Comment: Devro strategy looks right

There has obviously been human pain in the drastic restructuring of Scottish sausage skin maker Devro in the past year or so. About one in four jobs has gone at its two plants in Lanarkshire as management has made a significant bet on the way global food markets are going by investing a lot more in new plant in China and the US.

Decommissioning older machinery in Scotland, and investing heavily in newer plant both north of the Border and those other countries has meant an exceptional charge of £24 million in 2014, leading to a slump in profits to £2.2m from £37.5m.

It is clearly a case of Devro biting the bullet of change now, with the obvious impact on Scottish staff morale and group profitability, in the belief that sorting out geographical manufacturing capacity to meet long-term food trends is the key to securing good medium-term financial returns.

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Management would probably say a standout figure in yesterday’s results supports its strategic call on the production changes.

Collagen volumes in China surged 154 per cent last year, taking total Chinese volumes to 50 per cent of the new factory’s capacity even before it becomes operational in 2016.

It is also reassuring for Devro that markets it has targeted as having high growth potential in recent years delivered the goods last year, with volumes in Germany up 40 per cent and in Japan ahead 13 per cent.

There are normally trading headwinds somewhere in the world for Devro, and this time that part has been played by Latin America, the UK and Ireland, and Russia and eastern Europe for reasons ranging from weak consumer demand to currency issues.

But the group will take comfort that the volume performance was far better in the second half of 2014 than the first, and it seems to be resisting any market share loss even at a time of significant operational upheaval.

No strategic change comes without human impact, but it could be the way that the global food chain is going the Scottish company may look quite prescient three to five years down the line.

Give Jenkins at Barclays a bonus break

SOME would say it is unfortunate timing that Barclays chief executive Antony Jenkins is taking a £1.1 million bonus for a year in which the bank has taken another £750m hit for foreign exchange market-rigging.

However, it would be a facile argument. Jenkins didn’t take a bonus in 2012 because he was only in charge for four months that year after succeeding Bob “the time for remorse is over” Diamond, and waived one in 2013 because of the hefty shareholder rights issue that year.

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The underlying performance is good enough to show Barclays was on the right trading track in 2014, and that is what Jenkins should be judged on.

The bank has also maintained its dividend for the year, which should draw the sting from investors who were furious a year ago when the total payout from the coffers was less than investment bankers’ bonuses.

Investment bankers’ bonuses this time were down 24 per cent. Much of the criticism aimed at banking remuneration is completely valid, but it risks losing that validity if it ever drifts into indiscriminate distaste.

Even with continuing legacy issues (which dog the whole banking sector), Jenkins has done enough since 2012 to merit his payout this time round without kneejerk pontificating or synthetic indignation.


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