6th Sep 2007 07:01
Devro PLC06 September 2007 DEVRO PLC 6 September 2007 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 30 June 2007 30 June 2006Revenue £73.3m £75.2mOperating profit (before exceptional items) £8.1m £9.0mOperating margin (before exceptional items) 11.0% 12.0%Exceptional items £(0.3)m £(1.0)mProfit before tax £6.4m £7.1mEarnings per share 2.8p 3.1pEarnings per share (before exceptional items) 3.0p 3.6pInterim dividend per share 1.425p 1.425pNet debt £36.7m £29.4m Pat Barrett, Chairman of Devro, commented: "Trading in the first half of 2007 has been mixed. Sales in the more maturemarkets such as the UK, US and Australia have been slow, but sales into thedeveloping markets, in particular Russia and China, have grown significantlycompared with prior year. "We continue to have strong market positions in most areas of our business withthe stability of a worldwide presence, and we are confident that we willmaintain our position as a leading producer of high quality, high performancecasings. This, together with the further potential improvements to the businesswhich we have now identified and the operational changes we are initiating,gives the Directors confidence that the business performance will againstrengthen." Enquiries: Peter Page Chief Executive 020 7404 5959 on 6 September 2007John Neilson Finance Director 01236 879191 thereafter Anita Scott /Mark Antelme Brunswick 020 7404 5959 CHAIRMAN'S STATEMENT Group results For the 6 months to 30 June 2007, operating profit, before exceptional items, of£8.1 million compares with £9.0 million for the equivalent period in 2006.Earnings per share, before exceptional items, was 3.0 pence and compares with3.6 pence for the prior year. Exceptional costs associated with the bid approachin the early part of 2007 totalled £0.3 million, while restructuring coststotalling £1.0 million were incurred in the corresponding period last year. With an adverse translational exchange impact of 3.4%, overall sales revenue forthe period at £73.3 million was 2.6% behind prior year. Sales volumes were aheadof the 2006 equivalent period by 3.8%. This gain, however, was largely offset byan adverse price/mix effect of 3.0%, which resulted from unfavourable movementsin market mix, adverse transactional exchange and higher volume discounts. Trading Trading in the first half of 2007 has been mixed. Sales in the more maturemarkets such as the UK, US and Australia have been slow, but sales into thedeveloping markets, in particular Russia and China, have grown significantlycompared with prior year. In Europe, the UK market has started to regain momentum after a slow start, withthe outlook for the second half of the year being more encouraging. InContinental Europe, the steady growth of recent years has continued. This hasbeen driven by strong sales of Cutisin in Eastern European markets, while theavailability of an improved Devro product, manufactured in Scotland, has led tohigher sales in Western Europe. Sales in the US were below the corresponding period last year due mainly tobusiness lost at a small number of accounts. Improvements have been made in thedesign of certain elements within our product range and we are regaining thesesales in the second half. The downturn in US sales was also partly due toincreased use of co-extrusion technology in the low-priced portion of thebeefstick sector. While we have consequently gained additional sales of collagengel, this only partially compensates for the loss in volume of collagen casings. In the Asia/Pacific region, sales have been well ahead of prior year. TheAustralian market has been weaker due to a lack of promotional activity,although sales in New Zealand have shown solid growth. The Japanese market hasbeen somewhat subdued this year, particularly in the early months, with a higherlevel of imported sausage having an impact. Sales into Asia, particularly China,have been considerably higher than last year, as material from the expansion ofour Cutisin factory has become available. In manufacturing, the introduction of the new product range into the Scottishoperation presented a number of technical challenges. While progress has beenmade in resolving these issues, increased production downtime and lower yieldsin the first half of the year have cost approximately £1.0 million. Thissituation is