Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- De La Rue PLC (DELRF, Financial) achieved an adjusted operating profit of GBP21 million, in line with market guidance.
- Authentication division exceeded annual revenue of GBP100 million for the first time.
- Successfully renewed all four significant contracts in the Authentication division, adding over GBP150 million in expected contract value.
- Order backlog across both divisions is expected to deliver over GBP600 million in future revenue.
- Operating cash flow improved to GBP26.2 million despite a fall in adjusted operating profit.
Negative Points
- Revenue for the period fell by GBP39.4 million or 11.3% compared to the previous year.
- Gross profit decreased by 6.7% or GBP6.2 million.
- Adjusted operating profit dropped by 24.5% or GBP6.8 million year-on-year.
- Currency division revenue fell by 18.7% to GBP207.1 million due to lower orders and selling volumes.
- Net debt remains higher than desired, although it outperformed original and revised targets.
Q & A Highlights
Q: How should we think about the margins going forward for the authentication division given recent history and maybe from the sort of margins it was doing two or three years ago?
A: Dean Moore, Interim CFO: The contract renewals were essential to continue the progress in terms of revenue and margin progression. The authentication business is scalable, and as it grows, we can expect margins to improve. The pipeline is substantial and covers all activities within authentication, including ID, brand, and GRS.
Q: Has the pipeline for authentication potential contract wins or tendering changed in the type of product and service you're offering to potential customers over the last 12 months?
A: Dean Moore, Interim CFO: The pipeline is substantial and covers all activities within authentication. We have opportunities in ID, brand, and GRS, both from expansion of existing schemes and new territories. As the business expands its revenue line, it will show an even healthier bottom line over time.
Q: Does De La Rue have an innovation strategy to address the competitive market in the high-security document and authentication sector?
A: Clive Vacher, CEO: We are innovating, particularly in software and digital features, which are being implemented on existing schemes and position us well for future opportunities. While physical product innovation is visible, our digital innovations are equally significant but less obvious externally.
Q: How will De La Rue defend against new competitors in the polymer market?
A: Clive Vacher, CEO: We have been innovating in polymer for over a decade, building relationships and credibility. The product is complex, and we have over 100 polymer denominations in the market. While new entrants pose a threat, it will take time for them to gain a significant foothold, and by then, market demand for polymer will likely be larger.
Q: What is the outlook for the currency division given the recent improvements and new competitors?
A: Clive Vacher, CEO: The currency division has seen a significant improvement in the trading environment since late 2023. The order book is growing, and our win rate for currency tenders remains high. We are well-positioned to profit from the current recovery and future opportunities, with a strong focus on products like SAFEGUARD polymer substrate.
Q: Can you provide more details on the financial performance and strategic options for the group?
A: Dean Moore, Interim CFO: Revenue for the period was GBP310.3 million, down 11.3% from last year. Adjusted operating profit was GBP21 million. We have made progress with strategic options, and the Board is confident that one or more will complete, allowing the repayment of the RCF in full before its expiry date on July 1, 2025.
Q: What are the key drivers for the year-on-year movements in revenue and profit?
A: Dean Moore, Interim CFO: The fall in currency revenue was partially offset by growth in authentication. Authentication saw strong sales in ID and stable performance in GRS. Currency was impacted by the industry-wide slowdown, but operational margins held up well. Exceptional items were significantly lower than last year.
Q: How has the company's cash flow and net debt position evolved?
A: Dean Moore, Interim CFO: The business generated a net operating cash inflow of GBP26.2 million. Working capital flows were neutral, and net interest payments increased due to higher base rates. We achieved a net GBP4 million reduction in gross borrowings and maintained liquidity and covenant compliance throughout the year.
Q: What is the status of the pension scheme and deficit repair contributions?
A: Dean Moore, Interim CFO: We deferred GBP18.75 million of contributions and agreed on a new schedule with the pension trustees, reducing cash contributions to GBP8 million per annum from FY25 to FY27. The IAS 19 liability for the pension scheme has decreased slightly to GBP51.4 million.
Q: What is the overall outlook and strategic direction for De La Rue?
A: Clive Vacher, CEO: De La Rue achieved a robust performance in FY24, meeting targets and navigating a challenging environment. Both divisions are well-placed to benefit from market normalization. We have an aggregate order backlog of GBP600 million and expect significantly improved operating profit in FY25. We are progressing strategic discussions and have substantial interest in both divisions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
