Animalcare profits knocked by fall in demand for microchips

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SHARES in pet drugs company Animalcare fell yesterday after the company issued a profits warning on the back of a steep fall in pet microchip sales.

The economic downturn has deterred many pet owners from getting their cats and dogs microchipped, a process that allows vets to trace lost animals back to their owners.

The York-based company said that despite a focus on cost control, the impact of the weak revenue trend in companion animal identification means that pre-tax profits are now expected to be “materially below market expectations”.

It added that second half pre-tax profits are now expected to be similar to the first half.

In February, the group said trading was expected to be more second half weighted than in previous years.

Microchip sales so far this year are 32 per cent down on last year and the group said it has not seen the recovery it had anticipated.

It expects microchip sales will remain subdued for the rest of the current financial year.

The core vet medicines business has continued to perform in line with expectations and revenue to April is approximately four per cent above last year.

Removing the effect of the temporary supply disruption of Buprecare ampoules, the progression in vet medicines is 15 per cent above last year.

Looking beyond the current financial year, the group said it is confident about its outlook.

While Animalcare does not expect any major recovery in microchip sales, it has put in place a new database that it hopes will boost sales.

It added that strong progress continues to be made in vet medicines, with its target of four new product launches expected to be achieved during the course of 2013 as well as the planned resumption of sales of Buprecare ampoules.

“These initiatives, when combined with our new product launches, are expected to lift the growth rate of the business during 2013 back to the levels recently enjoyed,” the company said.

“The group remains debt free and continues to generate positive operating cashflows with cash in line with management expectations.”

House broker N+1 Brewin has pencilled in annual pre-tax profits of £2.5m. N+1 Brewin analyst Chris Glasper said: “Whilst 2012 has clearly been a challenging year, the strategic outlook for Animalcare remains positive.

“The balance sheet is robust with no deb t and cash generation remains good. The investment case rests on Animalcare continuing to bring through new products from the development pipeline and we are encouraged at both progress to date and on the outlook.

“Nevertheless, it is disappointing to downgrade our estimates.”

N+1 Brewin moved its recommendation from buy to hold.

In March, Animalcare announced it had been granted approval for a new drug due to be launched later this year.

The company has not divulged any details about the new medicine apart from its codename ‘Project Quattro’.

The drug has received marketing authorisation from the Veterinary Medicines Directorate.

Animalcare appointed a new managing director, Dr Iain Menneer, the same month to free up other senior managers.

In February, the group reported a 21 per cent fall in half year profits, but said it would soon overcome the temporary supply problems that have hit one of its key products, pain relief drug Buprecare.

The company said the supply issues knocked £320,000 off half year revenues, but said the supply chain would be up and running again by this summer.

Shares closed last night down 24p at 146p.

ros.snowdon@ypn.co.uk