Devro plc Annual Report and Accounts 2018 DEVRO PLC Annual Report and Accounts 2018 My first year as CEO has been insightful and has only served to increase my appreciation of the opportunity ahead. In addition to the strategic priorities as set out at the start of the year it has been my priority to provide clear focus on delivery of profitable growth and to create a culture and mind-set of a global business. Rutger Helbing, CEO Business Review on page 10 > OUR 3Cs STRATEGY WIN WITH THE FOCUS ON CORE STRENGTHEN WINNING CUSTOMERS PROFITABILITY DRIVERS COMPETENCIES Devro will deliver superior customer We will improve our margins through By investing in our technology experience through innovative providing the capacity to underpin and science, and promoting external quality products adapted to local our revenue growth ambition as partnerships, we will strengthen customer needs, expert technical well as through continued focus on our long-term competitiveness. support and the capability to assist cost savings opportunities across our customers to bring innovations the business. to their markets. Success in the Cost optimisation The Devro Academy snacking market Page 16 > Page 19 > Page 15 > WHO WE ARE AND WHAT WE DO Page 2 > Strategic Report Directors Report Financial Statements Shareholder Information Highlights of the year Revenue (£’m) Strategic Report Highlights of the year ...........................1 £253.4m Devro at a glance ...................................2 Devro investment case .......................4 2018 253.4 Business model .......................................6 2017 256.9 Chairman’s Statement .........................8 2016 241.1 Business Review ...................................10 2015 230.2 Understanding our markets .......... 12 2014 232.3 Our strategy in action .......................14 Financial Review ..................................20 Key Performance Indicators .........26 Underlying operating profit* Operating profit (£’m) Principal Risks before non-recurring items** (£’m) and Uncertainties ................................28 Corporate Social £40.0m £26.9m Responsibility Report ......................32 2018 40.0 2018 26.9 Directors’ Report 2017 38.1 2017 33.0 Directors and 2016 38.1 2016 15.4 Senior Management ..........................38 2015 33.3 2015 19.2 Corporate 2014 30.3 2014 6.4 Governance Report .......................... 40 Audit Committee Report ...............46 Directors’ Remuneration Report ......................48 Underlying earnings per share* (pence) Earnings per share (pence) Directors’ Report ................................ 64 14.6p 7.5p Financial Statements 2018 14.6 2018 7.5 Consolidated 2017 14.2 2017 9.3 income statement ...............................68 2016 14.7 2016 1.3 Consolidated statement 2015 16.6 2015 8.8 of comprehensive income .............69 2014 14.9 2014 2.6 Balance sheets ......................................70 Statements of changes in equity .................................................... 71 Cash flow statements .......................73 Dividends per share (pence) Notes to the financial statements .........................74 Independent 9.0p Auditors’ Report ................................. 119 Financial summary ........................... 128 2018 9.0 2017 8.8 2016 8.8 Shareholder 2015 8.8 Information 2014 8.8 Shareholder information ............... 129 Directors and Advisers ..................130 Tonnes waste Total recordable injury rate (sent to landfill/million metres equivalent casing, (LWDI and recordable) per million hours worked shown as % of 2005 figures) 87 89 81 12.5 78 * Underlying measures are stated before exceptional 67 67 items and net finance cost on pensions, and they are defined, explained and reconciled to the 52 equivalent statutory measures in the Financial 7.4 7.2 Review on pages 20 to 25. Underlying figures 5.6 5.4 5.5 for 2017 and earlier years have been restated to exclude net finance cost on pensions, 3.8 3.9 3.5 22 where applicable. ** Non-recurring items relate to Board change costs 9 in 2018; see Alternative Performance Measures section of the Financial Review for definition and explanation. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 Devro plc Annual Report and Accounts 2018 1 Strategic Report Devro at a glance Devro is one of the world’s leading manufacturers of collagen products for the food industry, used by customers in the production of a wide variety of sausage and other meat products. We supply collagen casing, gel and film to over 1,000 customers in more than 100 countries. The long-term underlying growth rate of the edible collagen casing global market is estimated at 2-4% p.a. DEVRO PRODUCTS EDIBLE NON-EDIBLE CASING CASING FILM GEL PLASTICS An unrivalled range Large calibre peelable Flat or tubular collagen Collagen gel for a Easy processing, of edible collagen collagen casing film for fresh, frozen broad range of co- with high mechanical casings in numerous for dried and heat- or processed roasts extrusion applications strength for a wide diameter and processed sausage. and hams. from small diameter range of applications. colour options. meat stick to large calibre ring sausage. 