Interim Results

Dechra Pharmaceuticals PLC 01 March 2005 Issued by Citigate Dewe Rogerson, Birmingham Date: Tuesday, 1 March 2005 Embargoed 7.00am Dechra Pharmaceuticals PLC Interim Results for the six months ended 31 December 2004 Manufacturers, distributors and marketers of pharmaceuticals, veterinary equipment and related goods and services 2004 2003 Turnover Â£103.3m Â£92.4m +12% Operating profit (pre-goodwill amortisation & exceptional items) Â£5.4m Â£4.4m +23% Operating margin (pre-goodwill amortisation & exceptional items) 5.3% 4.8% Pre-tax profit Â£4.4m Â£3.5m +24% Pre-tax profit (pre-goodwill amortisation & exceptional items) Â£4.6m Â£3.8m +22% Earnings per Share 5.78p 4.65p +24% Adjusted Earnings per Share (pre-goodwill amortisation & exceptional items) 6.34p 5.20p +22% Interim dividend 1.70p 1.55p +10% Pharmaceuticals Division Sales from own veterinary pharma portfolio increased 18% to Â£5.2 million Pharmaceutical manufacturing traded strongly - sales up 24% Services Division Strong first half performance in buoyant market conditions - revenues up 12% NVS market share improved to 42.5% Significant development within our pharma portfolio both in the UK and USA 'Both our Pharmaceuticals and Services Divisions have shown good growth in the first half reflecting improved market conditions, increased market share and further penetration within the veterinary markets. 'It is pleasing to report that we have achieved a number of strategic objectives and have also identified additional opportunities that will positively benefit the Group in the future.' Ian Page, Chief Executive FULL STATEMENT ATTACHED Enquiries: Ian Page, Chief Executive Simon Evans, Group Finance Director Dechra Pharmaceuticals PLC Fiona Tooley/Katie Dale Today: 020 7797 3817 (8.00am to 12.30pm) Citigate Dewe Rogerson 07775 642222 (IP) Today: 0207 797 3817 (8.00am to 12.30pm) 07775 642220 (SE) Mobile: 07785 703523 Thereafter: 01782 771100 Thereafter: 0121 455 8370 www.dechra.com Meetings to be held at (morning only): The Media & Business Complex London Stock Exchange 10 Paternoster Square London EC4M 7LS 9.30am - Analysts Meeting 10.45am - Press Briefing -2- Dechra Pharmaceuticals PLC Interim Results for the six months ended 31 December 2004 Introduction Both our Pharmaceuticals and Services Divisions have shown good growth in the first half reflecting improved market conditions, increased market share and further penetration within the veterinary markets. You will be aware of the Group's focus to develop and extend its own branded licensed veterinary product portfolio within North America, Europe and Japan. It is pleasing to report therefore that we have achieved a number of strategic objectives and have also identified additional opportunities that will positively benefit the Group in the future. Financial Highlights Operating profit (pre-goodwill amortisation and exceptional items) rose 23% to Â£5.4 million (2003: Â£4.4 million), on turnover of Â£103.3 million, up 12% (2003: Â£92.4 million). Pre-tax profit (pre-goodwill amortisation and exceptional items) rose 22% to Â£4.6 million (2003: Â£3.8 million). Adjusted earnings per share on the same basis also increased 22% to 6.34 pence (2003: 5.20 pence). Interest cover remains strong at 7.0 times operating profit (pre-goodwill amortisation and exceptional items). As we reported in our trading update in January, Group operating margins before goodwill amortisation have improved from 4.8% to 5.3% for the same period last year. Net debt at 31 December 2004 stood at Â£13.2 million compared to Â£17.3 million at the same point last year. As expected, net debt has risen from the year end position at 30 June 2004, reflecting the normal working capital cycle of the Group. Dividend The Board considers that the Group will benefit from retaining cash to support its accelerating product development programme, whilst at the same time rewarding shareholders. Therefore the Board is declaring an interim dividend of 1.70 pence (2003: 1.55 pence), an increase of 10%. The interim dividend will be paid on 7 April 2005 to shareholders on the Register as at 11 March 2005. This dividend is covered 3.7 times by earnings before goodwill amortisation and exceptional items. Review Pharmaceutical Division This division comprises Arnolds Veterinary Products ('Arnolds'), Dechra Veterinary Products ('DVP'), and Dales Pharmaceuticals ('Dales'). Sales & Marketing Trading within the Arnolds business has been encouraging with overall turnover up 11%. Sales from our own veterinary pharmaceutical portfolio increased 18% to Â£5.2 million, of which