4th Sep 2007 07:00
Dechra Pharmaceuticals PLC04 September 2007 Issued by Citigate Dewe Rogerson Ltd, BirminghamDate: Tuesday, 4 September 2007 Embargoed: 7.00am Dechra(R) Pharmaceuticals PLC An International Veterinary Pharmaceutical Business Preliminary Results for the year ended 30 June 2007 Year Ended Year Ended June 2007 June 2006 Revenue £253.8m £232.5m +9% Operating profit £13.8m £12.3m +12% Profit before taxation £12.6m £11.0m +14% Earnings per share Basic 16.86p 14.71p +15% Diluted 16.62p 14.36p +16% Dividend Final 5.00p 4.33p +15% Total 7.50p 6.24p +20% Strong increase in own pharmaceutical revenue, up by 22% Regulatory approval received for three new UK generic products, Domidine(R),Sedator(R) and Thyroxyl. Three acquisitions have been made; Leeds Veterinary Laboratories, theIntellectual Property for Equidone(R) Gel and the marketing rights for thePharmaderm range of veterinary products: total investment £3.7 million Strong performance from NVS(R), our veterinary wholesaling business,demonstrated by a retention of overall UK market share, above 44%, and a revenuegrowth ahead of the market Operating profit at Dales, our manufacturing business, increased by 33% International product development is progressing to expectations Product development cash expenditure has doubled to £3.3 million Full year dividend increased by 20% Enquiries:Ian Page, Chief Executive Fiona Tooley, DirectorSimon Evans, Group Finance Director Keith Gabriel, Senior Account ManagerDechra Pharmaceuticals PLC Citigate Dewe RogersonToday: 0207 638 9571 Today: 0207 638 9571Mobile: 07775 642222 (IP) or 07775 642220 (SE) Mobile: 07785 703523 (FMT) or 07770 788624Thereafter: 01782 771100 Thereafter: 0121 455 [email protected] 8.30am - 9.30am Analysts' Presentation at Citigate Dewe Rogerson Ltd 3 London Wall Buildings London Wall EC2M 5SY Tel: 020 7638 9571 -2- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2007 CHAIRMAN'S STATEMENT & EXTRACTS FROM THE BUSINESS & FINANCIAL REVIEW STATEMENT BY THE CHAIRMAN, MICHAEL REDMOND I am pleased to report that we have continued to achieve good growth in revenueand profitability from our UK businesses; this has been enhanced by significantrevenue from our own product portfolio in the EU. Strategic progress has beenmade with acquisitions that strengthen the Group and provide a revenue streamand platform for growth in the US. The development of our own branded veterinarypharmaceutical portfolio is progressing to schedule. Financial Highlights Group revenue increased 9.2% from £232.5 million to £253.8 million. Operating profit increased by 12.5% to £13.8 million (2006: £12.3 million) andprofit before taxation rose 14.3% to £12.6 million (2006: £11.0 million). Basic earnings per share was 16.86 pence, up 14.6% from the 14.71 pence achievedin 2006. Total cash investment in product development was £3.3 million (2006: £1.6million), of which £1.6 million was charged to the income statement (2006: £1.4million). Cash flow continued to be strong with cash flow from operations being 103% ofoperating profit. As at 30 June 2007, the Group had net funds of £1.0 million,virtually unchanged from the £1.1 million at 30 June 2006. Interest cover was 11.3 times (2006: 9.7 times). During the year, the Group acquired the rights to the Pharmaderm range ofveterinary products for US$5 million (£2.6 million), made an initial payment ofUS$0.5 million (£0.3 million) for the intellectual property rights for EquidoneGel and acquired Leeds Veterinary Laboratories Limited for a cash and equityconsideration of £0.8 million. Further details are contained in the Business Review. Dividend In line with our progressive dividend policy and our confidence in the business,the Directors are recommending an increase in the final dividend to 5.00 penceper share (2006: 4.33 pence per share). This, together with the interim dividendof 2.50 pence per share (2006: 1.91 pence per share), makes a total dividend forthe year of 7.50 pence per share (2006: 6.24 pence per share), a 20% increase. The total dividend is covered 2.2 times by profit after taxation. The final dividend, which is subject to Shareholder approval at our AnnualGeneral Meeting to be held on Wednesday 17 October 2007, will be paid on 23November 2007 to Shareholders on the Register at 26 October 2007. Prospects Current trading continues to meet management expectations. With the continuedsolid growth of our UK businesses, the acquisitions made throughout the year andwith the international product development programme beginning to deliverrevenue, we remain confident in our future. -3- Please note the following Business and Financial Reviews are excerpts taken fromthe complete Directors' Business Review which will be contained in theReport & Accounts due to be published shortly, following which it will be found on the Company website www.dechra.com. The Business Dechra Pharmaceuticals PLC ("Dechra") comprises six businesses operating undertwo divisions, Pharmaceuticals and Services. Both Divisions are focused on theveterinary market with a key area of specialisation being on companion animal products. The Group's main focus is delivering organic growth from its two divisions;however, the key strategy to deliver medium to long-term growth is the developmentof our own branded veterinary pharmaceutical products for licensing internationally. At 30 June 2007, Dechra employs 758 people who operate out of 17 locations. Product Development During the last five years we have licensed four specialist products and fourgeneric products, three of which received approval towards the end of thefinancial year. Within our current licensed portfolio, Vetoryl Capsules andFelimazole Tablets still provide excellent opportunities for internationalgrowth. Vetoryl Capsules is a novel and patented product for the treatment of Cushing'sDisease (excess cortisol or hyperadrenocorticism) in dogs. It is the onlylicensed product within the EU and is the only recognised safe and efficaciousveterinary product for the treatment of Cushing's Disease around the world.Launched in the UK on a provisional marketing authorisation in September 2001,Vetoryl Capsules has since achieved full approval and has consistently increasedmarket penetration, with substantial revenue now in excess of £2.0 million peryear. It also achieved mutual recognition for approval within the EU in 2006 andhas now been launched within all the key European territories with good initialsales exceeding £1.5 million. In the USA it is also sold under the Food and DrugAdministration ("FDA") waiver scheme. Global revenue