De La Rue plc (LON:DLAR) shares plunged on Thursday as the firm announced the departure of its chief executive alongside a profit warning and the launch of a three-year cost-cutting programme to offset the impact of losing a key contract with the British government to provide UK passports.
The banknote and security printer said it has started the search for a new chief executive to replace Martin Sutherland, who is stepping down after five years.
READ: De La Rue signs £3.5mln contract with HMRC to deliver track and trace service for all UK tobacco products
“With a clear strategic vision now in place and being executed, now feels like the right time for me to hand over to a new leader, to take things to the next phase,” said Sutherland.
Cost-cutting programe and reorganisation
In a separate statement, the company said it has set out a three-year cost reduction programme to deliver annual savings of £20mln by fiscal year 2022.
The group also plans a reorganisation of the business over the next year to “enhance our strategic focus and generate greater efficiencies”.
That will include simplifying the business to focus on two divisions – currency and authentication. The group currently has three divisions including currency, identity solutions and product authentication and traceability (PA&T).
“By aligning the group structure into two divisions focused on our chosen markets, we will not only optimise the operations of each division to the market dynamics they face, but we will also give ourselves future strategic options,” De La Rue said.
The restructuring plan comes after the group was beaten by European rival Gemalto to a £400mln, 10-year deal to print UK passports. Its current contract to produce UK passports is set to expire in 2020.
De La Rue has launched a strategic review of its international identify business following the loss of the contract.
"The strategic review of our international identity business is ongoing, and we are making good progress,” Sutherland said with Thursday’s full-year results.
De La Rue posted a 6% rise in adjusted operating profit to £60.1mln for the year to the end of March 2019.
Revenue increased 12% to £516.6mln, led by growth in its currency division.
Currency revenue was up 16% to £398.9mln due to higher volumes in banknote printing and the growth of security features. However, margins came under pressure from tough competition in the banknote print industry.
The group also took a £18mln charge after the Venezuelan central bank was unable to pay its bill after the US imposed sanctions on the country’s oil sector. The country has been facing an economic crash and saw inflation hit 130,000% last year.
Profit to fall in 2020 due to competitive pressures in banknote print sector
De La Rue said the banknote print market is expected to become “increasingly competitive” as the strong demand driven by overspill in the last few years starts to normalise.
“This will create some significant headwinds for the group in the year ahead,” the company said.
The group expects that 2020 operating profit will be “somewhat lower” than the current year due to the margin pressures in currency, while revenue is forecast to be flat.
In early morning trading, shares in De La Rue was the London market's biggest casualty, down 26% at 337p.
AJ Bell investment director, Russ Mould, said: “Printing firm De La Rue is starting to feel like an analogue stock in a digital age. After all the company prints bank notes in an increasingly cashless world."
He added: “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."
Mould said the next chief executive "will not face an easy task".
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