The problem is that, despite its commanding position in the world's commercial market for bank notes, the group is being hammered by cheap competition. The situation is not necessarily immediately apparent from last year's figures, which are distorted by Portals' first full contribution of pounds 25m and a number of other one-off factors.
Pre-tax profits crept up nearly 1 per cent to pounds 148m in the 12 months to March, but underlying earnings per share, down 22 per cent to 42.5p, give a better clue to the state of the underlying business. De La Rue managed to claw back most of the near-20 per cent first-half decline in bank note volumes, but the 12 per cent up-tick in the second six months was won at some cost. Prices fell throughout the year, ending 10 per cent down. With an overall 4.4 per cent fall in volume on top, it is little wonder profits from banknote printing slumped by pounds 17m last year.
The company is cautiously optimistic that the price slide has bottomed out and says the order book, extending out seven months, has not been built on the back of lower prices. The difficulty is, however, that its hi-tech, forgery-resistant bank notes are expensive for third world countries when the world is awash with capacity in the wake of the break-up of the Soviet bloc. The recently-created eastern European countries have largely satisfied their demand for new currency notes and some, like the Ukraine, are also building their own capacity with the assistance of De La Rue.
The group has moved to deal with the problems identified last year at the cash handling systems operation, where profits dipped from pounds 38.5m to pounds 38m before an pounds 18.3m provision for the cash costs of shaking up the business over the next two years. Management has been changed and Mr Marshall reckons the payback on the total pounds 20.9m cost of the exercise will come within that period. But the German recession and US bank mergers which have hit the business continue to affect growth.
Meanwhile, the one-off boost from the stake in Camelot, the National Lottery group, will not be repeated this year. That chipped in pounds 17.4m, up from pounds 2.4m last time. Assuming group profits of around pounds 140m this year, the shares, down 65p at 656p, stand on a prospective p/e of 14. The brave will see that as representing a buying opportunity, but the more cautious may want to hold off for now.