12th Jul 2006 07:01
Bespak PLC12 July 2006 Bespak plc Preliminary results for the 52 weeks ended 29 April 2006 An excellent year Bespak plc (LSE: BPK), a leader in devices for inhaled drug delivery andanaesthesia, today announces its preliminary results for the 52 weeks ended 29April 2006. HIGHLIGHTS • Revenue up 17% to £93.1m (2005: £79.4m). • Profit before tax and special items up 24% to £13.5m (2005: £10.9m). • Profit before tax increased to £13.7m (2005: £4.8m). • Cash generated from operations up 25% to £17.8m (2005: £14.2m). • Diluted earnings per share before special items up 15% to 35.4p (2005: 30.9p). • Diluted earnings per share increased to 37.3p (2005: 8.5p). • Final dividend maintained at 12.1p per share (2005: 12.1p), making full year dividend of 19.1p per share (2005: 19.1p). • Exubera(R) for diabetes launched and inhalation device in production. • Successful acquisition in December 2005 of King Systems, a specialist in single-use breathing circuits, face masks and laryngeal tubes for use in surgery and critical care settings, reduces dependence on pharmaceutical approvals. Mark Throdahl, Bespak's Chief Executive, commented: "Last year was excellent for Bespak. Performance in our core businesses ininhaled drug delivery exceeded expectations; Exubera(R), the first inhaled drugfor diabetes was approved, providing a significant market opportunity; and KingSystems was acquired and successfully integrated. We look forward withconfidence." For further information, please contact:Bespak plc Tel: +44 (0) 1908 525241Mark Throdahl - Chief ExecutiveMartin Hopcroft - Group Finance Director Maitland Tel: +44 (0) 207 3795151Brian HudspithElizabeth Morley About Bespak plcBespak, a leader in devices for inhaled drug delivery and anaesthesia, developsdelivery systems for the pharmaceutical industry and disposable airwaymanagement products for critical care settings. Bespak's product range includesmetered dose and dry powder inhalers, actuators, inflation valves, breathingcircuits, disposable face masks and laryngeal tubes. The group, which hasfacilities in King's Lynn and Milton Keynes in the UK and Indianapolis, Indianaand Kent, Ohio, in the US, is quoted on the Official List of the London StockExchange (LSE: BPK). For more information, please visit www.bespak.com. OVERVIEW Bespak's financial year ending 29 April 2006 was excellent. All our corebusinesses performed ahead of plan. Exubera(R), the first inhaled drug fordiabetes, was approved, opening up significant annual sales potential. TheCompany acquired King Systems in December and delivered the first step of itsstrategy to reduce its dependency on pharmaceutical approvals. Revenue, operating profit and diluted earnings per share all increased at doubledigit rates. Revenue increased by 17% to £93.1 million (2005: £79.4 million),operating profit before special items increased by 34% to £14.2 million (2005:£10.6 million), and diluted earnings per share before special items increased by15% to 35.4p (2005: 30.9p). This strong financial performance was driven bygrowth in metered dose inhalation (MDI) valves, the commencement ofmanufacturing of the Exubera(R) inhaler, and the impact of the King Systemsacquisition which from December 2005 contributed £11.1 million of sales. The Board has proposed a final dividend of 12.1p per share (2005: 12.1p), makinga full year dividend of 19.1p per share (2005: 19.1p). This is supported by theGroup's strong operating cash flow during the year, which increased 25% to £17.8million (2005: £14.2 million). Net debt as at 29 April was £27.8 million (2005:£17.4 million net cash), reflecting the impact of new borrowings to finance theKing acquisition and payment of a one-off contribution of £9.0 million to thepension scheme. In June, Bespak received an unprecedented three awards from the British PlasticsFederation, which recognised our position as a world-class manufacturer ofdisposable medical devices. The Company won "Best Health & Safety Programme,""Best Environmental or Energy Efficiency Programme" and the coveted "Processorof the Year" awards. The citation described Bespak as "an extremely well-runmultinational operation that has built an enviable business reputation throughstrong product niches that have enabled it to continue to strongly grow itsbusiness". OPERATIONAL REVIEW Last year, we articulated a strategy to build a consistent revenue and earningstrack record. We aim to achieve this goal through organic growth, selectiveacquisitions and three competencies - Six Sigma manufacturing, proprietarydevelopment processes, and high-performance culture - which we will apply to ourown existing businesses and bring to future acquisitions. We said that we wouldbroaden the Group's customer base beyond pharmaceutical companies and reduce ourdependency on lengthy development programmes which make growth difficult toforecast. We said that the anticipated approval of Exubera(R) for diabetes wouldhave a significant impact