Devro warns on Q1 profits but retains targets

Sausage skins maker Devro warned that profits for the first quarter of the year were below last year's but that it is confident it will meet full year expectations.

The Scotland-based company released a statement from Chairman Steve Hannam ahead of its annual general meeting Thursday morning that explained how profits were hampered by manufacturing issues and the timing of price increases.

Hannam reassured that the board remained "confident" the group will meet its expectations for the full year, but admitted "profits for the first quarter of the year are below the corresponding period in 2012 due to lower production yields".

However, he assured that "remedial action" has been taken that, allied to recent price rises, additional capacity and a focus on improving production processes, the board does "expect stronger performance as the year progresses".

With input costs having risen broadly in line with expectations, the company has increased prices, as it announced in February at the time of its 2012 preliminary results.

But this came too late to counteract lower manufacturing yields, particularly in the US, which restricted the amount of product available for sale and raised unit costs.

Devro's global sales continued to grow during the period, with a slower start in the more mature markets of the UK and Australia counterbalanced by good growth in much of Europe and North America.

A major capital investment programme in the Czech Republic is proceeding as planned, with significant additional volume scheduled to come on stream in the second half of this year in order to support further growth in 2014.

Analyst Nicola Mallard at broker Investec stated: "Given the phasing of new capacity coming on stream, we expect sales and profits to be biased to the second half. The group remains confident of meeting full year expectations and we make no changes to forecast full year 2013 or or 2014 numbers."

The share price fell 1.43% to 330.80p by 09:20 Thursday.

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