Final Results

Dechra Pharmaceuticals PLC 06 September 2005 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 6 September 2005 Embargoed: 7.00am Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 'Pharmaceuticals and Services Divisions performed well with further penetration of our products and services within the veterinary market' 2005 2004 2005 2004 Before Before After After exceptional exceptional exceptional exceptional items and items and items and items and goodwill goodwill goodwill goodwill amortisation amortisation amortisation amortisation Turnover Â£208.2m Â£186.8m +11% Â£208.2m Â£186.8m +11% Operating Profit Â£11.0m Â£9.2m +20% Â£10.4m Â£8.5m +23% Profit before Â£9.4m Â£8.1m +17% Â£8.9m Â£7.4m +20% tax Earnings per 13.39p 11.28p +19% 12.28p 9.97p +23% share Full year dividend per 5.20p 4.70p +11% 5.20p 4.70p +11% share Cash flow strong: 127% of operating profit Net debt reduced from Â£10.1 million to Â£4.9 million Own branded veterinary pharmaceutical portfolio sales increased by 19% to Â£11 million Product development expenditure increased by 19% to Â£1.3 million Positive progress in the planned sales expansion in USA 'Dechra has made significant steps in the development of its own branded veterinary pharmaceutical product portfolio, in increasing its international presence as well as making progress in our Pharmaceuticals and Services Divisions for the longer term.' Michael Redmond, Chairman 'A strong sales performance of the existing product portfolio combined with new business wins provides a solid platform for future growth.' Ian Page, Chief Executive FULL STATEMENT ATTACHED Enquiries: Ian Page, Chief Executive Fiona Tooley, Director Simon Evans, Group Finance Director Katie Dale, Senior Manager Dechra(R) Pharmaceuticals PLC Citigate Dewe Rogerson Today: 020 7282 8000 (7.45am - 12.30pm) 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 2005 STATEMENT BY THE CHAIRMAN, MICHAEL REDMOND Introduction The last twelve months have seen your Company make significant steps in the development of its own branded veterinary pharmaceutical product portfolio, in increasing its international presence as well as making progress in our Pharmaceuticals and Services Divisions for the longer term. This is reflected in these results for the financial year ended 30 June 2005. Through our improved service offering and product mix, our Services business increased its gross margin and secured a number of significant new customers during the year. Productivity and other operational efficiencies improved our manufacturing business' performance with turnover and operating profit substantially higher than the comparable period last year. Our marketing business also experienced significant growth in its sales of pharmaceuticals including our own branded Vetoryl(R) Capsules and Felimazole(R) Tablets. Our strategic focus continues to be the development of our own veterinary pharmaceutical product portfolio. During the year, we have added a number of new marketing authorisations and have also made positive progress with our planned sales expansion in the USA. This is covered in more detail in the Chief Executive's Review. Financial Highlights Group turnover increased 11% from Â£186.8 million to Â£208.2 million. Operating profit before exceptional items and goodwill amortisation increased by 20% to Â£11.0 million (2004: Â£9.2 million). Profit before tax, calculated on the same basis, improved by 17% to Â£9.4 million (2004: Â£8.1 million). Pre-tax profit after exceptional items and goodwill amortisation was up 20% at Â£8.9 million (2004: Â£7.4 million). Adjusted earnings per share (pre exceptional items and goodwill amortisation) was 13.39 pence (2004: 11.28 pence) a 19% increase over last year. The figure after exceptional items and goodwill amortisation was 12.28 pence (2004: 9.97 pence), an increase of 23%. Gross margin increased from 13.6% to 14.3% once again reflecting the on-going improvements in product mix, productivity and operational efficiencies. After product development expenditure of Â£1.3 million and our initial investment of Â£0.2 million in our fledgling American operation, Group operating margin increased to 5.27% (2004: 4.92%). Cash flow remained strong with operating cash flow being 127% of operating profit. Over the last four years through a strong focus on cash management, net debt has significantly reduced from Â£14.7 million in 2002 to Â£4.9 million this year (2004: Â£10.1 million). Interest cover (before exceptional items and goodwill amortisation) was 7.1 times. Capital expenditure during the year totalled Â£2.1 million, which included acquiring the worldwide rights to Thyroxyl Liquid and Thyroxyl Tablets and the marketing authorisations for the Vetivex(R) Solutions range. continued... -3- Dividend The Board are recommending a final dividend of 3.50 pence per share. This, together with the interim dividend paid of 1.70 pence per share, makes a total for the year of 5.20 pence per share, an increase of 10.6% over 2004. The total dividend is covered 2.6 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 Wednesday 19 October 2005, will be paid on 25 November 2005 to shareholders on the Register as at 28 October 2005. People On behalf of the Board and shareholders, I would like to thank all the Group's employees and the operating management team for their continued focus and dedication which has contributed to this strong performance. We welcome all new employees and management to the Group, including Mike Eldred as President of our US operation and Dr. Susan Longhofer. Susan joined the Group at the end of June as Product Development and Regulatory Affairs Director and has over 16 years industry experience in development and worldwide registration of animal health