Interim Results

Dechra Pharmaceuticals PLC 26 February 2008 Issued by Citigate Dewe Rogerson Ltd, Birmingham Date: Tuesday, 26 February 2008 Dechra(R) Pharmaceuticals PLC Half-Yearly Financial Report for the six months ended 31 December 2007 ================================================================================ 2007 2006 Revenue £141.1m £125.9m +12.0% EBITDA £8.8m £7.0m +25.0% Operating profit £8.0m £6.5m +23.4% Operating margin 5.7% 5.2% Profit before taxation £7.4m £5.9m +25.2% Earnings per share - basic 9.83p 7.84p +25.4% - diluted 9.72p 7.76p +25.3% Interim dividend 2.75p 2.50p +10.0% Net borrowings £3.3m £5.4m ================================================================================ Solid increase in revenue Substantial improvement in operating profit International product development on track Significant increase in revenue from own branded licensed veterinary products Improved Group operating margin Profitability achieved in US operation Post period end: acquisition of VetXX completed Interim dividend increased 10% to 2.75 pence per share. After taking into account 11.6 million new shares issued in January 2008, cash distribution increased by 35% FULL STATEMENT ATTACHED Enquiries: Ian Page, Chief Executive Simon Evans, Group Finance Director Dechra Pharmaceuticals PLC Today: +44 (0) 20 7638 9571 (until 12.30pm) Mobile: +44 (0) 7775 642222 (IP) or +44 (0) 7775 642220 (SE) Thereafter: +44 (0) 1782 771100 www.dechra.com Fiona Tooley, Director Keith Gabriel, Senior Account Manager Citigate Dewe Rogerson Today: +44 (0) 207 638 9571 Mobile: +44 (0) 7785 703523 (FMT) or +44 (0) 7770 788 624 (KG) Thereafter: +44 (0) 121 455 8370 -2- Dechra Pharmaceuticals PLC Half-Yearly Financial Report 2008 six months ended 31 December 2007 INTERIM MANAGEMENT REPORT 2008 INTRODUCTION The Group has made good progress across both Divisions throughout the reporting period. This is reflected in the solid increase in revenue and substantial improvement in operating profit. The strong performance has resulted from international growth of our own licensed veterinary products, the improved profitability of our manufacturing business, the achievement of profitability within our US subsidiary and by a solid performance from National Veterinary Services(R) ('NVS') in a market that has grown strongly, and in which it retained its market share at 44%. Our strategic pharmaceutical development programme continues to deliver new products and licensing opportunities for key international markets. All current projects are progressing in-line with management expectations. Post the period being reported, we completed the acquisition of VetXX Holdings A/S ('VetXX'). This provides Dechra with a strong European footprint and materially increases our range of licensed veterinary products. Further details are provided in this report. FINANCIALS In the six months ended 31 December 2007, Group revenue increased by 12% to £141.1 million (2006: £125.9 million). EBITDA for the period was 25% higher at £8.8 million (2006: £7.0 million), whilst operating profit was up 23% to £8.0 million (2006: £6.5 million) and profit before taxation rose by 25% to £7.4 million (2006: £5.9 million). Basic earnings per share increased from 7.84 pence to 9.83 pence, up by 25%. Group operating profit margin increased from 5.2% to 5.7% reflecting a greater contribution from our Pharmaceuticals Division and margin improvements within the Services Division. Research and development expenditure charged to the income statement was £685,000, a 7.7% increase over the corresponding period last year. At the end of the last financial year, the Group had net cash of £1.0 million. At the end of the half-year being reported, net borrowings were £3.3 million, due to the seasonal increase in inventory levels and our investment in the USA. This is substantially lower than at the same period in 2006 where net borrowings totalled £5.4 million. Interest cover stands at 12.7 times (2006: 10.9 times). DIVIDEND The Board is pleased to declare an interim dividend of 2.75 pence per share (2006: 2.5 pence), an increase of 10%. After taking into account the 11.6 million new ordinary shares issued in January 2008 in respect of the Placing and Open Offer the cash distribution has increased by 35% to £1,779,000 (2006: £1,317,000). The interim dividend is covered 2.9 times by profit after taxation (2006: 3.1 times). The dividend is payable on 11 April 2008 to shareholders whose names are on the Register of Members at close of business on 14 March 2008. continued... -3- REVIEW PHARMACEUTICALS DIVISION Our key veterinary products have continued to grow strongly, our US operation has become profitable and our manufacturing business has improved output and achieved greater efficiency. This is reflected in a 41% increase