clearly of high priority and a number of actions have been taken toaddress this matter. The new Cutisin capacity is fully on line and operatingvery effectively, giving a benefit to profit of a broadly similar amount. Inaddition, further capacity is being installed in Australia and will becomeoperational during the second half of the year. Group profit was affected by a number of exchange rate movements during theperiod, both positive and negative. The overall effect of these movements, bothtranslational and transactional, was an adverse impact of £0.8 million. Currencyhedging is now as high as is practicable in order to minimise transactionalexchange exposure over the next 12 months. Net interest expense in the period was £1.3 million (2006: £0.9 million),reflecting an increase in the level of borrowings and higher interest rates. Earnings attributable to shareholders were £4.5 million (2006: £5.1 million).Unadjusted earnings per share was 2.8 pence (2006: 3.1 pence). Excludingexceptional items, earnings attributable to shareholders were £4.8 million,giving earnings per share before exceptional items of 3.0 pence (2006: 3.6pence). Net debt of £36.7 million at 30 June 2007 compares with £29.4 million at 30 June2006. Net cash inflow from operations was below the corresponding period lastyear. This was principally due to lower profits and higher pension schemepayments. Cash outflow in respect of capital expenditure in the period was £5.2million (2006: £9.1 million). The group's retirement benefit obligations of £0.8 million at 30 June 2007 havereduced significantly from £26.3 million at 31 December 2006. This is due mainlyto higher discount rates, increases in the value of the assets of the pensionschemes and an additional cash contribution of £2.5 million into the UK pensionscheme. Dividend The Board has declared an interim dividend of 1.425 pence per share (2006: 1.425pence). It will be paid on 17 October 2007 to shareholders on the register at 21September 2007. Board changes Graeme Alexander, who has been Chief Executive since 1993 and has been withDevro for 30 years, formally retired on 4 September. Graeme has been a centralfigure in the growth of the business and I am most grateful for his contributionthroughout his time with the company. John Neilson, our Finance Director since 1991, has decided to retire in 2008following 32 years of service. John has been integral to the development of ourbusiness throughout this time and we appreciate all that he has done for us. Arecruitment process has now been initiated. Peter Page, who succeeded Graeme as Chief Executive, joined Devro on 1 June,following a comprehensive and lengthy recruitment process. Peter's backgroundand experience is ideally suited to Devro, with over twenty years in global foodand drink operations. The majority of his time has been spent in a highlytechnical sector which has grown rapidly, supplying some of the largest freshfood producers worldwide. Having made his mark with effective marketing andbusiness development initiatives, Peter has more recently held director-levelposts in both publicly listed and private equity environments with very stronginternational exposure, giving him a solid grounding in general management andthe implementation of strategic change. Over the past two months, Peter has been reviewing all of our businessactivities in detail. He has been impressed by the breadth and depth of ourtechnical expertise, and is keen to use this for future growth. He hasidentified scope for tightening the management of costs in some areas and istaking the initiative in ensuring consistency in our approach to reducingmanufacturing costs throughout our global operations. Peter has beenparticularly positive about the opportunity to build the business through strongsales and marketing activities, generating value for customers by clearlyidentifying product attributes and advantages. He is also optimistic aboutfurther volume growth in developing markets. I am confident that he will takethe business forward. Outlook Trading in the second half of 2007 will be challenging, particularly in theUnited States where higher raw material costs and reduced sales in the beefsticksector will affect profitability. The manufacturing issues in the Scottishoperation are also expected to continue for at least part of the