COVID 19 Impacts De La Rue Turnaround Plan

De La Rue has announced a trading update on the financial year ending March 2022, as well as an update of progress on its Turnaround Plan, which unsurprisingly has been impacted by the pandemic.

When announcing its half year results last November, De La Rue noted increased commodity and energy costs, and challenges in the supply chain. Since then, the problems, primarily due to COVID, have become more pronounced. The Delta and Omicron variants have led to substantially increased employee absences in manufacturing facilities globally, which, the company said, will result in lower total operational output for the full year. Also, the Group has been affected by supply chain shortages in process raw materials and chips and has experienced a degree of supply chain cost inflation.

As a result, De La Rue says that it now expects adjusted operating profit for the full year to be broadly similar to that of last financial year, ie. in the £36-40 million range, compared with market expectations in the region of £45-47 million. However, the company also noted that the outlook for Currency and Authentication still represented an increase in adjusted operating profit in the range of 35-45% compared with £27.5 million last year.

Furthermore, the company noted that the global implications of the pandemic were not present when it announced its Turnaround Plan in February 2020; it anticipates that the impact will simply delay the conclusion of the plan by approximately 12-months. But the Board retains full confidence both in the plan and in its execution, and further changes are not anticipated.

The company also noted that it is intensifying its efforts to deliver further efficiencies and cost reductions to mitigate some of the negative effects of the pandemic.

Commenting in the statement, Clive Vacher, CEO said: ‘despite the macro challenges that are delaying aspects of the Turnaround Plan, De La Rue continues to increase adjusted operating profit in both divisions year on year, and the Plan anticipates this to continue going forward.’

‘While this trading update is disappointing, it should be seen as a delay to reaching our Turnaround Plan objectives, rather than indicating that a change of direction is required. The company's leadership has worked hard to mitigate many of these external effects, with the cost reduction activities we have implemented since early 2020 having a significant impact in supporting our underlying performance while we navigate these external factors.’ The share price fell by around 27% on the announcement on 24 January, but is already showing signs of a recovery. The results for the full year are expected to be announced on 25 May 2022.