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Dechra warns on profits after volatile third quarter

By Josh White

Date: Monday 22 May 2023

Dechra warns on profits after volatile third quarter

(Sharecast News) - Animal health specialist Dechra Pharmaceuticals issued a profit warning on Monday morning, saying that the trading environment since January had been more volatile and challenging than it previously expected.

The FTSE 250 company said it had experienced difficulties in the US market, where the widely reported de-stocking by wholesalers had a deeper and longer-lasting impact than initially anticipated.

That had a material effect on the company's performance in the third quarter, from January to March.

However, the board said there were positive indications that the situation was improving, as there were signs of a rebound in the market.

Despite the challenges, Dechra said it was seeing robust end-customer demand, as evidenced by product sales from wholesalers to veterinary clinics.

Independent data showed that year-on-year sales during the period between January and April had increased by about 11%.

A similar pattern of de-stocking was also seen in the UK market during April, which Dechrs put down to certain wholesalers managing their financial year-end inventory levels.

However, order patterns were now apparently displaying signs of returning to normal.

In the rest of Europe, the market appeared to be slowing down in response to the changing macroeconomic environment, and country-specific dynamics.

As a result of the factors, Dechra's board confirmed that the company's full-year underlying operating profit for the financial year ending 30 June would be lower than its previously-stated guidance of £186m, which it announced in its interim results on 27 February.

"The board is confident that the group remains very well positioned to continue to grow over the medium and longer term despite the unprecedented and, by nature, short term trading headwinds," the Dechra board said in its statement.

"The fundamentals of the business and strategy remain strong, our underlying markets remain in structural growth, we continue to grow in our chosen markets and we have an established, highly experienced and focused management team.

"Our strategy is robust, including a very attractive development pipeline of new products to underpin our future growth, supported by a strong balance sheet."

Dechra noted that it remained in discussion with EQT funds over a possible all-cash recommended offer of 4,070p per share.

As it announced on 11 May, EQT was required, by no later than 1700 BST on 2 June, to either announce a firm intention to make an offer for Dechra or to confirm that it did not intend to make an offer.

"As such, the company remains in an offer period as defined by the City Code and is restricted in providing further guidance at this stage."

At 0855 BST, shares in Dechra Pharmaceuticals were down 6.85% at 3,400p.

Reporting by Josh White for Sharecast.com.

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