Final Results

Dechra Pharmaceuticals PLC 04 September 2007 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 4 September 2007 Embargoed: 7.00am Dechra(R) Pharmaceuticals PLC An International Veterinary Pharmaceutical Business Preliminary Results for the year ended 30 June 2007 Year Ended Year Ended June 2007 June 2006 Revenue £253.8m £232.5m +9% Operating profit £13.8m £12.3m +12% Profit before taxation £12.6m £11.0m +14% Earnings per share Basic 16.86p 14.71p +15% Diluted 16.62p 14.36p +16% Dividend Final 5.00p 4.33p +15% Total 7.50p 6.24p +20% Strong increase in own pharmaceutical revenue, up by 22% Regulatory approval received for three new UK generic products, Domidine(R), Sedator(R) and Thyroxyl. Three acquisitions have been made; Leeds Veterinary Laboratories, the Intellectual Property for Equidone(R) Gel and the marketing rights for the Pharmaderm range of veterinary products: total investment £3.7 million Strong performance from NVS(R), our veterinary wholesaling business, demonstrated by a retention of overall UK market share, above 44%, and a revenue growth ahead of the market Operating profit at Dales, our manufacturing business, increased by 33% International product development is progressing to expectations Product development cash expenditure has doubled to £3.3 million Full year dividend increased by 20% Enquiries: Ian Page, Chief Executive Fiona Tooley, Director 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: 07775 642222 (IP) or 07775 642220 (SE) Mobile: 07785 703523 (FMT) or 07770 788624 Thereafter: 01782 771100 Thereafter: 0121 455 8370 www.dechra.com corporate.enquiries@dechra.com 8.30am - 9.30am Analysts' Presentation at Citigate Dewe Rogerson Ltd 3 London Wall Buildings London Wall EC2M 5SY Tel: 020 7638 9571 -2- Dechra Pharmaceuticals PLC Preliminary Results for the year ended 30 June 2007 CHAIRMAN'S STATEMENT & EXTRACTS FROM THE BUSINESS & FINANCIAL REVIEW STATEMENT BY THE CHAIRMAN, MICHAEL REDMOND I am pleased to report that we have continued to achieve good growth in revenue and profitability from our UK businesses; this has been enhanced by significant revenue from our own product portfolio in the EU. Strategic progress has been made with acquisitions that strengthen the Group and provide a revenue stream and platform for growth in the US. The development of our own branded veterinary pharmaceutical portfolio is progressing to schedule. Financial Highlights Group revenue increased 9.2% from £232.5 million to £253.8 million. Operating profit increased by 12.5% to £13.8 million (2006: £12.3 million) and profit before taxation rose 14.3% to £12.6 million (2006: £11.0 million). Basic earnings per share was 16.86 pence, up 14.6% from the 14.71 pence achieved in 2006. Total cash investment in product development was £3.3 million (2006: £1.6 million), of which £1.6 million was charged to the income statement (2006: £1.4 million). Cash flow continued to be strong with cash flow from operations being 103% of operating profit. As at 30 June 2007, the Group had net funds of £1.0 million, virtually unchanged from the £1.1 million at 30 June 2006. Interest cover was 11.3 times (2006: 9.7 times). During the year, the Group acquired the rights to the Pharmaderm range of veterinary products for US$5 million (£2.6 million), made an initial payment of US$0.5 million (£0.3 million) for the intellectual property rights for Equidone Gel and acquired Leeds Veterinary Laboratories Limited for a cash and equity consideration of £0.8 million. 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 5.00 pence per share (2006: 4.33 pence per share). This, together with the interim dividend of 2.50 pence per share (2006: 1.91 pence per share), makes a total dividend for the year of 7.50 pence per share (2006: 6.24 pence per share), a 20% increase. The total dividend is covered 2.2 times by profit after taxation. The final dividend, which is subject to Shareholder approval at our Annual General Meeting to be held on Wednesday 17 October 2007, will be paid on 23 November 2007 to Shareholders on the Register at 26 October 2007. Prospects Current trading continues to meet management expectations. With the continued solid growth of our UK businesses, the acquisitions made throughout the year and with the international product development programme beginning to deliver revenue, we remain confident in our future. -3- Please note the following Business and Financial Reviews are excerpts taken from the complete Directors' Business Review which will be contained in the Report & Accounts due to be published shortly, following which it will be found on the Company website www.dechra.com. The Business Dechra Pharmaceuticals PLC ('Dechra') comprises six businesses operating under two divisions, Pharmaceuticals and Services. Both Divisions are focused on the veterinary market with a key area of specialisation being on companion animal products. The Group's main focus is delivering organic growth from its two divisions; however, the key strategy to deliver medium to long-term growth is the development of our own branded veterinary pharmaceutical products for licensing internationally. At 30 June 2007, Dechra employs 758 people who operate out of 17 locations. Product Development During the last five years we have licensed four specialist products and four generic products, three of which received approval towards the end of the financial year. Within our current licensed portfolio, Vetoryl Capsules and Felimazole Tablets still provide excellent opportunities for international growth. Vetoryl Capsules is a novel and patented product for the treatment of Cushing's Disease (excess cortisol or hyperadrenocorticism) in dogs. It is the only licensed product within the EU and is the only recognised safe and 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 Capsules has since achieved full approval and has consistently increased market penetration, with substantial revenue now in excess of £2.0 million per year. It also achieved mutual recognition for approval within the EU in 2006 and has now been launched within all the key European territories with good initial sales exceeding £1.5 million. In