Latest News  

CPS – Six Months in and Surpassing Expectations

In May, De La Rue sold its Cash Processing Solutions (CPS) division to the private investment firm Privet Capital LLP, bringing to an end speculation on the future of the business by securing its prospects with the new owner, backed up by an ongoing strategic partnership with De La Rue. Currency News™ caught up with Keith Eckford, CPS' CEO and Chris Hyman, a senior partner of Privet Capital LLP and now Chairman of CPS, to find out how the company is faring following the acquisition.

Q: It's been six months since the acquisition, how have things been?

KE: It has surpassed my expectations. We had a great launch at the Banknote Conference in Washington DC in May. The feedback from staff and customers was fantastically positive, and has continued for the last six months. Our sales have significantly increased and confidence is growing in the team. It is a huge difference from where we were 12 months ago. I have had a lot of support from the Privet team, including Chris, who has joined me travelling around the world visiting customers and staff.

CH: It’s been fabulous to see these changes, and we have learned a lot over the past six months, all positive. First, the market is significantly bigger than we envisaged both in terms of customer and product type. Second, CPS is an unbelievably strong brand. This wasn’t visible when we initially looked at the business, as no one knew what CPS was other than the name of a division inside of De La Rue. This was a big challenge for us, but overwhelming customer feedback has shown that the brand is extremely strong. The third positive finding was that the products are very robust and highly rated. Particularly the Service side, accounting for over half of this business. Finally, when travelling the world to meet the teams, I was overwhelmed by how passionate everyone is about the business. Historically the business has had challenges, hence the acquisition. But from everything I’ve seen, it’s not for the want of trying by the people in the business. Their enthusiasm for finding solutions and getting things done is immense, which is refreshing to see.

Q: Have there been any negatives?

KE: We’ve had to build staff morale, though this has improved more quickly than anticipated. It’s been a difficult few years for everybody. But, it is a really great business we’ve got here with great products, great customers and a great group of people who, given the right environment, are flourishing. Confidence is growing and that has come from two things. One is that our order book is filling up, which is visible to everyone. The factory and the Service team are busy. The other is simply that our people are being listened to. The whole team can see the progress we’ve made from 22 May and the trajectory that we are on.

CH: Other than the fact that we should have bought CPS sooner, it is too early to tell if there are negatives. There have been challenges, though not ones that were unexpected. It’s a challenge, for example, to get a group of 500 people to believe that we are going to invest, that we want to communicate, that their opinions matter and that their ideas and suggestions will be heard. One example of how we are overcoming this is something called ‘Tell Keith’. It gives employees the opportunity to write to Keith directly with feedback and suggestions. People appreciate having this type of opportunity to communicate positives and negatives. Such processes and the addition of new skills being brought in have made people feel empowered and the excitement of the first few months is still with us.

Q: Where are the 500 people based and what do they do?

KE: Around 350 staff are in the Service business, with over 90% of that group on site at customers day in day out. We have 19 businesses around the globe with a direct presence in over 50 countries. Our manufacturing and R&D site in Dallas has around 80 people, and some 60 people are based at head office in the UK, where are our ECM™ software business is based.

Q: What are the short and medium term plans following the acquisition?

KE: The fundamentals of the business are steady and safe. We’ve got market leading products both in software, such as the ECM™ ISA 7, and hardware including the DLR®7000 high speed sorter, the DLR®9000 single note inspection machine, the COBRA® mid speed sorter and the newly established X Range™ desktop sorters. Our solutions are the best kept secrets in the market and now is the time to reveal just how good they are. We need to make sure our customers and the industry in general know what we can do for them and their businesses, including our authentication and detection capabilities, the open architecture we have and the data you can extract from our machines. Regarding mid-term plans, though our ECM™ (Enterprise Cash Management) platform is already market leading and used by more than 90 customers located in 50 countries, we are investing in our products and R&D. We have a fantastic development roadmap and will continue to invest for the future. We are also developing the DLR®7000 and DLR®9000 sorters, enhanced versions of which will be available by the end of next year.

