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By Aby Jose Koilparambil
(Reuters) -Britain's De La Rue has terminated its supply agreement with paper-making firm Portals Paper Ltd as the banknote printer cuts costs during a worldwide transition to polymer banknotes, the printer said on Tuesday.
De La Rue said the 16.7 million-pound ($20.1 million) settlement with Portals will help the company save about 119 million pounds in total by exiting the agreement that was valid for over five more years.
Chief Executive Officer Clive Vacher said the termination, which is effective immediately, would not create any short-term supply issues.
"There's no concern there because we have done adequate preparation and have immediate sources of supply for banknote paper," Vacher told Reuters. He added the company is now in a position to launch a worldwide tender.
Portals did not immediately respond to a request for comment.
In 2018, De La Rue sold the Portals paper-making business to a private equity-backed buyout firm and entered a 10-year agreement for buying banknote, proofing and security paper from Portals, with a minimum annual volume guarantee.
But with the worldwide transition to polymer banknotes, the guaranteed volumes became significantly in excess of De La Rue's annual requirements, resulting in substantial volume shortfall payments to Portals, De La Rue said in a statement.
De La Rue reiterated its annual adjusted profit outlook on Tuesday and said net debt at end of year was now expected to be in the range of 88 million to 92 million pounds.
On supply chain snags related to chips used in passports, Vacher said the situation has improved since the start of 2022.
"We are still not out of the woods with that yet, but we are much more confident about the immediate future of those and the signs from the semiconductor industry are encouraging."
($1 = 0.8320 pounds)
(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Shinjini Ganguli and Josie Kao)