Final Results

Dechra Pharmaceuticals PLC 4 September 2001 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 4 September 2001 Embargoed: 7.00am Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2001 > Turnover £156.4m + 7.5% > Operating profit* £8.2m +10% > Profit before tax* £5.85m +180% Actual £6.85m +12% Pro-forma > Earnings per share* 9.30p +65% Basic 9.66p +13% Pro-forma * excluding exceptional item (flotation costs) > Total dividend per share 3.75p + Despite the outbreak in Britain of foot and mouth disease all three of our operating subsidiaries produced creditable performances + Our growth strategy is proceeding in line with our expectations + Targeting the companion animal sector the Group has received market recognition for its feline cardiac product 'Hypercard(R)' launched in October 2000 + Expansion of pharmaceutical manufacturing and packaging facility commenced January 2001 + National Veterinary Services market share advances to 44% + New distribution agreements including the exclusive UK sales & marketing rights of 'Oxyglobin(R)' and its European distribution + Pre-marketing authorisation has been received for the launch of 'Vetoryl(R)', the Group's own developed canine cancer treatment product '...the Board remains confident of the scope to continue the expansion of your Company, both by organic means and by the acquisition of related businesses.' 'I am pleased to confirm that trading during the first two months of this year has been in line with our expectations.' 'We enter our second year as a public Company with confidence in our future prospects.' Peter Redfern, Chairman Enquiries: Fiona Tooley Gary Evans, Chief Executive Citigate Dewe Rogerson Simon Evans, Group Finance Director Tel: Today: 020 7282 8000 Dechra(R) Pharmaceuticals PLC Mobile: 07785 703523 Tel: Today: 020 7282 8000 Thereafter: 0121 455 8370 (8am-12noon) e-mail: fiona.tooley@citigatedr-bham.co.uk Mobile: 07703 281255 (Gary Evans) Thereafter: 01782 771100 www.dechra.com -2- Dechra Pharmaceuticals PLC Preliminary Results year ended 30 June 2001 STATEMENT BY THE CHAIRMAN, PETER REDFERN I am glad to report that Dechra has performed well in its first year as a public Company. Despite the outbreak in Britain of foot and mouth disease, which occurred early in the second half of the year and had an effect across a part of our market, all three of our operating subsidiaries produced creditable performances. This would not have been possible without the real commitment and unstinting effort of Dechra's people across all our activities. Our people are our most important assets and they deserve our sincere thanks, which I am pleased to extend to them on the shareholders behalf. Results Excluding one-off flotation costs, operating profits in the year increased by 10% to £8.2 million from £7.5 million in the previous period, on turnover up by 7.5% to £156.4 million (2000: £145.5 million). Adjusting for the change in funding structure arising from flotation which is detailed in the Finance Director's Review, profit before tax on a pro-forma basis - again excluding flotation costs - rose by 12% to £6.85 million from £ 6.14 million. Pro-forma earnings per share, on the same basis, also increased by 13% to 9.66p from 8.58p. Actual earnings per share (before exceptional item) in the year was 9.30p, an increase of 65% from last year's 5.62p. Revenue and capital investment to enable the Group to add impetus to its strategic growth continued through the year, as intended. Despite the consequential increase in operating costs, the Group operating margin also continued to improve - up from 5.2% to 5.3%. Dividend The Directors recommend a final dividend of 2.5p which, together with the interim dividend, makes a total of 3.75p for the year. This recommended dividend is subject to shareholders approval at the AGM of the Company on 16 October 2001 and, if approved, will be paid on 28 November 2001 to those shareholders who are on the Register on 2 November 2001. Prospects The expansion and improvement of our manufacturing facilities and resources has not only given us the scope to expand the production and sale of our own branded products, but has also enhanced our competitive strength in the manufacture of pharmaceuticals for both human and animal health companies. These developments are already bearing fruit by bringing new pharmaceutical clients to us, and through increased business from our existing customers. Similarly, investment in our veterinary distribution operations has further enhanced the efficiency and effectiveness of a business which has long been the leader in its market sector. It is encouraging that its market share has again