Interim Results
Dechra Pharmaceuticals PLC
04 March 2003
Issued by Citigate Dewe Rogerson, Birmingham
Date: Tuesday, 4 March 2003
Embargoed 7.00am
Dechra Pharmaceuticals PLC
Interim Results for the six months ended 31 December 2002
Manufacturers, distributors and marketers of pharmaceuticals,
veterinary equipment and related goods and services
• Turnover £92.4 million
• Operating Profit (pre-goodwill amortisation & exceptional items) £3.9 million
• Pre-tax profit (pre-goodwill amortisation & exceptional items) £3.1 million
• Adjusted Earnings per Share (pre-goodwill amortisation & exceptional 4.29 pence
items)
• Interest cover remains strong at 5.3 times operating profit
(pre-goodwill amortisation & exceptional items)
• Maintained interim dividend 1.37p : 2.5 times covered
• Initiatives to improve performance at NVS are showing success. January & February ahead of
internal forecasts. Market share remains in excess of 42%
• Added value services continue to perform well
• Strong performance by Arnolds
- licensing portfolio strengthened with new licence for lifetime usage for Felimazole(R)
• Laboratory services performing to pre-acquisition expectations benefiting from Group synergies
• Pharmaceutical manufacturing facility expansion completed with benefits expected next financial
year. New business being secured - order book strong
'Despite the issues faced by our businesses in the period, which have been
reflected in our first half performance, the Board elected to continue to invest
strategically in product development, new facilities and key personnel. These
investments will underpin future growth.'
Ian Page, Chief Executive
FULL STATEMENT ATTACHED
Enquiries:
Ian Page, Chief Executive
07775 642222 (IP)
Simon Evans, Group Finance Director Fiona Tooley/Katie Dale
Dechra(R) Pharmaceuticals PLC Citigate Dewe Rogerson
Today: 020 7282 8000 Today: 020 7282 8000
07775 642220 (SE) Mobile: 07785 703523
Thereafter: 01782 771100 Thereafter: 0121 455 8370
www.dechra.com
-2-
Dechra(R) Pharmaceuticals PLC
Interim Results for the six months ended 31 December 2002
Financial Highlights
Group turnover for the six months ended 31 December 2002 was £92.4 million
compared to £84.2 million in 2001. Operating profit (pre-goodwill amortisation
and exceptional items) was £3.9 million in the same period, compared to £4.3
million last year. Pre-tax profit (pre-goodwill amortisation and exceptional
items) amounted to £3.1 million, compared to £3.7 million last year. Adjusted
Earnings per share on the same basis were 4.29 pence, compared to 5.15 pence.
Net debt increased to £19.5 million as at 31 December 2002, due principally to
the timing of payments to creditors. Interest cover remains strong at 5.3 times
operating profit (pre-goodwill amortisation and exceptional items).
Dividend
The Board is declaring a maintained interim dividend of 1.37 pence, which will
be paid on 9 April 2003, to shareholders on the Register as at 14 March 2003.
The Dividend is covered 2.5 times by earnings.
Review of the Business and Current Trading
The performance in the first half of this year has been mixed. Although the
Group achieved a solid first quarter result in line with our expectations, the
second quarter began to witness a slowdown in market growth for our principal
trading Division, National Veterinary Services ('NVS'), with sales in November
and December being flat on the same period in 2001. This, together with the
increase in overheads as a result of our expanded central warehousing facility,
which doubles capacity, and a trebling of insurance premiums impacted on
performance. Despite turnover being up by 6.4%, operating profits at NVS
declined by 24%.
As we indicated in our Trading Update on 15 January 2003, a number of
initiatives have already been implemented to recover the net margin, and we are
now pleased to report that we have seen a marked improvement in the performance
at NVS with the results for January and February ahead of internal forecasts.
Although overall the market remains flat, we expect operating margin improvement
to continue, allowing us to return to a running rate equal to historical levels
by the end of this financial year. Our market share remains in excess of 42%.
