6th Sep 2005 07:01
Dechra Pharmaceuticals PLC06 September 2005 Issued by Citigate Dewe Rogerson Ltd, BirminghamDate: Tuesday, 6 September 2005 Embargoed: 7.00am Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 "Pharmaceuticals and Services Divisions performed well with further penetration of our products and services within the veterinary market" 2005 2004 2005 2004 Before Before After After exceptional exceptional exceptional exceptional items and items and items and items and goodwill goodwill goodwill goodwill amortisation amortisation amortisation amortisation Turnover £208.2m £186.8m +11% £208.2m £186.8m +11% OperatingProfit £11.0m £9.2m +20% £10.4m £8.5m +23% Profitbefore £9.4m £8.1m +17% £8.9m £7.4m +20%tax Earningsper 13.39p 11.28p +19% 12.28p 9.97p +23%share Full yeardividendper 5.20p 4.70p +11% 5.20p 4.70p +11%share Cash flow strong: 127% of operating profit Net debt reduced from £10.1 million to £4.9 million Own branded veterinary pharmaceutical portfolio sales increased by 19% to £11million Product development expenditure increased by 19% to £1.3 million Positive progress in the planned sales expansion in USA "Dechra has made significant steps in the development of its own brandedveterinary pharmaceutical product portfolio, in increasing its internationalpresence as well as making progress in our Pharmaceuticals and ServicesDivisions for the longer term." Michael Redmond, Chairman "A strong sales performance of the existing product portfolio combined with newbusiness wins provides a solid platform for future growth." Ian Page, Chief Executive FULL STATEMENT ATTACHED Enquiries:Ian Page, Chief Executive Fiona Tooley, DirectorSimon Evans, Group Finance Director Katie Dale, Senior ManagerDechra(R) Pharmaceuticals PLC Citigate Dewe RogersonToday: 020 7282 8000 (7.45am - 12.30pm) Today: 020 7282 8000Mobile: 07775 642222 (IP) or 07775 642220 (SE) Mobile: 07785 703523 (FMT)Thereafter: 01782 771100 Thereafter: 0121 455 8370www.dechra.com -2- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 STATEMENT BY THE CHAIRMAN, MICHAEL REDMOND Introduction The last twelve months have seen your Company make significant steps in thedevelopment of its own branded veterinary pharmaceutical product portfolio, inincreasing its international presence as well as making progress in ourPharmaceuticals and Services Divisions for the longer term. This is reflected inthese results for the financial year ended 30 June 2005. Through our improved service offering and product mix, our Services businessincreased its gross margin and secured a number of significant new customersduring the year. Productivity and other operational efficiencies improved our manufacturingbusiness' performance with turnover and operating profit substantially higherthan the comparable period last year. Our marketing business also experienced significant growth in its sales ofpharmaceuticals including our own branded Vetoryl(R) Capsules and Felimazole(R)Tablets. Our strategic focus continues to be the development of our own veterinarypharmaceutical product portfolio. During the year, we have added a number of newmarketing authorisations and have also made positive progress with our plannedsales expansion in the USA. This is covered in more detail in the ChiefExecutive's Review. Financial Highlights Group turnover increased 11% from £186.8 million to £208.2 million. Operating profit before exceptional items and goodwill amortisation increased by20% to £11.0 million (2004: £9.2 million). Profit before tax, calculated on thesame basis, improved by 17% to £9.4 million (2004: £8.1 million). Pre-tax profitafter exceptional items and goodwill amortisation was up 20% at £8.9 million(2004: £7.4 million). Adjusted earnings per share (pre exceptional items and goodwill amortisation)was 13.39 pence (2004: 11.28 pence) a 19% increase over last year. The figureafter exceptional items and goodwill amortisation was 12.28 pence (2004: 9.97pence), an increase of 23%. Gross margin increased from 13.6% to 14.3% once again reflecting the on-goingimprovements in product mix, productivity and operational efficiencies. Afterproduct development expenditure of £1.3 million and our initial investment of£0.2 million in our fledgling American operation, Group operating marginincreased to 5.27% (2004: 4.92%). Cash flow remained strong with operating cash flow being 127% of operatingprofit. Over the last four years through a strong focus on cash management, netdebt has significantly reduced from £14.7 million in 2002 to £4.9 million thisyear (2004: £10.1 million). Interest cover (before exceptional items and goodwill amortisation) was 7.1times. Capital expenditure during the year totalled £2.1 million, which includedacquiring the worldwide rights to Thyroxyl Liquid and Thyroxyl Tablets and themarketing authorisations for the Vetivex(R) Solutions range. continued... -3- Dividend The Board are recommending a final dividend of 3.50 pence per share. This,together with the interim dividend paid of 1.70 pence per share, makes a totalfor the year of 5.20 pence per share, an increase of 10.6% over 2004. The totaldividend is covered 2.6 times by profit after taxation but before exceptionalitems and goodwill amortisation. The final dividend, which is subject to shareholder approval at our AnnualGeneral Meeting to be held on Wednesday 19 October 2005, will be paid on 25November 2005 to shareholders on the Register as at 28 October 2005. People On behalf of the Board and shareholders, I would like to thank all the Group'semployees and the operating management team for their continued focus anddedication which has contributed to this strong performance. We welcome all new employees and management to the Group, including Mike Eldredas President of our US operation and Dr. Susan Longhofer. Susan joined the Groupat the end of June as Product Development and Regulatory Affairs Director andhas over 16 years industry