CH: The short term is to stabilise and set the business for growth by getting the right team on board with the right infrastructure. We’ve developed a vision and a strategy. Now it’s about investing. The longer term is about growing market share by bringing cradle-to-grave solutions. We have the X Range™ desktop sorters with a choice of 2-7 pockets. We also have the Cobra® range for central and commercial bank sorting operations, which has been hugely successful and there are opportunities to develop it further.

Q: Do customers appreciate the importance of data? Will you be guiding them on the data that can be collected from your machines and how it can be used?

CH: We believe that the market will be led by software and data. Customers are leading this movement and we are being driven in that direction by those requiring information that makes life easier, makes processing quicker and lowers cost. Customer feedback informs us that ours is the number one software in the world. We think that our machines combined with our software is an irresistible combination.

Q: Does your ECM™ range talk to other systems? Can it be used to pull data together from the entire cash cycle?

KE: It certainly can be used that way. It fits in two distinct ways. One – into cash management businesses that want to streamline things such as the data obtained from deposits, machine performance, inventory, and how transactions are managed within a cash centre. Two – for central banks wanting to understand the performance and lifecycle of their banknotes in circulation. ECM™ is able to provide actionable intelligence in both of these areas. And our software is machine-agnostic, so it will work on anybody’s machine, and is already being used with some of our competitors’ machines. CPS has an open architecture philosophy to both its hardware and software solutions and that won’t change. If a customer wants access to their data, they can have it. When we sell the car we also provide the keys, we do not expect to chauffeur the customer. Open architecture enables the customer to interact and make changes, giving them a level of data that is market leading due to the richness, accuracy and volume of information available.

Q: How will you approach the market differently now that you are independent of De La Rue?

KE: We are more dynamic and agile. The fact that we are now the only company that is 100% focussed on delivering solutions to the cash processing industry means we have a clear purpose and focus on the customer. Between Chris and myself, we can quickly make decisions on what to do and how to move forward, more quickly than previously. This improved timeliness has certainly helped. Ultimately, that – and having open architecture and open philosophy, and being here to design the right solutions for our customers – is our new approach.

CH: This is an independent business and being agile is not a point to be missed. We’ve had customers say to us that it only takes two steps to get to the people who make a decision, which is great. We are not wedded to any blinkered approach or corporate organisation where, because of size, you have to follow certain processes which take time. Customers are getting a quick turnaround. Customers have particularly said how important open architecture is to them. Feedback is extremely positive regarding this and this is therefore something we must never change.

Q: What is the definition of your market?

KE: Defining the market for hardware solutions, software solutions and service is relatively straightforward. The main customer base for those products are central banks, banknote printers, commercial banks, CITs and casinos. We know to a high degree of accuracy how many of each there are in the world and in which location. From that point we can extrapolate number of machines, software customers and, in turn, service potential. Obviously each country’s cash cycle behaves slightly differently and this has an impact on the size, and breakdown, of the market in each. From our headline market analysis, we have a high level but broad understanding of how everything fits together and estimate the market size is around £1-£1.5 billion per annum.

Q: What would be the split between central banks, commercial banks and CITs in terms of requirements?

KE: This split between customers has changed significantly over the previous decade. The trend that we have seen is for central banks to delegate much of the processing or recirculation of banknotes down into the commercial sector. This change has driven the proliferation of small sorting machines in the commercial sector, which in turn has significantly increased the size of the cash processing market. We would now estimate the split of the market to be 40% central banks and 60% commercial sector (including commercial banks and CITs).

Q: There has been a lot of talk in the industry about standardisation – particularly regarding the input and output of notes. Are you planning new models of the current range to work towards this?

KE: Regarding the output side, we already have the functional capability to do bundling and wrapping etc, and we can integrate into other parts of automated cash centres if needed. For the input side, there are many different customers, each with different requirements, so standardising the process has limitations because it is too inflexible to cope with different scenarios. We have ergonomic high capacity feeders for our systems and the team have developed the first automated ATM cassette loading on a high speed sorter. We are currently exploring our key differentiators for the input side but don’t feel that there is one standard methodology that all customers require. When talking about purely automating the process – whether that’s from the input or output side – we effectively already have this functionality, such as high capacity feeders.

