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Devro plc Annual Report and Accounts 2017 Devro is one of the world’s leading manufacturers of collagen products for the food industry. 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. Highlights of the year Report Strategic Directors’ Report Directors’ Revenue* (£’m) Strategic Report Highlights of the year ......................... 1 £256.9m Devro at a glance ................................ 2 Understanding our markets ...........4 2017 256.9 Our strategy .......................................... 6 2016 241.1 Our strategy in action ....................... 8 2015 230.2 Chairman’s Statement .................... 14 Financial Statements 2014 232.3 Business Review ................................ 16 2013 242.7 Financial Review .................................18 Principal Risks and Uncertainties ..............................24 Underlying operating profit* (£’m) Operating profit* (£’m) Key Performance Indicators ........28 Corporate Social £38.1m £33.0m Responsibility Report .................... 30 Directors’ Report Information Shareholder 2017 38.1 2017 33.0 2016 38.1 2016 15.4 Directors and 2015 33.3 2015 19.2 Senior Management........................ 36 2014 30.3 2014 6.4 Corporate Governance Report......................... 38 2013 42.1 2013 40.8 Audit Committee Report ............. 45 Directors’ Remuneration Report .....................47 Underlying earnings per share* (pence) Earnings per share* (pence) Directors’ Report ..............................62 12.5p 9.3p Financial Statements 2017 12.5 2017 9.3 Consolidated 2016 13.3 2016 1.3 income statement ............................ 66 2015 15.4 2015 8.8 Consolidated statement 2014 13.7 2014 2.6 of comprehensive income ............67 Balance sheets .................................. 68 2013 20.8 2013 20.1 Statements of changes in equity ............................................... 69 Cash flow statements ......................71 Dividends per share (pence) Notes to the financial statements .......................72 Independent 8.8p Auditors’ Report ...............................116 Financial summary .........................122 2017 8.8 2016 8.8 2015 8.8 Shareholder Information 2014 8.8 Shareholder information .............123 2013 8.8 Directors and Advisers ................ IBC * All figures are for continuing operations. Underlying measures are stated before exceptional items and they are defined, explained and reconciled to the equivalent statutory measures in the Financial Review on pages 21 to 23. Devro plc Annual Report and Accounts 2017 1 Strategic Report Devro at a glance 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 Devro is a world leader in the is taken from the hides of carefully is a complex technological process. manufacturing technology of this selected animals – officially approved Devro combines expertise and highly sophisticated process. Our for human consumption. innovation to produce casings that allow casings are consistent, reliable and our customers to make better sausage. versatile to suit the needs of both sausage manufacturers and consumer preferences. Our business model Why our business exists What our customers do Who we sell to Devro’s collagen casing is used to Devro’s customers manufacture Devro’s revenue comes primarily from manufacture all varieties of sausage. branded and own-label sausage the sale of collagen products directly Historically, animal intestines were products worldwide, reaching to food manufacturers and, in some used as casing for sausage, but over consumers through retail and markets, local distributors. Devro sells the past 50 years the use of collagen food service outlets. to over 1,000 customers in more than casing has significantly increased, 100 countries, with a product range in as it enables food manufacturers to How we create value excess of 500 individual items, covering automate production and reduce costs. Devro creates value by converting a eight principal types of application. It is better suited to contemporary food basic raw material, collagen, from the hygiene and traceability requirements, inner layer of cattle and sow hides, Approximately one-third of Devro’s and technical specifications can be into a homogeneous gel and extruding sales are in emerging markets and determined in advance. it to tightly controlled dimensions, two-thirds are in developed markets. before being compressed and packed Over 100 Devro employees work in for supply to customers. Devro’s customer-facing operations as sales manufacturing processes are unique and technical advisers. and have evolved over many years of technical development. 2 Devro plc Annual Report and Accounts 2017 Strategic Report Strategic Our mission Operating safely, to provide the world’s food manufacturers with a safe and secure supply of consistently better collagen products, helping them optimise efficiency Report Directors’ and enhancing the value of their offering. Financial Statements Sales, marketing & distribution Customer products to consumers Reinvesting in our business Information Shareholder Devro products are sold across Devro’s innovation and casing Devro has a successful track all continents in over 100 countries. performance allow our customers record of applied research We sell directly to food manufacturers to produce differentiated products for and development, and focused and via agents and distributors. the consumer. Our casings consistently capital investment. score highly for appearance, colour, bite and overall acceptance in independent research and consumer testing. The market we are in Why our customers choose Devro Devro is one of five significant To satisfy our customers’ demands, producers globally of collagen casing we use our knowledge of how to in the world market, with a number of manipulate the complex chemistry of smaller local or regional competitors. collagen to balance the requirements Additional value is created for the of food producers for strength and size customer by collaborating with specialist stability with consumer preferences for food machinery manufacturers and tenderness and bite. suppliers of food ingredients to optimise product performance. What makes us different Devro differentiates itself from competitors by developing innovative new products, by working closely with customers to enhance manufacturing efficiencies and by providing high- quality technical support to customers. Devro plc Annual Report and Accounts 2017 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 over many years by Devro has enabled producers, combined with consumer to those who are living in rural areas. the provision of a unique, modern, acceptance, continue to drive the The global population living in an safe and secure edible collagen casing demand for edible collagen casing. urban environment has surpassed that that runs more efficiently on sausage of rural and is forecast to continue production lines at much higher speeds Over the past decade there has to 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 contributing The improvement in the availability individual markets and are used in to the growth in the consumption of of sausage and processed meat the production of a huge variety of sausage, and consequently an increased products gives rise then to increased regional and national sausage types. growth in the use of edible collagen average meat consumption across casing, across both developed and both developed and emerging markets. emerging markets. GDP Global urban population Global meat consumption (US$’000 per capita) (millions) (kg per capita per year) +23% in decade to 2017 +7% in decade to 2017 5,000 36 58,179 35 49,111 4,500 42,566 34 4,000 33 3,500 21,093 32 16,772 13,982 15,554 11,782 3,000 9,371 31 2,500 30 2012 2017 2022 2011 2011 2010 2012 2013 2014 2015 2016 2017 2018 2019 2021 2021 2017 2012 2013 2018 2015 2016 2019 2014 2010 2007 2022 2022 2008 2009 2020 2007 2002 2003 2020 2005 2008 2006 2009 2004 Advanced

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