Supply chain snags cost De La Rue millions

Posted on 26th Jan 2022

Currency maker De La Rue has slashed profit projections by around £10m due to factors including supply chain disruption and cost inflation.

In a trading update the company said employee absences at factories caused by Covid variants would lower output, while increased commodity and energy costs had “become more pronounced”.

“The Omicron and Delta variants have caused substantially increased employee absences in our manufacturing facilities globally, which will result in lower total operational output for the full year,” said De La Rue.

“More recently, the group has also been affected by supply chain shortages in chips and other process raw materials and has experienced a degree of supply chain cost inflation.”

Clive Vacher, CEO at De La Rue, told PA News some raw materials were being bought in spot markets where prices were “quite volatile”.

As a result the company said profits were forecast at £36m-40m, down against market expectations of around £45m-47m.

The company said its turnaround plan, announced after it lost the contract to produce the UK passport to French-Dutch firm Gemalto, would be delayed by 12 months due to the disruption.

Vacher 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 turnaround plan, announced in February 2020, included targeted annualised savings of around £35m.

The UK government transitioned to Gemalto in 2020, having previously said the new contract would save up to £120m.

De La Rue produces currency for more than half of the world’s central banks and issuing authorities.

By: Will Green