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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Devro Plc | LSE:DVO | London | Ordinary Share | GB0002670437 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 329.00 | 329.00 | 329.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMDVO
RNS Number : 8175M
Devro PLC
02 August 2017
For Immediate Release 2 August 2017
Devro plc
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2017
Devro plc ("Devro" or the "group"), one of the world's leading manufacturers of collagen products for the food industry, announces its half year results for the six months ended 30 June 2017.
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Underlying results* Statutory results
HY 2017 HY 2016 HY 2017 HY 2016
Unaudited Unaudited Unaudited Unaudited
Revenue GBP125.2m GBP112.9m GBP125.2m GBP112.9m
EBITDA GBP30.8m GBP26.4m
Operating profit GBP18.1m GBP18.0m GBP15.0m GBP4.6m
Profit before tax GBP13.1m GBP13.7m GBP10.0m GBP0.3m
Basic earnings per share 6.0p 6.3p 5.5p (0.7p)
Interim dividend per
share 2.7p 2.7p 2.7p 2.7p
* Underlying figures are stated before exceptional items (see Alternative Performance Measures section of the Half Year Results Update for definition, explanation and reconciliation to equivalent statutory measures)
Highlights for H1 2017
* Revenue increased 11% year on year
o Increased volumes (+7%) and benefits from exchange rates (+10%),
partially offset by price/mix (-6%)
o Volume growth particularly strong in China, South East Asia
and Russia
o As expected volume decline in Latin America, due to impact
of H2 2016 reductions related to transition in supply of products
* Underlying EBITDA ahead of H1 2016 by 16.7%
o Volume growth, delivery of planned cost savings and exchange
rate benefits, offset by full costs for new plants started up
in 2016
* Underlying operating profit in line with H1 2016, due
to higher depreciation on new plants
* Improved covenant ratio** of 2.4 times
o Due to increased underlying EBITDA and slightly lower net
debt
** Covenant ratio is defined as covenant net debt / underlying EBITDA (see Alternative Performance Measures section of the Half Year Results Update for definitions, explanation and reconciliation to equivalent statutory measures)
Peter Page, Chief Executive of Devro, commented
"Devro has made good progress with its principal objectives of growing revenue, volumes and market share in a range of markets, whilst reducing unit costs in operations. The Devro 100 programme to accelerate achievement of these objectives has progressed well during the first half of 2017. New products will be introduced during H2 as planned.
"The Board's expectations for the full year remain unchanged and the business continues to generate strong cash flow from the underlying operations, which will enable net debt covenant ratios to be returned to historic levels over time."
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 9.30am 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/943-1289-18597/en approximately 10 minutes before the start of the briefing (9.20am). The presentation will also be available on the company's website.
HALF YEAR RESULTS UPDATE
Devro has made good progress with its principal objectives of growing revenue, volumes and market share in a range of markets, whilst reducing unit costs in operations. The Devro 100 programme to accelerate achievement of these objectives has progressed well during the first half of 2017. New products will be introduced during H2 as planned.
REVENUE
Revenue for the first half increased 11% year on year, with higher volumes (+7%) and benefits from exchange rates (+10%) partly offset by adverse price/mix (-6%).
A summary of the change in revenue by geographic region is set out in the table below:
Asia Pacific
(including
Europe Americas China) Group
----------- ------- --------- ------------- ------
Volume +4% -11% +25% +7%
Price/mix -2% - -14% -6%
Exchange +7% +10% +13% +10%
----------- ------- --------- ------------- ------
Total +9% -1% +24% +11%
----------- ------- --------- ------------- ------
Price/mix has had a larger adverse impact than originally anticipated, with strong volume growth in China, where the products for this market are sold at prices below the global average.
Europe
Volumes in the UK & Ireland were above H1 2016 (+6%), following market share gains for both Devro and long-established customers.
Continental Europe volumes were in line with H1 2016, following the recovery of market share losses from H2 2016.
Volumes in Russia were significantly above H1 2016 (+19%), building on the momentum seen in H2 2016. Growth includes additional volumes from market share gains in H2 2016, supported by further development of the product range.
Americas
Volumes in North America were in line with H1 2016. Good growth opportunities, whilst identified and in development, are taking time to materialise.
As expected Latin America volumes for the first half were below H1 2016 (-35%), related to the impact of losses in the second half of 2016. Transition in the supply of products between plants continues, following completion of the new plants, with some clear progress in H1 2017 and further work planned for H2 2017.
Asia Pacific
Our business in Japan continued to perform well (+5%), with market share gains and further expansion of sales in non-meat categories.
Sales in South East Asia have grown significantly (+40%), through a combination of market expansion and share gains for Devro. The scale of increase reflects ongoing recovery following a reduction in volumes for Devro in H1 2016.
Volumes in Australia & New Zealand declined (-3%), with lower overall demand in mature markets where Devro already has major market share.
