Final Results

Dechra Pharmaceuticals PLC 02 September 2003 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 2 September 2003 Embargoed: 7.00am Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2003 2003 2002 â€¢ Turnover Â£179.3m Â£170.2m â€¢ Operating profit Â£8.2m Â£8.8m (pre-goodwill amortisation & exceptionals) â€¢ Pre-tax profit Â£6.75m Â£7.6m (pre-goodwill amortisation & exceptionals) â€¢ Adjusted Earnings per Share 9.39p 10.59p (pre-goodwill amortisation & exceptionals) â€¢ Maintained final dividend 2.75p 2.75p total for year 4.12p 4.12p â€¢ Further progress in product licensing and development - key to future growth â€¢ North American product development and marketing rights secured for Vetoryl â€¢ Arnolds - fastest growing of the Top 20 veterinary pharmaceutical companies â€¢ Laboratory businesses - strong earnings enhancing performance â€¢ NVS - significantly improved H2 operating margin, market share remains above 42% â€¢ Net debt reduced by Â£4.3 million since 31 December 2002 'Although we have experienced a difficult and demanding financial year, we have continued to invest significantly in product development, which is key to delivering our medium and long term growth strategy. With strengthened management teams across the Group, NVS now moving forward again and Arnolds and the laboratory businesses continuing to deliver strong results, the Group is well positioned to achieve sustained organic growth.' Ian Page, Chief Executive FULL STATEMENT ATTACHED Enquiries: Ian Page, Chief Executive Fiona Tooley Simon Evans, Group Finance Director Katie Dale Dechra(R) Pharmaceuticals PLC Citigate Dewe Rogerson Today: 020 7282 8000 Today: 020 7282 8000 07775 642222 (IP) Mobile: 07785 703523 07775 642220 (SE) Thereafter: 0121 455 8370 Thereafter: 01782 771100 www.dechra.com ---------------- -2- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2003 STATEMENT BY THE NON-EXECUTIVE CHAIRMAN, MICHAEL REDMOND Introduction The Group made an encouraging start to the financial year being reported, producing a good first quarter performance with National Veterinary Services reporting sales up 11% in that period. We were then affected by a decline in market growth and the second quarter results were flat on the previous year. As previously reported, this shortfall in sales, together with increased overheads due to the expansion programme of the central warehouse facility at Stoke, a trebling of insurance premiums and an aggressive pricing environment, impacted on net margins during the first half. As the veterinary market continued to remain flat during the first two months of the second half, key initiatives were introduced to enhance operating margins which resulted in an improved second half performance compared to the first half. Our added-value services provided through National Veterinary Services continued to perform well. Our overall market share remains in excess of 42%. Sales of our own branded pharmaceuticals through Arnolds have grown significantly during the year, principally through the success of recent introductions to Arnolds' licensed veterinary product portfolio, including our own developed products, Vetoryl(R) and Felimazole(R). We have also continued to expand sales of core pharmaceuticals through our major European distributors. Our laboratory businesses, NationWide Laboratories and Cambridge Specialist Laboratory Services produced a strong earnings enhancing performance with results being at their best ever. Customer orders, benefiting from synergies created through the Group structure, were increased by 25%. Our manufacturing operation, Dales Pharmaceuticals, saw turnover increase by Â£2.7million, reflecting the integration of Anglian Pharma. A number of initiatives and challenging new performance targets were introduced at this facility in January this year and although progress has been made, the full benefits of these actions in efficiency and productivity will not be realised until the current financial year ending 30 June 2004. Competition Commission Inquiry The Competition Commission findings from its inquiry into the supply of prescription only medicines in the UK were reported in April of this year. The Commission provisionally concluded in the statement of issues released on 16 April 2002 that a scale monopoly exists in favour of National Veterinary Services, our principal trading subsidiary. In our statement issued on 20 September 2002, we stated that this was 'a purely technical finding and did not imply that the situation operates or might be expected to operate against the public's interest'. I am pleased to report that the Competition Commission's findings issued on 11 April 2003 confirm this statement. The remedies from the Report are unlikely