UPDATE 1-Sausage-skin maker Devro warns on 2014 profit, shares sink

Mon Apr 28, 2014 5:03am EDT

* Volumes for year to date lower than a year earlier

* Expects 2014 profit, revenue to be lower

* Low-cost manufacturing to reduce cost by 4 mln stg

* Shares fall as much 13.5 pct in early trade (Adds detail, analysts comments; updates share move)

April 28 (Reuters) - Sausage-skin maker Devro Plc warned that 2014 profit would be more than 20 percent below last year's due to lower volumes and costs related to investments in low-cost manufacturing technology.

Shares in the company fell as much as 13.5 percent to a near four-year low of 205 pence, making the stock one of the top percentage losers on the London Stock Exchange on Monday.

The maker of edible collagen casings for bratwurst, salami and chorizo, said it expected revenue to be 13 million pounds lower due to the impact of a strong pound. Profit is expected to be 8 million pounds lower than a year earlier.

The company, which earns only about 10 percent of its revenue in sterling, said sales were hurt by currency devaluation in Latin America, lower retail demand in Europe, the EU pork meat import ban in Russia and the impact of prior year price increases in Europe.

Devro reported a pretax profit of 37.5 million pounds on revenue of 242.7 million pounds for the year ended Dec. 31.

Devro also said on Monday that it planned to move from older, higher-cost production lines to more low-cost technology as it expected prices and volumes to be flat this year.

The move is expected to cut its manufacturing costs by 4 million pounds in 2015, the company said.

"Devro's IMS (interim management statement) highlights a continuing difficult volume picture and as a result it is adopting more prudent FY14 revenue guidance", Investec said in a note.

The impact on forecasts this year is sizeable, the brokerage said and reduced its full-year profit before tax estimates by 25 percent.

Panmure Gordon said the combination of weak demand in core developed markets and the impact of new capacity in China and Uruguay was not yet fully recognised, and reiterated its "sell" rating on the stock.

Shares in the FTSE small-cap component were trading down 11.1 percent at 210.75 pence at 0902 GMT.

Monday was also the record date for Devro's 2013 dividend. (Reporting by Aashika Jain in Bangalore; Editing by Gopakumar Warrier)