The business conducted a ‘Global Manufacturing Footprint Review’ to “improve efficiencies” leading to the closure of the Bellshill site in Scotland.
Announced as part of its third quarter trading update, a statement said: “As a result of this review we are proposing to close our Bellshill site in Scotland and, consequently, to increase the portfolio of products manufactured in our Moodiesburn site in Lanarkshire and relocate some of the Bellshill's manufacturing assets within the wider Group. Following consultation, we expect Bellshill to close during 2020 with the loss of c.90 employees.”
As well as the site closure, an exceptional cost of £15m (£10m of cash) will be incurred (2019: £11m exceptional profit and loss charge, £1m exceptional cash charge; 2020: £4m exceptional profit and loss charge, £9m exceptional cash charge). The company said this investment associated with these actions is “within longer-term capital programme and, as such, capital expenditure guidance for FY 2020 (£18m) remains unchanged”.
Additionally as part of the global manufacturing footprint review, Devro is analysing its ongoing supply strategy. It said this is expected to result in non-cash exceptional impairment charges in FY 2019, primarily relating to partial write-downs of the China and US plants. “These plants continue to be an integral part of our global footprint and the revised supply strategy will enhance the agility and flexibility of the Group's supply chain whilst staying focused on our long-term growth ambitions.”
This efficiency review has identified annualised cost savings of £5m to be fully realised in FY 2021.
Trading update
In its third quarter trading update, Devro reported a modest growth in volume (1% year-on-year).
It reported good trading in North America, with continued growth in snacking categories, and also in China, due to continued strong growth albeit at margins below the average for the group.
The business experienced further deterioration in market conditions in Continental Europe and weaker than expected sales in Japan, while sales in the UK & Ireland and Australia saw little year-on-year change.
The statement added: “We continue to expect a modest acceleration of volume growth in Q4 2019 with full year volume growth expected at c.1%. Our cost saving initiatives are progressing well and we are confident of achieving our guidance of £7m in FY 2019. We continue to expect the covenant net debt/underlying EBITDA ratio to be around 2x at 31 December 2019.
“Our expectations for the full year remain broadly unchanged as growth in underlying operating profit through higher volumes, delivery of costs savings and positive FX will be offset by adverse country/product mix, lower revenues from other products and energy and wage inflation which was highlighted in previous announcements.“
