Global veterinary pharmaceuticals company Dechra Pharmaceuticals (DPH) released full year numbers ahead of analysts’ forecasts, injecting renewed momentum in the shares, up 1.3% to £30.42.
A combination of organic and acquisitive growth, along with operational leverage saw revenues up 18.3% to £481.8m and adjusted operating profits up 28.4% to £127.4m, for the year ended 30 June 2019, representing an improved margin of 26.4% (2018: 24.4%).
The group converted 85% of its operating profit into cash compared with 81.9% last year, producing a 15.5% return on the capital employed in the business. The dividend was increased by 24% to 31.6p.
Earnings per share grew by 39% to 90.01p, around 3% above consensus estimates according to Reuters.
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The group’s largest division, companion animal products which provides critical care products for cats and dogs, saw revenue increase 24.8% to £340.2m, driven by market share gains, new product launches and the acquisitions of AST Farma and Le Vet.
Food producing animal products (11.9% of group revenue) which specialises in providing soluble antibiotics and vaccines for pigs and cattle increased its sales by 19.1%, driven by organic growth in Europe and the acquisition of Venco.
The equine division (7% of group revenue) provides pain management and lameness products for horses and ponies and increased sales by 21.1% to £34.4m.
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The company has transferred the analytical and testing manufacturing facility from Skipton to its laboratories in Bladel and Zagreb in Croatia, which cost just shy of £1m. This will allow the company to release UK manufactured products within Europe in the event that there isn’t a mutual recognition of quality standards.
Dechra’s financial performance is being driven by strong drivers including population growth and increasing urbanisation with pet ownership increasing by 5% to 6% a year according to consultancy Vetnosis Storm.
Investors have to be mindful of the increasing magnitude of adjustments that the company makes to the reported numbers to get to the underlying figures.
Non-underlying operating profit items totalled £88.4m, the bulk of which was the £76.8m in amortisation of acquired intangibles.
In plain English, that represents the premium that the company paid for acquisitions, which the accounting rules require to be written-off.
It is reasonable to add these items back, but it does assume that the acquired companies continue to perform in-line with expectations.