experience in development and worldwide registrationof animal health pharmaceuticals. Current Trading and Prospects Since the year-end we have successfully launched Thyroxyl Oral Solution andThyroxyl Tablets in the USA. We are encouraged by the initial interest in theproduct and, although it is at an early stage, we expect to gain a marketpresence in the US veterinary endocrine market with this product. The strategic alliances and development agreements already established in 2005provide a foundation to build both our licensed veterinary product portfolio andour international presence. These, together with further partnerships beingpursued with human pharmaceutical research and veterinary healthcare businesses,create additional opportunities. Current trading remains in line with management expectations and we remainconfident about the year as a whole. -4- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 REVIEW BY THE CHIEF EXECUTIVE, IAN PAGE Introduction As we indicated in our pre-closed period update, both our Pharmaceuticals andServices Divisions have performed well, building on the good growth achievedlast year. These results reflect the on-going improvement in market conditionsand further penetration of our products and services within the veterinarymarket. Further progress has also been made in the development programme for our ownbranded licensed veterinary product portfolio for the North American andEuropean companion animal markets. Product Development During the year, there have been a number of achievements within the ProductDevelopment programme, detailed below: - The Group continues to make progress on Vetoryl(R) Capsules in the USA. Thesafety and efficacy sections have now been submitted, we await guidance from theFDA as to any further trial requirements. Progress on this key product has alsobeen made in the EU with the dossier being submitted for mutual recognition inJune 2005. In April 2005, we were granted a range extension for a 30mg capsulethat is specifically targeted at small breed dogs. The product was launched inthe UK at the end of the financial year being reported on. Additionally, Vetoryl(R) has been approved for marketing in blister packs of 30 capsules; this willassist in owner compliance as we successfully continue to grow the market. Following the granting of an expedited review status for Felimazole(R) Tabletsthe FDA has requested an additional clinical trial to be conducted in the USA.The trial will commence once the protocol has received approval. In November2004, the Group gained a full EU licence for Felimazole(R) through the mutualrecognition procedure. The product is currently being marketed in Europe throughour partner, Janssen Animal Health. A new 2.5mg Felimazole(R) Tablet, granted aUK licence in November 2004, offers increased flexibility in dosing options.Since its UK market launch in February 2005, we have seen a significant increasein sales. A development and marketing contract has been agreed with Vetoquinol, Canada.Vetoquinol will lead the licence applications for Vetoryl(R) and Felimazole(R)and will market the products following approval, initially for a period of fiveyears, in the Canadian market. In February, the Group was granted a UK marketing authorisation for Ovuplant(R)Implant, whose chemical entity is the intellectual property of the Australianbio-technology company, Peptech Animal Health. Ovuplant(R) is acontrolled-release, synthetic hormone that stimulates ovulation in brood maresand it is used widely by horse breeders in a number of worldwide markets. Wehave commenced the process for Mutual Recognition to licence Ovuplant(R) inEurope. In the last quarter, we launched Urilin(R) Syrup our first branded genericproduct for the treatment of urinary incontinence in dogs. This is the first newentrant in a UK market worth approximately £1.9 million. Discussions are also at an advanced stage with a Japanese company to licence andmarket Vetoryl(R) Capsules within Japan. However, it is important to note thatthe Japanese authorities will require exhaustive local trials; therefore it willbe a number of years before revenues are generated. continued... -5- Pharmaceuticals Division This division comprises Arnolds Veterinary Products ("Arnolds(R)"), DechraVeterinary Products, USA ("DVP") and Dales Pharmaceuticals ("Dales"). Sales & MarketingTrading within Arnolds(R) has been very encouraging with strong growth achievedfrom both pharmaceuticals and instruments. Sales from our own branded veterinary pharmaceutical portfolio increased by 19%to £11 million with year on year growth in sales of our own developed productsVetoryl(R) and Felimazole(R) being 36% and 71% respectively. During the year, Arnolds renewed its sales and marketing agreement with Intervetin Germany for Equipalazone(R), as well as securing a distribution agreementwith Orion Pharma in Finland to market Vetoryl(R) and Felimazole(R) into theNordic countries. An agreement with Veterinaria to market Equipalazone(R),Vetoryl(R) and Felimazole(R) in Switzerland was also signed. A number of new customers were added to the Arnolds client base. These includeMasters International who, under an FDA waiver scheme, distribute Vetoryl(R)into the American market. The sales to date clearly underpin our confidence inthe market opportunity that the US presents the Group once Vetoryl(R) receivesFDA approval. Instrument and consumables sales continued to be influenced by both competitivepressure and grey imports, therefore, it has been encouraging to have seen a 12%increase in sales over the period. Some of this growth has been achieved throughkey distributor relationships, which include Portex, Global Veterinary Products,Technik Technology and 3M. In April 2005, the Group acquired the licenses and goodwill for the Vetivex(R)range of veterinary licensed infusion fluid products. These products are used tocombat dehydration, electrolyte imbalance