Dechra shares tumble as board flags lower full-year performance

Shares in Dechra slumped on Monday after the veterinary pharmaceuticals company issued a profits warning and reported a fall in half-year earnings.

Revenue for the six months to December 31 grew 5.2% to £377.4m.

The company said its European Pharmaceuticals unit saw revenue growth of 0.4% at constant currency, and 1.3% at actual exchange rates, while the North American Pharmaceuticals unit saw a 16.2% revenue growth at constant exchange rates, and 34.5% on an actual basis, including the benefit of four months revenue contribution from the Med-Pharmex acquisition in August.

However, International Pharmaceuticals' revenue declined 9% at constant currency, which the board put down to nil revenue being generated in South Korea while establishing a sales and marketing business unit there, and its change of nutrition distribution partner in Japan.

Despite the revenue growth, the group’s underlying operating profit (uEBIT) declined 11.2% at constant exchange rates to £90.3m.

The EU Pharmaceuticals unit reported a growth of 4.3% on a constant currency basis to £56.5 million, and the North America Pharmaceuticals unit's uEBIT increased 2.3% at constant exchange rates to £52m, which the company said reflected investment in sales representatives and marketing activities to drive future growth, plus the impact of Med-Pharmex.

In contrast, the International Pharmaceuticals unit's uEBIT slid 20.8% on a constant currency basis to £13.7m due to the combined effect of no revenue and additional costs associated with establishing its own business unit in South Korea.

The group’s underlying operating margin declined by 430 basis points at constant exchange rates to 23.9%.

Dechra said its reported operating profit declined 27.2% in constant currency, reflecting the underlying operating profit result plus the impact of acquisition and integration costs and cloud computing arrangement costs.

Adjusted net debt-to-underlying EBITDA leverage increased to 2.2x, driven by the acquisitions of Piedmont Animal Health and Med-Pharmex for a combined purchase price of £399.2m, together with ongoing investment in working capital.

The company's underlying diluted earnings per share declined 20.4% at constant exchange rates to 55.44p due to the decrease in uEBIT and the dilutive impact of its equity raise in July.

Despite that, the board hiked its interim dividend by 4.2% to 12.5p.

Looking ahead, Dechra said that based on recent destocking in the US and the current exchange rate environment, it now expected full year underlying operating profit to be at the lower end of analyst expectations.

“I am pleased with our performance in the first half of our financial year,” said chief executive officer Ian Page.

“We have a strong history of delivering organic growth, a proven ability in well executed acquisitions and a stronger than ever product pipeline, which, together with the historical resilience of the animal healthcare market, leaves us well positioned to deliver sustained future growth.”

At 0950 GMT, shares in Dechra Pharmaceuticals were down 15.08% at 2,636p.

Reporting by Josh White for Sharecast.com.