increased this year. The foot and mouth epidemic continues to cause concern. It is not clear when it will end. Nor is it yet clear how any possible consequences from it might affect the longer term prospects for those of our veterinary products and services which are related to the livestock industry. Against that background, the Board remains confident of the scope to continue the expansion of your Group, both by organic means and by the acquisition of related businesses. I am pleased to confirm that trading during the first two months of this year has been in line with our expectations. We enter our second year as a public Company with confidence in our future prospects. -3- Dechra Pharmaceuticals PLC Preliminary Results year ended 30 June 2001 REVIEW BY THE CHIEF EXECUTIVE, GARY EVANS We have continued to develop our leading position within the veterinary markets we serve. At the same time, we have established our position and reputation within the pharmaceutical contract manufacturing arena as a full service manufacturer of 'prescription only' and 'licensed' pharmaceuticals for a growing number of leading international pharmaceutical and healthcare companies. At the time of our flotation in September 2000, we outlined in the Prospectus our 'Strategy for Growth' and I shall take this opportunity to up-date you on our progress: + The further development of our veterinary pharmaceutical portfolio through additional licensing opportunities for branded products in new therapeutic areas which Arnolds can then market and NVS distribute Our in-house pharmaceutical development programme has already produced two unique veterinary licenses. Firstly, 'Hypercard(R)', a unique veterinary product for a feline cardiac condition was launched in October, one month after our Stock Market Listing. Following its successful launch in the UK we, in partnership with a major multi-national pharmaceutical company, are investing in licensing 'Hypercard (R)' across mainland Europe. Further, I am delighted to report that, subsequent to our year end, we have received a license for our new canine cancer treatment, 'Vetoryl(R)'. This is the first product of its kind to be developed and licensed for Cushings disease, a particular form of canine cancer. An additional product is in the final stages of licensing within the Veterinary Medicines Directorate whilst several other products focused on the companion animal sector are in various stages of development within our product pipeline. We secured a number of new distribution agreements during the year including the exclusive UK distribution of a blood replacement therapy product, 'Oxyglobin(R)', for which we are also acting as the 'quality clearance' partner for the rest of Europe. Arnolds is therefore well placed to move forward during subsequent years with a continued strong position in the instrument and equipment market, and a growing number of veterinary pharmaceutical products beyond the licenses we currently hold. + Exploitation of contract manufacturing opportunities by increasing the Group's capacity through investment in Dales and accelerating production During the year, the Group committed to a major upgrade of our manufacturing and packaging facilities. This will increase our capacity, not only for our new product development programme, but also to take advantage of the growing opportunity in the contract manufacturing sector of the human healthcare market resulting from the consolidation of the human pharmaceutical sector. An additional, 25,000 sq.ft. of capacity has been added to the existing site, with the acquisition of an adjoining building which significantly enhances our facility. Investment will continue with a further £2 million to be spent by the end of 2002. continued... -4- With the added credibility in the market that this site gives us, we are already beginning to attract new customers whilst existing customers have increased their demands. Dales also achieved 'Investor in People' status during the year, a testament to the importance placed by the Company in developing its people at all levels in order to meet our targets for future growth. + Increasing our share of existing markets through the on-going implementation of the Group's proven and successful formula of extending added-value services to new and existing customers National Veterinary Services continues to grow its share of the veterinary products distribution market. Capacity at our Stoke-on-Trent facility was increased by some 40% during the year to cater for the increased business we continue to achieve. Investment in a new 'Track and Pick' system was also completed which will improve our operational efficiency with some 70% of our 35,000 lines picked per day being identified by this bar coded system. 