Global Banknote Market Report ----------------------------------------------------2013

Executive Summary Banknote is a promissory note, issued by a bank, which is payable to the bearer on demand. It is also known as a ‘bill’ or a ‘note’. According to the existing records, the paper money was first used way back in 7th Century in China. However, the first fully printed banknote appeared in 1853. The banknotes are issued by the Central Bank of the respective countries. In addition to this, the Central Bank is also responsible for the destruction of the unfit banknotes for circulation. Traditionally, cotton paper was used in manufacturing of the banknotes. However, due to high destruction rate of cotton banknotes, polyester substrates are now used in manufacturing of banknotes called polymer banknotes. The banknote issuing authorities are focused to provide high standards of quality and security, apart from ensuring adequate public confidence in the currency. The global banknote issuance is on a continual rise and the same is expected to grow further in the future. In today’s business arena, the growth of trade and commerce across all geographic nations can be attributed to the introduction of banknote. In the international market, the US dollar and Euro have a great significance. In recent past, a constant rise in the circulation of the banknotes has been encountered in major economies across the globe. Thus, a constant pressure is built on the banknote manufacturing agencies to maximize their production of banknotes. A positive or a negative influence can be observed on the supply of money due to a number of macro and micro factors. Macro factors include GDP, demography, and inflation; whereas the micro factors are user friendliness and safety, etc. One of the emerging trends in the global banknote industry is the focus of the banknotes issuing authorities and other agencies involved in the manufacturing and circulation of banknotes, on technological innovations. However, over the past years, this industry is suffering from an increased rate of counterfeit currencies. With the ability to manufacture high quality banknotes, ability to develop advance security features and with a constant focus on research and development; the banknote industry encounters an intense competitive environment. Apart from various small players, the major players of this industry include De La Rue plc, Giesecke & Devrient (G&D) Group, Oberthur, Crane Currency, and Fortress Paper Ltd. This report provides an analysis of the global banknote industry. It discusses major challenges faced by the industry along with major market tends and industry developments. The report also includes the competitive structure of the industry, regional analysis and profiles of major players with a discussion of their key business strategies.

Banknote is a promissory note, made by a bank, which is payable to the bearer on demand. It is also known as a ‘bill’ or a ‘note’…. Global Banknote Issuance (2009-2012)

Billion

Currency Composition of Official Foreign Exchange Reserves (Q113)

US Dollar 2009

2010

2011

Euro

Pound Sterling

Japanese Yen

2012

There has been a steady increase in the issuance of the banknote worldwide; however, this growth may vary significantly between different countries. The global issuance of banknotes increased by …. reaching …. billion in 2012, as compared to …. billion in the previous year. For commercial providers of the banknote and their components, similar growth patterns are expected.  For the first quarter of fiscal 2013, the Currency Composition of Official Foreign Exchange Reserves (COFER) estimates that the share of the US dollar’s value in official foreign exchange reserves is …. Euro’s share in the reserve is ….. followed by Pound Sterling and Japanese Yen, with share of … each during the cited period. Swiss Franc contributed about … among others. According to the statistics, there has been a gradual decline in the US dollar’s value share of foreign exchange reserves from …. in 2006 to …. in 2012. It is noteworthy that the share of euro has remained almost consistent during the mentioned period. The mix of foreign exchange reserves held by the banks, governments, or financial institutions of various nations has evolved over a period of time with a steady shift being observed from dollar denominated assets to assets denominsated in other currencies. However, in the opinion of the industry experts, it is likely that the US dollar will continue to remain the primary reserve currency over a long term.

Note: Market attractiveness is inverse of penetration. Low penetration means high attractiveness and vice-versa

Printing of a banknote involves various different printing processes, such as Intaglio and Lithography and for or each type of banknote specific printing inks are modeled….. Annual US Currency Note Production by Volume – Denomination-wise (2012)

• In the fiscal 2012, US$100 had the maximum share of … in the annual US currency production, immediately followed by US$1 with a share of …. However, US$2 contributed a negligible share of …. in the cited period. • The value of the banknotes in circulation in the European Union has increased manifold in the past. In 2012, the value of euro banknotes in circulation placated down to US$.... billion (EUR... billion), compared to US$.... billion (EUR…. billion) in 2011. However, the same marked a slight increase of … in terms of local currency.

US$100

US$1

US$20

US$10

US$50

US$2

As of August 2013, approximately … of the total banknotes issued by the Eurosystem were EUR50 banknotes. EUR20 contributing a healthy share of …. immediately followed the EUR50 banknotes during the aforementioned period. On the other hand, EUR500 and EUR200, combined, had a negligible share of .… as of August 2013..