China
China, with 40% of the world's consumption of collagen casings, is a key market for future growth. Volumes increased significantly in H1 2017 (+125%), using products from the new plant. The scale of this increase should be taken in the context of a weak prior year comparator, following the reduction in volumes of imported products sold in H1 2016, prior to full commissioning of the local plant. Products from the new plant have performed well during qualification with customers. As previously guided the new plant is expected to be operating at full capacity by the end of the year.
Lower prices in China reflect local market conditions, attributable to oversupply which should stabilise in due course. This has contributed to the adverse price/mix impact for the group. Plans are being developed to improve the pricing through product differentiation.
DEVRO 100 PROGRAMME
The Devro 100 programme to accelerate revenue and profit growth is progressing well following its initiation in H2 2016.
The programme focuses on growing revenue through upgrading sales capabilities, improving manufacturing efficiencies to reduce unit costs and introducing the next generation of differentiated products. The programme will also optimise the utilisation of our global manufacturing base, increasing available capacity to further support revenue growth.
Savings of GBP3.0m have already been achieved. Full year savings are now expected to be approximately GBP6m, which is ahead of plan.
Fine Ultra casings will be introduced to customers in H2 2017, in line with previous guidance, and are expected to build volume over the next 2-3 years.
OPERATING PROFIT
Operating profit for the period can be analysed as follows:
HY 2017 HY 2016
GBP'm GBP'm Change
----------------------------- -------- -------- -------
Underlying EBITDA 30.8 26.4 +13.6%
Underlying depreciation &
amortisation -12.7 -8.4 -41.7%
----------------------------- -------- -------- -------
Underlying operating profit 18.1 18.0 +0.6%
Exceptional items -3.1 -13.4
----------------------------- -------- -------- -------
Operating profit 15.0 4.6
----------------------------- -------- -------- -------
Underlying operating profit was in line with H1 2016 at GBP18.1m, but there were a number of significant moving parts which are summarised below:
GBPm
Underlying operating profit HY 2016 18.0
Sales volumes +2.5
Price/mix -2.4
Recovery of conversion costs +2.8
--------------------------------------------------------------- -----
Volume +2.9
Savings from replacement of old US plant & 2016 pre-operating
costs of new plants +1.4
Start-up of new plants in 2016 -8.2
--------------------------------------------------------------- -----
Impact of new plants -6.8
Devro 100 cost savings +3.0
Foreign exchange (translation) +2.8
Other movements -1.8
---------------------------------------------------------------- -----
Underlying operating profit HY 2017 18.1
---------------------------------------------------------------- -----
The increased sales volumes and adverse impact of price/mix are explained above. The volumes also contributed to the higher recovery of conversion costs due to the related increase in production volumes.
The construction of new plants in the US and China was completed in early 2016, after which a six month start-up period was required for each plant to bring the plants on-line and build up production to normal operating levels. Given that capacity from the new plants was only available for a restricted period during the start-up period, and not available prior to the commencement of operations, the related costs were not reflected in underlying operating profit in H1 2016. The additional costs in H1 2017 reflect the fact that both plants were fully operational by the end of 2016, and therefore all related costs were included in underlying operating profit in 2017.
The old US plant was closed at the end of H1 2016, with the related savings benefiting H2 2016 and H1 2017.
The Devro 100 programme realised savings of GBP3.0m in H1 2017, which were ahead of plan.
As expected, translational exchange gains improved underlying operating profit, due to the weakening of sterling towards the end of H1 2016.
Other movements in underlying operating profit compared with H1 2016 included wage inflation.
Underlying operating profit for H1 2017 included an increased depreciation charge of GBP4.3m, primarily related to the impact of the new plants. So whilst underlying operating profit for H1 2017 was in line with H1 2016, EBITDA increased by 16.7%.
Reported operating profit for the period was GBP15.0m, which was higher than H1 2016 primarily due to lower exceptional items.
EXCEPTIONAL ITEMS
Exceptional items in H1 2017 totalled GBP3.1m and represent the incremental external costs directly related to implementing the Devro 100 programme. In H1 2016 exceptional items were incurred in completing the capital investment projects. Further details of exceptional items are set out in note 5 to the interim financial statements.
As previously guided exceptional costs for the full year are expected to be GBP6m - GBP7m.
FOREIGN CURRENCY
Devro operates worldwide and with multiple currencies. Major transactional exposures arise from sales in euros, US dollars and Japanese yen whereas manufacturing costs are in Australian dollars, Czech koruna, US dollars, sterling and Chinese renminbi. Devro operates a hedging programme to manage the volatility associated with transactional exposures. Translational exposures arise from the conversion of the results of all our businesses into sterling.
Given the significant weakening of sterling in H2 2016, following the EU Referendum vote on 23 June 2016, there was a translational exchange benefit to underlying operating profit for H1 2017 of GBP2.8m.
Sterling did strengthen towards the end of H1 2017, and if current rates are sustained for the remainder of the year we would expect a partial reversal of this translation benefit in H2 2017.
FINANCE COSTS
Finance cost for the period (excluding pensions) was GBP3.6m. This represents a slight increase from the H1 2016 cost of GBP3.2m, reflecting the higher average level of net debt in H1 2017 and ceasing to capitalise interest during H1 2016 as the new plants moved into production.