on the Group. These things have happened. Our Inhaled Drug Delivery business delivereddouble-digit sales growth in MDI valves and benefited from first production of the Exubera(R) inhaler. We delivered the first step of our diversification strategy by acquiring King Systems, which has been successfully integrated. Our Six Sigma programme delivered substantial savings and is creating a high performance culture at Bespak. Having acquired King Systems, we now have three business segments: Inhaled DrugDelivery, Anaesthesia & Respiratory Care, and Consumer Dispensers. Inhaled Drug Delivery Bespak's Inhaled Drug Delivery segment consists of Respiratory and Device &Manufacturing Services, which are product groups with common customers, similarfinancial returns and shared facilities in King's Lynn and Milton Keynes. Salesincreased by 3% to £76.5 million (2005: £74.0 million) as a result of increasedvolumes of HFA valves to European customers and the commencement ofmanufacturing of the Exubera(R) inhaler, partially offset by the loss of revenuefrom the closure of our North Carolina facility in September 2005. Respiratorysales increased by 7% to £43.2 million (2005: £40.2 million) whilst Device &Manufacturing Services sales decreased by 1% to £33.3 million (2005: £33.8million). Operating profit before special items increased by 13% to £13.1million (2005: £11.6 million), reflecting improved margins. Respiratory Bespak develops, manufactures and sells proprietary inhalation devices,including MDI valves, actuators and accessories to deliver pharmaceuticals tothe lungs and nose. These products, which are based on Bespak's extensiveintellectual property portfolio, play a critical role in the delivery system fordrugs treating asthma and chronic obstructive pulmonary disease (COPD). MDIvalves typically are customised and sole-sourced for each drug. Switching costsare extremely high, and we sell the products as long as the drug is marketed. Two drivers in the MDI market are the transition from chlorofluorocarbon (CFC)propellant to hydrofluoroalkane (HFA) and the shift of volume from proprietaryto generic drugs. The Montreal Protocol ozone depletion agreement requires that CFC propellant isreplaced with HFA. This requires re-formulating the drug, new clinical trials,and submission of a new drug filing. Europe has largely converted to HFAformulations. Historically, Bespak has benefited from this conversion. Over thepast four years we have become the MDI market leader by value, with the largestarray of CFC and HFA valves, formulations and customers. We believe that we havewon more than two-thirds of the HFA formulations approved around the world,including three HFA formulations in the USA. Last year, Bespak's HFA unit salesgrew by 40% while CFC valve volumes fell by 29%. Overall MDI valve volumes grewby 4%. In addition to HFA volume growth, generic customers have grown from 39% ofBespak's volume in 2003 to 60% today. Generic customers value responsiveness andflexible manufacturing. Bespak's strong performance during the HFA transitionhas in part been due to our strategy of providing outstanding technical supportduring development. In March 2005, the FDA announced that the US albuterol market must convert toHFA by the end of 2008, which has inaugurated a period of significant change.Bespak enjoys a high share of the CFC albuterol market in the US, and none ofthe four approved HFA albuterol pharmaceutical suppliers currently has anymeaningful market share. Bespak's customer base in CFC albuterol formulationsdiffers from that in HFA equivalents, and its share of the market is expected tobe rebased through this transition. In due course, this transition will lead tothe cessation of manufacturing of CFC valves and allow Bespak to simplify itsoperations and achieve manufacturing economies. Bespak's MDI valves are protected by numerous patents, including the rubberseals which are in constant contact with the drug. In order to support Bespak'sproprietary HFA valve elastomer formulations, we have completed the constructionphase of our investment in a captive elastomer development and manufacturingfacility in King's Lynn. Manufacturing processes are now undergoing validationand customer approval. This new plant will protect both the supply chain forthese critical components and the intellectual property associated with them. Bespak is developing a portfolio of dose counters, which enable patients tomonitor the number of doses remaining in their inhaler. We have developed ourown proprietary dose counter for the US market, which has been pre-productionsampled and is on test at a number of customers. In March, we signed aco-marketing and manufacturing agreement with Bang & Olufsen Medicom, who havedeveloped a dose counter that requires reduced actuation force. Device & Manufacturing Services Bespak provides a comprehensive range of device-related services topharmaceutical and drug delivery companies and operates the