and metabolic acidosis in companionanimals, equine and livestock. The acquisition of this product range has enabledArnolds to strengthen its position within the critical care and emergencymedicine sector. We will continue to build on this position with increasedmarket penetration and further development of the Vetivex(R) range of products. Other milestones in the year were, the establishment of Arnolds pdq, a directmail business and an agreement with Zi Medical to distribute unique infusionequipment in the UK. Dechra Veterinary Products - USAIn April 2005, we opened our fledgling US operation based in Kansas City,Missouri. The US market is the largest veterinary companion animal market in the world,and is some ten times larger than that of the UK. The newly appointed US teamhave a wealth of experience within the veterinary pharmaceuticals sector whichwill provide Dechra with the commercial knowledge needed to establish, developand drive our North American business. An agreement has been made with Belcher Pharmaceuticals, Inc., a wholly ownedsubsidiary of GeoPharma, Inc., based in Largo, Florida, USA. Under thisagreement, Dechra has exclusive worldwide sales and marketing rights forBelcher's levothyroxine liquid and tablets, which are used to controlhypothyroidism in dogs. Following successful comparative trials for the unique liquid preparation oflevothyroxine, the product was launched in the US market in July 2005 under theDechra brand name Thyroxyl Oral Solution. Distribution agreements have beenreached with several national and regional distributors and the initial uptakeof the product following its launch has been very encouraging. continued... -6- The introduction of Thyroxyl Oral Solution and Thyroxyl Tablets into theAmerican market allows us to establish Dechra Veterinary Products in the USveterinary endocrine market ahead of the registration of our own key products. ManufacturingDales Pharmaceuticals, our pharmaceutical manufacturing business, produced astrong performance with a 15% increase in turnover, half of which came from themanufacture of our own licensed veterinary products. A significant improvementin operational efficiencies resulted in a strong growth in operating profit. During the year, we added five new third-party manufacturing customers and alsoextended existing customer lines through the introduction of six new products. In December 2004, an extension to our facility became operational. This hasprovided additional warehousing creating the opportunity to consolidate allstock onto the same site. As a result we have achieved a significant reductionin external warehousing and transport costs. The additional space has also beenutilised to create a new pharmaceutical development laboratory which has beenequipped with small scale batch production machinery and analytical equipment.The laboratory will be utilised for our in-house product development programmeand will also increase our capabilities to third party customers. Furtherinvestment has been made in an additional state-of-the-art capsule fillingmachine and HPLC laboratory testing equipment. In order to undertake production of clinical trial products and in accordancewith both EU regulatory requirements and new procedures introduced by theMedicines and Healthcare Regulatory Agency, Dales has obtained anInvestigational Medicinal Product Manufacturers Licence. Services Division This division comprises National Veterinary Services ("NVS(R)"), Vetcom Systems("Vetcom(R)"), NationWide Laboratories ("NWL") and Cambridge SpecialistLaboratory Services ("CSLS"). Wholesaling and DistributionOur principal trading business NVS(R) benefited from market share gains,including a number of substantial new customers, and from strong market growth,which year on year saw the core veterinary market increase by 9% in value. Increased productivity, very high service levels and operational efficiencieswere achieved in the year under review. There was also an encouragingimprovement in gross margin through better buying, additional added-valueservices, the expansion of the NVS(R) own-brand Valu Range of products and thelaunch of the Vet Remedy range developed specifically for sale to end users inpractice waiting rooms. During the year, NVS(R) established a new depot and customer care team inHamilton, Scotland which has improved our service levels and doubled our marketshare in this region. Additional depots were also opened in Swanscombe andHertford which have improved our service levels to the South of England. Oursame day delivery fleet was extended, which has allowed us to increase our dailydeliveries from 1,604 to 1,710 locations. Through our daily contact with veterinary practices, we identified the need toimplement a regional sales structure, which has proved very effective. It givesus greater local focus allowing us to tailor our services to meet the differingneeds of practices around the country. Over the next 12 months, we will be improving our central warehousing to allowus to extend the picking line, increase automation and provide new services. Itwill also increase storage capacity as we plan for future projected volumes. continued... -7- In addition, we are undertaking a major installation of a new computer system toreplace the legacy system. This project is expected to go live towards the endof the current financial year. Overall, NVS(R) continues to develop its market position by adding further valueto the existing high levels of service and by continued improvements inoperational efficiency. Information TechnologyIn January 2005, the Group established a joint venture partnership with Cam-DalComputing, providers of bespoke e-commerce solutions. This agreement providesVetcom Systems, Dechra's I.T. division, with its next generation,cost-effective, multi-user, on-line veterinary practice management system,Vetcom Open. In addition to the standard management facilities, Vetcom