Final Results

RNS Number : 4927C

Dechra Pharmaceuticals PLC

02 September 2008

 



Issued by Citigate Dewe Rogerson Ltd, Birmingham

Date: Tuesday, 2 September 2008

Dechra® Pharmaceuticals PLC

('Dechra')

An International Veterinary Pharmaceutical Business

Preliminary Results for the year ended 30 June 2008

	Year Ended June 2008	Year Ended June 2007
·      Revenue	£304.4m	£253.8m	+20%
·      Adjusted operating profit*	£19.1m	£13.9m	+38%
·      Operating profit	£14.1m	£13.8m
·      Adjusted profit before taxation*	£16.9m	£12.6m	+33%
·      Profit before tax	£11.7m	£12.6m
·      Adjusted earnings per share*
Basic	20.81p	16.89p	+23%
Diluted	20.64p	16.66p	+24%
·      Earnings per share
Basic	14.20p	16.86p
Diluted	14.09p	16.62p
·      Dividend
Final	5.50p	5.00p	+10%
Total	8.25p	7.50p	+10%
* before VetXX® rationalisation costs and amortisation of acquired intangibles
·      Robust organic growth in operating profit
·      VetXX acquisition fully integrated and performing in line with expectations
·      Product development progressing to schedule
·      Vetoryl® US FDA compliance notification received with US launch scheduled for January 2009
·      Key pharmaceuticals continue to increase market penetration
·      NVS® grew ahead of strong market growth
·      Dales continues to show good growth

 

 

Enquiries:
Ian Page, Chief Executive
Simon Evans, Group Finance Director	Keith Gabriel, Senior Account Manager
Dechra Pharmaceuticals PLC	Citigate Dewe Rogerson
Today: 0207 638 9571	Today: 0207 638 9571
Mobile: [phone] (IP) or 07775 642220 (SE)	Mobile: [phone]
Thereafter: 01782 771100	Thereafter: 0121 455 8370
www.dechra.com
[e-mail]

 

 

 

 

  -2-

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2008

STATEMENT BY THE CHAIRMAN, MICHAEL REDMOND

I am pleased to report an excellent performance by the Group during the period. We have achieved good growth in revenue and profitability from our UK businesses, increased market share at National Veterinary Services ('NVS'), significantly increased US revenues, achieved further penetration of our products in Europe and launched new products in the UK. Furthermore, we have made an acquisition, VetXX Holdings A/S ('VetXX'), which materially increases our pharmaceutical portfolio and provides a strong European footprint to market the enlarged product range and future developed products. The development of our own branded veterinary pharmaceutical portfolio is progressing to schedule, with the launch of a key product for the US market, Vetoryl, planned for January 2009.

Financial Highlights

Group revenue increased 19.9% from £253.8 million to £304.4 million.

Adjusted operating profit increased by 38.0% to £19.1 million (2007: £13.9 million). Adjusted profit before taxation rose 33.3% to £16.9 million (2007: £12.6 million). Operating profit after deducting rationalisation costs and amortisation of acquired intangibles was £14.1 million (2007: £13.8 million). Profit before taxation on the same basis was £11.7 million (2007: £12.6 million).

Adjusted basic earnings per share was 20.81p, up 23.2% from the 16.89p achieved in 2007. Earnings per share after rationalisation costs and amortisation of acquired intangibles was 14.20p (2007: 16.86p).

Total cash investment in product development was £3.7 million (2007: £3.3 million), of which £2.4 million was charged to the income statement (2007: £1.6 million).

Cash flow continued to be strong with cash flow from operations being 114% of operating profit. As at 30 June 2008, the Group had net borrowings of £27.0 million compared to net funds of £1.0 million at 30 June 2007; the increase being the new borrowings taken out to partially fund the acquisition of VetXX.

Net debt to EBITDA on an adjusted basis was 1.3 times. Interest cover on adjusted operating profit was 8.4 times.

Further details are contained in the Business Review.

Dividend

In line with our progressive dividend policy and our confidence in the business, the Directors are recommending an increase in the final dividend to 5.50p per share (2007: 5.00p per share). This, together with the interim dividend of 2.75p per share (2007: 2.50p per share), makes a total dividend for the year of 8.25p per share (2007: 7.50p per share), a 10% increase.

The total dividend is covered 2.0 times by profit after taxation but after adding back amortisation of acquired intangibles.

The final dividend, which is subject to Shareholder approval at our Annual General Meeting to be held on Friday 7 November 2008, will be paid on 12 December 2008 to Shareholders on the Register at 14 November 2008.

People

On behalf of the Board and all our Shareholders I would like to welcome all VetXX and other new employees to the Group. I would also like to thank all employees for their hard work, dedication and innovation in contributing to our successful year.

continued…

  -3-

Prospects

The Group's current trading is in line with the Board's expectations. International companion animal markets continue to grow; our core businesses continue to perform well; our acquisition, VetXX, is meeting our expectations; and our key products continue to show good growth. The business will be further enhanced with new product introductions, particularly the launch of Vetoryl and Felimazole® in the US in the second half of the 2009 financial year. We therefore remain confident in our future.

  -4-

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2008

BUSINESS REVIEW BY THE CHIEF EXECUTIVE, IAN PAGE

The Business and its Markets

Dechra Pharmaceuticals PLC operates under two Divisions, Pharmaceuticals and Services. The Pharmaceuticals Division operates internationally and is unique in having its sole area of specialisation in companion animal products. The Services Division serves UK veterinary practices in both the companion animal and livestock sectors.

Following the acquisition of VetXX in January 2008 (which is detailed later in this review), the Group now employs 970 people and operates out of 11 countries.

The veterinary market for companion animal products is dominated by North America, Western Europe and Japan. Key drivers within the companion animal market are the increasing medical and surgical capabilities of veterinary surgeons, increased life expectancy of pets and ultimately the consumer's passion for their animals.

The North American, Western European and Japanese markets are the most significant companion animal markets in the world, with pet ownership in over 50% of households and with a high level of spend per animal. The following table provides details of companion animal populations in the markets in which Dechra currently has a sales and marketing operation:

Companion Animal Populations in Dechra Territories

Territory	Dogs (millions)	Cats (millions)	Horses (millions)
USA	75	82	10
France	8	10	1
UK and Ireland	8	8.4	1
Spain	5.5	4	0.6
Scandinavia	2.1	3.1	0.5
Netherlands	2	4	0.4

Dechra currently markets products through partners and has products in registration in several other important companion animal markets, the most significant of which are detailed below:

Companion Animal Populations in Important Non-Subsidiary Countries

Territory	Dogs (millions)	Cats (millions)	Horses (millions)
Japan	12.5	12	0.1
Italy	6.9	6.1	0.3
Canada	6	8	1
Germany	5.3	7.9	1
Australia	3.7	2.4	1.2

The UK veterinary market, which still represents the majority of Dechra's overall sales, has consistently outperformed the Retail Prices Index over the last ten years of market growth.

continued…

  -5-

Pharmaceutical Product Development

Strategy

The Group focuses on solid organic growth within its Pharmaceuticals and Services Divisions; however, the key strategic focus, which is now delivering excellent growth and will provide significant revenues in the future, is through the development and acquisition of our own branded veterinary pharmaceutical portfolio of both novel and generic products and the licensing of these key products into international markets. Our product development is focused entirely on prescription only veterinary medicines for dogs, cats and horses, with our main area of specialisation being within critical care, endocrinology, dermatology and ophthalmology. Most of our projects utilise existing pharmaceutical entities that are typically used within the human market and therefore the majority of product creation is development and not research based.