Net finance cost on pensions for the period increased to GBP1.4m (2016: GBP1.1m), primarily due to the higher opening net pension deficit on which the finance cost is based.
TAX
The group's underlying tax charge for the period was GBP3.1m. The group expects a full year underlying effective tax rate of approximately 24% for 2017, which is broadly in line with the 2016 full year rate of 23%.
EARNINGS PER SHARE
Six months Six months
ended 30 June ended 30 June
2017 2016
------------------------------------- --------------- ---------------
Underlying basic earnings per share 6.0p 6.3p
Basic earnings per share 5.5p (0.7p)
------------------------------------- --------------- ---------------
Underlying basic earnings per share was 6.0 pence, with the increase in underlying operating profit compared with H1 2016 being more than offset by higher finance expenses. Basic earnings per share increased due to the lower exceptional items reported for the period, compared with H1 2016.
CASH FLOW AND NET DEBT
Devro continues to be a highly cash generative business. In H1 2017 operating cash flow before pension deficit funding was GBP23.9m, which was GBP7.6m ahead of H1 2016 primarily due to improved underlying EBITDA and significantly lower exceptional spend and capital expenditure.
Net debt at June 2017 was GBP151.9m (or GBP152.1m including derivative liabilities), which was a reduction from the net debt reported at December 2016 of GBP153.6m (or GBP156.2m including derivative liabilities). Net debt at June 2017 included a benefit from the strengthening of sterling towards the end of H1 2017 which reduced the value of net debt by GBP4m related to the US dollar denominated debt.
The covenant net debt / underlying EBITDA ratio improved to 2.4 times at June 2017, compared with 2.7 times at December 2016.
Whilst capital expenditure will increase in H2 2017, including the final capital retention payments of GBP3m related to the new plants, full year spend is expected to remain in line with historic levels of maintenance capital expenditure of GBP10m-GBP15m. For 2017 the business intends to include the additional Devro 100 programme capital expenditure within the maintenance capital range.
Other cash outflows in the second half will include the pension deficit payment for the UK scheme of GBP2.5m.
Both net debt and the covenant net debt / underlying EBITDA ratio for December 2017 are expected to be below those reported at December 2016.
DIVID
The Board is pleased to announce an interim dividend of 2.70 pence (2016: 2.70 pence). The interim dividend will be paid on 6 October 2017 to shareholders on the register at 25 August 2017.
PENSIONS
The group's net pension obligations reduced to GBP91.8m at 30 June 2017, from GBP96.0m at 31 December 2016, which primarily reflects a decrease in inflation rates in UK, partially offset by a reduction in discount rates in the US.
Devro plays an active role in managing its pension schemes and related liabilities, ensuring that the assets are appropriately invested and that additional contributions are made where necessary to ensure all obligations are met as they fall due.
ALTERNATIVE PERFORMANCE MEASURES
In addition to statutory financial measures, management uses certain alternative performance measures (which are not defined by IFRS) to assess the operating performance and financial position of the group. The alternative performance measures that Devro uses are 'constant exchange rates', 'underlying', 'earnings before interest, tax, depreciation and amortisation (EBITDA)', 'net debt' and 'covenant net debt'.
Constant exchange rates
The group has operations across the world in multiple currencies, and is exposed to translation risk on fluctuations in foreign exchange rates. As a result the group's reported revenue will be impacted by movements in actual exchange rates. The group presents revenue growth on a constant currency basis in order to eliminate the translation effect of foreign exchange rate movements, enabling investors to better understand the operational performance of the group.
Revenue growth at constant currency is calculated by translating both the current and prior year local currency amounts using the prior period average exchange rates.
Underlying
Underlying figures are stated before exceptional items. Devro is undergoing a major transformation including the construction and start-up of two new plants in China and the US which completed in 2016, a restructuring of operations in Scotland and Australia initiated in 2014 and the Devro 100 programme which will continue until 2018. The incremental costs associated with implementing this transformation are significant, and as a result have been classified as exceptional items.