pharmaceuticals. Current Trading and Prospects Since the year-end we have successfully launched Thyroxyl Oral Solution and Thyroxyl Tablets in the USA. We are encouraged by the initial interest in the product and, although it is at an early stage, we expect to gain a market presence in the US veterinary endocrine market with this product. The strategic alliances and development agreements already established in 2005 provide a foundation to build both our licensed veterinary product portfolio and our international presence. These, together with further partnerships being pursued with human pharmaceutical research and veterinary healthcare businesses, create additional opportunities. Current trading remains in line with management expectations and we remain confident about the year as a whole. -4- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 REVIEW BY THE CHIEF EXECUTIVE, IAN PAGE Introduction As we indicated in our pre-closed period update, both our Pharmaceuticals and Services Divisions have performed well, building on the good growth achieved last year. These results reflect the on-going improvement in market conditions and further penetration of our products and services within the veterinary market. Further progress has also been made in the development programme for our own branded licensed veterinary product portfolio for the North American and European companion animal markets. Product Development During the year, there have been a number of achievements within the Product Development programme, detailed below: - The Group continues to make progress on Vetoryl(R) Capsules in the USA. The safety and efficacy sections have now been submitted, we await guidance from the FDA as to any further trial requirements. Progress on this key product has also been made in the EU with the dossier being submitted for mutual recognition in June 2005. In April 2005, we were granted a range extension for a 30mg capsule that is specifically targeted at small breed dogs. The product was launched in the UK at the end of the financial year being reported on. Additionally, Vetoryl (R) has been approved for marketing in blister packs of 30 capsules; this will assist in owner compliance as we successfully continue to grow the market. Following the granting of an expedited review status for Felimazole(R) Tablets the FDA has requested an additional clinical trial to be conducted in the USA. The trial will commence once the protocol has received approval. In November 2004, the Group gained a full EU licence for Felimazole(R) through the mutual recognition procedure. The product is currently being marketed in Europe through our partner, Janssen Animal Health. A new 2.5mg Felimazole(R) Tablet, granted a UK licence in November 2004, offers increased flexibility in dosing options. Since its UK market launch in February 2005, we have seen a significant increase in sales. A development and marketing contract has been agreed with Vetoquinol, Canada. Vetoquinol will lead the licence applications for Vetoryl(R) and Felimazole(R) and will market the products following approval, initially for a period of five years, in the Canadian market. In February, the Group was granted a UK marketing authorisation for Ovuplant(R) Implant, whose chemical entity is the intellectual property of the Australian bio-technology company, Peptech Animal Health. Ovuplant(R) is a controlled-release, synthetic hormone that stimulates ovulation in brood mares and it is used widely by horse breeders in a number of worldwide markets. We have commenced the process for Mutual Recognition to licence Ovuplant(R) in Europe. In the last quarter, we launched Urilin(R) Syrup our first branded generic product for the treatment of urinary incontinence in dogs. This is the first new entrant in a UK market worth approximately Â£1.9 million. Discussions are also at an advanced stage with a Japanese company to licence and market Vetoryl(R) Capsules within Japan. However, it is important to note that the Japanese authorities will require exhaustive local trials; therefore it will be a number of years before revenues are generated. continued... -5- Pharmaceuticals Division This division comprises Arnolds Veterinary Products ('Arnolds(R)'), Dechra Veterinary Products, USA ('DVP') and Dales Pharmaceuticals ('Dales'). Sales & Marketing Trading within Arnolds(R) has been very encouraging with strong growth achieved from both pharmaceuticals and instruments. Sales from our own branded veterinary pharmaceutical portfolio increased by 19% to Â£11 million with year on year growth in sales of our own developed products Vetoryl(R) and Felimazole(R) being 36% and 71% respectively. During the year, Arnolds renewed its sales and marketing agreement with Intervet in Germany for Equipalazone(R), as well as securing a distribution agreement with Orion Pharma in Finland to market Vetoryl(R) and Felimazole(R) into the Nordic countries. An agreement with Veterinaria to market Equipalazone(R), Vetoryl(R) and Felimazole(R) in Switzerland was also signed. A number of new customers were added to the Arnolds client base. These include Masters International who, under an FDA waiver scheme, distribute Vetoryl(R) into the American market. The sales to date clearly underpin our confidence in the market opportunity that the US presents the Group once Vetoryl(R) receives FDA approval. Instrument and consumables sales continued to be influenced by both competitive pressure and grey imports, therefore, it has been encouraging to have seen a 12% increase in sales over the period. Some of this growth has been achieved through key distributor relationships, which include Portex, Global Veterinary Products, Technik Technology and 3M. In April 2005, the Group acquired the licenses