Â£1.7 million relates to our own developed products Felimazole(R) and Vetoryl(R). The instruments & consumables business performed in-line with our expectations with sales now recovering following the slowdown seen over the last two years. Although sales continue to be influenced by both competitive pressures and grey imports, the restructured management team (reported last year) have made a positive impact. Arnolds has been considerably strengthened with the recruitment of a new marketing manager and a new sales manager who has several years' experience within the veterinary market. We now have the right mix of experience and skills to maximise the opportunities created by our development programme. continued... -3- We are continuing to research the US market as we develop the sales and marketing logistics of our US operation, DVP. We will be making our second key appointment imminently with the recruitment of a sales and marketing manager. We are due to make our first product launch prior to the end of this financial year (see Belcher Pharmaceuticals agreement later in this statement). Pharmaceutical Manufacturing Our manufacturing company, Dales, traded very strongly in the first half with sales up 24% compared to 2003. This considerable improvement reflects an upward trend in productivity with sales to both Arnolds and to third party customers increased. Operationally, we have added an additional 18,000 sq ft warehouse to our facility in Skipton. This has allowed us to further improve our overall efficiency through a number of initiatives including a reduction in off-site storage. In October 2004 we successfully introduced a new shift system which targeted increased production on high capacity lines. Services Division This division comprises National Veterinary Services ('NVS'), Vetcom Systems ('Vetcom'), NationWide Laboratories ('NWL') and Cambridge Specialist Laboratory Services ('CSLS'). Distribution NVS had a strong first half performance in buoyant market conditions which was reflected in the 12% increase in revenues over the same period last year. Although the market has remained price competitive the management team has been successful in increasing NVS's margin. This has been achieved through a combination of better purchasing, an improved product mix, new services and the success of the Group's own branded 'Valu' range introduced last year. NVS also improved its market share to 42.5%. NVS Indices (which analyses key data to indicate the profitability of a veterinary practice), and Alternative Analysis tool (which analyses practice spend) continue to add-value to our services and assist in differentiating us from our competitors. Recently, we launched our own range of consumer pet care products branded 'Vet Remedy' which will be retailed to pet owners through veterinary practices. This range provides an opportunity to further penetrate the waiting room sales market. Towards the end of the last financial year, we divided our Swanley depot into two new locations. This has resulted in an improved service, with earlier more regular deliveries to our customer base in the South East. Additionally we established a stronger presence in Scotland, by introducing a dedicated service team located in offices within a new trunking depot in Hamilton which has increased our penetration of the Scottish market. We expect to see further practice gains from this operation over the coming months. Vetcom Systems The Group remains focused on providing its customers with the latest technology to ensure that our veterinary practice clients are able to operate a progressive, efficient and cost-effective practice. To further strengthen our position, the Group has established a joint venture partnership with Cam-Dal Computing. This will provide Vetcom Systems, Dechra's I.T. division, with its next generation cost-effective, multi-user, on-line veterinary practice management system, Vetcom Open. This 'state-of-the-art' software system, which will be launched in April of this year, has significantly improved functionality over current veterinary practice management systems. It will also allow NVS to offer additional services to its veterinary customers. This next generation technology developed by Cam-Dal over several years is already established in a number of veterinary practices nationwide, including major large animal sites, 24-hour emergency clinics and multi-site small animal groups. Feedback from the end-users has been exceptionally positive. We are confident that Vetcom Open can further increase NVS's market penetration of veterinary practice