'Vetcom(R)', the in-house developed electronic ordering and practice management software is now used in approximately one third of the UK's veterinary practices and further investment in 'Vetcom(R)' continues in order to maintain its leading position in the veterinary software market. + Increasing export opportunities by launching branded pharmaceuticals and equipment into new countries. We have a number of dialogues underway with third parties, relating to European distribution of our branded products. Recently we committed to an alliance with a major multi-national pharmaceutical company for the marketing and distribution of 'Hypercard(R)' on a pan-European basis. All three operating subsidiaries have made substantial progress in the year. Furthermore, we have used this first year as a Listed Company to invest in the Group to take advantage of the opportunities we have identified. By understanding our customers' needs, focusing on high levels of service and quality, coupled with consistent provision of added-value services and exploiting our already strong market position, we are confident that the Group's successful development will continue. -5- Dechra Pharmaceuticals PLC Preliminary Results year ended 30 June 2001 REVIEW BY THE FINANCE DIRECTOR, SIMON EVANS Operating Results The Group profit and loss account is shown on page 8 and shows a profit before tax and exceptional item of £5,852,000 compared to £2,088,000 last year, an increase of 180%. This mainly reflects a lower interest charge following the listing of our shares on the London Stock Exchange on 22 September 2000 and the raising of £26.4 million (net of expenses) in additional equity capital. Pro-forma results (adjusting for the new funding structure) are shown later in this review and disclose a profit before tax of £6,846,000 compared to £ 6,138,000 last year, an increase of 11.5%. Group turnover increased by 7.5% in the year compared to growth in the veterinary market of 3.7%. This reflects continued gains in market share at NVS. Gross margin increased from 11.6% to 12.3%. As well as improved buying, this reflects a change in the product mix with a greater proportion of own branded products and higher margin products being sold. Operating costs increased by 16.2% over last year before exceptional item. This reflects the following: + Investment in infrastructure at NVS and Dales + Increased expenditure on research and development and sales & marketing Despite these additional costs, operating margins (before exceptional item) increased to 5.3%. Net Interest Charge The net interest charge was £2,382,000 (2000: £5,417,000). This was covered 3.5 times by operating profits before exceptional item. Exceptional Item The exceptional item comprised flotation costs of £1,080,000. A further, £ 340,000 of flotation costs were charged directly to the share premium account. Taxation Excluding the exceptional flotation costs, the effective tax rate for the year was 29.7%. This included the write-back of a small over-provision last year. At 30 June 2001, there was an unprovided deferred tax asset of £109,000, principally reflecting an excess of depreciation over capital allowances. Earnings Per Share and Dividend Earnings per share (before exceptional item) was 9.30p compared to 5.62p last year, an increase of 65%. The proposed final dividend is 2.5p per share which, when added to the interim dividend paid of 1.25p per share, means that dividends are covered 2.2 times. continued... -6- Capital Expenditure Of the fixed asset additions for the year of £2,940,000, the following significant new investments were made: £'000 NVS capacity expansion 328 (Making £500,000 in total) New HGV fleet and double Decker trailers 429 Dales expansion 800 (a further £2 million to be invested) Cash Flow and Net Debt Cash flow can vary from month to month as opportunities for strategic stock purchasing at higher margins are taken advantage of whenever it is sensible to do so. Such an opportunity led to a payment of £2.7 million a few days before the end of the financial year which distorted the reported cash flow. A similar deal was done last year but payment fell due after the year end. Allowing for this, cash flow from operations is broadly comparable with operating profit. Interest paid was high due to rolled up interest on the unsecured loan stock which was redeemed at the time of flotation. Net debt stood at £8,680,000 compared with £27,535,000 for the previous year. The reduction is due to the additional equity capital raised as a result of our flotation. Balance Sheet and