to have any material impact on the performance of Dechra. We continue to believe that Dechra is in a strong position to service and support the requirements of our existing and new customers when change is implemented. continued... -3- Product Development and Licensing Key to the future strategic growth of the Group's business is the development of new licensed products within its veterinary drug portfolio that can be marketed and sold both in the UK and internationally. The lead time for development, regulatory approval through to marketing and distribution of veterinary drugs can take up to five years. As we widen our exposure to this part of our business our product development expenditure will increase accordingly. During the year ended June 2003, we have made significant investments in product licensing and marketing authorisations. In particular, the Group made an initial payment of Â£784,000 as part of its exclusive rights to the intellectual property in Trilostane, the active compound in the Group's proprietary drug Vetoryl, in respect of animal health applications in the USA and Canada. Financial Highlights Group turnover increased 5.4% from Â£170.2 million to Â£179.3 million, whilst operating margin (pre-goodwill amortisation and exceptional items) reduced from 5.15% to 4.55%. Pre-tax profit (pre-goodwill amortisation and exceptional items) was Â£6.75 million against Â£7.60 million in 2002. Adjusted earnings per share (pre-goodwill amortisation and exceptional items), was 9.39 pence (2002: 10.59 pence) Net debt at the end of the period remained broadly in line with last year at Â£15 million. Dividend The Board is recommending a maintained final dividend of 2.75 pence per share (2002: 2.75 pence per share). This, together with the interim dividend of 1.37 pence per share gives a total for the year of 4.12 pence per share. The total dividend is covered 2.3 times by profit after taxation before exceptional items and goodwill amortisation. If approved at the Annual General Meeting on 23 October 2003, the final dividend will be paid on 26 November 2003 to shareholders on the Register as at 31 October 2003. People In May, we welcomed Neil Warner to the Main Board as a Non-Executive Director. Neil is Finance Director at Chloride Group PLC, a position he has held since 1997. His technical skills in financial control, tax and treasury enhance and strengthen the scope of the Board in delivering continuous improvement across the Group. At the same time, in order to service our customers and drive our strategy forward, we made a number of additional senior operating management appointments across the Group and these are covered under the Chief Executive's Review. Following the AGM in October, Mike Annice will step down from the Main Board in order to allow him to concentrate on the on-going development of Dales. On behalf of the Board and shareholders, I would like to welcome all new staff who joined the Group during the last year whilst also thanking all our people across the Group's subsidiaries for all the hard work and dedication that they have demonstrated throughout the year. Prospects We believe that the Group has made operational improvements and progress in delivering our strategy despite the challenges the business faced both commercially and economically in 2003. Following our actions to improve operational efficiencies around the Group together with the further development and growth of our own licensed and branded pharmaceuticals portfolio both in the UK and internationally, we remain cautiously optimistic that the Group will continue to see an improved trading performance in 2004. -4- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2003 REVIEW BY THE CHIEF EXECUTIVE, IAN PAGE Throughout the year our business and the veterinary market in which we trade have faced significant economic and commercial challenges. Although the Group results are lower than we originally envisaged at the start of the financial year, I believe that all our businesses are now stronger in management and infrastructure to deliver and support future growth opportunities. Furthermore, significant advancements in delivering our key strategic objectives have been made which we believe will deliver strong medium and long term growth. Distribution and Services National Veterinary Services ('NVS') is the UK's leading veterinary wholesaler and a supplier of added value services to veterinary practices. NVS had a solid start to the year, however in the second quarter sales declined. External market data also showed a downturn in the overall market during this period. The shortfall in budgeted sales at NVS combined with the other factors detailed in the Chairman's statement coupled with a general lack