for Vetoryl Capsules in the2007 financial year was £4.5 million. Felimazole Tablets is the first veterinary licensed product for the treatment offeline hyperthyroidism. It competes in the world's markets against humanequivalents; however, the Cascade Legislation has supported its growth.Felimazole Tablets received marketing approval in 2002 and has achieved UKrevenues in excess of £2.9 million in the financial year. Felimazole Tablets wasapproved in the EU in 2005 and has achieved £0.4 million sales in the year. Thisrelatively low level of sales can be attributed to the failure of veterinariansto comply with the Cascade Legislation and the status of the cat throughout mostof the EU. Both Vetoryl Capsules and Felimazole Tablets have been granted an expeditedreview status by the FDA in the USA. The principal advantage to an expeditedreview is that there is a target 90-day response from the time of the submissionof information. Development Update There have been a number of achievements within our development programmethroughout this financial year: - - The safety and CMC sections for Vetoryl Capsules were submitted to the FDAprior to the financial year end. The submission of the efficacy section isimminent. An initial response to the CMC section has been received with onlythree areas requiring further clarification, none of which should result indelayed approval. We remain confident in the safety and efficacy of the productand await a response from the FDA. - All cats have now been enrolled on the clinical trial for Felimazole Tablets.We anticipate that the efficacy submission will be made prior to the end of thiscalendar year. continued... -4- - Clinical trials have commenced in Japan and are progressing to ourexpectations. These trials are the responsibility of our partner KyoritsuSeiyaku ("KS"), who are the leading animal pharmaceutical supplier with oversixty representatives marketing directly to veterinary practices. KS anticipatethat it will be at least a further two years to gain approval within thissignificant territory. - As reported last year, the dossier for Vetoryl Capsules has been submitted tothe Canadian and Australian authorities and the dossier for Felimazole Tabletshas been submitted in Canada. We understand that the review process has nowcommenced within these territories. - A 10mg small dog Vetoryl Capsule has been approved within the EU; marketing isexpected to commence within the next six months. The US approval for the 10mgstrength will be concurrent with the full application. - Intra-Epicaine(R) and Somulose(R), two of the minor, although unique productsin our portfolio, have been approved for sale in Ireland. - Two Vetivex(R) range extensions have received UK approval. - Three generic products, Domidine, Sedator and Thyroxyl have received approvalfor the UK. Domidine and Thyroxyl were launched towards the end of the financial year. - Two other generic products are at an advanced stage of the approval processand are expected to be licensed within the first half of the current financial year. - Progress is also being made with three further generic products which will betargeted at the EU market. We currently have a number of other products under development and are exploringseveral other opportunities to add to the portfolio. Due to commercialsensitivity we believe it to be appropriate to treat the nature of theseprojects as confidential. Acquisitions Intellectual Property Acquisition In December we announced that we had acquired the intellectual property forEquidone Gel, an equine product, which is at an advanced stage of developmentfor the US market. The use of the active ingredient, Domperidone, has been co-developed by Equi-Toxand Clemson University, based in South Carolina, USA for the prevention ofFescue Toxicity, a disease which is caused by eating a fungus which infects tallfescue grass. The most serious clinical signs are observed in the late stages ofpregnancy and the toxicity can result in foal death. Equidone Gel is already patented and under limited distribution in the US undera special licence. The market for equine Fescue Toxicity is estimated to beapproximately US$2.0 million per annum. Other patents for Equidone Gel uses havealso been approved; explorations into these indications, which havesubstantially larger markets, have commenced. Laboratory Acquisition In April we announced the acquisition of Leeds Veterinary Laboratories Limited("LVL"). LVL is a well established veterinary laboratory, founded in 1986. Thebusiness employs 18 staff and three consultants and offers a comprehensive rangeof veterinary diagnostic tests for companion, exotic, equine and farm animalsfrom its 6,000 sq. ft. facility in Yeadon, Leeds, Yorkshire. The effective cashand equity consideration for LVL was £750,000. continued... -5- US Veterinary Product Portfolio In May we secured a long-term trademark license and supply agreement withPharmaderm Animal Health ("Pharmaderm"), part of the US commercial division ofALTANA Inc. The agreement provides the Group with exclusive marketing and distributionrights for a range of veterinary licensed ophthalmic, otic and dermatologicalproducts and the opportunity to develop new licenses for both North America andEurope. Under the agreement, Dechra paid US$5.0 million in cash for the licenses. Theproducts, which are currently sold to veterinary practices in the USA, achievedsales of US$7.7 million in the year ended 31 December 2006. Pharmaceutical Division Our Pharmaceutical Division comprises Dechra Veterinary Products ("DVP EU"),Dechra Veterinary Products USA ("DVP USA"), Arnolds(R) Veterinary Products("Arnolds") and Dales Pharmaceuticals ("Dales"). DVP EU DVP EU, located in Shrewsbury, England, employs 67 people. This business marketsand sells our own branded, licensed veterinary pharmaceuticals in the UK, andmanages the relationships with our EU marketing partners. We have over 40products, however, there are 13 key brands which represent over 90% of DVP EU'ssales. We have a number of UK marketing agreements; with Virbac Inc. to marketThyroxyl within the UK and Ireland, with Eurovet to market Domidine and Sedatorin the UK and Ireland, with Biopure to market Oxyglobin(R) in the EU and withPeptech to market Ovuplant(R) in the EU. Thyroxyl is a generic product used forthe treatment of Hyperthyroidism in dogs. Domidine and Sedator are genericanalgesics used in the treatment of horses and dogs respectively. Ovuplant is aseasonal equine fertility product, launched in the UK in Spring 2005;development is progressing to licence the