Company Announcements
2014 Annual Report
Related Companies
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For Immediate Release |
27 March 2015 |
Devro plc
("Devro" or the "Company")
2014 Annual Report
Devro plc (LSE: DVO) announces that it has posted its 2014 Annual Report to those shareholders who have requested this, together with the notice of Annual General Meeting, to be held on 29 April 2015, and Proxy Form. Copies of these documents have been submitted to the National Storage Mechanism.
A copy is also available on the Company's website - www.devro.com.
Devro announced its preliminary results for the year ended 31 December 2014 on 3 March 2015. A condensed set of financial statements was attached to the Company's preliminary results announcement which included full disclosure of important events that occurred during the year.
The Company today provides the following additional regulated information as required to be made public under the Disclosure and Transparency Rules.
A description of the principal risks and uncertainties extracted from the 2014 Annual Report is set out in Appendix 1 below, and the information on related party transactions contained in Note 36 to the 2014 Financial Statements, is set out in Appendix 2 below.
Statement of Directors' Responsibilities
The 2014 Annual Report contains a responsibility statement in compliance with DTR 4.1.12 signed on behalf of the board by the Company Secretary. This states that on 17 March 2014, the date of approval of the 2014 Annual Report, each of the directors (whose names and functions are listed below) confirms that, to the best of each person's knowledge and belief:
· the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and of the group included in the consolidation taken as a whole; and
· the management report required by DTR4.1.8R (contained in the Strategic Report and the Directors' Report) includes a fair review of the development and performance of the business and the position of the Company and group included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Directors:
Gerard Hoetmer, Chairman
Peter Page, Chief Executive
Simon Webb, Group Finance Director
Jane Lodge, Non-Executive Director
Paul Neep, Non-Executive Director
Paul Withers, Non-Executive Director
John Meredith
Company Secretary
27 March 2015
Appendix 1
|
KEY RISK |
IMPACT |
MITIGATION |
TREND |
|
Delays or cost overruns on major projects The group is undertaking two investment projects in South Carolina, USA and Nantong, China. Unexpected delays or cost overruns would reduce returns. |
The capitalised project costs are estimated at £45 million (USA) and £50 million (China). Cost overruns would reduce the returns on these investments and use more cash resources. A delay in completing the commissioning of these plants could significantly impact earnings in 2016 and 2017. |
Dedicated project teams have been set up for each project. Experienced external engineers and contractors have been engaged. |
Decreased |
|
Foreign exchange rate movements As an international business, with costs being incurred and revenues earned in several different currencies, the group is exposed to the risk of changes in the relative strengths of currencies. This risk increases in times of international economic uncertainty. |
This may result in adverse impacts on revenues, costs and the sterling value of reported profits. Almost 90% of the group's revenues are currently invoiced in currencies other than sterling. |
The financial impact of exchange rate fluctuations within our operating units is mitigated by a policy of hedging a substantial portion of transactional foreign exchange risk for periods of up to 12 months using forward contracts. The group does not hedge the risk arising from changes in the rates at which overseas earnings are translated into sterling. |
Increased |
|
Disruption to supply or increase in price of key raw materials The group's most important raw material is collagen, a naturally occurring animal protein obtained from cattle and sow hides. There is a risk that changes may occur in the supply or demand for food grade collagen, resulting in significant cost increases for the group's business. |
Raw collagen represents approximately 15% of the group's total operating costs. Increase in price would adversely impact the group's operating costs. Disruption to supply could adversely affect manufacturing performance. |
The group manages the collagen sourcing risk by, where possible, entering into long-term arrangements with specialised suppliers in various parts of the world. We monitor developments and changes in the global abattoir and leather industries to maintain and develop appropriate relationships. |
Unchanged |
|
Product contamination Raw materials and ingredients may contain impurities, contamination or disease. |
Contamination could lead to a product recall, loss of reputation or significant costs of compensation. |
All of our manufacturing sites have achieved FS22000 approval. This requires a Hazard Analysis and Critical Control Point programme to be implemented with the aim of preventing contamination. |
Unchanged |
|
Higher levels of debt and reduced headroom on banking covenants The increased level of borrowing to support the group's investment projects means that banking covenants are more challenging. |
A breach of the banking covenants could result in a renegotiation of the loans on more costly terms or the requirement to raise further equity funding. |
The Board's detailed financial planning anticipates sufficient profits and cash flow growth to meet all relevant covenants. Scenario planning is used to develop mitigating strategies. |
Unchanged |
|
RISK |
IMPACT |
MITIGATION |
TREND |
|
Increased funding requirements of pension schemes Estimates of the amount and timing of future funding obligations for the group's defined benefit pension schemes are based on various assumptions, including the projected investment performance of the pension scheme assets, future bond yields, changes to assumptions about the longevity of the schemes' members and statutory requirements. |
Any significant deterioration in the schemes' asset values on unforeseen increases in scheme liabilities might increase the group's funding obligations and could adversely affect the group's profits and financial strength. |