Legislation

There are three pieces of legislation that the Directors believe have been implemented to encourage development of specialised veterinary products into markets that are small relative to human pharmaceutical sales:

The 'Cascade Legislation': The basic principle of this EU legislation is that the veterinary surgeon must prescribe a veterinary licensed product above any other alternative. Therefore, any products licensed specifically for animals must be used instead of a human ethical or generic product, irrespective of price;

EU law gives a novel product ten years' protection from generic competitors, irrespective of its patent status; and

The US FDA ('Food and Drug Administration') Centre for Veterinary Medicine provides five years' protection from generic competitors for the first approval of a new pharmaceutical, irrespective of its patent status. Subsequent approvals receive three years' protection.

Dechra considers this legislation to be favourable towards its strategy and is essential in providing safe, efficacious products for animal welfare.

Key Strengths

The Directors believe that the Group has the exceptional skills and expertise that are necessary for delivering its strategy:

-    The recognition of opportunities for specialised and niche pharmaceutical products for the veterinary market
     achieved through knowledge gained from the Group's strong market position;

-    In-house formulation of products into preparations suitable for the target species;

-    International experience and proven track record of Regulatory and license delivery;

-    Successful design and management of international clinical field trials;

-    Industry leading veterinary and commercial personnel throughout the Group; and

-    We have assembled scientific advisory boards comprising international key opinion leaders.

Dechra has a proven track record of delivering licensed products by working closely with regulatory authorities and by complying with the highest standards. Increased investment in product development capabilities has been made throughout the year being reported, and the Directors are planning for a further increase in development spend in the new financial year.

continued…

  -6-

Key Products and Specialisations

Dermatology - Total annualised sales £10.1 million

With the acquisition of the VetXX business Dechra has become a leading veterinary supplier in dermatological treatments.

Canaural® was first licensed in 1975 and is still the leading first line treatment for otitis externa in the cat and dog in the UK. Canaural which is now registered in 25 countries and generates annual revenues of £3.9 million can also be used in conjunction with our leading ear cleaning product CleanAural® which generates a further £1.3 million of revenues annually.

Fuciderm®, licensed in 1995 is the only licensed product for the treatment of surface pyoderma in the dog, such as acute moist dermatitis and intertrigo. It is a key product within our dermatology range, selling into 23 countries, generating annual sales of £2.7 million.

Malaseb® was first licensed in 1996 and is still the only UK licensed medicated shampoo for cats and dogs. It is used to treat skin diseases caused by malassezia and staphylococcal infections. The current annual product sales are £1.8 million. It is anticipated that there is a significant growth opportunity for the product as it has been submitted for registration in several new European territories.

Endocrinology - Total annualised sales £9.2 million

Endocrine disorders are a key focus for the business with a number of licensed products treating a range of chronic diseases. The two leading brands are Vetoryl and Felimazole.

Vetoryl is a novel and patented product for the treatment of Cushing's Disease (excess cortisol or hyperadrenocorticism) in dogs. It is marketed within the EU in 21 territories and is the only recognised licensed efficacious veterinary product for the treatment of Cushing's Disease around the world. Launched in the UK on a provisional marketing authorisation in September 2001, Vetoryl has since achieved full approval in the EU and has consistently increased market penetration. In the USA it is also sold under an FDA waiver scheme and through special import schemes into other territories such as Canada and Australia. Global revenues for Vetoryl in the twelve months were £5.1 million.

Felimazole is the first veterinary licensed product for the treatment of feline hyperthyroidism. It competes in the world's markets against human equivalents; however, the Cascade Legislation (see Legislation) has supported its growth.  Felimazole received marketing approval in 2002 and was approved in the EU in 2005. Global revenues for Felimazole in the twelve months were £3.9 million.

Equine Medicine - Total annualised sales £5.7 million

We have a wide range of 14 licensed products supporting the equine veterinarian. The lead product with the highest sales is Equipalazone®.

Equipalazone was first licensed in a sachet presentation in 1972 and subsequently in a paste and injection. It is still the leading non-steroidal anti-inflammatory drug (NSAID) for the treatment of musculoskeletal disorders, such as lameness due to acute and chronic laminitis in the horse. 

Ophthalmology - Total annualised sales £2.95 million

Ophthalmology is a highly specialised area of veterinary medicine where we have a number of leading products including licensed pharmaceuticals, unlicensed care products and instruments.

Fucithalmic® Vet, licensed in 1993, is the only licensed product available for the treatment of conjunctivitis associated with staphylococcal infections. It is highly effective because of its unique sustained release formulation that ensures prolonged retention within the eye. It is currently licensed in 21 countries worldwide and delivers sales of £2.5 million.

continued…

  -7-

Critical Care - Total annualised sales £2.0 million

Dechra has a wide range of products that support emergency medicine including licensed pharmaceuticals, wound treatments, consumables and instruments. The leading range of products is the Vetivex® brand.

The Vetivex range of infusion fluids are licensed for the treatment of dehydration. They are widely used to meet normal fluid and electrolyte requirements when fluids cannot be given orally, such as during surgery. The licenses were purchased from Ivex Ltd, a subsidiary of Gambro BCT Inc, in 2005. Since this time, sales have grown year on year and currently deliver revenue of £1.7 million. The products are only licensed for sale in the UK and Ireland.

Development Team

We have a highly skilled development team of 20 people located in the United Kingdom, Denmark and the United States. In the year we have added two scientists to the pharmaceutical development laboratory located at our manufacturing facility in Skipton, invested in new equipment and have six new regulatory staff through the acquisition of VetXX. This team has now been fully integrated into Dechra. We are currently in the process of adding further skilled personnel into this team as we continue to identify and develop new products. During the year we acquired and successfully implemented a new pharmacovigilance monitoring and reporting database.

Development Update

• It is pleasing to report that we have received notification of compliance for all parts of the Vetoryl USA application from the FDA. An administration process has now commenced and the product will be launched at the North American Veterinary Conference in Florida in January 2009.
  
  
• We continue to make satisfactory progress in our Vetoryl applications for Japan, Canada and Australia.
  
  
• Vetoryl has been approved in Switzerland and is being marketed by our partner, Veterinaria.
  
  
• The completed dossier for Felimazole for the US market has been submitted and we have subsequently had notification of approval of the CMC and safety sections. We remain very confident as to the progress of the efficacy section and anticipate being in a position to receive approval for this product in the first half of the next calendar year.
  
  
• Trial work for Equidone® for the US market is almost completed and has provided excellent results.
  
  
• Research into other potentially lucrative applications for Equidone has continued at two US universities; initial trial results for one therapeutic indication are very positive.
  

• Ovuplant® has been approved and marketing commenced in Germany, Spain, France, Ireland, Italy and the Netherlands.

• Prednidale 25, a new dosage form of an existing product, has been approved and launched within the United Kingdom.

• Intraepicaine®, one of our specialist equine products, has been registered and marketed into Ireland.

• Vetivex No 1 has been approved in Ireland and will be marketed soon.

• Atipam®, a UK branded generic, has been approved in partnership with the marketing authorisation holders, Eurovet, and has been launched in the UK.

• Dossiers for two new significant generic products have been submitted for approval.

continued…

  -8-

In addition to the above activities the Group has recognised other novel and generic development opportunities which have satisfied our internal assessment criteria resulting in commencement of development programmes.

Acquisition

VetXX

In December 2007 we announced the acquisition of VetXX for £65.2 million including expenses. The acquisition was made on a cash and debt free basis and was funded by way of a new debt facility and the placing and open offer of 11,624,544 new ordinary shares, raising £33.7 million net of expenses.

VetXX is a developer, producer and marketer of companion animal veterinary products to veterinary professionals in 10 European countries. The acquisition has provided Dechra with a strong European footprint and has materially increased Dechra's range of licensed veterinary products. It also provides Dechra with a sales and distribution network to market the enlarged product range and future developed products to veterinary practices and wholesalers within eight European countries in addition to the UK and Ireland in which Dechra already operated.

