Deluxe Corp. owns half of one of banking's most essential supply businesses-check printing-but growth has become a problem.

The St. Paul company signaled how it will pursue new revenues by announcing last week the formation of four subsidiaries, each with autonomy to pursue business opportunities and allocate resources as it sees fit.

Deluxe, an 84-year-old company that had previously moved to diversify in electronic payment services, will be structured as a holding company. The realignment would be completed this year. Layoffs and charges were not specified.

"We have been doing a lot of internal restructuring and reorganizing for several years to build up the financial muscle of each of the individual units," said Deluxe chairman and chief executive officer J.A. "Gus" Blanchard.

Deluxe's first-quarter revenue of $414.1 million was down 15% from the corresponding 1998 period. Adjusted for divestitures, revenues rose only 1%.

But quarterly net income increased 9%, to $47.6 million, and at 60 cents a share it was "a penny or two above what many of the analysts were expecting," Mr. Blanchard said. "It's a great first step toward four quarters that will equal record earnings this year."

Deluxe's stock price rose 9% last week, closing Friday at $33.375. For the year it is down 8%.

First Albany Corp. analyst Kevin Berg said the realignment is an attempt to show investors that revenue growth has been targeted. The move "formalizes" past reorganizations.

"Basically they are separating the high-growth businesses from the no- growth ones. I think it is definitely a positive move," Mr. Berg said, maintaining his "accumulate" rating.

Mr. Blanchard is especially talking up one new enterprise, eFunds Corp., as "the growth engine for the company."

"Certainly it is the largest" in growth potential, Mr. Blanchard said. "It is going to be one of the exciting ones to watch."

In February, Deluxe bought eFunds Corp., a company in Tustin, Calif., that sells hardware and software for the conversion of checks into electronic payments at retail points of sale. The consolidated eFunds, including other Deluxe holdings such as the electronic payment systems unit and the Chex Systems check verification company, combined for $225 million of revenue in 1998. Deluxe expects eFunds' revenue growth to exceed 20% annually in the next two years.

Another promising source of new revenue is an as-yet-unnamed software and outsourcing service provider. The nucleus will be a venture Deluxe started with HCL Corp. of New Delhi, India, in which the U.S. company recently increased its stake to 100%. It plans to compete with the likes of Computer Sciences Corp. and Electronic Data Systems Inc. for large computer services and consulting contracts. The services company's revenues are expected to be $25 million this year, versus $13 million in 1998.

A third subsidiary, Deluxe Paper Payment Systems, is the traditional core business. Check printing business is expected to generate $1.3 billion of revenue this year.

Mr. Blanchard said checks are still growing 1% a year and the day when they finally go into decline remains far off.

"We have not been milking that machine at all," he said. "We have been investing in modernization, in research and development, preparing for the next generation of check printing technology."

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