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Peter Page, chief executive of sausage skin manufacturer Devro, had every reason to be pleased with these results. While last year's first half was tarnished by supply disruptions at its Scottish factory, sales continued to regain momentum over the past six months.
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Volumes increased by 3 per cent, driven by strong demand from emerging markets, while price increases also helped to boost revenues. On top of that, sharp inflation in gut products encouraged substitution towards its more cost effective collagen-based products. These favourable trends - combined with productivity gains - have helped to increase margins slightly to 11 per cent and underlying operating profits by 16 per cent to £9.2m. The fall in pre-tax profits was due to exceptional items of £2.9m, following the decision to close an ageing factory in the Czech Republic. The initiative is expected to generate annual cost savings of £2m.
Mr Page remained positive for the full year, but cautioned that margin improvements will be harder to achieve in the second half because of higher energy bills and currency movements.
Broker Investec expects full-year EPS of 7.2p (7.1p in 2007).
Devro (DVO) |
||||
|---|---|---|---|---|
| ORD PRICE: | 75p | MARKET VALUE: | £122m | |
| TOUCH: | 75.5-76.75p | 12-MONTH HIGH: | 98p | LOW: 72p |
| DIVIDEND YIELD: | 5.9% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 59p | NET DEBT: | 38% | |
| Half-year to 30 Jun |
Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 72.9 | 6.65 | 2.8 | 1.425 |
| 2008 | 82.7 | 4.99 | 1.9 | 1.425 |
| % change | +13 | -25 | -32 | - |
Ex-div: 17 Sep Payment: 17 Oct |
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Collagen-based products are intended for the mid-market segment of the sausage industry, which bodes well at a time when consumers are trading down on their grocery expenses. In the light of Mr Page's efforts to restore margins, the shares should finally find a floor. Good value.
Last IC view: Fairly priced, 81p, 1 Jul 2008
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