Open provides aneffective branch linking solution enabling large multi-site veterinary practicesto better manage their businesses. The connectivity also offers the futurepossibility of NVS(R) providing further services to practices such as directmarketing to their clients. We remain focused on providing our customers with ever improving technologywhich ensures that they are able to operate progressive, efficient andcost-effective practices. Laboratory ServicesOur multi-disciplined independent commercial veterinary laboratories, NWL andCSLS, are focused on providing diagnostic and clinical pathology services at thehighest levels of service to UK veterinary practices. We have continued to target multi-practice group and corporate accounts and havebeen successful in securing a number of new practices as customers. In the lastquarter of the financial year being reported, we saw a 20% increase over thesame period in 2004 as new accounts started to feed through. We have introduced a number of new services at NWL, including Allervet, aserological test for allergy; Petscreen, a tool for deciding the bestchemotherapy to use; two in-clinic clinical records programs which can generatelaboratory request forms automatically in the practice and extended same-daycourier routes into Yorkshire, North Wales and Cheshire. At CSLS, new assayshave been released for feline pancreatic diseases and cancer diagnosis andtherapeutic monitoring. Our Laboratories business has a reputation for clinical excellence within theveterinary profession. NWL became the first commercial veterinary laboratory togain UKAS accreditation and is at the forefront of UK veterinary diagnostics. People At the year-end, the Group employed 696 people. We would like to thank all ourstaff for their continued support and dedication, which has resulted inproducing these results. We would also like to welcome all new personnel to the Group. At management level, we welcome Mike Eldred and Randel "Chip" Whitlow, who havejoined Dechra as President and National Sales Manager of the Group's USoperation, Dechra Veterinary Products. We welcome Susan Longhofer as Director of Product Development and RegulatoryAffairs. Susan, a US national who has relocated to the UK, has extensiveindustry experience in development and worldwide registration of animal healthpharmaceuticals. Her knowledge and experience is already proving invaluable inour dealings with the FDA and in the assessment of numerous other productdevelopment opportunities. continued... -8- One of our key priorities at Arnolds was to build a management team that had theexperience and drive to deliver the key business growth objectives. In July2004, Mark Sallin joined as Finance Director, Chris Kingdon joined in November2004 as Pharmaceutical Sales Director and Gwenda Bason joined in January 2005 asPharmaceutical Marketing Director. The reorganisation of the management team hasallowed Andrew Groom to take up a new role as Instruments Business Director. Within our laboratories business, Tariq Shah was appointed Sales & MarketingManager in May 2004, whilst Jamie Whitwam joined in November 2004 as FoodMicrobiology and Business Development Manager, to head the non-clinical divisionof NWL. At Dales, we have taken the opportunity to restructure the senior managementteam with the appointment of John Reilly as Quality Manager. Summary We are pleased with the achievements that have been made in the financial year.All areas of the business are performing well, buoyed by generally improvedmarket conditions. A strong sales performance of the existing product portfolio combined with newbusiness wins provides a solid platform for future growth. In addition,important progress has been made in the following key areas of our strategy: developing the veterinary pharmaceutical product portfolio pursuing international market opportunities (notably in the USA) creating operational efficiencies and assembling a first rate management team across the business. We look forward to the current year with confidence. -9- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 REVIEW BY THE GROUP FINANCE DIRECTOR, SIMON EVANS Introduction This last financial year has seen the continued excellent progress of the Group.Both of our divisions recorded healthy increases in turnover and improvedoperating margins. Cash flow was again strong with operating cash flow runningat 127% of operating profit. The profit and cash flows generated from our core operations underpin theinvestment in the business opportunities described in the Chief Executive'sReview. Operating Results The Group achieved a profit before tax, exceptional items and goodwillamortisation of £9.4 million, an increase of 16.9% compared to last yearcalculated on the same basis. The results after exceptional items and goodwill amortisation are summarised onthe front page of this press release. In the year under review, Group turnover increased by 11.4%. This substantialincrease was driven by buoyant market conditions and new account wins by ourServices Division, together with the continued growth of our key own brandedpharmaceutical products. Gross margin improved from 13.6% to 14.3% reflecting further improvements by ourServices Division and the increasing importance of our own brandedpharmaceutical products in the sales mix. Operating costs include a charge of £328,000 in respect of the ExecutiveIncentive Plan in accordance with UITF17 (revised) although there is no cashflow impact on the Group. Product development expenditure increased from £1.1 million in 2004 to £1.3million. We also incurred £0.2 million of costs in respect of our fledgling USoperation. Despite the above costs, Group operating margin before exceptional items andgoodwill amortisation increased from 4.92% to 5.27%. Net Interest Charge The interest charge rose due to the full year effect of the five base rate risesbetween November 2003 and