De La Rue’s plight stands out amidst rough patch for British business

Dark clouds have certainly been gathering over the British business world in recent weeks. The pound sterling has plunged steadily, hitting a two-year low against the US dollar and dipping below €1.09, as markets have begun to price an increasingly likely no-deal Brexit. The Bank of England sliced UK growth forecasts last week, holding interest rates steady for the eleventh straight month. Major firms including Tesco and HSBC have recently announced thousands of job cuts.

Even amidst this generally gloomy atmosphere in the City, one firm is particularly beleaguered: 198-year-old banknote printer and security provider De La Rue. The firm was supposed to embody British national pride by manufacturing its post-Brexit blue passports, but its bid was significantly undercut by French-Dutch security firm Gemalto. Falling short on the £490m passport contract was undoubtedly a blow to both De La Rue’s pride and bottom line, but its woes have continued to deepen—despite the firm’s efforts to overhaul its image and business model. 

Restructuring met with mixed results

Facing a 77% drop in 2018 profits, dismal profit predictions for the coming year and investment analysts terming it “an analogue stock in a digital age”, De La Rue announced earlier this year that chief executive Martin Sutherland would leave at the end of his contract. It was not enough to appease shareholders and, hot on the heels of the announcement, DLR Chair Philip Rogerson was forced to announce his resignation.  More walkouts and terminations should not surprise analysts. The Banknote sector is tight, and the company was forced to sell its Identity business to HID, an American competitor. The move was prompted by needs to improve cashflow and focus more on the small but potentially expanding business in product authentication and traceability. 

After years of effort, De La Rue inked track and trace contracts for tobacco products and soft drinks in the UAE and Saudi Arabia. However, those projects are still in the implementation phase, and it’s too early to tell whether the technology will deliver on its promises. De La Rue also scooped up a contract to provide Unique identifiers to support the UK’s track-and-trace system required under the EU Tobacco Products Directive (TPD) as part of an effort to stamp out the lucrative—and dangerous—illicit tobacco trade. However, since De La Rue does not have a proprietary solution, it immediately subcontracted the UK contract to Atos.  

Contentious contract to trace tobacco

The UK’s choice of De La Rue to track tobacco products and its decision to outsource to IT giant Atos is not without controversy. The French company may be known for its digital expertise, but its history of cosy ties with the tobacco industry through Atos Worldline makes it a problematic partner in the effort to track smokes. 

The World Health Organisation (WHO) has clearly underlined that any system for tracking and tracing tobacco must be completely independent from the tobacco industry—not least because the major cigarette manufacturers have repeatedly been found complicit in the smuggling of their own products.  

Tobacco Smuggling

While the tobacco industry has publicly supported initiatives to crack down on illicit tobacco trade, in private it has endeavoured to subvert such schemes for its own ends. It has done so most notably by developing its own pseudo-solution, Codentify, which it has attempted to market to governments as a suitable track-and-trace scheme over the WHO’s strenuous objections. 

Atos—the very firm now supposed to be assisting De La Rue implement an industry-independent system—helped the major tobacco companies develop Codentify and promote it from Lithuania to Asia. Atos’ intimate links with the industry raise serious questions over its fitness to put into practice the unbiased scheme called for by the WHO—in fact, Chile already disqualified Atos from a track-and-trace tender over these tight ties —as well as about De La Rue’s judgment in selecting business partners.

Big trouble in South Sudan 

Even aside from these worries over tobacco industry interference, De La Rue’s track-and-trace rollout in the UK has been anything but smooth. As many as 70% of tobacco retailers have been unable to register for mandatory ID codes, amid complaints that the online system De La Rue and Atos set up frequently malfunctions and that support requests go unanswered by De La Rue.

Since late July, however, De La Rue has bigger problems on its plate than unhappy customers. Just days before a general meeting at which it barely fended off a shareholder revolt, the centuries-old firm was forced to admit that the UK’s Serious Fraud Office (SFO) has opened a probe regarding suspected corruption in South Sudan, where De La Rue has printed banknotes since the country’s independence in 2011. 

De La Rue has weathered SFO probes before. In 2010, some of its employees were caught falsifying documents—ironically, the South Sudan contract “put De La Rue back on track” following this scrutiny. The fresh investigation, however, risks being the straw that breaks the camel’s back on the heels of such a long stretch of controversy and bad luck. De La Rue shares plummeted to their lowest point since 1998 after the firm disclosed the probe, and minority shareholders called for De La Rue executives to give up their bonuses. 

Phoenix reborn or mired in the problems of the past?

Some financial analysts have suggested that the root cause of De La Rue’s deluge of unfavourable headlines is that it is a “prisoner of the past”, remaining overly dependent on its currency business in an increasingly cashless world. This reliance makes the latest SFO probe, affecting the banknote printer’s core business, a particularly bitter pill to swallow.

The investigation not only throws a wrench into the profitable contract with Juba, but if De La Rue is found to have committed wrongdoing, it could make it extremely difficult for the firm to compete in public tenders in the future. In some EU member states, conviction on corruption charges can prevent companies from participating in public procurement procedures for years.

De La Rue maybe banking on the burgeoning product authentication and tax stamp market to turn its fortunes around. It’s certainly a sector with plenty of opportunity for growth as countries increasingly attempt to tackle illicit trade, particularly in tobacco products. The example of the UK’s track-and-trace system, however, suggests that this too might be fraught with problems. 

The partnership with Atos may have seemed like a natural fit: the UK collaboration could have led to a more global alliance in which De La Rue would be awarded track-and-trace contracts as an independent third party without ties to Codentify, while Atos took care of the project implementation.  

In reality, however, it has only contributed to the common thread running through De La Rue’s woes: the security firm— whose success relies on it producing trustable tax stamps, banknotes and other vital documents around the world—falls short of inspiring trust in its own business practices.

Main image: The Debden Security Printing Ltd printing facility, owned by De La Rue, which prints Bank of England banknotes.

By Benj Roberts - originally posted to Flickr as The Royal Mint, CC BY-SA 2.0,

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Phillipe Jeune

Phillipe Jeune

Phillipe Jeune is a Paris-based freelance journalist, and an occasional contributor to EU Today. He has a background in intelligence gathering, and he specialises in business and political matters, with a particular interest in Central Asia, the Middle East, and the Americas.

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