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Business Analysis & Features

Can De La Rue bank on the Old Lady?

As profits jump almost 20% to £28m, and plastic notes take off, the currency printer’s boss is quietly cautious over its prize BoE contract

First Fiji, now Mauritius: it sounds as if Tim Cobbold’s plans for a long-haul trip are set fair. Far from holiday destinations, however, these are two of the most technologically advanced customers that the boss of banknote printer De La Rue has got. The island nations have raced ahead of many larger countries to try out plastic, or more correctly, polymer notes.

Mauritius is particularly pleasing, it seems. “They are the oldest currency customer we have,” says Mr Cobbold proudly, as he rattles through a company update. “Theirs was the first bank note we supplied 150 years ago.”

De La Rue, which has a history of printing playing cards and stamps as well as cash, hopes its investment in the next big thing will catch the eye of one of its most important customers.

Mr Cobbold would never admit it, but Fiji and Mauritius matter a lot less than the Bank of England, whose contract to print banknotes is up for grabs. The original licence to print money, which runs until 2015, is worth up to £40m in annual revenues. De La Rue has held it since 2003, when the Bank decided to contract out production. The company took over a factory in Debden, Essex, which at the time was producing one billion sterling notes a year.

“It is a very important contract for us, in absolute value and as a reference point for all the export work that we do,” says Mr Cobbold. Retaining that piece of business took on an extra importance last month when De La Rue suffered a profits warning in a setback to Mr Cobbold’s three-year recovery plan. Yesterday he steadied the ship by announcing a 19 per cent increase in first-half pre-tax profits to £28.4m, which spent the shares north again.

So how confident is he of retaining the Bank of England work? In the high-security world of bank-note production, it doesn’t pay to go overboard with his thoughts.

“You can be assured that as the incumbent we will be professional, commercial and competitive,” he said, speaking before the profits warning. “I just don’t want any sense of complacency or sense of entitlement. If I get sucked into using words like that about the contract,  I don’t think that is helpful.”

Mr Cobbold expects a decision by next September at the latest, to give the Bank the chance to switch supplier – if that is what the Old Lady chooses to do. What has been thrown into the mix is a decision by Threadneedle Street to examine whether plastic notes can work in Britain too. A consultation closed in mid-November, with a decision to press ahead with their introduction expected next month.

Rather than funny money, polymer is deadly serious. Not quite the flexible friend credit cards promised to be, the notes bend rather than rip so easily. They cost more to make, but are harder to counterfeit and promise longer wear and tear.

Some 30 countries have at least one denomination of polymer banknote in circulation. The only places to have gone totally polymer are Australia, Romania and Canada – perhaps not surprising, given where the Bank’s Governor, Mark Carney, was imported from.

It’s not the only change to Britain’s currency, after Jane Austen was announced as the new face on the tenner, replacing Charles Darwin. The move was a victory for equality campaigners angry that the sole historical female on our bank notes, Elizabeth Fry, was being phased out in favour of Winston Churchill.

There has been plenty of change too at De La Rue, which marked its 200th anniversary in February. The business might not have made the landmark after nearly being taken over by French rival Oberthur. De La Rue was left vulnerable when it was found to be supplying faulty notes to the Reserve Bank of India, one of its largest clients.

Brought in to steady the ship was Mr Cobbold, fresh from the takeover of his last business, Chloride, which designs, installs and maintains uninterruptable power systems. Just the kind of niche, but world-beating technology Britain has been gradually ceding to foreign investors, it was bought by Emerson Electric.

At De La Rue he has tried to help the business get its mojo back, investing £100m in research and development over the past three years, tightening up costs and aiming to grow the top line of what is by necessity quite a lumpy business.

Mr Cobbold’s warning that this year’s profits will fall £10m short of his £100m target was down to lower printing volumes, but his long-term prognosis for the folding stuff is good.

“Cash is still growing, contrary to all talk about mobile money,” he says. “Over the long term what you find is it is essentially being driven by GDP growth.”

But with the shares still trading a tad below Oberthur’s indicative 935p offer, Mr Cobbold knows he has to show impatient investors progress can be made. For that he might point to De La Rue’s non-cash operations, including the cash-processing sorters it supplies to retailers that count and check up to 3,000 notes a minute. Then it has a security division, which provides the blue labels under laptops or tax stamps for liquor bottles.

“We are moving away from a clever secure stamp that ensures duty has been paid to more of track and trace solution,” Mr Cobbold says. The company also produces passports for more than 30 countries a year. Just like the Bank of England notes, its flagship contract in this area is local too, producing some 5 million UK passports a year.

It is a complex task for the father of three who relaxes by cycling. He began his career training as a chartered accountant at Price Waterhouse but gained expertise in industry at TI Group, which later folded into the engineer Smiths. Chloride came calling in 2007, where he took up the chief executive’s reins a year later.

“If you move across industries, you see very similar challenges,” he said. “A lot of it is how you deal with people. I like working in business, getting involved in customers and our own team.”

So can De La Rue succeed? The message is clear: plastic could be fantastic, but cash of all types remains king.

Correct currency

£28m First-half pre-tax profits

30 Countries use polymer banknotes

£40m Value of  BoE deal each year