De La Rue gains from pension tweak

In-fact, exclude the £81m one-off gain from switching its pension indexation from the retail prices index to the consumer prices index (which generally means its payments to members will increase at a slightly lower rate) and these results were unimpressive. Costs associated with the group’s volatile paper business dragged adjusted operating profits down 11 per cent to £62.8m, despite a rise in revenues.

But since the year-end, the group has sold its paper business with a 10-year guaranteed supply agreement. This has essentially offloaded the commodity risk that has ravaged operating margins in recent years as the cotton price has increased. Selling the business netted £60.3m, which has been used to stabilise the balance sheet: net debt is down by 59 per cent compared with March last year and now stands at just 0.6 times adjusted cash profits. More importantly, an improvement in the group's ability to manage inventory has helped with its ability to turn profits to cash. Operating cash inflows therefore rose 14 per cent to £73.5m. 

Meanwhile, stripping paper out of the group flatters these numbers. The currency business – which accounts for just under three-quarters of the paper-adjusted revenue – continued to perform well in the period due to strong demand for polymer used in newer banknotes. Polymer sales volumes more than doubled to 810 tonnes as the business added 11 new customers and 22 denominations. Product authentication and traceability saw paper-adjusted revenues rise 31 per cent.

But, even without the paper business, costs are still expected to impact reported profits in 2019. Broker Investec is therefore forecasting adjusted pre-tax profit of £53.6m, giving EPS of 41.9p (from £53.4m and 42.5p 2018).