Interim Results

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2011

Devro plc ("Devro" or the "group"), the world's leading manufacturer of collagen products for the food industry, is pleased to announce its interim results for the six months ended 30 June 2011.

Financial Highlights

·; Profit before tax from discontinued operation of £0.1m (2010: £0.6m)

Corporate Highlights

Steve Hannam, Chairman of Devro, commented:

 "The continuing business remains on track to deliver the Board's expectations for the full year. Our investment plan is expected to lead to further improvements in operational efficiency and will provide extra capacity for the anticipated growth in demand in future years as gut conversion opportunities and overall levels of meat consumption continue to increase."

For further information contact:

There will be a presentation today at 11.00am for investment analysts. This will be held at the offices of Buchanan Communications, 107 Cheapside, London, EC2V 6DN. A live audio feed will be available to those unable to attend this meeting in person. To connect to the web cast facility, please go to http://mediaserve.buchanan.uk.com/2011/devro020811/registration.asp approximately 10 minutes (10.50am) before the start of the briefing. The presentation will also be available on the company's website.

Chairman's statement and operating review

Devro has made further progress in the six months to 30 June 2011, with growth of 2.4% in sales revenue and 11.6% in operating profit from continuing operations, compared to the corresponding period in 2010. 

Sales revenue in the second quarter showed an improvement over 2010, whilst the first quarter was impacted by strong prior year comparables, both from China and retailer promotions in the UK.

Our new premium Select range, which is specifically designed to replicate the characteristics of sheep gut, has made encouraging progress in Japan and Europe.

Following a review of our operations in Europe, conditional agreement has been reached to sell the group's German distribution subsidiary, Devro GmbH, in order to allow us to focus fully on our core collagen business. The numbers and values in the statement refer to the continuing business, unless stated otherwise.

Operating review

Overall market

The global market for collagen casings continues to grow, driven primarily by economic expansion and increased meat consumption in emerging markets. High sheep gut prices and limited availability are also providing increasing opportunities in developed markets for substitution by collagen casing.

Trading overview

Sales revenue for the first half of 2011 rose to £107.1 million from £104.6 million, with operating margin up from 16.7% to 18.2%, which reflects the group's success in seeking higher value sales.

Operating profits increased by 11.6% to £19.5 million. Strong price/mix improvements contributed most of this gain, partially offset by increases in input costs, particularly energy and hides.

Sales

Collagen casings

Edible collagen volumes were broadly flat but, excluding sales to China, were up by 2.4% across the rest of the world.

Europe

Edible collagen volumes in Europe continue to show positive growth in overall terms, particularly in Eastern Europe and Russia.

UK and Ireland volumes were down in the first quarter due to promotional activity in the retail trade in 2010 which boosted sales in that period. However, second quarter sales were ahead of prior year.

Americas

Edible collagen volumes in the Americas grew over the period. Lower manufacturing yields and electricity interruptions due to poor weather conditions meant that volumes were lower in the first quarter. Sales in Latin America continue to grow.

Asia/Pacific

Total volumes were down in Asia/Pacific as the comparable period in 2010 included significant volumes of lower priced sales to China.

Sales in South East Asia were encouraging, while Japan was relatively flat despite the earthquake's impact on customers which adversely affected March and April of this year.

Natural disasters also affected sales in both Australia and New Zealand, with the impact reducing over the period.

Distributed and other products

There was a decline in revenues from £11.3 million to £10.0 million, due mainly to a reduction in sales of collagen gel as a result of a US customer continuing to convert back to collagen casings. This transition is now complete.

Sale of Devro GmbH

A conditional agreement has been reached for the sale of Devro GmbH, a wholly-owned subsidiary, to ViskoTeepak Holding Ab Ltd of Finland. The purchase price, which will be paid in cash, will be based on net book value (excluding certain pension assets and liabilities). An estimated price of €1.9 million, which will be subject to final adjustment, will be paid on completion, which is expected to be during the third quarter of 2011.

