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Profits slide as Devro counts cost of its cuts

SAUSAGE-skin manufacturer Devro has seen first-half profits plunge after running into exceptional costs linked to the restructuring of its operations in Scotland.

Lanarkshire-based Devro, which makes a range of collagen skins for the global food industry, said 130 staff will be made redundant at its Moodiesburn and Bellshill sites under plans to reduce unit costs by decommissioning older technology.

Phase one of the redundancies, first announced in April, will be completed when the decommissioning starts next month, with the second stage taking place in the first quarter of 2015.

More than 100 of the redundancies are understood to have been voluntary, with Devro also having taken steps to minimise job losses by moving staff to other roles.

Chief executive Peter Page insisted no further redundancies are planned in Scotland. He said: "There is nothing more to follow on that. Bear in mind that then gets us to a position where we still employ 400 people in Scotland, and we have invested £30 million in the two plants since 2008. We will be using all of those assets we have invested in.

"This is us simply decommissioning the oldest equipment we have."

Asked if the company had any further plans to invest in its plants in Scotland, Mr Page said: "At the moment that [£30m investment] takes us to where we need to be. The emphasis now for Scotland will be to maximise use of those resources. There will be a fair bit

of investment in product devel-opment to come from the plants."

Devro said first-half trading was in line with expectations, with underlying profits falling to £14.1m from £17.9m. The effects of currency exchange accounted for £2.2m of the drop. Revenue fell to £109.7m from £118.9m at the same stage last year.

The restructuring in Scotland caused £9.6m of the £10.8m of exceptional items booked in the six months ended June 30, and sent pre-tax profits tumbling to £1.6m from £16.2m at the same stage last year.

The exceptionals included a £5.5m provision for redundancy costs in the UK, which is expected to be paid in the next nine months, and a £2.8m UK pension charge prompted by the restructuring. Devro said the actions will lead to exceptional cash costs of around £8m in 2014, but expects the process to bring annualised cost savings of £5m from the middle of next year.

Mr Page said: "The headline for me is Devro is very much on track and the performance in the first half was in line with expectations.

"We have had good growth in the strategically important markets of China, Japan and Germany, which has certainly given us some progress from quite a tough first quarter.

"Volume is much the same as the prior year and actually once you take the currency effect out our sales revenue is the same."

Mr Page reported plans for its new plant in China are on track and on budget. Construction is scheduled to start next month with a view to beginning commercial production at the site in 2016. He also said its plans to simultaneously build a new plant and decommission an existing facility in the US are making similar progress. The projects represent a combined investment of £90m.

House broker Investec expects a further reduction in profits in the second half as the group reduces capacity and removes some of its older lines.

It has pencilled in full-year profits before tax of £28.5m for 2014, rising to £34m in 2015, and retained its recommendation to buy.

Devro shares closed up 13.75p, or 5.7 per cent, at 256.75p.

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