According to Devro, key drivers of this success were "food manufacturers [continuing] to recognise the benefits of using collagen casings, including more efficient production and greater traceability of raw materials, supporting brand security and food safety".
Its EBITDA increased 9% to £64.1 million (2016: £58.8m) as a result of volume growth, planned cost reductions, and exchange rate benefits of £4.2m (2016: £5.3m), offset by price/mix and the full costs for the new plants that started up in 2016. Underlying operating profit was in line with 2016, after higher depreciation on the new plants. Operating profit was £33.0m as opposed to 2016’s figure of £15.4m.
USA volumes increased 3% as the protein snack stick segment continued to grow at a faster rate than total food consumption. Latin America volumes declined 25%, with final-quarter sales recovering to a level comparable to the prior year. The year-on-year volume reduction followed the previously-announced changes in product sourcing in 2016, while the reduction in the overall average selling price reflected the resulting changes in country mix.
Even though the UK sausage market has shown little growth for several years, 2017 volumes of Devro casings increased 2%, along with a similar increase in average prices, reflecting a changing customer mix, particularly the continuing success of Select Fresh casings in the premium sausage market.
Australia and New Zealand were described by Devro as “mature markets”, with a high proportion of collagen casings principally supplied from Devro’s plant in New South Wales. Volumes declined 3%, while a 5% reduction in average selling price reflected investments to secure long-term global relationships.
Continental European sales saw 13% volume growth in the second half of the year, leading to 6% growth overall. Meanwhile, volumes sold in Russia and surrounding countries grew 21%, recovering Devro’s market share and presence following a period in which a number of specific factors, including currency devaluation and restrictions on EU-sourced pork products, had disrupted sales in the region.
Activity in China during 2017 led to a 69% volume increase at constant prices in most accounts. As the year progressed, a wider base of customers resulted in higher monthly sales volumes and the development of some specialist opportunities for Devro’s differentiated products.
South-east Asia sales volumes increased 29%, while Japan continued a 10-year period of sales growth, with volumes increasing 5% in 2017.
Other highlights for the year included the Devro 100 programme which achieved cost reductions of £7m in the first year, ahead of the original plan.
Peter Page, chief executive, said: “Our priorities at the start of 2017 included sales growth to regain market share and cost reduction in operations. We made strong progress on both objectives, with 8% growth in sales volumes of edible collagen casings and a £7 million reduction in the manufacturing cost base, supporting a significant reduction in net debt.
“Over the past 10 years Devro has successfully moved from operating as a series of regional subsidiaries to an efficiently managed single global organisation. Revenue from edible collagen has doubled, due to a combination of pricing and volume growth in an increasing variety of markets and applications. Numerous excellent and dedicated colleagues have contributed to the development of the business in many ways, for which I am sincerely grateful.
“Growth in demand will continue as the global population increases, consumer spending progresses and tastes become more varied. The business is well positioned for the future.”
Rutger Helbing, currently group finance director, has also been appointed to succeed Page as chief executive.
Helbing added: “I am delighted to succeed Peter as chief executive. Our strategy is unchanged. In 2018, we will continue to focus on maintaining the momentum of the Devro 100 programme to deliver revenue growth and further cost savings across our global operations. The total forecast benefits, associated exceptional costs and capital expenditure over the three-year period remain unchanged, although given the accelerated cost savings achieved in 2017, the phasing will differ slightly from our original expectations.
“We expect further volume growth in 2018, supported by the introduction of the new Fine Ultra product platform, and continued manufacturing efficiency improvements, in particular at our US plant,” said Helbing. “We will continue to reduce net debt, building on the good progress made in 2017.
“Whilst mindful of ongoing pressures from input cost inflation and exchange rate volatility, at this early stage of the year the board believes that Devro is well-placed to make good progress in 2018."
What is Devro 100?
In the last quarter of 2016 the Devro 100 programme was launched to accelerate progress in revenue growth, manufacturing efficiency and product differentiation.
The Devro 100 programme has already realised savings of £7m in 2017 for the business, which were ahead of plan. The savings related to areas such as sourcing of raw materials, optimising operational structures at the plants and standardising processes through sharing best-practice across its global operations. Further advances are expected in 2018.