largest clean roomin the UK. The business enjoyed double-digit sales growth from both our largestcontract manufactured product as well as Innovata's ClickhalerTM device, underlicense to Otsuka Pharmaceutical Co. and Merck Generics. In August 2005, wecommenced production of a dry powder inhaler for Chiesi Farmaceutici. In January, Pfizer announced the approval of Exubera(R) in Europe and the USA,and which is now being launched. Production demand is ahead of our originalexpectations and the primary risk and opportunity we face in this business isthe pace of Exubera(R)'s production scale-up. Bespak's strategy is to broaden the portfolio of device development programmes,targeting high value opportunities that play to the Company's strengths in GMPprogramme management, precision plastic moulding and high volume automatedassembly. Over the past several years, we have developed a reputation for responsivenessand, as a result, our portfolio has more than doubled over the past three yearsto more than 12 active programmes. Last year, we won two new programmes,including a specialty device for a leading global pharmaceutical company andCaretek's ImplaJect device. Anaesthesia & Respiratory Care King Systems develops, manufactures and sells single-use breathing circuits,face masks and laryngeal tubes for use in surgery and critical care settings.These products are manufactured in facilities in Indianapolis, Indiana and Kent,Ohio. Unlike Bespak's other products, these products are sold to anaesthetistsby our own 35-person sales force, which calls on hospitals and pulls theproducts through medical/surgical distributors. Sales for the four months ending29 April were £11.1 million. Operating profit before special items was £2.0million, representing the maiden contribution from the acquisition of KingSystems, after group allocations. The King Systems acquisition represents an expansion into a business adjacent toBespak's Inhaled Drug Delivery segment, with complementary products,manufacturing and profitability. It strengthens Bespak's footprint in the largeUS market. The consideration for King Systems is $95 million, which consisted ofan initial payment of $75 million, $10 million paid on exceeding $9.3 million ofadjusted EBITDA (earnings before interest, taxes, depreciation and amortisation)for the year ended 31 December 2005 and another $10 million payable on attaining$11.0 million adjusted EBITDA for the year ended 31 December 2006. King Systems estimates that its sales on a hospital level are up 10% from the prior year. Growth has been driven by three new products: • The Universal F2 breathing circuit is a patented, dual limb circuit which is compact when stored but can be expanded during use. It can be shaped to avoid the surgical field and retains that shape during surgical procedures. • King's laryngeal tubes are available in both reusable and disposable designs. They offer superior positive pressure ventilation relative to laryngeal masks, are superior to endotracheal tubes in terms of ease of use and lower drug delivery costs. • King recently launched the Airtraq(R) device, which is the first disposable optical laryngoscope. Airtraq(R) is used for difficult endotracheal tube intubations and, together with the laryngeal tubes, broadens King Systems' airway management offering. King's five senior managers have all been retained since the acquisition.Immediately after the acquisition, the Vice President of Sales & Marketing wasnamed President following the retirement of King's founder and CEO. A new VicePresident of Finance has been recruited who reports jointly to the President andBespak's Group Finance Director. The key risk facing King is maintaining certain Group Purchasing Organisationcontracts as well as absorbing the impact of raw material cost increases similarto those seen in Bespak's other businesses. Consumer Dispensers Bespak manufactures pumps for consumer household products, toiletries andfragrances. Sales increased 3% to £5.5 million (2005: £5.4 million) andoperating losses decreased to £1.0 million (2005: £1.1 million). Its marketremains competitive, although the recent launch of a new product is gainingconsiderable traction with several large European customers. The BK580 fine mistspray pump was launched in March. It has a number of advantages, including 10%smaller mean particle size and a greatly reduced output of large sprayparticles. It handles viscous formulations unusually well and produces a highlysymmetrical size distribution with smooth rounded patterns. Growth Strategy & Acquisitions Over the past year, we have confirmed our strategy to grow organically andthrough selective acquisitions. Furthermore, we have deepened competencies inSix Sigma and GMP product development, whilst promoting a high-performanceculture. We believe this strategy is working. Following the successful Kingacquisition, it is our intention to look for further acquisitions in theanaesthesiology and respiratory