Final Results

Dechra Pharmaceuticals PLC 07 September 2004 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 7 September 2004 Embargoed: 7.00am Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2004 2004 2003 2004 2003 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 Â£186.8m Â£179.3m +4% Â£186.8m Â£179.3m +4% Operating Profit Â£9.2m Â£8.2m +13% Â£8.5m Â£7.1m +20% Profit before Â£8.1m Â£6.7m +19% Â£7.4m Â£5.7m +30% tax Earnings per 11.28p 9.39p +20% 9.97p 7.52p +33% share Dividend per 4.70p 4.12p +14% 4.70p 4.12p +14% share Record pre tax profit Cash conversion rate of 125%, net debt reduced to Â£10.1 million Expedited review granted for Vetoryl(R) by FDA Full EU licence received for Felimazole(R) Strong growth in sales of own branded pharmaceuticals Significantly improved productivity and profitability in manufacturing G ood revenue increase in second half in distribution 'Our strategic focus on the development of our veterinary pharmaceutical products is progressing extremely well'. 'The strong performance of the Group has continued into the first two months of this new financial year.' Mike Redmond, Chairman FULL STATEMENT ATTACHED Enquiries: Ian Page, Chief Executive Fiona Tooley, Director Simon Evans, Group Finance Director Katie Dale, Account Manager Dechra(R) Pharmaceuticals PLC Citigate Dewe Rogerson Today: 020 7282 8000 Today: 020 7282 8000 Mobile: 07775 642222 (IP) or 07775 642220 (SE) Mobile: 07785 703523 (FMT) Thereafter: 01782 771100 Thereafter: 0121 455 8370 www.dechra.com ---------------- -2- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2004 STATEMENT BY THE NON-EXECUTIVE CHAIRMAN, MICHAEL REDMOND Introduction The Group's progress in achieving its objectives of improving operational efficiencies, increasing margins, delivering new services and the development of its veterinary pharmaceutical portfolio is reflected in these results. During the year our distribution business improved operating margins and returned to sales growth following a flat start. Our manufacturing operation significantly improved productivity and profitability and our own pharmaceutical sales increased by 16%. Further details are set out under the Chief Executive's Review. Our strategic focus on the development of our veterinary pharmaceutical products is progressing extremely well. We have a portfolio of new products and range extensions under development both in-house and through partnerships. These will provide us with new opportunities to extend our pharmaceutical range in the UK and on a global basis. Financial Highlights Group turnover increased 4% from Â£179.3 million to Â£186.8 million. Operating profit before exceptional items and goodwill amortisation increased by 13% to Â£9.2 million (2003: Â£8.2 million). Profit before tax, calculated on the same basis, improved by 19% to Â£8.1 million (2003: Â£6.7 million). Profit after exceptional items and goodwill amortisation was up 30% at Â£7.4 million (2003: Â£5.7 million). Adjusted earnings per share (pre exceptional items and goodwill amortisation) was 11.28 pence (2003: 9.39 pence) a 20% increase over 2003. The figure after exceptional items and goodwill amortisation was 9.97 pence (2003: 7.52 pence), an improvement of 33%. Gross margin improved from 12.8% to 13.6% reflecting the continued ongoing improvements in product mix, productivity and operational efficiencies. Cash flow during the period was strong, with operating cash flow being 125% of operating profit. Net debt reduced by 33% to Â£10.1 million against Â£15.0 million at June 2003, which is a credit to the strong focus on cash management over the last three years. Interest cover (before exceptional items and goodwill amortisation) remains healthy at 8.2 times. Research and development spend in the period was slightly up on the previous year at Â£1.1 million reflecting investment in our veterinary pharmaceutical portfolio. We expect further increases during the current financial year as we plan for future growth. Although capital expenditure in the period was relatively modest, we anticipate this to be higher in 2004/5 as we enhance our information technology platform within our distribution business and upgrade our injections facility at our UK manufacturing plant. Additionally, following submission later this year of our New Animal Drug Application to the United States Food and Drug Administration ('FDA') in the USA for Vetoryl(R), a second milestone payment will become due under the terms of our agreement with Bioenvision Inc. continued... -3- Dividend To reflect the solid improvement in the Group's profitability and to underpin the Board's confidence in the Group's strategic development, the Directors are recommending a final dividend of 3.15 pence per share. This, together with the interim dividend paid of 1.55 pence per share, makes a total for the year of 4.70 pence per share, an increase of 14% on 2003. The total dividend is covered 2.4 times by profit after taxation but before exceptional items and goodwill amortisation. The final dividend, which is subject to shareholder approval at our Annual General Meeting to be held on Thursday 21 October 2004, will be paid on 24 November 2004 to shareholders on the Register as at 29 October 2004. People On behalf of the Board and shareholders I would like to thank all the Group's