in pharma revenues and 45% growth in operating profit. Dechra Veterinary Products EU ('DVP EU') Within Europe, our veterinary products have shown healthy growth: • Felimazole(R) and Vetoryl(R) increased sales by 24% and 21% respectively, whilst our equine portfolio grew by 21% reflecting strong growth from the lead product Equipalazone(R) and the launch of Domidine(R), a new generic entrant; • our recently licensed generics (currently only registered in the UK and Ireland) have been a success with Urilin(R), Sedator(R), Thyroxyl(R) and Prednidale 25 strengthening our product range and providing good value to our customers; and • consumables and instruments sales sourced from 3M, Smiths Medical International Ltd, Surgivet and BBraun, have grown by 8%. During the period we extended our agreement with Smiths to market and sell their products to veterinarians throughout Europe. Dechra Veterinary Products US ('DVP US') Our investment in the USA is proving successful; in the first half of this year we have delivered solid revenues and achieved profitability. During the period we have: • successfully integrated the Pharmaderm Animal Health business; • extended our product range by the introduction of MuricinTM, the only veterinary approved ointment for the treatment of canine bacterial infections containing Mupiracin; • added further technical and sales skills to the US operation to service our growing customer base; and • established an Advisory Committee with Key Opinion Leaders to assist in the launch of Vetoryl, Felimazole and Equidone(R). Dales Pharmaceuticals ('Dales') Our manufacturing business has had a very strong first half of the financial year with improvements in efficiency and output being enhanced by the significant contract won last year. Activities during the period include: • securing a number of new third party contracts; • successful implementation and 'go live' of the new Oracle integrated IT system; • investment in and implementation of a new 2-D bar coding system, allowing for the identification and traceability of veterinary products through the supply chain; and, • further enhancement of our quality management system as we pursue worldwide quality compliance for the facility. continued... -4- SERVICES DIVISION A solid performance from our services businesses in a highly competitive marketplace, with a resultant increase in revenue of 9% and an increase in operating profit of 11%. National Veterinary Services ('NVS') NVS, our veterinary wholesaler, continues to build on its market leading position. Throughout the period we have: • maintained our 44% market share; • strengthened our position with new distribution channels; • implemented a new discount structure; and, • increased the scope and capabilities of our batch tracking facilities. Laboratories The focus of the laboratories has been market penetration which is being achieved through last year's acquisition of Leeds Veterinary Laboratories ('LVL') and the opening of a satellite depot in the South East. Although revenues have increased, operating profit performance is slightly lower compared to the corresponding period last year. The focus of the business has been: • integration of systems and personnel at LVL; • the development of a sales team structure; • marketing and growth of new services, particularly farm animal diagnostics, herd health planning and GLP analytical services; and, • on our allergy testing service, Allervet(R), which continues to see good growth. PRODUCT DEVELOPMENT In November 2007 we successfully gained approval for Ovuplant(R) through the mutual recognition procedure and now have marketing authorisation in seven key European countries. Furthermore, we have successfully licensed a high dose Prednisolone tablet which is an extension to one of our generics, providing us with a unique range capability and therefore a strong marketing position within the UK market. We currently have two generics in the registration process for licensing across Europe, with a third application due to be filed imminently. There have been no further developments to report with our US applications; however, we remain confident that we will receive positive news within the year. We anticipate approval for Vetoryl for its minor indication (MUMS) within our financial year, with the full application due for approval within the 2008 calendar year. Research trials have continued on Equidone and initial indications are positive. ACQUISITION OF VETXX In January 2008 we completed the acquisition of VetXX for a net £30 million and DKK327.2 million including repayment of borrowings and working capital adjustment. The acquisition was financed by a Placing and Open Offer raising a gross £35.2 million and by a new £60 million bank facility which also refinanced existing