A reconciliation from the underlying figures to the equivalent reported figures is presented below:
HY 2017 HY 2016
Exceptional Exceptional
Underlying items Reported Underlying items Reported
-------------------------- ----------- ------------ --------- ----------- ------------ ---------
Operating profit (GBPm) 18.1 (3.1) 15.0 18.0 (13.4) 4.6
Operating margin (%) 14.5% (2.5%) 12.0% 15.9% (11.9%) 4.0%
Profit before tax (GBPm) 13.1 (3.1) 10.0 13.7 (13.4) 0.3
Basic earnings per share
(p) 6.0 (0.5) 5.5 6.3 (7.0) (0.7)
-------------------------- ----------- ------------ --------- ----------- ------------ ---------
Earnings before interest, tax, depreciation and amortisation (EBITDA)
EBITDA is defined as operating profit excluding depreciation and amortisation. This measure is used by management to assess operational efficiency and, given that it excludes non-cash depreciation and amortisation, it is a useful approximation for cash generation from operations. This measure is in common use elsewhere and a reconciliation from reported figures is shown below:
HY 2017 HY 2016
Exceptional Exceptional
Underlying items Reported Underlying items Reported
----------- ------------ --------- ----------- ------------ ---------
Operating profit (GBP'm) 18.1 (3.1) 15.0 18.0 (13.4) 4.6
Depreciation & amortisation
(GBP'm) 12.7 - 12.7 8.4 1.3 9.7
----------------------------- ----------- ------------ --------- ----------- ------------ ---------
EBITDA (GBP'm) 30.8 (3.1) 27.7 26.4 (12.1) 14.3
EBITDA margin (%) 24.6% (2.5%) 22.1% 23.4% (10.7%) 12.7%
----------------------------- ----------- ------------ --------- ----------- ------------ ---------
Net debt
Net debt is defined as the excess of total borrowings over cash and cash equivalents. It is a measure that provides additional information on the group's financial position and is a measure in common use elsewhere. A reconciliation from reported figures is presented below:
June 2017 June 2016 December 2016
GBP'm GBP'm GBP'm
--------------------------- ---------- ---------- --------------
Current borrowings (3.2) (1.8) (1.9)
Non-current borrowings (160.6) (162.6) (161.6)
--------------------------- ---------- ---------- --------------
Total borrowings (163.8) (164.4) (163.5)
Cash and cash equivalents 11.9 17.4 9.9
--------------------------- ---------- ---------- --------------
Net debt (151.9) (147.0) (153.6)
--------------------------- ---------- ---------- --------------
Furthermore, the definition of net debt used to calculate one of the group's banking covenant ratios also includes derivative financial liabilities, as shown below:
June 2017 June 2016 December 2016
GBP'm GBP'm GBP'm
---------------------- ---------- ---------- --------------
Net debt (151.9) (147.0) (153.6)
Derivative financial
liabilities (0.2) (5.9) (2.6)
---------------------- ---------- ---------- --------------
Covenant net debt (152.1) (152.9) (156.2)
---------------------- ---------- ---------- --------------
PRINCIPAL RISKS
The group operates a structured risk management process, which identifies and evaluates risks that could impact its performance and reviews mitigation activity.
The key areas of potential risk identified in the group's 2016 Annual Report and Accounts were loss of market share/profit margins due to increased competitive pressures, downturn in consumer demand, disruption to the group's manufacturing capability from poor operational performance or major disruptive events, political and regulatory risk, financial risks such as foreign exchange rate movements and the availability of short and long-term funding, disruption to supply or increase in price of key raw materials, and development of non-casing technologies. No new key risks have been identified since the Annual Report was published.
These risks are carefully monitored and managed and further details are set out on pages 24 to 27 of the 2016 Annual Report and Accounts which is available on the Devro plc website: www.devro.com
GOING CONCERN
This half year results update sets out the group's performance for the period and financial position at period end, together with factors likely to affect its future development, performance and position. The 2016 Annual Report outlines the business activities of the group and note 23 describes the group's objectives and procedures for managing its capital, its financial risk management policies, details of financial instruments and exposure to market, credit and liquidity risk.
At 30 June 2017 the group was operating within the banking covenants related to its revolving credit facility and US private placement facilities. The group's detailed financial forecasts indicate that there is sufficient headroom in the facilities for the foreseeable future and that they can be repaid in line with the expected terms.
After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operation for the 12 months from the date of approval of this statement. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
OUTLOOK
The Board's expectations for the full year remain unchanged and the business continues to generate strong cash flow from the underlying operations, which will enable net debt covenant ratios to be returned to historic levels over time.
