Sausage skin maker said cost of sales rose £5.8m last year and hints of further price increases
Sausage skin maker Devro has reported a drop in profit despite sales rising six per cent to £241.1 million in the year to December 31, 2012.
The Moodiesburn-based company had reported a 7.7 per cent rise in first-half revenues to £115.4 million – despite rising input costs – on strong overseas sales.
Devro said operating profits rose 1.3 per cent to £43.2 million, though profits were “held back” by rising input costs “which will be recovered by further price increases in 2013”.
Operating margins dropped to 17.9 per cent (2011:18.7 per cent) as a result of rising input costs and movements in exchange rates.
Devro estimates raw material price increases and higher energy bills led to a £5.8 million rise in overall cost of sales, which was “not recouped through higher selling prices in the period”.
The company added: “Raw material costs are expected to continue to rise and further selling price increases are being implemented in early 2013.”
Net debt rose by £3.4 million last year to £26.1 million at the year end and after funding capital investments totalling £33 million in the financial year.
A further £35 million on investment is planned for the current year, most of which will be spent upgrading Devro's facilities in the Czech Republic.
The company said its capital investment programme delivered seven per cent growth in 2012, and it expects it to deliver growth of around eight per cent in 2013.
The company has also identified “a sizeable opportunity” to improve efficiency and costs at its US facility, and evaluations are ongoing with a view to replacing the plant's existing technology.
In its full-year results Devro said pre-tax profits dropped five per cent on the previous year to £40.8 million.
Overseas sales to Japan, Europe and the Americas were strong as demand rose on an increase in meat consumption, and sales on a constant currency basis were up 8.1 per cent overall for the year, Devro said.
Sales to Germany rose 30 per cent year on year, led by Select and a new casting for bratwurst type sausage.
Revenues from sales to Japan rose by 46 per cent, Devro said, and demand for Select products continues to exceed production capacity at its Australian facility.
However, sales were down eight per cent in the UK and remained flat in Australasia.
Sales in Latin America rose 30 per cent last year, Devro said, and volume sales rose six per cent in Eastern Europe and Russia, helped by additional capacity at the company's Bellshill plant which came on line last year.
Devro said it was continuing to “review” its options in China, describing it as a “large and growing, but low priced market”.
Sales of its Select range of edible collagen casings rose to 8.4 per cent of total sales last year against 4.3 per cent in 2011.
The bulk of sales – 87 per cent – is in edible collagen products, and sales of non-edible collagen were down last year.
The board is recommending a final dividend of 5.85 pence per share, lifting the full year dividend to 8.5 pence per share, a rise of 6.3 per cent.
Devro's chairman Steve Hannam said: “ “In 2012, Devro delivered a further year of growth in line with our strategy and, despite some challenges, we increased revenue and operating profit.
“At the same time we continued to invest significant capital in our production facilities to increase capacity and upgrade our technology, funded through our cash resources.
The prospects for our markets are good. Our Select range of products provides us with growth opportunities in developed markets whilst economic trends and growing urbanisation continue to drive sales in emerging markets.
“2013 will be another busy year as we take action to mitigate rising input costs, continue our capital programme, and step up our investment in people and infrastructure.
“This will ensure that we are well positioned to take advantage of the market to create long term profitable growth for Devro.”