facilities. VetXX is a leading developer, producer and marketer of companion animal veterinary products exclusively to veterinary professionals and wholesalers. From its Danish base, it has established sales and marketing operations in ten countries. continued... -5- The acquisition gives Dechra a strong European footprint and materially increases our range of licensed veterinary pharmaceutical products. It will also give Dechra 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 currently operates. We are currently in the process of integrating VetXX into the Group. All identified projects are currently running in line with, or ahead of, managements' plans. We welcome all employees at VetXX to the Group and we look forward to updating shareholders on the performance of the business in due course. PRINCIPAL RISKS AND UNCERTAINTIES As we have stated in previous reports, the Group, like every business, faces risks and uncertainties in both its day-to-day operations and through the events relating to achieving its long-term strategic objectives. The main potential risk areas identified by the Board which could impact the next six months are as follows: • Unexpected issues in relation to the integration of VetXX acquired in January 2008. • Economic slowdown across one or more of our markets or territories. • failing to meet regulatory requirements under which we operate thereby disrupting our operations and our product manufacture pipeline. • Reclassification of licensed products from POM to a lower class thereby impacting revenue. • Introduction of competitor POM products being bought to market where currently we are sole supplier, thereby possibly impacting revenues. We are currently aware of a licence application for a competitor product within the UK; however, this product has not yet been brought to market. • Loss of key personnel at both Board and Operational levels could have a short-term impact. However, the Group has training and key personnel succession plans in place, which are regularly reviewed. Management of risk: The Group has in place procedures for identifying and controlling risk. These are reviewed by Divisional Directors on a monthly basis and by the Group Board on a quarterly basis. OUTLOOK All the businesses across the Group, including the recently acquired VetXX, continue to trade and make strategic progress in-line with management expectations. Dechra's management remain confident and enthusiastic about the prospects for the enlarged Group following the acquisition of VetXX. The enhanced product range and newly developed products will give improved utilisation of the Group's infrastructure and the European footprint allows us to make a better return on our own-developed products as we continue to increase our presence in the world's companion animal veterinary markets. 26 February 2008 Michael Redmond Ian Page Non-Executive Chairman Chief Executive -6- Dechra Pharmaceuticals PLC Half-Yearly Financial Report for the six months ended 31 December 2007 Responsibility Statement of the Directors in Respect of the Half-Yearly Financial Report We confirm that to the best of our knowledge: • the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. • the interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By Order of the Board: Ian Page, Chief Executive Simon Evans, Group Finance Director 26 February 2008 -7- Consolidated Income Statement for the six months ended 31 December 2007 Six months ended Year ended 31.12.07 31.12.06 30.06.07 Note £'000 £'000 £'000 Revenue 2 141,073 125,908 253,803 Cost of sales (120,619) (108,279) (216,952) ----------------------------------- Gross profit 20,454 17,629 36,851 Operating expenses (12,426) (11,125) (23,002) ----------------------------------- Operating profit 2 8,028 6,504 13,849 Finance income 3 721 437 1,044 Finance expense 4 (1,352) (1,032) (2,274) ----------------------------------- Profit before taxation 7,397 5,909 12,619 Income tax expense 5 (2,204) (1,809) (3,772) ----------------------------------- Profit for the period attributable to equity holders of the parent 5,193 4,100 8,847 =================================== Earnings per share (pence) Basic 7 9.83p 7.84p 16.86p =================================== Diluted 7 9.72p 7.76p 16.62p =================================== Dividend per share (declared/paid and proposed) 6 2.75p 2.50p 7.50p =================================== -8- Consolidated Balance Sheet At 31 December 2007 As at As at As at 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 ASSETS Non-current assets Intangible assets 13,557 8,549 13,089 Property, plant & equipment 5,547 5,646 5,739 -------------------------------- Total non-current assets 19,104 14,195 18,828 ================================ Current assets Inventories 30,189 27,777 25,732 Trade and other