Dechra encouraged by strong half year performance

STAFFORDSHIRE pharmaceutical group Dechra has seen strong half-year results with revenue up 9% on the corresponding period and a growth in pre-tax profit.

The company said the main factors driving the performance were solid organic growth from its pharmaceutical products, the contribution made by its two acquisitions and the benefit from the in-house marketing of Vetoryl®.
It said good revenue growth was seen in its Services segment, however, gross margin has remained under pressure and was reduced in the period due to product mix and increased discounting in a highly competitive market.
Overall, the group said it had performed to management’s expectations.

In the six months to December 31, 2011, group revenue increased by 9% to £209.5m (2010: £192.2m).  Underlying operating profit rose to £16.2m (2010: £14.5m), an increase of 11.8%.  

Underlying pre-tax profit was £14.3m (2010: £13.9m). At constant currency and excluding foreign currency gains and losses, underlying pre-tax profit was £15.1m, an increase of 11.3% compared to the equivalent period in 2010.  Operating profit was £11m (2010: £10m.  Pre-tax profit was £8.9m (2010: £9m).
Underlying basic earnings per share was 15.86p (2010: 15.60p). Basic earnings per share was 10.09p (2010: 10.10p).
Cash flow from operating activities was £1.4m compared to the £0.8m achieved in 2010.  It said that in accordance with its normal cash flow cycle, it expected a strong cash inflow in the second half of the financial year.
Inventory at December 31, 2011 was high due to pre-Christmas purchasing at NVS with inventories falling to more normal levels during January.
Net borrowings at December 31 were £46.1m, compared to £34.1m at June 30, 2011 and £49.6m December 31, 2010.
The board has declared an interim dividend of 4.1p per share (2010: 3.7p), an increase of 10.8%.

The group said all its product groups had seen solid organic growth, with demand in the majority of Northern European markets remaining strong.

Good growth was seen from the Felimazole® and Vetoryl products following their introduction into subsidiary sales and marketing teams. The DermaPet® products acquired in October 2010 have now launched in the Nordic territories in Dechra livery with positive initial sales; the range has also been prepared in Dechra livery for imminent launch into other key European subsidiary territories.
Sales of specialist pet diets were flat in the period because of reduced export sales due to the phasing of orders. However, this was offset by modest sales growth in core markets. Sales growth in subsidiary territories improved in December and export was also bolstered at the end of the period by a successful launch into South Korea.
Following the successful US Food and Drug Administration approval of its manufacturing facility, Dales Pharmaceuticals in November 2011, the group has started the first in-house production of 120mg Vetoryl capsules for the US market.  

Work has also started on extending this licence into other dosage strengths of Vetoryl, while plans are being prepared to extend FDA approval to other products and dosage forms.
Sales in the United States were driven by a good performance from DermaPet. Distribution of new Dechra-liveried products is also taking place.

Services revenue performed strongly with a 7.3% increase compared to the corresponding period last year.  This was partly due to the soft comparison with the corresponding weather affected period, however, there has also been some market recovery.
In outlook, it said trading within its veterinary product segment, the main area of its strategic focus, continued to perform robustly.

“We remain well positioned to maintain strong growth by continued organic growth of existing products, expansion into new territories and the introduction of new products.
“The overall economic environment will continue to pose challenges, especially in our Services segment, however overall market growth continues to exceed pre-year expectations,” it said.
It added that while revenue growth in the Services segment has been offset by a decrease in margin, the group’s Pharmaceuticals segments continued to perform well and it remained confident of growth.