deal he’d breezily claimed. But, after profits alert No 4, other investors, notably Schroders, joined in. Within days, Loosemore had gone.
Vacher survived. But in came new chairman Clive Whiley to sort out the mess. And, as the latest news shows, he’s having some success. Whiley spotted that, despite printing banknotes with the King’s ’ead on ’em, De La Rue was probably worth more dead than alive: a point driven home by the sale of its “authentication” wing to America’s Crane NXT for £300 million cash. De La Rue shares jumped 14 per cent to 107½p.
It’s a decent price for a division that provides digital security labels, tax stamps and holograms to counter brand fakes, tobacco smuggling and identity theft. The business had £103 million sales last year, with operating profits of £14.6 million and gross assets of £83.3 million. Still, thanks to recent contract wins, there’s £350 million of future revenues in the tank, while Crane NXT had scope to pay up. It owns a similar business in OpSec, so should find some synergies.
Better still, the deal transforms what’s left: “a substantial step forward on our route to realise the underlying intrinsic value” of De La Rue, as Whiley put it. It now plans to repay its revolving credit facility, where it had drawn £118 million cash at July’s full-year figures, and put £42.5 million into repairing its pension deficit: a hole of £78 million at the last actuarial valuation.
The upshot? The deal will deliver a De La Rue focused on banknote printing, with £70 million net cash, on the forecasts of broker Investec, and with a de-risked pension scheme. Or what looks a takeover target, with another £150 million to come from selling the currency wing, on the maths of Crystal Amber, which raised its stake to 16.8 per cent after Whiley joined.
True, that’s still not the greatest outcome for a 211-year-old group that rejected a 935p-a-share bid from France’s Oberthur in 2011. Yet, as Bernstein puts it: “The business was looking terminal 18 months ago. If we hadn’t changed the chairman, it was heading towards administration.” Thanks to investors taking action, at least De La Rue is no longer a licence to lose money.
If only Boeing had made a better job of plugging holes earlier. The fallout from January’s door panel blow-out, on an Alaskan Airlines 737 Max 9 jet, gets pricier by the day. After a year the plane maker would like to forget, it’s now arrived at this destination: forced to tell the market that it may need up to $25 billion in fresh capital, with the group also lining up a $10 billion credit facility from four US banks.
The Alaska fiasco has triggered quite a tailspin: regulators forcing Boeing to slow production until it fixed its shoddy manufacturing, so infuriating big customers, not least Ryanair; a board shake-up, with the arrival of new boss Kelly Ortberg; a machinists’ strike, exacerbating the production delays and costing $1 billion a month, on estimates from ratings agency S&P; a warning, last Friday, of 17,000 job cuts plus a further delay, out to 2026, for its 777X plane; and a share price down about 40 per cent this year.
On top came a financial threat that could put the business into even more of a nosedive: a warning from S&P and Moody’s that they could downgrade Boeing’s credit rating to junk. That would whack up the interest on its $58 billion debts, while seeing an exodus of investors unable to hold non-investment grade stocks. Worse, with cash and marketable securities down to $10.5 billion — close to the minimum Boeing says it needs — striking workers could try to hold the group to ransom.
Analysts had already pencilled in a $10 billion capital raise. So, Boeing’s filings could be read two ways. That either it’s in a worse state than thought, or that a group valued at $94 billion can still amass plenty of firepower: maybe the reason the shares went up. Either way it’s got another expensive hole to plug.
Central bankers look away now. Here’s Donald Trump telling Bloomberg what he thinks of Jerome Powell’s job. “You show up to the office once a month and you say, ‘Let’s say flip a coin’ and everybody talks about you like you’re a god”. The Fed chairman would disagree. But some interest rate decisions do seem like that.