4th Mar 2014 10:18
LONDON (Alliance News) - Sausage-casings manufacturer Devro PLC Tuesday reported a marginal increase in revenues for 2013, helped by price increases, but said its profits for the year were hit by slowing demand in some of its key markets, manufacturing issues in the US, and a sharp rise in raw material costs.
The group said it faced "difficult trading conditions" in the second half of the year, due to muted sales volumes and weakness in some developed markets, and gave a cautious outlook for the current financial year. However, it increased its total dividend per share for 2013 by 4% to 8.8 pence and announced a GBP50 million investment in China.
The collagen-products manufacturer for the food industry said strong sales growth in many emerging markets, in particular Latin America, China and South East Asia, as well as Germany and Japan, was offset by slower-than-expected sales in the UK, Continental Europe, Australia and North America.
In a trading update on November 14, the group had warned that it was expecting its full-year trading outcome to be at the lower end of market expectations, due to flat sales volumes and weakness in some developed markets in the third quarter.
Devro said Tuesday that revenues for the year increased by 0.7% to GBP242.7 million, from GBP241.1 million a year earlier, helped by price increases in the first half of the year.
However, the group reported a lower pretax profit of GBP37.5 million for 2013, down from GBP39.3 million the prior year. It said it booked GBP1.3 million in exceptional costs during the year, due to investments at its manufacturing plants in the US and China. It reported a net profit for the year of GBP33.6 million
Devro also warned of lower production volumes for the current financial year, due to a drop in demand.
"We expect growth in total sales in 2014, particularly in Germany, China, Japan and parts of Latin America. The outlook for other important markets, such as the UK, Russia, USA and Australasia, is less clear. In order to limit any further increase in the inventory levels that had been increased during 2013 in anticipation of stronger demand in 2014, Devro will lower production volumes during the year to balance short-term supply and demand," the company said in a statement.
The group said it also expects the strength of the sterling and other currency headwinds to hit 2014 results.
"Looking further forward the board remains confident in the opportunity for supplying a dynamic and growing global market for edible casings. Our major capital investment programme involves installing high-technology equipment in the USA to reduce manufacturing costs and building new capacity in China to supply a significant part of the global market."
During 2013, Devro completed the upgrade at its Czech Republic plant by expanding capacity, and laid out its GBP40 million investment programme for its South Carolina plant in the US, in order to reduce manufacturing costs from 2016 onwards.
Over the past three years Devro has invested GBP70 million in upgrading technology and creating 20% additional capacity. The company said it is now moving into a new phase of targeted strategic investments to reduce its manufacturing cost per unit and to extend its footprint in emerging markets.
On Tuesday, Devro announced plans to invest GBP50 million to build a manufacturing plant in China. The group said it will build a new facility in Nantong, near Shanghai, with work planned to start in the first half of this year.
"This investment of GBP50 million over two years will see commissioning during 2015, with space to expand in line with future market demand," said Chairman Steve Hannam.
Shares in Devro were amongst the biggest fallers on the FTSE 250 Tuesday morning, down 9.3% at 276.70 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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