Our added value services provided through NVS, including Vetcom Windows, our own
in-house developed Practice Management System, and Vet2Pet insurance policies
continue to perform well and in line with our targets.
Arnolds Veterinary Products ('Arnolds') has performed well, further
strengthening the veterinary licence portfolio with a new licence for lifetime
usage being granted for Felimazole. Both Vetoryl and Felimazole, our two most
recently licensed products, have achieved sales in line with our expectations in
the first half as we continue to increase market penetration. Research &
Development costs will more than double in this financial year as a result of
the increased number of pharmaceutical development opportunities we are
pursuing. Despite this increased investment, operating profit grew by 29% in
the period.
North Western Laboratories ('NWL') and Cambridge Specialist Laboratory Services
('CSLS') acquired in April 2002, are performing to our pre-acquisition
expectations. During the first half, we saw strong growth in both sales and
operating profit, up 21% and 136% respectively. These specialist businesses are
benefiting from sales & marketing and logistical support from NVS and Arnolds.
To reflect the strengthening of NWL's marketing and service capabilities this
business will be re-branded Nationwide Laboratories with effect from April 2003.
continued...
-3-
The complete absorption of Anglian Pharma, acquired in May 2002, into our
expanded Skipton manufacturing facility was completed by the end of January
2003, without any loss of key personnel or customers. However reduced
productivity during the integration process resulted in lower margins than
forecast. Having now consolidated in Skipton we have strengthened the
management team, improved the support structure and have agreed challenging new
performance targets with management and staff. We anticipate seeing the results
of these actions by the beginning of the new financial year.
We are currently awaiting the publication of the findings by the Competition
Commission in relation to its inquiry into the supply of prescription-only
veterinary medicines. The Report was submitted to The Secretary of State for
Trade and Industry in January this year. We will update shareholders in due
course.
Summary
Despite the issues faced by our businesses in the period, which have been
reflected in our first half performance, the Board elected to continue to invest
strategically in product development, new facilities and key personnel. These
investments will underpin future growth.
Michael Redmond Ian Page
Non-Executive Chairman Chief Executive
-4-
Dechra Pharmaceuticals PLC
Interim Results
CONSOLIDATED PROFIT & LOSS ACCOUNT
Note Six Months Ended Year Ended
31.12.2002 31.12.2001 30.6.2002
re-stated*
£'000 £'000 £'000
Turnover 92,387 84,181 170,202
Cost of sales (81,223) (74,143) (149,664)
Gross profit 11,164 10,038 20,538
Other operating expenses (7,832) (5,912) (12,060)
Operating profit 3,332 4,126 8,478
Operating profit before exceptional items and
goodwill amortisation 3,870 4,320 8,773
Exceptional items 1 (274) (194) (194)
Goodwill amortisation (264) - (101)
Operating profit 3,332 4,126 8,478
Net interest payable (727) (593) (1,170)
Profit on ordinary activities before taxation 2,605 3,533 7,308
Profit on ordinary activities before taxation,
exceptional items and goodwill amortisation 3,143 3,727 7,603
Exceptional items (274) (194) (194)
Goodwill amortisation (264) - (101)
Profit on ordinary activities before taxation 2,605 3,533 7,308
Tax on profit on ordinary activities 2 (872) (1,107) (2,250)
Profit on ordinary activities after taxation 1,733 2,426 5,058
Dividend 3 (691) (682) (2,069)
Retained profit for the period 1,042 1,744 2,989
Earnings per ordinary share
- Basic 4 3.40p 4.87p 10.12p
- Adjusted 4 4.29p 5.15p 10.59p