of confidence within veterinary practices created by the Competition Commission Report, impacted on our performance. Initiatives implemented in the second half to respond to these challenges have subsequently resulted in an improvement in gross margins, efficiency and cost controls which is reflected in a much better second half performance. The year has seen a number of significant developments at NVS. We have developed a stronger management team with the appointment of a new divisional Finance Director, Dan Shipman, Sales and Marketing Director, Sheryl Greentree, and Buying Director, Colin Higham. The skills of the new team have been instrumental in implementing the changes that will deliver future growth. Vetcom(R) Windows, our in-house developed practice management software system, continues to provide operational benefits to customers and has now been installed in almost 100 veterinary practices. The advanced practice management facilities will assist veterinary practices throughout the UK in developing good business practices and allow them to drive their businesses forward. Within the year we also developed Vetcom 'Handyscan', a barcode based ordering system which was launched in June 2003. The system enables veterinary practices to improve their stock control through barcode technology and allows them to place orders directly with NVS or to download data into the Vetcom practice management system. NVS are continuing to develop leading veterinary information technology solutions for veterinary practices. In July 2003 we introduced the NVS own branded 'Valu' range of quality products at economic prices, initially focussing on disposables such as surgical gloves, bandages, swabs and syringes. These products will assist veterinary practices to reduce their daily costs of essential items whilst at the same time will provide NVS with a competitive edge over other wholesalers, which will allow us to deliver improved margins to both ourselves and our veterinary customers. The warehouse expansion and site development, which doubled capacity, is now complete. The improved facilities will lead to greater efficiency and improved quality systems as we move forward. To support our high levels of service to customers we have enhanced our Customer Services introducing extended office opening hours and installing new customer call centre technology. NVS is in the process of implementing an extension to our semi-automated picking system which will include an automatic weight checking system. This will deliver operating efficiencies and improved order accuracy. continued... -5- Sales and Marketing Arnolds Veterinary Products ('Arnolds'), the Group's veterinary sales and marketing business based in Shrewsbury, is a market leader in a number of specialist pharmaceutical sectors and also supplies a wide range of instruments and consumable products. Arnolds' growth in pharmaceuticals at 32.2% was the highest growth seen by any of the top twenty veterinary pharmaceutical suppliers within the UK. This was predominantly driven by our new products, however further good growth was also achieved on our mature market leading products such as Equipalazone(R), Intubeaze(R) and Intra-epicaine(R). Two of our most recently licensed products, Vetoryl and Felimazole, are making an increasingly significant contribution. Vetoryl achieved sales in excess of Â£1 million during the year and achieved a high market penetration, with 51% of all veterinary practices now using Vetoryl on a regular basis. High levels of brand recognition have been gained through an on-going education process as we continue to assist veterinarians in the diagnosis and treatment of dogs with Cushing's disease. Felimazole has achieved significant growth during the second half since we announced that a new licence has been granted for the product to be used for life-time stabilisation of feline hyperthyroidism. Sales by the end of the financial year were approaching Â£0.5 million with sales in the fourth quarter in particular indicating an uplift in sales in the coming year. Key structural changes have been implemented throughout the year. In October 2002 UK Sales and Marketing was divided into two business units, one with specific focus on the sale of capital equipment and consumables, the other, being the larger team, focussing on the sale of pharmaceuticals. This has been a significant factor in driving forward exceptional growth. Towards the end of the year we merged our Export and UK administration operations into one cohesive unit. This has resulted in better customer service through faster response times and improved communications. Operational efficiencies are now also being realised from these initiatives. We have also strengthened