and goodwill for the Vetivex(R) range of veterinary licensed infusion fluid products. These products are used to combat dehydration, electrolyte imbalance and metabolic acidosis in companion animals, equine and livestock. The acquisition of this product range has enabled Arnolds to strengthen its position within the critical care and emergency medicine sector. We will continue to build on this position with increased market penetration and further development of the Vetivex(R) range of products. Other milestones in the year were, the establishment of Arnolds pdq, a direct mail business and an agreement with Zi Medical to distribute unique infusion equipment in the UK. Dechra Veterinary Products - USA In April 2005, we opened our fledgling US operation based in Kansas City, Missouri. The US market is the largest veterinary companion animal market in the world, and is some ten times larger than that of the UK. The newly appointed US team have a wealth of experience within the veterinary pharmaceuticals sector which will provide Dechra with the commercial knowledge needed to establish, develop and drive our North American business. An agreement has been made with Belcher Pharmaceuticals, Inc., a wholly owned subsidiary of GeoPharma, Inc., based in Largo, Florida, USA. Under this agreement, Dechra has exclusive worldwide sales and marketing rights for Belcher's levothyroxine liquid and tablets, which are used to control hypothyroidism in dogs. Following successful comparative trials for the unique liquid preparation of levothyroxine, the product was launched in the US market in July 2005 under the Dechra brand name Thyroxyl Oral Solution. Distribution agreements have been reached with several national and regional distributors and the initial uptake of the product following its launch has been very encouraging. continued... -6- The introduction of Thyroxyl Oral Solution and Thyroxyl Tablets into the American market allows us to establish Dechra Veterinary Products in the US veterinary endocrine market ahead of the registration of our own key products. Manufacturing Dales Pharmaceuticals, our pharmaceutical manufacturing business, produced a strong performance with a 15% increase in turnover, half of which came from the manufacture of our own licensed veterinary products. A significant improvement in operational efficiencies resulted in a strong growth in operating profit. During the year, we added five new third-party manufacturing customers and also extended existing customer lines through the introduction of six new products. In December 2004, an extension to our facility became operational. This has provided additional warehousing creating the opportunity to consolidate all stock onto the same site. As a result we have achieved a significant reduction in external warehousing and transport costs. The additional space has also been utilised to create a new pharmaceutical development laboratory which has been equipped with small scale batch production machinery and analytical equipment. The laboratory will be utilised for our in-house product development programme and will also increase our capabilities to third party customers. Further investment has been made in an additional state-of-the-art capsule filling machine and HPLC laboratory testing equipment. In order to undertake production of clinical trial products and in accordance with both EU regulatory requirements and new procedures introduced by the Medicines and Healthcare Regulatory Agency, Dales has obtained an Investigational Medicinal Product Manufacturers Licence. Services Division This division comprises National Veterinary Services ('NVS(R)'), Vetcom Systems ('Vetcom(R)'), NationWide Laboratories ('NWL') and Cambridge Specialist Laboratory Services ('CSLS'). Wholesaling and Distribution Our principal trading business NVS(R) benefited from market share gains, including a number of substantial new customers, and from strong market growth, which year on year saw the core veterinary market increase by 9% in value. Increased productivity, very high service levels and operational efficiencies were achieved in the year under review. There was also an encouraging improvement in gross margin through better buying, additional added-value services, the expansion of the NVS(R) own-brand Valu Range of products and the launch of the Vet Remedy range developed specifically for sale to end users in practice waiting rooms. During the year, NVS(R) established a new depot and customer care team in Hamilton, Scotland which has improved our service levels and doubled our market share in this region. Additional depots were also opened in Swanscombe and Hertford which have improved our service levels to the South of England. Our same day delivery fleet was extended, which has allowed us to increase our daily deliveries from 1,604 to 1,710 locations. Through our daily contact with veterinary practices, we identified the need to implement a regional sales structure, which has proved very effective. It gives us greater local focus allowing us to tailor our services to meet the differing needs of practices around the country. Over the next 12 months, we will be improving our central warehousing to allow us to extend the picking line, increase automation and provide new services. It will also increase storage capacity as we plan for future projected volumes. continued... -7- In addition, we are undertaking a major installation of a new computer system to replace the legacy system. This project is expected to go live towards the end of the current financial year. Overall, NVS(R) continues to develop its market position by adding further value to the existing high levels of service and by continued improvements in operational efficiency. Information