August 2004. The total interest charge for the year is also affected by the seasonalvariations in working capital requirements of the Group which reaches its peakin the period December to February. Interest cover before exceptional items and goodwill amortisation remained at ahealthy 7.1 times. Taxation The total tax charge on profit before exceptional items and goodwillamortisation was 27.5%, including a net prior year credit of £290,000. continued... -10- Earnings per Share and Dividend Adjusted earnings per share (before exceptional items and goodwill amortisation)was 13.39p (2004: 11.28p), an increase of 18.7%. The proposed final dividend is 3.50p, making a total for the year of 5.20p(2004: 4.70p). This represents an increase of 10.6% compared to last year. Thetotal dividend is covered 2.6 times by profit after taxation but before goodwillamortisation. Capital Expenditure Additions to tangible and intangible fixed assets totalled £2.1 million. The main investment in tangible fixed assets was a new Enterprise ResourcePlanning System at National Veterinary Services, our veterinary wholesalingbusiness. This IT system is planned to go live during the new financial year. During the year, we also acquired two intangible fixed assets as detailed below: In February 2005, we paid US$500,000 (£278,000 including associated legal costs)to acquire the worldwide rights to a Levothyroxine liquid and tablets fromBelcher Pharmaceuticals, Inc. This product, branded Thyroxyl, has been launchedin the USA in July 2005. In April 2005, we paid £810,000 (with £12,000 legal costs) to acquire themarketing authorisations for the Vetivex(R) range of products from GambroNorthern Ireland Limited, a division of Gambro BCT, Inc. On acquisition,annualised sales of this product were running at approximately £1 million. Asthis acquisition was made towards the end of the financial year being reported,it only had a negligible effect on these results. We will, however, see a fullyear contribution in the 2006 financial year. Further reference to both these products has been made in the Chief Executive'sReview. Cash Flow and Net Debt An operating cash inflow of £13.2 million (2004: £10.6 million) was achieved forthe year which represented a cash conversion rate of 127% (2004: 125%). During the year, the Group converted £13,160,000 of its overdraft facility intoa term loan. This puts the funding of the Group onto a longer term footing inorder to support the planned expansion of the Group, particularly in the USA. Net debt showed a reduction from £10.1 million to £4.9 million. Balance Sheet and Shareholders' Funds Shareholders' funds increased to £14.5 million reflecting the retained profitfor the year and new share issues made on the exercise of various share options. Working capital decreased from £10.0 million to £8.4 million. Stock turndeclined from 11.5 times to 9.5 times due to an increase in stock at NVS whichwas required to support recent new business gains and the need to manufacture astock of Vetoryl(R) for FDA stability testing at an FDA compliant contractmanufacturer in support of our USA Vetoryl(R) licence application. This Vetoryl(R) stock will be sold out during the financial year ending 30 June 2006. Trade debtor days showed an improvement from 44 days to 43 days. Trade creditordays were 61 (2004: 53 days). continued... -11- International Financial Reporting Standards ("IFRS") The results for the financial year ending 30 June 2006 will be reported underIFRS. The comparative figures i.e. these results for the year ended 30 June2005, will be restated under IFRS. Work on identifying and quantifying therequired changes to accounting policies is now substantially complete and areconciliation statement for the year ended 30 June 2005 will be communicated toshareholders ahead of the interim results for the six months ending 31 December2005, the first results to be reported under IFRS. The main impacts of IFRS are summarised below: Goodwill AmortisationThe impact of IFRS1 and IFRS3 will be that: - Consolidated goodwill will be frozen at its 30 June 2004 level of £4.385million but will then be subject to annual impairment review. - The goodwill charge of £564,000 for the year ended 30 June 2005 will be addedback to reported profit and shareholders' funds for the year ended 30 June 2005. Development CostsOur current accounting policy is to write off all development expenditure as itis incurred. Under IAS38, development expenditure that meets the recognitioncriteria must be capitalised. The principal development activity of the Group is the bringing to market of newpharmaceutical products. Due to the lengthy regulatory process involved, thereis inherent uncertainty as to the technical feasibility of development projects.Development costs will therefore only be capitalised once there is reasonablecertainty over technical feasibility. Most of the Group's developmentexpenditure is therefore unlikely to fulfil the criteria for capitalisation. Share Based PaymentsUnder IFRS2, all share options (including SAYE) are valued at the date of grantand amortised over the vesting period. The Group intends to adopt the exemptionsunder IFRS1 and IFRS2 whereby only share options issued after 7 November 2002are fair valued and charged to operating profit. The impact of IFRS2 on the reported results for 2005 is not expected to besignificant. Other AdjustmentsThere will be other minor adjustments, principally relating to the spreading oflease incentives over the period of the lease rather than the period to the nextrent review. Deferred TaxThere will be an adjustment to the deferred tax balance, principally relating tothe different accounting and tax treatments for share based payments above. SoftwareUnder IAS38, software costs will be reclassified from tangible fixed assets tointangible fixed assets in the balance sheet. DividendIAS18 requires that the proposed final dividend