Yahoo Finance Dechra's shares slump as it warns of costs for Brexit contingency plans
Veterinary drug maker Dechra Pharmaceuticals has warned that contingency planning for a hard Brexit will lead to higher costs, sending shares in the company down by as much as 15pc.
The company is investing £1m in new lab equipment for its main facility in Skipton, Yorkshire, to allow it to double-test all medication that leaves the UK bound for Europe, in the event of a no-deal Brexit.
The cost of double-testing will also lead to an additional £500,000 of spending a year, said chief executive Ian Page.
“We may have to double-test everything if the EU doesn’t accept UK quality standards, even though the standards would be exactly the same and the tests exactly the same, so there is a bit of softness in our forecasts,” he said.
“We are hoping there will be some sort of mutual recognition of quality standards in pharmaceuticals and common sense will prevail, because it’s nuts. The whole thing is a dog’s breakfast.”
Investors were also spooked by an accounting change that will reduce Dechra’s profits by £1.1m next year and by news that it is closing down its small business in Iran, where it sells poultry vaccinations, which means it will lose out on roughly £800,000 in annual sales.
“We have to pull the plug there,” said Mr Page. “The US sanctions mean no banks will trade for fear of retribution so it is impossible to get money out so we can’t do business there.”
Those issues aside, Dechra’s full-year results were strong, with annual sales up 14pc to £407.1m, thanks to good trading in both its European and North America divisions. Pre-tax profits rose by just 1pc to £28.9m in the year to the end of June because of an accounting adjustment. Excluding this adjustment, profits rose by just over a fifth to £93.7m.
Dechra made three acquisitions in the year: a distributor in New Zealand and two Dutch animal drug makers.
It has a couple of experimental drugs in its pipeline and won a number of new product registrations in Europe, including a medication for inflammation in turkeys and dysentery in pigs.
Mr Page has plans to expand Dechra’s operations into developing markets, for which he has set up an international unit that is working on just that, although it will be “a couple of years before these markets make a material difference", he added.
He also said the veterinary market in the UK was consolidating into corporate ownership at an unprecedented rate.
Mars, which is the biggest corporate veterinary operator in the US, entered the UK market earlier this year after acquiring Linnaeus Group, which owns a number of vet practices in the UK, including Village Vet and Blythwood Vets in London.
Mars also bought Anicura, a vet company with hundreds of clinics across Scandinavia and Germany, this year.
“The UK is probably 20pc consolidated under corporate ownership now,” said Mr Page. “But I expect this to rise to 30pc to 40pc in the next three to four years.
“Of course these companies deliver volume, but they want better buying prices so there is a bit of pressure on margins, but we are not concerned as Dechra has good relationships with them.”
Shares in Dechra fell by 15pc to £26.52 in morning trading.
