STEVE After my initial discussions with Rutger and other members of the Board about the purpose and strategy of the business, I felt that I could draw on my experience of guiding other international manufacturing businesses to lead Devro through its next phase of development. Continuing to make good products and look after customers properly are the foundation stones but it’s the 3Cs strategy through which the business can develop. It’s the opportunity to shape that development which particularly resonates with me. I am confident that the 3Cs strategy can help us to deliver growth in the next few years to ensure the business is competitive for the long term and it remains a successful, responsible and sustainable business for the benefit of all its key stakeholders
RUTGER Over the last few years, Devro has targeted as a priority its transition from a regionally focused business to a fully integrated global one, believing this to be the best structure for meeting the needs of our customers worldwide and to deliver in the most effective way on our growth plans.
A good example is how we now manage the global supply chain and the opportunities that provides. In 2019 we undertook a review of the global manufacturing footprint to access further efficiency improvements as well as to align available capacity to our growth plans. As a result, we will close our plant in Bellshill in Scotland. Clearly this has not been an easy decision, but it will increase our manufacturing options to support our commercial growth plans, with, as part of the closure plan, increased capacity in our Czech plant. These plans will provide savings to the business and enhance overall cash generation as well as de-risk in the short to mid-term some of the commercial plans. This has had an accounting implication in 2019, with a partial write down of our Bellshill assets as well as an expected shift in forecast cash generation between our US, Czech and Chinese entities, leading to a non-cash impairment charge of, in total, £45.9 million. It is only in a truly global structure that we are able to review these options to optimise our manufacturing footprint and take these decisions.
As another example, the adoption in 2019 of a global commercial organisation will help us deliver successful product offerings across our entire customer base more easily, and to ensure customers benefit from the cumulative learnings of the entire commercial team. Furthermore, in 2020, we will continue the rollout of our Integrated Business Planning process, which is key to manage the business more efficiently and effectively and the vehicle to manage the delivery of our 3Cs strategy.
RUTGER We have made progress in 2019 on each element of our 3Cs strategy. I have talked about this in more detail in my Business Review but let me give you a couple of highlights. Within our ‘Win with the Winning Customers’ in 2019 we developed detailed and robust three-year commercial plans for each of our sales areas, taking into account the trends we identified in the category strategy (which was also finalised in 2019). This provides a solid foundation for the growth plans going forward. In terms of the ‘Core Profitability Drivers’ we continued to deliver significant cost savings in the supply chain and with the D100 programme we have now delivered over £17 million of savings from the start in 2016, which is ahead of the original forecasted range. Also, we implemented our ‘Fit For Growth’ programme, again providing savings as well as funds for investments in the commercial organisation, in particular in our emerging markets.
Lastly, our launch of a poultry collagen gel, Avem™, demonstrated that we continue to be market leaders for innovation and reflects the investment we have made in recent years to ‘Strengthen our Competencies’.
STEVE The Board considers that an engaged and aligned workforce is an essential element in delivering the Company’s strategy aimed at building a sustainable business for the benefit of all its stakeholders. The Board actively seeks the input and viewpoint of employees on the business’ development and it also has mechanisms in place for employees to raise concerns with them directly.
In 2019, the Board visited our largest manufacturing site in the Czech Republic where they heard from local management about key priorities while the Board was able to articulate how activities in Jilemnice contributed to the delivery of the Group’s global strategy. They participated in a site tour followed by a town hall meeting at which all employees had the opportunity to put questions and provide feedback to the Board. The success of this visit has been reflected by the results of the subsequent annual Board evaluation survey in which Directors recognised the value of continuing site visits as a means to engage with the workforce. Two such visits are scheduled for 2020. As well as visits of the entire Board to company sites, I and my fellow Non-Executive Directors have also committed to holding open forum meetings with employees when we visit sites individually. It was invaluable to me as part of my induction to hear from Nantong colleagues when Rutger and I visited China in the Autumn.
We have introduced a standing agenda item at Board meetings on engagement and the early results of the ‘TellDev!’ Survey, which all employees had been invited to complete last Autumn, were reviewed by the Board at its meeting in December. The Board will oversee the action plans which are being formulated by teams across the business in response to the results of the latest survey.
RUTGER Devro historically has had strong positions in a number of mature markets, and it is our intention to continue delivering added value and superior customer service offerings in order to defend our positions in those markets and, where possible, to grow, capitalising for example on snacking trends and further gut conversion opportunities.
It is, however, clear that market growth in emerging markets is higher, benefiting from the positive impact of GDP per capita growth and urbanisation on sausage consumption. As a consequence, Devro has, over the last few years, increased the share of emerging markets as a percentage of our total edible collagen volumes. In 2019 it increased from 30% to 32%, and within the three-year commercial plans this trend is expected to continue.