'Fantastic' year as Dechra looks to US market

Dechra has its Dales Pharmaceuticals plant in Skipton, where it makes drugs for pets and humans.

Chief executive Ian Page said after a "fantastic" year for Dales, he is confident the plant can pass an inspection at the end of this month by US Food and Drug Administration regulators.

FDA permission to manufacture a specific dose size of its flagship Vetoryl drug, which treats Cushings disease in dogs, would boost margins at Dales.

"The factory is absolutely pristine and bears favourable comparison with anything I have ever seen," said Mr Page.

"It's been another fantastic performance from Dales. The business has been focusing on lean manufacturing techniques which has created greater efficiency and improved productivity.

"The business is in really good shape."

Dales was put through its paces with a test audit recently, and Mr Page said obtaining FDA approval would further open up the lucrative US pet drugs market.

"Assuming we get approval – which we are relatively confident of – we will just extend across the existing sizes (of Vetoryl)."

Over the year, Dales grew its contract manufacturing by 11 per cent, gaining more than 800,000 of new contract business. The plant added 12 per cent in value per unit thanks to improved productivity.

It has taken manufacturing of Fuciderm, a gel to treat dogs' skin diseases, in-house at Dales. It also plans to transfer manufacturing of Canaural canine ear drops to Skipton.

Dechra posted a 10.1 per cent rise in pre-tax profits, which hit 17.7m in the year to the end of June. Group sales were up 5.5 per cent to 369.4m.

Operating profits at its European pharmaceuticals division, which includes Dales, soared almost 20 per cent to 21.4m, on revenues up 9.3 per cent to 84.6m.

Within this, sales from third party manufacturing, which is done in Skipton, grew 11.1 per cent to 11.5m.

Sales of own-branded drugs, which are also made almost entirely at Dales, rose 8.4 per cent to 44.7m.

Dechra is confident it can continue growth despite an increasingly tough consumer market.

"We are into medicines that treat sick animals," said Mr Page. "People will continue to take their pet to the vet if it's sick."

Its National Veterinary Services distribution business, based in Stoke-on-Trent, is "suffering a little bit from the slowdown in the UK vet market", said Mr Page. This business, which stocks more than 14,000 products and delivers them to 1,800 customers, saw annual growth of only 3.6 per cent within a wholesale market that grew by 4.6 per cent.

"But in terms of our own products, we continue to go from strength to strength," added Mr Page.

Matthew Davis, analyst at WH Ireland in Leeds, said: "Dechra is managing its product pipeline with a strong commercial focus.

"We continue to believe that present momentum, both in Europe and North America, is supportive of our forward growth expectations of 18 per cent pre-tax profit growth in 2011."

Keith Redpath, analyst at finnCap, said: "While other companies in the veterinary space have had issues, Dechra continues to grow. The buy case is increasingly compelling."

Strong cash flow helped the group cut net debt to 6.7m, from 15.5m a year earlier.

Dechra plans to pay a 10.5p total dividend, up 15.4 per cent on a year ago.

Sector rewarded by passion for pets

Veterinary care is the fastest-growing sector of the pet industry at two to three per cent, although at a slower rate than historically.

Dechra said the key drivers of this are the increasing medical and surgical capabilities of vets and the longer life expectancy of pets.

Dechra targets the North American, Western European and Japanese markets, where more than 50 per cent of households have pets and spend a high proportion per animal.

The USA, by far the largest market, has 75 million dogs, 82 million cats and 10 million horses. Japan has 12.5 million dogs and 12 million cats.

France about one million horses, eight million dogs and 10 million cats.

The UK and Ireland have about eight million dogs, 8.4 million cats and one million horses.

Dechra believes these markets will remain relatively resilient despite the downturn.

"The consumers' passion for their animals has maintained growth within the marketplace as animal welfare is one of the last areas of a household budget to be sacrificed," it said.