Lean times help lift full-year profits for Devro a sizzling 21%

Published on Tuesday 17 February 2009 20:28

DEVRO, the sausage skin manufacturer, reported a strong return to profit growth yesterday boosted by a weak pound and increased selling prices.

The Moodiesburn-headquartered company, which manufactures collagen products used mainly in the food industry, revealed a 17 per cent rise in full-year sales to 183.1 million, with profits before tax and exceptional items jumping 21 per cent to 18.8m.

Peter Page, who became chief executive at the end of 2007, promising to restore margins that had been slipping for several years, said the results were a "solid start".

Devro achieved the sales rise despite pushing through a price increase to customers averaging 3.2 per cent. Against a recessionary backdrop, Page said there were no signs of a fall in demand, and further indications that customers were switching from more expensive gut-based sausage skins to the company's products.

"The food sector is a good sector to be in at the moment. It had steady demand, but I don't want to give the impression that it's easy," Page said.

Sales were massaged by a fall in the pound at the end of 2008. However, even on a constant currency basis, sales were 6 per cent higher than in 2007.

Devro saw growth in the UK, its largest market, and much stronger growth in China, which it is targeting and now represents about a tenth of sales of its edible products.

The rise in profits comes despite an increase in utility costs, while Devro has also become an unlikely victim of the downturn in the furniture and automotive sectors, which threatens to drive up its raw material prices. Devro sources collagen as a by-product of leather hides, and demand for hides has collapsed as the car, furniture and aeroplane industries cut back production.

Page said this meant the price of raw collagen was rising. However, producers are now gaining a larger proportion of their revenue from collagen, meaning customers such as Devro have greater influence, allowing them to dictate product quality.

Devro also warned that the deficit on its defined benefit pension scheme – already closed to new members – has more than tripled as a result of falling asset valuations, to 25.8m.

Finance director Peter Williams said the deficit was an ongoing issue for the company, and it was likely to make additional payments to reduce it this year.

Devro incurred exceptional costs relating to the closure of one of its Czech factories, but said it expected the closure to result in annual savings of 2m.

Investec analyst Nicola Mallard said she expected to increase her forecasts for the company.

Underlying growth volume looks solid and should help drive the business forward," Mallard said in a note.

Shares in Devro rose 3p to 87p, with the company maintaining its total dividend at 4.45p.