British banknote printer De La Rue’s financial struggles have sent the stock crashing, with the company seeking to amend banking terms with lenders while facing decades-low cash demand.
For fiscal year 2023, 200-year-old De La Rue “expects full-year adjusted operating profits to be a mid-single-digit percentage below market expectations,” said the company in an emailed statement to The Epoch Times. “The downturn in currency, impacting both De La Rue and the wider industry, is causing a significant degree of uncertainty in terms of outlook for fiscal year 2024. The demand for banknotes has been at the lowest levels for over 20 years, resulting in a low order book going into fiscal year 2024.”
Even as a market recovery is underway, said the company, “the timing of this recovery remains uncertain.”
De La Rue is said to be talking to lenders to modify its banking terms amid high interest rates and a worsening outlook. In addition, De La Rue has also asked its pension trustee to defer deficit contributions for a period of five years.
At the London Stock Exchange, the share price of the company fell from £50 on April 11 to £38.45, a decline of over 23 percent. So far this year, shares have fallen by more than 50 percent.
“The challenge at the moment is that there simply isn’t quite the demand there to be where we want to be, which is disappointing,” CEO Clive Vacher told Reuters.
During the pandemic, central banks and governments worldwide stockpiled huge amounts of cash. Now, they are delaying orders as their stocks get depleted, the company said. De La Rue supplies currency notes to 140 countries across the world.
The tough situation facing De La Rue is not unforeseen. Back in November 2022, the company had said that its annual profits for the year ending March 2023 would miss market estimates. In the six months ended September 2022, the company reported an almost 47 percent decline in adjusted operating profit.
“De La Rue has struggled with … a structural decline in demand for physical cash amid the rise of contactless payments and digital banking,” said Victoria Scholar, head of investment at online investment platform Interactive Investor.
UK’s cash usage has dropped in recent years. In 2017, debit cards overtook cash as the most popular method of payment for the first time. Almost a decade back, 60 percent of payments were made in cash. However, this number has now dropped to about 15 percent.
Industry estimates put the number of people in the United Kingdom at more than 23 million who use cash just once a month or not at all. Only as few as a million people use cash for daily shopping activities.
Modern notes also last longer, contributing to lower demand. For instance, polymer notes in the United Kingdom are estimated by the Bank of England to last two and a half times longer than paper notes.
Vacher is expecting a “progressive recovery” for De La Rue over the coming six to 12 months due to the current “very high” volume of bids.
In its half-year update report published on March 21, the Crystal Amber Fund, which holds nearly 10 percent equity in Da La Rue, criticized the company’s management for blaming “factors outside of its control.”
Da La Rue has made “operational and strategic mistakes,” the fund said, while pointing out that company margins have shrunk because the firm failed to secure new business for its currency as well as Authentication divisions.
“Despite savage cost-cutting, margins in both divisions are unacceptable. Driving down costs in an attempt to avoid a fourth profit warning is not a good strategy. It is revenue that matters: removing headcount means that when business is won, orders cannot be fulfilled,” Crystal Amber Fund said.
“Even after significant investment funded by shareholders, the business still fails to generate cash, and it is all too evident that the turnaround plan has failed.”
The fund pegged Da La Rue’s current market capitalization at £103 million. After adjusting for the capital raise in 2020, this would mean that the company only has a capitalization of £3 million.
“When Kevin Loosemore became chairman in October 2019, before the £100 million fundraise, De La Rue’s market capitalization was £205 million. Immediately prior to announcing the 2020 fundraise, De La Rue’s market capitalization was £125 million. This is a like-for-like 98 percent reduction in returns to shareholders.”
According to De La Rue, revenue from the Authentication division will “exceed £100 million for the first time” in fiscal 2024. The company board “currently expects full-year adjusted operating profit for fiscal year 2024 to be in the low £20 million range.”