products industry, while also consideringacquisitions that complement our inhaled drug delivery businesses. FINANCIAL REVIEW Trading Revenue increased by 17% to £93.1 million (2005: £79.4 million), of which themajority of the growth was generated by the acquisition of King SystemsCorporation in December 2005. Geographically, sales outside the UK now account for 74% (2005: 70%) of revenuedespite the fact that 81% (2005: 78%) of sales originate in the UK. Expenditure on research and development, which increased by 19% to £3.8 million(2005: £3.2 million), was expensed as incurred rather than capitalised, since itis not possible to demonstrate with sufficient certainty that projects will becommercially viable prior to customer and regulatory approval. Excluding theacquisition, underlying expenditure on research and development increased by14%. Operating profit before special items increased by 34% to £14.2 million (2005: £10.6 million) reflecting growth in operating margins to 15% (2005: 13%),together with an initial contribution from the acquisition of King SystemsCorporation. Excluding the acquisition, underlying operating profit beforespecial items increased by 15% on sales that increased by 3%. Certain special items have been separately reported in order to present a morebalanced perspective of the underlying trading performance. Firstly, as a resultof the ability to sell the building and certain plant and equipment at priceshigher than anticipated together with reduced closure costs, exceptionaloperating income of £0.9 million was booked in our US manufacturing operation inNorth Carolina. Secondly, there is an amortisation charge of £0.7 million on theintangible assets acquired with King Systems Corporation. After special items, operating profit increased to £14.4 million (2005: £4.5million). The acquisition of King Systems Corporation was financed largely by debt, suchthat there is a net finance cost of £0.7 million (2005: £0.3 million net financeincome) from a partial year of financing the acquisition. The financing expensehas been largely fixed in the medium term with an interest rate swap. Profit before tax and special items increased by 24% to £13.5 million (2005: £10.9 million). After special items, profit before tax increased to £13.7million (2005: £4.8 million). Tax The underlying tax charge on profit before tax and special items of 27% (2005: 23%) has benefited from the financial structuring of the acquisition as well asutilisation of losses from the closure of the US manufacturing facility. After the non-cash tax credit of £0.3 million (2005: £nil) on the amortisationof acquired intangible assets, the overall tax charge of 25% (2005: 52%)reflects the nil tax charge on the exceptional credit. The tax charge last yearreflected the nil tax credit on the exceptional operating expenses. Earnings per share Diluted earnings per share before special items increased by 15% to 35.4p (2005: 30.9p) reflecting a modestly increased tax charge in view of the change ingeographic mix of activities. After special items, diluted earnings per shareincreased to 37.3p (2005: 8.5p). Dividends The Board is recommending a maintained final dividend per share of 12.1p (2005: 12.1p), such that the total dividend for the year amounts to 19.1p (2005: 19.1p). The final dividend will be paid on 26 October 2006 to shareholders onthe register on 6 October 2006. Dividend cover, based on earnings before specialitems, increased to 1.9 times (2005: 1.6 times). Goodwill and intangible assets Upon acquisition of King Systems Corporation, intangible assets are required tobe capitalised and amortised over their useful lives. Goodwill, being thedifference between purchase consideration and net assets (including intangibleassets), is required to be capitalised and not amortised. At the year end, thecarrying value of goodwill (£39.3 million) and intangible assets (£14.9 million)were reviewed and no impairment was required. Cash Flow Trading finished strongly last year, and inventories have increased to scale-upfor manufacture of the Exubera(R) inhaler and to plan for the phase out of CFCalbuterol formulations in the US. Nevertheless, cash generated from operationsincreased by 25% to £17.8 million (2005: £14.2 million), which was after a cashoutflow of £1.7 million for the exceptional costs on closure of the USmanufacturing facility. There was a cash outflow of £45.8 million for the acquisition of King SystemsCorporation, together with a cash outflow of £9.5 million reflecting clearanceof the acquisition with the Pensions Regulator to fund the deficit in thedefined benefit pension scheme. These were financed by existing cash resourcesand £20.1 million of new loans. There are further payments of up to £6.2 millionpayable to the vendors of King Systems Corporation, mainly dependent on itsfinancial performance in calendar 2006. In the past few years, capital expenditure has been well below the level ofcapital replacement in