2016 Annual Report

Devro plc Annual Report and Accounts 2016 Devro plc Annual Report and Accounts 2016 With new, high-tech facilities now online, we are well placed to deliver on our strategic plan to grow revenue, optimise manufacturing efficiency and promote product differentiation. Read more on pages 2-3 Strategic Report Directors’ Report Financial Statements Shareholder Information Devro is one of the world’s leading Strategic Report manufacturers of collagen products Highlights of the year ......................... 1 Devro at a glance ................................ 2 for the food industry. Understanding our markets ...........4 Our strategy .......................................... 6 Our strategy in action ....................... 8 Chairman’s Statement .................... 14 Highlights of the year Chief Executive’s Review............... 16 Financial Review .................................18 Revenue* (£’m) Principal Risks and Uncertainties .......................................24 Key Performance Indicators ........28 Corporate Social £241.1m Responsibility Report .................... 30 2016 241.1 2015 230.2 Directors’ Report 2014 232.3 2013 242.7 Directors and Senior 2012 241.1 Management ...................................... 36 Corporate Governance Report .................................................... 38 Underlying operating profit* (£’m) Operating profit* (£’m) Audit Committee Report ............. 45 Directors’ Remuneration Report .....................................................47 £38.1m £15.4m Directors’ Report ..............................62 2016 38.1 2016 15.4 2015 33.3 2015 19.2 Financial Statements 2014 30.3 2014 6.4 2013 42.1 2013 40.8 Consolidated income statement ............................................. 66 2012 2012 42.4 42.4 Consolidated statement of comprehensive income ..................67 Balance sheets .................................. 68 Underlying earnings per share* (pence) Earnings per share* (pence) Statements of changes in equity ............................................... 69 Cash flow statements ......................71 13.3p 1.3p Notes to the financial 2016 13.3 2016 1.3 statements ..........................................72 Independent Auditors’ 2015 15.4 2015 8.8 Report ...................................................120 2014 13.7 2014 2.6 Financial Summary .........................123 2013 20.8 2013 20.1 2012 19.4 2012 19.4 Shareholder Information Dividends per share (pence) Shareholder information .............124 Directors and Advisers ................ IBC 8.8p * All figures are for continuing operations and restated for 2016 8.8 revised pensions accounting rules (IAS 19R) where relevant. 2015 8.8 Underlying measures are stated 2014 8.8 before exceptional items and they are defined, explained 2013 8.8 and reconciled to the equivalent statutory measures in the Financial 2012 8.5 Review on pages 21 to 23. Devro plc Annual Report and Accounts 2016 1 Strategic Report Devro at a glance We aim to manufacture better casing for every sausage How we do this Extracting collagen Applied technology Manufacture Collagen used for casing and gel The production of collagen casing is a Devro is a world leader in the is taken from the hides of carefully complex technological process. Devro manufacturing technology of this selected animals – officially approved combines expertise and innovation highly sophisticated process. Our for human consumption. to produce casings that allow our casings are consistent, reliable and customers to make better sausage. versatile to suit the needs of both sausage manufacturers and consumer preferences. Our mission Our business model Operating safely, Why our business exists How we create value Devro’s collagen casing is used to Devro creates value by converting to provide the world’s manufacture all varieties of sausage. a basic raw material, collagen, from Historically, animal intestines were the inner layer of cattle and sow food manufacturers used as casing for sausage, but over hides, into a homogeneous gel and with a safe and secure the past 50 years the use of collagen extruding it to tightly controlled casing has significantly increased, dimensions, before being compressed supply of consistently as it enables food manufacturers to and packed for supply to customers. better collagen automate production and reduce costs. Devro’s manufacturing processes are It is better suited to contemporary food unique and have evolved over many products, helping hygiene and traceability requirements, years of technical development. and technical specifications can be them optimise determined in advance. Who we sell to efficiency and Devro’s revenue comes primarily from What our customers do the sale of collagen products directly enhancing the value Devro’s customers manufacture to food manufacturers and, in some of their offering. branded and own-label sausage markets, local distributors. Devro sells products worldwide, reaching to over 1,000 customers in more than consumers through retail and 100 countries, with a product range food service outlets. in excess of 500 individual items, covering eight principal types of application. 2 Devro plc Annual Report and Accounts 2016 Strategic Report Directors’ Report Financial Statements Shareholder Information Sales, marketing & distribution Customer products to consumers Reinvesting in our business Devro products are sold across all Devro’s innovation and casing Devro has a successful track record continents in over 100 countries. We performance allow our customers of applied research and development sell directly to food manufacturers to produce differentiated products and focused capital investment. and via agents and distributors. for the consumer. Our casings consistently score highly for appearance, colour, bite and overall acceptance in independent research and consumer testing. Approximately one-third of Devro’s What makes us different sales are in emerging markets and Devro differentiates itself from two-thirds are in developed markets. competitors by developing innovative Over 100 Devro employees work in new products, by working closely customer-facing operations as sales with customers to enhance their and technical advisers. manufacturing efficiencies and by providing high-quality technical The market we are in support to customers. Devro is one of five significant producers globally of collagen casing Why our customers choose Devro in the world market, with a number To satisfy our customers’ demands, of smaller local or regional competitors. we use our knowledge of how to Additional value is created for the manipulate the complex chemistry of customer by collaborating with specialist collagen to balance the requirements food machinery manufacturers and of food producers for strength suppliers of food ingredients to and size stability with consumer optimise product performance. preferences for tenderness and bite. Devro plc Annual Report and Accounts 2016 3 Strategic Report Understanding our markets A global footprint in changing times From our creation over 50 years ago, Devro has evolved into an established leading supplier of edible collagen casing throughout the world. Introduction Maintaining a detailed understanding The growth in global population There have been many improvements of our markets and our customers has continues to be a key driver, particularly in edible collagen casing over the past been, and continues to be, a key aspect in relation to the rapid increase in the 50 years; some as a result of technical of our business philosophy. rate of urbanisation. Consumers are developments and others as a result of being exposed to a much wider choice improved plant manufacturing systems. Growth and better availability of sausage within The continued significant investment Lower cost opportunities for sausage the urban environment, compared to over many years by Devro has enabled producers, combined with consumer those who are living in rural areas. The the provision of a unique, modern, safe acceptance, continue to drive the global population living in an urban and secure edible collagen casing that demand for edible collagen casing. environment has surpassed that of runs more efficiently on sausage rural and is forecast to continue to production lines at much higher speeds Over the past 10 years there has rise steeply. This urbanisation trend and produces better sausage products been a steady increase in the volume contributes significantly towards that are widely accepted by consumers. of edible collagen casing used in improved living standards and rising sausage production. incomes which in turn influence the Today, Devro products are sold by affordability of sausage and processed our dedicated commercial teams, Trends meat products. in association with our experienced There are numerous social and distributor network, to over 100 demographic factors that are The improvement in the availability individual markets and are used in contributing to the growth in the of sausage and processed meat the production of a huge variety of consumption of sausage, and products gives rise then to increased regional and national sausage types. consequently an increased growth in average meat consumption across the use of edible collagen casing, across both developed and emerging markets. both developed and emerging markets. GDP Global urban population Global meat consumption (US$’000 per capita) (millions) (kg per capita per year) +23% in decade to 2016 +9% in decade to 2016 5,000 36.00 55,941 35.00 47,001 4,500 41,364

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