Peter Page Rutger Helbing Chief Executive Group Finance Director
2 August 2017
Consolidated income statement (unaudited)
for the six months ended 30 June 2017
6 months ended 30 June 6 months ended 30 June
2017 2016
Before Exceptional Total Before Exceptional Total
exceptional items exceptional items
items items
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue (note 6) 125.2 - 125.2 112.9 - 112.9
--------- --------- --------- --------- --------- ---------
Operating profit
(notes 5,6) 18.1 (3.1) 15.0 18.0 (13.4) 4.6
Finance cost (3.6) - (3.6) (3.2) - (3.2)
Net finance cost
on pensions (1.4) - (1.4) (1.1) - (1.1)
----------- --------- --------- -------- -------- --------
Profit before tax 13.1 (3.1) 10.0 13.7 (13.4) 0.3
Tax (note 7) (3.1) 2.4 (0.7) (3.1) 1.6 (1.5)
----------- ------------- ---------- -------- -------- --------
Profit/(loss) for
the period attributable
to owners of the
parent 10.0 (0.7) 9.3 10.6 (11.8) (1.2)
====== ====== ===== ===== ===== =====
Earnings per share
(note 8)
Basic 5.5p (0.7p)
Diluted 5.5p (0.7p)
Interim consolidated statement of comprehensive income (unaudited)
for the six months ended 30 June 2017
6 months 6 months
ended ended
30 June 30 June
2017 2016
GBP'm GBP'm
Profit/(loss) for the period 9.3 (1.2)
--------- --------
Other comprehensive (expense)/income for
the period
Items that will not be reclassified to profit
or loss
Pension obligations:
- re-measurements 4.5 (19.3)
- movement in deferred tax (0.7) 4.4
---------- --------
Total items that will not be reclassified
to profit or loss 3.8 (14.9)
-------- --------
Items that may be reclassified subsequently
to profit or loss
Cash flow hedges:
- net fair value (losses)/gains 2.5 (2.7)
- reclassified and reported in operating
profit (0.2) 0.2
- movement in deferred tax (0.5) 0.5
Net investment hedges:
- fair value (losses)/gains (1.6) (0.7)
- movement in deferred tax 0.4 0.1
Net exchange adjustments 6.7 15.2
--------- --------
Total items that may be reclassified subsequently
to profit or loss 7.3 12.6
--------- --------
Other comprehensive income/(expense) for
the period, net of tax 11.1 (2.3)
-------- --------
Total comprehensive income/(loss) for the
period attributable to owners of the parent 20.4 (3.5)
====== =====
Interim consolidated balance sheet
at 30 June 2017
30 June 31 December 30 June
2017 2016 2016
(unaudited) (audited) (unaudited)
GBP'm GBP'm GBP'm
ASSETS
Non-current assets
Goodwill 3.1 3.1 3.1
Intangible assets 6.9 7.3 6.3
Property, plant and equipment (note
10) 297.6 308.6 303.2
Deferred tax assets 44.0 40.3 31.9
Trade and other receivables 4.8 4.7 4.2
---------- ---------- ----------
356.4 364.0 348.7
---------- ---------- ----------
Current assets
Inventories 35.6 33.8 37.0
Current tax assets 0.1 0.1 -
Trade and other receivables 30.2 30.5 29.4
Derivative financial instruments (note
4) 3.0 1.4 0.2
Cash and cash equivalents (note 14) 11.9 9.9 17.4
---------- ---------- --------
80.8 75.7 84.0
---------- ---------- ----------
Total assets 437.2 439.7 432.7
===== ===== =====
LIABILITIES
Current liabilities
Borrowings (note 14) 3.2 1.9 1.8
Derivative financial instruments (note
4) 0.2 2.6 5.9
Trade and other payables 29.7 34.4 37.1
Current tax liabilities 4.6 7.0 4.9
Provisions for other liabilities and
charges 0.4 0.8 5.6
--------- -------- --------
38.1 46.7 55.3
--------- -------- --------
Non-current liabilities
Borrowings (note 14) 160.6 161.6 162.6
Deferred tax liabilities 20.3 19.4 15.1
Pension obligations (note 11) 91.8 96.0 77.9
Other payables 3.4 3.4 3.3
Provisions for other liabilities and
charges 3.2 3.6 0.5
---------- --------- ---------
279.3 284.0 259.4
---------- ---------- ---------
Total liabilities 317.4 330.7 314.7
===== ===== =====
Net assets 119.8 109.0 118.0
===== ===== =====
EQUITY
Capital and reserves attributable to
owners of the parent
Ordinary shares 16.7 16.7 16.7
Share premium 9.3 9.3 9.4
Other reserves 78.7 70.8 66.0
Retained earnings 15.1 12.2 25.9
---------- --------- ---------
Total equity 119.8 109.0 118.0
===== ===== =====
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Interim consolidated statement of changes in equity (unaudited)
for the six months ended 30 June 2017
Ordinary Share Other Retained Total
shares premium reserves earnings equity
GBP'm GBP'm GBP'm GBP'm GBP'm
Six months ended 30 June 2017
Balance at 1 January 2017 16.7 9.3 70.8 12.2 109.0
Comprehensive income
Profit for the period - - - 9.3 9.3
-------- -------- --------- --------- ----------
Other comprehensive income/(expense)
Cash flow hedges, net of tax - - 1.8 - 1.8
Net investment hedges, net of tax - - (1.2) - (1.2)
Pension obligations, net of tax - - - 3.8 3.8
Exchange adjustments - - 6.7 - 6.7
-------- -------- --------- --------- ----------
Total other comprehensive income - - 7.3 3.8 11.1
-------- -------- --------- --------- ----------
Total comprehensive income - - 7.3 13.1 20.4
-------- -------- --------- --------- ----------
Transactions with owners
Performance Share Plan charge - - 1.0 - 1.0
Performance Share Plan credit in
respect of shares
vested - - (0.4) - (0.4)
Dividends paid - - - (10.2) (10.2)
-------- -------- --------- --------- ----------
Total transactions with owners - - 0.6 (10.2) (9.6)
-------- -------- --------- --------- ----------
Balance at 30 June 2017 16.7 9.3 78.7 15.1 119.8
====== ====== ====== ====== =====
Six months ended 30 June 2016
Balance at 1 January 2016 16.7 9.3 52.9 52.2 131.1
Comprehensive income
Loss for the period - - - (1.2) (1.2)
-------- -------- --------- --------- ----------
Other comprehensive income/(expense)
Cash flow hedges, net of tax - - (2.0) - (2.0)
Net investment hedges, net of tax - - (0.6) - (0.6)
Pension obligations, net of tax - - - (14.9) (14.9)
Exchange adjustments - - 15.2 - 15.2
-------- -------- --------- --------- ----------
Total other comprehensive income/(expense) - - 12.6 (14.9) (2.3)
-------- -------- --------- --------- ----------
Total comprehensive income/(expense) - - 12.6 (16.1) (3.5)
-------- -------- --------- --------- ----------
