Just over a month after Dechra Pharmaceuticals had a check-up with investors, the veterinary healthcare group issued a full-year trading update yesterday (Alex Ralph writes). If nothing else, that meant there were few surprises in the latest numbers that were presented to the City.
Dechra said, for example, that group revenue was up by 7 per cent at constant currency rates in the year to the end of June. Revenue from European pharmaceuticals rose by 8 per cent and in North America, its other core market, by about 5 per cent. Analysts reckoned that represented group revenue of about £516 million and that it indicated sales had contracted about 10 per cent in the past two months.
But to be forewarned is to be forearmed. Dechra had indicated last month, alongside a £133.4 million share placing, that it expected the tail end of its full year to weaken after a record March, so investors had no reason to be taken aback. Still, the company’s shares fell 4p, or 0.1 per cent, to close at £29.14 last night.
Stripping out bolt-on acquisitions and third-party manufacturing revenues, underlying revenue growth is estimated to have been about 5 per cent for the year. Dechra said that trading over the year had been “robust and in line with management expectations”.
Dechra is a FTSE 250 company that has expanded via a series of bolt-on deals. Its latest update, which came before its full-year results are confirmed in September, was brief and contained no specific reference to the bottom line or net debt, contingent on completing its $135 million acquisition of Osurnia, a medicine for dogs, from Elanco Animal Health, an Indiana-headquartered peer. Dechra had been hopeful of completing the acquisition by the end of last month, but is now expecting it to take another three or four weeks as competition regulators, needed to give the deal a green light, have been delayed by lockdown.
The company has been led by Ian Page, 59, its chief executive, since 2001 and dates back to 1819 as a maker of prosthetic limbs, before moving into veterinary medicines during the Crimean War. It is based in Northwich, Cheshire, has a manufacturing site in Skipton, North Yorkshire, and a veterinary products business in Shrewsbury. It is in the process of exiting third-party contract manufacturing in non-animal health to expand its capacity in order to focus on its core vets business.
Dechra gave little in the way of an update on its outlook for its new financial year. It said last month that it expected product demand to remain “relatively robust” thanks to its critical care and chronic illness treatments for animals with serious conditions. However, the uncertainty stemming from the pandemic means that the impact on revenues is difficult to predict, while costs for drug ingredients and manufacturing have increased.
Dechra is optimistic that the British market will pick up in its first quarter. It is the most “corporatised” in the world, with companies owning larger chains of practices, which has led to vets shutting in greater numbers in Britain during the lockdown than, say, Germany, where the market is less concentrated. Instead, prescriptions have been done digitally as regulations have been relaxed.
Lockdown also disrupted Dechra’s freedom to strike deals. Restrictions made it harder to conduct due diligence and the company is seeking instead to acquire assets rather than whole companies. The £133.4 million placing last month was described as an “attacking move” by Dechra, giving it greater firepower. More deals are expected before the end of the year.
Advice Hold
Why The UK market is expected to pick up and Dechra has the balance sheet for more bolt-on deals
C&C Group
Nothing stays the same for long at C&C Group (Dominic Walsh writes). In recent years, the Magners cider and Tennent’s lager owner has been reshaped through a series of acquisitions and distribution deals, while the board also has been revamped. Then there’s the small matter of adjusting to losing 80 per cent of its revenues as pubs and restaurants were forced to close their doors by Covid-19.
Stephen Glancey, the architect of many of the changes, surprised the market in January by retiring with immediate effect, handing the reins on a temporary basis to Stewart Gilliland, its chairman. The brewing industry veteran has proved a safe pair of hands during lockdown.
C&C has chosen well, too, for Mr Glancey’s permanent successor. David Forde, 52, is joining from Heineken, where he has spent thirty-two years, the last seven as UK managing director. His notice period means that he probably won’t be able to join until early next year, so Mr Gilliland, 63, will continue as executive chairman until then. There is a further change to the board, with Jonathan Solesbury stepping down as chief financial officer, to be replaced by Patrick McMahon, the present group strategy director.
Mr McMahon has played a key role in integrating the key acquisition of Matthew Clark, the drinks wholesaler, in 2018, and is said to have a firm grip on the complexities of C&C’s vertically integrated, brand-led wholesale business model. When the coronavirus pandemic hit, management quickly switched the focus to the off-trade to capitalise on the surge in drinking at home.
C&C began in 1868 when Thomas Cantrell, who had set up a chemist and soft drinks business in Belfast, joined Henry Cochrane to form Cantrell & Cochrane. One of the biggest drinks distributors in the UK and Ireland, it holds a 47 per cent stake in Admiral Taverns, the tenanted pubs group.
One of C&C’s strengths is its long-term relationship with AB Inbev, the world’s biggest brewer. Last week, C&C became exclusive distributor for Budweiser on the island of Ireland and has control of the brewing giant’s beer portfolio across the Republic of Ireland. It’s an enviable position to be in.
Advice Buy
Why The shares look like an attractive longer-term bet