management systems. continued... -4- Laboratory Services NWL has experienced a period of consolidation following the retirement of the previous owners who were also part of the senior management team. A new management team is now establishing itself and is in the process of improving existing services and providing new services to differentiate them from the competition. Additionally, two new agreements have been signed that will offer NWL new services to be launched prior to the financial year end. CSLS continues to increase its volume sales in specialist veterinary endocrine hormone assays. Product Development Within the period the Group continued to expand its licensed veterinary product portfolio. The Group gained a full EU licence for Felimazole(R) through the mutual recognition procedure. Felimazole(R) was launched in October 2004 by our marketing partner Janssen Animal Health, in the key European territories of France and Germany. Other territories will be coming on stream during 2005. We remain encouraged by the potential in the product. Towards the end of 2004, the Group received authorisation in the UK from the Veterinary Medicines Directorate ('VMD') for its Felimazole(R) and Vetoryl(R) range extensions. A 30mg Vetoryl(R) capsule, targeted specifically at small dogs and a 2.5mg Felimazole(R) tablet for cats have been added to our licensed veterinary portfolio. These significant line extensions offer an improved safety profile without compromising efficacy whilst also giving the veterinary surgeon more flexible dosing options. The Group continues to make very satisfactory progress in the USA, with our projects to license Vetoryl(R) and Felimazole(R) both continuing to remain on track. In February we submitted the safety section of the Vetoryl(R) dossier and anticipate completing the efficacy section by the end of March. A meeting has been organised tomorrow (2nd March) with the United States Food and Drug Administration ('FDA') to review the suitability of the Felimazole(R) dossier for the US Market. The progression of both these products will, as expected, lead to an increase in investment in product development in the second half of the current financial year. Post-period end developments In line with our objectives to build our own pharmaceutical portfolio both in the UK and internationally, it is very pleasing to report that, since January, we have achieved a number of major milestones with our veterinary product development programme. The Group has already released information via the Regulatory News Service ('RNS') of the London Stock Exchange. In summary: We are about to launch our first significant licensed branded generic product for dogs which will be the first generic entrant to be launched in a UK market worth approximately Â£1.9 million. Our Regulatory Team has been granted a UK marketing authorisation for Ovuplant (R) whose chemical entity is the intellectual property of the Australian bio-technology company, Peptech Animal Health. Ovuplant(R) is a controlled-release, synthetic hormone that stimulates ovulation in brood mares and it is used widely by horse breeders in a number of worldwide markets. The Mutual Recognition process has also commenced to licence Ovuplant(R) in Europe (EU). The Group has also added two new marketing agreements: Firstly, with Vetoquinol, Canada. This partnership, which will run for an initial period of 5 years, allows Vetoquinol the marketing and distribution rights to our own developed products Felimazole(R) and Vetoryl(R). The Group will retain all Intellectual Property Rights to both products which will be manufactured for the Canadian market at Dales. continued... -5- Secondly, with Belcher Pharmaceuticals, Inc. ('Belcher'), a wholly owned subsidiary of GeoPharma, Inc., based in Largo, Florida, USA. This agreement, for which we have paid a license fee of US$0.5 million, gives Dechra exclusive worldwide sales and marketing rights for Belcher's levothyroxine liquid and tablets, used to control hypothyroidism in dogs. This product range allows us to establish Dechra Veterinary Products in the American veterinary endocrine market ahead of the registration of our own key products, Vetoryl(R) and Felimazole(R). Prospects All areas of the business are performing well. The Directors are confident that with the developments outlined in this statement good progress will continue to be made. Michael Redmond Ian Page Non-Executive Chairman Chief Executive -6- Dechra Pharmaceuticals PLC Interim Results CONSOLIDATED PROFIT & LOSS ACCOUNT Note Six Months Ended Year Ended 31.12.2004 31.12.2003 