12th Apr 2023 11:47
(Alliance News) - The weak demand for banknotes and a dwindling order book at De La Rue PLC alarmed investors on Wednesday, as the firm cut profit annual guidance.
The banknote printer said it expects annual adjusted operating profit to be "a mid-single digit percentage" below market expectations in the year to March 31.
Last May, the Basingstoke-headquartered firm had guided for annual adjusted operating profit to be at "around the same level" as the GBP36.4 million in financial 2022, owing to inflationary headwinds. Investors were not thrilled at the time, with the prospect of growth grinding to a halt sending its share price down.
After the latest cut to its outlook, its shares were trading down 23% at 38.42 pence each in London on Wednesday morning.
The stock has lost more than half its value in 2023 so far, and is down 92% over the past five years.
"The British currency and passport maker has been suffering from weak demand for banknotes which is languishing at a 20-year low," explained interactive investor's Victoria Scholar.
The weak demand has also caused the firm to enter financial 2024 with a "low" order book. For financial 2024, it currently expects annual adjusted operating profit to be in "the low GBP20 million range".
The softening of demand in recent months in just another stumbling block in a litany of setbacks over the past few years.
"In recent years, De La Rue has struggled with the major loss of its British passport contract after Brexit, increased costs, supply chain woes, and a structural decline in demand for physical cash amid the rise of contactless payments and digital banking," Scholar said.
Back in 2018, De La Rue lost out on the contract to produce British passports after the UK left the EU. The 11.5-year GBP260 million contract was instead, perhaps ironically, awarded to Franco-Dutch digital security group Gemalto, which later became part of Thales's Digital, Identity & Security arm.
More recently, it has had to defend attacks from its 9.8% shareholder Crystal Amber Fund Ltd over the past few months.
"Activist investor Crystal Amber Funds recently said the group's turnaround plan announced three years ago is failing 'by every measure' and the company is 'failing to control' various fees paid out. The activist has also been trying to remove [Kevin] Loosemore as chairman but he survived a vote in December," Scholar added.
Since December, Crystal Amber has once again called for Loosemore to be removed from the board, and replaced with Pepyn Dinandt.
De La Rue last said it was "considering the contents and legality" of the requisition notice from Crystal Amber at the end of March.
More positively, the firm expects revenue in its Authentication to top GBP100 million for the first time in financial 2024.
However, to Scholar, it will take "drastic change...to convince shareholders of a rosier outlook".
By Elizabeth Winter, Alliance News senior markets reporter
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