Technology In January 2005, the Group established a joint venture partnership with Cam-Dal Computing, providers of bespoke e-commerce solutions. This agreement provides Vetcom Systems, Dechra's I.T. division, with its next generation, cost-effective, multi-user, on-line veterinary practice management system, Vetcom Open. In addition to the standard management facilities, Vetcom Open provides an effective branch linking solution enabling large multi-site veterinary practices to better manage their businesses. The connectivity also offers the future possibility of NVS(R) providing further services to practices such as direct marketing to their clients. We remain focused on providing our customers with ever improving technology which ensures that they are able to operate progressive, efficient and cost-effective practices. Laboratory Services Our multi-disciplined independent commercial veterinary laboratories, NWL and CSLS, are focused on providing diagnostic and clinical pathology services at the highest levels of service to UK veterinary practices. We have continued to target multi-practice group and corporate accounts and have been successful in securing a number of new practices as customers. In the last quarter of the financial year being reported, we saw a 20% increase over the same period in 2004 as new accounts started to feed through. We have introduced a number of new services at NWL, including Allervet, a serological test for allergy; Petscreen, a tool for deciding the best chemotherapy to use; two in-clinic clinical records programs which can generate laboratory request forms automatically in the practice and extended same-day courier routes into Yorkshire, North Wales and Cheshire. At CSLS, new assays have been released for feline pancreatic diseases and cancer diagnosis and therapeutic monitoring. Our Laboratories business has a reputation for clinical excellence within the veterinary profession. NWL became the first commercial veterinary laboratory to gain UKAS accreditation and is at the forefront of UK veterinary diagnostics. People At the year-end, the Group employed 696 people. We would like to thank all our staff for their continued support and dedication, which has resulted in producing these results. We would also like to welcome all new personnel to the Group. At management level, we welcome Mike Eldred and Randel 'Chip' Whitlow, who have joined Dechra as President and National Sales Manager of the Group's US operation, Dechra Veterinary Products. We welcome Susan Longhofer as Director of Product Development and Regulatory Affairs. Susan, a US national who has relocated to the UK, has extensive industry experience in development and worldwide registration of animal health pharmaceuticals. Her knowledge and experience is already proving invaluable in our dealings with the FDA and in the assessment of numerous other product development opportunities. continued... -8- One of our key priorities at Arnolds was to build a management team that had the experience and drive to deliver the key business growth objectives. In July 2004, Mark Sallin joined as Finance Director, Chris Kingdon joined in November 2004 as Pharmaceutical Sales Director and Gwenda Bason joined in January 2005 as Pharmaceutical Marketing Director. The reorganisation of the management team has allowed Andrew Groom to take up a new role as Instruments Business Director. Within our laboratories business, Tariq Shah was appointed Sales & Marketing Manager in May 2004, whilst Jamie Whitwam joined in November 2004 as Food Microbiology and Business Development Manager, to head the non-clinical division of NWL. At Dales, we have taken the opportunity to restructure the senior management team with the appointment of John Reilly as Quality Manager. Summary We are pleased with the achievements that have been made in the financial year. All areas of the business are performing well, buoyed by generally improved market conditions. A strong sales performance of the existing product portfolio combined with new business wins provides a solid platform for future growth. In addition, important progress has been made in the following key areas of our strategy: developing the veterinary pharmaceutical product portfolio pursuing international market opportunities (notably in the USA) creating operational efficiencies and assembling a first rate management team across the business. We look forward to the current year with confidence. -9- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2005 REVIEW BY THE GROUP FINANCE DIRECTOR, SIMON EVANS Introduction This last financial year has seen the continued excellent progress of the Group. Both of our divisions recorded healthy increases in turnover and improved operating margins. Cash flow was again strong with operating cash flow running at 127% of operating profit. The profit and cash flows generated from our core operations underpin the investment in the business opportunities described in the Chief Executive's Review. Operating Results The Group achieved a profit before tax, exceptional items and goodwill amortisation of Â£9.4 million, an increase of 16.9% compared to last year calculated on the same basis. The results after exceptional items and goodwill amortisation are summarised on the front page of this press release. In the year under review, Group turnover increased by 11.4%. This substantial increase was driven by buoyant market conditions and new account wins by our Services Division, together with the continued growth of our key own branded pharmaceutical products. Gross margin improved from 13.6% to 14.3% reflecting further improvements by our Services Division and the increasing importance of our own branded pharmaceutical products in the sales mix. Operating