30.6.2004 Â£'000 Â£'000 Â£'000 Turnover 103,263 92,412 186,843 Cost of sales (89,023) (80,080) (161,422) ---------------------------------- Gross profit 14,240 12,332 25,421 Other operating expenses (9,097) (8,194) (16,928) ---------------------------------- Operating profit 5,143 4,138 8,493 -------------------------------------------------------------------------------- Operating profit before exceptional items and 5,425 4,419 9,184 goodwill amortisation Exceptional items 1 - - (130) Goodwill amortisation (282) (281) (561) ---------------------------------- Operating profit 5,143 4,138 8,493 -------------------------------------------------------------------------------- Net interest payable (776) (611) (1,124) ---------------------------------- Profit on ordinary activities before 4,367 3,527 7,369 taxation -------------------------------------------------------------------------------- Profit on ordinary activities before 4,649 3,808 8,060 taxation, exceptional items and goodwill amortisation Exceptional items - - (130) Goodwill amortisation (282) (281) (561) ---------------------------------- Profit on ordinary activities before 4,367 3,527 7,369 taxation -------------------------------------------------------------------------------- Tax on profit on ordinary 2 (1,418) (1,159) (2,288) activities ---------------------------------- Profit on ordinary activities after taxation 2,949 2,368 5,081 Dividend 3 (867) (790) (2,396) ---------------------------------- Retained profit for the period 2,082 1,578 2,685 ================================== Earnings per ordinary share - Basic 4 5.78p 4.65p 9.97p ================================== - Adjusted 4 6.34p 5.20p 11.28p ================================== Diluted - Basic 4 5.69p 4.58p 9.83p ================================== - Adjusted 4 6.23p 5.12p 11.12p ================================== -7- Dechra Pharmaceuticals PLC Interim Results CONSOLIDATED BALANCE SHEET (Summary) Note As at As at 31.12.2004 31.12.2003 30.6.2004 Â£'000 Â£'000 Â£'000 Fixed assets Intangible fixed assets 4,892 5,454 5,174 Tangible fixed assets 5,276 5,382 5,224 ---------------------------------- 10,168 10,836 10,398 Current assets Stocks 24,394 26,040 16,979 Debtors 31,466 28,970 32,889 Cash at bank and in hand 6,224 - - ---------------------------------- 62,084 55,010 49,868 Creditors: amounts falling due within one year Bank loans and overdraft (1,400) (11,489) (5,278) Other creditors (40,492) (39,589) (39,894) ---------------------------------- (41,892) (51,078) (45,172) ---------------------------------- Net current assets 20,192 3,932 4,696 ---------------------------------- Total assets less current 30,360 14,768 15,094 liabilities Creditors: amounts falling due after (17,903) (5,719) (4,763) more than one year Provisions for liabilities and charges - deferred tax (174) - (174) ---------------------------------- Net assets 12,283 9,049 10,157 ================================== Capital and reserves Called-up share capital 510 510 510 Share premium account 26,828 26,783 26,784 Merger reserve 1,720 1,720 1,720 Profit and loss account (16,775) (19,964) (18,857) ---------------------------------- Equity shareholders' funds 5 12,283 9,049 10,157 ================================== -8- Dechra Pharmaceuticals PLC Interim Results CONSOLIDATED CASH FLOW STATEMENT (Summary) Note Six Months Ended Year Ended 31.12.2004 31.12.2003 30.6.2004 Â£'000 Â£'000 Â£'000 Net cash flow from operating activities 6 724 688 10,576 Returns on investments and servicing (940) (563) (1,012) of finance Taxation (909) (699) (1,864) Capital expenditure and financial investment (153) (304) (546) Equity dividends paid (1,606) (1,402) (2,192) ----------------------------------- Cash (outflow)/inflow before financing (2,884) (2,280) 4,962 Financing: Shares issued 40 - 1 Term loans raised 13,160 - - Term loans repaid (700) (977) (1,954) Loan stock repaid - (500) (500) Capital element of finance lease payments (68) (80) (135) ----------------------------------- 12,432 (1,557) (2,588) ----------------------------------- Increase/(decrease) in cash in the period 9,548 (3,837) 2,374 =================================== Reconciliation of net cash flow to movement in net debt Six Months Ended Year Ended 31.12.2004 31.12.2003 30.6.2004 Â£'000 Â£'000 Â£'000 Increase/(decrease) in cash in the period 9,548 (3,837) 2,374 Cash flow from change in debt and lease (12,392) 1,557 2,589 financing ------------------------------------ Change in net debt arising from cash flows (2,844) (2,280) 4,963 New finance leases (346) - (11) Other non-cash changes 115 (40) (74) ------------------------------------ Movement in net debt in period (3,075) (2,320) 4,878 Net debt at start of period (10,110) (14,988) (14,988) ------------------------------------ Net debt at end of period 7 (13,185) (17,308) (10,110) ==================================== -9- Dechra Pharmaceuticals PLC Interim Results NOTES 1. Exceptional Items Reorganisation costs of Â£130,000 were incurred in the year ended 30 June 2004 which related to restructuring the Group's trading operations into a single statutory entity. 