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Devro Plc - Trading Update & Manufacturing Footprint Review


Devro plc

Trading Update, Outlook and Global Manufacturing Footprint Review

Devro plc ("Devro" or the "Group"), one of the world's leading manufacturers of collagen products for the food industry, issues the following trading update for the period 1 July to 30 September 2019 (the "period" or "Q3").


Trading Update and Outlook

Sales momentum improved during Q3 2019 with 1% volume growth in collagen casings (H1 2019: -1%). During the period we saw good trading in North America, where we benefited from continued growth in snacking categories, and also in China, due to continued strong growth albeit at margins below the average for the Group. These positive performances were offset by a further deterioration in market conditions in Continental Europe and weaker than expected sales in Japan. As anticipated, UK & Ireland and Australia saw similar trends to H1 2019.

We continue to expect a modest acceleration of volume growth in Q4 2019 with full year volume growth expected at c.1%. Our cost saving initiatives are progressing well and we are confident of achieving our guidance of £7 million in FY 2019.  We continue to expect the covenant net debt / underlying EBITDA ratio to be around 2x at 31 December 2019.

Our expectations for the full year remain broadly unchanged as growth in underlying operating profit through higher volumes, delivery of costs savings and positive FX will be offset by adverse country/product mix, lower revenues from other products and energy and wage inflation which was highlighted in previous announcements. 


Global Manufacturing Footprint Review

In line with our strategic priorities, the Group has undertaken a review of its global manufacturing footprint with the aim to pursue further efficiency improvements, as well as to align available capacity to the Group's growth ambitions.

As a result of this review we are proposing to close our Bellshill site in Scotland and, consequently, to increase the portfolio of products manufactured in our Moodiesburn site in Lanarkshire and relocate some of the Bellshill's manufacturing assets within the wider Group. Following consultation, we expect Bellshill to close during 2020 with the loss of c.90 employees. An exceptional cost of £15m (£10m of cash) will be incurred (2019: £11m exceptional profit and loss charge, £1m exceptional cash charge; 2020: £4m exceptional profit and loss charge, £9m exceptional cash charge). The investment associated with these actions is within our longer-term capital programme and, as such, our capital expenditure guidance for FY 2020 (£18m) remains unchanged. This review has identified annualised cost savings of £5m to be fully realised in FY 2021.

Additionally as part of the global manufacturing footprint review and the intended closure of Bellshill the Group is analysing its ongoing supply strategy. This is expected to result in non-cash exceptional impairment charges in FY 2019, primarily relating to partial write-downs of the China and US plants. These plants continue to be an integral part of our global footprint and the revised supply strategy will enhance the agility and flexibility of the Group's supply chain whilst staying focussed on our long-term growth ambitions.