costs include a charge of Â£328,000 in respect of the Executive Incentive Plan in accordance with UITF17 (revised) although there is no cash flow impact on the Group. Product development expenditure increased from Â£1.1 million in 2004 to Â£1.3 million. We also incurred Â£0.2 million of costs in respect of our fledgling US operation. Despite the above costs, Group operating margin before exceptional items and goodwill amortisation increased from 4.92% to 5.27%. Net Interest Charge The interest charge rose due to the full year effect of the five base rate rises between November 2003 and August 2004. The total interest charge for the year is also affected by the seasonal variations in working capital requirements of the Group which reaches its peak in the period December to February. Interest cover before exceptional items and goodwill amortisation remained at a healthy 7.1 times. Taxation The total tax charge on profit before exceptional items and goodwill amortisation was 27.5%, including a net prior year credit of Â£290,000. continued... -10- Earnings per Share and Dividend Adjusted earnings per share (before exceptional items and goodwill amortisation) was 13.39p (2004: 11.28p), an increase of 18.7%. The proposed final dividend is 3.50p, making a total for the year of 5.20p (2004: 4.70p). This represents an increase of 10.6% compared to last year. The total dividend is covered 2.6 times by profit after taxation but before goodwill amortisation. Capital Expenditure Additions to tangible and intangible fixed assets totalled Â£2.1 million. The main investment in tangible fixed assets was a new Enterprise Resource Planning System at National Veterinary Services, our veterinary wholesaling business. This IT system is planned to go live during the new financial year. During the year, we also acquired two intangible fixed assets as detailed below: In February 2005, we paid US$500,000 (Â£278,000 including associated legal costs) to acquire the worldwide rights to a Levothyroxine liquid and tablets from Belcher Pharmaceuticals, Inc. This product, branded Thyroxyl, has been launched in the USA in July 2005. In April 2005, we paid Â£810,000 (with Â£12,000 legal costs) to acquire the marketing authorisations for the Vetivex(R) range of products from Gambro Northern Ireland Limited, a division of Gambro BCT, Inc. On acquisition, annualised sales of this product were running at approximately Â£1 million. As this acquisition was made towards the end of the financial year being reported, it only had a negligible effect on these results. We will, however, see a full year contribution in the 2006 financial year. Further reference to both these products has been made in the Chief Executive's Review. Cash Flow and Net Debt An operating cash inflow of Â£13.2 million (2004: Â£10.6 million) was achieved for the year which represented a cash conversion rate of 127% (2004: 125%). During the year, the Group converted Â£13,160,000 of its overdraft facility into a term loan. This puts the funding of the Group onto a longer term footing in order to support the planned expansion of the Group, particularly in the USA. Net debt showed a reduction from Â£10.1 million to Â£4.9 million. Balance Sheet and Shareholders' Funds Shareholders' funds increased to Â£14.5 million reflecting the retained profit for the year and new share issues made on the exercise of various share options. Working capital decreased from Â£10.0 million to Â£8.4 million. Stock turn declined from 11.5 times to 9.5 times due to an increase in stock at NVS which was required to support recent new business gains and the need to manufacture a stock of Vetoryl(R) for FDA stability testing at an FDA compliant contract manufacturer in support of our USA Vetoryl(R) licence application. This Vetoryl (R) stock will be sold out during the financial year ending 30 June 2006. Trade debtor days showed an improvement from 44 days to 43 days. Trade creditor days were 61 (2004: 53 days). continued... -11- International Financial Reporting Standards ('IFRS') The results for the financial year ending 30 June 2006 will be reported under IFRS. The comparative figures i.e. these results for the year ended 30 June 2005, will be restated under IFRS. Work on identifying and quantifying the required changes to accounting policies is now substantially complete and a reconciliation statement for the year ended 30 June 2005 will be communicated to shareholders ahead of the interim results for the six months ending 31 December 2005, the first results to be reported under IFRS. The main impacts of IFRS are summarised below: Goodwill Amortisation The impact of IFRS1 and IFRS3 will be that: - Consolidated goodwill will be frozen at its 30 June 2004 level of Â£4.385 million but will then be subject to annual impairment review. - The goodwill charge of Â£564,000 for the year ended 30 June 2005 will be added back to reported profit and shareholders' funds for the year ended 30 June 2005. Development Costs Our current accounting policy is to write off all development expenditure as it is incurred. Under IAS38, development expenditure that meets the recognition criteria must be capitalised. The principal development activity of the Group is the bringing to market of new pharmaceutical products. Due to the lengthy regulatory process involved, there is inherent uncertainty as to the technical feasibility of development projects. Development costs will therefore only be capitalised once there is reasonable certainty over technical feasibility. Most of the Group's development expenditure is therefore unlikely to fulfil the criteria for capitalisation. Share Based Payments Under IFRS2, all share options (including SAYE) are valued at the date of grant and amortised over the vesting