US$5

Circulation of Euro Banknotes by Value (2008-August 2013)

Euro Banknote Issuance by Volume – Denomination-wise (August 2013)

US$ Billion

)

EUR20

2008

2009

2010

2011

2012

2013-Aug

EUR10

EUR5

EUR100

EUR500 & EUR200

The major centers reining the banknote distribution include the Agency Operations Centers (AOCs)…. Issuance of UK Banknotes by Volume – Denomination-wise (2012/13)

Contributing a share of approximately … GBP20 banknotes were most widely issued during the fiscal 2013, followed by an impressive share of …. made by GBP10 banknotes. However, GBP50 and GBP5 constituted almost same share of about …. and 11.6%, respectively, during the aforementioned period. GBP10 note accounted for the largest share of about … out of the total banknotes destructed in the fiscal 2013. GBP50, GBP20 and GBP5 had a share of approximately ….., ….., and ….% respectively, during the cited period. The Note Printing Australia Limited (NPA) produced nearly ….. million banknotes in fiscal 2012, down by approximately ….. or …. million banknotes compared to fiscal 2011. However, the rate of decline in fiscal 2012 was significantly lower compared to the fall of …. noted in fiscal 2010

GBP10

GBP20

GBP5

Australian Banknote Production Volume (2000-2012)

Million

Destruction of Banknote by Volume – Denomination-wise (2012/13)

GBP10

GBP50

GBP20

GBP5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Government, central banks, and other major financial institutions of various nations are responsible for managing the currency reserves…..

Million

Canadian Banknotes in Circulation by Value (2010-2012)

• The value of Canadian banknotes in circulation has been showing a consistent growth since 2010. At the end of December 2012, the total value of banknotes in circulation …. million (CAD$.... million), representing a marginal increase of ….., compared to US$..... million (CAD….. million) banknotes in circulation during the corresponding time period a year ago. • A steady growth in the demand of the Swiss banknotes has been observed in the past decade. Depicting an increase of …., the demand for the Swiss banknote rose to …. million banknotes in 2012, compared to ….. million banknotes in 2011.

2010

2011 CAD

2012 US$

Swiss Banknotes in Circulation by Volume – Denomination-wise (2012)

Million

Number of Swiss Banknotes in Circulation (2001-2012)

Contributing maximum share of ….., CHF100 banknotes were observed to be most extensively circulated, in 2012. Following CHF100 banknotes, CHF20 and CHF10 banknotes constituted an impressive share of …. and …., respectively, during the cited period

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

CHF100

CHF20

CHF10

CHF200

CHF1000

CHF500

CHF50

A number of technical advancements have been made in the banknote industry in the recent past. Some of the major innovations include the following….. Global Paper Demand and Capacity (2009-2012)

Billion Notes

Notes Equivalent Billion

Banknotes with Foils and Stripes Features

2009

2010

2011

Demand

Capacity

2012

2011/12

20017/18F

The dynamics of global banknote industry is governed by an important trend, namely, the global paper demand and capacity. The demand in the paper industry increased by … reaching …. billion notes equivalent in 2012, compared to …. billion notes equivalent in 2011. The capacity of the paper industry was …. billion in 2012. This recorded a marginal increase of about …., compared to ,,,, billion in the previous year. However, the increase in the capacity of the paper industry was less than the increase in the demand; but still the capacity of this industry continues to be higher than the demand since 2010

 Usage of applied features, such as special foils elements and stripes, has proved to be one of the important growth drivers in the global banknote industry. Inclusion of these features augmented the security aspect of banknotes against counterfeiting. In 2011/12, almost ,,,, billion banknotes included the above mentioned technologies. This is forecasted to grow at a CAGR of approximately ,,,, to reach ,,,, billion banknotes by 2017/18. In order to protect the banknotes against counterfeiting, security threads are an integral part in the manufacturing of the banknotes. Inclusion of thread is considered to be one of the most reliable features as it cannot be manufactured without special equipments. The growth of the global banknote industry, to a great extent, can be attributed to the increased use of advance thread technology. Approximately ,,,, billion banknotes use the premium thread feature, which is forecasted to reach ,,,,, billion banknotes with a CAGR of around ,,,,, by 2017/18.

Note: Market attractiveness is inverse of penetration. Low penetration means high attractiveness and vice-versa

Banknote industry is characterized by the fierce competition, thus creating a persistence pricing pressure in the global market….. Global Banknote Print Market Share - By Companies (2012)

De La Rue

G&D

Oberthur

Global Banknote Substrate Market Share - By Companies (2012)

Arjo

G&D

De La Rue

Fabriano

Securency

Others

Crane

Others

In order to establish a strong foothold in the market, the firms across the globe commit themselves to continuous improvement and augmentation in product formulation in performance. Heavy investment in research and development has become a crucial element in terms of defining the rivalry among the industry players. Apart from other factors, innovative security features, price, extended circulation fitness are the primary elixirs responsible for providing a tailwind to the market competition. Competition is being intensified on account of the movement of government-owned players in the printing market. Compared to the existing global leaders, the government-owned players have the advantage of facing lesser commercial constrains. Moreover, the market dynamics can be significantly altered by the vertical expansion of the suppliers to the banknote manufacturing players.  De La Rue, with approximately … market share in 2012, is the leading company in the global banknote print market. The other two leading companies of the global banknote print market are Giesecke & Devrient (G&D) and Oberthur, with market share of about …. and ….., respectively, during the aforementioned period. In 2012, the leading company of the global banknote substrate market is Arjo with …. market share. G&D and De La Rue follow it with market shares of …. and ….,, respectively, during the cited period. The other key companies of this industry are Crane, Fabriano, and Securency, among others

Note: Market attractiveness is inverse of penetration. Low penetration means high attractiveness and vice-versa