It Might Be Time To Start Growing Money on Trees: De La Rue is Barely Treading Water

From the British sterling to the Seychelles’ rupee, more than a third of the world’s currency bills have been designed by a single private firm based just outside of London. Entrusted with global currencies for more than two centuries, Britain’s De La Rue has long enjoyed an industry monopoly. A series of revelations about De La Rue mismanagement and corruption, however, might finally see the firm print its final note.

"Beneath the pretty designs is a piece of national infrastructure. Economies rest on banknotes," De La Rue creative director Julian Payne boasted to US media last year, “You have to understand how people use their money.” Less than a year later, it’s not clear that De La Rue adequately understood how to use its own money, and the firm’s shares are in freefall as a result.

Indeed, De La Rue’s financials make for grim reading. Net company debt has climbed to £107.5 million, more than double last year’s £49.9 million. Annual profits have moved in the opposite direction, dropping more than 77 percent since last year, while the stock price tumbled off a cliff, from 457p in May to around 220p in August. “It’s been a challenging year,” reads the 2019 Annual Report, “but we remain confident about the future.”

It can only be this sense of optimism that explains the De La Rue’s controversial pay policies, which came under attack within the firm’s own boardroom earlier this summer. Despite a series of profit warnings and the loss of a lucrative £490 million contract to print the UK’s post-Brexit blue passport, the outgoing Chief Executive Martin Sutherland is set to enjoy a payout barely shy of £1 million, including more than £100,000 in long-term incentives.

Activist investor and De La Rue shareholder Crystal Amber has described Sutherland’s package as “shameful,” and they have good reason to do so. At the same time as Sutherland is exiting the flailing banknote printer with bulging pockets, De La Rue pensioners have been forced to take a hit on behalf of the company’s balance sheet. In November 2017, De La Rue “reindexed” the pension fund from a retail price index (RPI) based sum to a consumer price index (CPI) calculation, creating a one-off, £80.5 million non-cash gain. The reindexing is estimated to have cost each pensioner, on average, a brutal £12,000.

If only De La Rue’s woes ended there. Last month, the UK Serious Fraud Office (SFO) launched an investigation into the firm over “suspected corruption” in the conduct of business in South Sudan. De La Rue secured the contract to design and print South Sudan’s inaugural banknotes in 2011 when the country first formed; at the time, the deal was vital to boosting the printer’s revenues in the wake of a failed takeover bid and a production crisis involving the Reserve Bank of India.

This will be the third time De La Roe falls under the SFO spotlight. In 2010, the firm was forced to notify the British regulator after some employees were found to have falsified paper specification certificates in an error that ultimately cost De La Rue at least £35 million; in 2007, an SFO probe saw the firm’s offices raided across three premises.

Nor is this the first time the British currency giant has gotten into trouble over its operations in Africa. In 2017, the Kenyan High Court suspended the award of the country’s currency printing contract to De La Rue after the Central Bank of Kenya was accused of awarded the firm favourable terms and stifling competition.

Tellingly, this decision was later overturned by an appellate court and, in April this year, De La Rue announced a joint venture between one of its subsidiaries- listed as dormant in its 2018 filings- and the government of Kenya. The deal saw the Kenyan treasury take up a 40% stake in De La Rue Kenya EPZ Limited, one of the three subsidiaries held by the British printing giant in Kenya.

The company seems set to rise like a phoenix from the ashes of its own cash printing operations- and straight into vital anti-tax fraud regulation.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.