This morning De La Rue plc reported its full year results for 2011/2012.

The largest commercial producer of banknotes and security documents is seemingly recovering from the paper production issues that affected banknote paper supply to one of its key clients, the Reserve Bank of India. The compliance scandal of summer 2010 cost the company over 30% of its market value, suspension of some large contracts and a resignation of the CEO.

According to today’s announcement both revenue and the year-end order book are up 14% from the previous year, a significant increase in comparison to the historical long-term growth of 4% for De La Rue group revenue (currency business represents 63% of the total revenue and 72% of the operating profit in 2012). It is, however, important to remember that the previous year’s results are heavily depressed by the immediate aftermath of the aforementioned paper production issues. If we look back at the 2009/2010 financials,  today’s results are still short of the previous performance, particularly in the operating profit numbers (£109m in 2010 vs £63m in 2012), despite revenues approaching  historical levels (£561m in 2010 vs £528m in 2012).

It is encouraging to see that the revenues are recovering, and the challenges the company faced in the difficult 2010/2011 financial year are being dealt with in a structured and logical manner. The improvement plan is reported to be progressing as planned, however, the additional £10m of costs are now expected to cover “select exit costs and further people costs”, according to the Group Finance Director Colin Child.

Installation of additional paper making capacity by De La Rue competitors, due to come into operation 2-3 years down the line, puts additional pressure on the margins in the market where supply already exceeds demand, although De La Rue is optimistic about the rate of growth in banknote demand which they estimate to be 4% on average.

As a response to the oversupplied market of traditional paper, De La Rue invested £9m in a production line for polymer substrate, and has recently secured its first order for Flexycoin®, a durable substrate for lower denomination currency, with expectations to produce 1 billion of Flexycoin® notes p.a. Further investments are expected in this area, focussed on development of security features for polymer banknotes, which are currently considerably less advanced than those available for traditional paper.

The company has simplified its divisional structure, combining Identity Systems, Security Products and Cash Processing Solutions into a single Strategic Business Unit named Solutions, with Currency remaining a separate (and core) business unit. In the Solutions segment this year De La Rue has announced its first Single Note Inspection system, DLR 9000, a high-speed sorting machine for banknote quality control at print works. Previously this market segment was traditionally dominated by Giesecke & Devrient’s BPS 2000 systems.

Another encouraging development in the Solutions business stream is a 10 year long UK passports contract for the total value of £400m, ensuring at least £40m annual revenues for the Identity Systems segment.

The reported results are showing an improvement from the previous year, are very much in line with the market expectations, and the management appears optimistic about the business outlook. Despite this De La Rue shares (DLAR.L) were down 16p (1.59%) immediately following the announcement and continued to decline, showing a 3% decrease by mid-day. Is this an investors’ reaction to the CEO’s comment that the exact timing of the currency orders is impossible to predict, mentioning of the overcapacity in the industry, or simply a realisation that the recent speculations of De La Rue being a likely candidate for printing an “overspill” of national currencies should there be an exit from the Euro monetary union are based on entirely unconfirmed “sources”?

The Chief Executive’s interview on preliminary results can be viewed here.

Full year results recorded webcast will be available from De La Rue website from 12:30 BST on Tuesday 29 May, 2012.