should not be accrued at the endof the year, being charged to shareholders' funds once approved by shareholdersat the AGM. continued... -12- ConclusionTaking the above into account, we currently believe that the restatement of the2005 results under IFRS will show a modest increase of approximately 2% to 3% inadjusted pre-tax profit (before goodwill amortisation) compared to these resultsreported under UK GAAP. Reported shareholders' funds will also increase under IFRS due to the write backof goodwill, the proposed dividend and an increase in the deferred tax asset. It should be emphasised that these are accounting adjustments only and have noimpact on the economic conditions facing the Group, nor on its cash flows,distributable reserves or prospects. -13- Dechra Pharmaceuticals PLC Consolidated Profit and Loss Accountfor the year ended 30 June 2005 2005 2004 Note Before Exceptional Before Exceptional exceptional items and exceptional items and items and goodwill items and goodwill goodwill amortisation goodwill amortisation amortisation (note 2) Total amortisation (note 2) Total £'000 £'000 £'000 £'000 £'000 £'000------------------------------------------------------------------------------------------------------------Turnover 1 208,197 - 208,197 186,843 - 186,843Cost of sales (178,480) - (178,480) (161,422) - (161,422)------------------------------------------------------------------------------------------------------------Gross profit 29,717 - 29,717 25,421 - 25,421 Distributioncosts (9,017) - (9,017) (7,588) - (7,588) Administrativeexpenses (9,724) (564) (10,288) (8,649) (691) (9,340)------------------------------------------------------------------------------------------------------------Operatingprofit 10,976 (564) 10,412 9,184 (691) 8,493 Net interestpayable andsimilarcharges 3 (1,554) - (1,554) (1,124) - (1,124)------------------------------------------------------------------------------------------------------------Profit onordinaryactivitiesbeforetaxation 9,422 (564) 8,858 8,060 (691) 7,369 Tax on profiton ordinaryactivities 4 (2,590) - (2,590) (2,309) 21 (2,288)------------------------------------------------------------------------------------------------------------Profit onordinaryactivitiesafter taxation 6,832 (564) 6,268 5,751 (670) 5,081 Dividends 5 (2,656) (2,396)------------------------------------------------------------------------------------------------------------Retainedprofit for thefinancial year 3,612 2,685============================================================================================================Earnings perordinary share Basic 6 13.39p (1.11p) 12.28p 11.28p (1.31p) 9.97p Diluted 6 13.16p (1.08p) 12.08p 11.12p (1.29p) 9.83p All amounts relate to continuing operations. There were no recognised gains and losses other than shown above. -14- Dechra Pharmaceuticals PLC Consolidated Balance Sheetas at 30 June 2005 2005 2004 £'000 £'000-------------------------------------------------------------------------------Fixed assetsIntangible assets 5,710 5,174Tangible assets 5,201 5,224------------------------------------------------------------------------------- 10,911 10,398-------------------------------------------------------------------------------Current assetsStocks 20,390 16,979Debtors 33,712 32,889Cash at bank and in hand 13,924 -------------------------------------------------------------------------------- 68,026 49,868 Creditors: amounts falling due within one year (47,174) (45,172)-------------------------------------------------------------------------------Net current assets 20,852 4,696-------------------------------------------------------------------------------Total assets less current liabilities 31,763 15,094 Creditors: amounts falling due after more than one year (17,281) (4,763) Provisions for liabilities and charges - (174)-------------------------------------------------------------------------------Net assets 14,482 10,157===============================================================================Capital and reservesCalled up share capital 511 510Share premium account 26,953 26,784Merger reserve 1,720 1,720Profit and loss account (14,702) (18,857)-------------------------------------------------------------------------------Total equity shareholders' funds 14,482 10,157=============================================================================== Reconciliation of Movements in Shareholders' Fundsfor the year ended 30 June 2005 Group 2005 2004 £'000 £'000-------------------------------------------------------------------------------At start of year 10,157 7,471Profit for the financial year 6,268 5,081Share based payments charge 543 -Dividends (2,656) (2,396)New shares issued 170 1-------------------------------------------------------------------------------At end of year 14,482 10,157=============================================================================== -15- Dechra Pharmaceuticals PLC Consolidated Cash Flowfor the year ended 30 June 2005 Note 2005 2004 £'000 £'000-------------------------------------------------------------------------------Net cash inflow from operating activities 7 13,228 10,576 Returns on investment and servicing of financeInterest received 355 584Interest paid (1,990) (1,580)Interest element of finance lease rentals (32) (16)-------------------------------------------------------------------------------Net cash outflow for returns on investment andservicing (1,667) (1,012)of finance-------------------------------------------------------------------------------TaxationCorporation tax paid (1,996) (1,864)-------------------------------------------------------------------------------Capital expenditurePurchase of tangible fixed assets (644) (569)Purchase of intangible fixed assets (1,100) (5)Sale of tangible fixed assets 140 28-------------------------------------------------------------------------------Net cash outflow for capital expenditure