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24 January 2008 Operational Review Peter Page Chief Executive Officer.

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Presentation on theme: "24 January 2008 Operational Review Peter Page Chief Executive Officer."— Presentation transcript:

1 24 January 2008 Operational Review Peter Page Chief Executive Officer

2 Background  September 2007: update on longer-term prospects for the business –Devro holds a strong share of global market for collagen casings (c. 50%) with well recognised brands –Balanced product range and strong position in each product application –Geographic diversity, with four distinct manufacturing locations –Market conditions relatively stable, with no significant disruptions expected –Market for collagen casings is growing steadily  Operational Review to increase earnings, not a fundamental change of strategic direction

3 2007  Trading to December 2007 has been in line with market expectations  Preliminary results will be announced on 5 March 2008

4 2007: Management Actions  Scottish Manufacturing –£1M adverse costs reported for H1 at September 2007 interims –Change of Scottish management team in H2, including temporary re- engagement of a senior technical specialist, has helped to stabilise issues in the manufacturing process. –Direct involvement of senior management with key accounts to help resist price erosion

5 2007: Management Actions  USA step change to collagen gel –20% of casings volume, to one customer, substituted by change to collagen gel, and managed well –Investment over the past 3 years enabled Devro to achieve clear competitive advantage in collagen gel for continuous manufacturing process, and Devro now supplies majority of requirement to several leading US food corporations –Available capacity has now been allocated to developing market sales –Demonstrates ability to commercialise core strengths in collagen and to anticipate fundamental shifts in the market

6 2007: Management Actions  BioFilm Limited, specialist thin film division, sold –Attractive technology, but requiring substantial investment –Has not made a contribution to EBIT since it was established in 2003 –Did not use Devro’s unique skills and knowledge in collagen science –Successfully completed the exit without significant cost or write down –Devro retains interest to benefit from a subsequent sale  Devro Group continues to develop new collagen products: casings, gel, and biomedical

7 2008: Prospects Pricing takes precedence: –Q1 2008: price increases instigated on most product lines in most markets –Enhancements to products and customer technical service planned in 2008 to support further price increases in 2009 and 2010 Despite step change to gel requirement for some customers in USA, Devro’s global volumes of collagen casing are expected to increase in 2008, coming from existing capacity with no extra capital expenditure required

8 2008: Prospects Capital Expenditure: –At Scottish operations, to increase volume of enhanced products for protecting both market share and prices –At Cutisin plants in Czech Republic, to complete the process, by end 2009, of complying with future EU Food Hygiene and Waste Water Treatment Regulations. –Combined with the new lines installed in 2006, this will lead to Jilemnice being the most efficient collagen casings plant, worldwide

9 2008: Prospects Biomedical Collagen: –Continuing development of biomedical collagen sales, which have grown steadily over past decade –Completion of an ISO 13485 (medical grade) Clean Room in Scotland, to process raw material from Devro’s unique facility in New South Wales which sources collagen from Australia’s BSE-free herd –Develop Devro’s ability to supply soluble collagen to pharmaceutical and healthcare sectors –Devro will participate in a UK Government funded research project on the use of collagen in artificial ligaments, with Cambridge University and Orthomimetics

10 2008: Prospects Emerging Markets: –Moscow-based sales manager to be appointed during H1 2008, to build on existing distributor-based sales –Strengthening local team in China whilst maintaining Hong Kong office for pan-Asian sales

11 2008  Peter Williams will join Devro as Group Finance Director from 1 May  30 years’ experience in Group Finance roles, with significant international experience

12 2009-2010: Prospects Volume growth –Devro expects to keep pace with growth in demand for edible collagen casings, in line with recent trends –Collagen Casing Trade Association statistics indicate worldwide volume growth 2006-2007 of 4.58% for the period

13 2009-2010: Prospects Product Development: –Product development and innovation will support new business developments designed to displace gut-based casing, as food industries become larger-scale and more sophisticated –The gut market is estimated to be twice the size of the collagen casings market, giving an indication of the scale of opportunity –Dedicated Technical Marketing team established from existing resources in 2007 will co-ordinate product development globally

14 2009-2010: Prospects Operational Efficiencies and Enhancements: –Product management and product development work will support efficient stock management –Changes to distribution in some channels will achieve closer partnership with customers –Manufacturing and process initiatives are being thoroughly investigated to identify longer-term benefits

15 Financial & Shareholder Issues  Priority is to provide long-term growth in sustainable earnings  Dividend is important to shareholders: with earnings growth, the current goal is to maintain dividend levels and increase the level of cover  Net debt will be managed to leave scope for possible acquisitions in geographic and product areas which are complementary to the existing business  Whilst strength of the Czech Koruna has eroded some of the Cutisin advantage, Cutisin has fundamental long-term strengths in manufacturing processes and technical competence that will outlast any medium term currency movements  Senior management rewards are in line with shareholder objectives

16 Conclusion  Legacy issues are being closed off  Pricing takes precedence  Product Development will enhance competitive advantage  Operating efficiencies will counter cost increases  ……. to increase earnings and improve return to shareholders

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