Transactions with owners
Performance Share Plan charge - - 0.6 - 0.6
Performance Share Plan credit in
respect of shares
vested - - (0.1) - (0.1)
Issue of ordinary shares - 0.1 - - 0.1
Dividends paid - - - (10.2) (10.2)
-------- -------- --------- --------- ----------
Total transactions with owners - 0.1 0.5 (10.2) (9.6)
-------- -------- --------- --------- ----------
16.7 9.4 66.0 25.9 118.0
Balance at 30 June 2016 ===== ===== ===== ===== ======
Interim consolidated cash flow statement (unaudited)
for the six months ended 30 June 2017
6 months 6 months
ended ended
30 June 2017 30 June 2016
GBP'm GBP'm
Cash flows from operating activities
Cash generated from operations (note 13) 23.9 13.8
Interest paid (3.3) (3.5)
Tax paid (7.8) (3.0)
----------- ----------
Net cash generated from operating activities 12.8 7.3
----------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (4.8) (11.3)
Purchase of intangible assets (0.3) (0.4)
Capital grants received 0.0 0.7
--------- ---------
Net cash used in investing activities (5.1) (11.0)
--------- ---------
Cash flows from financing activities
Proceeds from the issue of ordinary shares - 0.1
Proceeds from other borrowings 3.3 17.1
Dividends paid (10.2) (10.2)
Proceeds from financial instruments 0.1 3.4
--------- ----------
Net cash generated from financing activities (6.8) 10.4
--------- ----------
Net increase in cash and cash equivalents 0.9 6.7
Net cash and cash equivalents at beginning
of period 8.0 7.7
Exchange (loss)/gain on cash and cash
equivalents (0.2) 1.2
Cash and cash equivalents 11.9 17.4
Bank overdrafts (3.2) (1.8)
---------------------------------------------- --------------- ---------------
Net cash and cash equivalents at end of
period 8.7 15.6
====== ======
Notes to the condensed interim consolidated financial statements (unaudited)
for the six months ended 30 June 2017
1 General information
Devro is one of the world's leading providers of collagen products for the food industry. Collagen is one of the most common forms of protein, which is transformed into strong but flexible edible casings and other related products by highly sophisticated biochemical processing technologies.
The company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Moodiesburn, Chryston, Scotland, G69 0JE.
The company is listed on the London Stock Exchange.
These condensed interim consolidated financial statements were approved for issue on 2 August 2017.
These condensed interim consolidated financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The consolidated interim financial statements are unaudited but have been reviewed by our auditors and their report is set out on page 24. Statutory accounts for the year ended 31 December 2016 were approved by the Board of Directors on 15 March 2017 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
2 Basis of preparation
These condensed interim consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard ("IAS") 34, "Interim financial reporting" as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016 which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.
Critical estimates and judgments
The preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best assessments of amounts, events or actions, actual results ultimately may differ from those estimates. The key uncertainties that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next six months relate to accounting for the Devro 100 programme (in particular whether items should be expensed as exceptional), the carrying value of inventory, the measurement of pension obligations and tax.
Going concern basis
The financial statements have been prepared on a going concern basis. This is discussed in the half year results update on page 8.
3 Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2016, as described in those annual financial statements.
New standards, amendments to standards or interpretations not applied
At the date of approval of these financial statements, the following amendments to standards and interpretations were in issue but have not been applied in these financial statements:
Effective
date
1 January
* IFRS 9 - Financial instruments 2018
1 January
* IFRS 15 - Revenue from contracts with customers 2018
1 January
* IFRS 16 - Leases 2019
It is expected that the group will adopt these standards, amendments to standards and interpretations on their effective dates. The directors do not anticipate that the adoption of these amendments to standards will have a material impact on the financial statements of the group, apart from disclosure requirements.
4 Financial risk management
The group's activities expose it to a variety of financial risks: market risk (including interest rate risk and foreign exchange risk), credit risk and liquidity risk.
The condensed interim consolidated financial statements do not include all financial risk management information and disclosures required in annual financial statements, and should be read in conjunction with the group's annual financial statements for the year ended 31 December 2016.
Fair value of derivative financial instruments
The fair values of derivative financial instruments are as follows:
Assets Liabilities
GBP'm GBP'm
At 30 June 2017
Forward foreign currency contracts
- cash flow hedge 2.8 0.2
- net investment hedge 0.2 -
----- -----
3.0 0.2
=== ===
At 31 December 2016
Forward foreign currency contracts
- cash flow hedge 0.9 1.9
- net investment hedge - 0.5
- other 0.5 0.2
----- -----
1.4 2.6
=== ===
Derivative financial instruments that are measured at fair value are disclosed by level of the following fair value measurement hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
All of the group's derivative financial instruments that are measured at fair value are classified as Level 2 at 30 June 2017 (31 December 2016: Level 2) and comprise forward foreign exchange contracts as disclosed in the table above. The valuation techniques employed are consistent with the year-end annual report. There are no financial instruments measured as Level 3.