Shareholders' Funds Shareholders' funds at 30 June 2001 amounted to £901,000 compared to a deficit of £27,930,000 the previous year. These figures reflect goodwill of £ 30,184,000 arising prior to 30 June 1998 which has been written off directly to reserves. Working capital increased from £1.5 million to £5.3 million, principally reflecting the payment noted above. Pro-Forma Results The key financial results are re-stated below on a pro-forma basis to reflect the fundamental change in funding structure of the Group as a result of being listed on the London Stock Exchange and to exclude the effect of the flotation costs. These results are for illustrative purposes only and do not reflect the actual results for the periods shown. Year ended 30 June 2001 2000 £'000 £'000 Operating profit 8,234 7,505 Profit on ordinary activities before taxation 6,846 6,138 Profit on ordinary activities after taxation 4,812 4,271 Basic pro-forma earnings per share 9.66p 8.58p The pro-forma results may be reconciled to the actual results as follows: Year ended 30 June 2001 2000 £'000 £'000 Actual profit on ordinary activities before taxation 4,772 2,088 Exceptional item 1,080 - Pro-forma interest adjustment 994 4,050 Pro-forma profit on ordinary activities before taxation 6,846 6,138 continued... -7- The calculation of pro-forma earnings per share is based upon: Year ended 30 June 2001 2000 £'000 £'000 Earnings for basic earnings per share calculation 3,036 1,436 Exceptional item 1,080 - Pro-forma interest adjustment after taxation 696 2,835 Earnings for pro-forma earnings per share calculation 4,812 4,271 Pro-forma earnings per share have been calculated assuming that the number of ordinary shares in issue on listing of 49,791,278 were in issue during the whole of each financial year. The pro-forma interest adjustment reflects the effect on interest payable and similar charges on bank and other loans (and the related tax effect) of replacing the funding in place prior to 22 September 2000 with that in place from 22 September 2000 onwards as if this financing had been in place since 1 July 1999. Pro-forma interest was covered six times by operating profits. -8- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Profit and Loss Account year ended 30 June 2001 2001 2000 Before Exceptional Total £'000 Exceptional Item £'000 Item (note 1) £'000 £'000 Turnover 156,400 - 156,400 145,487 Cost of sales (137,208) - (137,208) (128,550) Gross profit 19,192 - 19,192 16,937 Distribution costs (5,882) - (5,882) (5,121) Administrative expenses (5,076) (1,080) (6,156) (4,311) Operating profit 8,234 (1,080) 7,154 7,505 Net interest payable (2,382) - (2,382) (5,417) and similar charges Profit on ordinary 5,852 (1,080) 4,772 2,088 activities before taxation Tax on profit on (1,736) - (1,736) (652) ordinary activities Profit on ordinary 4,116 (1,080) 3,036 1,436 activities after taxation Dividends (1,867) - Retained profit for the 1,169 1,436 financial year Earnings per ordinary share Basic 9.30p 6.86p 5.62p Fully diluted 9.27p 6.84p 5.43p During the years ended 30 June 2001 and 30 June 2000 there were no recognised gains or losses other than the profit for the financial year. Consequently, no separate statement of total recognised gains and losses is included in the financial statements. All amounts relate to continuing operations. -9- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Balance Sheet as at 30 June 2001 2001 2000 £'000 £'000 Fixed assets Tangible assets 4,317 2,595 4,317 2,595 Current assets Stocks 16,460 16,207 Debtors 24,128 22,422 Cash at bank and in hand 3,993 9,226 44,581 47,855 Creditors: amounts falling due within one year (38,950) (40,437) Net current assets 5,631 7,418 Total assets less current liabilities 9,948 10,013 Creditors: amounts falling due after more than one year (9,047) (37,943) 901 (27,930) Capital and reserves Called up share capital 498 6 Share premium account 26,783 632 Profit and loss account (26,380) (28,568) Total equity and non-equity shareholders' funds 901 (27,930) Historical Cost Profits and Losses There is no difference between the historical cost profit on ordinary activities before taxation and that reported in the profit and loss account for the year ended 30 June 2001. Reconciliation of Movements in Shareholders' Funds 2001 2000 £'000 £'000 At 1 July 2000 (27,930) (29,366) Retained profit for the financial year 1,169 1,436 New shares issued 28,002 - Costs of share issue (340) - At 30 June 2001 901 (27,930) -10- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Cash Flow Statement year ended 30 June 2001 2001 2000 £'000 £'000 Net cash inflow from operating activities 3,453 12,036 Returns on investment and