Devro ramps up investment for transformation programme

By Aidan Fortune

- Last updated on GMT

Devro's finances have been buoyed by the weakened sterling
Devro's finances have been buoyed by the weakened sterling

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Delays to casings manufacturer Devro’s global transformation programme, which involves production plants in the US and China, is set to cost them an extra £6m.

The company’s exceptional costs are expected to be approximately £20m for the full year, £6m more than originally predicated. The delay has been attributed to the “complexity of the transformation​”.

Devro’s investment in the US and China​ over the first six months of 2016 was more than three times that for the same period of 2015, increasing from £4m to £13.4m.

Highlights from the transformation project for the first six months of the year included the closure of its old US plant, new plants in China and US both commencing production, and products from new plants in the process of being qualified with customers.

Underlying profit up

The business also posted solid financial results for the first half of 2016. A 7% reduction in sales volumes in the six months to 30 June 2016 was compensated for by exchange rate benefits such as weakened sterling. The sales reduction was mostly in China and Europe, especially Russia.

Its underlying operating profit was up £2.4m on the same period last year. Underlying EBITDA was £26.4m, up £2.6m on the previous year.

Revenue in the UK & Ireland was broadly in line with the previous year, while in Continental Europe revenue started the year slowly but improved to prior year levels for the second quarter.

Revenue in North America increased 8% but Latin American revenue was down 9%, a casualty of the global transformation programme.

Japanese revenue was up 25%, however an oversupply of product in China led to a reduction in revenue of 52% in the first half of the year. South East Asia revenue was down 13% and Australia & New Zealand revenue down 5%.

Expectations ‘unchanged’

Peter Page, chief executive of Devro, said: “Underlying operating profit was ahead of prior year for the first half. Improved manufacturing efficiencies, lower input costs and exchange rate benefits more than offset the effects of reduced year-on-year sales volumes.

The Board’s expectations for the full year underlying operating profit remain unchanged.​”

Page said the business will now focus on new products as its global transformation programme wraps up. The programme, which includes production facilities in the US and China, is set to be completed by the end of 2016.

The transformation programme has reached its final phase,​” he said. “The next stage of strategic development will focus on growing sales through improved commercial capabilities, introducing the next generation of differentiated products and further improving manufacturing efficiencies.​”

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