period.Nevertheless, with other parts of the group performing well, we still expect thefinancial performance in the second half to be stronger than that of the firsthalf. We continue to have strong market positions in most areas of our business withthe stability of a worldwide presence, and we are confident that we willmaintain our position as a leading producer of high quality, high performancecasings. This, together with the further potential improvements to the businesswhich we have now identified and the operational changes we are initiating,gives the Directors confidence that the business performance will againstrengthen. Consolidated income statementfor the six months ended 30 June 2007 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000Revenue - continuing operations(note 2) 73,278 75,206 153,500 -------- -------- --------- Operating profit - continuingoperations 7,711 8,007 18,284------------------------------------------------------------------------------Analysed as:Operating profit beforeexceptional items (note 2) 8,060 9,022 19,294 Exceptional items (note 3) (349) (1,015) (1,010) -------- -------- --------Operating profit 7,711 8,007 18,284------------------------------------------------------------------------------ Finance income 140 199 312Finance expense (1,406) (1,105) (2,343) -------- -------- --------Profit before tax 6,445 7,101 16,253Taxation (note 4) (1,940) (2,024) (4,632) -------- -------- --------Profit for the period 4,505 5,077 11,621 ======== ======== ======== Earnings per share (note 6) - Basic 2.8p 3.1p 7.2p - Diluted 2.8p 3.1p 7.1p - Basic before exceptional items 3.0p 3.6p 7.6p Consolidated balance sheetat 30 June 2007 At At At 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 ASSETSNon-current assetsGoodwill 177 177 177Other intangible assets 1,512 1,230 1,542Property, plant and equipment 104,743 104,327 106,470Deferred tax assets 3,028 10,642 10,573Other receivables 104 153 131 ---------- ---------- ---------- 109,564 116,529 118,893 ---------- ---------- ----------Current assetsInventories 23,634 21,783 19,579Current tax assets 2,147 638 708Trade and other receivables 20,652 21,968 22,596Derivative financial instruments 7 396 159Cash and cash equivalents 8,622 8,362 8,790 --------- ---------- --------- 55,062 53,147 51,832 --------- ---------- ---------LIABILITIESCurrent liabilitiesFinancial liabilities - Borrowings 2,401 1,027 6,367 - Derivative financial instruments 337 58 73Trade and other payables 17,150 17,842 19,733Current tax liabilities 4,440 2,271 3,345 -------- -------- -------- 24,328 21,198 29,518 -------- -------- --------Net current assets 30,734 31,949 22,314 -------- -------- -------- Non-current liabilitiesFinancial liabilities- Borrowings 42,941 36,710 29,402Deferred tax liabilities 11,756 15,260 12,168Retirement benefit obligations(note 7) 843 23,555 26,325Other non-current liabilities 140 119 138 -------- -------- -------- 55,680 75,644 68,033 -------- -------- --------Net assets 84,618 72,834 73,174 ======== ======== ========EQUITYCapital and reserves attributable toequity holdersOrdinary shares 16,286 16,211 16,283Share premium 6,090 5,660 6,070Other reserves 45,880 49,089 48,347Retained earnings 16,362 1,874 2,474 -------- -------- --------Total equity 84,618 72,834 73,174 ======== ======== ======== The notes on pages 9 to 14 are an integral part of these consolidated interimfinancial statements. Consolidated cash flow statementfor the six months ended 30 June 2007 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000Cash flows from operating activitiesCash generated from operations (note 8) 4,808 6,495 22,603Interest received 140 199 316Interest paid (1,355) (1,105) (2,316)Tax paid (2,481) (3,076) (5,056) ------- ------- --------Net cash from operating activities 1,112 2,513 15,547 ------- ------- --------Cash flows from investing activitiesPurchases of property, plant andequipment (5,194) (9,122) (17,311)Proceeds from sale of other property,plant and equipment 49 61 86Purchases of intangible assets (140) (478) (935)Payments to former minorityshareholders of Cutisin a.s. (2) (5) (7) ------- ------- --------Net cash used in investing activities (5,287) (9,544) (18,167) ------- ------- --------Cash flows from financing activitiesIssue of ordinary share capital 23 30 706Net borrowing under the loan facility 