De La Rue - Live Discussion

Polymer Palava Article in the economistWhy banknote printing is becoming less profitable Sep 29th 2014 | Business and finance IN A world where quantitative easing and low interest rates have raised the demand for hard cash, one would expect that banknote printers would be doing well. One firm that should be rolling in money is De La Rue, a British printer that produces over 150 national currencies and is now probably the largest in the industry. Over the past year it has been particularly successful in competing for new contracts from as far afield as Fiji and Mauritius. And only just earlier this month, De La Rue announced that it was the preferred bidder to print the next generation of banknotes for the Bank of England—which for the first time will be made of plastic.But on September 26th the firm issued a profits warning, sending its shares down by 34%. De La Rue's executives warned investors that they should only expect the company to generate profits of £69m ($110m) next year, around £13m less than analysts had been predicting.Surprisingly, analysts say it is the firm's banknote division that is likely to be the cause of this poor performance. Although it was thought that the move to plastic banknotes would raise profitability in the industry, it has instead had the opposite effect. Companies such as Giesecke & Devrient of Germany and Oberthur of France, both of which are rivals to De La Rue, are investing in polymer-printing technology, and Australian firms with decades of experience in printing plastic dollars have also proven to be tough competitors. The result is that the industry is already suffering from overcapacity, which has sent prices tumbling. Reportedly, De La Rue gained the contract to print the Bank of England's new plastic notes only by offering a large discount, which it is likely to have to offer to other customers in the future as well. That bodes ill for De La Rue's margins over the next few years.But the company is no one-trick pony. The firm also prints passports in addition to banknotes. In time, this may prove to be a more lucrative market than printing money. With more financial transactions taking place without the exchange of coins or notes than ever before, and with strong arguments being made by central banks and academics that it may be soon time to get rid of them altogether, the prognosis for the business of printing banknotes looks bleak. On the other hand, the prospects for manufacturing passports appear to be much brighter in the long term. With ever more people travelling around the world for work and pleasure, and with more complicated security features being added to travel documents all the time, it is a market that is rapidly growing. And in Britain, where national passports are printed by De La Rue, recent delays at HM Passport Office in issuing the documents suggest that demand for them at present may well be outstripping supply. For De La Rue, making travel documents may be just the ticket, now that producing banknotes is no longer a licence to print money.

De La Rue Live Discussion

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