Banknote maker De la Rue downgrades profits as Omicron batters turnaround
De la Rue has announced that it will be downgrading its profit expectations after a tumultuous year thanks to Omicron and supply chain woes.
The banknote maker now expects adjusted operating profit for the full year to be broadly similar to last financial year, in the £36-40m range, versus market expectations of approximately £45-47m.
Since the update this morning, shares plunged as low as 27 per cent, wiping a quarter of the company’s value.
The announcement references the increased commodity and energy costs, and challenges in the supply chain, which have heavily impacted chips and other process raw materials for the firm.
On top of this, it also cited staff absences as a reason why it has downgraded its expectations.
The Basingstoke-based firm launched a ‘Turnaround Plan’ in February 2020, which set out to revamp the company to “grow with an efficient and appropriate cost structure”. However, the original plan was delayed for a year following the first coronavirus outbreak.
Whilst the company has predicted that the external factors will continue to disrupt its efforts, it said the substance of the original plan has not changed: “the growth areas of Currency, driven by the continuing and accelerating trend of conversion to polymer, and Authentication, driven by increasing demand for digital and physical solutions for governments and corporations, remain strong and in line with the Plan’s expectations”.
De la Rue also reported that it will be intensifying efforts to deliver further efficiencies and cost reductions, to mitigate external factors.
Clive Vacher, chief exec said “While this trading update is disappointing, it should be seen as a delay to reaching our Turnaround Plan objectives, rather than indicating that a change of direction is required.”
“The Company’s leadership has worked hard to mitigate many of these external effects, with the cost reduction activities we have implemented since early 2020 having a significant impact in supporting our underlying performance while we navigate these external factors. The markets in which we operate, and our position in them, remain strong, and we continue to execute substantial investment for the future.”
Despite Vacher’s perceived confidence in recovery, investors seem unconvinced.
AJ Bell investment director Russ Mould commented: “Banknote printer De La Rue left its shareholders feeling poorer as it warned on profit thanks to supply chain issues and staff shortages associated with the Omicron variant of Covid-10.
“While it insists a turnaround plan has been delayed rather than derailed, many investors are not sticking around to find out.”
George Lawrie, VP principal analyst at research firm Forrester, added: “Commodity, energy and transportation costs are soaring as the global economy suffers a bullwhip effect after a period of inactivity. Semi-conductor demand leapt as the work (and play) from home trend sarked huge demand for laptops and play stations.
“The trend to move work, applications and payments online will continue and drive demand for the company’s authentication services.”