8,232 9,221 6,746Payments under finance leases - (13) (18)Dividends paid to shareholders (4,926) (4,894) (7,201) -------- -------- ---------Net cash generated from financingactivities 3,329 4,344 233 -------- -------- ---------Net decrease in cash and cashequivalents (846) (2,687) (2,387)Cash and cash equivalents atbeginning of period 8,232 11,243 11,243of periodExchange losses on cash and cashequivalents (209) (194) (624)------------------------------------------------------------------------------Cash and cash equivalents 8,622 8,362 8,790Bank overdraft (1,445) - (558)------------------------------------------------------------------------------Net cash and cash equivalents at endof period 7,177 8,362 8,232 ====== ======= ======= Consolidated statement of recognised income and expensefor the six months ended 30 June 2007 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000Cash flow hedges:- net fair value (losses)/gains, net of tax (255) 178 209- reclassified and reported in operating profit 82 (152) (281)Retirement benefit obligations, net of tax 14,309 11,657 9,762Net exchange adjustments (2,319) (658) (2,421) -------- -------- --------Net income recognised directly in equity 11,817 11,025 7,269Profit for the period 4,505 5,077 11,621 -------- -------- --------Total recognised income for the 16,322 16,102 18,890 period ========= ======== ======== Notes to the consolidated interim financial statementsfor the six months ended 30 June 2007 (unaudited) 1 Basis of preparation This financial information comprises the consolidated interim balance sheets asat 30 June 2007 and 30 June 2006 and related consolidated interim statements ofincome, cash flows and recognised income and expense for the periods then endedof Devro plc and the notes thereto (hereinafter referred to as "financialinformation"). This financial information has been prepared in accordance with the ListingRules of the Financial Services Authority and International Financial ReportingStandards as adopted for use in the European Union ("IFRS"). The financialinformation has also been prepared on the basis of the accounting policies setout in the group's 2006 annual report. The accompanying consolidated financialinformation should, therefore, be read in conjunction with the consolidatedfinancial statements and notes thereto included in the group's 2006 annualreport. The directors anticipate that the adoption of any new standard, amendments tostandards or interpretations that are mandatory for the first time for thefinancial year ending 31 December 2007 will not have a material impact on thefinancial statements of the group other than increasing the level of requireddisclosure. The group has chosen not to adopt International Accounting Standard ("IAS") 34,"Interim financial statements", in preparing its 2007 interim statements and,therefore, this interim financial information is not in full compliance withIFRS. The consolidated interim financial information does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Thestatutory accounts for the year ended 31 December 2006, which are prepared underIFRS, have been reported on by the group's auditors and delivered to theregistrar of companies. The report of the auditors was unqualified and did notcontain a statement under either section 237 (2) or (3) of the Companies Act1985. 2 Segmental information (a) Primary reporting format - Business segments The business segments shown below are as follows: Collagen casings includes the three edible collagen brands, Devro, Coria andCutisin, and Cutisin non-edible collagen casings. Distributed products compriseTeepak cellulose, Krehalon plastics and other ancillary products. Other productsincludes collagen film, collagen gel, Cutisin plastic casings, collagen formedical and cosmetic use and thin-film products. The unallocated segmentrepresents the activities of the group's head office based at Moodiesburn,Scotland and two (2006: three) subsidiary undertakings which are either solelyholding companies or non-trading. There are no sales between business segments. Collagen casings Distributed products Other products 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006Group £'000 £'000 £'000 £'000 £'000 £'000SegmentresultsRevenueSales toexternalcustomers 58,399 61,093 8,560 8,838 6,319 5,275 --------- --------- -------- -------- ------- -------ResultsSegmentresultsbeforeexceptional items 7,658 9,216 (2) 199 1,978 1,301Exceptionalitems - (860) - - - - --------- --------- --------- --------- -------- ---------Segment results 7,658 8,356 (2) 199 1,978 1,301FinanceincomeFinanceexpense Profitbefore taxTaxation Profit forthe period Segmentassets andliabilitiesSegment assets 141,685 140,468 3,474 3,350 12,852 12,362Taxation Total assets Segmentliabilities 13,877 37,019 2,011 1,767 1,718 2,158BorrowingsTaxation Totalliabilities OthersegmentitemsAdditions toproperty,plant andequipment 4,473 7,681 4 2 103 392 Additions tootherintangibleassets 140 478 - - - - Depreciationof property,plant andequipment 4,179 4,018 6 6 618 597 Amortisationofintangible 155 122 - - 5 20assets Segmental information cont/.... Unallocated Group 0 June 30 June 30 June 30 June 2007 2006 2007 2006Group £'000 £'000 £'000 £'000Segment resultsRevenueSales to external customers - - 73,278 75,206 --------- ---------- --------- ---------ResultsSegment results beforeexceptional items (1,574) (1,694) 8,060 9,022Exceptional items (349) (155) (349) (1,015) --------- --------- --------- ---------Segment results (1,923) (1,849) 7,711 8,007Finance income 140 199Finance expense (1,406) (1,105) -------- --------Profit before tax 6,445 7,101Taxation (1,940) (2,024) -------- --------Profit for the period 4,505 5,077 -------- --------Segment assets andliabilitiesSegment assets 1,440 2,216 159,451 158,396Taxation 5,175 11,280 ----------- -----------Total assets 164,626 169,676 ---------- ---------- Segment liabilities 864 630 18,470 41,574Borrowings 45,342 37,737Taxation 16,196 17,531 ---------- ----------Total liabilities 80,008 96,842 ---------- ----------Other segment itemsAdditions to property,plant and equipment - 37 4,580 8,112and equipment --------- ---------Additions to otherintangible - - 140 478assets --------- ---------Depreciation ofproperty, 23 22 4,826 4,643plant and equipment --------- ----------Amortisation ofintangible 3 3 163 145assets --------- --------- (b) Secondary reporting format - Geographical segments Europe Americas Asia/Pacific 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000SegmentrevenueSales toexternalcustomers (bydestination) 43,190 44,641 14,207 15,563 15,881 15,002Inter-segmentsales 4,565 3,327 3,083 3,724 70 219 --------- --------- -------- -------- -------- -------- 47,755 47,968 17,290 19,287 15,951 15,221 --------- --------- -------- -------- -------- --------SegmentassetsSegmentassets 115,455 111,203 23,433 25,017 28,173 23,808TaxationInter-segmentassets Total assets Other segmentitemsAdditions toproperty,plant andequipment 2,927 6,392 533 955 1,120 728 Additions tootherintangibleassets 108 478 - - 32 - Secondary reporting format - Geographical segments cont/... Unallocated Group 30 June 30 June 30 June 30 June 2007 2006 2007 2006 £'000 £'000 £'000 £'000Segment revenueSales to external customers(by destination) - - 73,278 75,206Inter-segment sales - - 7,718 7,270 -------- -------- --------- --------- - - 80,996 82,476 -------- -------- --------- ---------Segment assetsSegment assets 17,995 15,191 185,056 175,219Taxation 5,175 11,280Inter-segment assets (25,605) (16,823) --------- ----------Total assets 164,626 169,676 --------- ----------Other segment itemsAdditions to property, plantand - 37 4,580 8,112equipment -------- ----------Additions to other intangibleassets - - 140 478 -------- ---------- Sales between geographical segments are made on arms-length terms and conditionswhich are available to unrelated parties. 3 Exceptional items A charge of £349,000 in respect of bid approach costs was made in the six monthsended 30 June 2007. This charge was deducted in arriving at the operating profitof £7,711,000. A charge of £1,015,000 in respect of restructuring costs was made in the sixmonths ended 30 June 2006. This charge was deducted in arriving at the operatingprofit of £8,007,000. 4 Taxation The charge for taxation for the six months ended 30 June 2007 corresponds to aneffective rate of tax of 30.1% (2006: 28.5%) and reflects the anticipatedeffective rate for the year ending 31 December 2007. The charge for taxationcomprises a UK corporation tax credit of £509,000 (2006: credit of £325,000) anda foreign tax charge of £2,449,000 (2006: £2,349,000). 