Approximately 80% of Devro GmbH's sales in the six months ended 30 June 2011 related to distributed third party products. ViskoTeepak will handle sales of Devro products on an agency basis for a transitional period, after which Devro will take direct control of sales of collagen casings in Germany.

In the year ended 31 December 2010, sales and operating profits of the discontinued business were £23.3 million and £1.1 million respectively.

This disposal will improve the group margin as there will be virtually no sales of low margin distributed products. It also enables Devro to concentrate on its core business of collagen casings and is part of our plan to strengthen sales and marketing activities in Europe.

Future developments

In 2011 we are investing £45.0 million to increase capacity and enhance productivity: £15.1 million has been invested at existing sites in the first half of 2011. The benefits of these projects will start to come through in 2012 and 2013. The projects are on schedule.

Developments in China continue, with the establishment of our sales office in Beijing and a local team which is now active in the market.

Our Hong Kong office has been strengthened with the relocation of a senior director to the region.

Foreign currency

Devro operates worldwide and with multiple currencies. Major transactional exposures arise from sales in euros, US dollars and Japanese yen whereas manufacturing costs are in Australian dollars, Czech koruna, US dollars and sterling. Translational exposures arise from the conversion of the results of all our businesses into sterling. The net impact of exchange rate movements on operating profit in the six months to June 2011 was broadly neutral compared to the same period in 2010.

Finance

Re-financing

The existing banking facilities are due to expire on 24 January 2012. We are at an advanced stage of negotiations and expect to have new facilities in place later this year.

Net interest

Net interest expense for the period was £0.4 million (2010: £0.4 million). This was offset by net finance income on pension assets and liabilities amounting to £0.5 million, which compares with net finance expense of £0.6 million for the comparable period in 2010. The change is due primarily to the reduction in liabilities of the UK scheme as a result of the changes to the scheme agreed in the second half of 2010.

Tax

The group's tax charge for the period was £4.0 million which represents an effective tax rate of 20.5% (Full year 2010: 23.3%). The group is benefiting from a low tax rate in the Czech Republic, including the impact of a capital investment incentive scheme. This is expected to continue until at least 2015.

Earnings per share

Earnings per share has increased to 9.5p from 7.5p, reflecting the increased profitability of the business, the net finance income on pension assets and liabilities, and the reduced effective tax rate.

Net debt

Net debt was, as expected, £24.0 million at 30 June 2011 compared to £17.1 million at 30 June 2010, which reflects the expenditure on fixed assets of £15.6 million (2010: £10.3 million), as well as an increase in inventories which should largely reverse by the year end.

Pensions

The group's retirement benefit obligations have decreased from £13.4 million at 31 December 2010 to £10.3 million at 30 June 2011. This primarily reflects additional contributions made to each of the major schemes during the period.

Dividends

The Board is pleased to announce an interim dividend of 2.5p (2010: 2.0p). The interim dividend will be paid on 7 October 2011 to shareholders on the register at 2 September 2011.

The increase in the interim dividend is intended to restore a more conventional weighting between the interim and final dividend.

Board changes

Two board appointments were made during the period. Simon Webb replaced Peter Williams as Group Finance Director on 7 April 2011 and Paul Withers was appointed Non Executive Director on 28 April 2011.

Principal risks and uncertainties

The group set out in its 2010 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance. These remain unchanged since the Annual Report was published.

The group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

The main areas of potential risk and uncertainty are disruption to supply and increases in price of key raw materials, foreign exchange rate movements, customer credit risks, increased funding of pension schemes, the impact of changes in regulations affecting food production, food industry health concerns, increases in energy costs, loss of market share/profit margins due to increased competitive pressures and development of non-casing technologies.

