Ticket maker De la Rue slashes profits as Omicron accelerates turnaround

Monday, January 24, 2022 2:03 PM

De la Rue said it would cut its earnings forecast after a tumultuous year thanks to Omicron and supply chain issues.

The ticket maker now expects adjusted operating profit for the full year to be broadly similar to the prior year, in the £36-40m range, compared to market expectations of around £45-47m.

Since this morning’s update, shares have plunged as much as 27%, wiping out a quarter of the company’s value.

The announcement refers to rising raw material and energy costs, as well as supply chain challenges, which have heavily impacted chips and other processing raw materials for the company.

On top of that, he also cited staff absences as the reason he lowered his expectations.

The Basingstoke-based company launched a “turnaround plan” in February 2020, which aimed to reorganize the business to “grow with an efficient and appropriate cost structure”. However, the original plan was delayed for a year after the first coronavirus outbreak.

While the company predicted that external factors will continue to disrupt its efforts, it said the substance of the original plan had not changed: “currency growth areas, driven by the continued and accelerating trend of conversion to polymer, and authentication, driven by the growing demand for digital and physical solutions for governments and enterprises, remain solid and in line with the expectations of the Plan”.

De la Rue also indicated that it will intensify its efforts to achieve further efficiencies and cost reductions, in order to mitigate external factors.

Clive Vacher, Managing Director, said: “While this business update is disappointing, it should be seen as a delay in achieving the objectives of our turnaround plan, rather than an indication that a change in management is necessary.”

“Company management has worked hard to mitigate many of these external effects, with the cost reduction activities we have implemented since the start of 2020 having a significant impact on supporting our underlying performance while we navigate between these external factors. The markets in which we operate, and our position in them, remain strong and we continue to make substantial investments for the future.

Despite Vacher’s perceived confidence in the recovery, investors seem unconvinced.

AJ Bell chief investment officer Russ Mold said: ‘Ticket printer De La Rue left shareholders feeling poorer as it warned of profits thanks to supply chain issues and staffing shortages associated with the Omicron variant of Covid-10.

“Despite insisting a turnaround plan has been delayed rather than derailed, many investors aren’t sticking around to find out.”

George Lawrie, vice president and principal analyst at research firm Forrester, added: “Commodity, energy and transportation costs are soaring as the global economy takes a beating after a period of inactivity. Demand for semiconductors has surged as the work (and play) from home trend has led to huge demand for laptops and gaming stations.

“The trend of moving work, applications and payments online will continue and drive demand for enterprise authentication services.”

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