The emergency budget, the World Cup, the weather (rain, sun, wind and snow), global warming, and even Glastonbury have all been blamed by UK companies for profit warnings. But no one has ever blamed dodgy paper for an earnings miss — until now.
Shares in De La Rue fell sharply on Tuesday after the world’s largest banknote printer warned of a bit hit to sales because of quality and production irregularities.
From RNS:
However, quality and production irregularities at one of the Group’s paper production facilities have very recently been brought to the Board’s attention. It is apparent that some paper production has failed to meet certain quality specifications. As a consequence the production and shipment of this specification paper has been suspended whilst the circumstances are fully investigated. Subject to the outcome of that process and clarification of the company’s contractual position it is now expected that paper production and sales in 2010/11 will be materially lower than originally planned.
The full impact on the current year financial results and on the Group’s prospects has yet to be determined. A further announcement will be made as soon as the Board has been able to assess the financial and operational implications of these matters.
Oh dear.
It seems the dodgy paper has been shipped to De La Rue’s overseas customers – probably central banks – who print their own money locally. The company helps produce full 150 national currencies, after all. But it does not effect notes in the UK, where the company has the contract to print and supply currency for the Bank of England.
As for the hit to numbers, analysts are in the dark. But the fact that De La Rue has had to rush out a statement without any numbers suggests that it will be material.
From JP Morgan:
The materiality of the news has meant that the statement has been released before the management is in a position to quantify the impact on revenue and profit forecasts – which will obviously depend on how long the investigation will take, any costs of the solution and the loss of business in the short term. There will likely also be questions asked as to longer term implications, but again this remains unclear. At this stage, it seems sensible to assume that this will be material given the need to publish this unscheduled update.
And the latest price action in De La Rue:
At least we know where this funny money was made, thanks to Reuters — a De La Rue spokesman’s told them the incident occurred at the company’s biggest plant in Overton, Hampshire.