- Full-year 2023 profit warning sends shares down 15%
- Increased investments squeeze operating margins
- Acquisitions push up leverage ratio above two times
Shares in Dechra Pharmaceuticals (DPH) fell 15% to £26.36 after the global veterinary pharmaceutical specialist lowered full-year profit expectations and served up a 11.3% drop in first half adjusted first-half profit.
The company said following ‘unpredictable’ trading patterns in the US, where wholesalers have been reducing inventory levels, the board now sees full-year profit at the lower end of analysts’ expectations.
Elevated foreign currency volatility related to global geopolitics is also expected to potentially impact results, warned Dechra.
Analysts have revised down their profit expectations for the year ending 30 June 2023 by 7% to £135.5 million over the last few months according to Refinitiv data.
HOW DID DECHRA PERFORM IN THE FIRST HALF?
Despite tough comparatives sales increased by 5.2% to £377.4 million driven by strong performance in the US where sales increased 16.2% in constant currencies.
European sales increased marginally by 0.3% in constant currencies.
International sales dropped 9% reflecting the impact of no sales from South Korea where the company is establishing its own sales and distribution after a change of distribution partner in Japan.
Group operating margin declined 4.3% to 23.9% reflecting a big increase in research and development spending to 7% of sales from 4.1% and ‘strategic’ investments made to underpin future growth.
Consequently, first half operating profit to 31 December 2022 dropped 27.2% to £44.6 million reflecting lower margins, cloud computing arrangement costs and the integration expenses of the acquisitions of Piedmont Animal Health and Med-Pharmex.
The combined purchase price of £399.2 million and higher working capital pushed the leverage ratio, measured by net debt to EBITDA (Earnings before interest, tax, depreciation, and amortisation), up to 2.2 times from 0.9 times in 2022.
Underlying earnings per share fell 20% to 55.44p due to lower profit and the dilutive impact from an increase in the number of shares emanating form the equity raise in July 2022.
CEO Ian Page commented: ‘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.’