the USA it is also sold under the Food and Drug Administration ('FDA') waiver scheme. Global revenue for Vetoryl Capsules in the 2007 financial year was £4.5 million. Felimazole Tablets 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 has supported its growth. Felimazole Tablets received marketing approval in 2002 and has achieved UK revenues in excess of £2.9 million in the financial year. Felimazole Tablets was approved in the EU in 2005 and has achieved £0.4 million sales in the year. This relatively low level of sales can be attributed to the failure of veterinarians to comply with the Cascade Legislation and the status of the cat throughout most of the EU. Both Vetoryl Capsules and Felimazole Tablets have been granted an expedited review status by the FDA in the USA. The principal advantage to an expedited review is that there is a target 90-day response from the time of the submission of information. Development Update There have been a number of achievements within our development programme throughout this financial year: - - The safety and CMC sections for Vetoryl Capsules were submitted to the FDA prior to the financial year end. The submission of the efficacy section is imminent. An initial response to the CMC section has been received with only three areas requiring further clarification, none of which should result in delayed approval. We remain confident in the safety and efficacy of the product and await a response from the FDA. - All cats have now been enrolled on the clinical trial for Felimazole Tablets. We anticipate that the efficacy submission will be made prior to the end of this calendar year. continued... -4- - Clinical trials have commenced in Japan and are progressing to our expectations. These trials are the responsibility of our partner Kyoritsu Seiyaku ('KS'), who are the leading animal pharmaceutical supplier with over sixty representatives marketing directly to veterinary practices. KS anticipate that it will be at least a further two years to gain approval within this significant territory. - As reported last year, the dossier for Vetoryl Capsules has been submitted to the Canadian and Australian authorities and the dossier for Felimazole Tablets has been submitted in Canada. We understand that the review process has now commenced within these territories. - A 10mg small dog Vetoryl Capsule has been approved within the EU; marketing is expected to commence within the next six months. The US approval for the 10mg strength will be concurrent with the full application. - Intra-Epicaine(R) and Somulose(R), two of the minor, although unique products in our portfolio, have been approved for sale in Ireland. - Two Vetivex(R) range extensions have received UK approval. - Three generic products, Domidine, Sedator and Thyroxyl have received approval for the UK. Domidine and Thyroxyl were launched towards the end of the financial year. - Two other generic products are at an advanced stage of the approval process and are expected to be licensed within the first half of the current financial year. - Progress is also being made with three further generic products which will be targeted at the EU market. We currently have a number of other products under development and are exploring several other opportunities to add to the portfolio. Due to commercial sensitivity we believe it to be appropriate to treat the nature of these projects as confidential. Acquisitions Intellectual Property Acquisition In December we announced that we had acquired the intellectual property for Equidone Gel, an equine product, which is at an advanced stage of development for the US market. The use of the active ingredient, Domperidone, has been co-developed by Equi-Tox and Clemson University, based in South Carolina, USA for the prevention of Fescue Toxicity, a disease which is caused by eating a fungus which infects tall fescue grass. The most serious clinical signs are observed in the late stages of pregnancy and the toxicity can result in foal death. Equidone Gel is already patented and under limited distribution in the US under a special licence. The market for equine Fescue Toxicity is estimated to be approximately US$2.0 million per annum. Other patents for Equidone Gel uses have also been approved; explorations into these indications, which have substantially larger markets, have commenced. Laboratory Acquisition In April we announced the acquisition of Leeds Veterinary Laboratories Limited ('LVL'). LVL is a well established veterinary laboratory, founded in 1986. The business employs 18 staff and three consultants and offers a comprehensive range of veterinary diagnostic tests for companion, exotic, equine and farm animals from its 6,000 sq. ft. facility in Yeadon, Leeds, Yorkshire. The effective cash and equity consideration for LVL was £750,000. continued... -5- US Veterinary Product Portfolio In May we secured a long-term trademark license and supply agreement with Pharmaderm Animal Health ('Pharmaderm'), part of the US commercial division of ALTANA Inc. The agreement provides the Group with exclusive marketing and distribution rights for a range of veterinary licensed ophthalmic, otic and dermatological products and the opportunity to develop new licenses for both North America and Europe. Under the agreement, Dechra paid US$5.0 million in cash for the licenses. The products, which are currently sold to veterinary practices in the USA, achieved sales of US$7.7 million in the year ended 31 December 2006. Pharmaceutical Division Our Pharmaceutical Division comprises Dechra Veterinary Products ('DVP EU'), Dechra Veterinary Products USA ('DVP USA'), Arnolds(R) Veterinary Products ('Arnolds') and Dales Pharmaceuticals ('Dales'). DVP EU DVP EU, located in Shrewsbury, England, employs 67 people. This business markets and sells our own branded, licensed veterinary pharmaceuticals in the UK, and manages the relationships with our EU marketing partners. We have over 40 products, however, there are 13 key brands which represent over 90% of DVP EU's sales. We have a number of UK marketing agreements; with Virbac Inc. to market Thyroxyl within the UK and Ireland, with Eurovet to market