Devro predicts 10% sales drop in 2017

Sausage casings company Devro has today announced that sales volumes for 2017 will be 10% lower than previously anticipated. 

Based on current trends, the forecasted sales volumes for next year will result in an under-utilisation of available capacity, which will hit margins, although actions are being taken to balance the usage of capacity of its global manufacturing base.

The group admitted that sales in Latin America had reduced, although this was an area that was being addressed.

“The board has decided to accelerate and implement more extensively the next stage of the group’s strategic development, focusing on growing sales through improved commercial capabilities, introducing the next generation of differentiated products and further improving manufacturing efficiencies to reduce unit costs,” said the firm.

“This improvement project will deliver a fundamentally more competitive position. The benefits will offset the effects of the lower volumes, partially in 2017 and fully in 2018. Consequently, the board now expects underlying operating profit for 2017 to be lower than previous expectations.”

The improvement project will involve additional costs and capital expenditure. These will be charged as exceptional items, of which an estimated £3 million is expected to be incurred in the final quarter of 2016.

Despite the setback, the group was confident that it was positioned to grow revenue and profits in the long-term, with its markets remaining attractive.
 
The company’s new factories in the US and China have been integrated into the group’s manufacturing base, resulting in an expected £8m in additional foreign exchange movements.

Stocks plummet

As a result of these results, Devro's stocks have plummeted according to David Cheetham of brokerage house XTB. "The announcement of a forecasted 10% drop in sales volumes for 2017 has been met with a sense of panic in the markets and the stock plunged by more than a quarter in early trade," said Cheetham.

"The Americas is a key market for the firm and account for around 27% of total revenue and the glitch in the final phase of a three-year programme to upgrade its factories that began in 2014 which will see Latin American sales in particular hit hard.

"Longer term strategy may well generate higher revenues but in the time being it is clearly hindering performance and many investors have rushed for the exit door following today's news."

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