receivables 36,295 33,097 36,173 Cash and cash equivalents 10,758 12,176 17,222 --------------------------------- Total current assets 77,242 73,050 79,127 ================================= Total assets 96,346 87,245 97,955 ================================= LIABILITIES Current liabilities Borrowings (5,019) (4,006) (4,529) Trade and other payables (45,187) (41,226) (48,641) Current tax liabilities (3,355) (2,096) (2,464) --------------------------------- Total current liabilities (53,561) (47,328) (55,634) ================================= Non-current liabilities Borrowings (9,002) (13,571) (11,666) Deferred tax liabilities (87) (86) (147) --------------------------------- Total non-current liabilities (9,089) (13,657) (11,813) ================================= Total liabilities (62,650) (60,985) (67,447) ================================= Net assets 33,696 26,260 30,508 ================================= EQUITY Issued share capital 530 526 528 Share premium account 28,121 27,865 28,041 Hedging reserve (40) (71) (71) Merger reserve 1,770 1,720 1,770 Retained earnings 3,315 (3,780) 240 --------------------------------- Total equity attributable to equity holders of the parent 33,696 26,260 30,508 ================================= -9- Consolidated Statement of Changes in Shareholders' Equity for the six months ended 31 December 2007 Issued Share Hedging Merger Retained Total Share Premium Reserve Reserve Earnings £'000 Capital Account £'000 £'000 £'000 £'000 £'000 Six months ended 31 December 2006 At 1 July 2006 519 27,693 (71) 1,720 (5,946) 23,915 Profit for the period being total - - - - 4,100 4,100 recognised income and expense for the period Dividends paid - - - - (2,278) (2,278) Share-based payments including current and - - - - 344 344 deferred tax taken directly to equity Shares issued 7 172 - - - 179 --------------------------------------------------------- At 31 December 2006 526 27,865 (71) 1,720 (3,780) 26,260 ========================================================= 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 - - - - 8,847 8,847 recognised income and expense for the period Dividends paid - - - - (3,595) (3,595) Share-based payments including current and - - - - 934 934 deferred tax taken directly to equity Shares issued 9 348 - 50 - 407 ---------------------------------------------------------- At 30 June 2007 528 28,041 (71) 1,770 240 30,508 ========================================================== Six months ended 31 December 2007 At 1 July 2007 528 28,041 (71) 1,770 240 30,508 Profit for the period being total - - - - 5,193 5,193 recognised income and expense for the period Dividends paid - - - - (2,640) (2,640) Share-based payments including current and - - - - 522 522 deferred tax taken directly to equity Change in fair value of cash flow hedges transferred to - - 31 - - 31 profit or loss Shares issued 2 80 - - - 82 ---------------------------------------------------------- At 31 December 2007 530 28,121 (40) 1,770 3,315 33,696 ========================================================== -10- Consolidated Statement of Cash Flows for the six months ended 31 December 2007 Six months ended Year ended Note 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Cash flows from operating activities Profit for the period 5,193 4,100 8,847 Adjustments for: Depreciation 565 477 984 Amortisation 190 49 137 Gain on sale of property, plant and equipment (4) (6) (7) Finance income (721) (437) (1,044) Finance expense 1,352 1,032 2,274 Equity-settled share-based payment expenses 298 225 479 Income tax expense 2,204 1,809 3,772 -------------------------------- 9,077 7,249 15,442 Increase in inventories (4,457) (5,820) (3,737) (Increase)/decrease in trade and other receivables (259) 2,522 (248) (Decrease)/increase in trade and other payables (3,375) (4,510) 2,871 -------------------------------- Cash flow from operating activities before interest and taxation 986 (559) 14,328 Interest paid (1,307) (1,037) (2,228) Income taxes paid (1,162) (1,568) (2,895) -------------------------------- Net cash from operating activities (1,483) (3,164) 9,205 Cash flows from investing activities Proceeds from sale of property, plant and equipment 4 6 23 Interest received 721 444 1,059 Acquisition of subsidiaries - - (717) Purchase of property, plant and equipment (313) (293) (823) Capitalised development expenditure (585) (492) (1,680) Purchase of other intangible non-current assets (7) (258) (2,845) -------------------------------- Net cash from investing activities (180) (593) (4,983) Cash flows from financing activities Proceeds from the issue of share capital 82 179 357 New borrowings - 13 - Repayment of borrowings (2,243) (1,700) (3,481) Dividends paid (2,640) (2,278) (3,595) -------------------------------- Net cash from financing activities (4,801) (3,786) (6,719) Net decrease in cash and cash equivalents (6,464) (7,543) (2,497) Cash and cash equivalents at start of period 17,222 19,719 19,719 -------------------------------- Cash and cash equivalents at end of period 10,758 12,176 17,222 ================================ Reconciliation of net cash to movement in net cash/(borrowings) Net decrease in cash and cash equivalents (6,464) (7,543) (2,497) Repayment of borrowings 2,243 1,700 3,481 New borrowings - (13) - Borrowings assumed on acquisition of subsidiaries - - (55) New finance leases (70) (631) (956) Other non-cash changes 1 7 (25) -------------------------------- Movement in net cash/(borrowings) in the period (4,290) (6,480) (52) Net cash at start of period 1,027 1,079 1,079 -------------------------------- Net (borrowings)/cash at end of period 9 (3,263) (5,401) 1,027 ================================ -11- Notes to the Financial Statements For the six months ended 31 December 2007 1. Basis of Preparation and Principal Accounting Policies Dechra Pharmaceuticals PLC (the 'Company') is a Company domiciled in the UK. The condensed set of financial statements as at, and for, the six months ended 31 December 2007 comprises the Company and its subsidiaries (together referred to as the 'Group'). The Group financial statements as at, and for, the year ended 30 June 2007 prepared in accordance with IFRSs as adopted by the EU and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS, are available upon request from the Company's registered office at Dechra House, Jamage Industrial Estate, Talke Pits, Stoke-on-Trent, ST7 1XW. The prior year comparatives are derived from audited financial information for Dechra Pharmaceuticals PLC as set out in the Annual Report for the year ended 30 June 2007 and the unaudited financial information in the interim financial statements for the six months ended 31 December 2006. The comparative figures for the financial year ended 30 June 2007 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors (i) was unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The condensed set of financial statements for the six months ended 31 December 2007 are unaudited but have been reviewed by the auditors. The independent review report is set out on page 15. STATEMENT OF COMPLIANCE The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The condensed set of financial statements does not include all of the information required for full annual financial statements, and should be read in conjunction with the Group financial statements as at, and for, the year ended 30 June 2007. This condensed set of financial statements was approved by the Board of Directors on 26 February 2008. SIGNIFICANT ACCOUNTING POLICIES As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's consolidated financial statements for the year ended 30 June 2007 except for the following changes. The following new standards or amendments to standards are mandatory for the first time for the year ending 30 June 2008 and are relevant to the Group. IFRS 7 'Financial Instruments Disclosure' and the amendments to IAS 1 'Presentation of Financial Statements - Capital Disclosures' are both effective for annual periods beginning on or after 1 January 2007. The IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment to IAS 1, will be disclosed in the annual financial statements. The following new standards, amendments to standards or interpretations are mandatory for the financial year ending 30 June 2008 but have no material impact to the Group: IFRIC 8 'Scope of IFRS 2 Share-Based Payment', effective for annual periods beginning on or after 1 May 2006. continued... -12- IFRIC 9 'Reassessment of Embedded Derivatives', effective for annual periods beginning on or after 1 June 2006. IFRIC 10 'Interim Financial Reporting and Impairment', effective for annual periods beginning on or after 1 November 2006. IFRIC 11 'IFRS 2 Share-Based Payments - Group and Treasury Share Transactions', effective for annual periods beginning on or after 1 March 2007. ESTIMATES AND JUDGEMENTS The preparation of a condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and the key sources of uncertainty were the same as those applied to the Group financial statements as at 30 June 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. The following table analyses revenue and operating profit accordingly: Six months ended Year ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Business Segment Revenue Pharmaceuticals 16,849 11,983 26,648 Services 127,900 117,436 234,207 Inter division (3,676) (3,511) (7,052) ----------------------------------------------------- 141,073 125,908 253,803 ===================================================== Operating Profit Pharmaceuticals 3,778 2,600 6,081 Services 5,245 4,738 9,519 Central