British banknote maker De La Rue has warned that its profits will miss full-year forecasts as demand for cash is falling, reaching its weakest level in 20-years, sending shares to record lows on Wednesday.
The struggling company said the downturn in demand for physical currency was also causing ‘significant uncertainty‘ in its outlook and it expects order levels to remain low for the rest of the financial year 2023.
The company is in talks with lenders to seek an amendment to its banking terms due to the worsening outlook and has requested its pension trustee to defer its next deficit contribution of £18.75million ($23.40million).
“The challenge at the moment is that there simply isn’t quite the demand there to be where we want to be, which is disappointing,” CEO Clive Vacher told Reuters.
Covid pandemic impact
Governments and central banks all over the world had stock-piled huge amounts of cash during the pandemic and are delaying new orders as they deplete their stock, De La Rue said.
The drop in demand for notes may also serve as an early sign of a potential global economic downturn as banks need to hold less cash if they cut lending and customers spend less.
Modern notes last longer too. The Bank of England estimates polymer notes circulating in Britain, made by De La Rue, last two-and-a-half times longer their paper equivalents.
Vacher, who launched a turnaround plan for De La Rue in 2020 including an increasing focus on polymer notes, said he expected “progressive recovery” in the next six to 12 months based on current “very high” volume of bids, which would take time to show up as revenue if bids are won.
The over 200-year-old company, which works with governments, central banks, and commercial organisations in more than 140 countries, signalled in November 2022 significant doubts about its ability to continue as a going concern.
De La Rue shares, which have lost more than half of their value so far this year, fell more than 20% to 39 pence on Wednesday to a record low.
The company said it expected adjusted operating profit for the year ended on March 25 to undershoot market expectations by a mid-single digit percentage.
In November, it had warned fiscal 2023 profit would be between 30 million pounds ($37.26 million) and 33 million pounds.
It forecast on Wednesday adjusted operating profit to be in the low 20-million-pound range for its fiscal 2024.
On the positive side, revenue at its authentication business, which designs and makes secure documents as well as security features such as holograms to authenticate goods, is expected to exceed 100 million pounds for the first time in 2024, partly thanks to its Australian passport contract.