product within the rest of the EU.Felimazole Tablets and Vetoryl Capsules, together with Equipalazone(R) Powder,Paste and Injection, the market leading equine Non-Steroidal Anti-InflammatoryDrug ("NSAID"), are marketed within the EU by various partners, the keyterritories being serviced by Janssen, Intervet and Orion. DVP EU, grew strongly throughout the year. This can be principally attributed toan increase in sales of Vetoryl Capsules and Felimazole Tablets within the UKand EU and also the successful launch, towards the end of the period, of thegeneric products outlined above. Vetoryl Capsules sales have been enhanced bythe production of an interactive DVD which is utilised as a technical sales aid. The Arnolds business has been consolidated within DVP EU; the Vetivex range ofproducts are now marketed by the pharmaceuticals team. Vetivex continues to growwith an increase in market share of over 6%. Two new presentations, 100ml SodiumChloride and 250ml Hartmann's Solution, which were licensed in the year, havefurther differentiated our range from our main competitor. UK sales ofEquipalazone, our market leading NSAID, grew by 12% despite competing with a newentrant within the sector; however, EU revenues fell slightly due to phasing oflarge EU export orders. Within the year, three veterinary surgeons were appointed. Greg Williams andAlison Roberts strengthen our technical support and Dr Michael Hemprich hastaken on the role of European Account Manager to further develop ourrelationship with our EU marketing partners and to explore other Europeanopportunities. continued... -6- DVP US This business, employing five people, was established in 2005 and is located inthe Kansas City animal health corridor, USA. It has been significantlystrengthened by the Pharmaderm licensing deal, which provides a range of sevenlicensed veterinary brands. This agreement is a major achievement for the Group;it provides the opportunity to increase sales and to strengthen our profile andbrand awareness within the American market ahead of the launch of our owndeveloped products. Furthermore, it has enabled us to extend the management team with theappointment of a Manager of Technical Services, Dr Erin Evans, Chris Huettner,Customer Service/Office Manager and an experienced sales professional, TammyRice, who has joined us from Pharmaderm. The management team are now looking tomake further appointments within the sales department. The US market is very significant to Dechra's strategy, being approximately tentimes the size of the UK market. We anticipate immediate growth from thePharmaderm range of products and significantly increased pharmaceutical revenuesonce Vetoryl Capsules, Felimazole Tablets and Equidone Gel receive approval. Dales Dales, located in Skipton, England, employing 155 people, is a fully Medicinesand Healthcare Regulatory Agency ("MHRA") approved pharmaceutical manufacturerwith multi-competence in both scale and dose form. Dales manufactures the vastmajority of our own branded licensed pharmaceutical products, which are marketedthrough DVP EU, but also derives approximately 50% of revenues from third partytoll manufacture, predominantly for human pharmaceutical companies. This isDechra's only significant source of revenue not derived from the veterinarymarket. As major volume pharmaceutical manufacturing becomes increasinglydominated by India and China, our capabilities on multiple scale production andspecialisation (i.e. controlled drugs) allow us to maintain and write newcontracts. Throughout the year we have again strengthened the Quality Department with atarget to seek FDA approval for one of our products within two years. Continuedfocus on efficiency and quality systems has resulted in a strong performance forthe year. This has been enhanced by full-scale production of a £1.0 million perannum contract, which was announced at the end of the last financial year. Services Division Our Services Division comprises National Veterinary Services ("NVS"), NationWideLaboratories ("NWL") and Cambridge Specialist Laboratory Services ("CSLS"). NVS NVS, located in Stoke-on-Trent, England, employing 460 people, is the UK marketleader, as measured in terms of market share, in the supply and distribution ofveterinary products to veterinary practices and other approved outlets. NVS services both companion animal and livestock practices and agriculturalmerchants, with sales being approximately 60% in favour of companion animalrelated products. As with other divisions within Dechra, NVS benefits from thesolid growth in the veterinary market. continued... -7- At the beginning of the year the management team made a strategic decision toarrest the year-on-year increase in discount allowed to customers and toincrease the focus on the high levels of customer service, new services andstrong alliances with our customers. This strategy has proved to be successfulwith another very strong performance from NVS, demonstrated by a retention ofour market share at 44% and a revenue growth rate ahead of the market. Two ITinnovations have performed well throughout the year; Vpod, launched in March2006, now has in excess of 200 users and VetKiosk, an innovative marketing andmerchandising terminal designed for practice waiting-rooms, is also being wellreceived by the profession. NVS are marketing VetKiosk in partnership with theinnovators Onstream. As previously reported, the £700,000 investment made lastyear in automation and capacity within the central warehouse is now fullycommissioned and has improved productivity and overall operational efficiency. Laboratories NWL operates out of three locations, Poulton-le-Fylde (Lancashire), Leeds(Yorkshire) and Swanscombe (Kent) and employs 63 people. As first referralveterinary laboratories, they provide histology, pathology, haematology,chemistry and microbiology services to veterinary practices. NWL also offersother services such as Allervet(R), a pet and equine allergy testing programmeand Petscreen, a chemotherapy sensitivity test for small animal tumours. CSLS, located in Sawston (Cambridgeshire), England employs 7 people. It operatesas a first and second referral laboratory, with a key area of expertise beingendocrinology. The second referral work, i.e. providing services for NWL andsome of NWL's competitors, is mainly derived from a key area of specialisationin radio-immuno assays. The business also provides precise assays which supportthe dosage regimes and patient monitoring of our key products, Vetoryl Capsulesand Felimazole Tablets. The acquisition of LVL has strengthened