employees for their hard work, continued focus, and for working with the management team to improve the productivity, profitability and efficiency of our business. I would also like to welcome all new staff who joined us during the year. Current Trading and Prospects The strong performance of the Group has continued into the first two months of this new financial year and results are in line with internal budgets. As I reported earlier, the development of our veterinary pharmaceutical portfolio is progressing extremely well. We are on schedule to launch at least two new products in the UK, and one in Europe during this new financial year and we have taken significant steps towards licensing Vetoryl(R) in the USA. In addition, our partnerships, alliances and collaboration agreements offer a number of opportunities to extend our portfolio. As shareholders are aware, the research and development of any specialist pharmaceutical product can take a number of years. However, we expect to see the positive results from our hard work and investments made over the last three years beginning to feed through to sales for the Group in the current financial year. We remain confident that we will be able to report further progress when we announce our Interim Results in March 2005. -4- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2004 REVIEW BY THE CHIEF EXECUTIVE, IAN PAGE Pharmaceuticals Product Development & Licensing The most important strategic growth opportunity for Dechra is the development of our veterinary pharmaceutical programme. All major products in the development pipeline are on target with a number of license applications submitted and pending approval. A further strategy is to extend the market presence of our own pharmaceuticals into North America, Mainland Europe, Australasia and Japan. In December 2003, we completed a European marketing agreement with Janssen Animal Health. The initial five year partnership allows Janssen full marketing and distribution rights to Felimazole(R) and Vetoryl(R) in Mainland Europe with Dechra retaining all intellectual property and manufacturing rights. Janssen's extensive knowledge of the European market will allow the launch to be quicker and more cost-effective than we could have achieved independently. The full EU licence for Felimazole(R), gained through the mutual recognition procedure, has now been received, all European territories having approved the application. The product will be launched during Autumn 2004 in the key territories of France and Germany with all other countries being rolled out in 2005. We have successfully completed all remaining UK based trials for Vetoryl(R). Dossier submission for EU approval is anticipated in this financial year. Additionally, the FDA has granted Vetoryl(R) an expedited review, which we believe is a very positive indication of the clinical need for the product within the USA. The North American market is ten times larger than the UK, and with the high level of awareness of Cushing's Disease (for which Vetoryl(R) is the preferred treatment), the product's introduction represents a significant growth opportunity for the Group. We are at an advanced stage in the appointment of a US national to head up our North American marketing drive. We have also identified partners to licence, market and distribute both Vetoryl (R) and Felimazole(R) in Canada and Australia, with contracts currently being negotiated. The Equine Laminitis project which we commenced with The Royal Veterinary College in 2002 has produced some encouraging early results. With these positive indications, we are now entering the next stage of development. Trials of a needle-free injection system via a partnership with The Medical House PLC are also currently being undertaken. Initial compliance has been successful. We have recently submitted dossiers for three new products and two range extensions for approval to the UK assessors, the Veterinary Medicines Directorate ('VMD'). The range extensions are a 30mg Vetoryl(R) capsule targeted specifically at small dogs, which is currently sold on a 'specials' order basis, together with the introduction of a 2.5mg Felimazole(R) tablet for cats, which will offer increased flexibility and dosing options. We anticipate receiving marketing approval for the majority of these products in time for a UK launch in the current financial year. A number of other exciting new pharmaceutical development opportunities are being explored as we increase our focus on developing Dechra into a global veterinary pharmaceutical business. continued... -5- Sales & Marketing The focus by Arnolds on sales of licensed veterinary pharmaceutical products has been reflected in its results. 