1st Apr 2009 17:53
|
For Immediate Release |
1 April 2009 |
Devro plc
("Devro" or the "Company")
2008 Annual Report
Devro plc (LSE: DVO) today announces that it has posted its 2008 Annual Report to those shareholders who have requested this, together with the notice of AGM, to be held on 7 May 2009, and Proxy Form. Copies of these documents have been submitted to the UK Listing Authority ("UKLA") and will shortly be available for inspection at the UKLA's document viewing facility which is situated at: The Financial Services Authority, 25 The North Colonnade, London, E14 5HS. A copy is also available on the Company's website - http://www.devro.plc.uk.
Devro announced its preliminary results for the year ended 31 December 2008 on 17 February 2009. The Company today provides the following additional regulated information in full unedited text as required to be made public under the Disclosure and Transparency Rules.
A condensed set of financial statements were attached to the Company's preliminary results announcement which included an indication of important events that occurred during the year.
Statement of Directors' Responsibilities
The 2008 Annual Report contains a responsibility statement in compliance with DTR 4.1.12 signed on behalf of the board by the Company Secretary. This states that on 23 March 2009, the date of approval of the 2008 Annual Report, each of the directors (whose names and functions are listed below) confirms that, to the best of each person's knowledge and belief:
The financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the Devro group; and
The directors' report contained in the 2008 Annual Report includes a fair review of the development and performance of the business and the position of the Company and the group, together with a description of the principal risks and uncertainties that they face.
Principal Risks and Uncertainties
There are risks and uncertainties inherent in the group's operations which could have a significant impact on our business, results and financial position. The group's risk management processes are designed to identify, assess, monitor, manage and mitigate the risks involved in our operations. The more significant risks to which the group is exposed are set out below:
Disruption to supply of key raw materials
The group's most important raw material is collagen, a natural substance, which is an edible by-product of the leather industry. Supplies of consistent, good quality hides have been readily available at an acceptable price for a number of years. However, the current economic downturn has had a major impact on the automobile, furniture and aerospace industries, reducing the demand for split hides, and therefore the availability of raw collagen. There is a risk that the effect of these changes on the leather industry will lead to a shortage of available hides, resulting in significant cost increases for the group's business. Changes in climatic conditions or alterations to the feeding methods of livestock could also have an impact on the quality of collagen, in turn affecting the productivity and effectiveness of the group's manufacturing processes. The group manages the collagen sourcing risk by, where possible, entering into long-term arrangements with a number of key suppliers in various parts of the world. Because of the current downturn in demand for fine leather, the group is actively involved in identifying new sources of hides, to ensure a sustainable supply of this key raw material.
Foreign exchange rate movements
As an international business, with costs being incurred and revenues earned in several different currencies, the group is exposed to the risk that changes in the relative strengths of currencies may result in adverse impacts on revenues, costs and the sterling value of reported profits. The financial impact of exchange rate fluctuations within our operating units, is mitigated by a policy of hedging a substantial portion of transactional foreign exchange risk for periods of up to one year, but this can provide only a limited degree of protection against a sustained rise or fall in the value of a particular currency over a number of years. The group does not hedge the risk arising from changes in the exchange rates at which overseas earnings are translated into sterling.
Customer credit risks
The group is exposed to financial risks arising from its trading with customers and distributors in a large number of countries, where prevailing payment terms are diverse. The group has established internal procedures and controls to mitigate the risk of non-payment wherever we do business. For example, we require either payment in advance or confirmed letters of credit before releasing product to customers or distributors in certain parts of the world. Nevertheless, customer credit risk may adversely affect the group's business, results or financial condition, particularly during periods of difficult global economic conditions.
Increased funding of pension schemes
Estimates of the amount and timing of future funding obligations for the group's defined benefit pension schemes are based on various assumptions, including the projected performance of the pension scheme assets, future bond yields, changes to the longevity of the schemes' members, and statutory requirements. Any significant deterioration in the schemes' asset values or unforeseen increases in scheme liabilities might increase the group's funding obligations and could adversely affect the group's profits and financial strength. The position and performance of each of the schemes are continually monitored by the group, in conjunction with trustees.
Significant fall in the demand for processed meat products in key markets
The overwhelming majority of the group's business is the manufacture and sale of casings for the processed meat industry. Within this industry, the sausage sector has operated for very many years with a solid level of demand. However, the concentration of the group's business on one type of product dictates that any significant fall in demand for sausage would have a significant impact on the group's ability to generate sales revenues.
The impact of changes in regulations affecting food production
The group is a food manufacturer and is hence required to comply with food safety regulations. The relevant regulations are not only those of the territories where its products are manufactured (the European Union, the US and Australia), but also the regulations of the many countries in which group products are sold. Regulatory authorities routinely enact changes to food safety legislation, and there is a continuing risk that such changes could result in restrictions on the movement of the group's products, or its raw materials, between territories, or necessitate changes to the production processes at one or more of the group's manufacturing facilities. Changes to food safety regulations could therefore result in significantly increased production costs or substantial reductions in sales revenues. The group has built relationships with regulators and established procedures for the monitoring of planned and actual applicable changes to food safety regulations in all relevant territories, so that it may respond quickly and effectively to any such changes in order to minimise disruption to its business.
Increases in energy costs
With energy representing a major element of the group's manufacturing costs, there is a strong focus on conservation measures aimed at reducing usage per unit of output. In addition, costs are actively managed by having the capability to use different forms of energy at our manufacturing plants and by entering into fixed-price contracts where these are considered appropriate. However, there is a residual risk, outwith the control of the group, that significant additional costs may be incurred in future as a result of increased energy prices.
Development of non-casing technologies
More than 70% of the group's revenue is derived from the manufacture and sale of edible collagen casings, primarily for sausages. For many years, several manufacturers of machinery used in the food industry have been developing delivery systems for sausages which do not require casings. To date, these co-extrusion technologies have not gained a significant share of the global market for sausages. Where there has been conversion to co-extrusion, the group has been successful in supplying the collagen gel required for such applications. However, if there were to be a significant conversion to co-extrusion, there could be an adverse effect on the sales revenues and profits of the group's operations. To ensure that our collagen casings retain their commercial attractiveness, the group makes substantial investments in modern manufacturing equipment and process development, with a view to continually improving the quality, and reducing the production costs, of our casings.
Loss of market share / profit margins due to increased competitive pressures
The group operates in competitive markets throughout the world. A major change in the production capacities, pricing policies or behaviour of our competitors, or consolidation between either competitors or major customers, could have a significant adverse effect on sales revenues and results of the group's operations.
Directors
Pat Barrett, OBE, Chairman
Peter Page, Chief Executive
Peter Williams, Finance Director
Paul Neep, Non-Executive Director
Stuart Paterson, Non-Executive Director
John Meredith,
Company Secretary
1 April 2009
Cautionary Statement
This announcement contains forward looking statements which are made in good faith based on information available at 23 March 2009, being the date of approval of the 2008 Annual Report. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause the actual results to differ materially from those currently expected.
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