2. Taxation The tax charge reflects the full year's estimated effective rate on the Group's profit before tax of 32.5% (2003: 32.9%). 3. Dividend An interim dividend of 1.70p per share (2003: 1.55p) costing Â£867,000 (2003: Â£790,000) has been declared. It is payable on 7 April 2005 to shareholders whose names are on the Register of Members at close of business on 11 March 2005. The ordinary shares will become ex-dividend on 9 March 2005. 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... -10- Six months ended Year ended 31.12.2004 31.12.2003 30.06.2004 Pence Pence Pence Basic earnings per share after exceptional items and 5.78 4.65 9.97 goodwill amortisation Effect of exceptional items and goodwill amortisation 0.56 0.55 1.31 ------------------------------------ Adjusted earnings per share 6.34 5.20 11.28 ------------------------------------ Diluted earnings per share after exceptional items and 5.69 4.58 9.83 goodwill amortisation Effect of exceptional items and goodwill amortisation 0.54 0.54 1.29 ------------------------------------ Adjusted diluted earnings per share 6.23 5.12 11.12 ------------------------------------ The calculation of basic and diluted earnings per share is based upon: Â£'000 Â£'000 Â£'000 Earnings for basic and diluted earnings per share 2,949 2,368 5,081 calculations Exceptional items and goodwill amortisation (net of tax effect) 282 281 670 ------------------------------------ Earnings for adjusted and adjusted diluted earnings per 3,231 2,649 5,751 share ------------------------------------ No. No. No. Weighted average number of ordinary shares for basic and adjusted earnings per share 50,997,064 50,975,037 50,975,214 Impact of share options 832,674 781,140 725,830 ------------------------------------ Weighted average number of ordinary shares for diluted and adjusted diluted earnings per share 51,829,738 51,756,177 51,701,044 ------------------------------------ 5. Reconciliation of movements in shareholders' funds: Six Months Ended Year Ended 31.12.2004 31.12.2003 30.6.2004 Â£'000 Â£'000 Â£'000 Profit for the financial period 2,949 2,368 5,081 Dividends (867) (790) (2,396) New shares issued 44 - 1 ------------------------------------- Net addition to shareholders' funds 2,126 1,578 2,686 Opening shareholders' funds 10,157 7,471 7,471 ------------------------------------- Closing shareholders' funds 12,283 9,049 10,157 ===================================== continued... -11- 6. Reconciliation of operating profit to operating cash flows: Six Months Ended Year Ended 31.12.2004 31.12.2003 30.6.2004 Â£'000 Â£'000 Â£'000 Operating profit 5,143 4,138 8,493 Depreciation and amortisation 771 773 1,549 (Profit)/loss on sale of tangible fixed assets (32) 8 4 (Increase)/decrease in stocks (7,415) (8,744) 317 Decrease/(increase) in debtors 1,427 (975) (4,901) Increase in creditors 830 5,488 5,114 ------------------------------------- Net cash flow from operating activities 724 688 10,576 ===================================== 7. Analysis of net debt As at As at As at 31.12.2004 31.12.2003 30.06.2004 Â£'000 Â£'000 Â£'000 Bank loans and overdrafts 19,058 17,191 10,037 Finance leases and hire purchase contracts 351 117 73 Cash at bank and in hand (6,224) - - ------------------------------------- 13,185 17,308 10,110 ------------------------------------- 8. Basis of preparation The interim financial information has been prepared on the basis of the accounting policies set out in the 2004 Annual Report and Accounts and was approved by the Board of Directors on 1 March 2005. 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 2004 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 2004 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. Tel: 01782 771100. www.dechra.com -12- 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 6 to 11 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 2004. KPMG Audit Plc Chartered Accountants Birmingham 1 March 2005 This information is provided by RNS The company news service from the London Stock Exchange

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