period. The Group intends to adopt the exemptions under IFRS1 and IFRS2 whereby only share options issued after 7 November 2002 are fair valued and charged to operating profit. The impact of IFRS2 on the reported results for 2005 is not expected to be significant. Other Adjustments There will be other minor adjustments, principally relating to the spreading of lease incentives over the period of the lease rather than the period to the next rent review. Deferred Tax There will be an adjustment to the deferred tax balance, principally relating to the different accounting and tax treatments for share based payments above. Software Under IAS38, software costs will be reclassified from tangible fixed assets to intangible fixed assets in the balance sheet. Dividend IAS18 requires that the proposed final dividend should not be accrued at the end of the year, being charged to shareholders' funds once approved by shareholders at the AGM. continued... -12- Conclusion Taking the above into account, we currently believe that the restatement of the 2005 results under IFRS will show a modest increase of approximately 2% to 3% in adjusted pre-tax profit (before goodwill amortisation) compared to these results reported under UK GAAP. Reported shareholders' funds will also increase under IFRS due to the write back of goodwill, the proposed dividend and an increase in the deferred tax asset. It should be emphasised that these are accounting adjustments only and have no impact on the economic conditions facing the Group, nor on its cash flows, distributable reserves or prospects. -13- Dechra Pharmaceuticals PLC Consolidated Profit and Loss Account for the year ended 30 June 2005 2005 2004 Note Before Exceptional Before Exceptional exceptional items and exceptional items and items and goodwill items and goodwill goodwill amortisation goodwill amortisation amortisation (note 2) Total amortisation (note 2) Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------------------------------------ Turnover 1 208,197 - 208,197 186,843 - 186,843 Cost of sales (178,480) - (178,480) (161,422) - (161,422) ------------------------------------------------------------------------------------------------------------ Gross profit 29,717 - 29,717 25,421 - 25,421 Distribution costs (9,017) - (9,017) (7,588) - (7,588) Administrative expenses (9,724) (564) (10,288) (8,649) (691) (9,340) ------------------------------------------------------------------------------------------------------------ Operating profit 10,976 (564) 10,412 9,184 (691) 8,493 Net interest payable and similar charges 3 (1,554) - (1,554) (1,124) - (1,124) ------------------------------------------------------------------------------------------------------------ Profit on ordinary activities before taxation 9,422 (564) 8,858 8,060 (691) 7,369 Tax on profit on ordinary activities 4 (2,590) - (2,590) (2,309) 21 (2,288) ------------------------------------------------------------------------------------------------------------ Profit on ordinary activities after taxation 6,832 (564) 6,268 5,751 (670) 5,081 Dividends 5 (2,656) (2,396) ------------------------------------------------------------------------------------------------------------ Retained profit for the financial year 3,612 2,685 ============================================================================================================ Earnings per ordinary share Basic 6 13.39p (1.11p) 12.28p 11.28p (1.31p) 9.97p Diluted 6 13.16p (1.08p) 12.08p 11.12p (1.29p) 9.83p All amounts relate to continuing operations. There were no recognised gains and losses other than shown above. -14- Dechra Pharmaceuticals PLC Consolidated Balance Sheet as at 30 June 2005 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Fixed assets Intangible assets 5,710 5,174 Tangible assets 5,201 5,224 ------------------------------------------------------------------------------- 10,911 10,398 ------------------------------------------------------------------------------- Current assets Stocks 20,390 16,979 Debtors 33,712 32,889 Cash at bank and in hand 13,924 - ------------------------------------------------------------------------------- 68,026 49,868 Creditors: amounts falling due within one year (47,174) (45,172) ------------------------------------------------------------------------------- Net current assets 20,852 4,696 ------------------------------------------------------------------------------- Total assets less current liabilities 31,763 15,094 Creditors: amounts falling due after more than one year (17,281) (4,763) Provisions for liabilities and charges - (174) ------------------------------------------------------------------------------- Net assets 14,482 10,157 =============================================================================== Capital and reserves Called up share capital 511 510 Share premium account 26,953 26,784 Merger reserve 1,720 1,720 Profit and loss account (14,702) (18,857) ------------------------------------------------------------------------------- Total equity shareholders' funds 14,482 10,157 =============================================================================== Reconciliation of Movements in Shareholders' Funds for the year ended 30 June 2005 Group 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- At start of year 10,157 7,471 Profit for the financial year 6,268 5,081 Share based payments charge 543 - Dividends (2,656) (2,396) New shares issued 170 1 ------------------------------------------------------------------------------- At end of year 14,482 10,157 =============================================================================== -15- Dechra Pharmaceuticals PLC Consolidated Cash Flow for the year ended 30 June 2005 Note 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Net