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Sausage casings manufacturer Devro (DVO) has reported a double-digit rise in underlying annual profit despite sharply falling volumes as the weak pound boosted its results.
Devro’s headline sales for the year to 31 December 2016 were up 4.7% to £241.1m, but this was significantly boosted by beneficial exchange rate movements as revenues declined by 6.9% on a constant currency basis.
The underlying sales decline was due to weak volume performance, with global volumes dropping 6.6% year-on-year as volumes dropped in Latin America, Continental Europe, Russia. Volumes returned to growth in China and improved in Japan, South East Asia and UK & Ireland.
Global demand for collagen casings and related products grew by approximately 4% in 2016.
Despite the falling volumes, underlying operating profit increased 14% to £38.1m, as it the firm benefited from currency movements and lower input prices.
After including exceptional items, operating profit was £15.4m down from £19.2m and drive by an increase in depreciation and amortisation costs.
Devro said its anticipated sales volumes for 2017 will result in an under-utilisation of available global capacity and as a result it will step up its ‘Devro 100’ strategic plans to grow revenue through improving sales capabilities, improve manufacturing efficiencies and introduce differentiated products.
Peter Page, Chief Executive of Devro, commented: “Whilst volumes declined by 6.6% year-on-year, underlying operating profit increased due to lower input prices and exchange rate benefits. The decline in sales volumes in 2016 was due to a series of region-specific factors. We have taken actions to ensure a return to growth in 2017 and beyond.
In 2017, Devro said it will focus on increasing revenue to regain market share as well as achieving cost savings across its global operations.
The further exceptional costs of its Devro 100 programme are expected to be between £10-12m over the next two years, plus capital investments of between £7-8m, with expected benefits of between £13-16m per annum by 2019.
Devro shares have fallen 1.5% to 182.7p so far this morning.
Morning update
It’s a quiet start to what looks like a busy week, with no other news of note on the markets this morning.
The FTSE 100 has made a slow start to trading, dipping 0.3% to 7,349.1pts on concerns that international tensions are rising driven by the missile tests of North Korea.
Risers so far this morning include Applegreen (APGN), up 2.9% to 14.8p, PureCircle (PURE), up 1.7% to 295p, Premier Foods (PFD), up 1.4% to 41.3p and Marks & Spencer (MKS), up 1% to 334.2p.
In addition to Devro, fallers include Hilton Food Group (HFG), down 2.4% to 621.4p, Stock Spirits (STCK), down 1.8% to 176.5p and Crawshaw (CRAW), down 1.4% to 15p.
This week in the City
Newsflow this week is likely to be dominated by Philip Hammond’s maiden budget on Wednesday, though there are significant annual results in the grocery sector on Thursday.
Hammond’s budget on Wednesday – the UK’s first since the vote to leave the EU last June – is expected to be a fairly frugal affair with few giveaways on the menu. Crucial for the retail sector is the topic of business rate reform, with Hammond tipped to take the edge of some of the harsh increases on the way for some high street retailers.
On Thursday both Morrisons (MRW) and John Lewis Group will report their annual results. Morrisons is back on the upturn after a torrid period and is expected to reveal its first profit improvement for six years, but John Lewis is likely to cut its staff bonus as it readies for a testing 2017.
Elsewhere, tomorrow brings full-year earnings releases from Worldpay (WPG) and Just East (JE), while John Menzies will report full year results on Wednesday.
Internationally, Tuesday sees an earnings update from Lindt & Spruengli, while Beiersdorf and Brown-Forman update the market on Wednesday and Refresco on Thursday.
This week also sees the release of the monthly BRC-KPMG Retail Sales figures and the monthly Kantar Worldpanel and Nielsen market share figures are released on Tuesday morning.
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