By Scott Wright

SHARES in Devro leapt more than eight per cent after the sausage skin maker reported that one-off costs linked to the closure of its Bellshill site and a revaluation of its factories in China and US had sent it to a heavy statutory loss last year.

The company assured investors by signalling its expectation of driving volumes and profits this year, in the absence of any “material adverse impact“ from coronavirus. Devro said its factory in Nantong, China, where it has 160 staff, is still operating normally despite the continuing spread of Covid-19, but noted that precautionary measures are now in place and business continuity plans are under review.

Moodiesburn-headquartered Devro employs more than 2,000 people across sites in the US, the Netherlands, China, Czech Republic, Australia and the UK, where it manufactures collagen casings for foods such as salami.

It reported a statutory loss of £21.8 million for the year ended December 2019, moving into the red after the closure of Belshill and subsequent revaluation of its sites in the US and China led it to book a one-off impairment of £45.9m.

Devro said the Bellshill move, which led to 90 redundancies, will ultimately allow it to make annual cost savings of £5m. It swung the axe in October, after deciding it had “excess infrastructure” following a review of its manufacturing operations. Devro said at the time that it would expand the range of product it makes in Moodiesburn, where it had previously invested £2m.

Excluding exceptional costs, the group made a pre-tax profit of £33.1m in 2019, up from £32.1m, which was broadly in line with analysts’ expectations. The benefit from £7.8m of cost savings and favourable foreign exchange rates was offset by inflation in labour costs and utilities, lower sales of gel products, and a “less favourable country mix”.

The company booked underlying revenue of £250 million in 2019, down from £253.4m. Strong growth was seen in emerging markets, which include Latin America, Russia, the Middle East, Africa and China, as well as North America. This was offset by weak demand in the UK, Japan and Europe. Full-year volumes of edible collagen were flat, the company reported.

Looking ahead, chief executive Rutger Helbing said the firm expects to see good volume growth this year in emerging markets, and in North America through the snacking market. While it anticipates conditions to remain challenging in the UK and Europe, particularly in the first half, it expects volumes this year to be higher than in 2019. “In addition, cost savings are expected to more than offset any inflationary cost pressures,” he added. “Absent of any material adverse impact of Covid-19, the board expects good progress in 2020.”

Analysts at Intvestec, Numis and Shorecap are forecasting profits before tax for 2020 to be in the region of £35.2m to £35.7 million.

Numis said Devro’s results for 2019, which saw net debt fall to £124.6m from £141.6m, reflect a “resilient performance in challenging market conditions, particularly in a number of its mature markets”.

The analyst added: “To date, the business has been little affected by Covid-19, with China factory operational and re-building stocks as usual for this time of year. Absent a major impact from Covid-19, the company expects to deliver a modest improvement in adjusted operating profit [in 2020].”

Mr 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.”

Devro proposed a total dividend of 9p per share. Shares closed up 12p at 159p.