the technical team with the appointment of a second veterinary advisor and have added further resource into the Regulatory and Licensing department. In a very competitive market we have achieved growth within a number of sectors of our instruments, disposables and agency products. Our agency agreements, namely Portex(R), 3m(R) and Global Veterinary Products (formerly Cook Veterinary Products) have continued to deliver good results. The overall performance from this part of the business has been offset by a decrease in sales of Braun(R) sutures, an agency agreement which has seen erosion in sales as a result of cheap imports. Manufacturing Dales Pharmaceuticals ('Dales'), the Group's manufacturing operation based in Skipton, North Yorkshire has experienced a demanding year. Following the acquisition of Anglian Pharma plc in April 2002, its manufacturing operations were transferred to our site in Skipton, allowing an increased service offering in the manufacturing and production of liquids, ointments and solid dose pharmaceuticals. Following the commissioning of a new liquids products facility at Dales the transfer was completed to schedule in January 2003. The enlarged business, which involved the manufacture of over 60 products and the associated licence variations, and which doubled the headcount at Skipton has taken longer to integrate than originally anticipated. Although Dales has now made significant progress towards the full integration, the benefits have not been realised within the year. continued... -6- Although the year has seen many challenges for Dales it is pleasing to note that this business has been successful in retaining all its key customers and has also gained new accounts during the course of the year. These include a new third party contract manufacturing account where commercial production started at the end of June 2003. This Â£0.5 million contract with a major pharmaceutical company involved several months of technical transfer work carried out in collaboration with the customer. Laboratory Services The Group's laboratory businesses are NationWide Laboratories ('NWL'), a full service provider of clinical and diagnostic pathology services to the veterinary profession in the UK, and Cambridge Specialist Laboratory Services ('CSLS'), a provider of highly specialised diagnostic services with a principal focus on veterinary endocrinology and in high quality immunoassay measurement techniques. Both NWL and CSLS have made considerable progress in the year with turnover increasing 35% on the year immediately preceding acquisition. Operating margin also improved across both businesses, resulting in operating profit more than doubling. The past financial year has seen improvements across the laboratory businesses, with growth in customer orders, a considerable expansion of facilities, the strengthening of both the technical specialist and management teams together with the synergistic benefits from across the Group as a whole. NWL has updated and increased its testing repertoire, particularly in respect of veterinary endocrinology and has also enhanced its schedule of UKAS accredited test procedures. The extension to the facilities allows the laboratory to process diagnostic samples more efficiently and comfortably whilst providing capacity for significant growth of the business in the future. In April 2003, we took the step of re-branding the trading style of the business, from 'North Western Laboratories' to 'NationWide Laboratories'. This change better reflects the true nature of the geographical area now served by the laboratory, across the UK. During the year we secured new contracts for both businesses, partly reflecting the synergistic relationships that have developed with other Group companies. NWL has been able to widen its services to its clients by offering the collection of diagnostic specimens through the NVS distribution network whilst at the same time NWL benefited from sales leads from NVS territory managers. Additionally NWL has assisted NVS in sourcing lower cost laboratory products for resale. NWL and CSLS have benefited from the appointment of Dr. Peter Graham as Managing Director. Peter is one of the world's leading veterinary endocrine specialists, and joined us from Michigan State University, where he ran the world's largest dedicated veterinary diagnostic endocrinology laboratory. We have further developed and integrated the laboratory businesses into the Group and have identified a number of new product and service opportunities which will enhance future growth. Product Development and Licensing During the year we successfully secured a number of partnerships and licensing agreements. The on-going product development programme continues to