Devro PLC - Full Year Results

Devro plc ("Devro" or the "group"), one of the world's leading manufacturers of collagen products for the food industry, announces its results for the year ended 31 December 2018.

 

 

Underlying results*

Statutory results

 

2018

2017

2018

2017

 

Unaudited

 

Unaudited

 

Revenue

£253.4m

£256.9m

£253.4m

£256.9m

Operating profit

before non-recurring items**

-

£40.0m

-

£38.1m

£26.9m

-

£33.0m

-

Operating profit margin

before non-recurring items**

-

15.8%

-

14.8%

10.6%

-

12.8%

-

Profit before tax***

£32.1m

£29.5m

£17.5m

£21.6m

Basic earnings per share***

14.6p

14.2p

7.5p

9.3p

Total dividend per share

9.0p

8.8p

9.0p

8.8p

Highlights

 

·       Significant strategic progress, in particular substantially improved North American plant operations; China average selling price up 16%; Fine Ultra product platform successfully launched in Europe, Japan and SE Asia

·       Revenue of edible collagen casings increased 2% at constant currency****

Volumes maintained year on year, with strong growth in North America (up 8%), Latin America (up 9%) and SE Asia (up 6%)

Market challenges in Russia (down 12%) and Japan (down 7%)

China (down 8%) fully related to Devro discontinuing imports of legacy products; excluding the import of legacy products in 2017, China up 5%

Solid price/mix improvements across Europe and China

·      Underlying operating profit before non-recurring items up 5%, due to savings from the Devro 100 programme and disciplined cost control in operating expenses more than offsetting energy and salary inflation and foreign exchange headwinds

·      Underlying operating profit margin (before non-recurring items) up 100bps

·      Operating profit down 18%, due to higher exceptional items in 2018 of £12.3m (2017: £5.1m) together with non-recurring items related to the 2018 Board changes

·      Increase in proposed total dividend to 9.0p (2017: 8.8p)

CHAIRMAN'S STATEMENT

 

Devro made significant progress on its strategic priorities in 2018 and, in tandem, improved its underlying profit margins. Operational improvements were made across all our manufacturing sites.

Progress at our US plant was particularly good, with production yields now amongst the highest across the group. The focus into 2019 is on increasing production line speeds to further improve output from the plant.

Our key focus in 2018 for China was on improving the average selling price and, in this regard, we achieved double digit percentage growth in the year. 

Following a period of commercial testing, the launch of the new Fine Ultra product platform for Continental Europe, Japan and South East Asia delivered modest sales volumes in the second half of 2018. We anticipate a marked increase in volumes in 2019 and this will be a key driver for growth going forward.

Devro's edible collagen revenue grew 2% on a constant currency basis with positive pricing/mix, particularly in China, and flat volumes. This reflected strong volume growth in North America, Latin America and South East Asia, offset by declines in Russia (due to weakening of the rouble against the euro) and in Japan (due to ongoing challenging market conditions).

The group's manufacturing performance continued to improve as we implemented best practice across all our sites. The Devro 100 programme achieved cost reductions ahead of plan of £4.5 million and this, combined with our discipline around operating costs, more than offset the ongoing inflationary pressures on the group.

DIVIDEND

The Board is proposing an increased final dividend of 6.3p per share (2017: 6.1p) bringing the total for the year to 9.0p per share (2017: 8.8p). Subject to shareholder approval at the Annual General Meeting in April, the dividend will be paid on 10 May 2019, to those shareholders on the register at 29 March 2019.

RETIREMENT

In November 2018, I announced my intention to retire as Chairman and Director at the conclusion of the Annual General Meeting on 25 April 2019. I joined the Board as a Director in July 2013 and became Chairman in May 2014. Having overseen the implementation of the recent capital investment programme, recruitment of a new senior management team and the establishment of a new global organisational structure, I believe it is the right time for a new Chair to oversee the next stage of Devro's development.

I would like to take this opportunity to thank everyone I have worked with over the last six years and wish the Board, management team and employees every success in the future.

OUTLOOK

We continued to make significant progress on our strategic priorities in 2018, delivering manufacturing efficiency improvements, in particular at our US plant, driving average selling price improvements in China and establishing the building blocks for future growth supported by our new Fine Ultra product platform. We over-delivered on our Devro 100 cost savings programme and, in addition, we increased margins.

Looking ahead, we expect to grow revenue (weighted towards the second half) supported by an overall growing market and the continued rollout of the Fine Ultra product across a number of markets; to leverage our leading position in the fast growing protein sticks market; and to continue to convert customers from gut to collagen. We will also focus on delivering margin expansion and generating cash to reduce net debt.

Despite ongoing pressures from input cost inflation, principally salary and utility costs and exchange rate volatility, at this early stage of the year the Board believes that Devro is well placed to make good progress in 2019.

Gerard Hoetmer

Chairman