Profits slip at sausage skin maker as sales fall overseas

● Revenues fall in Japan despite new product launch ● Operational cost rise and stronger pound hit profits

Lanarkshire food products firm Devro has reported a fall in annual profits as rising costs and lower sales in Russia and the Far East hampered performance.

The Moodiesburn-based business, which supplies sausage skins and collagen products to the food industry, revealed pre-tax profits of £17.5 million for the year ending 31 December, a drop from £21.6m in 2017.

Revenues dipped by £3.5m to £253.4m on the back of weaker sales of its legacy product and “market challenges” in Russia and Japan, where volumes dropped 12 per cent and 7 per cent, respectively.

The firm also reported higher exceptional items of £12.3m, up from £5.1m in 2017, which included costs relating to the Devro 100 savings programme and a restructure to implement a new global operating model.

However, the company reported strong sales growth in the Americas and the successful launch of its Fine Ultra product platform in Europe, Japan and south-east Asia.

Underlying operating profit rose 5 per cent, as savings from Devro 100 and “disciplined cost control” offset energy and salary inflation, as well as foreign exchange headwinds.

Devro said “substantially improved” operations at its North American plant and a 16 per cent increase in the average selling price in China also lifted performance.

The group’s net pension obligations reduced significantly to £54.4m, down from £82m at the end of 2017. The board proposed an increased final dividend of 6.3p per share, bringing the total for the year to 9p per share.

Chief executive Rutger Helbing said: “We continued to make significant progress on our strategic priorities in 2018, delivering manufacturing efficiency improvements, in particular at our US plant, driving average selling price improvements in China and establishing the building blocks for future growth supported by our new Fine Ultra product platform.

“We over-delivered on our Devro 100 cost savings programme and, in addition, we increased margins.”

Investors said the firm had suffered from the unfortunate timing of external factors.

John Moore, senior investment manager at Brewin Dolphin Scotland, said: “It’s a mixed set of results from Devro. To a certain degree, the business has suffered from unfortunate timing – it made significant investment in new plant only to see a weak point in demand. That said, as demand starts to pick up it should be well placed.

“Management are confident enough at this stage to have increased the dividend; however, potential investors and analysts are likely to pause and watch for signs of progress in sales and margins against its strategic aims, before turning more positive on the stock.”