2 Devro plc Annual Report and Accounts 2018 Strategic Report Directors Report Financial Statements Shareholder Information THE DEVRO DIFFERENCE > Over 85 years’ experience in, and focus on, collagen casings > Innovative quality products adapted to local customer needs > Strong and longstanding customer relationships > Expert technical support network – on-site and off-site > Fully integrated global business WHERE WE OPERATE EMEA Americas 43% 24% Asia Pacific 33% Regional sales Manufacturing plants Sales offices Devro plc Annual Report and Accounts 2018 3 Strategic Report Devro investment case SIGNIFICANT MARKET- LONG-TERM LEADING GROWTH GLOBAL HIGHLY CASH ATTRACTIVE MANAGEMENT POSITIONS POTENTIAL CAPACITY GENERATIVE DIVIDEND TEAM > No.1 in many countries, > Underlying market > Global commercial > Well-invested, > Dividend covered > Dynamic and gaining share growth estimated at structure with high margin, tightly by cash generation motivated team elsewhere 2-4% p.a. globally products sold in managed group > Potential to grow > Refreshed: five out over 100 countries > Provider of premium > Increasing protein > Major capital of seven Executive edible collagen casings consumption, > Global manufacturing expenditures Management Team particularly in footprint with completed joined since 2016 > Supporting customers emerging markets sites in the UK, the with superior technical > Potential to grow > Experienced: Netherlands, Czech support > Continued opportunity capacity substantially majority of Executive Republic, the US, for gut conversion with low level Management Team Australia and China investments have “Blue Chip” > New product > Fully invested experience platforms, opening up > Material cost per unit asset base with the new markets reduction opportunity latest technologies, as volumes grow, capability for phased given high level of expansion operational gearing > Leadership in higher growth, complex to manufacture products > c.3% of revenue invested into R&D in each year 4 Devro plc Annual Report and Accounts 2018 Strategic Report Directors Report Financial Statements Shareholder Information SIGNIFICANT MARKET- LONG-TERM LEADING GROWTH GLOBAL HIGHLY CASH ATTRACTIVE MANAGEMENT POSITIONS POTENTIAL CAPACITY GENERATIVE DIVIDEND TEAM > No.1 in many countries, > Underlying market > Global commercial > Well-invested, > Dividend covered > Dynamic and gaining share growth estimated at structure with high margin, tightly by cash generation motivated team elsewhere 2-4% p.a. globally products sold in managed group > Potential to grow > Refreshed: five out over 100 countries > Provider of premium > Increasing protein > Major capital of seven Executive edible collagen casings consumption, > Global manufacturing expenditures Management Team particularly in footprint with completed joined since 2016 > Supporting customers emerging markets sites in the UK, the with superior technical > Potential to grow > Experienced: Netherlands, Czech support > Continued opportunity capacity substantially majority of Executive Republic, the US, for gut conversion with low level Management Team Australia and China investments have “Blue Chip” > New product > Fully invested experience platforms, opening up > Material cost per unit asset base with the new markets reduction opportunity latest technologies, as volumes grow, capability for phased given high level of expansion operational gearing > Leadership in higher growth, complex to manufacture products > c.3% of revenue invested into R&D in each year Devro plc Annual Report and Accounts 2018 5 Strategic Report Business model Devro sells premium collagen products both directly to food manufacturers and, in some markets, through local distributors. We sell to over 1,000 customers in more than 100 countries. WHAT WE DO OUR MARKET POSITION KEY DIFFERENTIATORS Devro is one of a few significant producers of Customer intimacy collagen casing with a Having pioneered the conversion from global footprint/reach. gut to edible collagen casing, Devro Approximately one-third of has established intimate customer relationships both directly and through Devro’s sales are in emerging our global distributor network. We markets and two-thirds add unique value on the ground to are in developed markets. strategic and key customers through our widespread local sales and technical Devro has