view of significant investments in earlier years. Goingforward, capital expenditure is expected to reflect the level appropriate forcapital replacement. However, there are increasing numbers of customer projects,both current and prospective, in Inhaled Drug Delivery that may warrant astepped increase in capacity in the medium term. Treasury At the year end, the Group had net debt of £27.8 million (2005: £17.4 millionnet cash) and undrawn committed facilities of £25.5 million (2005: £12.8million). Transactions in foreign currencies are matched wherever possible and the netposition is hedged using forward contracts. A significant proportion ofoperating and intangible assets are denominated in US dollars, which are largelymatched by US dollar borrowings, thereby hedging the balance sheet exposure.Translation effects of exchange rate movements on the income statement are nothedged. The treasury function does not act as a profit centre and speculativetreasury transactions are not undertaken. Debt financing for the acquisition has improved the capital efficiency and willrequire continued discipline in financial management. Last year, the average rate of exchange between sterling and the US dollar was1.78 (2005: 1.85), whilst the year end rate of exchange was 1.82 (2005: 1.91). Pensions Bespak operates a defined benefit pension scheme in the UK that is closed to newemployees, who are eligible to join a defined contribution pension scheme.During the year, the company negotiated with the trustees and obtained clearanceof the acquisition with the Pensions Regulator to fund the deficit of £15.6million under FRS 17 as at 30 April 2005 by an initial payment of £9.0 millionin December 2005 and with the balance of the deficit settled by equal monthlyinstallments over 5 years. As at 29 April 2006, the deficit was £12.0 million under IAS 19 and the companyis in dialogue with the trustees to agree a schedule of contributions in respectof the revised deficit. International Financial Reporting Standards These results for the 52 weeks ended 29 April 2006 are prepared underInternational Accounting Standards and International Financial ReportingStandards (IFRS) as adopted by the European Union. The adoption of IFRSrepresents an accounting change and does not affect the underlying operations orcash flows, although implementation of the new standards may result in increasedvolatility in reported results. OUTLOOK Last year, the business benefited from several positive developments: theclosure of the US manufacturing facility followed by the acquisition of KingSystems Corporation and commencement of manufacturing for the Exubera(R)inhaler. Looking ahead, a number of key issues will influence Bespak's performance: • Manufacturing will continue to be scaled-up for the Exubera(R) inhaler to support its global launch, with production activity expected to be ahead of our original expectations, although it will be some months before end-user demand is ascertained. • There will be a full year trading benefit from the King acquisition compared to four months last year, and we anticipate growth with the added benefit of new products. • The conversion from CFC to HFA in albuterol formulations in the US is accelerating, generating higher than expected levels of activity in the short term, but is expected to create uncertainty from the start of the next calendar year. Bespak enjoys a high share of the CFC albuterol market in the US, and its customer base in CFC albuterol formulations differs from that in HFA equivalents, and its share of the market is expected to be rebased through this transition. The Board remains confident of meeting its expectations for the currentfinancial year. 12 July 2006 Consolidated Income StatementFor the 52 weeks ended 29 April 2006 2006 2006 2006 2005 2005 2005 Before Special Total Before Special Total special items special items items items (Note 3) (Note 3) Note £000 £000 £000 £000 £000 £000 Revenue 2 93,084 - 93,084 79,386 - 79,386 Operatingexpenses (78,902) 242 (78,660) (68,831) (6,066) (74,897) -------- -------- -------- -------- -------- -------- Operatingprofit 2 14,182 242 14,424 10,555 (6,066) 4,489 Finance 825 - 825 894 - 894incomeFinanceexpenses (1,030) - (1,030) (157) - (157)Otherfinance (501) - (501) (393) - (393)costsShare of posttax profits/ (losses) of 10 - 10 (17) - (17)associate -------- -------- -------- -------- -------- -------- Profitbefore 13,486 242 13,728 10,882 (6,066) 4,816tax Taxation 4 (3,696) 290 (3,406) (2,498) - (2,498) -------- -------- -------- -------- -------- -------- Profit forthefinancial 9,790 532 10,322 8,384 (6,066) 2,318period ======== ======== ======== ======== ======== ======== Basicearnings 5 35.9p 2.0p 37.9p 31.3p (22.6p) 8.7pper shareDilutedearningsper 5 35.4p 1.9p 37.3p 30.9p (22.4p) 8.5pshare Dividendsper 6 19.1p 19.1pshare All amounts relate to continuing operations. Consolidated Balance SheetAt 29 April 2006 2006 2005 Note £000 £000 Non-current