DEVRO, the producer of collagen skins for the global food industry, is confident of delivering a stronger second-half performance after first-half profits were hit by cold weather in western Europe, production challenges in the US, and an increase in key raw material costs.
The company, which employs 500 staff at its sites at Moodiesburn and Bellshill, booked pre-tax profits of £17.3 million for the six months ended June 30.
The profits figure, down 13.1% on the £19.9m achieved in the first half of last year, was in line with previous guidance.
Devro, whose products are used by salami and sausage makers, saw turnover rise by 3.1% to £118.9m amid steady volume growth in emerging markets including China, Russia, south east Asia and Latin America.
Emerging markets offset a decline in edible collagen volumes in western Europe, where cold weather and the subsequent delay to the start of the bratwurst grilling season dampened sales of processed meats. Sales were also affected across the territory by lower levels of consumer spending, though the company expects volumes to recover.
Chief executive Peter Page said the company's second-half prospects look brighter, having resolved its production issues in the US, which hit earnings by £1.9m in the first half.
The stabilisation of input costs and the completion of a new production facility in the Czech Republic is also giving grounds for confidence. The Czech investment is part of a wider project to add 20% to the manufacturing base it had in 2010, which has also seen it invest £15m in its factory in Bellshill and in Australia.
The investment has given Devro the scope and flexibility to grow business in both developed and emerging markets.
Mr Page said: "We made continued good progress in emerging markets and our three-year investment programme – [worth] £25 million – to renew and add capacity in the Czech Republic is absolutely on track, finishing next month and on budget.
"Looking forward, we are confident of a strong second half. We are looking forward to growth in full-year earnings."
Mr Page said Devro's second half had started brightly in the UK, which he partly attributed to Andy Murray's historic Wimbledon triumph.
He said: "We had a very good July in the UK – maybe it was the weather, maybe it was the Andy Murray factor at the beginning of the month.
"Western Europe, [has] certainly had a bit of a pick up with the weather. Western Europe to some extent had a very cold April and May, which just meant the bratwurst barbecue season just didn't happen as early as it normally does.
"To some extent it is up to the retailers what they are promoting [and] who they are suppling. But overall I am sure there will be a pick-up in the second half."
Mr Page noted the first half had seen Devro's Select brand, a premium product developed for wiener-style sausages, continue to make progress. Targeted at the German and Japanese markets, the brand accounted for 8.5% of overall sales in the first half, having enjoyed volume growth of 4.4% globally.
House broker Investec said Devro's second half had started well but added this would have to be maintained throughout the half-year to meet its revenue targets. It kept its forecast for full-year profits unchanged at the pre-tax level of £43m, and retained its recommendation to buy the stock.
Meanwhile, Mr Page welcomed this week's appointment of Gerard Hoetmer to Devro's board as non-executive director.
Mr Hoetmer, who spent 25 years with Unilever, has been chief executive of food ingredients business Corbion nv for the past eight years.
Mr Page said the board would benefit from his broad experience of the food industry, understanding of the firm's operational challenges and the insight he offers as a serving chief executive.
He added: "I see it as being a good strong addition to the board."
Shares in Devro closed up 7.70p at 314.3p.
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