When the stock market opened this morning (12 April), De La Rue’s share price immediately crashed by more than 34% to a new 52-week low of 32.80p.
De La Rue issued three profit warnings during 2022, and five months ago said that full-year adjusted operating profit was expected to be £30m-£33m, compared with analyst estimates of around £36m.
Today’s trading update stated that the adjusted operating figure was now likely to be a “mid-single digit percentage below market expectations”.
The group said that the demand for banknotes was at its lowest level for more than 20 years, with the downturn impacting its Currency division and resulting in “a significant degree of uncertainty in terms of outlook for FY24”.
Although De La Rue said that it expected sales at its Authentication division to top £100m for the first time, that part of the business is also being impacted by lower sales of PCs worldwide, with PC sales not likely to recover until next year according to analysts IDC.
Having previously disagreed with auditors who had flagged a material uncertainty over De La Rue’s ability to meet its banking covenants, today the group was also forced to admit this was now an issue.
It stated: “The company is in discussions with its lending banks in relation to seeking an amendment to its banking covenants, reflecting the revised outlook and also reflecting the increase in the company's funding costs resulting from higher Bank of England base rates.”
It also hopes to gain some financial headroom by seeking approval from the trustee of the De La Rue Pension Scheme to defer the upcoming £18.75m deficit repair contribution.
De La Rue profit warning: In December, we wrote to the directors that it was clear that there was sufficient visibility that market participants should be updated that outlook for revenues and profits was much worse than consensus. Did the board only become aware last night?
— Richard Bernstein (@CrystalAmberRB1) April 12, 2023
At its last actuarial valuation of the scheme in December 2019, the scheme had a £190m deficit. The agreed recovery plan involves payments of £15m per annum (payable quarterly in arrears) from 1 April 2020 until 31 March 2023 and then payments of £24.5m per annum (quarterly in arrears) from 1 April 2023 until 31 March 2029.
Flagging “the considerable degree of uncertainty around the outlook”, De La Rue’s board – currently under fire from activist investor Crystal Amber Fund – said that full year adjusted operating profit for financial year 2024 was likely to be “in the low £20m range”.
In response to the trading update, Crystal Amber director Richard Bernstein tweeted: “In December, we wrote to the directors that it was clear that there was sufficient visibility that market participants should be updated that outlook for revenues and profits was much worse than consensus. Did the board only become aware last night?”
Crystal Amber has called for De La Rue chairman Kevin Loosemore to be removed.
De La Rue’s share price recovered slightly after the opening shock, but was still down nearly 30.5% at 34.77p (52-week high 118.80p) at 9am.
The group will announce its results for the year ending 25 March on 31 May.
Regarding its banknotes wing, De La Rue also said there were “encouraging signs that the market is recovering”, although the timing of any recovery remained uncertain.
Over the Easter weekend the BBC reported from the Bank of England print works at Debden, where De La Rue has begun printing the new banknotes featuring King Charles III. De La Rue's contract to operate the facility runs until 2028.