assets Property, plant and equipment 52,537 51,159 Goodwill 7 39,259 - Other intangible assets 8 14,906 130 Investment in associates 269 269 Available-for-sale financial assets - 77 -------- -------- 106,971 51,635 -------- -------- Current assets Inventories 9,571 6,082 Trade and other receivables 9 19,289 14,704 Current taxation receivable 282 - Cash and cash equivalents 10 9,782 20,302 -------- -------- 38,924 41,088 -------- -------- Current liabilities Borrowings 10 (23,106) (2,887) Trade and other payables (15,080) (11,621) Current taxation payable (3,850) (1,618) Provisions and other liabilities (6,147) (2,054) -------- -------- (48,183) (18,180) -------- -------- Net current (liabilities)/assets (9,259) 22,908 Non-current liabilities Borrowings 10 (14,449) - Deferred taxation (5,197) (443) Defined benefit pension scheme deficit 11 (12,002) (15,703) Other non-current liabilities - (399) -------- -------- (31,648) (16,545) -------- -------- -------- -------- Net assets 2 66,064 57,998 ======== ======== Shareholders' equity Share capital 2,802 2,681 Share premium 28,837 23,051 Retained earnings 34,693 32,509 Other reserves (268) (243) -------- -------- Total equity 12 66,064 57,998 ======== ======== The preliminary financial statements were approved by the Board on 11 July 2006 Consolidated Cash Flow StatementFor the 52 weeks ended 29 April 2006 2006 2005 Note £000 £000 Cash flows from operating activitiesOperating profit before taxation 14,424 4,489 Depreciation 7,072 7,450Amortisation 750 187(Profit)/loss on disposal of property, plant andequipment (272) 97Share based payments 410 364Impairment (credit)/charge (438) 3,784Increase in inventories (1,506) (171)Increase in trade and other receivables (789) (4,169)Increase in trade and other payables 21 322(Decrease)/increase in provisions (2,140) 1,887Decrease in financial instruments (149) (124)Increase in defined benefit pension scheme provisions 415 -Provision against fixed asset investment - 102 -------- -------- Cash generated from operations 17,798 14,218Interest paid (854) (157) Tax paid (3,554) (2,608) -------- -------- Net cash inflow from operating activities 13,390 11,453 -------- -------- Cash flows from investing activitiesPurchases of property, plant and equipment (4,334) (2,590)Purchases of intangible assets (182) -Proceeds from sale of property, plant and equipment 3,402 4Disposal of fixed asset investments 83 66Interest received 815 900Dividend received from associate 10 -Acquisition of subsidiary (net of cash acquired) 13 (45,772) - -------- --------Net cash used in investing activities (45,978) (1,620) -------- -------- Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 403 12Equity dividends paid to shareholders 6 (5,201) (5,111)New bank loans raised 20,121 -Repayment of amounts borrowed (1,008) -Payments to fund defined benefit pension schemedeficit 11 (9,540) - -------- --------Net cash generated/(used) in financing activities 4,775 (5,099) -------- -------- Net (decrease)/increase in cash and short-termborrowings (27,813) 4,734 Effects of exchange rate changes 932 361Cash and short-term borrowings at start of period 17,415 12,320 -------- --------Cash and short-term borrowings at end of period 10 (9,466) 17,415 ======== ======== Consolidated Statement of Recognised Income and ExpenseFor the 52 weeks ended 29 April 2006 2006 2005 £000 £000 Fair value movements on cash flow hedges 152 - Deferred tax on fair value movements on cash flow hedges (46) - Exchange movements on translation of foreign subsidiaries (331) (142) Deferred tax on exchange movements 99 - Deferred tax on share based payments 193 21 Actuarial losses on defined benefit pension scheme (5,040) (2,547) Current tax on actuarial losses 543 - Deferred tax on actuarial losses 970 765 -------- -------- Net loss recognised directly in equity (3,460) (1,903) Profit for the financial period 10,322 2,318 -------- -------- Total recognised income for the period 6,862 415 ======== ======== Notes to the accounts 1. Basis of preparation The preliminary announcement for the 52 weeks ended 29 April 2006 has beenprepared in accordance with International Accounting Standards and InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union (EU) at 29April 2006. On 13 January 2006, the Group reported on the impact of IFRS on itsresults for the 52 weeks ended 30 April 2005 including the most significantaccounting policies. Details are provided in the document "Adoption ofInternational Financial Reporting Standards (IFRS)" that is available on theGroup's website (www.bespak.com) or from the Company Secretary. The financial information in this preliminary announcement does not constitutethe Company's statutory accounts for the 52 weeks ended 29 April 2006 or the 52weeks ended 30 April 2005, but is derived from those accounts. Statutoryaccounts for 2005, which were prepared under accounting practices generallyaccepted in the UK, have been delivered to the Registrar of Companies and thosefor 2006 will be delivered after the Company's Annual General Meeting. Theauditors have reported on those accounts; their reports were unqualified and didnot contain statements under s237(2) or s237(3) Companies Act 1985. 