Domidine and Sedator in the UK and Ireland, with Biopure to market Oxyglobin(R) in the EU and with Peptech to market Ovuplant(R) in the EU. Thyroxyl is a generic product used for the treatment of Hyperthyroidism in dogs. Domidine and Sedator are generic analgesics used in the treatment of horses and dogs respectively. Ovuplant is a seasonal equine fertility product, launched in the UK in Spring 2005; development is progressing to licence the product within the rest of the EU. Felimazole Tablets and Vetoryl Capsules, together with Equipalazone(R) Powder, Paste and Injection, the market leading equine Non-Steroidal Anti-Inflammatory Drug ('NSAID'), are marketed within the EU by various partners, the key territories being serviced by Janssen, Intervet and Orion. DVP EU, grew strongly throughout the year. This can be principally attributed to an increase in sales of Vetoryl Capsules and Felimazole Tablets within the UK and EU and also the successful launch, towards the end of the period, of the generic products outlined above. Vetoryl Capsules sales have been enhanced by the production of an interactive DVD which is utilised as a technical sales aid. The Arnolds business has been consolidated within DVP EU; the Vetivex range of products are now marketed by the pharmaceuticals team. Vetivex continues to grow with an increase in market share of over 6%. Two new presentations, 100ml Sodium Chloride and 250ml Hartmann's Solution, which were licensed in the year, have further differentiated our range from our main competitor. UK sales of Equipalazone, our market leading NSAID, grew by 12% despite competing with a new entrant within the sector; however, EU revenues fell slightly due to phasing of large EU export orders. Within the year, three veterinary surgeons were appointed. Greg Williams and Alison Roberts strengthen our technical support and Dr Michael Hemprich has taken on the role of European Account Manager to further develop our relationship with our EU marketing partners and to explore other European opportunities. continued... -6- DVP US This business, employing five people, was established in 2005 and is located in the Kansas City animal health corridor, USA. It has been significantly strengthened by the Pharmaderm licensing deal, which provides a range of seven licensed veterinary brands. This agreement is a major achievement for the Group; it provides the opportunity to increase sales and to strengthen our profile and brand awareness within the American market ahead of the launch of our own developed products. Furthermore, it has enabled us to extend the management team with the appointment of a Manager of Technical Services, Dr Erin Evans, Chris Huettner, Customer Service/Office Manager and an experienced sales professional, Tammy Rice, who has joined us from Pharmaderm. The management team are now looking to make further appointments within the sales department. The US market is very significant to Dechra's strategy, being approximately ten times the size of the UK market. We anticipate immediate growth from the Pharmaderm range of products and significantly increased pharmaceutical revenues once Vetoryl Capsules, Felimazole Tablets and Equidone Gel receive approval. Dales Dales, located in Skipton, England, employing 155 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 EU, 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. As major volume pharmaceutical manufacturing becomes increasingly dominated by India and China, our capabilities on multiple scale production and specialisation (i.e. controlled drugs) allow us to maintain and write new contracts. Throughout the year we have again strengthened the Quality Department with a target to seek FDA approval for one of our products within two years. Continued focus on efficiency and quality systems has resulted in a strong performance for the year. This has been enhanced by full-scale production of a £1.0 million per annum contract, which was announced at the end of the last financial year. 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 460 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 services both companion animal and livestock practices and agricultural merchants, with sales being approximately 60% in favour of companion animal related products. As with other divisions within Dechra, NVS benefits from the solid growth in the veterinary market. continued... -7- At the beginning of the year the management team made a strategic decision to arrest the year-on-year increase in discount allowed to customers and to increase the focus on the high levels of customer service, new services and strong alliances with our customers. This strategy has proved to be successful with another very strong performance from NVS, demonstrated by a retention of our market share at 44% and a revenue growth rate ahead of the market. Two IT innovations have performed well throughout the year; Vpod, launched in March 2006, now has in excess of 200 users and VetKiosk, an innovative marketing and merchandising terminal designed for practice waiting-rooms, is also being well received by the profession. NVS are marketing VetKiosk in partnership with the innovators Onstream. As previously reported, the £700,000 investment made last year in automation and capacity within the central warehouse is now fully commissioned and has improved productivity and overall operational efficiency. Laboratories NWL operates out of three locations, Poulton-le-Fylde (Lancashire), Leeds (Yorkshire) and Swanscombe (Kent) and employs 63 people. As first referral veterinary laboratories, they provide histology, pathology, haematology, chemistry and microbiology services to veterinary practices. NWL also offers other services such as Allervet(R), a pet and equine allergy testing programme and Petscreen, a chemotherapy sensitivity test for small animal tumours. CSLS, located in Sawston (Cambridgeshire), England employs 7 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. The acquisition of LVL has strengthened our service offering and increased our market share. Additionally, LVL has increased our skill set within the veterinary laboratory market, particularly