27 FEBRUARY 2018 FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 1 THE COLLAGEN CASING COMPANY Global Leader Technology Global Operations Collagen • One of the world’s • Differentiation through 2,000+ • Main raw material taken leading providers of product development from the hide of carefully staff across the world collagen casings for the selected animals • Enhanced processed meats sector 6 certified for food use manufacturing • Supplies 1,000 performance and manufacturing operations • A complex naturally- customers in 100 increased capacity in Scotland, Australia, occurring polymer with countries worldwide • Close matching of the Czech Republic, unique characteristics • Provides technical product design to the USA, the Netherlands support to food customer needs and • Dedicated food grade and China manufacturers market requirements sourcing arrangements
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 2 OVERVIEW Financial Results Devro 100 • Underlying EBITDA up 9% on • Programme to accelerate the next prior year stage of strategic development Reflects strong progress in • Initiated in Q4 2016 and underlying business progressing well • Sales volumes increased 7% • Sales volume growth achieved in Most notably in China, SE almost all markets during 2017 Asia and Russia • Strong operating cash flow* • £7 million manufacturing cost savings realised in 2017 Up £19.7m on 2016 Ahead of expectations • Improved covenant ratio** Now 2.1 times • New Fine Ultra casings introduced in H2 as planned • Final dividend maintained At 6.1p per share * Before pension deficit funding ** Covenant ratio = net debt (including derivative liabilities) / underlying EBITDA
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 3 PETER PAGE COMMERCIAL REVIEW
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 4 REVENUE: EUROPE 43% Group revenue Russia & East Middle E & Africa UK & Ireland Continental EU • Adapted the product range to • Small proportion of total • 2% increase in volume and • Excellent H2 + 13% volume meet market requirements business gains for market share growth • +21% volume as local • Stronger development in • 2% improvement on pricing • Effective positioning of Devro customers grow volumes and South Africa with focus on gut attributable to success of offer and sales management Devro share recovered displacement Select Fresh Edible collagen casings only
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 5 REVENUE: AMERICAS 24% Group revenue Latin America North America • Impacted by change in sourcing of • +3% volumes reflects continued products away from old USA plant growth in beefstick category • 25% decline in volumes attributed to • Continued consolidation of key prior year changes accounts and leading brands provides opportunities for long- • Q4 stabilised term partnerships • Opportunities to regain market share in the region Edible collagen casings only
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 6 REVENUE: ASIA / PACIFIC 33% Group revenue China South East Asia Japan Australia & NZ • +69% volume growth as • +29% volume overall • Continued growth • Mature market capacity and product from new in savoury snack and • Strongest advances in • Overall consumption lower plant supply the market confectionery products Thailand • Volumes adversely impacted • Pricing consistent with prior • New Fine Ultra casings by customer manufacturing year introduced changes • Premium segments being developed Edible collagen casings only
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 7 MARKET DYNAMICS Regional mix Short-term / medium-term Pricing • Growing volume in Europe and • Global demand growth estimated • Devro remains price leader in USA where markets are at 7% for 2017 most markets and accounts consolidating with pressure on • Global industry capacity coming • Increasing number of price-driven leading brands into balance tenders following acquisitions, • Regained share in important and consolidation among • Devro has greater capacity markets of Russia and SE Asia customers, impacting market available at lower unit cost dynamics; providing opportunity • Gaining share in China during a following major capital investment for long term supply contracts period of local oversupply programme • New business and regained • Latin America decline due to • Devro continues to seek revenue share achieved in a number of change in Devro’s product growth in all areas, focussing on markets sourcing the most profitable market opportunities, with an emphasis • Holding price in many markets • Devro continues to hold share in on growing market share in and accounts where Devro is mature markets with historic high developing economies long established and fully valued market shares, particularly UK as a partner
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 8 MANUFACTURING & OPERATIONS Established manufacturing plants in UK (Scotland), Czech Republic and Australia: Benefiting from operating in a single global supply chain • organisation Achieving improved productivity levels compared with prior • year Stable raw material and input costs • Following major investments, two new plants in operation throughout 2017: • Nantong, China: performed particularly strongly, with high levels of productivity and efficiency, with sales matching output in latter part of the year. South Carolina, USA: making progress with specialist snack • stick casing, actual output lower than anticipated, priority for management in 2018 as further progress will release more capacity for sales.
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 9 PETER PAGE DEVRO 100 OUR PLAN FOR GROWTH
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 10 DEVRO’S THREE PART STRATEGY ACCELERATING DELIVERY THROUGH… Manufacturing efficiency Collagen research Revenue growth Reduce cost and development • Gut replacement in developed Innovate & invent • Maximise productivity of existing markets assets • Differentiated products • Increased demand in emerging • New capacity in lowest • Modern processes improve markets unit cost technology efficiency • Pricing and value for customers • Reducing costs • Creating new opportunities Earnings growth & improving return on capital
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 11 …THE DEVRO 100 PROGRAMME Revenue growth Revenue growth • Focus on improved sales capabilities Next generation of differentiated Product differentiation products • To deliver a step change in product attributes and performance Improving manufacturing efficiency Unit cost reduction • Using single global supply chain organisation to: − Maximise productivity of existing assets − Reduce unit cost
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 12 REVENUE GROWTH Actions & achievements in 2017 Revenue growth • Volume growth of 8% for edible collagen casings • Focus on target markets and customers • Extension of sales capability training Product differentiation • Co-ordinated global tendering and pricing at all accounts 2016 2017 69% Year on year volume growth 29% 21% 7% 6% 6% 5% 5% 3% 2% 1% Unit cost reduction -3% -5% -8% -8% -9% -13% -25% -31% -34% North Latin Continental Russia Middle UK & Japan SE Asia China Australia America America Europe East & Ireland & NZ Africa
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 13 NEXT GENERATION OF DIFFERENTIATED PRODUCTS Targeting major Revenue growth FINE ULTRA markets for processed Introduced as planned in two variants in sausages in Europe H2 2017, tailored to deliver unique and Asia characteristics for our customers Product differentiation For consumers: Improved pan and deep frying Unit cost reduction For manufacturers: Increased robustness during filling
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 14 IMPROVING MANUFACTURING EFFICIENCY Actions & achievements in 2017 2017 Total 2019 Revenue growth savings benefit • New supplier contracts agreed based range on global purchase requirements Material costs £1.4m £3.5m-£4m • Global Best Practice teams established Conversion costs £5.6m £7.5m-£9m for each stage of production process Production costs £7.0m £11m-£13m • Standardised operations blueprint Product differentiation implemented with conversion cost Operating costs £0.7m £2m-£3m reduction following redundancies Total costs £7.7m £13m - £16m • Energy savings through investing in more efficient technologies • Operating cost savings achieved Unit cost reduction through standardisation and simplification of organisation structure and processes
FULL YEAR RESULTS PRESENTATION | FOR THE YEAR ENDED 31 DECEMBER 2017 15 RUTGER HELBING FINANCIAL REVIEW
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