Devro confirms job cut plans

By Rod Addy

- Last updated on GMT

Devro makes a range of sausage casings
Devro makes a range of sausage casings

Related tags Restructuring

Devro is cutting 130 jobs at two factories in Scotland, the sausage casing manufacturer confirmed in its interim results.

The decision followed a 45-day consultation process. In its interim statement, it said: Significant progress has also been made in the restructuring of our operations in Scotland, which was announced in April 2014.

“The decommissioning of older, less efficient technology has commenced. 130 redundancies have now been agreed, with the first stage to be completed in August 2014 and the second stage in the first quarter of 2015.”

The firm said the restructure would effectively cost it £20M, made up of £8M in cash, plus a further £12M in write down of assets and increased pension liabilities. However, it said the move would deliver savings of £5M by the middle of next year.

In addition, it said plans to invest £90M in the US and China were on track for expected completion dates in 2016.

Sales down

Devro reported sales down 8% in the six months to June 30 compared to the same period last year, from £118.9M to £109.7M. Shore Capital analyst Darren Shirley attributed the fall substantially to adverse currency exchange rates.

On a constant currency basis, sales had been “broadly flat”, ​with a 1% decline in volumes, Shirley said. Pre-tax profit fell from £16.2M to £1.6M, comparing the first six months of this year with the same period last year, Devro reported.

Shirley recognised that volume sales had recovered strongly in the company’s second financial quarter, with the recovery most marked in the UK and Russia.

Strong growth in global edible collagen sales could offer some promise for the company, he said, although he added most of that growth was coming from emerging markets, where Devro had underperformed.

He also forecast that net debt would rise from £53.2M in the current interim period to £121M at December 2015, driven by restructuring costs, causing him to be cautious about the firm’s future performance.

‘We prefer to wait’

As a result, he summed up: “We prefer to wait for more evidence of a sustained recovery before becoming more positive …”

Devro ceo Peter Page said: “Stronger sales in the second quarter have resulted in volumes and constant currency revenues in line with prior year for the first half.”

“In order to add capacity, align products with market opportunities and reduce unit costs, all our manufacturing operations are in the midst of a significant transformation process which is impacting current year profits but will enhance earnings in the future.”

 “Our expectations for the full year trading results remain unchanged.”

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