De La Rue ends paper supply deal with Portals

Authentication and ban note specialist De La Rue has halted a supply agreement with Portals Paper as it continues a cost-cutting drive implemented by turnaround chief executive Clive Vacher.

The move comes amid a large-scale transition from paper to polymer banknotes, said the company, which has paid £16.7m ($20m) to extricate itself from a long-term supply agreement that dates back to 2018 and would have cost the company approximately £119m over the next five years, in addition to the cost of paper procured.

"This settlement is another significant step in our plans for De La Rue to become a stronger, cash generative company, and in solving the legacy issues still present in the company," said Vacher in a statement.

"De La Rue now has the freedom to launch competitive tenders for its banknote and security paper requirements and to continue to satisfy the growing worldwide demand for polymer banknotes," he added.

The termination of the contract is effective immediately but will not create any short-term supply issues, said De La Rue. In 2018, the company sold the Portals business to a private equity consortium, and entered into a 10-year supply agreement.

The guaranteed minimum volumes that it committed to purchase were however far in excess of De La Rue's annual requirements, resulting in substantial volume shortfall payments to Portals.

De La Rue will now be able to sell all banknote security features freely to customers, through any other paper supplier, including features developed in collaboration with Portals.

In May, De La Rue reported that supply chain inflation would add another £5m to its costs this financial year. It now expects adjusted operating profit and cash flows to be increased by £4m annually as a result of this settlement.

The company reported a revenue decline of 3.3% to £375m last year, with its authentication unit growing 16% to £90m and currency down 2.1% to £281m.