in the agricultural animal sector. We are progressing to plan in the integration of LVL, which has been re-branded to NWL. The Swanscombe satellite laboratory in the south of England, which opened at the beginning of the year, has continued to attract new accounts. Group Financial Performance The 2007 financial year saw encouraging progress from both of our Divisions with each achieving healthy revenue growth and improvements in operating margin. Overall, Group revenue grew by 9.2% for the year whilst operating profit was up by 12.5%. The Group achieved a pre-tax profit of £12.6 million, an improvement of 14.3% compared to last year. The results are reviewed in more detail on a Divisional basis below: Pharmaceuticals Division 2007 2006 £'000 £'000 Revenue Own branded pharmaceuticals 16,599 13,565 Instruments, consumables and equipment 3,817 3,878 Third party contract manufacturing 6,232 5,809 --------- ---------- Total revenue 26,648 23,252 --------- ---------- Operating profit 6,081 4,868 --------- ---------- Operating margin 22.8% 20.9% --------- ---------- continued... -8- The Vetivex range of products is now shown within own branded pharmaceuticals rather than instruments, consumables and equipment and the comparative figures have been adjusted accordingly. Revenue from own branded pharmaceuticals grew strongly at 22.4% compared to last year. The principal drivers of this growth continued to be our lead products Vetoryl Capsules and Felimazole Tablets. Vetoryl Capsules achieved global revenue of £4.5 million, a 56.8% increase over the £2.9 million achieved last year. Within this figure, European revenue was £1.5 million (2006: £0.2 million), an encouraging performance in our first full year of marketing in this territory. Global revenue from Felimazole Tablets increased by 39.0% to £3.4 million (2006: £2.4 million) with most of this increase coming from the UK. With regard to our other key products, global revenue from Equipalazone, our long established equine product, fell slightly by 1.3% to £2.7 million. However, the Vetivex range of critical care fluids showed growth of 18.8% to £1.5 million. On 14 May 2007, the Group acquired the marketing and distribution rights to the Pharmaderm range of veterinary licensed products. At the time of acquisition, annualised revenue was US$7.7 million. As this acquisition happened towards the end of the financial year, there is only a relatively small contribution within the figures being reported on. The financial year ending 30 June 2008 will see the full benefit. Revenue from instruments, consumables and equipment fell by 1.6% due to continued competitive pressure and from 'grey market' imports. Revenue from third party contract manufacturing increased by 7.3% to £6.2 million with the benefit of the new £1.0 million contract announced last year starting to be realised in the second half of the financial year. Product development expenditure charged to the income statement increased by 19.4% to £1.6 million. A further £1.7 million of development expenditure was capitalised. The total cash investment in product development during the year was therefore £3.3 million, more than double the £1.6 million invested last year. Operating profit for the Pharmaceuticals Division increased by 24.9% to £6.1 million. This strong performance reflects a higher proportion of revenue from own branded pharmaceuticals and further efficiency improvements at our Dales manufacturing facility. Services Division 2007 2006 £'000 £'000 Revenue Veterinary wholesaling 229,840 211,759 Laboratories 4,367 3,797 --------- ---------- 234,207 215,556 Operating profit 9,519 8,681 --------- ---------- Operating margin 4.1% 4.0% --------- ---------- Our veterinary wholesaling business, NVS, grew revenue by 8.5% ahead of last year. This compared to market growth as measured by GfK of 7.8%. Growth in operating costs was contained at a lower level than the growth in revenue, allowing NVS to improve operating profit by 10.0%. continued... -9- There was much activity within our laboratories business during the year, with the acquisition of Leeds Veterinary Laboratories and the opening of a new laboratory in Swanscombe, Kent. This expanded geographical coverage was reflected in revenue growth of 15.0%. Although growth in operating profit was restricted by the set-up costs for the Swanscombe laboratory, we did achieve an improvement compared to last year. Return on Capital Employed ('ROCE') A key focus of the Group has been to make efficient use of the capital that we employ. We measure ROCE by dividing operating profit by average operating assets utilised during the year. Operating assets exclude cash and cash equivalents, borrowings, tax and deferred tax balances. A further increase in ROCE was achieved this year with the figure rising from 34.9% to 37.5%, reflecting the continued strong trading performance of the Group. Net Finance Expense The net finance expense showed a small reduction from £1.27 million to £1.23 million. A reduction in average debt levels during the year was offset by increasing interest rates. The net finance expense was covered 11.3 times by operating profit (2006: 9.7 times). Taxation The effective tax rate this year was 29.9% compared to 31.6% last year. The tax charge has benefited from research and development tax credits and a reduction in the rate at which deferred tax is provided from 30% to 28%, the changes to tax rates contained in the 2007 Budget having been substantively enacted at 30 June 2007. During the year, additional tax credits totalling £455,000 relating to share-based payments were recognised directly in equity. Earnings per Share and Dividend Earnings per share increased by 14.6% from 14.71p to 16.86p. The Board is proposing a final dividend of 5.00p per share which, when added to the interim dividend of 2.50p per share already paid, gives a total dividend for the year of 7.50p, a 20.2% increase over the 2006 figure of 6.24p. Even with this substantial increase, the total dividend is covered 2.2 times by profit after taxation (2006: 2.3 times). This is ahead of our medium term target cover of 2.0 times. There is therefore scope, subject to