70% of turnover is now pharmaceutical, with the balance being instruments and consumables. Our key successes have been the continued market penetration of our lead products, Equipalazone(R), Vetoryl(R) and Felimazole(R), each of which now exceed sales of Â£1 million per annum. Equipalazone(R), which has dominated the equine non-steroidal market for over ten years, grew sales by 11%. In the last twelve months, Vetoryl(R) sales increased by 39% and Felimazole(R) by 132%. Both products have achieved in excess of 80% market penetration of companion animal veterinary practices and we anticipate that the number of animals being prescribed the products will continue to grow. In response to the continuing growth of our own pharmaceuticals and imminent new product launches, we have decided to restructure the Arnolds business. The instruments, consumables and capital goods part of the business has been consolidated into one business unit and the Pharmaceuticals business will become an independent business unit. The roles of the marketing team will change to 'product managers' who will be responsible for marketing and managing a particular product on a global basis giving them increased responsibility and accountability. The Arnolds website is being re-developed to provide easy access to the latest information and technical data on our key products. Manufacturing The restructuring of the management team at the beginning of the year and the focus on high value profitable business and operational improvements have resulted in the successful turnaround in Dales' performance. Investment in state of the art capsule production equipment provided significant improvements in yields, output and product quality which subsequently improved supply and, more importantly, customer service levels. In June 2004, we achieved our Â£1 million per month sales target and we anticipate ongoing run rates to be around this level during the current financial year. Dales will continue to provide the technical pharmaceutical input to the Group Regulatory function in support of new marketing authorisation applications (product licences) and in the renewal process for existing licences. Services Distribution Although market conditions were competitive, National Veterinary Services ('NVS') produced an encouraging performance with a 17% increase in operating profits, whilst maintaining its 42% share of the veterinary market. Our recently introduced own branded 'Valu' range of disposable products, which offers quality at a highly competitive price, is running at annualised sales in excess of Â£400,000. We expect sales to increase over the coming twelve months as a result of our continued focus on these high margin products. The full implementation of the automatic order consolidation and weight checking system, completed in the third quarter, has improved overall efficiency by increasing customer order picking rates and removing the need for full manual checking. NVS has been the first to apply this technology in the veterinary sector and we expect to see the full benefits of this investment in this new financial year. During the next twelve months, NVS will upgrade its internal IT systems, which will provide state of the art functionality delivering future operational and customer benefits. continued... -6- To better service and meet the needs of our customers in the South East, we have split our Swanley operation into two depots, one in Swanscombe and the other in Caxton Hill. In Scotland, we have opened a distribution centre in Hamilton, south of Glasgow, with a dedicated service team to focus on developing relationships with the veterinary practices across an important region that offers NVS substantial growth opportunities. Information Technology We continue to develop new services to offer the veterinary practitioner. Through our Alternative Analysis tool, we can study the spend of a particular practice and recommend mutually financially beneficial products. 340 practices benefited from this service last year. In partnership with our customers, NVS territory managers can also exploit the NVS Indices, which analyses key data to indicate the profitability of a practice by product category and identify areas of potential growth and improvement. Our other established products Vetcom(R) Windows, Handyscan and Vet2Pet(R) continue to perform well. Laboratories Our Laboratory Services business has benefited from Group strengths which have contributed to the excellent results achieved by NationWide Laboratories ('NWL') and Cambridge Specialist Laboratory Services ('CSLS'). During the period, they grew their customer base and added 18 new clinical & diagnostic services to their range. The implementation of improved workflow systems has provided substantial operational efficiencies and enhanced our already high levels of customer service. During the current financial year, NWL will be targeting key territories where it has identified significant opportunities to expand its business, in particular with its specialist same day service. Roadshows Working with the veterinary profession we have, over the course of the year, carried out a number of conferences, forums and symposiums. This has enabled us to market Group services, educate veterinarians on our specialist veterinary pharmaceutical portfolio and contribute to the continued professional development of our veterinary clients. We have also been involved in debates on the future of the sector, identifying the best way forward to assist practices to develop to their full potential. People Dechra currently employs 647 people. During the year we further strengthened operational management across the Group. This has had a beneficial effect in particular at Dales, our manufacturing facility, where the experience and skills brought into the business with the appointments of a new Finance Director, Quality Director and Manufacturing Manager