The business has now been successfully integrated into Dechra and expected synergies have been realised by the full integration of their UK sales and marketing function into our existing operation and by the closure of their administration head office in Copenhagen. The French subsidiary has already been rebranded as Dechra with the remainder of the organisation being rebranded within the next six months. Further information is provided on the enlarged sales and marketing operation later in this review.

Pharmaceuticals Division

Our Pharmaceuticals Division comprises Dechra Veterinary Products Europe ('DVP EU'), Dechra Veterinary Products USA ('DVP USA'), and Dales Pharmaceuticals ('Dales').

Dechra Veterinary Products EU

DVP EU, located in Shrewsbury, England and Uldum, Denmark employs 212 people. The business markets and sells our own branded, licensed veterinary pharmaceuticals within 10 European countries and manages the relationships with our worldwide marketing partners.

Sales Personnel

France	16	Holland	4
UK	14	Norway	4
Spain	8	Finland	3
Denmark	5	Portugal	1
Sweden	4	Eire	1

The marketing department, which consists of over 20 people, is coordinated from the UK; however, all major territories have their own local marketing expertise.

In addition to the pharmaceuticals outlined earlier in this report which represent 53% of annualised divisional sales, the team also markets the veterinary exclusive range of specialist diets, Specific® which represents 26% of annualised divisional turnover and also a range of unlicensed products branded as the Care range, which represents 4%.

• There are two main pet diet product ranges which are sold exclusively through veterinary practices, these being Specific for dogs and Specific for cats. Each range offers tailored life-stage and therapeutic diets. The therapeutic products represent approximately 70% of diet sales and seek to address issues such as diabetes, arthritis, urinary, kidney, liver and heart problems.

continued…

  -9-

• The Care range has two key products, CleanAural and Neutrale™.  CleanAural is a no sting ear cleaner for frequent use for ears producing excess wax.  Neutrale is a range of specialist shampoos for skin conditions in dogs.

Additionally, we have a number of marketing agreements: with Virbac Inc. to market Thyroxyl within the UK and Ireland; with Eurovet to market Domidine®, Sedator® and Atipam in the UK and Ireland; with Biopure to market Oxyglobin® within the EU and with Peptech to market Ovuplant in the EU.

A number of our products are also marketed by partners worldwide into important territories including Germany, Italy, Canada, Australia and Japan. We have also started to develop relationships and have initial sales within Eastern Europe.

Since the acquisition of VetXX we have transferred Equipalazone Powder from our previous marketing partner into Dechra livery and are successfully marketing the product through our subsidiary in France and through a new partner in Germany.

A number of new and existing Dechra products will be launched into our EU subsidiaries throughout the next 12 months.

DVP EU, as outlined in the Financial Review, grew strongly throughout the financial year. Both the existing UK and export businesses and the six months' revenue from VetXX contributed to this performance.

Following the acquisition of VetXX, a number of management changes have been implemented.  Ed Torr, previously the Group's Development Director and Main Board member has been appointed Managing Director of DVP EU.  Giles Coley, previously DVP UK Country Manager is now European Pharmaceutical Sales and Export Director. The remainder of the DVP EU operating board comprises three of the retained key VetXX staff, Carsten Jeppesen, Chief of Logistics, Jørgen Eker, Chief Financial Officer and Roeland Meijers, Senior Vice President who has direct responsibility for the Specific diet range. We are also pleased to have retained the VetXX Country Managers who form the basis of the senior management team. Bob Parmenter, who has over 40 years' veterinary industry experience and an excellent track record has been appointed as Managing Director for the UK which is currently the largest territory and represents 30% of the Pharmaceutical Division's annualised sales.

Dechra Veterinary Products USA

This business, employing seven people, was established in 2005 and is located in Kansas City, USA, a city in which a significant number of US animal health businesses are located. The business currently markets seven licensed veterinary ophthalmic, otic and dermatological products; the supply and marketing rights of this range were acquired in May 2007. We have successfully increased market share and sales of these products throughout the year. During the year we have also secured two new products through partnerships: with Biopure to market Oxyglobin, a companion animal blood substitute; and with Orthogen to market Irap, an orthopaedic treatment for horses.

The imminent launch of Vetoryl and Felimazole into the US market will significantly increase our US revenues; therefore, we are in the process of strengthening our operation. A new Head of Technical Services, Dr Dana Fertig, a Sales and Marketing Director, Doug Hubert and an Equine Specialist, Bryan Toliver, have already been appointed. We are now in the process of recruiting a sales team with a further eight appointments anticipated prior to the end of the calendar year. The administration and technical services departments will also be strengthened. Logistics and accounts are currently outsourced with established partners.

The US market remains strategically significant to Dechra, being approximately ten times the size of our current largest market, the UK. New products are under development and opportunities are being reviewed to further strengthen our US portfolio.

continued…

  -10-

Dales

Dales, located in Skipton, England, and employing 193 people is a fully Medicines and Healthcare Regulatory Agency ('MHRA') approved pharmaceutical manufacturer with multi-competence in both scale and dose form. Dales manufactures the vast majority of our own branded licensed pharmaceutical products, which are marketed through DVP, but also derives approximately 50% of revenues from third party toll manufacture, predominantly for human pharmaceutical companies. This is Dechra's only significant source of revenue not derived from the veterinary market.

Dales has had an excellent year with increased production of our own licensed products and from growth in third party sales. Third party business continues to be attracted from new and existing customers. The business has also continued to benefit from greater efficiency and productivity as we build upon the quality systems implemented last year. This had been enhanced by the successful 'go live' of a new IT platform, Oracle. The management team has been strengthened with the appointment of a new Quality Director, Andrew Parkinson and a Manufacturing Manager, Ernest Ukachu.

Pharmaceutical manufacturing is also carried out at the VetXX Uldum, Denmark facility where Malaseb, the Care range and a number of minor products are currently manufactured. Potential synergies with Dales and improved capacity utilisation opportunities are being explored.

Services Division

Our Services Division comprises National Veterinary Services ('NVS'), NationWide Laboratories ('NWL') and Cambridge Specialist Laboratory Services ('CSLS').

NVS

NVS, located in Stoke-on-Trent, England, employing 473 people, is the UK market leader, as measured in terms of market share, in the supply and distribution of veterinary products to veterinary practices and other approved outlets.  NVS competes with two major full line competitors on the UK mainland, Centaur Services and Dunlop, both of which are under American ownership.

NVS stock a range of over 14,000 products including pharmaceuticals, pet products, consumables and accessories.  NVS has also developed a range of IT solutions for veterinary practices which are branded Vetcom®.  Vetcom's principal objective is to collect orders electronically. Approximately 83% of NVS' orders arrive automatically with no human input required. This is considered to be a major advantage to our customers and also contributes to our low operating costs as with over 35,000 invoiced lines per working day, significantly increased numbers of people would be required to handle this business manually.  NVS distributes to 1,800 customers daily utilising its own fleet of vans and HGVs. The centralised inventory in Stoke-on-Trent is picked and packed throughout the afternoon and evening and then distributed overnight to trunking depots by HGVs on large trailers. Van drivers are then employed locally at these depots who distribute the goods to the customers.  NVS operates on a Sunday until Thursday shift which allows customers to place orders up until 7.00 p.m. Monday to Thursday and any time over the weekend up to 10.00 a.m. on Sunday for a next working day delivery.

NVS services both companion animal and livestock practices and agricultural merchants. As with other divisions within Dechra, NVS benefits from the good year-on-year growth in the veterinary market which has seen growth of approximately 10% in the year (see Business and Markets).

