Shares of Glasgow-based sausage skin and collagen products company Devro fell about 20% after it warned investors that “based on current trends, sales volumes in 2017 are now expected to be approximately 10% lower than previously anticipated.”
Devro said in a trading update that it now expects underlying operating profit for 2017 to be lower than previous expectations.
“The board has decided to accelerate and implement more extensively the next stage of the group’s strategic development, focusing on growing sales through improved commercial capabilities, introducing the next generation of differentiated products, and further improving manufacturing efficiencies to reduce unit costs,” said the firm.
“This improvement project will deliver a fundamentally more competitive position. The benefits will offset the effects of the lower volumes, partially in 2017 and fully in 2018.”
Devro said there will be additional costs and capital expenditure associated with the improvement project — and that given the nature and scale of the planned actions, these costs will be charged as exceptional items, of which £3 million is expected to be incurred in the final quarter of 2016.
In the trading period from July 1 to the current date, Devro said sales volume trends were broadly similar to those experienced in the first half, “enhanced by improvements in Russia and South East Asia, but impacted by further reductions in Latin America due to the previously highlighted issues, which are being addressed, related to the transformation of our global manufacturing footprint.”
Devro said its full year expectations for underlying operating profit remain unchanged.
“Our new factories in the US and China are now integrated into the Group’s manufacturing base, completing the transformation of our global manufacturing footprint,” said Devro.
“As expected, in the second half £8 million of exceptional costs related to these capital investment projects have been incurred, including £1 million of additional foreign exchange movements.
“There will be no further exceptional costs related to these capital investment projects.”