Diluted
- Basic 4 3.40p 4.86p 10.09p
- Adjusted 4 4.29p 5.13p 10.56p
* re-stated on adoption of FRS19
-5-
Dechra Pharmaceuticals PLC
Interim Results
CONSOLIDATED BALANCE SHEET (Summary)
Note As at As at
31.12.2002 31.12.2001 30.6.2002
re-stated*
£'000 £'000 £'000
Fixed assets
Intangible fixed assets 5,175 - 5,284
Tangible fixed assets 6,180 5,318 6,324
11,355 5,318 11,608
Current assets
Stocks 21,009 20,424 19,302
Debtors 26,674 22,728 25,822
Cash at bank and in hand - 1,264 -
47,683 44,416 45,124
Creditors: amounts falling due within one year
Bank loans and overdraft (12,650) (3,000) (5,838)
Other creditors (33,141) (36,547) (36,607)
(45,791) (39,547) (42,445)
Net current assets 1,892 4,869 2,679
Total assets less current liabilities 13,247 10,187 14,287
Creditors: amounts falling due after more than
one year (6,475) (7,433) (8,538)
Net assets 6,772 2,754 5,749
Capital and reserves
Called-up share capital 504 498 504
Share premium account 26,783 26,783 26,783
Shares to be issued 731 - 750
Merger reserve 994 - 994
Profit and loss account (22,240) (24,527) (23,282)
Equity shareholders' funds 5 6,772 2,754 5,749
* re-stated on adoption of FRS19
-6-
Dechra Pharmaceuticals PLC
Interim Results
CONSOLIDATED CASH FLOW STATEMENT (Summary)
Note Six Months Ended Year Ended
31.12.2002 31.12.2001 30.6.2002
£'000 £'000 £'000
Net cash flow from operating activities 6 (1,147) 2,887 6,397
Returns on investments and servicing of finance (698) (575) (1,126)
Taxation (1,004) (259) (2,155)
Capital expenditure and financial investment (267) (1,665) (2,704)
Acquisitions and disposals - (180) (3,823)
Equity dividends paid (1,387) (1,245) (1,927)
Cash outflow before financing (4,503) (1,037) (5,338)
Financing:
New bank loans - - 3,000
Term loans repaid (1,864) (1,500) (3,364)
Capital element of finance lease payments (445) (192) (401)
(2,309) (1,692) (765)
Decrease in cash in the period (6,812) (2,729) (6,103)
Reconciliation of net cash flow to movement in net debt:
Six Months Ended Year Ended
31.12.2002 31.12.2001 30.6.2002
£'000 £'000 £'000
Decrease in cash in the period (6,812) (2,729) (6,103)
Cash outflow from change in debt and lease
financing 2,309 1,692 765
Change in net debt arising from cash flows (4,503) (1,037) (5,338)
New finance leases (75) - (418)
Loan stock issued - - (500)
Movement in net debt in period (4,578) (1,037) (6,256)
Net debt at start of period (14,936) (8,680) (8,680)
Net debt at end of period 7 (19,514) (9,717) (14,936)
-7-
Dechra Pharmaceuticals PLC
Interim Results
NOTES
1. Exceptional Items
Six Months Ended Year Ended
31.12.2002 31.12.2001 30.6.2002
£'000 £'000 £'000
Anglian rationalisation costs 274 - -
Compensation for loss of office - 194 194
274 194 194
The compensation for loss of office relates to the termination of the contract
of Gary Evans, the former Chief Executive.
2. Taxation
The tax charge reflects the full year's estimated effective rate on the Group's
profit before tax of 33.5% (2001: 31.3%).
3. Dividends
An interim dividend of 1.37p per share (2001: 1.37p) costing £691,000 (2001:
£682,000) has been declared. It is payable on 9 April 2003 to shareholders
whose names are on the Register of Members at close of business on 14 March
2003. The ordinary shares will become ex-dividend on 12 March 2003.
4. Earnings Per Share
Earnings per ordinary share has been calculated by dividing the profit on
ordinary activities after taxation for each financial period by the weighted
average number of ordinary shares in issue during the period.
In order to exclude the effect of the exceptional items and goodwill
amortisation on the results of the Group, adjusted earnings per ordinary share
have been based on the profit on ordinary activities after taxation for each
financial period but excluding exceptional items and goodwill amortisation.
continued...