A strong sales performance from NVS, which has outperformed the market, can be attributed to the successful cold chain distribution of Blue Tongue vaccine, volume growth from existing practices and groups and by new business gains. The market has seen further consolidation of veterinary practices by groups with whom NVS has good long term relationships. Whilst NVS has been subject to significant fuel and utility cost increases, improved efficiency, solid control of discounts offered, good cost control and market share gains have all contributed to the performance.

continued…

  -11-

Laboratories

NWL operates out of three locations, Poulton-le-Fylde, Leeds and Swanscombe and employs 80 people. As first referral veterinary laboratories, they provide histology, pathology, haematology, chemistry and microbiology services to veterinary practices. Whilst a certain amount of simple chemistry is performed at veterinary practices, nearly all veterinary practices will outsource more advanced analytical tests, often requiring expert interpretation of results. We consider NWL to offer the highest level of service within this sector. We were the first veterinary laboratory to gain UKAS (United Kingdom Accreditation Service) approval.  NWL also offers other services such as Allervet®, a pet and equine allergy testing programme.  Allervet revenues have exceeded our expectations during the year.

Leeds Veterinary Laboratories ('LVL'), which was acquired in April 2007, has now been fully integrated into NWL. We have invested in LVL's premises in increasing laboratory capacity and also in new equipment.

Overall, the laboratory revenues have seen a good increase; however, the increased infrastructure costs have resulted in a profit performance slightly below last year.

CSLS, located in Sawston, England employs seven people. It operates as a first and second referral laboratory, with a key area of expertise being endocrinology. The second referral work, i.e. providing services for NWL and some of NWL's competitors, is mainly derived from a key area of specialisation in radio-immuno assays. The business also provides precise assays which support the dosage regimes and patient monitoring of our key products, Vetoryl Capsules and Felimazole Tablets. CSLS has increased sales and improved profitability during the year.

  -12-

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2008

FINANCIAL REVIEW BY THE GROUP FINANCE DIRECTOR, SIMON EVANS

Review of Operating Performance

Group Performance

The financial year was an exciting one for the Group. Our core businesses produced robust growth and as outlined earlier in this report the Group was significantly enhanced by the acquisition of VetXX in January 2008.

The following review focuses on adjusted figures (before VetXX rationalisation costs and amortisation of acquired intangibles) as the Directors believe that these give a clearer indication of underlying performance.

Group revenue increased by 19.9% to £304.4 million while adjusted operating profit, at £19.1 million, was ahead of last year by 38%.

Adjusted pre-tax profit was £16.9 million, 33.3% up on last year.

Pharmaceuticals Division

	2008 £’000	2007 £’000
Revenue
Own branded pharmaceuticals	32,136	16,599
Diets	9,915	-
Third party contract manufacturing	8,677	6,232
Instruments, consumables and equipment	3,574	3,817
Total revenue	54,302	26,648
Adjusted operating profit	10,765	6,102
Adjusted operating margin	19.8%	22.9%

Revenue from the Pharmaceuticals Division grew by 103.8% to £54.3 million of which £19.0 million was contributed by VetXX.

Within own branded pharmaceuticals, our key products Vetoryl, Felimazole and Equipalazone continued to show forward momentum. Global revenue from Vetoryl was £5.1 million, 13.1% up on last year whilst Felimazole grew by 15.6% to £3.9 million and Equipalazone grew by 12.5% to £3.0 million.

Of our other key products, the Vetivex range grew by 13.5% to £1.7 million whilst Canaural, Fuciderm and Fucithalmic acquired with VetXX made revenue contributions of £1.9 million, £1.4 million and £1.4 million respectively in the period since acquisition.

Revenue from our US operation grew from £374,000 to £4.6 million with a full year of marketing the Pharmaderm range of products.

Revenue from instruments, consumables and equipment fell by 6.4% to £3.6 million. This reflects our decision to reduce the range of products sold and focus on the key brands.

In the period prior to acquisition, the VetXX Specific range had been in long term decline. However, in the six months since acquisition, growth of 4.6% was achieved compared to the equivalent period last year.

continued…

  -13-

Revenue from third party contract manufacturing grew by 39.2% to £8.7 million with the benefit of new contracts being realised.

Product development expenditure charged to the income statement was £2.4 million, a 46.4% increase compared to last year. A further £1.3 million of development expenditure was capitalised giving a total cash spend for the year of £3.7 million compared to £3.3 million last year. In future periods, a greater proportion of expenditure will be charged to the income statement rather than being capitalised.

Adjusted operating profit for the division increased by 76.4% from £6.1 million to £10.8 million, of which £2.7 million was contributed by VetXX.

Services Division

	2008 £’000	2007 £’000
Revenue
Veterinary wholesaling	253,973	229,840
Laboratories	5,390	4,367
Total revenue	259,363	234,207
Adjusted operating profit	10,693	9,525
Adjusted operating margin	4.1%	4.1%

 

Our veterinary wholesaling business, NVS, grew revenue by 10.5% compared to last year. This was ahead of GB market growth as measured by GfK of 10.0%. Continued cost efficiencies meant that NVS increased its operating profit by 14.0%.

Revenue from our Laboratories business grew by 23.4% over last year, including a full year contribution from LVL. However, increased infrastructure costs meant that the operating profit achieved was slightly below last year's level.

Unallocated Central Costs

Unallocated central costs increased by £0.5 million to £2.3 million. This increase was due to salaries and an increase in the charge relating to share-based payments.

Return on Capital Employed

Return on capital employed reduced from 37.5% to 23.3%. This was due to the acquisition of VetXX and the significant increase in the asset base arising therefrom.

Net Finance Expense

The adjusted net finance expense increased from £1.23 million to £2.29 million. This was a result of the increased borrowing levels taken on in January 2008 to partially finance the acquisition of VetXX.

The adjusted net finance expense was covered 8.4 times by adjusted operating profit (2007: 11.3 times).

Taxation

The effective tax rate was 28.9%, slightly lower than the standard UK rate for the year of 29.5% with the reduction in the UK corporation tax rate from 30% to 28% being effective for three months of the financial year. The main item contributing to this undercharge was profits from our US subsidiary which were offset by trading losses brought forward.

continued…

  -14-

Earnings per Share and Dividend

Adjusted earnings per share increased by 23.2% to 20.81p.

The Board is proposing a final dividend of 5.50p per share which, when added to the interim dividend of 2.75p per share already paid, gives a total dividend for the year of 8.25p, a 10.0% increase over the 2007 figure of 7.50p. This takes into account the new shares issued to partially fund the VetXX acquisition.

The total dividend is covered 2.0 times by profit after tax after adding back amortisation of acquired intangibles (2007: 2.2 times).

Cash Flow

The Group achieved a cash conversion rate (defined as cash generated from operations as a percentage of operating profit) of 114.1% (2007: 103.5%). If amortisation of acquired intangibles is added back to operating profit, then the conversion rate was 94.2% (2007: 103.3%). During the year, the Group made a £1.5 million working capital investment in the US subsidiary and also increased the inventory of Vetoryl Capsules ahead of the US launch.

The most significant cash outflow during the year was the acquisition of VetXX. The total amount paid (including expenses and repayment of VetXX's existing borrowings) was £65.2 million. This was funded by the issue of 11,624,544 new ordinary shares raising £33.7 million net of issue costs and a new bank facility.

Financial Position at the end of the year

	2008 £’000	2007 £’000
Non-current assets
Intangible assets	90,375	13,089
Property, plant and equipment	8,224	5,739
Deferred tax assets	1,053	-
Total non-current assets	99,652	18,828
Working capital	17,284	13,264
Current tax liability	(2,824)	(2,464)
Deferred tax liabilities	(15,316)	(147)
Net (borrowings)/cash	(26,997)	1,027
Equity shareholders’ funds	71,799	30,508

 

Equity shareholders' funds has more than doubled compared to the equivalent point last year. This reflects the issue of new equity and retained profit for the year.