costs (995) (834) (1,751) ----------------------------------------------------- 8,028 6,504 13,849 ===================================================== 3. Finance Income Six months ended Year ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Bank interest receivable 705 432 1,018 Other interest receivable 16 5 26 --------------------------------------- 721 437 1,044 ======================================= continued... -13- 4. Finance Expense Six months ended Year ended 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Bank loans and overdrafts 1,191 909 2,042 Finance charges payable on finance leases 119 92 186 and hire purchase contracts --------------------------------- 1,310 1,001 2,228 Fair value losses on derivative financial instruments 42 31 46 --------------------------------- 1,352 1,032 2,274 ================================= 5. Income Tax Expense The tax charge for the six months ended 31 December 2007 has been based on the estimated effective rate for the year ending 30 June 2008 of 29.8% (six months ended 31 December 2006: 30.6%, year ended 30 June 2007: 29.9%). All taxation is in the United Kingdom. 6. Dividends The Directors have declared an interim dividend of 2.75p per share (2006: 2.50p) costing £1,779,000 (2006: £1,317,000). It is payable on 11 April 2008 to shareholders whose names are on the Register of Members at close of business on 14 March 2008. The ordinary shares will become ex-dividend on 12 March 2008. As the dividend was declared after the end of the period being reported and in accordance with IAS10 'Events After the Balance Sheet Date', the interim dividend 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. 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. Six months ended Year ended 31.12.07 31.12.06 30.06.07 Pence Pence Pence Basic earnings per share 9.83 7.84 16.86 ==================================== Diluted earnings per share 9.72 7.76 16.62 ==================================== The calculation of basic and diluted earnings per share is based upon: £'000 £'000 £'000 Earnings for basic and diluted earnings 5,193 4,100 8,847 per share calculations ==================================== No. No. No. Weighted average number of ordinary shares for basic earnings 52,825,367 52,275,152 52,482,659 per share Impact of share options 614,917 579,890 737,011 -------------------------------------- Weighted average number of ordinary shares for diluted earnings 53,440,284 52,855,042 53,219,670 per share ====================================== continued... -14- 8. EBITDA EBITDA is calculated as follows: Six months ended 31.12.07 31.12.06 £'000 £'000 Operating profit 8,028 6,504 Depreciation 565 477 Amortisation 190 49 Gain on sale of property, plant and equipment (4) (6) ----------------------- 8,779 7,024 ======================= 9. Analysis of Net (Borrowings)/Cash As at As at As at 31.12.07 31.12.06 30.06.07 £'000 £'000 £'000 Bank loans and overdraft (12,119) (15,601) (14,120) Finance leases and hire purchase contracts (1,902) (1,976) (2,075) Cash and cash equivalents 10,758 12,176 17,222 --------------------------------- (3,263) (5,401) 1,027 ================================= 10. Post Balance Sheet Event On 15 January 2008, the Company acquired the entire issued share capital of VetXX Holdings A/S for a consideration of £30 million and DKK372.4 million including repayment of borrowings. Cash balances of DKK45.2 million were inherited on acquisition. The acquisition was financed by a Placing and Open Offer of 11,624,544 New Ordinary Shares at a price of 303p per share (raising gross proceeds of £35.2 million) and a new banking facility. Due to the short time period between the acquisition and the Half-Yearly Financial Report, full IFRS3 disclosure is considered impracticable in these condensed financial statements. Trade Marks Trade Marks appear throughout this document in italics. Dechra and the Dechra 'D' logo are registered Trade Marks of Dechra Pharmaceuticals PLC. -15- Independent Review Report to Dechra Pharmaceuticals PLC Introduction We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2007 which comprises the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Shareholders' Equity, the Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 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 Disclosure and Transparency Rules ('the DTR') of the UK's Financial Services Authority ('the UK FSA'). 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 half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2007 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA. KPMG Audit Plc 2 Cornwall Street Chartered Accountants Birmingham 26 February 2008 B3 2DL This information is provided by RNS The company news service from the London Stock Exchange

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