Devro delays dividend despite rise in demand

Glasgow-based sausage skin and collagen firm Devro issued a trading update on Thursday saying its first-quarter 2020 edible collagen volumes increased 2% compared to the prior year “driven by continued execution of growth initiatives and elevated short-term demand relating to Covid-19.

Nonetheless, Devro said it will “as a precautionary measure” delay payment of its 2019 final dividend of 6.3 pence per share — about £10.5 million.

Devro said it intends to pay an additional interim dividend of the same amount in the second half of 2020. 

Devro said in a trading update for the period from January 1: “Q1 2020 edible collagen volumes increased by c. 2% compared to the prior year, driven by continued execution of growth initiatives and elevated short-term demand relating to Covid-19.

“Emerging markets were up 13% led by strong growth in Latin America, Russia and East and South East Asia.

“Mature markets declined 3% mainly due to ongoing distributor destocking in Continental EU & West and a weaker demand environment during January and February in the UK & Ireland. North America continued to grow.”

Devro shares rose about 4% to 150p to give the firm current stock markket value of around £242 million.

“Our people are working hard to service customers in the food supply chain and all sites are currently operating,” added Devro.

“We continue to closely monitor Covid-19 developments with the key risks being preserving supply chain continuity and employee well-being, together with the potential for the nature and duration of global containment measures to affect demand.

“In recent weeks some suppliers have experienced disruption in their end markets.

“We acted decisively to secure supply, but this has resulted in some raw material inflation, which we are working to mitigate through targeted cost savings.

“The group has also instigated cash mitigation actions in response to Covid-19, including cutting all discretionary capital and operating expenditure.

“The company is currently not taking advantage of any Covid-19 UK government support schemes.”

On its financial position, Devro said: “Devro has a strong financial position with substantial liquidity and long-term banking facilities.

“The group’s debt facilities consist of a committed £105 million revolving credit facility (RCF), which expires in 2023, and US$100 million of private placements expiring in 2021 (US$25 million), 2024 (US$50 million) and 2026 (US$25 million).

“As of Friday 17 April 2020, the group had net debt of £130 million, comprising gross debt of £156 million and cash of £26 million.

“As at the date of this announcement the group has available liquidity of c. £59 million comprising of cash and undrawn committed facilities.”

In its outlook, Devro said: “Despite our good volume growth performance in Q1, we do not envisage any change to prior volume guidance for 2020.

“As such, and absent any negative Covid-19 impact, the board’s expectation for good progress in 2020 is unchanged.

“Devro is a global business, integrated into the crucial food supply chain and has a robust balance sheet leaving it well positioned to succeed in these uncertain times.”

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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.