2. Segmental information Revenue by business segment 2006 2005 £000 £000 Inhaled Drug Delivery 76,502 74,009Consumer Dispensers 5,524 5,377Anaesthesia & Respiratory Care 11,118 - -------- --------Sales 93,144 79,386Intra-segmental sales (60) - ======== ========Revenue 93,084 79,386 ======== ======== Revenue by origin 2006 2005 £000 £000 United Kingdom 78,092 67,882United States of America 17,802 18,923 -------- --------Sales 95,894 86,805Intra-segmental sales (2,810) (7,419) -------- --------Revenue 93,084 79,386 ======== ======== Revenue by destination 2006 2005 £000 £000 United Kingdom 23,796 23,613United States of America 41,982 27,808Europe 19,852 20,276Rest of the World 7,454 7,689 -------- --------Revenue 93,084 79,386 ======== ======== Operating profit by business segment 2006 2006 2006 Before Special Total Special items Items (Note 3) £000 £000 £000 Inhaled Drug Delivery 13,125 901 14,026Consumer Dispensers (962) - (962)Anaesthesia & Respiratory Care 2,019 (659) 1,360 -------- -------- --------Operating profit 14,182 242 14,424 ======== ======== ======== 2. Segmental information (continued) Operating profit by business segment 2005 2005 2005 Before Special Total Special items Items (Note 3) £000 £000 £000 Inhaled Drug Delivery 11,644 (6,066) 5,578Consumer Dispensers (1,089) - (1,089)Anaesthesia & Respiratory Care - - - -------- -------- --------Operating profit 10,555 (6,066) 4,489 ======== ======== ======== Net assets by business segment 2006 2005 £000 £000 Inhaled Drug Delivery 52,903 53,586Consumer Dispensers 4,240 4,415Anaesthesia & Respiratory Care 63,231 -Unallocated net liabilities (54,310) (3) -------- --------Net assets 66,064 57,998 ======== ======== Exchange rates 2006 2005 Average rate of exchange US$: £1 1.78 1.85Closing rate of exchange US$ : £1 1.82 1.91 3. Special items 2006 2005 £000 £000 Exceptional operating income/(expenses) 901 (6,066)Amortisation of acquired intangible assets (659) - -------- --------Special items before tax 242 (6,066)Taxation on amortisation of acquired intangible assets 290 - -------- --------Special items after tax 532 (6,066) ======== ======== The exceptional operating income in the 52 weeks ended 29 April 2006 comprisedthe reversal of closure provisions and impairment provisions against thecarrying value of the Group's fixed assets in the United States followingclosure of the manufacturing facility in North Carolina. Amortisation representsthe charge for other intangible assets acquired with King Systems. The taxcredit represents that related to the amortisation charge. The exceptionaloperating expenses in the 52 weeks ended 30 April 2005 comprised an impairmentcharge for the land, buildings, plant and equipment, together with a provisionfor closure costs, on which there was no tax impact. 4. Taxation 2006 2005 £000 £000 Current income tax 3,905 2,923Deferred income tax (499) (425) -------- -------- 3,406 2,498 ======== ======== 5. Earnings per share 2006 2005 £000 £000 Net profit after tax before special itemsattributable to ordinary shareholders 9,790 8,384Special items after taxation 532 (6,066) -------- --------Net profit after tax attributable to ordinaryshareholders 10,322 2,318 -------- -------- Weighted average number of shares in issue (shares) 27,242,663 26,805,889Weighted average number of shares owned by ESOT(shares) (8,071) (34,114) -------- --------Average number of ordinary shares in issue for basicearnings (shares) 27,234,592 26,771,775Dilutive impact of share options outstanding(shares) 422,960 353,691 -------- --------Diluted average number of ordinary shares in issue(shares) 27,657,552 27,125,466 -------- -------- Basic earnings per share before special items(pence) 35.9p 31.3pBasic profit/(loss) per share on special items(pence) 2.0p (22.6p) -------- --------Basic earnings per share (pence) 37.9p 8.7p ======== ======== Diluted earnings per share before special items(pence) 35.4p 30.9pDiluted profit/(loss) per share on special items(pence) 1.9p (22.4p) -------- --------Diluted earnings per share (pence) 37.3p 8.5p ======== ======== 6. Dividends 2006 2005 £000 £000 Final dividend paid for 2005 of 12.1p per share (2005: 12.1pper share) 3,241 3,237Interim dividend paid for 2006 of 7.0p per share (2005: 7.0pper share) 1,960 1,874 -------- -------- 5,201 5,111 ======== ======== A final dividend of 12.1p per share for the 52 weeks ended 29 April 2006 is tobe proposed for approval at the Annual General Meeting and which will utilise anestimated £3.4m of shareholders' equity. It will be paid on 26 October 2006 toshareholders on the register on 6 October 2006. 