These risks, together with examples of mitigating activity, are set out in more detail on pages 14 and 15 of the 2010 Annual Report which is available on the Devro plc website: www.devro.com

Outlook

The continuing business remains on track to deliver the Board's expectations for the full year. Our investment plan is expected to lead to further improvements in operational efficiency and will provide extra capacity for the anticipated growth in demand in future years as gut conversion opportunities and overall levels of meat consumption continue to increase.

Steve Hannam Peter Page

Chairman Chief Executive

2 August 2011

Financial highlights

six months ended 30 June 2011

Interim consolidated income statement

for the six months ended 30 June 2011

Interim consolidated statement of comprehensive income

for the six months ended 30 June 2011

Interim consolidated balance sheet

at 30 June 2011

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

Interim consolidated statement of changes in equity

for the six months ended 30 June 2011

Interim consolidated cash flow statement

for the six months ended 30 June 2011

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2011 (unaudited)

1 General information

Devro is the world's leading provider of collagen products for the food industry. Collagen is one of the most common forms of protein, which is transformed into strong but flexible edible casings and other related products by highly sophisticated biochemical processing technologies.

The company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Moodiesburn, Chryston, Scotland, G69 0JE.

The company is listed on the London Stock Exchange.

These condensed consolidated interim financial statements were approved for issue on 2 August 2011.

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The consolidated interim financial statements are unaudited but have been reviewed by our auditors and their report is set out on pages 25 and 26. Statutory accounts for the year ended 31 December 2010 were approved by the Board of Directors on 22 March 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2 Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2011 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with International Accounting Standard ("IAS") 34, "Interim financial reporting" as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2010 which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.

Critical estimates and judgements

The preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best assessments of amounts, events or actions, actual results ultimately may differ from those estimates. The key uncertainties that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next six months are the measurement of retirement benefit obligations and taxation.

Going concern basis

Devro has committed borrowing facilities of £51.0 million that fall due for renewal in January 2012. At 30 June 2011, the group was operating comfortably within the covenants relating to these facilities. As explained in note 4, negotiations for the renewal of these facilities are well advanced and, therefore, the directors consider it reasonable to adopt the going concern basis in preparing the consolidated interim financial statements.

3 Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in those annual financial statements.

New standards, amendments to standards or interpretations effective in 2011

The following new standards, amendments to standards or interpretations became mandatory for the first time during the financial year beginning 1 January 2011. They either were not relevant for the group or had no material impact on the financial statements of the group:

Effective date

·; IAS 24 (revised) - Related party disclosures 1 January 2011

·; IFRIC 14 (amendments) - Prepayments of a minimum funding

requirement 1 January 2011

·; IFRS 7 (amendments) - Financial instruments: Disclosures on

derecognition 1 January 2011

New standards, amendments to standards or interpretations not applied

At the date of approval of these financial statements, the following new standards, amendments to standards and interpretations were in issue but have not been applied in these financial statements:

Effective date

·; IAS 12 (amendments) - Income taxes 1 January 2012

·; IAS 1 (amendments) - Financial statement presentation

regarding other comprehensive income 1 July 2012

·; IFRS 9 - Financial instruments 1 January 2013

·; IAS 19 (amendments) - Employee benefits 1 January 2013

·; IFRS 10 - Consolidated financial statements 1 January 2013

·; IFRS 11 - Joint arrangements 1 January 2013

·; IFRS 12 - Disclosures of interests in other entities 1 January 2013

·; IFRS 13 - Fair value measurement 1 January 2013

·; IAS 27 (revised 2011) - Separate financial statements 1 January 2013

·; IAS 28 (revised 2011) - Associates and joint ventures 1 January 2013

It is expected that the group will adopt these standards, amendments to standards and interpretations on their effective dates. The amendment to IAS 19 "Employee benefits" may result in a material change to net finance income/expense on pension assets and liabilities when applied. With that exception, the directors do not anticipate that the adoption of these amendments to standards and interpretations will have a material impact on the financial statements of the group.

