April 18, 2018 / 4:19 PM / 7 months ago

De La Rue drops blue British passport bid, says profit hit

LONDON (Reuters) - De La Rue abandoned its challenge to Britain’s decision to award the contract for new blue post-Brexit passports to a foreign firm and issued a profit warning on Wednesday.

Its shares fell as much as 9 percent to a year low of 446 pence and closed down 4.4 percent after the company said it would write-off about 4 million pounds ($5.7 million) of costs associated with the failed bid.

Together with delays in some contracts in the last week of its financial year, that would result in it missing profit expectations, De La Rue said in a statement.

Britain on Wednesday confirmed Franco-Dutch firm Gemalto had been awarded the contract to make the new passports, which will run for 11-1/2 years and has a value of 260 million pounds.

Prime Minister Theresa May said the decision to change British passports from the burgundy shade used by most European Union countries to the traditional dark blue was an expression of British independence and sovereignty.

But reports a foreign firm had won the tender to produce the new passport led to criticism from some politicians and newspapers that the government was being unpatriotic, and De La Rue had said it would challenge the decision.

Britain said the contract award would see Gemalto add 70 more jobs to its UK workforce.

De La Rue, which prints 7 billion banknotes and 15 million passports a year, said that having considered all options it would not appeal the decision, which the British government said followed a “rigorous, fair and open competition”.

A handout photograph shows the original 'blue' British passport, which was subsequently replaced by the burgundy EU British passport, supplied by the UK government in London, Britain, March 22, 2018. UK Government/Handout via Reuters/Files

SURPRISED AND DISAPPOINTED

The existing contract to make British passports is worth 400 million pounds and the new contract starts in October 2019, after Britain leaves the EU in March that year.

De La Rue’s Chief Executive Martin Sutherland told BBC radio that he remained “surprised and disappointed”, but he had taken a pragmatic business decision not to appeal.

Underlying operating profit for the year to end-March would be in the low to mid 60s million pound range, the company said.

Analysts at Investec, who were predicting 71 million pounds, said it was a “disappointing outcome”.

Revenue for the year had increased by about 6 percent, with growth across all product lines, De La Rue said, although it added it was “cautious” about its current financial year.

It said it would assist with the transition to the new supplier, and was expecting no impact on its performance in the next 18 months.

Trade union Unite said news that De La Rue was abandoning its appeal would come as a bitter blow to workers in Gateshead, north east England, who now faced an uncertain future.

A handout photograph shows the original 'blue' British passport, which was subsequently replaced by the burgundy EU British passport, supplied by the UK government in London, Britain, March 22, 2018. UK Government/Handout via Reuters

“Workers will feel let down that the company is not prepared to fight the government’s decision to ship the production of the new blue passport overseas,” Unite national officer Louisa Bull said.

($1 = 0.7037 pounds)

Additional reporting by Alistair Smout, Editing by Guy Faulconbridge, Alexander Smith and Mark Potter

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