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 £208.2m £186.8m +11% £208.2m £186.8m +11%
Operating
Profit £11.0m £9.2m +20% £10.4m £8.5m +23%
Profit
before £9.4m £8.1m +17% £8.9m £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 £10.1 million to £4.9 million
Own branded veterinary pharmaceutical portfolio sales increased by 19% to £11
million
Product development expenditure increased by 19% to £1.3 million
Positive progress in the planned sales expansion in USA
'Dechra has made significant steps in the development of its own 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 £186.8 million to £208.2 million.
Operating profit before exceptional items and goodwill amortisation increased by
20% to £11.0 million (2004: £9.2 million). Profit before tax, calculated on the
same basis, improved by 17% to £9.4 million (2004: £8.1 million). Pre-tax profit
after exceptional items and goodwill amortisation was up 20% at £8.9 million
(2004: £7.4 million).
Adjusted earnings per share (pre exceptional items and goodwill amortisation)
was 13.39 pence (2004: 11.28 pence) a 19% increase over last year. The 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 £1.3 million and our initial investment of
£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 £14.7 million in 2002 to £4.9 million this
year (2004: £10.1 million).
Interest cover (before exceptional items and goodwill amortisation) was 7.1
times.
Capital expenditure during the year totalled £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 £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 £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 £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 £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 £1.1 million in 2004 to £1.3
million. We also incurred £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 £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 £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 (£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 £810,000 (with £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 £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 £13.2 million (2004: £10.6 million) was achieved for
the year which represented a cash conversion rate of 127% (2004: 125%).
During the year, the Group converted £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 £10.1 million to £4.9 million.
Balance Sheet and Shareholders' Funds
Shareholders' funds increased to £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 £10.0 million to £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 £4.385
million but will then be subject to annual impairment review.
- The goodwill charge of £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
£'000 £'000 £'000 £'000 £'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'000
-------------------------------------------------------------------------------
Current taxation:
UK Corporation tax charge 3,001 2,454
Adjustments in respect of prior periods (233) (347)
-------------------------------------------------------------------------------
Total current tax charge for the year 2,768 2,107
-------------------------------------------------------------------------------
Deferred taxation:
Origination and reversal of timing differences (121) (16)
Adjustments in respect of prior periods (57) 197
-------------------------------------------------------------------------------
Total deferred tax charge for the year (178) 181
-------------------------------------------------------------------------------
Tax on profit on ordinary activities 2,590 2,288
===============================================================================
Tax credit included above attributable to 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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'000 £'000 £'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
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