investment requirements, to continue to increase the dividend ahead of earnings. Cash Flow The Group achieved a cash conversion rate (defined as cash generated from operations as a percentage of operating profit) of 103.5% (2006: 114%). This was ahead of the target of 100%. Major cash outflows were on intangible assets (including development costs) of £4.5 million, acquisition of subsidiaries of £0.7 million, other capital expenditure of £0.8 million, income taxes of £2.9 million, dividends of £3.6 million and debt repayments of £3.5 million. continued... -10- Financial Position at the end of the Year 2007 2006 £'000 £'000 Non-current assets Intangible assets 13,089 7,527 Property, plant & equipment 5,739 5,595 Deferred tax assets - 445 --------- ---------- 18,828 13,567 Working capital 13,264 11,774 Current tax liability (2,464) (2,505) Deferred tax liabilities (147) - Net cash 1,027 1,079 --------- ---------- Equity shareholders' funds 30,508 23,915 ========= ========== The financial position at the end of the year was strong, with equity shareholders' funds standing at £30.5 million. The major additions to intangible assets were the Pharmaderm products (£2.6 million), development costs (£1.7 million) and the acquisition of Leeds Veterinary Laboratories Limited (£0.8 million including goodwill). Additions to property, plant and equipment were £1.1 million. Working capital increased by 12.7% over last year, slightly higher than the growth in revenue. The number of days revenue included in inventory increased from 37 to 42. This was due to an initial stocking-up order following our acquisition of the Pharmaderm products and the build up of the inventory of a key NVS supplier in anticipation of a price rise. Receivable days fell from 41 days to 40 days. Net cash at the balance sheet date was virtually unchanged compared to last year's figure. As normal, due to the working capital cycle of the Group, there will be a return to a net borrowings situation at the next reporting date of 31 December 2007. -11- Consolidated Income Statement for the year ended 30 June 2007 Year ended 30 June Note 2007 2006 £'000 £'000 Revenue 2 253,803 232,471 Cost of sales (216,952) (199,205) ------------ ------------ Gross profit 36,851 33,266 Distribution costs (10,850) (10,309) Administrative expenses (12,152) (10,645) ------------ ------------ Operating profit 2 13,849 12,312 Finance income 3 1,044 725 Finance expense 4 (2,274) (1,993) ------------ ------------ Profit before taxation 12,619 11,044 Income tax expense 5 (3,772) (3,487) ------------ ------------ Profit for the year attributable to equity holders of the 8,847 7,557 parent ============ ============ Earnings per share (pence) Basic 7 16.86p 14.71p ============ ============ Diluted 7 16.62p 14.36p ============ ============ Dividend per share (interim paid and final proposed for 6 7.50p 6.24p the year) ============ ============ -12- Consolidated Balance Sheet At 30 June 2007 As at 30 June Note 2007 2006 £'000 £'000 ASSETS Non-current assets Intangible assets 8 13,089 7,527 Property, plant & equipment 9 5,739 5,595 Deferred tax assets 10 - 445 ------------ ------------ Total non-current assets 18,828 13,567 ============ ============ Current assets Inventories 11 25,732 21,957 Trade and other receivables 12 36,173 35,347 Cash and cash equivalents 13 17,222 19,738 ------------ ------------ Total current assets 79,127 77,042 ============ ============ Total assets 97,955 90,609 ============ ============ LIABILITIES Current liabilities Borrowings 16 (4,529) (3,417) Trade and other payables 14 (48,641) (45,530) Current tax liabilities 15 (2,464) (2,505) ------------ ------------ Total current liabilities (55,634) (51,452) ============ ============ Non-current liabilities Borrowings 16 (11,666) (15,242) Deferred tax liabilities 10 (147) - ------------ ------------ Total non-current liabilities (11,813) (15,242) ============ ============ Total liabilities (67,447) (66,694) ============ ============ Net assets 30,508 23,915 ============ ============ EQUITY Issued share capital 17 528 519 Share premium account 28,041 27,693 Hedging reserve (71) (71) Merger reserve 1,770 1,720 Retained earnings 240 (5,946) ------------ ------------ Total equity attributable to equity holders of the 30,508 23,915 parent ============ ============ -13- Consolidated Statement of Changes in Shareholders' Equity for the year ended 30 June 2007 Issued Share Hedging Merger Retained Total Share Premium Reserve Reserve Earnings Capital Account £'000 £'000 £'000 £'000 £'000 £'000 Year ended 30 June 2006 At 1 July 2005 511 26,953 (71) 1,720 (11,582) 17,531 Profit for the period being total recognised income and - - - - 7,557 7,557 expense for the period Dividends paid - - - - (2,777) (2,777) Share-based payments including current and deferred tax - - - - 856 856 Shares issued 8 740 - - - 748 ------- ------- ------- ------- ------- ------- At 30 June 2006 519 27,693 (71) 1,720 (5,946) 23,915 ======= ======= ======= ======= ======= ======= Year ended 30 June 2007 At 1 July 2006 519 27,693 (71) 1,720 (5,946) 23,915 Profit for the period being total recognised income and - - - - 8,847 8,847 expense for the period 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 ======= ======= ======= ======= ======= ======= -14- Consolidated Statement of Cash Flows for the year ended 30 June 2007 Year ended 30 June Note 2007 2006 £'000 £'000 Cash flows from operating activities Profit for the period 8,847 7,557 Adjustments for: Depreciation 984 886 Amortisation 137 136 Gain on sale of property, plant and equipment (7) (23) Finance income (1,044) (725) Finance expense 2,274 1,993 Equity-settled share-based payment expenses 479 427 Income tax expense 3,772 3,487 ------------ ------------ Operating cash flow before changes in working 15,442 13,738 capital Increase in inventories (3,737) (1,567) Increase in trade and other receivables (248) (1,736) Increase in trade and other payables 2,871 3,562 ------------ ------------ Cash generated from operations 14,328 13,997 Interest paid (2,228) (1,890) Income taxes paid (2,895) (2,618) ------------ ------------ Net cash from operating activities 9,205 9,489 Cash flows