(BFM stock exchange) – The rise in prices is a real challenge for two veterinary laboratories. Inflation crept into the semi-annual accounts of Virbac and Vétoquinol with various consequences. According to a local analyst, the price room for maneuver is likely to be reduced for Virbac in 2023.
The half-year results of two veterinary laboratories, Vetoquinol and Virbac, met with a frosty reception this Friday, with the two titles showing the biggest declines on the Paris market. Vetohinol fell more than 10% to 93.80 euros after losing up to 15% in early trade, while Virbac recovered 7.8% to 300 euros around 10:30 am.
Although Virbac recorded a clear increase in its half-year results and confirmed most of its outlook for 2022, investors did not appreciate the reduction in the debt reduction target for the current year, especially due to inflation. As for Vetoquinol, the price increase disrupted the pharmaceutical laboratory’s operations, putting pressure on its profitability in the first six months of this year.
Reduced semi-annual profitability
Vetoquinol Group operates in the active sector (animal health), but is not immune to geopolitical and inflationary tensions. Already in April and the publication of the quarterly update, the company already warned that it is exposed to the risk of inflation in the cost of purchasing raw materials and energy, caused by the Ukrainian conflict.
These inflationary risks interfered with the pharmaceutical company’s half-yearly accounts. During the first six months of 2022, Vetoquinol reported current operating income (before amortization of acquired assets) fell by 5.3% to EUR 51.5 million on already reported turnover of EUR 271 million. The corresponding margin deteriorated by more than 3 points to 19% from 22.3% last year. Regarding the group’s share of net income, the figures presented by Vetoquinol were also reduced by almost 15% to 21.4 million euros.
Increase in marketing costs
The veterinary laboratory attributes this backlog to the depreciation of 9.3 million euros in the “contracted and uncertain economic context” in Brazil. Personnel costs increased by 8%, while other procurement and external costs increased by EUR 11.3 million, mainly due to increased marketing and advertising costs related to the launch of new Essential products, including Felprev antiparasitic for cats.
In this context, Vetoquinol does not present a quantified outlook for 2022, in the face of inflationary pressures. However, the group recalled the main lines of its mid-term Ambition 2026 plan, which will focus on brands with international potential.
“Overall, according to the management, this plan should enable a doubling in the top 20 of the average size per product (i.e. EUR 10 million compared to EUR 5 million in the previous plan), an average annual turnover growth above the market (+3 to + 5%) and an Ebitda margin ‘corridor’ of around 20% (versus 15-16%)”, reminds TP Icap Midcap in its note dedicated to the results of Vetoquinol. The design office maintains its opinion to stay on file, but updated its target price to 106 euros compared to 114 euros after the publication of Vetoquinol’s semi-annual reports.
An inflationary context that punishes deleveraging
As for Virbac, investors were not disturbed by the content of the semi-annual accounts. The French pharmaceutical laboratory, exclusively dedicated to animal health, has indeed revealed an operating profit that increased by 13%, to 115.5 million euros. Net income, the group’s share increased by 7.7% to EUR 77.5 million during the half-year.
The veterinary laboratory has already announced at the end of July a turnover of 616.4 million euros for the first half of the year, which is an increase of 16.4% in the published data and 12% at a constant exchange rate and volume.
The Group continues to aim for revenue growth at constant rates and in a range of 5% to 10%. Until the beginning of the year, management expected organic revenue growth of between 5% and 8% for 2022. Virbac also confirms its goal of a ratio of “current operating income before amortization of assets arising from acquisitions” to “revenue” of around 15%. at constant exchange rates, despite inflationary pressures (with a voluntary overinvestment in research and development of about 1 point as a percentage of revenue compared to 2021) .
On the other hand, the market approved a downward revision of Virbac’s debt reduction targets. The reduction of the company’s debt is now expected to be around 30 million euros without dividends, while in the previous announcement a debt reduction of “around 60 million euros” was foreseen.
“The increase in our need for working capital associated with the growth of our activity, inflation, as well as management decisions (for example, safety stock) led us to adjust our forecasts downward. debt reduction for 2022,” Virbac explained. “The context will punish deleveraging this year, and we consider continued inflation in 2023,” TP Icap Midcap analysts noted in their note of the day.
The year 2023 will include, in the eyes of TP Icap Midcap analysts, “more inflationary impact on the likely reduced cost of maneuvering room”. “Wage inflation should hold in both Europe and the United States, and growth in raw materials, energy and transportation could hold, perhaps temporarily limiting margin expansion, while the size of prices could become detrimental to volumes,” continued the research office, which remains to be seen. keep with a target price of 343 euros on Virbac.
Sabrina Sadgui – ©2022 BFM Bourse