The major additions to intangible assets and property, plant and equipment related to the VetXX acquisition. Of the £4.0 million increase in working capital, £3.0 million was due to VetXX. Inventory days were 43, slightly behind the 42 days for last year. Receivable days showed an improvement from 40 days to 39 days.

The large increase in the deferred tax liability relates to the intangible assets recognised on the acquisition of VetXX.

The increased borrowings taken on to partially fund the VetXX acquisition meant that there were net borrowings at 30 June 2008 of £27.0 million compared to net cash at 30 June 2007 of £1.0 million. As normal, due to the working capital cycle of the Group, net borrowings will increase at the next reporting date of 31 December 2008.

continued…

  -15-

Risks and Uncertainties

Like every business, the Group faces risks and uncertainties in both its day-to-day operations and the achievement of its long term strategic objectives. The Group has well established procedures for identifying and controlling risk. Significant risks and procedures to control them are reviewed at Divisional Board Meetings on a monthly basis and by the Main Board on a quarterly basis.

The main potential risk areas identified by the Directors are as follows:

Regulatory

Like the human pharmaceutical industry, the veterinary industry is tightly regulated. Our major operational sites are required to be licensed either by the MHRA or the Home Office, and our products by the Veterinary Medicines Directorate ('VMD') and the equivalent overseas agencies. Inspections by these bodies are carried out regularly.

All of our new pharmaceutical products are required to be approved for sale by the relevant Regulatory Authority in each territory.

The main regulatory risks faced by the Group are:

• Failing to operate our businesses in accordance with their licenses resulting in disruption to operations;

• Potential reclassification of major pharmaceutical products from prescription only to a lower category causing loss of revenue;

• Failure to satisfy the regulatory authorities on new product submissions causing product launches to be delayed or aborted;

• Changes to laws or adverse reactions causing threat to existing products.

Competitor Products

The launching of competitor products against our key pharmaceutical brands could have an impact on revenues. One such competitor product has been launched during the last financial year.

Corporate Veterinary Practices

The growth of corporate veterinary practices has been a feature of the veterinary market over the last few years. Most corporates currently trade with NVS. The rise of corporate practices provides opportunities and risks to the Group.

The opportunities arise when a corporate group acquires veterinary practices not currently trading with NVS. The risks arise from the potential increased buying power of corporates causing pressure on gross margin. Additionally, a payment default could cause a material impairment charge.

General Market Conditions

The overall veterinary market has shown robust growth for many years. However, there have in the past been periods when the market has suffered a significant slow down. This can be caused by external 'shocks' such as BSE or general economic conditions. Our past experience has been that these slowdowns have been short term in nature. However, given the relatively high operational gearing of NVS, in particular, any future market slowdown could have a material effect on short term profitability.

Although there is no evidence as yet that the current general economic slowdown has significantly impacted the veterinary market, such an impact cannot be ruled out if the economic downturn is particularly severe.

Summary of Risks

The Group has ongoing and embedded procedures in place to control and, as far as possible, mitigate against the above risk factors. It must be emphasised, however, that these procedures can only control rather than eliminate risk.

-16-

Consolidated Income Statement

for the year ended 30 June 2008

		2008			2007
		Adjusted £’000	Amortisation of acquired intangibles and rationalisation costs £’000	Total £’000	Adjusted £’000	Amortisation of acquired intangibles and rationalisation costs £’000	Total £’000
	Note
Revenue	2	304,371	-	304,371	253,803	-	253,803
Cost of sales		(250,771)	-	(250,771)	(216,952)	-	(216,952)
Gross profit		53,600	-	53,600	36,851	-	36,851
Distribution costs		(13,360)	-	(13,360)	(10,850)	-	(10,850)
Administrative expenses		(21,098)	(5,071)	(26,169)	(12,125)	(27)	(12,152)
Operating profit	2	19,142	(5,071)	14,071	13,876	(27)	13,849
Finance income	3	1,973	-	1,973	1,044	-	1,044
Finance expense	4	(4,262)	(77)	(4,339)	(2,274)	-	(2,274)
Profit before taxation		16,853	(5,148)	11,705	12,646	(27)	12,619
Income tax expense	6	(4,668)	1,281	(3,387)	(3,780)	8	(3,772)
Profit for the year attributable  to equity holders of the parent		12,185	(3,867)	8,318	8,866	(19)	8,847
Earnings per share (pence)
Basic	8			14.20p			16.86p
Diluted	8			14.09p			16.62p
Dividend per share  (interim paid and final proposed  for the year)	7			8.25p			7.50p

 

  -17-

Consolidated Balance Sheet

	As at 30 June
	Note	2008 £’000	2007 £’000
ASSETS
Non-current assets
Intangible assets	9	90,375	13,089
Property, plant & equipment	10	8,224	5,739
Deferred tax assets	11	1,053	-
Total non-current assets		99,652	18,828
Current assets
Inventories	12	32,435	25,732
Trade and other receivables	13	47,445	36,173
Cash and cash equivalents	14	22,219	17,222
Total current assets		102,099	79,127
Total assets		201,751	97,955
LIABILITIES
Current liabilities
Borrowings	17	(21,218)	(4,529)
Trade and other payables	15	(62,596)	(48,641)
Current tax liabilities	16	(2,824)	(2,464)
Total current liabilities		(86,638)	(55,634)
Non-current liabilities
Borrowings	17	(27,998)	(11,666)
Deferred tax liabilities	11	(15,316)	(147)
Total non-current liabilities		(43,314)	(11,813)
Total liabilities		(129,952)	(67,447)
Net assets		71,799	30,508
EQUITY
Issued share capital	18	652	528
Share premium account		62,166	28,041
Hedging reserve		281	(71)
Foreign currency translation reserve		1,608	-
Merger reserve		1,770	1,770
Retained earnings		5,322	240
Total equity attributable to equity holders of the parent		71,799	30,508

  -18-

Consolidated Statement of Changes in Shareholders' Equity

for the year ended 30 June 2008

Year ended 30 June 2007	Issued Share capital £’000	Share premium account £’000	Hedging reserve £’000	Foreign currency translation reserve £’000	Merger reserve £’000	Retained earnings £’000	Total £’000
At 1 July 2006	519	27,693	(71)	-	1,720	(5,946)	23,915
Profit for the period being total recognised income and expense for the period	-	-	-	-	-	8,847	8,847
Dividends paid	-	-	-		-	(3,595)	(3,595)
Share-based payments including current and deferred tax	-	-	-	-	-	934	934
Shares issued	9	348	-	-	50	-	407
At 30 June 2007	528	28,041	(71)	-	1,770	240	30,508
Year ended 30 June 2008
At 1 July 2007	528	28,041	(71)	-	1,770	240	30,508
Profit for the period	-	-	-	-	-	8,318	8,318
Fair value gains on derivative financial instruments	-	-	352	-	-	-	352
Exchange differences on translation of foreign operations	-	-	-	1,608	-	-	1,608
Total recognised income and expense for the period	-	-	352	1,608	-	8,318	10,278
Dividends paid	-	-	-	-	-	(4,420)	(4,420)
Share-based payments including current and deferred tax	-	-	-	-	-	1,184	1,184
Shares issued	124	35,636	-	-	-	-	35,760
Share issue expenses	-	(1,511)	-	-	-	-	(1,511)
At 30 June 2008	652	62,166	281	1,608	1,770	5,322	71,799

Hedging Reserve

The hedging reserve represents the cumulative fair value gains or losses on derivative financial instruments for which hedge accounting has been applied.

Foreign Currency Translation Reserve

The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than sterling.

Merger Reserve

The merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries where statutory merger relief has been applied in the financial statements of the Parent Company.

