Devro shares sizzle amid strong revenue hopes

Shares of Glasgow-based sausage skin and collagen products firm Devro rose about 8% on Tuesday after it reported 2018 results and said it expects to grow revenue, especially towards the second half of 2019.

Devro chairman Gerard Hoetmer said: “Looking ahead, we expect to grow revenue (weighted towards the second half) supported by an overall growing market …

“We will also focus on delivering margin expansion and generating cash to reduce net debt.

“Despite ongoing pressures from input cost inflation, principally salary and utility costs and exchange rate volatility, at this early stage of the year the board believes that Devro is well placed to make good progress in 2019.”

2018 revenue slipped 1.4% to £253.4m “primarily due to foreign exchange headwinds.”

Operating profit fell 18.5% to £26.9 million “due to higher exceptional items in 2018 of £12.3 million (2017: £5.1m) together with non-recurring items related to the 2018 board changes.”

Proposed total dividend will rise to 9p per share from 8.8p.

Devro CEO Rutger Helbing said total sales volumes of edible collagen casings — 85% of the firm’s sales — were broadly flat for the year, with strong growth in North America, Latin America and South East Asia offset by market challenges in Russia and Japan.

“Sales volumes in North America increased 8%, with a continued strong snacking market,” said Helbing.

“Sales volumes in Latin America grew 9%, mainly due to strong sales into Brazil, including significant growth in sales of products from our China plant. 

“Overall sales volumes in Continental Europe grew 4%. We saw a slowdown, as anticipated, in the second half due to stronger comparatives.

“Full year growth was particularly strong in Germany (11%).

“Sales volumes into the Middle East and Africa recovered in the second half after the impact of a listeria outbreak in South Africa during the first half and volumes in the year grew 4%.

“In South East Asia we continued to see growth.

“After an increase of 29% in 2017, we saw volumes in 2018 grow 6%, with a strong performance in the second half which was supported by initial sales of our new Fine Ultra products.

“China reported volumes for the year were down 8%, but adjusting for the impact of the discontinued imported product, underlying volumes were 5% ahead of the prior year.

“Aligned with our strategy, the average selling price was up 16%, benefiting from an improved customer mix.

“Sales volumes in the mature markets in UK and Australia were broadly flat in the year, with a modest decline in UK, offset by modest growth in Australia.

“In Russia and surrounding countries sales volumes have historically been volatile and impacted by movements in the Russian rouble.

“In 2018 we saw a weakening of the rouble versus the euro and, as anticipated, we saw the impact of that in the second half of the year. Overall volumes in the year were down 12%.

“In Japan sales of collagen cased sausages declined in the year due to higher promotional activity of sausages in sheep gut, with increased export volumes from China.

“After many years of continued growth in Japan we saw volumes decline 7% in the year.”