De La Rue shares fall after ticket maker issues profit warning over rising costs

British currency maker De La Rue warned that profits would be hit by the rising cost of supplies, sending its shares sharply lower on Wednesday.

The company, which makes British banknotes, said “further headwinds” would reduce adjusted operating profit for 2023. It added that there was now a “substantial degree of uncertainty in the outlook “, with supply chain inflation expected to increase operating costs by £5m. This year.

“It is possible that disruptions will affect revenue,” the company said. “The board now expects full-year 2023 adjusted operating profit to be broadly flat versus full-year 2022, and weighted toward the second half. “

De La Rue shares fell more than 8% on Wednesday afternoon to around 102p. The company’s supply chain includes chips used in passports, while it also faces rising costs for raw materials such as chemicals and petroleum-based polymer sheets used to make banknotes. Transportation costs are also increasing and its suppliers are also increasing their prices due to their own energy costs.

British companies have warned of falling profits this year due to rising costs in their supply chains and the impact of inflation on consumers.

Marks and Spencer on Wednesday warned of cost pressures and economic uncertainty, while its Ocado Retail joint venture cut its growth outlook as costs continue to rise. Analysts wondered how much of this could be passed on to the consumer or how much it would hit margins.

Online estate agent Purplebricks also warned on Wednesday that it will post a loss this year, following a slowdown in home sales as interest rates rise and concerns about the broader economy intensify.

De La Rue said it was making progress on its turnaround strategy, which includes cutting costs and streamlining its operations. The company has improved its market position across all of its business divisions, he added.

Clive Vacher, chief executive of De La Rue, said he was “working hard to fend off” cost pressures, but the wider macroeconomic environment remained uncertain.

“We have cautiously revised our outlook for FY 2022-23 adjusted operating profit, due to new headwinds experienced since the end of our fiscal year, and a realistic expectation of the extent to which we can mitigate.”

The company had already been forced to admit that a turnaround plan begun by its new management would take longer than expected after it missed analysts’ forecasts for operating profit for this year.

Vacher added that while progress had slowed, De La Rue remained “strongly on track strategically and operationally to build a strong, cash-generating business over the medium term.”

De La Rue recorded adjusted operating profit of £36.4 million in the 12 months to the end of March, compared with £38.1 million the previous year. Revenue also fell to £375.1m from £397.4m last year. However, last year’s figures include sales of businesses that have now been sold or closed.

The company achieved operating cash flow of £18.3m, compared to a net outflow of £5.6m last year, while net debt rose to £71.4m. pounds, down from £52.3m.

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