Dechra confident for full year, despite slow first half

Dechra Pharmaceuticals, the Northwich-based vet products group, saw revenues for the six months to December 31, 2019, rise 7.1% at constant currency exchange rates to £248.5m.

The group’s reported profit before tax was £19.5m, compared with £9m the previous year. The reported operating profit was £23.3m, up from £17m.

The board has declared an interim dividend of 10.29p per share, which represents a growth of 8.3% compared with the prior year.

Dechra said demand for its products remains strong across all major markets, recent acquisitions are performing well, new opportunities have been secured, and the pipeline has been significantly strengthened.

However, it said the reporting period has also proved to be challenging with performance being temporarily impacted by issues in the supply chain.

It said, as outlined in its preliminary results announcement in September 2019 and the trading update last month, trading was adversely affected by supply problems, predominantly in the first quarter. Significant progress has been made and the supply issues have been largely mitigated.

Dechra said its team is assessing the potential impact on the group of the Covid-19 Virus, if any.

It said: “We have no direct or indirect revenues in China and we have sufficient inventory of Chinese-sourced materials to deal with near term supply, however, a prolonged period of interruption would lead to out of stocks.”

The supply chain problems mean that trading will be more second half weighted than is typical. The board remains confident in the strategy of the group and the outlook for the future, it said.

The group, headed by CEO Ian Page, said its EU pharmaceuticals segment reported net revenue increased by 13%. This segment includes the International business which has benefited from the acquisitions in 2018 of the trade and assets of Caledonian in Australia and New Zealand and Laboratorios Vencofarma do Brasil Ltda (Venco) in Brazil.

It continues to be affected by the planned strategic decline in non-core business, such as third party contract manufacturing.

Net revenues, excluding third party contract manufacturing and including the like-for-like impact of recent acquisitions, increased by 9.2%.

This good growth has been driven by a strong performance in a number of countries, including Germany, Poland, Iberia and France, and by the continued success of disintermediating distribution contracts from the 2018 Le Vet acquisition to capture additional revenues and margin by selling the products through Dechra’s own sales and marketing organisations.

In North America, net revenue declined by 2.5%.

This decline was attributable to Companion Animal Products supply issues and to a strong comparable period last year which benefited from exceptional sales of Zycortal as a result of a competitor being out of stock.

Since the return to market of this competitor Dechra have retained some of that business with a slight increase in market share for Zycortal.

The market is still normalising, as it appears there was excessive purchasing by veterinary practices to ensure continuity of supply for these clinically-necessary products.

The group said the manufacturing and supply problems resulting in delays to deliveries will be partly reversed in the second half with the exception of two minor products and its sterile ophthalmic range which are not expected to be back in supply until the next financial year.

Looking ahead, it said the full year remains in line with management expectations, although performance in North America will remain challenging until all supply issues are remedied.

Group strategy remains robust and it is creating more opportunities than at any time in its history, it revealed.

New development opportunities have been secured creating a pipeline with significant potential future value, acquisition opportunities continue to be assessed and delivered, the international business is increasing in materiality and Dechra continues to get growth from its existing portfolio of products.

It said: “The board, therefore, remain confident in our strategy and the future prospects for the group.”