have contributed to its much improved performance. In July 2004, we appointed a new Finance Director at Arnolds. Stephen Whitehouse, who previously held the position, will concentrate on his role as Group Company Secretary. The Group recognises the importance of staff development. Each business is responsible for coordinating an appropriate career development programme which includes internal and external training courses suitable to meet individual staff requirements. Summary Following a very challenging period last year, the results achieved this year are a tribute to the hard work and dedication of everybody in the Group. We will continue to work together to exploit our market leading position within our businesses whilst taking advantage of the opportunities to develop our veterinary drug portfolio both in the UK and internationally. -7- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2004 REVIEW BY THE GROUP FINANCE DIRECTOR, SIMON EVANS Introduction The focus over the last year, from a financial perspective, has been to lift operating margins in all of our businesses and achieve an improvement in working capital management and cash flow. I am pleased that the results of our efforts are seen in record profits this year together with a substantial reduction in net debt. Operating Results The Group achieved a profit before tax, exceptional items and goodwill amortisation of Â£8.1 million, an increase of 19.5% compared to last year calculated on the same basis. The results after exceptional items and goodwill amortisation are summarised on page 1 of this statement. Group turnover improved by 4.2% although, after a flat first half of the year, it was encouraging to see sales in the second half increase by 8.6%. This reflects improved market conditions, the continued success of our branded pharmaceutical product portfolio and significantly better productivity at our manufacturing operation. Gross margin is up from 12.8% to 13.6% reflecting ongoing improvements in operational efficiency and productivity at all of our businesses. Operating costs include a charge of Â£215,000 in respect of the Executive Incentive Plan in accordance with UITF17 (revised) although there is no cash flow impact on the Group. Product development spend increased from Â£1.0 million in 2003 to Â£1.1 million. Overall, Group operating margin improved from 4.55% to 4.92%. Net Interest Charge The improved cash flow performance this year resulted in a 20.6% reduction in the interest charge from Â£1.4 million to Â£1.1 million, despite interest rates rising during the period. Interest was covered 8.2 times (2003: 5.8 times) by operating profit before exceptional items and goodwill amortisation. Taxation The current year tax charge on profit before exceptional items and goodwill amortisation is 30.5%, the slightly higher than standard rate being due to expenditure not deductible for tax purposes. There is also a net prior year credit of Â£150,000 which has brought the overall rate for the year down to 28.6%. Earnings Per Share and Dividend Adjusted earnings per share (before exceptional items and goodwill amortisation) was 11.28p (2003: 9.39p), an increase of 20.1%. The proposed final dividend is 3.15p, making a total for the year of 4.70p, a 14% uplift over last year. The total dividend is covered 2.4 times by profit after taxation but before exceptional items and goodwill amortisation. continued... -8- Capital Expenditure Following significant investments over the last two years, capital expenditure during the year was relatively low at Â£666,000. The major new investment in the period was in an automatic weight checking system at our distribution business. Capital expenditure is likely to increase over the coming financial year, with planned investments in a new IT system at our distribution business and an upgrade of the injections department at our manufacturing facility. The second milestone payment of US$750,000 in respect of the acquisition of the rights to Vetoryl(R) in North America (announced on 23 May 2003) is likely to become due in the coming financial year following submission of our New Animal Drug Application to the FDA. Cash Flow and Net Debt The Group achieved an operating cash flow of Â£10.6 million, a 61.7% increase on last year's figure of Â£6.5 million. This reflects continued improvements over the last three years. Operating cash flow represented 125% of operating profit compared to 92% last year. Net debt showed a very healthy 32.5% reduction from Â£15.0 million to Â£10.1 million. Balance Sheet and Shareholders' Funds Shareholders' funds increased to Â£10.2 million during the year reflecting the retained profit. Working capital decreased from Â£11.1 million to Â£10.0 million. Stock turn improved from 9.0 times to 11.5 times. Trade debtor days improved from 45 days to 44 days although debtors increased in absolute terms due to high sales levels in June. Trade creditor days were 53 (2003: 58 days). Gearing at 30 June 2004 was 50% (measured as net debt divided by total assets before net debt). However, if goodwill previously written off to reserves of Â£30.2 million is added back, gearing falls to 20%. International Financial Reporting Standards ('IFRS') The Group will be required to report for the first time under IFRS for the year ending 30 June 