Q: You are promoting the DLR®7000 QC to central banks for quality control, thereby combining two functions in one system. Is this a new departure?

KE: The DLR®7000 QC is a new and unique approach that was developed in conjunction with a major European central bank and proved successful. The risk to a central bank of issuing banknotes into circulation with defects is a huge negative impact on the reputation of the currency and, in the worst case, the economic stability of a nation. Currently central banks are completely dependent on the banknote producer to provide quality assurance via sheet, manual or single note inspection. DLR®7000 QC is not developed to replace quality assurance in the production process but to complement this and provide a level of independent analysis of banknotes before issuance. Providing quality control for issuing banks who want to check the incoming quality of notes bought from third party printers is a differentiator for us. We believe the DLR®7000 hasn’t previously been marketed to its full potential and see an opportunity whereby customers buy one machine but get two functionalities from it. Interest is growing and we’ve been surprised and pleased with the feedback received.

Q: One of the key criteria for the success of your and other systems is the sensor technology. Do you develop your own sensors?

KE: Yes, we have a core platform that we build applications around. It is known as IDS Sequil™ and is a platform that takes multiple images of the banknotes at high resolution and high speed in multiple colours, angles and modes. Combinations of these images are analysed to provide different applications, (ie. Sequil™ Fitness, Sequil™ OCR, Sequil™ OVI and Sequil™ Tape). There have been studies in Europe and North America on the accuracy and repeatability of fitness sorting capabilities, and we know that Sequil™ Fitness has come out as the leader. We therefore know that we have market leading capability for fitness sorting and authentication, allowing customers to have more accurate and repeatable processing.

CH: To illustrate Keith’s point, the industry accepted level for repeatability is 95%, which in effect means that 5% of all banknotes processed could be incorrectly classified or 5% of all banknotes processed could be destroyed when in fact they were fit for recirculation. If this can be improved by just 1% it will be a significant reduction in banknote procurement costs.

Q: Chris, coming from the outside, what do you think distinguishes CPS from its competitors?

CH: Since the sale, we now have a rapid turnaround and agile decision making abilities. This differentiates us from others in the market. Flexibility is key. As mentioned, we have many people who are passionate about what they do and have many ideas they want to develop. What appears to be non-core to others is certainly core to us and from that perspective, it allows us to address the market differently. The ability to respond with new ideas and development quickly is key for customers, I see this as a great strength.

Q: What is your view on both the growth of the banknote market and that of processing banknotes?

CH: One of our biggest concerns at Privet was whether we were buying a business in a dying industry, yet we quickly found that the only people who think this way are those who don’t know the industry. 66% of Africa is unbanked. People are talking about contactless cards and the death of cash, yet some people can’t even get a bank account. Of the 7 billion people in the world, there is a significant percentage of people who rely on cash and subsequently cash use is increasing. One of the biggest areas of fraud is contactless, whereby people use machines in their pockets to fraudulently extract money by walking past people carrying contactless cards. We need to be careful in telling the world that we are going cashless as, if this fraudulent activity continues and/or increases, things may change. From this, in 5-10 years’ time it’s possible that we may move from a cash processing business to a payment transferring business as, ultimately, we are great at understanding how a payment method goes through the system. Whilst we focus on cash today, we can change if the market changes. Having said that, I don’t see the market changing anytime soon. With around 20% of the market share, even if the market slows there is a way for us to continue to grow because we don’t represent the market, which in itself presents significant opportunities.

Q: Where do you see CPS in five years time?

KE: We plan to grow organically as we have the right products, the right people and it’s the right time for us. We’re very happy with our products and see ourselves continuing to grow as further investment is made. We are open to acquisitions or partnerships. But for now we need to focus on what we’re good at, focus on our core market and our customers. Going forward we will continue to be more open and more agile.

CH: We would like to move from a supplier status to a partner status with our customers – whether they are central banks, commercial banks, CITs etc. By that I mean to be a more integrated part of their solution. We are independent and are therefore agnostic about what we use. We will hopefully have grown whilst still being agile. We want to be an organisation that provides cradle to grave services with world class innovation.

Back to all stories icon