Full year edible collagen volumes were flat, with the Group delivering overall volume growth of 1% in the second half (“H2”). Slightly lower than anticipated H2 volumes, less favourable country mix combined with a smaller than expected FX benefit due to the strengthening of sterling means we now expect to report underlying operating profit for the year in the range of £39 – £40 million1.
Devro continues to execute its growth plans as set out in its “3Cs strategy”, defending and building upon its strong market positions in mature markets2 and targeting to increase its share in emerging markets3. After a slower start in the first half of 2019 overall volumes in emerging markets grew 13% in the second half and 7% for the full year. Whilst overall volumes in North America grew 7%, growth during Q4 was not as strong as expected, specifically impacted by a longer than anticipated Christmas shutdown at a key customer. Market conditions in Japan and Europe continued to be challenging as previously guided. In Europe, we saw weak market sentiment, with lower promotional activity due to higher pork prices and the impact of de-stocking by some of our distributor partners, which we expect to continue into H1 2020. As a result, overall sales in mature markets declined 3% in the year.
Cost saving initiatives continued to deliver well and we will achieve £7m savings in FY 2019. Leverage at the year-end improved following positive working capital movements and we expect to report covenant net debt / covenant EBITDA of less than 2x as at 31 December 2019.
Our proposed plans for the closure of the Bellshill site in Scotland remain on track.
In 2020 we expect to achieve strong volume growth in emerging markets. In our mature markets we expect good volume growth in the North American snacking market and, whilst we anticipate a continuation of the challenging market conditions in Europe (particularly in the first half of 2020), we expect overall Group volumes to be ahead of 2019.
Devro will announce its results for the year ended 31 December 2019 on 4 March 2020.