deliver good opportunities for medium and long-term growth. continued... -7- Within the UK the long-term usage licence for Felimazole has been granted. Two further products have been submitted for licensing and are expected to deliver products for marketing within the next twelve months. Additional licences for new dosing regimes for both Felimazole and Vetoryl are also being prepared, these licences once granted will further increase market penetration of these key products. In May 2003 the Group entered a joint venture partnership with LAB International (R) Inc. ('LAB'), a Canadian based drug development company. The partnership will run for an initial period of five years and strengthens the Group strategy to further develop and accelerate our licensed branded veterinary pharmaceutical portfolio. Under the partnership LAB provides research studies on selected therapeutic agents whilst Dechra is responsible for the formulation and regulatory submission of these products. I am pleased to report that we have already started work on the development of two generic veterinary pharmaceuticals. Of even greater significance, is the sub-licence agreement concluded in May 2003 with Bioenvision(R) Inc. to develop Vetoryl for future marketing in the USA and Canada. This veterinary drug, which as I have already indicated has been successfully developed and marketed in the UK by Arnolds is highly effective in the treatment of Cushing's disease, an endocrine disorder in dogs. Vetoryl's introduction into the North American market, which is some ten times larger than the UK, represents a substantial opportunity for Dechra. The current Vetoryl licence submission is still being developed with a view to submitting the product for mutual recognition within Europe during the current financial year. Negotiations are at an advanced stage with a major pharma company as a potential marketing partner for the EU market. Product development expenditure is directly related to recognised quantifiable projects that have a high probability of being delivered to market. Several new projects are being investigated, including two potential cross-over products from human pharma and an equine laminitis research project being conducted in association with The Royal Veterinary College. Summary Although we have experienced a difficult and demanding financial year, we have continued to invest significantly in product development, which is key to delivering our medium and long term growth strategy. With strengthened management teams across the Group, NVS now moving forward again and Arnolds and the laboratory businesses continuing to deliver strong results, the Group is well positioned to achieve sustained organic growth. -8- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2003 REVIEW BY THE GROUP FINANCE DIRECTOR, SIMON EVANS Summary of Results 2003 2002 Before After Before After Exceptional Exceptional Exceptional Exceptional Items and Items and Items and Items and Goodwill Goodwill Goodwill Goodwill Amortisation Amortisation Amortisation Amortisation Turnover Â£179.3m Â£179.3m Â£170.2m Â£170.2m Operating profit Â£8.2m Â£7.1m Â£8.8m Â£8.5m Profit before tax Â£6.75m Â£5.7m Â£7.6m Â£7.3m Earnings per share 9.39p 7.52p 10.59p 10.12p Dividend per share 4.12p 4.12p 4.12p 4.12p Operating Results The Group achieved a profit before tax, exceptional items and goodwill amortisation of Â£6.75 million for the year, a decrease of 11.3% compared to last year calculated on the same basis. The results reflect a difficult year in which the Group has suffered the double impact of challenging market conditions combined with a number of cost increases. Group turnover increased by 5.4% (which included the full year effect of acquisitions made in 2002) compared to 8.3% on a like-for-like basis last year. This principally reflected slower sales growth at NVS. However, sales of our own branded pharmaceuticals, our key strategic focus, increased by 32.2% compared to last year. Gross margin improved from 12.1% to 12.8%. This was due to the relatively high gross margins of the acquired businesses and the benefit of the margin improvement initiatives undertaken at NVS during the second half of the financial year. Operating costs before exceptional items and goodwill amortisation increased growth by 26.0% above last year. This represented 8.3% of sales compared to 6.9% last year. The principal cost increases were: â€¢insurance premiums increased from Â£219,000 to Â£573,000 â€¢product development expenditure increased from Â£525,000 to Â£997,000 â€¢acquisitions added Â£1.2 million to the cost base â€¢expansion of the NVS facility added Â£250,000 to the cost base Excluding the above, the cost increase above last year was 6.7% which represented further