servicing of finance Interest received 4 2 Interest paid (7,673) (3,619) Interest element of finance lease rentals (43) (45) Net cash outflow for returns on investment and servicing of (7,712) (3,662) finance Taxation Corporation tax paid (1,195) (252) Capital expenditure Purchase of tangible fixed assets (1,882) (895) Sale of tangible fixed assets 111 36 Net cash outflow for capital expenditure and financial (1,771) (859) investment Acquisitions and disposals Purchase of business (100) (260) Net cash outflow for acquisitions and disposals (100) (260) Equity dividends paid (622) - Cash (outflow)/inflow before financing (7,947) 7,003 Financing Shares issued less expenses 27,662 - New bank loans 15,000 - Term loans repaid (39,462) (2,000) Capital element of finance lease payments (486) (473) Net cash Inflow/(outflow) from financing 2,714 (2,473) (Decrease)/increase in cash in the period (5,233) 4,530 Cash at 30 June 2000 9,226 4,696 Cash at 30 June 2001 3,993 9,226 Reconciliation of Net Cash Flow to Movement in Net Debt 2001 2000 £'000 £'000 (Decrease)/increase in cash during the period (5,233) 4,530 Cash inflow from new loans (15,000) - Debt repayments 39,462 2,000 Change in net debt resulting from cash flows 19,229 6,530 New finance leases (860) (76) Repayment of finance leases 486 473 Movement in net debt in the period 18,855 6,927 Net debt at 1 July 2000 (27,535) (34,462) Net debt at 30 June 2001 (8,680) (27,535) -11- Dechra Pharmaceuticals PLC Preliminary Results Notes to the Financial Statements year ended 30 June 2001 1. Exceptional Item The element of the costs of the flotation charged to the profit and loss account in the year ended 30 June 2001 amounted to £1,080,000 and has been classified as exceptional costs. In addition to the flotation costs charged to the profit and loss account, £340,000 of costs were charged to the share premium account. No provision for tax relief on the exceptional item has been included in the Group tax charge. 2. Net Interest Payable and Similar Charges 2001 2000 £'000 £'000 Bank loans and overdrafts 1,704 2,388 Amortisation of arrangement fees 37 368 Other loans 595 2,618 Other interest 7 - Finance charges payable on finance leases and hire purchase 43 45 contracts Total interest payable 2,386 5,419 Bank deposit and other interest receivable (4) (2) Net interest payable and similar charges 2,382 5,417 3. Tax on Profit on Ordinary Activities The tax charge based on the profit on ordinary activities for the year comprises: 2001 2000 £'000 £'000 UK Corporation tax charge 1,537 633 Deferred taxation 266 - 1,803 633 Adjustments to prior years: Corporation tax (67) 285 Deferred taxation - (266) (67) 19 1,736 652 4. Dividends 2001 2000 £'000 £'000 Interim paid 1.25p per share (2000: £nil) 622 - Final proposed 2.5p per share (2000: £nil) 1,245 - 1,867 - continued... -12- 5. Earnings per Share Earnings per ordinary share have been calculated by dividing the profit on ordinary activities after taxation for each financial year by the weighted average number of ordinary shares in issue during the year. 2001 2000 pence pence Basic earnings per share before exceptional item 9.30 5.62 Effect of exceptional item (2.44) - Basic earnings per share 6.86 5.62 Diluted earnings per share before exceptional item 9.27 5.43 Effect of exceptional item (2.43) - Diluted earnings per share 6.84 5.43 £'000 £'000 The calculation of basic and diluted earnings per share is based upon: Earnings for adjusted basic and diluted earnings per share 4,116 1,436 calculations Exceptional item (1,080) - Earnings for basic and diluted earnings per share calculations 3,036 1,436 2001 2000 No. No. Number of ordinary shares for basic earnings per 44,274,767 25,531,921 share Impact of share options and warrants 132,093 926,024 Number of ordinary shares issued for fully 44,406,860 26,457,945 diluted earnings per share 6. The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2000 or 2001 but is derived from those accounts. Statutory accounts for 2000 have been delivered to the Registrar of Companies, and those for 2001 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. 7. This statement is not being posted to shareholders. The Report & Accounts for the year ended 30 June 2001 will be posted to shareholders shortly. Further copies will be available from the Company's Registered Office: Dechra House, Jamage Industrial Estate, Talke Pits, Stoke on Trent, ST7 1XW. Email: corporate.enquiries@nvs-ltd.co.uk. 8. The Annual General Meeting will be held on Tuesday, 16 October 2001, 10.00am at The Manor House Hotel, Audley Road, Alsager, Stoke on Trent, Staffordshire, ST7 2QR.

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