cash inflow from operating activities 7 13,228 10,576 Returns on investment and servicing of finance Interest received 355 584 Interest paid (1,990) (1,580) Interest element of finance lease rentals (32) (16) ------------------------------------------------------------------------------- Net cash outflow for returns on investment and servicing (1,667) (1,012) of finance ------------------------------------------------------------------------------- Taxation Corporation tax paid (1,996) (1,864) ------------------------------------------------------------------------------- Capital expenditure Purchase of tangible fixed assets (644) (569) Purchase of intangible fixed assets (1,100) (5) Sale of tangible fixed assets 140 28 ------------------------------------------------------------------------------- Net cash outflow for capital expenditure and financial investment (1,604) (546) ------------------------------------------------------------------------------- Equity dividends paid (2,473) (2,192) ------------------------------------------------------------------------------- Cash inflow before financing 5,488 4,962 Financing Shares issued 138 1 Term loans raised 13,160 - Term loans repaid (1,400) (1,954) Loan stock repaid - (500) Capital element of finance lease payments (138) (135) ------------------------------------------------------------------------------- Net cash inflow/(outflow) from financing 11,760 (2,588) ------------------------------------------------------------------------------- Increase in cash in the year 17,248 2,374 Bank overdraft at start of year (3,324) (5,698) ------------------------------------------------------------------------------- Cash at bank and in hand/(bank overdraft) at end of 13,924 (3,324) year =============================================================================== Reconciliation of net cash flow to movement in net debt for the year ended 30 June 2005 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Increase in cash during the year 17,248 2,374 Debt repayments 1,400 2,454 New loans (13,160) - Repayment of finance leases 138 135 ------------------------------------------------------------------------------- Change in net debt resulting from cash flows 5,626 4,963 New finance leases (438) (11) Other non-cash changes 63 (74) ------------------------------------------------------------------------------- Movement in net debt in the period 5,251 4,878 Net debt at start of year 8 (10,110) (14,988) ------------------------------------------------------------------------------- Net debt at end of year 8 (4,859) (10,110) =============================================================================== -16 Dechra Pharmaceuticals PLC Notes for the year ended 30 June 2005 1. Analysis of Turnover by Geographical Region Destination 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- UK 205,103 184,411 Rest of the world 3,094 2,432 ------------------------------------------------------------------------------- 208,197 186,843 =============================================================================== The Directors consider that all turnover is derived from a single class of business. The origin of all turnover was in the UK. 2. Exceptional Items and Goodwill Amortisation 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Exceptional items - reorganisation and rationalisation costs - 130 Goodwill amortisation 564 561 ------------------------------------------------------------------------------- Total exceptional items and goodwill amortisation 564 691 =============================================================================== The reorganisation and rationalisation costs in 2004 related 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. 3. Net Interest Payable and Similar Charges 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Bank loans and overdrafts 1,774 1,599 Amortisation of arrangement fees 103 88 Other loans - 5 Finance charges payable on finance leases and hire purchase contracts 32 16 ------------------------------------------------------------------------------- Total interest payable 1,909 1,708 Bank deposit and other interest receivable (355) (584) ------------------------------------------------------------------------------- Net interest payable and similar charges 1,554 1,124 =============================================================================== continued... -17- Dechra Pharmaceuticals PLC Notes (continued) for the year ended 30 June 2005 4. Tax on Profit on Ordinary Activities a) Tax charge for the year 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Current taxation: UK Corporation tax charge 3,001 2,454 Adjustments in respect of prior periods (233) (347) ------------------------------------------------------------------------------- Total current tax charge for the year 2,768 2,107 ------------------------------------------------------------------------------- Deferred taxation: Origination and reversal of timing differences (121) (16) Adjustments in respect of prior periods (57) 197 ------------------------------------------------------------------------------- Total deferred tax charge for the year (178) 181 ------------------------------------------------------------------------------- Tax on profit on ordinary activities 2,590 2,288 =============================================================================== Tax credit included above attributable to exceptional operating items - 21 =============================================================================== b) Factors affecting the tax charge for the current period The current tax charge is higher than (2004: lower than) the standard rate of corporation tax in the UK of 30% (2004: 30%). The differences are explained