investment in people and systems to strengthen our core businesses. Overall, Group operating margin (before exceptional items and goodwill amortisation) reduced slightly from 5.15% to 4.55%. continued... -9- Net Interest Charge The net interest charge increased to Â£1.4 million from Â£1.2 million, principally reflecting the additional borrowings to partly fund the acquisitions made in the latter part of the year ended 30 June 2002. Interest was covered 5.8 times by operating profit before goodwill amortisation and exceptional items. Exceptional Item The exceptional item comprised the costs of integrating the operations of Dales and Anglian onto a single site at Skipton together with the costs of reorganising the Group's trading operations into a single statutory entity. Taxation The current year tax charge on profit before exceptional items and goodwill amortisation is 30.4%, slightly higher than the standard UK corporation tax rate of 30%. The difference is principally due to certain expenses that are not allowable for tax. There was a credit in respect of prior years of Â£91,000 and this reduced the overall tax charge on profit before exceptional items and goodwill amortisation to 29.1%. Earnings per Share and Dividend Adjusted earnings per share (before exceptional items and goodwill amortisation) was 9.39p. The proposed final dividend is maintained at 2.75p per share making a total maintained dividend for the year of 4.12p. The total dividend is covered 2.3 times by profit after taxation (before exceptional items and goodwill amortisation). Capital Expenditure Total capital expenditure for the year was Â£1.6 million. The main items included the addition of a liquids manufacturing suite at Dales to allow the transfer of production of the acquired Anglian business and an expansion of the NationWide Laboratories premises to enable future growth. In addition, the Group spent Â£784,000 including legal costs as the first stage payment for the acquisition of the rights to Vetoryl in the North American market. Further stage payments of US$0.75 million and US$3.0 million are due on the submission of a new animal drug application to the US Food and Drug Administration and the granting of a marketing authorisation respectively. During the year the Group entered into a sale and leaseback of its van and car fleet. This raised net proceeds of Â£0.5 million after settling outstanding hire purchase liabilities. Cash Flow and Net Debt The Group achieved an increased operating cash flow to Â£6.5 million (2002: Â£6.4 million) despite the lower level of profits this year. This reflects the continued strong focus on cash management. The second half of the financial year saw a strong cash inflow which reduced net debt by Â£4.3 million compared to 31 December 2002. Net debt at 30 June 2003 was Â£15.0 million, broadly similar to the figure at 30 June 2002. Balance Sheet and Shareholders' Funds Shareholders' funds increased to Â£7.47 million during the year reflecting the retained profit. Working capital increased from Â£8.9 million to Â£11.1 million. Stock turn improved from 7.8 times to 9.0 times due to a reduction in stocks at NVS, whilst debtor days were broadly similar to last year at 46 days (2002: 45 days). Creditor days reduced from 66 to 58 due to a reduction in creditors inherited from the Anglian acquisition together with a reduction in stock purchased under deferred payment terms. -10- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Profit and Loss Account for the year ended 30 June 2003 2003 2002 Notes Before Exceptional Before Exceptional Exceptional Items Exceptional Items Items and Goodwill Items and Goodwill and Goodwill Amortisation and Goodwill Amortisation Amortisation (note 1) Total Amortisation (note 1) Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 179,309 - 179,309 170,202 - 170,202 Cost of sales (156,319) - (156,319) (149,664) - (149,664) ------------------------------------------------------------------------------------------------------------- Gross profit 22,990 - 22,990 20,538 - 20,538 Distribution (7,252) - (7,252) (6,166) - (6,166) costs Administrative (7,576) (1,061) (8,637) (5,599) (295) (5,894) expenses ------------------------------------------------------------------------------------------------------------- Operating profit 1 8,162 (1,061) 7,101 8,773 (295) 8,478 Net interest 2 (1,416) - (1,416) (1,170) - (1,170) payable and similar charges ------------------------------------------------------------------------------------------------------------- Profit on ordinary activities before taxation 6,746 (1,061) 5,685 7,603 (295) 7,308 Tax on profit on 3 (1,960) 108 (1,852) (2,308) 58 (2,250) ordinary activities ------------------------------------------------------------------------------------------------------------- Profit on ordinary 4,786 (953) 3,833 5,295 (237) 5,058 activities after taxation Dividends 4 (2,093) (2,069) ------------------------------------------------------------------------------------------------------------- Retained profit 1,740 2,989 for the financial year ------------------------------------------------------------------------------------------------------------- Earnings per ordinary share Basic 5 9.39p (1.87p) 7.52p 10.59p (0.47p) 10.12p Diluted 5 9.36p (1.86p) 7.50p 10.56p (0.47p) 10.09p All amounts relate to continuing operations. There were no other recognised gains and losses other than shown above. -11- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Balance Sheet as at 30 June 2003 2003 2002 Â£'000 Â£'000 Fixed assets Intangible assets 5,730 5,284 Tangible assets 5,572 6,324 ------- -------- 11,302 11,608 ------- -------- Current assets Stocks 17,296 19,302 Debtors 28,001 25,822 ------- -------- 45,297 45,124 Creditors: amounts falling due within one year (42,420) (42,445) ------- -------- Net current assets 2,877 2,679 ------- -------- Total assets less current liabilities 14,179 14,287 Creditors: amounts falling due after more than one year (6,708) (8,538) ------- -------- Net assets 7,471 5,749 ------- -------- Capital and reserves Called up share capital 510 504 Shares to be issued - 750 Share premium account 26,783 26,783 Merger reserve 1,720 994 Profit and loss account (21,542) (23,282) ------- -------- Total equity shareholders' funds 7,471 5,749 ------- -------- Reconciliation of Movements in Shareholders' Funds 2003 2002 Â£'000 Â£'000 At 1 July 2002 5,749 1,010 Profit for the financial year 3,833 5,058 Dividends (2,093) (2,069) New shares issued 732 1,000 (Decrease)/increase in shares to be issued (750) 750 ------- -------- At 30 June 2003 7,471 5,749 ------- -------- -12- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Cash Flow Statement year ended 30 June 2003 Note 2003 2002 Â£'000 Â£'000 Net cash inflow from operating activities 6 6,542 6,397 Returns on investment and servicing of finance Interest received 62 16 Interest paid (1,400) (1,103) Interest element of finance lease rentals (46) (39) ------- ------- Net cash outflow for returns on investment and servicing of (1,384) (1,126) finance Taxation Corporation tax paid (2,066) (2,155) Capital expenditure Purchase of tangible fixed assets (1,553) (2,845) Purchase of intangible fixed assets (784) - Sale of tangible fixed assets 1,113 141 ------- ------- Net cash outflow for capital expenditure and financial (1,224) (2,704) investment Acquisitions and disposals Acquisitions of subsidiary undertakings 32 (3,214) Overdrafts of acquired businesses - (429) Purchase of business - (180) ------- ------- Net cash inflow/(outflow) for acquisitions and disposals 32 (3,823) Equity dividends paid (2,078) (1,927) ------- ------- Cash outflow before financing (178) (5,338) Financing New bank loans - 3,000 Term loans repaid (2,842) (3,364) Capital element of finance lease payments (568) (401) ------- ------- Net cash outflow from financing (3,410) (765) ------- ------- Decrease in cash in the period (3,588) (6,103) (Bank overdraft)/cash at 30 June 2002 (2,110) 3,993 ------- ------- Bank overdraft at 30 June 2003 (5,698) (2,110) ------- ------- Reconciliation of Net Cash Flow to Movement in Net Debt 2003 2002 Â£'000 Â£'000 Decrease in cash during the period (3,588) (6,103) Cash inflow from new loans - (3,000) Debt repayments 2,842 3,364 Repayment of finance leases 568 401 ------- ------- Change in net debt resulting from cash flows (178) (5,338) New finance leases (75) (418) Loan stock issued - (500) Other non cash changes (7) (8) ------- ------- Movement in net debt in the period (260) (6,264) Net debt at 1 July 2002 (14,728) (8,464) ------- ------- Net debt at 30 June 2003 (14,988) (14,728) ======= ======= -13- Dechra Pharmaceuticals PLC Preliminary Results Notes to the Financial Statements year ended 30 June 2003 1. Exceptional Items and Goodwill Amortisation 2003 2002 Â£'000 Â£'000 Reorganisation and rationalisation costs 500 - Compensation for loss of office - 194 ------- -------- Total exceptional items 500 194 Goodwill amortisation 561 101 ------- -------- Total exceptional items and goodwill amortisation 1,061 295 ------- -------- The reorganisation and rationalisation costs relate to the integration of the Group's manufacturing operations onto a single site at Skipton, together with the costs of reorganising the Group's trading operations into a single statutory entity. The compensation for loss of office in 2002 relates to the termination of the contract of Gary Evans, the former Chief Executive, and associated legal fees. 2. Net