De La Rue shares have lifted slightly on promising half-year results, with revenue and operating profit up on the back of increased banknote printing volumes and the start of full-scale production in its UK passport contract.
The world's largest currency printer posted an almost 25% increase in operating profit to ￡29.6m for the six months to 24 September (H1 2010: ￡20.5m) on revenues of ￡238.1m, up 14% on last year (￡209.2m). Pre-tax profit excluding exceptional items - mainly consisting of the ￡52.9m one-off benefit from the sale of De La Rue's stake in lottery operator Camelot recognised in the prior year - rose from ￡23.8m to ￡29m.
Chief executive Tim Cobbold welcomed what he called "excellent progress" towards the company's goals of reducing annual operating costs by ￡30m and boosting operating profit above ￡100m by 2013/14.
Chairman Nicholas Brookes said: "Our strong order book in the Currency business unit underpins our confidence in meeting our expectations for the full year."
Cobbold added that the company was "very well placed" to benefit from geopolitical change in the Middle East and Africa, where De La Rue recently produced the currency for South Sudan, the world's newest country.
He also said the company could benefit from the potential break-up of the eurozone, where smaller countries did not have the capability to print their own currency.
Printed banknote volumes were up 12% year on year to 2.8bn notes (2.5bn), lifting revenues for the currency unit by 10% to ￡145.7m (￡132.7m). However, paper volumes were down, reflecting the loss of 1.8kt for "a major customer to which further supplies were suspended following the paper production issues" in 2010. Much of the outfall of that episode focussed on one client, understood to be the Reserve Bank of India, which hobbled De La Rue's first quarter numbers.
In the company's Solutions division, comprising its Cash Processing Solutions, Security Products and Identity Systems businesses, a continued reduction in Holographic component sales dented Security Products' revenue and operating profit, which fell 3% to ￡31.6m and 28% to ￡3.8m respectively. However, the transition from implementation last year to full production for the UK passport contract led to a 71% rise in revenues, to ￡34.4m, and a 300% rise in profits, to ￡4m, in the Identity Systems business. Cash Processing Solutions contributed an ￡800,000 operating profit on revenues of ￡30.1m, up from breakeven on ￡27.2m revenue last year, contributing to a 37% growth in profits for the Solutions division as a whole, to ￡8.6m, and revenue growth of 20%, from ￡79.9m to ￡96.1m.
The 4,000-staff business managed to hold net debt down to ￡39m, although it still carries a pension deficit of ￡117.5m, up ￡17m since the year start due to stock market declines.The company also announced it had signed a technical partnership with Komori to develop "state of the art machine technologies", although further information was not forthcoming.
A Komori spokesman said that the two companies had already been working together in the past and that Komori equipment was installed at De La Rue sites in the UK and Europe, but declined to comment further.
Cobbold added that the company is to spend ￡3m on an "industry leading technical centre" at its Overton base and cited its polymer-based bank note and its single note inspection system, able to count 2,000 notes a minute and making De La Rue one of only two manufacturers of this type of device, as examples of its innovation.
As part of its cost reduction plan, the company said its UK restructuring - including the relocation of its Dunstable business to Gateshead and its Basingstoke-based Holographics division to Westhoughton - is on track and expected to deliver annualised savings of ￡6m when completed in 18 months.
Shares had risen 1.09% to ￡8.85 at the time of writing.