Banknote printer De La Rue has issued a bleak trading update, warning that this financial year’s pre-tax profits will be around 25% less than last year’s £77.3m.
The firm, which has a large manufacturing facility in Gateshead employing around 400 people, last month announced it was on the cusp of a lucrative contract with the Bank of England having been selected as preferred bidder for a 10-year printing contract.
However, current trading conditions have deteriorated across the group since the firm issued its AGM statement in July, prompting the firm to release a downbeat trading update for the six months to September 27 2014 which will not make good reading for incoming chief executive Martin Sutherland, who takes up his post next month.Delays in securing potential contracts, lower margins and slow rate of growth in some of its divisions has led the firm to predict pre-tax profits for the full year to be £20m lower than last year’s £77.3m – a drop of 25%.
And in the next financial year the firm expects profitablity to be hit further, for a raft of reasons.
In the firm’s July statement the board said that, based on production and shipment schedules agreed with customers, it was expected that the performance of the group would be weighted to the second half of the current financial year.
Now the company has said that while performance for the first half of the current financial year will be broadly in line with expectations: “Trading conditions across the group have deteriorated such that expectations for the current and next financial year are now lower.
“Within the currency division recent orders secured for delivery in the current and next financial year have been good in respect of volumes but disappointing in respect of pricing.
“The challenging market conditions reported at the AGM have deteriorated further with lower prices and reduced margins in both banknote print and paper.
“In the solutions division the rate of growth in new business has been significantly slower than expected and at lower margins.
“Within the international business of identity systems the trend towards “e” passports from machine readable passports has been disappointing.
“In addition a number of prospective orders in the pipeline have not been put out to tender as expected but have been extended with the incumbent supplier.
“Within the security products business the rate of growth in Government Revenue Solutions has been slow and has not mitigated the declines in some of the other product lines.
“The cash processing solutions business is on track to achieve its target of breakeven this financial year.
Based on recent orders and current trends, the firm said it also expects the current difficult market conditions to continue in the 2015/16 financial year.
The firm said: “The effect of the more recent pricing pressures together with certain contractual price reductions, which will come into effect in 2015/16, on a number of long-term contracts will impact margins and profitability further.”
The board said it will now reappraise the level of the company’s dividend for the full year but in November it expects to announce an interim dividend of 8.3p per share, down from the previous 14.1p.
Martin Sutherland, the group’s new chief executive, joins the company on October 13.