from investing activities Proceeds from sale of property, plant and 23 23 equipment Interest received 1,059 672 Acquisition of subsidiaries 20 (717) - Purchase of property, plant and equipment (823) (1,320) Capitalised development expenditure (1,680) (195) Purchase of other intangible non-current (2,845) - assets ------------ ------------ Net cash from investing activities (4,983) (820) Cash flows from financing activities Proceeds from the issue of share capital 357 780 New borrowings - 705 Repayment of borrowings (3,481) (1,582) Dividends paid (3,595) (2,777) ------------ ------------ Net cash from financing activities (6,719) (2,874) Net (decrease)/increase in cash and cash equivalents (2,497) 5,795 Cash and cash equivalents at start of period 19,719 13,924 ------------ ------------ Cash and cash equivalents at end of period 17,222 19,719 ============ ============ Shown as: Cash and cash equivalents 17,222 19,738 Bank overdraft - (19) ------------ ------------ 17,222 19,719 ============ ============ Reconciliation of net cash to movement in net borrowings Net (decrease)/increase in cash and cash (2,497) 5,795 equivalents Repayment of borrowings 3,481 1,582 New borrowings - (705) Borrowings assumed on acquisition of (55) - subsidiaries New finance leases (956) (649) Other non-cash changes (25) (85) ------------ ------------ Movement in net cash in the period (52) 5,938 Net cash/(borrowings) at start of period 1,079 (4,859) ------------ ------------ Net cash at end of period 19 1,027 1,079 ============ ============ -15- Notes to the Financial Statements For the year ended 30 June 2007 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 4 September 2007. 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 Business Review section of this announcement. BUSINESS Pharmaceuticals Services Unallocated Total SEGMENT 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue External customers 19,736 17,001 234,067 215,470 - - 253,803 232,471 Inter-segment 6,912 6,251 140 86 (7,052) (6,337) - - ------- ------- ------- ------- ------ ------- ------ ------- Total revenue 26,648 23,252 234,207 215,556 (7,052) (6,337) 253,803 232,471 ======= ======= ======= ======= ====== ======= ====== ======= Operating profit 6,081 4,868 9,519 8,681 (1,751) (1,237) 13,849 12,312 ======= ======= ======= ======= ====== ======= Finance 1,044 725 income Finance (2,274) (1,993) expense ------ ------- Profit before taxation 12,619 11,044 Income tax expense (3,772) (3,487) ------ ------- Profit for the 8,847 7,557 year ====== ======= Assets Intangible assets 9,382 5,104 3,707 2,423 - - 13,089 7,527 Property, plant and equipment 3,624 3,571 2,115 2,024 - - 5,739 5,595 Other assets 15,071 11,071 70,090 64,235 156 2,181 85,317 77,487 Cash offset - - - - (6,190) - (6,190) - ------- ------- ------- ------- ------ ------- ------ ------- Total assets 28,077 19,746 75,912 68,682 (6,034) 2,181 97,955 90,609 ======= ======= ======= ======= ====== ======= ====== ======= Liabilities Borrowings (586) (508) (1,489) (1,056) (20,310) (17,095) (22,385) (18,659) Other liabilities (5,452) (3,026) (42,571) (41,965) (3,229) (3,044) (51,252) (48,035) Cash offset - - - - 6,190 - 6,190 - ------- ------- ------- ------- ------ ------- ------ ------- Total liabilities (6,038) (3,534) (44,060) (43,021) (17,349) (20,139) (67,447) (66,694) ======= ======= ======= ======= ====== ======= ====== ======= Net assets/ (liabil 22,039 16,212 31,852 25,661 (23,383) (17,958) 30,508 23,915 ities) ======= ======= ======= ======= ====== ======= ====== ======= Other Segment Items Capital expenditure - intangible assets 4,611 552 1,348 72 - - 5,959 624 - property, plant and equipment 549 469 595 1,066 - - 1,144 1,535 ------- ------- ------- ------- ------ ------- ------ ------- Total capital expenditure 5,160 1,021 1,943 1,138 - - 7,103 2,159 ======= ======= ======= ======= ====== ======= ====== ======= Share-based payments charge - - - - 596 515 596 515 ======= ======= ======= ======= ====== ======= ====== ======= Depreciation and amortisation 569 566 552 456 - - 1,121 1,022 ======= ======= ======= ======= ====== ======= ====== ======= continued... -16- GEOGRAPHICAL SEGMENT In presenting information on the basis of geographical segments, IAS14 'Segment Reporting' requires segment revenues to be based on the geographical location of customers. In this respect, £247,920,000 arises from customers in the UK (2006: £228,191,000) and £5,883,000 from customers in the rest of the world (2006: £4,280,000). 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 Unallocated Total 2007 2006 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue by geographic origin 253,429 232,145 374 326 - - 253,803 232,471 ======= ======= ======= ======= ====== ======= ====== ======= Operating profit 15,798 13,809 (198) (260) (1,751) (1,237) 13,849 12,312 ======= ======= ======= ======= ====== ======= ====== ======= Total assets 102,533 88,190 1,456 238 (6,034) 2,181 97,955 90,609 ======= ======= ======= ======= ====== ======= ====== ======= Capital expenditure - intangible assets 5,959 624 - - - - 5,959 624 - property, plant and equipment 1,141 1,532 3 3 - - 1,144 1,535 ------- ------- ------- ------- ------ ------- ------ ------- Total capital expenditure 7,100 2,156 3 3 - - 7,103 2,159 ======= ======= ======= ======= ====== ======= ====== ======= 3. Finance Income 2007 2006 £'000 £'000 Bank interest receivable 1,018 627 Other interest receivable 26 52 Fair value gains on derivative financial instruments - 46 --------- --------- Total finance income 1,044 725 ========= ========= 4. Finance Expense 2007 2006 £'000 £'000 Bank loans and overdrafts 2,042 1,913 Finance charges payable on finance leases and hire purchase 186 64 contracts Fair value losses on derivative financial instruments 46 16 --------- --------- Total finance expense 2,274 1,993 ========= ========= 5. Income Tax Expense 2007 2006 £'000 £'000 Current tax - charge for current year 3,361 3,491 - adjustment in respect of prior years (69) (58) --------- --------- Total current tax expense 3,292 3,433 --------- --------- Deferred tax - origination and reversal of temporary 409 4 differences - adjustment in respect of prior