Devro’s directors on the case

“The love of sausages is global”, Devro’s (DVO) website proclaims. Judging by last year’s resilient performance against the backdrop of a devastating pandemic, the company is not wrong.

Devro, which supplies collagen casings for meat products, endured a revenue decline of just 5 per cent to £248m for the year ending 31 December, notwithstanding the havoc wreaked by the outbreak of Covid-19.

The group attributed its relative strength to the “divergent” trading patterns of its geographical regions. On the one hand, emerging market volumes rose 13 per cent. This was better than the 6-10 per cent annual growth rate targeted by management, as Devro benefited from new business wins and improving market share with existing customers. On the other hand, mature markets volumes dropped 5 per cent as the coronavirus crisis and associated lockdowns tempered demand from food-service customers.

In turn, the group posted underlying operating profits of £40.8m, up 4 per cent, on a margin of 16.5 per cent – up from 15.6 per cent. Such progress was rooted in supply chain efficiency savings, despite the negative effects of Covid-19 related expenses.

Devro also achieved operating cash flows of £51.6m, down slightly from £59.7m but still sufficient to reduce its net debt pile from £125m to £110m.

The new year has started well, Devro said, although it is feasible that Covid-19 could throw further obstacles in its way. Investors may be reassured, therefore, that two directors bought shares in the days after the group delivered its full-year results. New chief financial officer Rohan Cummings bought 20,483 shares at £1.90 apiece for £38,918. Non-executive director Lesley Jackson purchased 13,099 shares totalling £24,862.

Brokerage Numis believes Devro’s volume growth will accelerate as markets normalise, fuelling operational gearing. For now, hold.

Last IC view: Hold, 151p, 4 Mar 2020