The carrying value of non-derivative financial assets and liabilities, comprising cash and cash equivalents, trade and other receivables, trade and other payables and borrowings is considered to materially equate to their fair value.
5 Exceptional items
Exceptional charges included in operating profit are GBP3.1m (2016: GBP13.4m).
6 months ended 6 months ended
30 June 2017 30 June 2016
GBP'm GBP'm
Devro 100 programme (i) 3.1 -
Investment projects
Pre-operating costs to establish new
manufacturing plants (ii) - 13.0
Costs related to the closure of old
manufacturing plant (iii) - 0.4
------------ ------------
Total exceptional items 3.1 13.4
====== ======
Devro is undergoing a major transformation including the construction and start-up of two new plants in China and the US which completed in 2016, a restructuring of operations in Scotland and Australia initiated in 2014 and the Devro 100 programme which will continue until 2018.
The Devro 100 programme is focussed on accelerating revenue growth through significantly improving sales capabilities, delivering substantial improvements in manufacturing efficiencies to reduce unit costs and introducing the next generation of differentiated products. The incremental costs associated with implementing this transformation are significant, and as a result have been classified as exceptional items.
Notes to the above table:
(i) Redundancy costs and other incremental external cost, including professional fees.
(ii) Costs related to the projects to establish new manufacturing plants in the USA and China, including project management, legal and professional fees, and other incremental costs incurred prior to the commencement of normal production that are not eligible for capitalisation.
(iii) Costs incurred in the USA related to the closure of the old manufacturing plant. Costs comprise redundancy and retention costs.
6 Segment information
The chief operating decision maker has been identified as the Board. The Board reviews the group's financial results on a geographical segment basis with three identifiable operating segments:
-- Americas: which includes North America and Latin America
-- Asia-Pacific: which includes Australia, New Zealand, Japan, China and the rest of South East Asia
-- Europe: which includes Continental Europe, UK, Ireland and Africa
The Board assesses the performance of the operating segments based on operating profit. This measurement basis excludes the effects of exceptional income and expenditure from the operating segments. The Board assesses the operating segments based on group profit for external sales in each region, rather than statutory profit for the region which also includes profit on intercompany sales.
Finance income and cost, and net finance cost on pensions, are not included in the segment results that are reviewed by the Board.
Information provided to the Board is consistent with that in the financial statements.
Americas Asia - Pacific Europe Total group
--------------------------- ------------------------- ------------------------- -------------------------
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2017 2016 2017 2016 2017 2016 2017 2016
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue
Sales to
external
customers 32.3 32.5 41.5 33.1 51.4 47.3 125.2 112.9
-------- -------- -------- -------- -------- -------- -------- ---------
Operating
profit
before
corporate
overheads
and
exceptional
items 3.3 4.7 8.7 7.2 7.4 7.8 19.4 19.7
-------- --------- -------- -------- -------- --------
Corporate
overheads (1.3) (1.7)
-------- ----------
18.1 18.0
Exceptional
items (0.7) (9.5) (1.0) (3.9) (1.4) - (3.1) (13.4)
-------- --------
Operating
profit
after
exceptional
items 15.0 4.6
Finance cost (3.6) (3.2)
Net finance
cost on
pensions (1.4) (1.1)
-------- --------
Profit
before tax 10.0 0.3
===== =====
7 Tax
The charge for tax for the six months ended 30 June 2017 corresponds to a rate of tax of 24% on profit before exceptional items (six months ended 30 June 2016: 22%). This reflects the anticipated effective rate on underlying profit for the year ending 31 December 2017. The tax credit on the exceptional charge includes the benefit of the deferred tax asset recognised on brought forward losses. The charge for tax comprises a UK corporation tax charge of GBPnil (2016: GBPnil) and a foreign tax charge of GBP0.7m (2016: GBP1.5m).
8 Earnings per share
6 months 6 months
ended ended
30 June 30 June
2017 2016
GBP'm GBP'm
Profit/(loss) attributable to equity holders 9.3 (1.2)
------- -------
Profit attributable to equity holders before 10.0 10.6
exceptional items ------- -------
Number of shares:
Weighted average number of shares in issue through
the period 166,949,022 166,933,166
Dilutive potential shares 2,255,989 2,199,846
----------------- ----------------
Weighted average number of shares including effect
of all dilutive potential shares 169,205,011 169,133,012
----------------- -----------------
Earnings per share
- Basic 5.5p (0.7p) - Underlying basic 6.0p 6.3p - Diluted 5.5p (0.7p)
Share options are only treated as dilutive in the calculation of diluted earnings per share if their exercise would result in the issue of shares at less than the average market price of the shares during the period. Shares arising from share options, the deferred bonus scheme or the performance share plan are only treated as dilutive where the effect is to reduce earnings per share.