-8-
Six months ended Year ended
31.12.2002 31.12.2001 30.06.2002
Pence Pence Pence
Basic earnings per share after exceptional items and
goodwill amortisation 3.40 4.87 10.12
Effect of exceptional items and goodwill amortisation 0.89 0.28 0.47
Adjusted earnings per share 4.29 5.15 10.59
Diluted earnings per share after exceptional items and
goodwill amortisation 3.40 4.86 10.09
Effect of exceptional items and goodwill amortisation 0.89 0.27 0.47
Adjusted diluted earnings per share 4.29 5.13 10.56
The calculation of basic and diluted earnings per share is
based upon:
£'000 £'000 £'000
Earnings for basic and diluted earnings per share
calculations 1,733 2,426 5,058
Exceptional items and goodwill amortisation 456 136 237
Earnings for adjusted and adjusted diluted earnings per
share 2,189 2,562 5,295
No. No. No.
Weighted average number of ordinary shares for basic and
adjusted earnings per share 50,975,037 49,791,278 49,989,015
Impact of share options - 162,202 151,049
Weighted average number of ordinary shares for diluted and
adjusted diluted earnings per share 50,975,037 49,953,480 50,140,064
5. Reconciliation of movements in shareholders' funds:
Six Months Ended Year Ended
31.12.2002 31.12.2001 30.6.2002
re-stated*
£'000 £'000 £'000
Retained profit for the period 1,042 1,744 2,989
New shares issued - - 1,000
Shares to be issued - - 750
Reduction in shares to be issued (19) - -
Net addition to shareholders' funds 1,023 1,744 4,739
Opening shareholders' funds 5,749 1,010 1,010
Closing shareholders' funds 6,772 2,754 5,749
* re-stated on adoption of FRS19
continued...
-9-
6. Reconciliation of operating profit to operating cash flows:
Six Months Ended Year Ended
31.12.2002 31.12.2001 30.6.2002
£'000 £'000 £'000
Operating profit 3,332 4,126 8,478
Depreciation and amortisation 921 647 1,390
Profit on sale of tangible fixed assets (14) (7) (43)
Increase in stocks (1,942) (3,964) (2,223)
Increase in debtors (852) 1,494 (601)
(Decrease)/increase in creditors (2,592) 591 (604)
Net cash flow from operating activities (1,147) 2,887 6,397
7. Analysis of net debt
As at As at As at
31.12.2002 31.12.2001 30.06.2002
£'000 £'000 £'000
Bank loans and overdrafts 18,694 10,500 13,746
Finance leases and hire purchase contracts 320 481 690
Unsecured loan stock 500 - 500
Cash at bank and in hand - (1,264) -
19,514 9,717 14,936
8. Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies set out in the 2002 Annual Report and Accounts and was
approved by the Board of Directors on 4 March 2003. The financial information
set out above does not constitute statutory accounts within the meaning of the
Companies Act 1985. Comparative figures for the year ended 30 June 2002 have
been taken from the Group's audited statutory accounts, which have been
delivered to the Registrar of Companies and in which the company's auditors
expressed an unqualified opinion. The results for the six months to 31 December
2002 are unaudited. They have been reviewed by the auditors KPMG Audit Plc.
The review report is attached to these interim results.
This statement of interim results will be sent to all shareholders. Copies will
be available for members of the public upon application to the Company Secretary
at Dechra House, Jamage Industrial Estate, Talke Pits, Stoke-on-Trent. ST7 1XW.
-10-
Independent review report by KPMG Audit Plc to Dechra Pharmaceuticals PLC
Introduction
We have been engaged by the company to review the financial information set out
on pages 4 to 9 and we have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual accounts except where they are to be changed in the next annual
accounts in which case any changes, and the reasons for them, are to be
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2002.
KPMG Audit Plc
Chartered Accountants
Birmingham
4 March 2003
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