The unraveling of De La Rue is underway as banknote demand sinks

April 12, 2023

De La Rue (LON: DLAR), the giant banknote printer, issued its third profit warning since January 2022 as demand for cash slumped to the lowest level in two decades. The company warned that it was seeing a sharp decline in orders from central banks as more people shift to digital cash.

There are concerns about the company’s future as countries globally move away from physical cash. In fact, in a statement in 2022, EY, the company’s auditor, issued a going concern warning. The statement said that there was a severe but plausible downside scenario that the company would breach its debt covenants if it lost key covenants. 

As part of its strategy going forward, the company said that it would seek for new terms from its banks because of the soaring interest rates. Rates have jumped globally as central banks work to contain the elevated inflation. In the UK, the Bank of England has hiked interest rates to 4.25%.

De La Rue is also under pressure from Crystal Amber, the company’s biggest investor. The fund requested the company to consider breaking up its business. In such a scenario, one business would focus on printing currency while the other one would focus on authentication.

The other challenge is that the company is facing huge inflationary concerns that have affected its revenue and profitability. Its currency business revenue fell by 12% in the six months to September last year to 116 million pounds. 

De La Rue share price has taken a hit from this turmoil. The shares plunged by more than 24% on Wednesday and slipped to a record low of 33.35p. In all the stock has dropped by more than 65% from its all-time high, bringing its market cap to over 73 million pounds.

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