Veterinary pharmaceuticals company Dechra Pharmaceuticals (DPH) reported full-year revenues up 6.8% to £515.1 million and underlying operating profits 0.7% ahead at £128.3 million. The dividend was increased by 8.5% to 34.39 pence per share, lifting the shares 8.8% to £33.60.

Despite the challenges from Covid-19, particularly in the UK and France where sites were closed during lockdown, the company continued to expand its global footprint and deliver growth ahead of the market.

STRONG CASH CONVERSION

Good management of working capital ensured strong underlying growth of cash from operations, which increased 16.5% to £134.8 million, and helped reduce net debt from £227.8 million to £127.6 million.

This represents 0.8 times earnings before interest, tax, depreciation and amortisation (EBITDA), well within the firm's banking covenant maximum of 3 times.

Post the year-end the company paid £104.7 million for world-wide product rights to the Osurnia product portfolio, which provides long-acting treatment for inflammation of the external ear canal in dogs.

MARGIN PRESSURE

Gross margins were impacted by the dilutive effect of acquired firms as well as a mix effect due to 33.5% growth in the food-producing animal products (FAP) division, which benefited from a full-year contribution from Dechra Brazil.

Operating margins fell 0.8% to 25.6%, also impacted by the dilutive from acquired businesses and by an increase in research and development costs. Without the contribution from newly acquired firms, operating profits would have been 0.8% lower.

In April the company purchased the worldwide rights and assets of Mirataz for $43 million together with a royalty on future sales. Mirataz is the first and only approved medication for the management of weight loss in cats in the US and Europe. There are plans to register the product in other territories.

OUTLOOK

The company reported that sales in the first few weeks of the new year since 30 June had been encouraging, but added there was an element of catch-up in markets such the UK as wholesaler inventories returned to more normal levels.

The focus over coming months will be on driving sales of recently acquired brands Osurnia and Mirataz which are said to ‘offer solid growth prospects’.

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Issue Date: 07 Sep 2020