7. Goodwill £000 At 1 May 2005 -Additions through acquisition (note 13) 40,966Effects of exchange rate changes (1,707) --------At 29 April 2006 39,259 -------- 8. Other intangible assets £000 At 1 May 2005 130Additions 182Additions through acquisition (note 13) 16,000Transfer from property, plant and equipment 18Amortisation (750)Effects of exchange rate changes (674) --------At 29 April 2006 14,906 -------- 9. Trade and other receivables 2006 2005 £000 £000 Trade and other receivables falling due within one year 19,064 13,838Trade and other receivables falling due after more than oneyear 225 866 -------- -------- 19,289 14,704 ======== ======== 10. Reconciliation of net cash flow to movement in net debt Cash and Current Non-current Net cash borrowings borrowings cash/(debt) equivalents £000 £000 £000 £000 At 1 May 2005 20,302 (2,887) - 17,415Cash flow for the period (10,504) (17,309) - (27,813)New long-term bank debt (4,024) (16,097) (20,121)raisedDebt repayments includedin - - 1,008 1,008cash flow for the periodFinance lease acquired - (7) (9) (16)Effect of exchange ratechanges (16) 1,121 649 1,754 -------- -------- -------- --------At 29 April 2006 9,782 (23,106) (14,449) (27,773) ======== ======== ======== ======== Net debt at 29 April 2006 comprises:Cash and short-term borrowings 9,782 (19,248) - (9,466)Bank term loan - (3,851) (14,442) (18,293)Finance lease obligations - (7) (7) (14) -------- -------- -------- --------At 29 April 2006 9,782 (23,106) (14,449) (27,773) ======== ======== ======== ======== Cash flow includes an outflow of £1,687,000 in the 52 weeks ended 29 April 2006and an outflow of £235,000 in the 52 weeks ended 30 April 2005 relating toexceptional operating income/expenses. 11. Defined benefit pension scheme deficit 2006 2005 £000 £000 Pension deficit at start of period 15,703 12,773Current service costs 1,537 1,281Expected return on plan assets (1,657) (1,505)Interest cost 2,041 1,898Actuarial losses 5,040 2,547Regular employer contributions (1,122) (1,291)Employer payments to fund defined benefit pension schemedeficit (9,540) - -------- --------Pension deficit at end of period 12,002 15,703 ======== ======== 12. Consolidated Statement of Changes in Shareholders' Equity 2006 2005 £000 £000 Total equity at start of period 57,998 62,318Total recognised income for the period 6,862 415Recognition of share-based payments 410 364Proceeds from sale of shares for employee options 314 -Proceeds from release of own shares held 88 12Equity dividends (5,201) (5,111)Issue of share capital as part of consideration foracquisition of subsidiary 5,593 - -------- --------Total equity at end of period 66,064 57,998 ======== ======== 13. Acquisition On 22 December 2005, the group purchased 100% of the shares of King Systems Corp("King") for total consideration and acquisition costs of £57.7m. This purchasehas been accounted for as an acquisition. From the date of acquisition to 29April 2006, King contributed £11.1m to turnover, £2.0m to operating profitbefore special items and £1.4m to profit before tax. King contributed £2.3m tothe group's net operating cash flows, paid £0.6m in respect of taxation andutilised £0.3m for capital expenditure. Intangible fixed assets were recognisedat their respective fair values where these could be measured reliably. Theresidual excess over the net assets acquired is recognised as goodwill in thefinancial statements. Carrying Fair value Provisional values pre- adjustments fair values acquisition £000 £000 £000 Other intangible assets - 16,000 16,000Property, plant and equipment 5,031 1,764 6,795Inventories 2,003 - 2,003Receivables 3,688 - 3,688Payables (2,831) - (2,831)Current taxation (187) (2,122) (2,309)Deferred taxation 294 (7,034) (6,740)Cash and cash equivalents 189 - 189Lease obligations (16) - (16) -------- -------- --------Net assets acquired 8,171 8,608 16,779 -------- --------Goodwill 40,966 --------Total consideration 57,745 ========Total consideration satisfied by:Ordinary shares issued 5,593Cash 43,090Net asset adjustment paid in May2006 833Deferred contingent consideration 5,358Directly attributable costs 2,871 --------Total consideration 57,745 ======== The fair value adjustments contain some provisional amounts which are subject tofinalisation within 12 months of the date of acquisition. Shares issued werevalued at market price at the date of acquisition. Goodwill represents the valueof synergies and the assembled work force. The outflow of cash and cash equivalents on the acquisition of King iscalculated as follows: £000 Cash consideration 43,090Directly attributable costs 2,871 --------Cash outflow 45,961Cash acquired (189) --------Net cash impact 45,772 ======== The other intangible assets acquired as part of the acquisition of King can beanalysed as follows: £000 Patented and unpatented technology and know-how 5,122Trademarks and trade names 4,703Customer contracts and relationships 2,999Distribution agreements 3,176 --------Other intangible assets 16,000 ======== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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