Overseas growth helped fuel a strong performance by Devro, the maker of collagen casings for sausages and other meat products.
First-half sales jumped 27 per cent to £105m, flattered by exchange rate movements, while underlying profits rose 17 per cent to £9.2m.
The Scottish group said the global market for collagen casings – derived from cattle and pig hides – continued to benefit from increased meat consumption in emerging markets. Volume increases were particularly strong in China, Japan and Latin America. Pre-tax profit rose from £5m to £11m, but was distorted by a £1.78m exceptional credit this time to reflect the closure of a US healthcare plan, and a £3.13m exceptional write-off last year after a Czech manufacturing plant was closed.
Devro achieved price increases of 4.4 per cent but was adversely affected by increases in the cost of energy and hides.
A slump in leather production for the car industry made it hard for Devro to obtain hides, and the group said supply shortages and increased collagen prices cost it an extra £3.6m in the first half and was expected to cost a further £1.5m in the second half
Earnings per share rose to 4.9p from 1.9p, but the pre-exceptional increase was 27 per cent, to 4.2p (3.3p). The interim dividend is held at 1.425p.
● FT Comment
So far there are no signs of recession-struck Brits tucking into more sausages. But Devro is doing well in the UK, where it claims supermarkets are demanding production efficiencies, and in Germany, which traditionally favours gut casings. Devro’s new management is sorting out manufacturing problems and has coped well with increased input prices. Forecast earnings of 9.8p put the shares, up 5¼p yesterday to 108p, on a prospective price/earnings ratio of 11.3. That does not seem demanding for a company that combines defensive qualities with overseas opportunities.
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