Devro sells 'skinless' sausage business at £55m loss

Devro has been forced to sell its plant-based sausage-casing business that produced so-called "skinless" sausages as global over-capacity has crippled the industry.

The sausage-skin maker booked an exceptional loss of £55m on the £5m disposal of the cellulose business to management, backed by the Chicago private equity fund Lake Pacific Partners. The new owners will also take on liabilities of £28.3m.

Devro said that with the market for cellulose products – made from plants and used to case "skinless" hotdogs – was unlikely to improve in the short term. The move would allow it to concentrate on casings made from animal skins, known as the collagen market, it said.

"In the latter part of 1998, the economic difficulties experienced in several markets, in particular in Russia, resulted in a sharp decline in global demand for cellulose casing products," the company said. "This led to significant global overcapacity in cellulose and aggressive price discounting."

Devro said the collagen market has grown steadily, if modestly, over many years as sausage manufacturers gradually changed from casings made from animal guts to collagen, which comes from animal skins.

The cellulose business being sold lost £2.6m last year on turnover of £107m. It has net assets of £18m and employs around 1,300 people.

Devro, which was badly affected in the first quarter by the outbreak of foot-and-mouth disease in Britain, said trading had improved slightly in its second quarter and that the trend had continued into the third.