2006. Work has already been progressing to identify the changes that will be required. The principal areas where there may be a significant impact on the reported results of the Group are: Share options The fair value of share options issued will be required to be charged to the profit and loss account over the relevant measurement period. Research and development expenditure Certain development expenditure is required to be capitalised. Current Group policy is to write off such expenditure as incurred. A further update on the potential impact of IFRS will be given in the next Annual Report. -9- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Profit and Loss Account for the year ended 30 June 2004 2004 2003 Notes Before Exceptional Total Before Exceptional Total exceptional items and Â£'000 exceptional items and Â£'000 items and goodwill items and goodwill goodwill amortisation goodwill amortisation amortisation (note 1) amortisation (note 1) Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------------------------------------ Turnover 186,843 - 186,843 179,309 - 179,309 Cost of sales (161,422) - (161,422) (156,319) - (156,319) ------------------------------------------------------------------------------------------------------------ Gross profit 25,421 - 25,421 22,990 - 22,990 Distribution costs (7,588) - (7,588) (7,252) - (7,252) Administrative expenses (8,649) (691) (9,340) (7,576) (1,061) (8,637) ------------------------------------------------------------------------------------------------------------ Operating profit 9,184 (691) 8,493 8,162 (1,061) 7,101 Net interest payable and similar charges 2 (1,124) - (1,124) (1,416) - (1,416) ------------------------------------------------------------------------------------------------------------ Profit on ordinary activities before taxation 8,060 (691) 7,369 6,746 (1,061) 5,685 Tax on profit on ordinary activities 3 (2,309) 21 (2,288) (1,960) 108 (1,852) ------------------------------------------------------------------------------------------------------------ Profit on ordinary activities after taxation 5,751 (670) 5,081 4,786 (953) 3,833 Dividends 4 (2,396) (2,093) ------------------------------------------------------------------------------------------------------------ Retained profit for the financial year 2,685 1,740 ------------------------------------------------------------------------------------------------------------ Earnings per ordinary share Basic 5 11.28p (1.31p) 9.97p 9.39p (1.87p) 7.52p Diluted 5 11.12p (1.29p) 9.83p 9.36p (1.86p) 7.50p All amounts relate to continuing operations. There were no recognised gains and losses other than shown above. -10- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Balance Sheet as at 30 June 2004 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Fixed assets Intangible assets 5,174 5,730 Tangible assets 5,224 5,572 -------------------------------------------------------------------------------- 10,398 11,302 -------------------------------------------------------------------------------- Current assets Stocks 16,979 17,296 Debtors 32,889 28,001 -------------------------------------------------------------------------------- 49,868 45,297 Creditors: amounts falling due within one year (45,172) (42,420) -------------------------------------------------------------------------------- Net current assets 4,696 2,877 -------------------------------------------------------------------------------- Total assets less current liabilities 15,094 14,179 Creditors: amounts falling due after more than one year (4,763) (6,708) Provisions for liabilities and charges (174) - -------------------------------------------------------------------------------- Net assets 10,157 7,471 ================================================================================ Capital and reserves Called up share capital 510 510 Share premium account 26,784 26,783 Merger reserve 1,720 1,720 Profit and loss account (18,857) (21,542) -------------------------------------------------------------------------------- Total equity shareholders' funds 10,157 7,471 ================================================================================ Reconciliation of Movements in Shareholders' Funds for the year ended 30 June 2004 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- At 1 July 2003 7,471 5,749 Profit for the financial year 5,081 3,833 Dividends (2,396) (2,093) New shares issued 1 732 Decrease in shares to be issued - (750) -------------------------------------------------------------------------------- At 30 June 2004 10,157 7,471 ================================================================================ -11- Dechra Pharmaceuticals PLC Preliminary Results Consolidated Cash Flow Statement year ended 30 June 2004 Note 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Net cash inflow from operating activities 6 10,576 6,542 Returns on investment and servicing of finance Interest received 584 62 Interest paid (1,580) (1,400) Interest element of finance lease rentals (16) (46) -------------------------------------------------------------------------------- Net cash outflow for returns on investment and servicing of finance (1,012) (1,384) Taxation Corporation tax paid (1,864) (2,066) Capital expenditure Purchase of tangible fixed assets (569) (1,553) Purchase