Bottom Line: De La Rue still hot on the paper trail

De La Rue may have been frustrated in its takeover ambitions but its own business remains in robust health. The banknote printer yesterday reported a 20 per cent rise in annual pre-tax profits to pounds 123.7m. Earnings growth, as measured by FRS3, was even better at almost 29 per cent.

Printing banknotes, cheques and passports throws off more cash than De La Rue knows what to do with. Its net cash inflow in the year to end March was pounds 95m before financing, taking its cashpile to close to pounds 270m. To put this in perspective, this is getting on for half the group's annual sales of pounds 587m.

Little wonder, then, that Jeremy Marshall, chief executive, is looking to do something more productive with the company's cash than parking it in the bank. The question is, what?

Last week's breakdown of talks with Portals, the banknote paper maker, was down to bad timing and the leaked information that sent Portals' share price heading towards the stratosphere - not to a strategic change of heart.

De La Rue remains convinced that it needs to become more closely involved in paper making. As colour photocopiers become increasingly sophisticated, incorporating security features into the paper will offer a better way of beating the counterfeiters than will security printing.

Portals is now off limits - at least temporarily. De La Rue is committed to seeking new ways of co-operating more closely with its supplier.

It seems unlikely that any resulting developments will satisfy De La Rue. But De La Rue should be in no rush. Its banknote business is still growing rapidly: it has a lot of custom with small, but expanding, emerging economies.

It may simply wait for a more favourable moment at which to seek a deal with Portals. In the meantime, expect De La Rue to cast its eye over other security paper makers.