De La Rue left investors feeling short-changed on Wednesday after the company that makes banknotes for the Bank of England reported a slump in annual profit, slashed its dividend and warned that the pound’s strength against the euro had added to its difficulties.
Pre-tax profit for the year to the end of March fell 35% to £38.9m, in line with expectations reduced by two profit warnings last year. The 202-year-old company cut its final dividend to 16.7p a share from 28.2p a year earlier, taking the annual payout to 25p a share from 42.3p.
De La Rue said difficult trading conditions had prompted the dividend cut but the board understood the importance of the payout to shareholders and that it would try avoid further reductions. De La Rue shares slumped 8.9% on the news, closing down 49.5p at 504p.
The company’s main activity is making paper and printing banknotes for central banks in 150 countries. Prices for paper have been under pressure since 2013, while competition is pushing down rates for printing too. De La Rue said price pressure had increased in Europe because of the fall in the euro, allowing continental rivals a competitive edge over a business that charges in sterling. Revenue fell by £41m to £472m last year, more than wiping out the benefits of a £21m reduction in operating costs.
Martin Sutherland, De La Rue’s chief executive, said he would be surprised if investors were concerned about the dividend cut.
“We are paying the dividend this year in line with previously set market expectations and our ambition is to maintain it at the current level, which I think shows that I and the board think we have got a robust strategy.”
The company said long-term pressure on prices and margins caused by competition for printing banknotes had persisted. The shift to digital passports, for which it makes security features, was slower than expected.
Underlying operating profit from banknote production fell 17% to £51m as De La Rue cut prices to maintain volumes.
The company scored a victory in September when the Bank of England awarded it a 10-year contract to print the first plastic banknotes issued by the Bank. They are scheduled to appear in 2016, starting with the new £5 note featuring Winston Churchill. But the contract is less profitable than De La Rue’s previous deal with the bank.
Sutherland, who took over as chief executive in October, said the company needed to invest more money in higher-growth businesses such as polymer notes and security features for passports and identity cards. He also plans to reduce De La Rue’s reliance on a small number of contracts, including for the Bank of England and HM Passport Office.
Sutherland said: “Nothing against those contracts. They are good business for us and we think we have got very happy customers. We want to make sure we have a broader spread of business so we are less exposed to the challenges in one particular market.”
• This article was amended on 28 May 2015. An earlier version said that the company would print Britain’s first plastic banknotes, rather than the first to be issued by the Bank of England.
