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Devro makes a case for further growth

DEVRO, the Scottish-based supplier of collagen casings for sausage products, reported strong sales in developed and emerging markets in 2012 as it continued to invest in production capacity and upgrade technology.

STRONG LINKS: Glasgow-based Devro reported strong sales growth for its products in Japan, Germany and the United States.
STRONG LINKS: Glasgow-based Devro reported strong sales growth for its products in Japan, Germany and the United States.

The company, which emphasised that it has no link to the continuing horsemeat scandal, reported revenue growth yesterday of 5.9% for the year to December 31, up to £241.1 million from £227.7m in 2011, amid growing global demand for its products.

However, currency fluctuations, in particular the weak euro, commissioning costs and the rising cost of raw materials, dented pre-tax profits, which fell to £40.8m from £43m.

Revenue was up 8.1% on a constant currency basis as Devro's products sold well in Japan, Europe and the Americas.

There was a strong performance in Germany and Japan by its Select range of products, billed an alternative to sheep gut, sales of which grew to account for 8.4% of total revenue, up from 4.3% in 2011.

Basic earnings per share at the company, which floated on the London Stock Exchange in 1993, fell to 20p from 20.8p in 2011, with chairman Steve Hannam signalling that the board will recommend a final dividend of 5.85p per share, taking the full-year dividend to 8.5p per share, a 6.3% increase.

Chief executive Peter Page said Devro, which employs about 2100 staff and has manufacturing sites in the UK, the United States, the Czech Republic and Australia, had recorded strong growth in global sales from a "combination of developed markets and emerging markets".

Mr Page said: "As a UK manufacturer, it is very nice to see a group business grow sales in Japan at 46%. We grew our sales in Germany at 30%, we grew our sales in the US at 17%, and all three of those markets take some product from our two factories in Glasgow.

He added: "Our total manufacturing output across the whole group was up 7% in 2012, which means we can increase our sales [and] we can increase our volume sold. That will continue through 2013 as well."

With 30% of the group's sales generated in Europe, Mr Page acknowledged the effects of the weak euro over the year. However he described currency fluctuations as "one of the things you just have to cope with in a global business".

Looking ahead, the company's main capital investment in 2013 will centre on its plant in the Czech Republic, with Devro also planning to recruit for a range of roles to grow the business and capitalise on opportunities.

Mr Page said the prospects for Select looked good in Germany and Japan, with the latter accounting for 10% of sales.

Latin America, where sales grew 25%, is another major growth area, although Mr Page expressed frustration that Devro did not yet have the capacity to break into south-east Asia.

On the horsemeat scandal, Mr Page emphasised that Devro has "no link" to the controversy.

He said: "We supply a global market, the demand is globally spread. Inevitably there are ups and downs in consumer consumption or demand but that is the nature of business.

"The thing I'd like to stress is that food safety and traceability is so important to Devro. We got accreditation to what's called FS 22000 in 2011 and that is the new global food safety standard.

"We were the first casings company to get into that and we work with our raw material suppliers and customers to manage our supply chain as robustly as possible."

Brokers said Devro's performance was broadly in line with expectations. They noted that rising material and commissioning costs would continue into 2013, but said that the company expected to offset those with higher prices.

House broker Investec retained its recommendation to buy, Panmure Gordon maintained its advice to hold, and Shore Capital downgraded to hold from buy.

Devro shares closed up 5.7p at 360.7p.

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