Devro China plant at normal capacity; shares rise

Shares of Glasgow-based sausage skin and collagen products firm Devro rose 7% on Wednesday after the firm announced results for the year ended December 31, 2019 — and said its manufacturing location in Nantong, China, is operating at normal capacity and is not facing labour or supply shortages amid the coronavirus outbreak. 

Devro said underlying revenue fell slightly to £250 million but underlying profit before tax rose slightly to £33.1 million.

On a statutory basis, Devro recorded an operating loss of £14 million (2018: £26.9 million profit) “largely as a result of the review of the global manufacturing footprint which led to the decision to close Bellshill …”

On the coronavirus, Devro said: “We are closely monitoring the current and potential impacts of the Covid-19 on our manufacturing and commercial operations and global supply chain.

“At this point in time our manufacturing location in Nantong, China, is operating at normal capacity and is not facing labour or supply shortages. 

“We have put in place precautionary measures and are reviewing our business continuity plans for the group.”

In its outlook, Devro said: “In 2020 we expect to achieve good volume growth in emerging markets.

“In our mature markets we expect volume growth in the North American snacking market and, whilst we anticipate a continuation of the challenging market conditions in the UK and Europe (particularly in the first half), we expect group volumes to be ahead of 2019. In addition, cost savings are expected to more than offset inflationary cost pressures. 

“Absent any material adverse impact of Covid-19, the board expects good progress in 2020.”

Devro CEO Rutger Helbing said: “We continued to focus on our growth plans throughout the year, defending and building upon our strong market positions in mature markets and targeting to increase our share in emerging markets. 

“Once again, and in line with our strategy, we increased our sales in emerging markets as a percentage of group volumes.

“Emerging markets growth for the year was 7%, markedly different from the decline of 3% in mature markets where the demand environment was weaker.

“After a slow start to the year, we saw modest edible collagen volume growth from the second quarter onwards, resulting in group volumes for the year being flat. 

“The 2019 progress in executing our 3Cs strategy further underpinned the Devro difference, with our focus on collagen, customer intimacy, technical expertise and as a globally integrated player. We are confident that our growth plans, combined with a continued focus on cost savings and ability to provide the capacity required for growth utilising our current footprint, further support the strong cash generative nature of the business and our attractive margins.

“In 2020 we expect to achieve good volume growth in emerging markets. In our mature markets we expect volume growth in the North American snacking market and, whilst we anticipate a continuation of the challenging market conditions in the UK and Europe (particularly in the first half), we expect Group volumes to be ahead of 2019. In addition, cost savings are expected to more than offset inflationary cost pressures.

“Absent any material adverse impact of Covid-19, the board expects good progress in 2020.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.