4 Financial risk management

The group's activities expose it to a variety of financial risks: market risk (including interest rate risk and foreign exchange risk), credit risk and liquidity risk.

The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in annual financial statements, and should be read in conjunction with the group's annual financial statements for the year ended 31 December 2010.

Liquidity risk

At 30 June 2011, the group had in place unsecured floating rate loan facilities comprising committed elements with a total of £51.0 million (31 December 2010: £51.0 million) and uncommitted working capital elements with a total of £7.0 million (31 December 2010: £7.0 million). These are co-ordinated bilateral facilities with three banks and the committed elements are due to expire on 24 January 2012. Negotiations are at an advanced stage and we expect to have new facilities in place later this year. The uncommitted facilities are renewable within one year.

Fair value of derivative financial instruments

The fair values of derivative financial instruments are as follows:

Assets and liabilities that are measured at fair value are disclosed by level of the following fair value measurement hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

All of the group's assets and liabilities that are measured at fair value are classified as level 2 at 30 June 2011 (31 December 2010: Level 2).

5 Segment information

The chief operating decision maker has been identified as the Board.

The Board reviews the group's financial results on a product basis in order to assess performance and allocate resources. Operating segments have been determined accordingly. These are now as follows:

Collagen casings, which included the four edible collagen brands, Devro, Coria, Cutisin and Select, and Cutisin non-edible collagen casings.

Other segments, which includes the non-reportable segments of collagen film, collagen gel, Cutisin plastic casings, collagen for medical use and distributed products.

Distributed products is no longer a reportable segment as the vast majority of sales were made by Devro GmbH, the conditional sale of which has been agreed as described in note 6. The results for the business being sold are presented in these interim financial statements, including this note, as a discontinued operation.

The Board assesses the performance of the operating segments based on a measure of adjusted earnings before interest and tax ("Adjusted EBIT"). This measurement basis excludes the effects of exceptional income and expenditure from the operating segments.

Finance income and expense, including that arising on pension and post-retirement health plan assets and liabilities, is not included in the segment results that are reviewed by the Board.

Segment assets exclude tax assets, which are managed on a central basis.

Information provided to the Board is consistent with that in the financial statements.

6 Discontinued operation

On 16 June 2011, the group reached conditional agreement for the sale of Devro GmbH, a wholly-owned subsidiary, to ViskoTeepak Holding Ab Ltd of Finland. The purchase price, which will be paid in cash, will be based on adjusted net book value (excluding certain pension assets and liabilities). An estimated preliminary price of 1.9 million euros, which will be subject to final adjustment, will be paid on completion, which is expected to be during the third quarter of 2011.

Approximately 80% of Devro GmbH's sales in the six months ended 30 June 2011 related to distributed third party products. ViskoTeepak will handle sales of Devro products in Germany on an agency basis for a transitional period, after which Devro will take direct control of sales of collagen casings in Germany. This disposal enables the group to concentrate on its core business of collagen casings and is part of its plan to strengthen sales and marketing activities in Europe.

The results for the business being disposed of are presented in these interim financial statements as a discontinued operation, and the value of the assets and liabilities being disposed of at 30 June 2011 are presented as held for sale.

Financial information relating to the business being disposed of is set out below.

(a) Income statement for discontinued operation

6 Discontinued operation (continued)

(b) Cash flows from discontinued operation

(c) Assets and liabilities classified as held for sale

7 Taxation

The charge for taxation for the six months ended 30 June 2011 corresponds to a rate of tax of 20.5% on the profit on continuing operations for the period (2010: 25.3%), which reflects the anticipated effective rate for the year ending 31 December 2011. The charge for taxation comprises a UK corporation tax charge of £135,000 (2010: credit of £24,000) and a foreign tax charge of £3,893,000 (2010: £4,210,000).

During the period, a change in the UK corporation tax rate from 28% to 26% was substantively enacted and the reduced rate will be effective from 1 April 2011. The relevant deferred tax balances have been re-measured accordingly.