our service offering and increased ourmarket share. Additionally, LVL has increased our skill set within theveterinary laboratory market, particularly in the agricultural animal sector. Weare progressing to plan in the integration of LVL, which has been re-branded toNWL. The Swanscombe satellite laboratory in the south of England, which openedat the beginning of the year, has continued to attract new accounts. Group Financial Performance The 2007 financial year saw encouraging progress from both of our Divisions witheach achieving healthy revenue growth and improvements in operating margin. Overall, Group revenue grew by 9.2% for the year whilst operating profit was upby 12.5%. The Group achieved a pre-tax profit of £12.6 million, an improvement of 14.3%compared to last year. The results are reviewed in more detail on a Divisional basis below: Pharmaceuticals Division 2007 2006 £'000 £'000RevenueOwn branded pharmaceuticals 16,599 13,565Instruments, consumables and equipment 3,817 3,878Third party contract manufacturing 6,232 5,809 --------- ----------Total revenue 26,648 23,252 --------- ----------Operating profit 6,081 4,868 --------- ----------Operating margin 22.8% 20.9% --------- ---------- continued... -8- The Vetivex range of products is now shown within own branded pharmaceuticalsrather than instruments, consumables and equipment and the comparative figureshave been adjusted accordingly. Revenue from own branded pharmaceuticals grew strongly at 22.4% compared to lastyear. The principal drivers of this growth continued to be our lead productsVetoryl Capsules and Felimazole Tablets. Vetoryl Capsules achieved globalrevenue of £4.5 million, a 56.8% increase over the £2.9 million achieved lastyear. Within this figure, European revenue was £1.5 million (2006: £0.2million), an encouraging performance in our first full year of marketing in thisterritory. Global revenue from Felimazole Tablets increased by 39.0% to £3.4 million (2006:£2.4 million) with most of this increase coming from the UK. With regard to our other key products, global revenue from Equipalazone, ourlong established equine product, fell slightly by 1.3% to £2.7 million. However,the Vetivex range of critical care fluids showed growth of 18.8% to £1.5million. On 14 May 2007, the Group acquired the marketing and distribution rights to thePharmaderm range of veterinary licensed products. At the time of acquisition,annualised revenue was US$7.7 million. As this acquisition happened towards theend of the financial year, there is only a relatively small contribution withinthe figures being reported on. The financial year ending 30 June 2008 will seethe full benefit. Revenue from instruments, consumables and equipment fell by 1.6% due tocontinued competitive pressure and from "grey market" imports. Revenue from third party contract manufacturing increased by 7.3% to £6.2million with the benefit of the new £1.0 million contract announced last yearstarting to be realised in the second half of the financial year. Product development expenditure charged to the income statement increased by19.4% to £1.6 million. A further £1.7 million of development expenditure wascapitalised. The total cash investment in product development during the yearwas therefore £3.3 million, more than double the £1.6 million invested lastyear. Operating profit for the Pharmaceuticals Division increased by 24.9% to £6.1million. This strong performance reflects a higher proportion of revenue fromown branded pharmaceuticals and further efficiency improvements at our Dalesmanufacturing facility. Services Division 2007 2006 £'000 £'000RevenueVeterinary wholesaling 229,840 211,759Laboratories 4,367 3,797 --------- ---------- 234,207 215,556Operating profit 9,519 8,681 --------- ----------Operating margin 4.1% 4.0% --------- ---------- Our veterinary wholesaling business, NVS, grew revenue by 8.5% ahead of lastyear. This compared to market growth as measured by GfK of 7.8%. Growth inoperating costs was contained at a lower level than the growth in revenue,allowing NVS to improve operating profit by 10.0%. continued... -9- There was much activity within our laboratories business during the year, withthe acquisition of Leeds Veterinary Laboratories and the opening of a newlaboratory in Swanscombe, Kent. This expanded geographical coverage wasreflected in revenue growth of 15.0%. Although growth in operating profit wasrestricted by the set-up costs for the Swanscombe laboratory, we did achieve animprovement compared to last year. Return on Capital Employed ("ROCE") A key focus of the Group has been to make efficient use of the capital that weemploy. We measure ROCE by dividing operating profit by average operating assetsutilised during the year. Operating assets exclude cash and cash equivalents,borrowings, tax and deferred tax balances. A further increase in ROCE was achieved this year with the figure rising from34.9% to 37.5%, reflecting the continued strong trading performance of theGroup. Net Finance Expense The net finance expense showed a small reduction from £1.27 million to £1.23million. A reduction in average debt levels during the year was offset byincreasing interest rates. The net finance expense was covered 11.3 times by operating profit (2006: 9.7times). Taxation The effective tax rate this year was 29.9% compared to 31.6% last year. The taxcharge has benefited from research and development tax credits and a reductionin the rate at which deferred tax is provided from 30% to 28%, the changes totax rates contained in the 2007 Budget having been substantively enacted at 30June 2007. During the year, additional tax credits totalling £455,000 relating toshare-based payments were recognised directly in equity. Earnings per Share and Dividend Earnings per share increased by 14.6% from 14.71p to 16.86p. The Board is proposing a final dividend of 5.00p per share which, when added tothe interim dividend of 2.50p per share already paid, gives a total dividend forthe year of 7.50p, a 20.2% increase over the 2006 figure of 6.24p. Even withthis substantial increase, the total dividend is covered 2.2 times by profitafter taxation (2006: 2.3 times). This is ahead of our medium term target coverof 2.0 times. There is therefore scope, subject to investment requirements, tocontinue to increase the dividend ahead of earnings. Cash Flow The Group achieved a cash conversion rate (defined as cash generated fromoperations as a percentage of operating profit) of 103.5% (2006: 114%). This wasahead of the target of 100%. Major cash outflows were on intangible assets (including development costs) of£4.5 million, acquisition of subsidiaries of £0.7 million, other capitalexpenditure of £0.8 million, income taxes of £2.9 million, dividends of £3.6million and debt repayments of £3.5 million. continued... -10- Financial Position at the end of the Year 2007 2006 £'000 £'000Non-current assets Intangible assets 13,089 7,527 Property, plant & equipment 5,739 5,595 Deferred tax assets - 445 --------- ---------- 18,828 13,567Working capital 13,264 11,774Current tax liability (2,464) (2,505)Deferred tax liabilities (147) -Net cash 1,027 1,079 --------- ----------Equity shareholders' funds 30,508 23,915 ========= ========== The financial position at the end of the year was strong, with equityshareholders' funds standing at £30.5 million. The major additions to intangible assets were the Pharmaderm products (£2.6million), development costs (£1.7 million) and the acquisition of LeedsVeterinary Laboratories Limited (£0.8 million including goodwill). Additions toproperty, plant and equipment were £1.1 million. Working capital increased by 12.7% over last year, slightly higher than thegrowth in revenue. The number of days revenue included in inventory increasedfrom 37 to 42. This was due to an initial stocking-up order following ouracquisition of the Pharmaderm products and the build up of the inventory of akey NVS supplier in anticipation of a price rise. Receivable days fell from 41days to 40 days. Net cash at the balance sheet date was virtually unchanged compared to lastyear's figure. As normal, due to the working capital cycle of the Group, therewill be a return to a net borrowings situation at the next reporting date of 31December 2007. -11- Consolidated Income Statement for the year ended 30 June 2007 Year ended 30 June Note 2007 2006 £'000 £'000 Revenue 2 253,803 232,471Cost of sales (216,952) (199,205) ------------ ------------Gross profit 36,851 33,266Distribution costs (10,850) (10,309)Administrative expenses (12,152) (10,645) ------------ ------------Operating profit 2 13,849 12,312Finance income 3 1,044 725Finance expense 4 (2,274) (1,993) ------------ ------------Profit before taxation 12,619 11,044Income tax expense 5 (3,772) (3,487) ------------ ------------Profit for the year attributable to equityholders of the 8,847 7,557parent ============ ============Earnings per share (pence)Basic 7 16.86p 14.71p ============ ============Diluted 7 16.62p 14.36p ============ ============Dividend per share (interim paid and finalproposed for 6 7.50p 6.24pthe year) ============ ============ -12- Consolidated Balance Sheet At 30 June 2007 As at 30 June Note 2007 2006 £'000 £'000ASSETS Non-current assetsIntangible assets 8 13,089 7,527Property, plant & equipment 9 5,739 5,595Deferred tax assets 10 - 445 ------------ ------------Total non-current assets 18,828 13,567 ============ ============Current assetsInventories 11 25,732 21,957Trade and other receivables 12 36,173 35,347Cash and cash equivalents 13 17,222 19,738 ------------ ------------Total current assets 79,127 77,042 ============ ============Total assets 97,955 90,609 ============ ============ LIABILITIES Current liabilitiesBorrowings 16 (4,529) (3,417)Trade and other payables 14 (48,641) (45,530)Current tax liabilities 15 (2,464) (2,505) ------------ ------------Total current liabilities (55,634) (51,452) ============ ============Non-current liabilitiesBorrowings 16 (11,666) (15,242)Deferred tax liabilities 10 (147) - ------------ ------------Total non-current liabilities (11,813) (15,242) ============ ============Total liabilities (67,447) (66,694) ============ ============Net assets 30,508 23,915 ============ ============ EQUITYIssued share capital 17 528 519Share premium account 28,041 27,693Hedging reserve (71) (71)Merger reserve 1,770 1,720Retained earnings 240 (5,946) ------------ ------------Total equity attributable to equity holders ofthe 30,508 23,915parent ============ ============ -13- Consolidated Statement of Changes in Shareholders' Equity for the year ended 30 June 2007 Issued Share Hedging Merger Retained Total Share Premium Reserve Reserve Earnings Capital Account £'000 £'000 £'000 £'000 £'000 £'000 Year ended 30 June 2006 At 1 July 2005 511 26,953 (71) 1,720 (11,582) 17,531 Profit for the periodbeing totalrecognised income and - - - - 7,557 7,557expense for the period Dividends paid - - - - (2,777) (2,777) Share-based paymentsincluding current anddeferred tax - - - - 856 856 Shares issued 8 740 - - - 748 ------- ------- ------- ------- ------- -------At 30 June 2006 519 27,693 (71) 1,720 (5,946) 23,915 ======= ======= ======= ======= ======= ======= Year ended 30 June 2007 At 1 July 2006 519 27,693 (71) 1,720 (5,946) 23,915 Profit for the periodbeing totalrecognised income and - - - - 8,847 8,847expense for the period Dividends paid - - - - (3,595) (3,595) Share-based paymentsincluding current anddeferred tax - - - - 934 934 Shares issued 9 348 - 50 - 407 ------- ------- ------- ------- ------- -------At 30 June 2007 528 28,041 (71) 1,770 240 30,508 ======= ======= ======= ======= ======= ======= -14- Consolidated Statement of Cash Flows for the year ended 30 June 2007 Year ended 30 June Note 2007 2006 £'000 £'000 Cash flows from operating activitiesProfit for the period 8,847 7,557Adjustments for:Depreciation 984 886Amortisation 137 136Gain on sale of property, plant and equipment (7) (23)Finance income (1,044) (725)Finance expense 2,274 1,993Equity-settled share-based payment expenses 479 427Income tax expense 3,772 3,487 ------------ ------------Operating cash flow before changes in working 15,442 13,738capital Increase in inventories (3,737) (1,567)Increase in trade and other receivables (248) (1,736)Increase in trade and other payables 2,871 3,562 ------------ ------------Cash generated from operations 14,328 13,997Interest paid (2,228) (1,890)Income taxes paid (2,895) (2,618) ------------ ------------Net cash from operating activities 9,205 9,489 Cash flows from investing activitiesProceeds from sale of property, plant and 23 23equipmentInterest received 1,059 672Acquisition of subsidiaries 20 (717) -Purchase of property, plant and equipment (823) (1,320)Capitalised development expenditure (1,680) (195)Purchase of other intangible non-current (2,845) -assets ------------ ------------Net cash from investing activities (4,983) (820) Cash flows from financing activitiesProceeds from the issue of share capital 357 780New borrowings - 705Repayment of borrowings (3,481) (1,582)Dividends paid (3,595) (2,777) ------------ ------------Net cash from financing activities (6,719) (2,874)Net (decrease)/increase in cash and cash equivalents (2,497) 5,795Cash and cash equivalents at start of period 19,719 13,924 ------------ ------------Cash and cash equivalents at end of period 17,222 19,719 ============ ============Shown as:Cash and cash equivalents 17,222 19,738Bank overdraft - (19) ------------ ------------ 17,222 19,719 ============ ============ Reconciliation of net cash to movement in netborrowings Net (decrease)/increase in cash and cash (2,497) 5,795equivalents Repayment of borrowings 3,481 1,582 New borrowings - (705)Borrowings assumed on acquisition of (55) -subsidiaries New finance leases (956) (649) Other non-cash changes (25) (85) ------------ ------------Movement in net cash in the period (52) 5,938 Net cash/(borrowings) at start of period 1,079 (4,859) ------------ ------------Net cash at end of period 19 1,027 1,079 ============ ============ -15- Notes to the Financial Statements For the year ended 30 June 2007 1. Status of AccountsThe financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union ("adoptedIFRS"). These financial statements have also been prepared in accordance withthe Companies Act 1985. The Board of Directors approved the preliminary announcement on 4 September2007. 2. Segmental AnalysisThe Group's primary reporting segment is business divisions which correspondwith the way the operating businesses are organised and managed within the Groupand its secondary segment is geographical origin. Segment results, assets and liabilities comprise those items directlyattributable to particular segments as well as items which can reasonably beallocated to those segments. Inter-segment transactions are entered intoapplying normal commercial terms that would be available to third parties. Unallocated items comprise mainly corporate assets, expenses, loans andborrowings together with the elimination of inter-segment transactions. The composition of the segments is detailed in the Business Review section ofthis announcement. BUSINESS Pharmaceuticals Services Unallocated TotalSEGMENT 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 RevenueExternalcustomers 19,736 17,001 234,067 215,470 - - 253,803 232,471 Inter-segment 6,912 6,251 140 86 (7,052) (6,337) - - ------- ------- ------- ------- ------ ------- ------ -------Total revenue 26,648 23,252 234,207 215,556 (7,052) (6,337) 253,803 232,471 ======= ======= ======= ======= ====== ======= ====== =======Operatingprofit 6,081 4,868 9,519 8,681 (1,751) (1,237) 13,849 12,312 ======= ======= ======= ======= ====== =======Finance 1,044 725income Finance (2,274) (1,993)expense ------ ------- Profit beforetaxation 12,619 11,044 Income taxexpense (3,772) (3,487) ------ ------- Profit forthe 8,847 7,557year ====== ======= AssetsIntangibleassets 9,382 5,104 3,707 2,423 - - 13,089 7,527 Property,plant andequipment 3,624 3,571 2,115 2,024 - - 5,739 5,595 Other assets 15,071 11,071 70,090 64,235 156 2,181 85,317 77,487 Cash offset - - - - (6,190) - (6,190) - ------- ------- ------- ------- ------ ------- ------ -------Total assets 28,077 19,746 75,912 68,682 (6,034) 2,181 97,955 90,609 ======= ======= ======= ======= ====== ======= ====== ======= LiabilitiesBorrowings (586) (508) (1,489) (1,056) (20,310) (17,095) (22,385) (18,659) Otherliabilities (5,452) (3,026) (42,571) (41,965) (3,229) (3,044) (51,252) (48,035) Cash offset - - - - 6,190 - 6,190 - ------- ------- ------- ------- ------ ------- ------ -------Totalliabilities (6,038) (3,534) (44,060) (43,021) (17,349) (20,139) (67,447) (66,694) ======= ======= ======= ======= ====== ======= ====== ======= Netassets/(liabil 22,039 16,212 31,852 25,661 (23,383) (17,958) 30,508 23,915ities) ======= ======= ======= ======= ====== ======= ====== ======= Other SegmentItems Capitalexpenditure - intangible assets 4,611 552 1,348 72 - - 5,959 624 - property, plant and equipment 549 469 595 1,066 - - 1,144 1,535 ------- ------- ------- ------- ------ ------- ------ -------Total capitalexpenditure 5,160 1,021 1,943 1,138 - - 7,103 2,159 ======= ======= ======= ======= ====== ======= ====== =======Share-basedpaymentscharge - - - - 596 515 596 515 ======= ======= ======= ======= ====== ======= ====== =======Depreciationandamortisation 569 566 552 456 - - 1,121 1,022 ======= ======= ======= ======= ====== ======= ====== ======= continued... -16- GEOGRAPHICAL SEGMENT In presenting information on the basis of geographical segments, IAS14 'SegmentReporting' requires segment revenues to be based on the geographical location ofcustomers. In this respect, £247,920,000 arises from customers in the UK (2006:£228,191,000) and £5,883,000 from customers in the rest of the world (2006:£4,280,000). The table below gives additional information in respect of segmentrevenue and segment operating profit based on the geographical location of thebusiness unit supplying the goods or services. Segment assets and capitalexpenditure are based on the geographical location of the assets andexpenditure. Activities in the UK comprise all operating segments. Overseasoperations comprise pharmaceuticals only. UK USA Unallocated Total 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Revenue bygeographicorigin 253,429 232,145 374 326 - - 253,803 232,471 ======= ======= ======= ======= ====== ======= ====== ======= Operatingprofit 15,798 13,809 (198) (260) (1,751) (1,237) 13,849 12,312 ======= ======= ======= ======= ====== ======= ====== ======= Total assets 102,533 88,190 1,456 238 (6,034) 2,181 97,955 90,609 ======= ======= ======= ======= ====== ======= ====== ======= Capitalexpenditure- intangible assets 5,959 624 - - - - 5,959 624 - property, plant and equipment 1,141 1,532 3 3 - - 1,144 1,535 ------- ------- ------- ------- ------ ------- ------ -------Totalcapital expenditure 7,100 2,156 3 3 - - 7,103 2,159 ======= ======= ======= ======= ====== ======= ====== ======= 3. Finance Income 2007 2006 £'000 £'000 Bank interest receivable 1,018 627Other interest receivable 26 52Fair value gains on derivative financial instruments - 46 --------- ---------Total finance income 1,044 725 ========= ========= 4. Finance Expense 2007 2006 £'000 £'000 Bank loans and overdrafts 2,042 1,913 Finance charges payable on finance leases and hirepurchase 186 64contracts Fair value losses on derivative financial instruments 46 16 --------- ---------Total finance expense 2,274 1,993 ========= ========= 5. Income Tax Expense 2007 2006 £'000 £'000 Current tax - charge for current year 3,361 3,491 - adjustment in respect of prior years (69) (58) --------- ---------Total currenttax expense 3,292 3,433 --------- ---------Deferred tax - origination and reversal of temporary 409 4 differences - adjustment in respect of prior years 71 50 --------- ---------Total deferredtax expense 480 54 --------- --------- --------- ---------Total incometax expense inthe incomestatement 3,772 3,487 ========= ========= All taxation is in the United Kingdom. continued... -17- The tax on the Group's profit before tax differs from the standard rate of UKcorporation tax of 30% (2006: 30%). The differences are explained below: 2007 2006 £'000 £'000 Profit before taxation 12,619 11,044 ========= ==========Tax at 30% 3,786 3,313Effect of:- depreciation on assets not eligible for tax allowances 47 27- disallowable expenses 41 33- overseas trading losses 58 78- (over)/under-recovery of deferred tax on share-based payments (46) 44- research and development tax credits (60) -- reduction in tax rate used to calculate deferred tax liability (56) -- adjustments in respect of prior years 2 (8) --------- ----------Total income tax expense 3,772 3,487 ========= ========== Additional current tax credits of £454,000 (2006: £367,000) and deferred taxcredits of £1,000 (2006: £62,000) have been recognised directly in equity. 6. Dividends 2007 2006 £'000 £'000 Final dividend paid in respect of prior year but notrecognised as a liability in 2,278 1,794 that year 4.33p per share (2006: 3.50p)Interim dividend paid 2.50p per share (2006: 1.91p) 1,317 983 --------- ----------Total dividend 6.83p per share (2006: 5.41p) recognisedas 3,595 2,777distributions toequity holders in the period ========= ==========Proposed final dividend for the year ended 30 June 2007:5.00p 2,640 2,248per share(2006: 4.33p) ========= ==========Total dividend paid and proposed for the year ended 30June 3,957 3,2312007: 7.50pper share (2006: 6.24p) ========= ========== In accordance with IAS10 'Events After the Balance Sheet Date', the proposedfinal dividend for the year ended 30 June 2007 has not been accrued for in thesefinancial statements. It will be shown as a deduction from equity in thefinancial statements for the year ending 30 June 2008. The proposed final dividend for the year ended 30 June 2006 is shown as adeduction from equity in the year ended 30 June 2007. continued... -18- 7. Earnings per Share Earnings per ordinary share have been calculated by dividing the profitattributable to equity holders of the parent after taxation for each financialperiod by the weighted average number of ordinary shares in issue during theperiod. 2007 2006 Pence Pence Basic earnings per share 16.86 14.71 ========= ==========Diluted earnings per share 16.62 14.36 ========= ==========The calculation of basic and diluted earnings pershare is based upon: £'000 £'000Earnings for basic and diluted earnings per sharecalculations 8,847 7,557 ========= ========== No. No.Weighted average number of ordinary shares for basicearnings per share 52,482,659 51,385,648 Impact of share options 737,011 1,227,342 --------- ----------Weighted average number of ordinary shares fordiluted earnings per share 53,219,670 52,612,990 ========= ========== 8. Intangible Assets Goodwill Software Development Patent Product Marketing Acquired Total £'000 £'000 Costs Rights Rights Authorisations Intangibles £'000 £'000 £'000 £'000 £'000 £'000 COSTAt 1 July 4,385 288 631 789 278 822 - 7,1932005 Additions - 429 195 - - - - 624 -------- ------- ---------- ------ ------- ---------- -------- ------At 30 June2006 and 1July 2006 4,385 717 826 789 278 822 - 7,817 Additions 467 591 1,680 257 2,556 31 377 5,959 Disposals - - - - (278) - - (278) -------- ------- ---------- ------ ------- ---------- -------- ------At 30 June 4,852 1,308 2,506 1,046 2,556 853 377 13,4982007 ======== ======= ========== ====== ======= ========== ======== ====== AMORTISATIONAt 1 July - 33 121 - - - - 1542005 Charge forthe year - 58 60 - 18 - - 136 -------- -------- ---------- ------- -------- ---------- -------- -------At 30 June2006 and 1July 2006 - 91 181 - 18 - - 290 Charge forthe year - 58 52 - 21 - 6 137 Disposals - - - - (18) - - (18) -------- -------- ---------- ------- -------- ---------- -------- -------At 30 June - 149 233 - 21 - 6 4092007 ======== ======== ========== ======= ======== ========== ======== =======NET BOOKVALUEAt 30 June 4,852 1,159 2,273 1,046 2,535 853 371 13,0892007 ======== ======== ========== ======== ======== ========== ======== ========At 30 June2006 and 1July 2006 4,385 626 645 789 260 822 - 7,527 ======== ======== ========== ======== ======== ========== ======== ========At 1 July 2005 4,385 255 510 789 278 822 - 7,039 ======== ======== ========== ======== ======== ========== ======== ======== Development costs are internally generated. All other additions to intangibleassets were acquired outside the Group and have been measured at cost of fairvalue at the time of acquisition. The amortisation charge is recognised within administrative expenses in theincome statement. continued... -19- 9. Property, Plant and Equipment Freehold Short Motor Plant and Total land leasehold vehicles fixtures £'000 £'000 buildings £'000 £'000 £'000COSTAt 1 July 2005 13 2,444 538 6,307 9,302Additions - 157 - 1,378 1,535Disposals - - (105) (185) (290) ------- -------- ------- -------- -------At 30 June 2006 and 1 July2006 13 2,601 433 7,500 10,547Additions - 27 - 1,079 1,106Acquisition through businesscombinations - - - 38 38Disposals - - - (33) (33) ------- -------- ------- -------- -------At 30 June 2007 13 2,628 433 8,584 11,658 ======= ======== ======= ======== =======DEPRECIATIONAt 1 July 2005 - 415 537 3,404 4,356Charge for the year - 135 1 750 886Disposals - - (105) (185) (290) -------- -------- -------- -------- --------At 30 June 2006 and 1 July2006 - 550 433 3,969 4,952Charge for the year - 147 - 837 984Disposals - - - (17) (17) -------- -------- -------- -------- --------At 30 June 2007 - 697 433 4,789 5,919 ======== ======== ======== ======== ========NET BOOK VALUEAt 30 June 2007 13 1,931 - 3,795 5,739 ======== ======== ======== ======== ========At 30 June 2006 and 1 July2006 13 2,051 - 3,531 5,595 ======== ======== ======== ======== ========At 1 July 2005 13 2,029 1 2,903 4,946 ======== ======== ======== ======== ======== 10. Deferred Taxes Recognised deferred tax assets and liabilities are attributable to thefollowing: Assets Liabilities Net 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 Intangible assets - - (740) (193) (740) (193)Property, plant and - - (325) (311) (325) (311)equipmentInventories - - - - - -Receivables 30 98 - - 30 98Cash and cash equivalents - - - - - -Borrowings - - - - - -Payables 32 38 - - 32 38Current tax liabilities - - - - - -Share-based payments 856 813 - - 856 813 ------- ------- ------- ------- ------- ------- 918 949 (1,065) (504) (147) 445 ======= ======= ======= ======= ======= ======= On the basis that all deferred income taxes relate to the UK and that there is alegally enforceable right to offset current tax liabilities against current taxassets, deferred income tax assets and liabilities have been offset. 