below: 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Profit on ordinary activities before taxation 8,858 7,369 Current tax charge at 30% (2004: 30%) 2,657 2,211 ------------------------------------------------------------------------------- Effects of permanent differences: - goodwill amortisation 169 168 - depreciation on assets not eligible for tax allowances 22 22 - disallowable expenses 32 37 ------------------------------------------------------------------------------- 223 227 ------------------------------------------------------------------------------- Timing differences: - capital allowances in excess of depreciation (35) (65) - other short term timing differences 156 81 ------------------------------------------------------------------------------- 121 16 ------------------------------------------------------------------------------- Adjustments to tax charge in respect of previous periods (233) (347) ------------------------------------------------------------------------------- Total current tax charge 2,768 2,107 =============================================================================== 5. Dividends 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Interim paid 1.70p per share (2004: 1.55p) 867 790 Final proposed 3.50p per share (2004: 3.15p) 1,789 1,606 ------------------------------------------------------------------------------- Total dividend 5.20p per share (2004: 4.70p) 2,656 2,396 =============================================================================== continued... -18- Dechra Pharmaceuticals PLC Notes (continued) for the year ended 30 June 2005 6. Earnings per 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. 2005 2004 pence pence ------------------------------------------------------------------------------- Basic earnings per share after exceptional items and goodwill 12.28 9.97 amortisation Effect of exceptional items - 0.21 ------------------------------------------------------------------------------- Basic earnings per share before exceptional items 12.28 10.18 Effect of goodwill amortisation 1.11 1.10 ------------------------------------------------------------------------------- Adjusted earnings per share 13.39 11.28 =============================================================================== Diluted earnings per share 12.08 9.83 Effect of exceptional items - 0.21 ------------------------------------------------------------------------------- Diluted earnings per share before exceptional items 12.08 10.04 Effect of goodwill amortisation 1.08 1.08 ------------------------------------------------------------------------------- Adjusted diluted earnings per share 13.16 11.12 =============================================================================== 2005 2004 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 6,268 5,081 Exceptional items - 109 ------------------------------------------------------------------------------- Earnings for basic and diluted earnings per share calculations before 6,268 5,190 exceptional items Goodwill amortisation 564 561 ------------------------------------------------------------------------------- Earnings for adjusted and adjusted diluted earnings per share 6,832 5,751 =============================================================================== 2005 2004 No. No. ------------------------------------------------------------------------------- Weighted average number of ordinary shares for basic and adjusted 51,022,645 50,975,214 earnings per share Impact of share options 879,018 725,830 =============================================================================== Weighted average number of ordinary shares for diluted and adjusted 51,901,663 51,701,044 diluted earnings per share =============================================================================== continued... -19- Dechra Pharmaceuticals PLC Notes (continued) for the year ended 30 June 2005 7. Reconciliation of Operating Profit to Operating Cash Flow 2005 2004 Â£'000 Â£'000 ------------------------------------------------------------------------------- Operating profit 10,412 8,493 Depreciation 935 988 Goodwill amortisation 564 561 (Profit)/loss on disposal of tangible fixed assets (42) 4 Share based payments charge 543 - (Increase)/decrease in stocks (3,411) 317 Increase in debtors (787) (4,901) Increase in creditors 5,014 5,114 ------------------------------------------------------------------------------- Net cash inflow from operating activities 13,228 10,576 =============================================================================== 8. Analysis of Net Debt Other Cash Non-Cash At 1 July 2004 Flow Changes At 30 June 2005 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------- Borrowings due after one year (4,759) (13,160) 909 (17,010) Bank overdraft (3,324) 3,324 - - Other borrowings due within (1,954) 1,400 (846) (1,400) one year Finance leases (73) 138 (438) (373) Cash at bank and in hand - 13,924 - 13,924 ------------------------------------------------------------------------------- (10,110) 5,626 (375) (4,859) =============================================================================== 9. Statutory Accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2004 or 2005 but is derived from those accounts. Statutory accounts for 2004 have been delivered to the Registrar of Companies, and those for 2005 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 Wednesday, 19 October 2005 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 2005 will be posted to shareholders shortly. Copies of the 2005 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@dechra.com This information is provided by RNS The company news service from the London Stock Exchange

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