  -19-

Consolidated Statement of Cash Flows

		Year ended 30 June
	Note	2008 £’000	2007 £’000
Cash flows from operating activities
Profit for the period		8,318	8,847
Adjustments for:
Depreciation		1,291	984
Amortisation		3,230	137
Loss/(gain) on sale of property, plant and equipment		15	(7)
Finance income		(1,973)	(1,044)
Finance expense		4,339	2,274
Equity-settled share-based payment expenses		603	479
Income tax expense		3,387	3,772
Operating cash flow before changes in working capital		19,210	15,442
Increase in inventories		(3,912)	(3,737)
Increase in trade and other receivables		(3,070)	(248)
Increase in trade and other payables		3,825	2,871
Cash generated from operations		16,053	14,328
Interest paid		(4,450)	(2,228)
Income taxes paid		(3,041)	(2,895)
Net cash from operating activities		8,562	9,205
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		5	23
Interest received		1,648	1,059
Acquisition of subsidiaries	21	(65,151)	(717)
Purchase of property, plant and equipment		(694)	(823)
Capitalised development expenditure		(1,331)	(1,680)
Purchase of other intangible non-current assets		(92)	(2,845)
Net cash from investing activities		(65,615)	(4,983)
Cash flows from financing activities
Proceeds from the issue of share capital		35,747	357
Share issue expenses		(1,511)	-
New borrowings		50,200	-
Expenses of raising new borrowings		(751)	-
Repayment of borrowings		(17,185)	(3,481)
Dividends paid		(4,420)	(3,595)
Net cash from financing activities		62,080	(6,719)
Net increase/(decrease) in cash and cash equivalents		5,027	(2,497)
Cash and cash equivalents at start of period		17,222	19,719
Exchange differences on cash and cash equivalents		(30)	-
Cash and cash equivalents at end of period		22,219	17,222

 

  

 

Reconciliation of net cash flow to movement in net borrowings
Net increase/(decrease) in cash and cash equivalents		5,027	(2,497)
Repayment of borrowings		17,185	3,481
New borrowings		(50,200)	-
Borrowings assumed on acquisition of subsidiaries		-	(55)
New finance leases		(319)	(956)
Other non-cash changes		283	(25)
Movement in net cash/(borrowings) in the period		(28,024)	(52)
cash at start of period		1,027	1,079
Net (borrowings)/cash at end of period	20	(26,997)	1,027

 

 

-20-

Notes to the Financial Statements

For the year ended 30 June 2008

1.    Status of Accounts

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union ('adopted IFRS'). These financial statements have also been prepared in accordance with the Companies Act 1985.

The Board of Directors approved the preliminary announcement on 2 September 2008.

2.    Segmental Analysis

The Group's primary reporting segment is business divisions which correspond with the way the operating businesses are organised and managed within the Group and its secondary segment is geographical origin.

Segment results, assets and liabilities comprise those items directly attributable to particular segments as well as items which can reasonably be allocated to those segments. Inter-segment transactions are entered into applying normal commercial terms that would be available to third parties.

Unallocated items comprise mainly corporate assets, expenses, loans and borrowings together with the elimination of inter-segment transactions.

The composition of the segments is detailed in the Directors' Business Review section of this announcement.

BUSINESS SEGMENT	Pharmaceuticals		Services		Unallocated		Total
	2008 £’000	2007 £’000	2008 £’000	2007 £’000	2008 £’000	2007 £’000	2008 £’000	2007 £’000
Revenue
External customers	45,187	19,736	259,184	234,067	-	-	304,371	253,803
Inter-segment	9,115	6,912	179	140	(9,294)	(7,052)	-	-
Total revenue	54,302	26,648	259,363	234,207	(9,294)	(7,052)	304,371	253,803
Adjusted operating profit	10,765	6,102	10,693	9,525	(2,316)	(1,751)	19,142	13,876
Amortisation of acquired intangibles and rationalisation costs	(5,035)	(21)	(36)	(6)	-	-	(5,071)	(27)
Operating profit	5,730	6,081	10,657	9,519	(2,316)	(1,751)	14,071	13,849
Finance income							1,973	1,044
Finance expense							(4,339)	(2,274)
Profit before taxation							11,705	12,619
Income tax expense							(3,387)	(3,772)
Profit for the year							8,318	8,847
Assets
Intangible assets	86,468	9,382	3,907	3,707	-	-	90,375	13,089
Property, plant and equipment	6,401	3,624	1,823	2,115	-	-	8,224	5,739
Other assets	35,140	15,071	80,706	70,090	650	156	116,496	85,317
Cash offset	-	-	-	-	(13,344)	(6,190)	(13,344)	(6,190)
Total assets	128,009	28,077	86,436	75,912	(12,694)	(6,034)	201,751	97,955
Liabilities
Borrowings	(506)	(586)	(1,418)	(1,489)	(60,636)	(20,310)	(62,560)	(22,385)
Other liabilities	(14,123)	(5,452)	(47,343)	(42,571)	(19,270)	(3,229)	(80,736)	(51,252)
Cash offset	-	-	-	-	13,344	6,190	13,344	6,190
Total liabilities	(14,629)	(6,038)	(48,761)	(44,060)	(66,562)	(17,349)	(129,952)	(67,447)
Net assets/(liabilities)	113,380	22,039	37,675	31,852	(79,256)	(23,383)	71,799	30,508
Other Segment Items
Capital expenditure
- intangible assets	77,238	4,611	295	1,348	-	-	77,533	5,959
- property, plant and equipment	3,448	549	232	595	-	-	3,680	1,144
Total capital expenditure	80,686	5,160	527	1,943	-	-	81,213	7,103
Share-based payments charge	-	-	-	-	759	596	759	596
Depreciation and amortisation	3,922	569	599	552	-	-	4,521	1,121

 

 

continued…

  -21-

GEOGRAPHICAL SEGMENT

The following table shows revenue based on the geographical location of customers:

	2008 £’000	2007 £’000
UK	277,463	247,920
Rest of Europe	20,460	4,246
USA	5,266	1,121
Rest of world	1,182	516
	304,371	253,803

 

 

The table below gives additional information in respect of segment revenue and segment operating profit, based on the geographical location of the business unit supplying the goods or services. Segment assets and capital expenditure are based on the geographical location of the assets and expenditure. Activities in the UK comprise all operating segments. Overseas operations comprise pharmaceuticals only.

	UK		USA		Denmark		Unallocated		Total
	2008 £’000	2007 £’000	2008 £’000	2007 £’000	2008 £’000	2007 £’000	2008 £’000	2007 £’000	2008 £’000	2007 £’000
Revenue by  geographical origin	280,847	253,429	4,566	374	18,958	-	-	-	304,371	253,803
Adjusted operating  profit by  geographical origin	18,357	15,798	450	(198)	2,651	-	(2,316)	(1,751)	19,142	13,849
Total assets	118,401	102,533	2,275	1,456	93,769	-	(12,694)	(6,034)	201,751	97,955
Capital expenditure
- intangible assets	3,584	5,959	-	-	73,949	-	-	-	77,533	5,959
- property, plant and  equipment	787	1,141	17	3	2,876	-	-	-	3,680	1,144
Total capital  expenditure	4,371	7,100	17	3	76,825	-	-	-	81,213	7,103

 

3.    Finance Income

	2008 £’000	2007 £’000
Recognised in profit or loss
Finance income arising from:
- Cash and cash equivalents	1,631	1,018
- Derivatives at fair value through profit or loss	325	-
- Loans and receivables	17	26
	1,973	1,044

Finance income arising from derivatives at fair value through profit or loss relates to fair value gains on forward foreign currency contracts.

