The share price of De La Rue (DLAR) plummeted after the banknote printer issued profit warnings for both this year and next as trading conditions have continued to deteriorate across its core markets.
The group has struggled with overcapacity and pricing pressures in the banknote paper market over the past 18 months. Although order volumes at the Currency division have held up reasonably well, lower price realisations have dogged financial performance, while new business orders at the Solutions division have trailed off significantly. Group trading has also suffered due to the slower than expected uptake of machine readable passports, together with order declines for some product lines at De La Rue's Security Products business. As a result, underlying operating profit for the March year-end will be down by around £20m on the 2013-14 figure of £89.3m.
The negative effects of the recent pricing pressures will come into effect in 2015-16, eroding margins and profitability linked to a number of long-term contracts. The gloomy outlook has prompted the group to review its dividend pay rate. De La Rue now expects to pay an half-year dividend of 8.3p, down from 14.1p in the same period last year.
This is the group's second profit warning within the space of a year - hardly an ideal scenario for De La Rue's new chief executive, Martin Sutherland, who is due to take the reins midway through October. But at least he joins in the knowledge that the Gateshead money maker has managed to keep costs in check, and was recently selected as preferred bidder for a 10-year printing contract with the Bank of England (BoE).
