Last updated: February 1, 2013 11:56 pm

Competitors hit De La Rue profit growth

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De La Rue, the banknote printer, has said that increased competition and pricing pressures are holding back its profit growth.

The company – which can trace its history back 200 years and won its first royal patent in 1831 from King William IV, for making playing cards – said it expected to produce 6.4bn banknotes in the year to March 31, and that some delayed orders from last year had been secured.

However, it added that profit growth for the period is likely to be flat because competitors – including the German firm Giesecke & Devrient and France’s Oberthur – have increased banknote production. Last year, De La Rue reported a 73 per cent rise in underlying pre-tax profit, to £57.7m.

Tim Cobbold, chief executive, said: “The banknote paper market is in a situation where there is more capacity than there is demand. As is always the case in these situations, that has led to pricing pressure.”

In addition, De La Rue is at risk of losing one of its most prestigious clients, after the Bank of England launched a £1bn tender for the future production of its banknotes.

De La Rue, which prints banknotes for more than 150 currencies, has held the Bank of England contract since 2003. But a deal to print 12bn banknotes over 10 years, from 2015, is being sought by the bank – and overseas bidders are expected to be interested. “The tender is out there,” Mr Cobbold said. “We are the incumbent and we would bid enthusiastically.”

The company has been trying to restore its competitive position since 2010, when the Indian government cancelled a contract – then the company’s largest – citing quality issues. De La Rue’s chief executive then resigned and its share price almost halved. It was forced to fend off a takeover offer from Oberthur.

Mr Cobbold, chief executive since 2011, has been working to strengthen offerings, investing in a research facility to improve security measures that guard against currency, passport and tax stamps forgeries. He has also closed two facilities, leading to 200 job losses.

The company has benefited from creation of new states, such as South Sudan, which has helped provide orders. It is also aiming to boost passport sales. Yet it still has to compete with state-owned printworks, which make around 85 per cent of the 150bn banknotes made globally each year.

De La Rue shares, which have lost 15 per cent of their value over the past three months, rose 5.7 per cent to 959.5p on Friday.

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