- Banking covenants under pressure
- Forecasts halved for 2024
Shares in De La Rue (DLAR) dropped by 30 per cent in early trading, after the company issued its third profit warning in 12 months. According to management, demand for banknotes is at “the lowest levels for over 20 years” resulting in a small order book going into financial year 2024.
The group expects adjusted operating profit for the year ended 25 March 2023 to be a “mid-single digit percentage” below market expectations of £30.1mn. Meanwhile, adjusted operating profit for 2024 is expected to be in the “low £20mn range”, compared with analyst forecasts of £40mn.
According to chief executive Clive Vacher, the trading update reflects a “continued downturn in the currency market” which should improve in the second half of the financial year.
As a result of the downgrade, De La Rue has been forced to seek amendment to its banking covenants, and the situation has been made worse by higher interest rates. Vacher said it was the group’s interest cover covenant, as opposed to its liquidity covenant, that was under pressure. Management has also asked to defer the next £18.75mn deficit repair contribution to its pension scheme.
Pressure is mounting on the group. Last month, activist investor Crystal Amber renewed its efforts to oust the group’s chair, Kevin Loosemore, by requisitioning a general meeting. In an open letter to shareholders, the fund - which has a 10 per cent stake in De La Rue - complained of a “gross failing of stewardship”, “excessive” payments to professional advisers, and a “failure to protect shareholder interests”.
De La Rue said it is considering the contents and legality of the requisition notice and “further announcements will be made as appropriate”.
The group plans to publish its full year results on 31 May 2023.