Interest Payable and Similar Charges 2003 2002 Â£'000 Â£'000 Bank loans and overdrafts 1,316 1,070 Amortisation of arrangement fees 97 74 Other loans 19 3 Finance charges payable on finance leases and hire purchase 46 39 contracts ------- -------- Total interest payable 1,478 1,186 Bank deposit and other interest receivable (62) (16) ------- -------- Net interest payable and similar charges 1,416 1,170 ------- -------- 3. Tax on Profit on Ordinary Activities 2003 2002 Â£'000 Â£'000 Current taxation UK Corporation tax charge 1,866 2,281 Adjustments in respect of prior periods (63) (35) ------- -------- Total current tax charge for the year 1,803 2,246 ------- -------- Deferred taxation Origination and reversal of timing differences 77 (24) Adjustments in respect of prior periods (28) 28 ------- -------- Total deferred tax charge for the year 49 4 ------- -------- Tax on profit on ordinary activities 1,852 2,250 ------- -------- Tax credit included above attributable to exceptional 108 58 operating items ------- -------- 4. Dividends 2003 2002 Â£'000 Â£'000 Interim paid 1.37p per share (2002: 1.37p) 691 682 Final proposed 2.75p per share (2002: 2.75p) 1,402 1,387 ------- -------- 2,093 2,069 ------- -------- continued... -14- 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 2003 2002 pence pence Basic earnings per share after exceptional items and goodwill amortisation 7.52 10.12 Effect of exceptional items 0.77 0.27 -------- -------- Basic earnings per share before exceptional item 8.29 10.39 Effect of goodwill amortisation 1.10 0.20 -------- -------- Adjusted earnings per share 9.39 10.59 -------- -------- Diluted earnings per share 7.50 10.09 Effect of exceptional items 0.76 0.27 -------- -------- Diluted earnings per share before exceptional 8.26 10.36 items Effect of goodwill amortisation 1.10 0.20 -------- -------- Adjusted diluted earnings per share 9.36 10.56 -------- -------- Â£'000 Â£'000 The calculation of basic and diluted earnings per share is based upon: Earnings for basic and diluted earnings per share 3,833 5,058 calculations Exceptional items 392 136 -------- -------- Earnings for basic and diluted earnings per share calculations before exceptional items 4,225 5,194 Goodwill amortisation 561 101 -------- -------- Earnings for adjusted and adjusted diluted earnings 4,786 5,295 per share -------- -------- No. No. Weighted average number of ordinary shares for basic 50,975,037 49,989,015 and adjusted earnings per share Impact of share options 164,117 151,049 -------- -------- Weighted average number of ordinary shares for 51,139,154 50,140,064 diluted and adjusted diluted earnings per share -------- -------- 6. Reconciliation of Operating Profit to Operating Cash Flow 2003 2002 Â£'000 Â£'000 Operating profit 7,101 8,478 Depreciation 1,248 1,289 Goodwill amortisation 561 101 Profit on disposal of tangible fixed assets (100) (43) Decrease/(increase) in stocks 1,698 (2,223) Increase in debtors (2,197) (601) Decrease in creditors (1,769) (604) -------- -------- Net cash inflow from operating activities 6,542 6,397 -------- -------- continued... -15- 7. Analysis of Net Debt Cash Other Inflow/ Non-Cash At 1 July (Outflow) Changes At 30 June 2002 2003 Â£'000 Â£'000 Â£'000 Â£'000 Borrowings due after one (8,200) - 1,561 (6,639) year Bank overdraft (2,110) (3,588) - (5,698) Other borrowings due within (3,728) 2,842 (1,568) (2,454) one year Finance leases (690) 568 (75) (197) --------- -------- -------- ----------- (14,728) (178) (82) (14,988) --------- -------- -------- ----------- Major non-cash transactions: During the year the group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the leases of Â£75,000 (2002: Â£133,000) and finance leases with a total capital value of Â£nil (2002: Â£285,000) arising on the acquisitions of subsidiaries. 8. Pensions The Group operates a defined contribution pension scheme for certain employees. The Group contributed between 4% and 12% of pensionable salaries which amounted to Â£281,000 (2002:Â£191,000). 9. Statutory Accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2002 or 2003 but is derived from those accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies, and those for 2003 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. 10. This statement is not being posted to shareholders. The Report & Accounts for the year ended 30 June 2003 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. 11. Annual General Meeting The Annual General Meeting will be held at 10.00am on Thursday, 23 October 2003 at The Manor House Hotel, Audley Road, Alsager, Stoke on Trent, Staffordshire, ST7 2QR. This information is provided by RNS The company news service from the London Stock Exchange

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