9 Dividends
The final dividend of 6.10 pence per share in respect of the year ended 31 December 2016 was paid on 12 May 2017, absorbing GBP10.2m of equity.
The interim dividend of 2.70 pence per share, which will absorb an estimated GBP4.5m of equity, will be paid on 6 October 2017 to shareholders on the register at 25 August 2017. This compares with the 2016 interim dividend of 2.70 pence per share, which absorbed GBP4.5m of equity.
10 Property, plant and equipment
Movements in property, plant and equipment are summarised as follows:
6 months 6 months
ended ended
30 June 30 June
2017 2016
GBP'm GBP'm
Opening net book value at 1 January 308.6 270.1
Exchange differences (1.2) 24.8
Additions 2.4 17.6
Depreciation (12.2) (9.3)
--------- ---------
Closing net book value at 30 June 297.6 303.2
===== =====
11 Pension obligations
The net pension obligations disclosed as non-current liabilities in the balance sheet are as follows:
30 June 31 December 30 June
2017 2016 2016
GBP'm GBP'm GBP'm
91.8 96.0 77.9
Pension obligations ----------- ---------- ----------
The decrease in the group's net pension obligations at 30 June 2017 compared with 31 December 2016 primarily reflects a decrease in inflation rates in the UK.
A summary of the discount rates used in the principal countries is:
30 June 31 December 30 June
2017 2016 2016
Australia 3.75% 4.05% 3.20%
United Kingdom 2.60% 2.60% 3.00%
United States 3.60% 3.85% 3.25%
The net pension obligations have moved as follows
6 months 6 months
ended ended
30 June 30 June
2017 2016
GBP'm GBP'm
Opening net liability 96.0 56.4
Employer contributions (0.9) (3.4)
Service cost 0.9 0.7
Scheme administrative expenses 0.4 0.4
Net finance cost 1.4 1.1
Re-measurements (4.5) 19.3
Exchange losses/(gains) (1.5) 3.4
--------- ----------
Closing net liability 91.8 77.9
===== =====
12 Equity securities issued
Details of ordinary shares of 10 pence each issued during the six months ended 30 June 2017 are as follows:
6 months 6 months 6 months 6 months
ended ended ended ended
30 June 30 June 30 June 30 June
2017 2016 2017 2016
Shares Shares GBP'm GBP'm
Shares vested under the Devro 2003 - 16,490 - 0.1
Performance Share Plan ======== ======== ==== ====
13 Cash flows from operating activities
6 months 6 months
ended ended
30 June 30 June
2017 2016
GBP'm GBP'm
Profit before tax 10.0 0.3
Adjustments for:
Finance cost 3.6 3.2
Net finance cost on pensions 1.4 1.1
Depreciation of property, plant and equipment 12.2 9.3
Amortisation of intangible assets 0.5 0.4
Additional cash contributions to pension schemes - (2.5)
Pension cost adjustment for normal contributions 0.3 0.4
Performance Share Plan 1.0 0.6
Changes in working capital:
Increase in inventories (2.5) (4.7)
Decrease in trade and other receivables 0.7 8.8
Decrease in trade and other payables (2.5) (2.7)
Decrease in provisions (0.8) (0.4)
--------- --------
Cash generated from operating activities 23.9 13.8
==== =====
Of which:
Cash generated from underlying operations 27.7 26.3
Exceptional items cash outflow (3.8) (12.5)
---------- ----------
23.9 13.8
===== =====
14 Analysis of net debt
30 June 31 December 30 June
2017 2016 2016
GBP'm GBP'm GBP'm
Cash and cash equivalents 11.9 9.9 17.4
Bank overdrafts (3.2) (1.9) (1.8)
--------- ---------- ---------
8.7 8.0 15.6
Borrowings:
- Due after more than one year (160.6) (161.6) (162.6)
---------- ---------- ----------
(151.9) (153.6) (147.0)
====== ====== ======
15 Related party transactions
The group had no related party transactions other than key management compensation during the six months ended 30 June 2017 and 30 June 2016.
Statement of directors' responsibilities
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules , being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules , being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so
The directors of Devro plc are as listed in the company's Annual Report for the year ended 31 December 2016 with the exception of Paul Neep, who left the company and was replaced by Malcolm Swift from 26 April 2017. A list of the current directors is maintained on the company's website: www.devro.com.
By order of the Board
Peter Page Rutger Helbing Chief Executive Group Finance Director 2 August 2017 2 August 2017
INDEPENT REVIEW REPORT TO DEVRO PLC
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the Interim consolidated income statement, Interim consolidated statement of comprehensive income, Interim consolidated balance sheet, Interim consolidated statement of changes in equity, Interim consolidated cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Anthony Sykes (Senior Statutory Auditor)
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London, E14 5GL
2 August 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UAVBRBNAWRAR
(END) Dow Jones Newswires
August 02, 2017 02:00 ET (06:00 GMT)
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