	2008 £’000	2007 £’000
Recognised directly in equity
Foreign currency translation differences for foreign operations	2,415	-
Net loss on hedge of net investment in foreign operations	(807)	-
Recognised in foreign currency translation reserve	1,608	-
Fair value gains on interest rate floor and ceiling	446	-
Income tax expense on above	(125)	-
Amount recycled to income statement	31	-
Recognised in hedging reserve	352	-
Total recognised in equity	1,960	-

continued…

  -22-

4.    Finance Expense

	2008 £’000	2007 £’000
Finance expense arising from:
- Financial liabilities at amortised cost	4,281	2,228
- Derivatives at fair value through profit or loss	58	46
	4,339	2,274

 

Finance expense arising from derivatives at fair value through profit or loss relates to fair value losses on foreign currency options and interest rate floor and ceilings.

5.    Adjusted Operating Profit and Profit before Taxation

Adjusted operating profit is calculated as follows:

	2008 £’000	2007 £’000
Operating profit	14,071	13,849
Amortisation of intangible assets acquired as a result of business combinations	2,975	27
Rationalisation costs arising following the acquisition of VetXX Holdings A/S	2,096	-
Adjusted operating profit	19,142	13,876
Adjusted profit before taxation is calculated as follows:
	2008 £’000	2007 £’000
Profit before taxation	11,705	12,619
Amortisation of intangible assets acquired as a result of business combinations	2,975	27
Rationalisation costs arising following the acquisition of VetXX Holdings A/S	2,096	-
Write-off of unamortised arrangement fees on borrowings refinanced as a result  of the acquisition of VetXX Holdings A/S	77	-
Adjusted profit before taxation	16,853	12,646

6.    Income Tax Expense

		2008 £’000	2007 £’000
Current tax	– charge for current year	3,687	3,361
	– adjustment in respect of prior years	(29)	(69)
Total current tax expense		3,658	3,292
Deferred tax	– origination and reversal of temporary differences	(300)	409
	– adjustment in respect of prior years	29	71
Total deferred tax expense		(271)	480
Total income tax expense in the income statement		3,387	3,772

Of the current tax expense of £3,658,000 an amount of £14,000 (2007: £nil) was in respect of foreign territories.

continued…

  -23-

The tax on the Group's profit before tax differs from the standard rate of UK corporation tax of 28% (2007: 30%). The differences are explained below:

	2008 £’000	2007 £’000
Profit before taxation	11,705	12,619
Tax at 28% (2007: 30%)	3,277	3,786
Effect of:
- depreciation on assets not eligible for tax allowances	15	47
- disallowable expenses	45	41
- utilisation of overseas losses	(137)	58
- over-recovery of deferred tax on share-based payments	-	(46)
- research and development tax credits	-	(60)
- differences on overseas tax rates	(5)	-
- reduction in tax rate used to calculate deferred tax liability	16	(56)
- adjustments in respect of prior years	-	2
- adjustments due to changes in tax rate	176	-
Total income tax expense	3,387	3,772

 

 

Additional current tax credits of £266,000 (2007: £454,000) and a deferred tax charge of £265,000 (2007: credit of £1,000) have been recognised directly in equity.

7.    Dividends

	2008 £’000	2007 £’000
Final dividend paid in respect of prior year but not recognised as a liability in  that year 5.00p per share (2007: 4.33p)	2,640	2,278
Interim dividend paid 2.75p per share (2007: 2.50p)	1,780	1,317
Total dividend 7.75p per share (2007: 6.83p) recognised as distributions to  equity holders in the period	4,420	3,595
Proposed final dividend for the year ended 30 June 2008: 5.50p per share  (2007: 5.00p)	3,588	2,640
Total dividend paid and proposed for the year ended 30 June 2008: 8.25p  per share (2007: 7.50p)	5,368	3,957

In accordance with IAS10 'Events After the Balance Sheet Date', the proposed final dividend for the year ended 30 June 2008 has not been accrued for in these financial statements. It will be shown as a deduction from equity in the financial statements for the year ending 30 June 2009.

The proposed final dividend for the year ended 30 June 2007 is shown as a deduction from equity in the year ended 30 June 2008.

continued…

  -24-

8.    Earnings per Share

Earnings per ordinary share have been calculated by dividing the profit attributable to equity holders of the parent after taxation for each financial period by the weighted average number of ordinary shares in issue during the period.

	2008 Pence	2007 Pence
Basic earnings per share
- Adjusted basic	20.81	16.89
- Basic	14.20	16.86
Diluted earnings per share
- Adjusted diluted	20.64	16.66
- Diluted	14.09	16.62
The calculations of basic and diluted earnings per share are based upon:
	£’000	£’000
Earnings for adjusted basic and adjusted diluted earnings per share  calculations	12,185	8,866
Earnings for basic and diluted earnings per share figures	8,318	8,847
	No.	No.
Weighted average number of ordinary shares for basic earnings per share	58,560,097	52,482,659
Impact of share options	464,486	737,011
Weighted average number of ordinary shares for diluted earnings per share	59,024,583	53,219,670

 

9.    Intangible Assets

COST	Goodwill £’000	Software £’000	Development Costs £’000	Patent Rights £’000	Product Rights £’000	Marketing Authorisations £’000	Acquired Intangibles £’000	Total £’000
At 1 July 2006	4,385	717	826	789	278	822	-	7,817
Additions	467	591	1,680	257	-	31	2,933	5,959
Disposals	-	-	-	-	(278)	-	-	(278)
At 30 June 2007 and  1 July 2007	4,852	1,308	2,506	1,046	-	853	2,933	13,498
Additions	-	411	1,331	1,879	-	-	-	3,621
Acquisition through business combinations	14,397	94	261	-	-	-	59,160	73,912
Disposals	-	-	-	-	-	-	-	-
Foreign exchange adjustments	595	3	10	-	-	-	2,375	2,983
At 30 June 2008	19,844	1,816	4,108	2,925	-	853	64,468	94,014
AMORTISATION
At 1 July 2006	-	91	181	-	18	-	-	290
Charge for the year	-	58	52	-	-	-	27	137
Disposals	-	-	-	-	(18)	-	-	(18)
At 30 June 2007 and  1 July 2007	-	149	233	-	-	-	27	409
Charge for the year	-	132	123	-	-	-	2,975	3,230
Disposals	-	-	-	-	-	-	-	-
At 30 June 2008	-	281	356	-	-	-	3,002	3,639
NET BOOK VALUE
At 30 June 2008	19,844	1,535	3,752	2,925	-	853	61,466	90,375
At 30 June 2007 and  1 July 2007	4,852	1,159	2,273	1,046	-	853	2,906	13,089
At 1 July 2006	4,385	626	645	789	260	822	-	7,527

 

 

continued…

  -25-

Development costs are internally generated. All other additions to intangible assets were acquired outside the Group and have been measured at cost or fair value at the time of acquisition.

The amortisation charge is recognised within administrative expenses in the income statement.