5 Dividends The interim dividend of 1.425 pence per share, which will absorb an estimated£2,321,000 of shareholders' funds, will be paid on 17 October 2007 toshareholders on the register at 21 September 2007. This compares with theinterim dividend of 1.425 pence and a full year dividend of 4.45 pence inrespect of 2006, which absorbed shareholders' funds of £2,312,000 and £7,238,000respectively. 6 Earnings per share 6 months ended 6 months ended 30 June 2007 30 June 2006Earnings per share (pence) - Basic 2.8 3.1- Diluted 2.8 3.1- Basic before exceptional items 3.0 3.6 Basic earnings per share for the six months ended 30 June 2007 was calculated bydividing the profit for the period of £4,505,000 (2006: £5,077,000) by162,844,562 (2006: 161,842,779) ordinary shares, being the weighted averagenumber of ordinary shares in issue during the period. Share options are only treated as dilutive in the calculation of dilutedearnings per share if their exercise would result in the issue of ordinaryshares at less than the average market price of the shares during the period.Shares arising from share options or the performance share plan are only treatedas dilutive where the effect is to reduce earnings per share. Diluted earningsper share was calculated by dividing the profit for the period of £4,505,000(2006: £5,077,000) by the weighted average number of ordinary shares, includingthe effect of all dilutive potential ordinary shares, of 163,793,573 (2006:163,450,256). The earnings per share before exceptional items of 3.0 pence for the six monthsended 30 June 2007 (2006: 3.6 pence) was calculated in order to eliminate theeffect of the exceptional charge after taxation of £349,000 (2006: £711,000) onthe results. Basic earnings per share before exceptional items for the periodended 30 June 2007 was based on the profit attributable to ordinary shareholdersbefore exceptional items, after attributable tax, of £4,854,000 (2006:£5,788,000) and 162,844,562 (2006: 161,842,779), being the weighted averagenumber of shares in issue during the period. 7 Retirement benefit obligations The retirement benefit obligations disclosed as non-current liabilities in thebalance sheet are as follows: At At At 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000Retirement benefit obligations 843 23,555 26,325 A summary of the discount rates used in the principal countries was:- 30 June 30 June 31 December 2007 2006 2006Australia 5.30% 5.40% 5.00%United Kingdom 5.80% 5.25% 5.10%United States 6.20% 6.25% 5.80% The significant reduction in the group's retirement benefit obligations at 30June 2007 compared with 31 December 2006 was principally due to: (a) increases in the discount rates applied to the future liabilities of the group's major pension schemes; (b) increases in the fair value of the assets of the group's major pension schemes; (c) an additional cash contribution of £2.5 million into the UK scheme. 8 Cash flows from operating activities 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Net profit for the period 4,505 5,077 11,621Adjustments for:Taxation 1,940 2,024 4,632Finance income (140) (199) (312)Finance expense 1,406 1,105 2,343Loss on disposal of other property, plantand equipment 76 38 59Depreciation of property, plant and equipment 4,826 4,643 9,389Amortisation of intangible assets 163 145 275Performance share plan 38 234 (583)Retirement benefit obligations (3,787) (1,206) (2,930)Reduction in amounts payable to formerCutisin shareholders - - (244)Changes in working capital:(Increase)/decrease in inventories (4,129) (1,046) 700Decrease/(increase) in trade and otherreceivables 1,878 (1,804) (2,811)(Decrease)/increase in trade and otherpayables (1,968) (2,516) 464 -------- -------- --------Cash generated from operations 4,808 6,495 22,603 ========= ======== ======== 9 Analysis of net debt At At At 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000Cash and cash equivalents 8,622 8,362 8,790Bank overdraft (1,445) - (558) -------- -------- --------Net cash and cash equivalents 7,177 8,362 8,232Borrowings less bank overdraft andfinance leases (43,897) (37,731) (35,211) ---------- ---------- -------- (36,720) (29,369) (26,979)Finance leases - (6) - ---------- ---------- ---------- (36,720) (29,375) (26,979) =========== =========== ========== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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