The share value for banknote maker De La Rue has fallen steeply after the company reported a fall in annual profits and cut its dividend.
De La Rue says that a combination of difficult trading conditions and the pound's strength against the euro have all been problematic for the company. Stiff competition in the banknote business has also contributed to annual profits falling by more than a third (35 per cent).
Pre-tax profit for the year to end of March dropped to £38.9 million. Although this was in-line with profit warnings that were issued last year, the company also reduced its dividend to 16.7p per share – this means that the annual payout is down to 25p a share from 42.3p.
In a statement, the 202-year-old company said that the board understood the importance of the payout to shareholders, adding that it would try to avoid further reductions. Over the past year, shares have nearly halved and they fell up to ten per cent in early trading on Wednesday (May 28th), bringing the price to 493p.
De La Rue prints banknotes for central banks in 150 countries. Paper prices have been going up since 2013, while competition means that printing rates are going down. The company says that the drop in the value of the euro has caused increased price pressure in Europe and has given competitors on the continent a cost advantage over a business that charges in sterling.
"As anticipated in September 2014, the difficult market conditions have continued into the new financial year. More recently, however, the weakness of the euro against sterling has given the eurozone suppliers a commercial advantage, putting some further pressure on the group's profitability," the company said.
There is good news for the business, however. In September, the Bank of England awarded De La Rue a ten-year contract to print the UK's first plastic banknotes. These are expected to start appearing in 2016 – the first of which will be a £5 note featuring Winston Churchill.
However, the latest contract with the Bank of England is less profitable than previous deals with the bank.
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