DPH.L Regulatory News (DPH)

Wednesday, 3 June 2020

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION. 

Dechra® Pharmaceuticals PLC

(Dechra, Group, Company)

Trading Update

The Board of Dechra issues the following unaudited Trading Update covering the reporting period from 1 July 2019 to 30 April 2020 (the Period) and the outlook for the financial years ending 30 June 2020 (FY20) and 2021 (FY21), together with an assessment of how the challenge of Covid-19 is being addressed by the Group.

Separately today, the Group is announcing a proposed placing (Placing).

Overview

The Board is pleased to confirm that the outlook for the full year 2020 is broadly in line with management expectations, despite the disruption that has been caused by Covid-19.

The Group has made significant progress with the previously discussed manufacturing issues, with in-house supply issues mostly resolved. It is pleasing to see that North America has returned to growth, as anticipated at the time of the half-year results in February, with a strong performance during the Period.

Highlights

Operational review

Covid-19 update

The safety of the Group's employees is always of paramount importance. Throughout the pandemic, measures have been put in place to enable all front line employees to operate safely, which has allowed all manufacturing sites and laboratories to remain open and continue to function effectively. All employees who can work from home have done so successfully. Whilst the Group has put all the necessary preparations in place, a decision has been taken to not utilise any Government assistance and the Board has no current intention to use any such assistance.

Milton McCann has been appointed Interim Group Manufacturing and Supply Director following the sad passing of Simon Francis from Covid-19 complications. Simon joined the Group in February 2019 and oversaw the strengthening of the manufacturing and supply chain. In the time he was with Dechra, he put in place a strong management team who continue to deliver our strategy.

In the key markets in which Dechra operates, the majority of veterinary practices are still operating, although the level of service provision varies on a country-by-country basis.

European Pharmaceuticals

In the Period, our total European Pharmaceuticals Segment revenue increased by c.11.8% at CER (AER c.10.2%), including the acquisitions of Caledonian (acquired 8 October 2018) and Venco (acquired 17 December 2018).

Existing revenue, excluding third party contract manufacturing (non-animal health which Dechra is strategically exiting), increased by c.10.4% at CER (AER c.9.1%).

North American Pharmaceuticals

In the Period, our total North American Segment revenue increased by c. 8.3% at CER (AER c.11.1%) including the acquisition of Ampharmco (acquired 28 August 2019). Existing revenue increased by c.6.8% at CER (AER c.9.6%). This increase reflects the anticipated improved performance following the resolution of the majority of supply issues that were outlined in our half-year results.

Overall, in both the European Pharmaceuticals and North American Pharmaceuticals Segments, trading in the Period has been buoyed by a record March performance, with some subsequent softening as US wholesaler inventory unwinds, and some weakness continues in key European markets, especially France and the UK. Further, there have been some small delays to the pipeline also due to Covid-19, which is expected to lead to development spend being at the lower end of expectations for the financial year.

Acquisitions

On 20 April 2020, the UK Competition and Markets Authority (CMA) announced it was reviewing the acquisition of Osurnia by Dechra. Completion is conditional upon approval of the CMA and, of Dechra as a suitable buyer by the European Commission and the Federal Trade Commission in that context. The Board remain confident the acquisition will be cleared by the relevant authorities and that it will complete shortly.

Net debt

Net debt is expected to be £386 million at 30 June 2020, assuming the completion of the acquisition of Osurnia by this date. This represents a leverage multiple of c.2.4x proforma EBITDA (on a pre IFRS 16 basis). This compares to £240.8 million at the half year, representing a leverage multiple of c.1.7x proforma EBITDA (on a pre IFRS 16 basis). The expected increase to £386 million primarily reflects the acquisitions of Mirataz and Osurnia (£145 million). The Group's cash conversion in the Period and for the full year is expected to remain strong, even allowing for higher levels of inventory being held to position the Group to meet customer demand better during the current situation.

FY21 Outlook

Revenue

The Board expects demand for the Group's products to remain relatively robust due to the critical care and chronical illness weighting of its product portfolio in treating animals with serious conditions. However, the impact of Covid-19 on revenues is difficult to predict, with the expectation that there will be some level of stock unwind at wholesalers and some inevitable weakness in demand. Balanced against this the Group will benefit from a full year contribution from Mirataz® in the US and Osurnia, on the assumption that the acquisition is completed shortly. The launch of Mirataz® in Europe and the relaunch of the US ophthalmic range during the financial year, together with other new product launches, are expected. As a result of the timing of these, the Board expects FY21 to be second half weighted.

Costs

The Group has continued to invest in its manufacturing capabilities and these investments have increased further due to the impact of Covid-19 compliance. On top of this, social distancing measures are reducing efficiency and increasing costs. The Group has also seen the current environment lead to an increase in the cost of some APIs, although it is expected these increased costs will be passed through.

As referred to above, an underspend on the product development pipeline in FY20 is anticipated due to Covid-19 related delays. It is expected there will be a catch-up in FY21 in addition to what was already planned to be spent as the Group continues to invest in its pipeline, one of its key growth drivers. Of particular note, the Group expects to invest c.£4.5 million in FY21 on the development of Akston, the long acting protein for the treatment of diabetes in dogs and cats. This will increase further in FY22 as this project progresses into the clinical trials stage of development.

Commenting Ian Page, Chief Executive Officer added:

"Over the last three months we have all had to adapt and work together differently to protect our businesses, customers and, most importantly, protecting our strongest asset, our employees. I would like to thank all the Dechra team for their hard work and dedication and for the innovation and commitment they have shown throughout this challenging time.

Despite uncertainties arising from Covid-19, the business has continued to perform robustly. Dechra is confident in its business model, and looks forward to continuing to outperform its markets and deliver solid growth."

This Announcement is released by Dechra Pharmaceuticals PLC and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, the person responsible for arranging for the release of this Announcement on behalf of the Company is Paul Sandland, Chief Financial Officer.

About Dechra

Dechra is global specialist veterinary pharmaceuticals and related products business. Our expertise is in the development, manufacture and sales and marketing of high quality products exclusively for veterinarians worldwide. Dechra's business is unique as the majority of its products are used to treat medical conditions for which there is no other effective solution or have a clinical or dosing advantage over competitor products. 

For more information, please visit: www.dechra.com.

Stock Code: Full Listing (Pharmaceuticals): DPH

LEI: 213800J4UVB5OWG8VX82

Trademarks

Dechra and the Dechra "D" logo are registered trademarks of Dechra Pharmaceuticals PLC.

Disclaimer

This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company during the preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involve a degree of uncertainty. Accordingly, no assurance can be given that any particular expectation will be met and reliance shall not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities shall not be taken as a representation that such trends or activities will continue in the future. The information contained in this document is subject to change without notice and no responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this document should be construed as a profit forecast by the Company.

This document is for information only and does not itself constitute or form part of an offer to sell or issue or the solicitation of an offer to buy or subscribe for securities referred to herein in any jurisdiction including, without limitation, the United States or any or in any jurisdiction where such offer or solicitation is unlawful.

This document has been issued by, and is the sole responsibility, of the Company. No representation or warranty express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Investec or by any of its affiliates, agents, directors, officers, employees, advisers or anyone acting on their behalf ("Affiliates") as to or in relation to, the accuracy or completeness of this document or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed. Investec is acting exclusively for the Company and no-one else in connection with the Placing and is not, and will not be, responsible to anyone (including participants in the Placing) other than the Company for providing the protections afforded to their clients nor for providing advice in relation to the Placing and/or any other matter referred to in this document.