Devro shifts focus back towards growth

Devro said it would aim at growing revenues again now that it had concluded the construction and start-up of its new plants in China and the US.

Full-year 2016 sales volumes fell 6.6% year-on-year, with the company attributing that to a "series of region-specific issues", partially offsetting the benefits from reduced input costs and a favourable tailwind from exchange rate changes.

Thus, total revenues at the sausage skin manufacturer were 4.7% ahead for 2016 at £241.1m, while underlying profits before tax edged lower by 0.01% to £28.9m for total earnings per share of 8.8p, unchanged from the year earlier level.

Significantly, the company incurred in £20.7m of exceptional costs throughout 2016 linked to the closure of a plant in the States and the commissiong and start-up of new ones both there and in China.

Now, said Peter Page, Devro's chief, the company was "focused on using our high-technology assets to supply a growing global market. Overall demand remains strong and we continue to see many attractive opportunities to grow the business."

Also on an underlying basis, earnings before interest, taxes, depreciation and amortisation grew 18.3% to £58.8m.

Statutory results hammered

On a statutory basis, on the other hand, operating profits reduced from £19.2m to £15.4m, with profits before tax down from £15.1m to £6.2m and earnings per shares lower from 8.8p in 2015 to 1.3p.

Focus now on growth

The company would now concentrate on growing it sales, regaining market share and achieving cost savings across its operations worldwide.

It would also begin the launch of new, differentiated products as part of its Devro 100 programme.

That would entail further exceptional costs of between £10.0m to £12.0m over 2017 and 2018, on top of capital investments of between seven to eight million pounds.

From 2019 onwards those iniatives were expected to generate between £13.0m to £16.0m of benefits a year.

Devro also committed itself to reducing its gearing, which together with its upgraded manufacturing base it was confident would deliver long-term growth.

"Whilst Devro could look attractive if its full potential can be delivered, noting a FY2017 PER of 12.4x and an EV/EBITDA multiple of 7.6x, the group’s short-medium term track record means we need to see tangible evidence of delivery before becoming more positive on the stock, as such we remain cautious and reiterate our HOLD recommendation," said Darren Shirley at ShoreCap immediately following the results.