Wed 06/17/2020 03:57 AM
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U.K. security printed products manufacturer De La Rue reported a 17.4% decline in revenue for the full-year ended March 28 to £466.8 million. Adjusted EBITDA, pre-IFRS-16, fell 48.7% year over year to £40.7 million. The decline in revenue was driven by a drop in currency volume and average price which offset the significant increase in authentication revenue.

The group announced today that it is seeking to raise £100 million of equity, and has reached an agreement with its lenders to extend the maturity of the RCF to Dec. 1, 2023, and relax the applicable financial covenants and secure additional committed bonding facilities.

Subject to at least a £100 million raise in equity by July 31, the £275 million RCF will be extended by two years to December 2023, and reset the interest cover ratio to equal to, or greater than, 2.4x for full-year 2020/2021, 2.8x for full-year 2021/2022 and 3x beyond that date. Additionally, De La Rue agreed with the Pension Trustee to reduce annual contributions to the U.K. Defined Benefit Scheme from £23 million per year to £15 million during 2020 to 2023.

If De La Rue does not raise at least a £100 million in the equity raise by July 31, it is required to agree an alternative financing plan with its lenders within 45 days of July 31. Failing this would automatically trigger an immediate event of default under the RCF.

The group was in line with its debt covenants, EBIT/net interest payable was covered at 5.2x against a covenant of greater than or equal to 4x coverage. Covenant net debt/EBITDA was 2.24x against a covenant of less than or equal to 3x. Net debt decreased to £102.8 million from £107.5 million at March 30, 2019, reflecting £42 million of proceeds from the sale of International Identity Solutions, partially offset by a working capital build, £17.9 million dividend payment, pension funding contributions and capital expenditure.

On Feb. 25, the group launched a turnaround plan from full-year 2020/2021 to full-year 2022/2023 to target improved and more sustainable profitability in the currency division, driven by cost reductions and investment in polymers where there are attractive market opportunities, the company said.

This has resulted in the group starting a consultation process to cease banknote printing at the Gateshead site in northern England. Subject to the consultation, the company said it expects banknote printing operations to cease at Gateshead by the end of the calendar year.

De La Rue is enacting an accelerated cost-cutting program with a substantive proportion scheduled to complete by August 2020. Targeted savings on an annualized basis from the second half of 2020/21 will be approximately £35.9 million, including actions already realized in full-year 2019/2020, which are expected to secure £24.8 million of annualized savings. This will exceed previous cost-reduction commitments of £20 million. The cost reductions will allow De La Rue to tender for currency orders it would have previously declined, it said.

The group is targeting the currency division to improve profit sustainability. It said it sees the opportunities in improving the profitability of banknotes, protecting and growing the group’s paper security feature provision. Since 2013, 83% of issued banknotes on polymer globally have selected De La Rue Safeguard.

Much of the revenue decline was attributed to the currency division, where revenue fell 29.5% year over year to £315.1 million. This was caused by significant pricing pressure in the first half of 2019/2020 as a result of reduced overspill demand and the ability to competitively bid for contracts. Cost-reduction programs in the second half improved the group’s ability to respond to market changes. After the full-year 2019/2020, the currency division has experienced strong demand, and has been awarded contracts representing 80% of the available currency printing capacity.

Adjusted operating expenses, excluding exceptional items, fell £20.1 million as a result of cost-cutting initiatives and the sale of International Identity Solutions in October 2019. However, adjusted EBITDA pre-IFRS-16 fell 48.7% to £40.7 million.

Reported net cash from operations was £5.1 million compared with negative £6.6 million in full-year 2018/2019. This was attributable to a reduction in the working capital build, which was negative £21.1 million compared with negative £59.9 million in full-year 2018/2019. Levered cash from operations was negative £0.9 million for the full year.

A financial summary is below:
 
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