11. Inventories 2007 2006 £'000 £'000Raw materials and consumables 2,250 1,443Work in progress 208 117Finished goods and goods for resale 23,274 20,397 ---------- ----------- 25,732 21,957 ========== =========== continued... -20- 12. Trade and Other Receivables 2007 2006 £'000 £'000Trade receivables 34,029 33,476Other receivables 1,368 1,073Prepayments and accrued income 776 798 ---------- ----------- 36,173 35,347 ========== =========== Trade receivables are stated after an impairment provision of £3,171,000 (2006:£2,035,000). 13. Cash and Cash Equivalents 2007 2006 £'000 £'000Cash at bank and in hand 1,468 4,552Short term deposits 15,754 15,186 ---------- ----------- 17,222 19,738 ========== =========== The short term deposits are repayable on demand 14. Trade and Other Payables 2007 2006 £'000 £'000Trade payables 44,019 41,988Other payables 605 491Other taxation and social security 1,978 1,373Accruals and deferred income 2,039 1,678 ---------- ----------- 48,641 45,530 ========== =========== 15. Current Tax Liabilities 2007 2006 £'000 £'000Corporation tax payable 2,464 2,505 ========== =========== 16. Borrowings 2007 2006 £'000 £'000Current liabilitiesBank loans and overdrafts 4,000 3,019Finance lease obligations 529 398 ---------- ----------- 4,529 3,417 Non-current liabilitiesBank loans 10,200 14,200Finance lease obligations 1,546 1,147Arrangement fees netted off (80) (105) ---------- ----------- 11,666 15,242 ---------- -----------Total borrowings 16,195 18,659 ========== =========== continued... -21- At the year end, the Group had the following unutilised borrowing facilities: 2007 2006 £'000 £'000Revolving credit facility 5,000 5,000Bank overdraft facility 4,000 4,000 ---------- ----------- 9,000 9,000 ========== =========== The overdraft facility is renewable annually whilst the revolving creditfacility is committed until 30 June 2010. 17. Share Capital Ordinary shares of 1p each 2007 2006 £'000 No. £'000 No.Authorised 750 75,000,000 750 75,000,000 ========== ============ ========== ==========Issued at start of year 519 51,915,002 511 51,120,964New shares issued 9 888,697 8 794,038 ---------- ------------ ---------- ----------At end of year 528 52,803,699 519 51,915,002 ========== ============ ========== ========== During the year, 873,889 new ordinary shares of 1p (2006: 794,038 new ordinaryshares of 1p) were issued following the exercise of options under the ExecutiveIncentive Plan and the Approved, Unapproved and SAYE Share Options Schemes. Theconsideration received was £357,000 (2006: £748,000). In addition, 14,808 new ordinary shares of 1p (2006: nil) were issued in partconsideration for the acquisition of Leeds Veterinary Laboratories Limited. Themarket value of these new ordinary shares of 1p at the date of issue was £50,000and this amount has been credited to merger reserve. 18. Share-based Payments 2007 2006 £'000 £'000Equity-settled share-based transactions 479 427Cash-settled share-based transactions 117 88 ---------- ----------- 596 515 ========== =========== The above charge to the Income Statement was included within administrativeexpenses. 19. Analysis of Net Cash 2007 2006 £'000 £'000Bank loans and overdraft (14,120) (17,114)Finance leases and hire purchase contracts (2,075) (1,545)Cash and cash equivalents 17,222 19,738 ---------- -----------Net cash 1,027 1,079 ========== =========== continued... -22- 20. Acquisition of Subsidiary On 26 April 2007 the Company acquired the entire share capital of LeedsVeterinary Laboratories Limited. The assets and liabilities acquired areallocated as follows: Book value Fair value Fair value £'000 Adjustments £'000 £'000 Intangible assets - 377 377 Property, plant and equipment 67 (29) 38 Inventories 38 - 38 Trade and other receivables 691 - 691 Cash and cash equivalents 13 - 13 Borrowings (55) - (55) Trade and other payables (140) - (140) Current tax (16) - (16) Deferred tax - (113) (113)-------------------------------------------------------------------------------- 598 235 833 Goodwill 467 Total consideration 1,300================================================================================Satisfied by:Cash 673 Issue of ordinary shares 50 Transfer of freehold property 520 Expenses of acquisition 57--------------------------------------------------------------------------------Total consideration 1,300 Less: Issue of ordinary shares (50) Transfer of freehold property (520) Cash acquired (13)--------------------------------------------------------------------------------Cash flow on acquisition 717================================================================================ Intangible assets recognised on acquisition represent customer relationships. Goodwill represents the expertise and technical knowledge of the company's staffand the long-term strategic benefit of expanding the geographic coverage of theGroup's Laboratories businesses. continued... -23- 21. Other Information The financial information set out above does not constitute the company'sstatutory accounts for the years ended 30 June 2007 or 2006 but is derived fromthe 2007 accounts. Statutory accounts for 2006 have been delivered to theregistrar of companies and those for 2007 will be delivered in due course. Theauditors have reported on those accounts; their reports were (i) unqualified,(ii) did not include references to any matters to which the auditors drewattention by way of emphasis without qualifying their reports and (iii) did notcontain statements under section 237(2) or (3) of the Companies Act 1985. 22. This Preliminary statement is not being posted to shareholders. The Report &Accounts for the year ended 30 June 2007 will be posted to shareholders shortly.Further copies will be available from the Company's Registered Office: DechraHouse, Jamage Industrial Estate, Talke Pits, Stoke on Trent, ST7 1XW. Email:[email protected]. Copies are also available on the Company websitewww.dechra.com. 23. Trade Marks Trade Marks appear throughout this document in italics. Dechra and the Dechra'D' logo are registered Trade Marks of Dechra Pharmaceuticals PLC. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
DPH.L