Devro churns out flat profits as sausage casing volumes increase

Sausage casings producer Devro reported flat profits in 2017 but plans to churn out higher volumes in 2018.

The company, which is a world leading supplier of collagen casings for sausages, hams and paté, reported flat underlying operating profits at £38.1m as revenues rose 7% to £256.9m. Statutory operating profits more than doubled year-on-year to £33m but basic earnings per share fell 6% to 12.5p.

Devro, which kept its total dividend per share at 8.8p, saw the strongest volume growth in China, South East Asia and Russia but also noted strong European growth in the second half of the year.

Chief executive Peter Page said: “Over the past 10 years Devro has successfully moved from operating as a series of regional subsidiaries to an efficiently managed single global organisation. Revenue from edible collagen has doubled, due to a combination of pricing and volume growth in an increasing variety of markets and applications.”

He pointed out that 2017 was the first full year of the company’s Devro 100 programme, which aimed to enhance sales capability through targeted training and individual development, and the success of the project was “reflected in the volume and share gains throughout the year” and helped with a £7m saving in manufacturing costs.

Directors expect further volume growth in 2018, supported by the introduction of the new 'Fine Ultra' product platform that was launched into the market in the final quarter, and continued manufacturing efficiency improvements, in particular in the US.

Devro’s covenant net debt stood at £135.3m, down £20.9m on the previous year, and management plan to continue cutting this in 2018.

As of midday on Tuesday, Devro’s shares were down 0.8% at 198.4p.

Broker Numis noted that results were in line with expectations, with the company making "good progress" in volume growth and EBITDA, but operating profit was flat and adjusted EPS was 6% lower.

"We expect to trim our forecasts to come more in line with consensus for FY 2018," analysts said, noting the shares are trading at a circa 30% discount to Viscofan. "To close this gap,we think Devro needs to demonstrate its ability to deliver operating profit growth following its recent investments in the US and China. Both of which are performing below the original planned profitability."