10.    Property, Plant and Equipment

	Freehold land and buildings £’000	Short leasehold buildings £’000	Motor vehicles £’000	Plant and fixtures £’000	Total £’000
COST
At 1 July 2006	13	2,601	433	7,500	10,547
Additions	-	27	-	1,079	1,106
Acquisitions through business combinations	-	-	-	38	38
Disposals	-	-	-	(33)	(33)
At 30 June 2007 and 1 July 2007	13	2,628	433	8,584	11,658
Additions	-	144	-	678	822
Acquisition through business combinations	2,072	-	-	786	2,858
Disposals	-	-	(2)	(1,524)	(1,526)
Foreign exchange adjustments	84	-	-	32	116
At 30 June 2008	2,169	2,772	431	8,556	13,928
DEPRECIATION
At 1 July 2006	-	550	433	3,969	4,952
Charge for the year	-	147	-	837	984
Disposals	-	-	-	(17)	(17)
At 30 June 2007 and 1 July 2007	-	697	433	4,789	5,919
Charge for the year	61	154	-	1,076	1,291
Disposals	-	-	(2)	(1,504)	(1,506)
At 30 June 2008	61	851	431	4,361	5,704
NET BOOK VALUE
At 30 June 2008	2,108	1,921	-	4,195	8,224
At 30 June 2007 and 1 July 2007	13	1,931	-	3,795	5,739
At 1 July 2006	13	2,051	-	3,531	5,595

 

 

11.    Deferred Taxes

Recognised deferred tax assets and liabilities are attributable to the following:

	Assets		Liabilities		Net
	2008 £’000	2007 £’000	2008 £’000	2007 £’000	2008 £’000	2007 £’000
Intangible assets	-	-	(15,872)	(740)	(15,872)	(740)
Property, plant and equipment	-	-	(423)	(325)	(423)	(325)
Inventories	53	-	(72)	-	(19)	-
Receivables	-	30	(294)	-	(294)	30
Cash and cash equivalents	-	-	-	-	-	-
Borrowings	-	-	-	-	-	-
Payables	248	32	-	-	248	32
Current tax liabilities	-	-	-	-	-	-
Trading losses	1,309	-	-	-	1,309
Share-based payments	788	856	-	-	788	856
	2,398	918	(16,661)	(1,065)	(14,263)	(147)

 

 

continued…

  -26-

Shown as:

	2008 £’000	2007 £’000
Deferred tax assets	1,053	-
Deferred tax liabilities	(15,316)	(147)
	(14,263)	(147)

 

Deferred tax assets and liabilities are offset to the extent that there is a legally enforceable right to offset current tax assets against current tax liabilities.

12.    Inventories

	2008 £’000	2007 £’000
Raw materials and consumables	3,860	2,250
Work in progress	316	208
Finished goods and goods for resale	28,259	23,274
	32,435	25,732

 

13.    Trade and Other Receivables

	2008 £’000	2007 £’000
Trade receivables	43,741	34,029
Other receivables	1,896	1,368
Prepayments and accrued income	1,808	776
	47,445	36,173

 

 

14.    Cash and Cash Equivalents

	2008 £’000	2007 £’000
Cash at bank and in hand	4,657	1,468
Short-term deposits	17,562	15,754
	22,219	17,222

 

The short-term deposits are repayable on demand

15.    Trade and Other Payables

	2008 £’000	2007 £’000
Trade payables	50,177	44,019
Other payables	5,412	605
Other taxation and social security	3,894	1,978
Accruals and deferred income	3,113	2,039
	62,596	48,641

 

16.    Current Tax Liabilities

	2008 £’000	2007 £’000
Corporation tax payable	2,824	2,464

 

 

continued…

  -27-

17.    Borrowings

	2008 £’000	2007 £’000
Current liabilities
Bank loans and overdrafts	20,616	4,000
Finance lease obligations	602	529
	21,218	4,529
Non-current liabilities
Bank loans	27,500	10,200
Finance lease obligations	1,507	1,546
Arrangement fees netted off	(1,009)	(80)
	27,998	11,666
Total borrowings	49,216	16,195

 

 

The Group's borrowing facilities comprise a term loan of £32.5 million repayable in equal instalments of £2.5 million each 30 June and 31 December, a £15 million revolving credit facility committed until 31 December 2012, an overdraft facility of £10 million renewable on 1 July 2009 and various finance lease obligations.

At the year end, the Group had the following unutilised borrowing facilities:

	2008 £’000	2007 £’000
Revolving credit facility	-	5,000
Bank overdraft facility	10,000	4,000
	10,000	9,000

18.    Share Capital

	Ordinary shares of 1p each
	2008		2007
	£’000	No.	£’000	No.
Authorised	1,000	100,000,000	750	75,000,000
Allotted, called up and fully paid  at start of year	528	52,803,699	519	51,915,002
New shares issued	124	12,438,210	9	888,697
Allotted, called up and fully paid  at end of year	652	65,241,909	528	52,803,699

 

 

On 8 January 2008, 11,624,544 New Ordinary Shares were issued by way of a Placing and Open Offer at a price of 303p per share to partially finance the acquisition of VetXX Holdings A/S. The gross proceeds raised were £35.2 million.

During the year, 813,666 New Ordinary Shares of 1p (2007: 873,889 New Ordinary Shares of 1p) were issued following the exercise of options under the Executive Incentive Plan and the Approved, Unapproved and SAYE Share Options Schemes. The consideration received was £537,000 (2007: £357,000). In the year ended 30 June 2007, 14,808 New Ordinary Shares of 1p were issued in part consideration for the acquisition of Leeds Veterinary Laboratories Limited. The market value of these New Ordinary Shares of 1p at the date of issue was £50,000 and this amount was credited to merger reserve. The holders of Ordinary Shares are entitled to receive dividends as declared or approved at General Meetings from time to time and are entitled to one vote per share at such meetings of the Company.

continued…

  -28-

19.    Share-based Payments

	2008 £’000	2007 £’000
Equity-settled share-based transactions	603	479
Cash-settled share-based transactions	156	117
	759	596

 

 

The above charge to the Income Statement was included within administrative expenses.

20.    Analysis of Net (Borrowings) / Cash

	2008 £’000	2007 £’000
Bank loans and overdraft	(47,107)	(14,120)
Finance leases and hire purchase contracts	(2,109)	(2,075)
Cash and cash equivalents	22,219	17,222
Net (borrowings)/cash	(26,997)	1,027

 

 

21.    Acquisition of Subsidiary

On 15 January 2008 the Company acquired the entire share capital of VetXX Holdings A/S, a Danish company. The assets and liabilities acquired are allocated as follows:

	Book Value £’000	Fair value adjustments £’000	Fair value £’000
Intangible assets (see note 9)	261	59,254	59,515
Property, plant and equipment (see note 10)	2,946	(88)	2,858
Deferred tax assets	1,094	-	1,094
Inventories	2,699	-	2,699
Trade and other receivables	7,268	-	7,268
Trade and other payables	(7,295)	(711)	(8,006)
Current tax	(11)	-	(11)
Deferred tax liabilities	-	(14,663)	(14,663)
Net assets	6,962	43,792	50,754
Goodwill (see note 9)			14,397
Consideration (including costs)			65,151
Satisfied by:
Cash			63,658
Expenses of acquisition			1,493
Cash flow on acquisition			65,151

 

 

The fair value adjustments may be amended in the year ending 30 June 2009 if information not currently available comes to light.

Goodwill represents the present value of synergies expected to arise following the acquisition.

The fair value adjustment in relation to intangible assets recognises marketing authorisations, brands and trademarks in accordance with IFRS 3. The deferred tax adjustment reflects the tax effect of the fair value adjustments. Other adjustments reflect the estimated realisable value of the assets and liabilities.

For the 12 month period ended 30 June 2008, VetXX Holdings A/S made a consolidated adjusted operating profit of £5,818,000, of which £2,651,000 was recognised in the period following acquisition.

continued…

  -29-

If the acquisition had occurred on 1 July 2007, management estimates that consolidated revenue would have been £323.2 million and adjusted operating profit for the period would have been £22.31 million.

22.    Other Information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 June 2008 or 2007 but is derived from the 2008 accounts. Statutory accounts for 2007 have been delivered to the registrar of companies and those for 2008 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985.

23.    This Preliminary statement is not being posted to shareholders. The Report & Accounts for the year ended 30 June 2008 will be posted to shareholders shortly.  Further copies will be available from the Company's Registered Office: Dechra House, Jamage Industrial Estate, Talke Pits, Stoke on Trent, ST7 1XW.   Email: [e-mail]. Copies are also available on the Company website www.dechra.com.

24.    Trademarks

Trademarks appear throughout this document in italics.  Dechra and the Dechra 'D' logo are registered Trademarks of Dechra Pharmaceuticals PLC.

 

END

 

 

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