and financialinvestment (1,604) (546)-------------------------------------------------------------------------------Equity dividends paid (2,473) (2,192)-------------------------------------------------------------------------------Cash inflow before financing 5,488 4,962 FinancingShares issued 138 1Term loans raised 13,160 -Term loans repaid (1,400) (1,954)Loan stock repaid - (500)Capital element of finance lease payments (138) (135)-------------------------------------------------------------------------------Net cash inflow/(outflow) from financing 11,760 (2,588)-------------------------------------------------------------------------------Increase in cash in the year 17,248 2,374Bank overdraft at start of year (3,324) (5,698)-------------------------------------------------------------------------------Cash at bank and in hand/(bank overdraft) at end of 13,924 (3,324)year=============================================================================== Reconciliation of net cash flow to movement in net debtfor the year ended 30 June 2005 2005 2004 £'000 £'000-------------------------------------------------------------------------------Increase in cash during the year 17,248 2,374Debt repayments 1,400 2,454New loans (13,160) -Repayment of finance leases 138 135-------------------------------------------------------------------------------Change in net debt resulting from cash flows 5,626 4,963New finance leases (438) (11)Other non-cash changes 63 (74)-------------------------------------------------------------------------------Movement in net debt in the period 5,251 4,878Net debt at start of year 8 (10,110) (14,988)-------------------------------------------------------------------------------Net debt at end of year 8 (4,859) (10,110)=============================================================================== -16 Dechra Pharmaceuticals PLC Notesfor the year ended 30 June 2005 1. Analysis of Turnover by Geographical RegionDestination 2005 2004 £'000 £'000-------------------------------------------------------------------------------UK 205,103 184,411Rest of the world 3,094 2,432------------------------------------------------------------------------------- 208,197 186,843=============================================================================== The Directors consider that all turnover is derived from a single class ofbusiness. The origin of all turnover was in the UK. 2. Exceptional Items and Goodwill Amortisation 2005 2004 £'000 £'000-------------------------------------------------------------------------------Exceptional items - reorganisation and rationalisation costs - 130Goodwill amortisation 564 561-------------------------------------------------------------------------------Total exceptional items and goodwill amortisation 564 691=============================================================================== The reorganisation and rationalisation costs in 2004 related to the integrationof the Group's manufacturing operations onto a single site at Skipton, togetherwith other costs of reorganising the Group's trading operations. 3. Net Interest Payable and Similar Charges 2005 2004 £'000 £'000-------------------------------------------------------------------------------Bank loans and overdrafts 1,774 1,599Amortisation of arrangement fees 103 88Other loans - 5Finance charges payable on finance leases and hire purchasecontracts 32 16-------------------------------------------------------------------------------Total interest payable 1,909 1,708Bank deposit and other interest receivable (355) (584)-------------------------------------------------------------------------------Net interest payable and similar charges 1,554 1,124=============================================================================== continued... -17- Dechra Pharmaceuticals PLC Notes (continued)for the year ended 30 June 2005 4. Tax on Profit on Ordinary Activitiesa) Tax charge for the year 2005 2004 £'000 £'000-------------------------------------------------------------------------------Current taxation: UK Corporation tax charge 3,001 2,454 Adjustments in respect of prior periods (233) (347)-------------------------------------------------------------------------------Total current tax charge for the year 2,768 2,107-------------------------------------------------------------------------------Deferred taxation: Origination and reversal of timing differences (121) (16) Adjustments in respect of prior periods (57) 197-------------------------------------------------------------------------------Total deferred tax charge for the year (178) 181-------------------------------------------------------------------------------Tax on profit on ordinary activities 2,590 2,288=============================================================================== Tax credit included above attributable to exceptionaloperating items - 21=============================================================================== b) Factors affecting the tax charge for the current periodThe current tax charge is higher than (2004: lower than) the standard rate ofcorporation tax in the UK of 30% (2004: 30%). The differences are explainedbelow: 2005 2004 £'000 £'000-------------------------------------------------------------------------------Profit on ordinary activities before taxation 8,858 7,369Current tax charge at 30% (2004: 30%) 2,657 2,211-------------------------------------------------------------------------------Effects of permanent differences:- goodwill amortisation 169 168- depreciation on assets not eligible for tax allowances 22 22- disallowable expenses 32 37------------------------------------------------------------------------------- 223 227-------------------------------------------------------------------------------Timing differences:- capital allowances in excess of depreciation (35) (65)- other short term timing differences 156 