UPDATE 2-De La Rue warns of weak prices as enters new year with strong orders

Wed May 28, 2014 6:51am EDT

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By Li-mei Hoang

LONDON May 28 (Reuters) - British banknote printer De La Rue said it was entering a new financial year with 218 million pounds ($366.3 million) of orders as it warned that the stiff competition it felt last year would continue to pressure prices.

The company, which makes over 150 national currencies and UK passports, said it had secured a strong number of contracts for 2014/15 and had encouraging early orders for the following year.

But the challenging market conditions for the financial year ended March 29 - which had led to a profit warning - continue to be an concern, it said.

"We still see pressure on prices in the year to come. It has not eased, particularly," said Chairman Philip Rogerson, who has assumed executive responsibilities temporarily since the departure of Tim Cobbold as chief executive in March.

The company said it was facing increased competition in both its banknote printing business, from European competitors in Germany and France, as well as its cotton-paper supply, as global rivals increase their output.

De La Rue reported a 43 percent rise in operating profit for 2013/14, driven by cost cuts that provided 20 million pounds of savings. Operating profit rose to 90.5 million pounds, slightly ahead of its guidance, from 63.2 million a year earlier.

Its share price - which has fallen 14.3 percent over the past year - was up 4.9 percent at 850 pence at 1045 GMT, making it the third-highest riser on Britain's FTSE 250 index on Wednesday.

PLASTIC BANKNOTES

"The 12-month order book is up 5 percent year-on-year and provides higher-than-average coverage, helping to underpin our full-year 2015 forecasts," said Investec analyst Thomas Rands.

"The company has also received some orders falling into FY16 we believe, providing some welcome additional visibility. We expect the details of any additional cost-saving plans will come after the appointment of a new CEO," Rands added.

De La Rue warned in a trading update in October that it would miss its operating profit target of 100 million pounds for 2013/14.

"These results reflect the significant progress that De La Rue has made through implementing the three-year improvement plan, which has grown profits from 40 million in 2010/11 to 90 million in 2013/14," Rogerson said.

De La Rue, which added polymer banknotes to its business in 2012, lost out in March on a 10-year contract to supply polymer to the Bank of England (BoE) for new plastic 5 pound and 10 pound bank notes, but is still working under a 10-year contract to print notes for the central bank to 2015.

The company is bidding to extend its BoE bank printing contract by another 10 years and faces stiff competition from its rivals Munich-based Giesecke & Devrient, and a consortium of G4S and France's Oberthur Technologies.

The BoE has said that it will spend around 1 billion pounds over the next 10 years on materials and printing for all new bank notes.

"We are driving very hard to develop our position in the polymer bank note market," said Rogerson, who added that the company had secured contracts with nine countries to supply polymer.

($1 = 0.5952 British Pounds) (Reporting by Li-mei Hoang; Editing by Jane Baird and Pravin Char)

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