DVO.L Regulatory News (DVO)

15 November 2018

Devro plc

Trading Update

Devro plc, 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 31 October 2018 ("the period").

Trading Performance

We have seen strong volume performances in the period, notably in North America, Latin America, and South East Asia. However Russia has been challenging and we have seen some continued weakness in Japan.

Production performance at our US plant has maintained its significant improvement over prior year, and the efficiencies are now amongst the highest across the group. The focus is now on increasing speeds to further improve the output from the plant.

Our China plant continues to perform well. As previously indicated our focus now is on improving the pricing for the products from this plant and we continue to see double digit percentage growth in the average selling price for Nantong product. 

The launch of the new Fine Ultra product platform for Continental Europe, Japan and South East Asia will deliver modest sales volumes in 2018. It is expected to be a key driver for growth in 2019 and beyond.

Overall edible casing sales volumes for the period were lower than our previously stated expectations, due to a greater than anticipated adverse impact from Russia's economic and currency environment, and the slightly lower than anticipated ramp-up rate of our new Fine Ultra platform. As such full year edible casing volumes are now expected to be unchanged compared with prior year.

Operating Profit/Balance Sheet

Year to date underlying operating profit was higher than the equivalent period last year as improved price/mix (particularly in China), manufacturing efficiencies (particularly in the US) and good progress on cost saving actions for Devro 100, more than offset the modestly lower overall edible casing sales volumes and currency headwinds.

Our expectations for the full year remain broadly unchanged as growth in underlying operating profit is expected to be underpinned by a continued improvement in price/mix, especially related to China and Latin America, and the delivery of cost savings. The Devro 100 savings from production costs are expected to more than offset the energy and wage inflation which was highlighted in previous announcements. In addition, further savings from operating costs are now being delivered. Currency continues to be a headwind, as previously guided.

The year-end net debt to underlying EBITDA covenant ratio is expected to remain at 2.1 times, in line with December 2017.

Other Strategic Actions

Building on previous transformation activities, and reflecting our global ambition to be recognised by our customers as their preferred partner for collagen casings and gels, we have reviewed our operating cost base and will be re-prioritising resource allocation to align with our strategic priorities and ensure delivery of the additional savings of £2m-£4m as guided with the first half results. A global commercial director, spanning all sales areas, has been appointed to better align our commercial activities across the group and to drive our growth ambition.

ENDS

Contacts:

Devro plc

FTI Consulting