81------------------------------------------------------------------------------- 121 16-------------------------------------------------------------------------------Adjustments to tax charge in respect of previous periods (233) (347)-------------------------------------------------------------------------------Total current tax charge 2,768 2,107=============================================================================== 5. Dividends 2005 2004 £'000 £'000-------------------------------------------------------------------------------Interim paid 1.70p per share (2004: 1.55p) 867 790Final proposed 3.50p per share (2004: 3.15p) 1,789 1,606-------------------------------------------------------------------------------Total dividend 5.20p per share (2004: 4.70p) 2,656 2,396=============================================================================== continued... -18- Dechra Pharmaceuticals PLC Notes (continued)for the year ended 30 June 2005 6. Earnings per ShareEarnings per ordinary share have been calculated by dividing the profit onordinary activities after taxation for each financial year by the weightedaverage number of ordinary shares in issue during the year. 2005 2004 pence pence-------------------------------------------------------------------------------Basic earnings per share after exceptional items andgoodwill 12.28 9.97amortisation Effect of exceptional items - 0.21-------------------------------------------------------------------------------Basic earnings per share before exceptional items 12.28 10.18Effect of goodwill amortisation 1.11 1.10-------------------------------------------------------------------------------Adjusted earnings per share 13.39 11.28===============================================================================Diluted earnings per share 12.08 9.83Effect of exceptional items - 0.21-------------------------------------------------------------------------------Diluted earnings per share before exceptional items 12.08 10.04Effect of goodwill amortisation 1.08 1.08-------------------------------------------------------------------------------Adjusted diluted earnings per share 13.16 11.12=============================================================================== 2005 2004 £'000 £'000-------------------------------------------------------------------------------The calculation of basic and diluted earnings pershare is based upon:Earnings for basic and diluted earnings per sharecalculations 6,268 5,081 Exceptional items - 109-------------------------------------------------------------------------------Earnings for basic and diluted earnings per sharecalculations before 6,268 5,190exceptional items Goodwill amortisation 564 561-------------------------------------------------------------------------------Earnings for adjusted and adjusted diluted earningsper share 6,832 5,751=============================================================================== 2005 2004 No. No.-------------------------------------------------------------------------------Weighted average number of ordinary shares for basicand adjusted 51,022,645 50,975,214earnings per share Impact of share options 879,018 725,830===============================================================================Weighted average number of ordinary shares fordiluted and adjusted 51,901,663 51,701,044diluted earnings per share=============================================================================== continued... -19- Dechra Pharmaceuticals PLC Notes (continued)for the year ended 30 June 2005 7. Reconciliation of Operating Profit to Operating Cash Flow 2005 2004 £'000 £'000-------------------------------------------------------------------------------Operating profit 10,412 8,493Depreciation 935 988Goodwill amortisation 564 561(Profit)/loss on disposal of tangible fixed assets (42) 4Share based payments charge 543 -(Increase)/decrease in stocks (3,411) 317Increase in debtors (787) (4,901)Increase in creditors 5,014 5,114-------------------------------------------------------------------------------Net cash inflow from operating activities 13,228 10,576=============================================================================== 8. Analysis of Net Debt Other Cash Non-Cash At 1 July 2004 Flow Changes At 30 June 2005 £'000 £'000 £'000 £'000-------------------------------------------------------------------------------Borrowings due after oneyear (4,759) (13,160) 909 (17,010) Bank overdraft (3,324) 3,324 - - Other borrowings duewithin (1,954) 1,400 (846) (1,400)one year Finance leases (73) 138 (438) (373) Cash at bank and in hand - 13,924 - 13,924------------------------------------------------------------------------------- (10,110) 5,626 (375) (4,859)=============================================================================== 9. Statutory AccountsThe financial information set out above does not constitute the Company'sstatutory accounts for the years ended 30 June 2004 or 2005 but is derived fromthose accounts. Statutory accounts for 2004 have been delivered to the Registrarof Companies, and those for 2005 will be delivered following the Company'sAnnual General Meeting. The auditors have reported on those accounts; theirreports were unqualified and did not contain statements under Section 237(2) or(3) of the Companies Act 1985. 10. Annual General MeetingThe Annual General Meeting will be held at 10.00am on Wednesday, 19 October 2005at The Manor House Hotel, Audley Road, Alsager, Stoke on Trent, Staffordshire,ST7 2QR. 11. This Preliminary statement is not being posted toshareholders. The Report & Accounts for the year ended 30 June 2005 will beposted to shareholders shortly. Copies of the 2005 Report & Accounts will beavailable from the Company's Registered Office: Dechra House, Jamage IndustrialEstate, Talke Pits, Stoke on Trent, ST7 1XW.Email: [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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