The position and performance of each of the pension schemes are continually monitored by the group, in conjunction with pension trustees and professional advisers. All defined benefit schemes are closed to new entrants, and the group is actively working to match assets to expected future cashflow. |
Increased |
|
Loss of market share/profit margins due to increased competitive pressures The group operates in competitive markets throughout the world. |
A major change in the production capacities, pricing policies or behaviour of our competitors, or consolidation between either competitors or major customers, could have a significant adverse effect on sales revenues and profitability. |
In addition to substantial capital investment, the group invests over £7 million in research & development activities each year to extend and differentiate the product range and improve the quality of our products. We also expand the total collagen casings market by developing products which convert gut casing applications to collagen. Devro provides a high level of technical support to key customers. |
Unchanged |
|
People Shortage of people with relevant technical expertise. |
There is considerable competition for highly trained staff in certain areas. Devro's strategy of significant investment in the company's manufacturing base requires the recruitment and retention of highly-skilled technical managers and employees. |
A number of internal programmes have been introduced to train and develop key employees. In addition, recruitment initiatives are underway in order to ensure that major capital projects will be managed effectively. |
Unchanged |
|
Impact of changes in regulations affecting food production As a food manufacturer, the group complies with all relevant food safety regulations. These regulations are not only those of the jurisdictions where products are manufactured (the European Union, the USA and Australia), but also the regulations of the many countries in which products are sold. Regulatory authorities routinely enact changes to food safety legislation. |
Changes to food safety regulations could result in restrictions on the movement of the group's products, or its raw materials, between territories, or necessitate changes to the production processes at one or more of the group's manufacturing facilities. |
The Global Quality and Regulatory Affairs Director actively monitors planned and actual changes to regulations in all relevant jurisdictions in order to minimise disruption to our business. The group is a founder member of the Collagen Casings Trade Association, which represents the industry and promotes its excellent record in regulatory and health issues. Supplier approval and traceability are under constant review. |
Increased |
|
Development of non-casing technologies More than 85% of the group's revenue is derived from the manufacture and sale of edible collagen casings, primarily for sausages. For many years, several manufacturers of machinery used in the food industry have been promoting 'co-extrusion' systems for sausages which do not require casings. |
If there were to be a significant conversion to co-extrusion, there could be an adverse effect on the sales of casings, revenues and profits. |
The group makes substantial investments in product development and manufacturing processes to sustain competitive advantage. Where there have been conversions to co-extrusion in the past, the group has often been successful in obtaining the business to supply the collagen gel required for such applications, and continues to be a world leader in this specialist category. |
Unchanged |
|
Constitutional change One UK political party is promising a referendum on the UK's continued membership of the European Union in 2017 if they win the 2015 UK General Election. This could result in significant constitutional change. |
The proposed referendum could result in the UK exiting the European Union. Devro has two factories in Scotland with significant trading links to Europe. Trading and regulatory relationships beyond Europe are in many cases facilitated by EU membership. |
The situation is uncertain and is being monitored. |
Unchanged |
Appendix 2
Related party transactions
The group had no related party transactions, other than key management compensation. Key management are deemed to be the Executive and Non-Executive Directors and the Executive Board of the group as together they have the authority and responsibility for controlling group activities. The compensation paid or payable to key management for employee services is shown below:
|
|
2014 £'m |
2013 £'m |
|
Emoluments payable to Executive and Non-Executive Directors |
|
|
|
Short-term employee benefits |
1.0 |
1.0 |
|
Post-employment benefits |
0.1 |
0.1 |
|
Share based payments |
- |
0.1 |
|
|
1.1 |
1.2 |
|
Emoluments payable to remainder of the Executive Board |
|
|
|
Short-term employee benefits |
1.2 |
1.6 |
|
Post-employment benefits |
0.1 |
0.1 |
|
Share based payments |
- |
0.1 |
|
Compensation for loss of office |
1.0 |
- |
|
|
2.3 |
1.8 |
|
Total emoluments payable to key management |
3.4 |
3.0 |
Related party transactions carried out by the company during the year ended 31 December 2014 were as follows:
|
|
2014 £'m |
2013 £'m |
|
Sale of services to subsidiary undertakings |
4.3 |
4.9 |
|
Purchase of services from subsidiary undertakings |
0.1 |
0.1 |
|
Royalty income received from subsidiary undertakings |
1.1 |
1.2 |
|
Interest received from subsidiary undertakings |
1.2 |
0.3 |
|
Interest paid to subsidiary undertakings |
0.1 |
0.1 |
Balances at 31 December arising from transactions with subsidiary undertakings:
|
|
2014 £'m |
2013 £'m |
|
Receivables |
|
|
|
- current |
1.3 |
1.9 |
|
- non-current |
63.2 |
26.3 |
|
Payables |
|
|
|
- non-current |
15.8 |
12.2 |
Current receivables from subsidiaries arise mainly on the sale of services. The receivables are unsecured and do not bear interest. No provisions are held against receivables from subsidiaries, and all sales are made on an arm's length basis.
Non-current receivables and payables principally relate to loans to and from subsidiaries and interest is charged on them at commercial rates.
This information is provided by RNS
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