In addition to the change in rate of corporation tax disclosed above, a number of further changes to the UK corporation tax system were announced in the March 2011 UK Budget Statement. Legislation to reduce the main rate of corporation tax from 26% to 25% from 1 April 2012 has been included in the Finance Act 2011 which received Royal Assent in July 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. None of these rate reductions had been substantively enacted at the balance sheet date and, therefore, are not reflected in these financial statements.

Had the change in rate to 23% been substantively enacted as of the balance sheet date, there would have been no significant impact on the accounts.

8 Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to equity holders by 164,129,526 (2010: 163,265,333) shares, being the weighted average number of shares in issue throughout the period.

Share options are only treated as dilutive in the calculation of diluted earnings per share if their exercise would result in the issue of shares at less than the average market price of the shares during the period. Shares arising from share options, the deferred bonus scheme or the performance share plan are only treated as dilutive where the effect is to reduce earnings per share. Diluted earnings per share is calculated by dividing the profit for the period attributable to equity holders by the average number of shares, including the effect of all dilutive potential shares, of 166,674,120 (2010: 166,434,557).

9 Dividends

The final dividend of 5.0 pence per share in respect of the year ended 31 December 2010 was paid on 6 May 2011, absorbing £8,144,000 of equity.

The interim dividend of 2.5 pence per share, which will absorb an estimated £4,116,000 of equity, will be paid on 7 October 2011 to shareholders on the register at 2 September 2011. This compares with the 2010 interim dividend of 2.0 pence, which absorbed £3,252,000 of equity.

10 Intangible assets

Movements in intangible assets are summarised as follows:-

11 Property, plant and equipment

Movements in property, plant and equipment are summarised as follows:-

Additions during the period were largely attributable to expenditure on capacity increases and productivity enhancements in each of the four manufacturing subsidiaries.

12 Capital commitments

Capital expenditure contracted for but not provided in the financial statements:

13 Retirement benefit obligations

The retirement benefit obligations disclosed as non-current liabilities in the balance sheet are as follows:

The decrease in the group's retirement benefit obligations at 30 June 2011 compared with 31 December 2010 primarily reflects the additional contributions made to each of the major schemes during the period.

A summary of the discount rates used in the principal countries is:-

14 Equity securities issued

Details of ordinary shares of 10 pence each issued during the six months ended 30 June 2011 are as follows:

15 Cash flows from operating activities

16 Analysis of net debt

The increase in net debt reflects the significant level of capital expenditure during the period, together with the increase in working capital.

17 Related party transactions

The group had no related party transactions other than key management compensation during the six months ended 30 June 2011 and 30 June 2010.

Statement of directors' responsibilities

The directors confirm that these consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7 and 4.2.8, namely:

·; an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; material related party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last annual report.

The directors of Devro plc are as listed in the company's Annual Report for the year ended 31 December 2010, with the exception of the following changes: Mr P C Williams retired on 7 April 2011, Mr S C Webb was appointed on 17 January 2011, and Mr P N Withers was appointed on 28 April 2011. A list of the current directors is maintained on the company's website: www.devro.com.

By order of the Board

Peter Page

Chief Executive

2 August 2011

Independent review report to Devro plc

Introduction

We have been engaged by the company to review the consolidated interim financial information in the interim financial report for the six months ended 30 June 2011, which comprises the interim consolidated income statement, the interim consolidated statement of comprehensive income, the interim consolidated balance sheet, the interim consolidated statement of changes in equity, the interim consolidated cash flow statement and related notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the consolidated interim financial information.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As discussed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The consolidated interim financial information included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the consolidated interim financial information in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of interim financial information performed by the independent auditor of the entity", issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated interim financial information in the interim financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

Glasgow

2 August 2011

Notes

(a) The maintenance and integrity of the Devro plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report since it was initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.