years 71 50 --------- --------- Total deferred tax expense 480 54 --------- --------- --------- --------- Total income tax expense in the income statement 3,772 3,487 ========= ========= All taxation is in the United Kingdom. continued... -17- The tax on the Group's profit before tax differs from the standard rate of UK corporation tax of 30% (2006: 30%). The differences are explained below: 2007 2006 £'000 £'000 Profit before taxation 12,619 11,044 ========= ========== Tax at 30% 3,786 3,313 Effect of: - depreciation on assets not eligible for tax allowances 47 27 - disallowable expenses 41 33 - overseas trading losses 58 78 - (over)/under-recovery of deferred tax on share-based payments (46) 44 - research and development tax credits (60) - - reduction in tax rate used to calculate deferred tax liability (56) - - adjustments in respect of prior years 2 (8) --------- ---------- Total income tax expense 3,772 3,487 ========= ========== Additional current tax credits of £454,000 (2006: £367,000) and deferred tax credits of £1,000 (2006: £62,000) have been recognised directly in equity. 6. Dividends 2007 2006 £'000 £'000 Final dividend paid in respect of prior year but not recognised as a liability in 2,278 1,794 that year 4.33p per share (2006: 3.50p) Interim dividend paid 2.50p per share (2006: 1.91p) 1,317 983 --------- ---------- Total dividend 6.83p per share (2006: 5.41p) recognised as 3,595 2,777 distributions to equity holders in the period ========= ========== Proposed final dividend for the year ended 30 June 2007: 5.00p 2,640 2,248 per share (2006: 4.33p) ========= ========== Total dividend paid and proposed for the year ended 30 June 3,957 3,231 2007: 7.50p per share (2006: 6.24p) ========= ========== In accordance with IAS10 'Events After the Balance Sheet Date', the proposed final dividend for the year ended 30 June 2007 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 2008. The proposed final dividend for the year ended 30 June 2006 is shown as a deduction from equity in the year ended 30 June 2007. continued... -18- 7. 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. 2007 2006 Pence Pence Basic earnings per share 16.86 14.71 ========= ========== Diluted earnings per share 16.62 14.36 ========= ========== The calculation of basic and diluted earnings per share is based upon: £'000 £'000 Earnings for basic and diluted earnings per share calculations 8,847 7,557 ========= ========== No. No. Weighted average number of ordinary shares for basic earnings per share 52,482,659 51,385,648 Impact of share options 737,011 1,227,342 --------- ---------- Weighted average number of ordinary shares for diluted earnings per share 53,219,670 52,612,990 ========= ========== 8. Intangible Assets Goodwill Software Development Patent Product Marketing Acquired Total £'000 £'000 Costs Rights Rights Authorisations Intangibles £'000 £'000 £'000 £'000 £'000 £'000 COST At 1 July 4,385 288 631 789 278 822 - 7,193 2005 Additions - 429 195 - - - - 624 -------- ------- ---------- ------ ------- ---------- -------- ------ At 30 June 2006 and 1 July 2006 4,385 717 826 789 278 822 - 7,817 Additions 467 591 1,680 257 2,556 31 377 5,959 Disposals - - - - (278) - - (278) -------- ------- ---------- ------ ------- ---------- -------- ------ At 30 June 4,852 1,308 2,506 1,046 2,556 853 377 13,498 2007 ======== ======= ========== ====== ======= ========== ======== ====== AMORTISATION At 1 July - 33 121 - - - - 154 2005 Charge for the year - 58 60 - 18 - - 136 -------- -------- ---------- ------- -------- ---------- -------- ------- At 30 June 2006 and 1 July 2006 - 91 181 - 18 - - 290 Charge for the year - 58 52 - 21 - 6 137 Disposals - - - - (18) - - (18) -------- -------- ---------- ------- -------- ---------- -------- ------- At 30 June - 149 233 - 21 - 6 409 2007 ======== ======== ========== ======= ======== ========== ======== ======= NET BOOK VALUE At 30 June 4,852 1,159 2,273 1,046 2,535 853 371 13,089 2007 ======== ======== ========== ======== ======== ========== ======== ======== At 30 June 2006 and 1 July 2006 4,385 626 645 789 260 822 - 7,527 ======== ======== ========== ======== ======== ========== ======== ======== At 1 July 2005 4,385 255 510 789 278 822 - 7,039 ======== ======== ========== ======== ======== ========== ======== ======== Development costs are internally generated. All other additions to intangible assets were acquired outside the Group and have been measured at cost of fair value at the time of acquisition. The amortisation charge is recognised within administrative expenses in the income statement. continued... -19- 9. Property, Plant and Equipment Freehold Short Motor Plant and Total land leasehold vehicles fixtures £'000 £'000 buildings £'000 £'000 £'000 COST At 1 July 2005 13 2,444 538 6,307 9,302 Additions - 157 - 1,378 1,535 Disposals - - (105) (185) (290) ------- -------- ------- -------- ------- At 30 June 2006 and 1 July 2006 13 2,601 433 7,500 10,547 Additions - 27 - 1,079 1,106 Acquisition through business combinations - - - 38 38 Disposals - - - (33) (33) ------- -------- ------- -------- ------- At 30 June 2007 13 2,628 433 8,584 11,658 ======= ======== ======= ======== ======= DEPRECIATION At 1 July 2005 - 415 537 3,404 4,356 Charge for the year - 135 1 750 886 Disposals - - (105) (185) (290) -------- -------- -------- -------- -------- At 30 June 2006 and 1 July 2006 - 550 433 3,969 4,952 Charge for the year - 147 - 837 984 Disposals - - - (17) (17) -------- -------- -------- -------- -------- At 30 June 2007 - 697 433 4,789 5,919 ======== ======== ======== ======== ======== NET BOOK VALUE At 30 June 2007 13 1,931 - 3,795 5,739 ======== ======== ======== ======== ======== At 30 June 2006 and 1 July 2006 13 2,051 - 3,531 5,595 ======== ======== ======== ======== ======== At 1 July 2005 13 2,029 1 2,903 4,946 ======== ======== ======== ======== ======== 10. Deferred Taxes Recognised deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 Intangible assets - - (740) (193) (740) (193) Property, plant and - - (325) (311) (325) (311) equipment Inventories - - - - - - Receivables 30 98 - - 30 98 Cash and cash equivalents - - - - - - Borrowings - - - - - - Payables 32 38 - - 32 38 Current tax liabilities - - - - - - Share-based payments 856 813 - - 856 813 ------- ------- ------- ------- ------- ------- 918 949 (1,065) (504) (147) 445 ======= ======= ======= ======= ======= ======= On the basis that all deferred income taxes relate to the UK and that there is a legally enforceable right to offset current tax liabilities against current tax assets, deferred income tax assets and liabilities have been offset. 