De La Rue (LON: DLAR) shares are up 9.5% in London this morning on the full year's results. Which are, more than anything else, a decent enough operational improvement on recent disasters. There is though, buried in there, something we find amusing - well, at least inflation's good for someone then.
The results themselves: “Revenue for FY23 of £349.7m (FY22: £375.1m) Adjusted operating profit of £27.8m (FY22: £36.4m), in line with guidance provided in April IFRS operating loss-for continuing operations of £29.6m (FY22 profit of £24.2m), reflecting exceptional charges of £47.1m (FY22: £5.7m), of which £29.7m are non-cash charges. FY23 end-of-year net debt at £83.1m; in line with expectations (£88-92m) after early-April final Portals exit payment FY23 net operating cash inflow increased 44% to £23.8m (FY22: £16.5m).”
Compared to the glory days of only a few years back those are lousy of course. But it is possible to observe that things aren't continuing to get worse - as when they lose the passport printing contract for their own home country, embarrassing that.
De La Rue share price from London Stock ExchangeWe would note this encouraging line: “ Market activity in Currency is showing encouraging signs of recovery, with strong bid activity” Well, yes, with inflation everyone needs more notes and notes of higher denominations too. So inflation is good for someone.
The real De La Rue problem is as we've described it before: “Sure, today's DLAR announcement isn't good. But it's not really the basic and important question either. How big, potentially, is that business going forward? It's not true that if it's smaller than in the past therefore De La Rue has no future. That's not the way declining businesses work. There's a lot of money to be made in sweating declining assets after all. It just does require that the overheads be rightsized for the amount of business that has to support them.
That is, De La Rue faces a choice. To try to expand out of the declining business area, requiring substantial investment. Or, to accept that the core business is in sectoral decline and then decide to ride that business down. By slashing costs and investment and returning profits to shareholders. Often enough that second choice does in fact maximise returns - even if management don't like doing it.“
If management decide to rightsize the overheads then De La Rue can be a nicely profitable - if smaller - business. The question is, well, are they going to do that?