|
Financial highlights
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2016 Unaudited |
2015
|
|
Revenue |
£241.1m |
£230.2m |
|
Underlying EBITDA* |
£58.8m |
£49.7m |
|
Underlying operating profit* |
£38.1m |
£33.3m |
|
Underlying profit before tax* |
£28.9m |
£29.2m |
|
Underlying basic earnings per share* |
13.3p |
15.4p |
|
Total dividend per share |
8.8p |
8.8p |
|
|
|
|
|
Statutory reported results |
|
|
|
Operating profit |
£15.4m |
£19.2m |
|
Profit before tax |
£6.2m |
£15.1m |
|
Basic earnings per share |
1.3p |
8.8p |
* Underlying figures are stated before exceptional items (see Alternative Performance Measures section of Financial Review for definition, explanation and reconciliation to equivalent statutory measures)
Full year highlights
|
· Revenue increased 4.7% year on year o Exchange rate benefits offset lower sales volumes · Underlying EBITDA £9.1 million ahead of prior year o Lower input prices and exchange rate benefits more than compensated for reduced year-on-year sales volumes · Capital investment projects now complete o Old USA plant closed in June 2016 as planned o Commissioning and start-up of new plants in China and USA now complete o Related exceptional costs of £20.7 million for 2016, in line with expectations and now ended · Devro 100 programme initiated to accelerate delivery of revenue and profit growth o Focuses on growing revenue through improving our sales capabilities, further improving manufacturing efficiencies to reduce unit costs and introducing the next generation of differentiated products o Related exceptional costs of £2.0 million for 2016; further exceptional costs expected of between £10-12 million over the next two years, plus capital investments of between £7-8 million, with expected returns of between £13-16 million per annum by 2019 |
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.
“Following the significant capital investments we have made in recent years, we are now 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.
“In 2017, we will focus on increasing revenue to regain market share, achieving cost savings across our global operations and commencing the launch of new, differentiated products, as part of the Devro 100 programme. The further exceptional costs of this programme are expected to be between £10-12 million over the next two years, plus capital investments of between £7-8 million, with expected benefits of between £13-16 million per annum by 2019. Over this period there will also be a focus on reducing net debt levels. Combined with our upgraded global manufacturing asset base, we are confident this will deliver long term growth.”
This announcement contains inside information.
Contacts
|
Peter Page |
Chief Executive |
020 3727 1340 |
|
Rutger Helbing |
Group Finance Director |
020 3727 1340 |
|
Richard Mountain/Nick Hasell |
FTI Consulting |
020 3727 1340 |
There will be a presentation today at 9.00am for investors and analysts at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. A live audio feed will be available to those unable to attend this meeting in person. To connect to the webcast facility, please go to the following link: http://view-w.tv/943-1289-17842/en approximately 10 minutes before the start of the briefing (8.50am). The presentation will also be available on the company's website.
CHAIRMAN'S STATEMENT
Global demand for collagen casings and related products grew by approximately 4% in 2016. Regional variations led to a range of opportunities and challenges and the higher levels of capacity in the market provided customers with a range of options of varying quality and functionality.
Devro's reported revenues were 4.7% above the prior year. This includes exchange rate movements, which were particularly beneficial in the second half. As previously guided, Devro's revenues in constant currency declined 6.9% in the year. Volumes in Latin America, Continental Europe, Russia and China reduced, although China returned to year-on-year growth in the final quarter. The performance in these areas was partially offset by increased volumes, and stable or increasing local currency average sales prices, in Japan, South East Asia and the UK & Ireland.
After a three-year transformation period we achieved a major milestone in 2016 with the completion, as planned, of our two capital investment projects in the USA and China. These new plants are now an integral part of our global manufacturing footprint.
In our November 2016 trading update we highlighted that our anticipated sales volumes for 2017 will result in an under-utilisation of available global capacity. As a consequence the Board decided to accelerate and implement more extensively the next stage of the group's strategic development. This programme, known as Devro 100, focuses on growing revenue through improving our sales capabilities, further improving manufacturing efficiencies to reduce unit costs and introducing the next generation of differentiated products.
To underpin the Devro 100 programme, a significant change in the group's organisation structure was implemented in the fourth quarter, under which we moved from local sales and manufacturing responsibilities to three sales-focused commercial regions, supported by global business development and global supply chain operations. The Board believes this will result in a strong focus on areas of future profit growth, faster development of new products and greater use of local operational expertise for the benefit of Devro worldwide by sharing best practices.
Given the extensive nature of this programme there will be a significant level of incremental costs during 2017 and 2018 which will be reported separately as exceptional items.
FINANCIAL HIGHLIGHTS
Underlying operating profit increased 14% to £38.1 million (2015: £33.3 million), as it benefited from currency movements and lower input prices, which more than offset the effects of lower sales volumes.
After including exceptional items, operating profit was £15.4 million (2015: £19.2 million). A breakdown of exceptional items, together with a more detailed explanation of the group's financial performance, is set out in the Financial Review below.
BOARD
Rutger Helbing joined the Board in April 2016 as Group Finance Director following Simon Webb's retirement in March 2016.
In December 2016, Malcolm Swift agreed to join our Board as a non-executive director with effect from 26 April 2017. At this time, Paul Neep will stand down after 12 years as a non-executive director. I am extremely grateful for his significant contribution.
EMPLOYEES
The expertise, experience and commitment of so many people who work in Devro are key to the future success of the business. 2016 was a demanding year for all colleagues as we progressed with the transformation of the business. On behalf of the Board, I thank all employees for their contribution.
I am particularly impressed by the way that new employees, in China and elsewhere, have integrated and strengthened our capabilities in many areas.
DIVIDEND
The Board is proposing to maintain the final dividend at 6.1p per share (2015: 6.1p) bringing the total for the year to 8.8p per share (2015: 8.8p). Subject to shareholder approval at the Annual General Meeting in April, the dividend will be paid on 12 May 2017, to those shareholders on the register at 31 March 2017.
RETURN ON INVESTMENTS
Having completed the transformation of our global manufacturing footprint, we are now focused on the need to deliver a return on our investments at the same time as generating strong cash flow for the reduction of debt. The actions planned under the Devro 100 programme will accelerate these returns. However we do recognise that the further exceptional items in 2017 and 2018 represent an additional investment from our investors. We are convinced that, with the quality of our new production facilities and strengthened senior management capability across the group, combined with a new global organisation structure, Devro is well-positioned to grow sales and reduce costs over the coming years. Our markets are dynamic and continue to grow, providing good opportunities for Devro to create long-term value for our shareholders.