11. Inventories 2007 2006 £'000 £'000 Raw materials and consumables 2,250 1,443 Work in progress 208 117 Finished goods and goods for resale 23,274 20,397 ---------- ----------- 25,732 21,957 ========== =========== continued... -20- 12. Trade and Other Receivables 2007 2006 £'000 £'000 Trade receivables 34,029 33,476 Other receivables 1,368 1,073 Prepayments and accrued income 776 798 ---------- ----------- 36,173 35,347 ========== =========== Trade receivables are stated after an impairment provision of £3,171,000 (2006: £2,035,000). 13. Cash and Cash Equivalents 2007 2006 £'000 £'000 Cash at bank and in hand 1,468 4,552 Short term deposits 15,754 15,186 ---------- ----------- 17,222 19,738 ========== =========== The short term deposits are repayable on demand 14. Trade and Other Payables 2007 2006 £'000 £'000 Trade payables 44,019 41,988 Other payables 605 491 Other taxation and social security 1,978 1,373 Accruals and deferred income 2,039 1,678 ---------- ----------- 48,641 45,530 ========== =========== 15. Current Tax Liabilities 2007 2006 £'000 £'000 Corporation tax payable 2,464 2,505 ========== =========== 16. Borrowings 2007 2006 £'000 £'000 Current liabilities Bank loans and overdrafts 4,000 3,019 Finance lease obligations 529 398 ---------- ----------- 4,529 3,417 Non-current liabilities Bank loans 10,200 14,200 Finance lease obligations 1,546 1,147 Arrangement fees netted off (80) (105) ---------- ----------- 11,666 15,242 ---------- ----------- Total borrowings 16,195 18,659 ========== =========== continued... -21- At the year end, the Group had the following unutilised borrowing facilities: 2007 2006 £'000 £'000 Revolving credit facility 5,000 5,000 Bank overdraft facility 4,000 4,000 ---------- ----------- 9,000 9,000 ========== =========== The overdraft facility is renewable annually whilst the revolving credit facility is committed until 30 June 2010. 17. Share Capital Ordinary shares of 1p each 2007 2006 £'000 No. £'000 No. Authorised 750 75,000,000 750 75,000,000 ========== ============ ========== ========== Issued at start of year 519 51,915,002 511 51,120,964 New shares issued 9 888,697 8 794,038 ---------- ------------ ---------- ---------- At end of year 528 52,803,699 519 51,915,002 ========== ============ ========== ========== During the year, 873,889 new ordinary shares of 1p (2006: 794,038 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 £357,000 (2006: £748,000). In addition, 14,808 new ordinary shares of 1p (2006: nil) 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 has been credited to merger reserve. 18. Share-based Payments 2007 2006 £'000 £'000 Equity-settled share-based transactions 479 427 Cash-settled share-based transactions 117 88 ---------- ----------- 596 515 ========== =========== The above charge to the Income Statement was included within administrative expenses. 19. Analysis of Net Cash 2007 2006 £'000 £'000 Bank loans and overdraft (14,120) (17,114) Finance leases and hire purchase contracts (2,075) (1,545) Cash and cash equivalents 17,222 19,738 ---------- ----------- Net cash 1,027 1,079 ========== =========== continued... -22- 20. Acquisition of Subsidiary On 26 April 2007 the Company acquired the entire share capital of Leeds Veterinary Laboratories Limited. The assets and liabilities acquired are allocated as follows: Book value Fair value Fair value £'000 Adjustments £'000 £'000 Intangible assets - 377 377 Property, plant and equipment 67 (29) 38 Inventories 38 - 38 Trade and other receivables 691 - 691 Cash and cash equivalents 13 - 13 Borrowings (55) - (55) Trade and other payables (140) - (140) Current tax (16) - (16) Deferred tax - (113) (113) -------------------------------------------------------------------------------- 598 235 833 Goodwill 467 Total consideration 1,300 ================================================================================ Satisfied by: Cash 673 Issue of ordinary shares 50 Transfer of freehold property 520 Expenses of acquisition 57 -------------------------------------------------------------------------------- Total consideration 1,300 Less: Issue of ordinary shares (50) Transfer of freehold property (520) Cash acquired (13) -------------------------------------------------------------------------------- Cash flow on acquisition 717 ================================================================================ Intangible assets recognised on acquisition represent customer relationships. Goodwill represents the expertise and technical knowledge of the company's staff and the long-term strategic benefit of expanding the geographic coverage of the Group's Laboratories businesses. continued... -23- 21. Other Information The financial information set out above does not constitute the company's statutory accounts for the years ended 30 June 2007 or 2006 but is derived from the 2007 accounts. Statutory accounts for 2006 have been delivered to the registrar of companies and those for 2007 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. 22. This Preliminary statement is not being posted to shareholders. The Report & Accounts for the year ended 30 June 2007 will be posted to shareholders shortly. Further copies will be available from the Company's Registered Office: Dechra House, Jamage Industrial Estate, Talke Pits, Stoke on Trent, ST7 1XW. Email: corporate.enquiries@dechra.com. Copies are also available on the Company website www.dechra.com. 23. Trade Marks Trade Marks appear throughout this document in italics. Dechra and the Dechra 'D' logo are registered Trade Marks of Dechra Pharmaceuticals PLC. This information is provided by RNS The company news service from the London Stock Exchange

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