With all due respect to MMT – i.e., none – recent events (Venezuela, Argentina) have shown that countries printing their own money can and usually will eventually print their way into monetary oblivion and hyperinflation. It now appears that money printing companies are also not immune from the vagaries of Finance 101.
Take embattled UK banknote printer De La Rue, whose new management led by CEO Clive Vacher, warned the company’s £171 million debt pile – up a whopping £63 million – meant it could breach its banking covenants if trade continues to worsen, costs are not slashed and the business fails to get paid on time. As a result, as part of its latest quarterly results in which the company with the ironic ticker DLAR reported a 15% drop in revenue and a £12 million loss, the new CEO announced plans for a “radical review” and scrapped the company’s £26m dividend to give the business breathing space, sending its stock tumbling by as much as 25% earlier today, and wiping nearly 70% of the company’s value in 2019. The company is now valued at just £140 million, less than its money-printer’s total debt.
According to the Telegraph, Vacher said De La Rue has gone through an “unprecedented period of change” in which the chairman, chief executive, senior independent director and most of the executive team have left or resigned.
The chief executive denied the announcement was a “kitchen sinking” – throwing out all the bad news and blaming previous management, and said: “These results are the first step in the healing process of showing where we stand. We have a laser-like focus on immediate actions to get the business back on track. This is not a last-minute scramble, we have a long-term plan.”
And while the message from management was clear – the company is facing a grim future if underlying business trends do not reverse, the company’s battered shareholders refuse to give up hope: Richard Bernstein, fund manager at Crystal Amber which has a 7% stake in De La Rue, said: “At this price De La Rue is very cheap. I’m certain bidders are looking at it.”
Sure they are, although they may well be looking for the company to first file and then scoop it out of bankruptcy court for pennies on the dollar.
The activist investor added that De La Rue’s profitable product authentication arm which does security printing to identify genuine products is likely to be the main target for a bidder. “Product authentication is worth several times more than De La Rue’s market value on its own,” Bernstein said, but added he would be unlikely to sell unless it was a “knock-out” price.
It got better: apparently encouraged by the side-effects of much more money printing elsewhere, if not at De La Rue, Bernstein said “I’m bizarrely encouraged by today’s announcement,” adding that “new management have come in, identified the problem and are taking steps to deal with it – I just wish it had happened sooner.”
Vacher – who has run turnarounds at companies including Rolls-Royce and Pratt & Whitney in the past – said he had “no plans to sell any part of the business.”
However, he added: “As a public company we are up for sale all the time but I have had no more detailed approach than the odd email – there have been no serious offers.”
Meanwhile, the findings of CEO Vacher’s review which aims to get the loss-making banknote printing unit back in the black are due by March. He refused to rule out the possibility of job cuts, saying all options are open. A fundraising is also not being ruled out.
As the Telegraph reminds us, De La Rue’s latest troubles come after a “torrid year for the company during which the Serious Fraud Office opened an investigation into the business – which is still ongoing – following allegations of suspected corruption in related to currency printing contract in Africa.”
Ironically, the business also took a £18 million hit due to uncollected sales from its top client, Venezuela, which has been on a literal money-printing spree in recent years, after US sanctions came into force and it lost the contract to print British passports late last year, resulting in a very public row with the Government.