of intangible fixed assets (5) (784) Sale of tangible fixed assets 28 1,113 -------------------------------------------------------------------------------- Net cash outflow for capital expenditure and financial investment (546) (1,224) Acquisitions and disposals Acquisitions of subsidiary undertakings - 32 -------------------------------------------------------------------------------- Equity dividends paid (2,192) (2,078) -------------------------------------------------------------------------------- Cash inflow/(outflow) before financing 4,962 (178) Financing Shares issued 1 - Term loans repaid (1,954) (2,842) Loan stock repaid (500) - Capital element of finance lease payments (135) (568) -------------------------------------------------------------------------------- Net cash outflow from financing (2,588) (3,410) -------------------------------------------------------------------------------- Increase/(decrease) in cash in the period 2,374 (3,588) Bank overdraft at 30 June 2003 (5,698) (2,110) -------------------------------------------------------------------------------- Bank overdraft at 30 June 2004 (3,324) (5,698) ================================================================================ Reconciliation of Net Cash Flow to Movement in Net Debt 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Increase/(decrease) in cash during the period 2,374 (3,588) Debt repayments 2,454 2,842 Repayment of finance leases 135 568 -------------------------------------------------------------------------------- Change in net debt resulting from cash flows 4,963 (178) New finance leases (11) (75) Other non-cash changes (74) (7) -------------------------------------------------------------------------------- Movement in net debt in the period 4,878 (260) Net debt at 1 July 2003 7 (14,988) (14,728) -------------------------------------------------------------------------------- Net debt at 30 June 2004 7 (10,110) (14,988) ================================================================================ -12- Dechra Pharmaceuticals PLC Preliminary Results Notes to the Financial Statements year ended 30 June 2004 1. Exceptional Items and Goodwill Amortisation 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Exceptional items - reorganisation and rationalisation costs 130 500 Goodwill amortisation 561 561 -------------------------------------------------------------------------------- Total exceptional items and goodwill amortisation 691 1,061 ================================================================================ The reorganisation and rationalisation costs relate to the integration of the Group's manufacturing operations onto a single site at Skipton, together with other costs of reorganising the Group's trading operations. 2. Net Interest Payable and Similar Charges 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Bank loans and overdrafts 1,599 1,316 Amortisation of arrangement fees 88 97 Other loans 5 19 Finance charges payable on finance leases and hire purchase contracts 16 46 -------------------------------------------------------------------------------- Total interest payable 1,708 1,478 Bank deposit and other interest receivable (584) (62) -------------------------------------------------------------------------------- Net interest payable and similar charges 1,124 1,416 ================================================================================ continued... -13- 3. Tax on Profit on Ordinary Activities a) Tax charge for the year 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Current taxation UK Corporation tax charge 2,454 1,866 Adjustments in respect of prior periods (347) (63) -------------------------------------------------------------------------------- Total current tax charge for the year 2,107 1,803 -------------------------------------------------------------------------------- Deferred taxation Origination and reversal of timing differences (16) 77 Adjustments in respect of prior periods 197 (28) -------------------------------------------------------------------------------- Total deferred tax charge for the year 181 49 -------------------------------------------------------------------------------- Tax on profit on ordinary activities 2,288 1,852 -------------------------------------------------------------------------------- Tax credit included above attributable to exceptional operating items 21 108 ================================================================================ b) Factors affecting the tax charge for the current period The current tax charge is lower than (2003: higher than) the standard rate of corporation tax in the UK of 30% (2003: 30%). The differences are explained below: 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Profit on ordinary activities before taxation 7,369 5,685 Current tax charge at 30% (2003: 30%) 2,211 1,705 -------------------------------------------------------------------------------- Effects of permanent differences: - goodwill amortisation 168 168 - depreciation on assets not eligible for tax allowances 22 18 - disallowable expenses 37 52 -------------------------------------------------------------------------------- 227 238 Timing differences: - capital allowances (in excess of)/less than depreciation (65) 14 - other short term timing differences 81 (91) -------------------------------------------------------------------------------- 16 (77) -------------------------------------------------------------------------------- Adjustments to tax charge in respect of previous periods (347) (63) -------------------------------------------------------------------------------- Total current tax charge (see above) 2,107 1,803 ================================================================================ 4. Dividends 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Interim paid 1.55p per share (2003: 1.37p) 790 691 Final proposed 3.15p per share (2003: 2.75p) 1,606 1,402 -------------------------------------------------------------------------------- 2,396 2,093 ================================================================================ 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. 2004 2003 pence pence -------------------------------------------------------------------------------- Basic earnings per share after exceptional items and goodwill 9.97 7.52 amortisation Effect of exceptional items 0.21 0.77 -------------------------------------------------------------------------------- Basic earnings per share before exceptional items 10.18 8.29 Effect of goodwill amortisation 1.10 1.10 -------------------------------------------------------------------------------- Adjusted earnings per share 11.28 9.39 -------------------------------------------------------------------------------- Diluted earnings per share 9.83 7.50 Effect of exceptional items 0.21 0.76 -------------------------------------------------------------------------------- Diluted earnings per share before exceptional items 10.04 8.26 Effect of goodwill amortisation 1.08 1.10 -------------------------------------------------------------------------------- Adjusted diluted earnings per share 11.12 9.36 -------------------------------------------------------------------------------- 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- The calculation of basic and diluted earnings per share is based upon: Earnings for basic and diluted earnings per share calculations 5,081 3,833 Exceptional items 109 392 -------------------------------------------------------------------------------- Earnings for basic and diluted earnings per share calculations before 5,190 4,225 exceptional items -------------------------------------------------------------------------------- Goodwill amortisation 561 561 -------------------------------------------------------------------------------- Earnings for adjusted and adjusted diluted earnings per share 5,751 4,786 ================================================================================ 2004 2003 No. No. -------------------------------------------------------------------------------- Weighted average number of ordinary shares for basic and adjusted 50,975,214 50,975,037 earnings per share Impact of share options 725,830 164,117 ================================================================================ Weighted average number of ordinary shares for diluted and adjusted 51,701,044 51,139,154 diluted earnings per share ================================================================================ continued... -15- 6. Reconciliation of Operating Profit to Operating Cash Flow 2004 2003 Â£'000 Â£'000 -------------------------------------------------------------------------------- Operating profit 8,493 7,101 Depreciation 988 1,248 Goodwill amortisation 561 561 Loss/(profit) on disposal of tangible fixed assets 4 (100) Decrease in stocks 317 1,698 Increase in debtors (4,901) (2,197) Increase/(decrease) in creditors 5,114 (1,769) -------------------------------------------------------------------------------- Net cash inflow from operating activities 10,576 6,542 ================================================================================ 7. Analysis of Net Debt At 1 July 2003 Cash Other At 30 June 2004 Â£'000 flow Non-Cash Â£'000 Â£'000 Changes Â£'000 -------------------------------------------------------------------------------- Borrowings due after one year (6,639) - 1,880 (4,759) Bank overdraft (5,698) 2,374 - (3,324) Other borrowings due within (2,454) 2,454 (1,954) (1,954) one year Finance leases (197) 135 (11) (73) -------------------------------------------------------------------------------- (14,988) 4,963 (85) (10,110) ================================================================================ 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£287,000 (2003: Â£281,000). 9. Statutory Accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2003 or 2004 but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies, and those for 2004 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. Annual General Meeting The Annual General Meeting will be held at 10.00am on Thursday, 21 October 2004 at The Manor House Hotel, Audley Road, Alsager, Stoke on Trent, Staffordshire, ST7 2QR. 11. This Preliminary statement is not being posted to shareholders. The Report & Accounts for the year ended 30 June 2004 will be posted to shareholders shortly. Copies of the 2004 Report & Accounts 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. This information is provided by RNS The company news service from the London Stock Exchange

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