De La Rue shares were in the red on Wednesday morning, after it reported a fall in adjusted operating profit, and warned of flat operating profit in the year ahead.
The London-listed company said adjusted operating profit totalled £36.4m for the 12 months ended 26 March, down from £38.1m year-on-year, but consistent with the guidance it gave in January.
IFRS operating profit rose to £29.7m from £14.5m.
On a divisional basis, revenue in authentication was up 16.4% to £90.3m, while adjusted revenue in currency declined 2.1% to £280.9m.
IFRS revenue totalled £375.1m for the year, down from £397.4m in the 2021 financial period.
De La Rue said net debt was “comfortably” within market expectations and banking covenants through “strong” cash management, while its balance sheet remained strong.
It also reported “strong” operating cash flow generation of £18.3m for the year, swinging from an outflow of £5.6m a year ago.
Since the end of the financial year, De La Rue said it had experienced further headwinds that were expected to impact adjusted operating profit in the 2023 financial year.
While the company was making “significant” progress in its transformation programme, the external environment was providing a “substantial degree of uncertainty” in its outlook.
In particular, the board said supply chain inflation was expected to increase group operating costs by an additional net of £5m in the new financial year, with a possibility that disruption could affect revenue.
For that reason, the board said it now expected that adjusted operating profit for 2023 would be “broadly flat” versus 2022, and weighted towards the second half.
Despite the unprecedented macroeconomic environment, De La Rue said it was continuing to make progress with addressing legacy issues and streamlining its operations.
The markets in which it operates remained “strong”, and De La Rue said it was improving its market position across both business divisions.
Its board was “confident” of De La Rue’s future prospects as a “strong, cash-generative” company.
“Despite unprecedented global events, we grew adjusted operating profit in our two ongoing divisions by 30.2% year-on-year, with currency up 20.4% and authentication up 44.2%,” said chief executive officer Clive Vacher.
“This performance was against the background of supply chain inflation, and the various impacts of Covid-19, none of which were anticipated in the original turnaround plan of February 2020.
“We have made significant further progress in the execution of our operational transformation, enhanced our market positions in both divisions, and driven further efficiency improvements across the group.”
Vacher said across the board, De La Rue had taken a number of actions since 2020 to de-risk the company “significantly”, and was continuing to address legacy issues.
“Successfully agreeing a £57m reduction in cash payments to the pension scheme, while enhancing protections for scheme members, is the latest example of delivering for all stakeholders.
“We are advancing our investment programme, with the significant majority of currency’s planned capital expenditure already paid and contributing to overall performance.
“Our authentication division continues to grow, and good progress has been made in implementing the contracts already won.”
The firm had “prudently” revised its outlook for the 2023 financial year’s adjusted operating profit, Clive Vacher added, due to further headwinds experienced since the end of its financial year, and a “realistic expectation” of how far they could be mitigated.
“While this means that our progress is slowed, we remain strongly on the right path strategically and operationally to create a strong, cash-generative company in the medium term.”
At 0945 BST, shares in De La Rue were down 7.75% at 102.4p.
Reporting by Josh White at Sharecast.com.
