Interim Results
Dechra Pharmaceuticals PLC
27 February 2007
Issued by Citigate Dewe Rogerson Ltd, Birmingham
Date: Tuesday, 27 February 2007
Embargoed: 7.00am
Dechra Pharmaceuticals PLC
Interim Results
for the six months ended 31 December 2006
2006 2005
Revenue £125.9m £116.1m +8.5%
Operating profit £6.5m £5.8m +12.0%
Profit before taxation £5.9m £5.2m +14.2%
Earnings per share - basic 7.84p 6.99p +12.2%
- diluted 7.76p 6.86p +13.1%
Interim dividend 2.50p 1.91p +30.9%
Net borrowings £5.4m £10.2m
Strong organic growth in revenue and pre-tax profit
EU revenues beginning to materialise
Further strategic progress with the product development programme
Significant increase in dividend
Commenting, Ian Page, Chief Executive, said:
'The Group continues to make substantial progress across all its businesses.'
'The strong organic growth during the period has been enhanced by increased
sales and new launches of two of our key products, Vetoryl(R) and Felimazole(R),
into Europe. Our strategic pharmaceutical development programme continues to
gain momentum; new products have been identified and licensing projects for key
international markets are progressing to expectations.'
FULL STATEMENT ATTACHED
Enquiries:
Ian Page, Chief Executive Fiona Tooley, Director
Simon Evans, Group Finance Director Katie Dale, Senior Account Manager
Dechra(R) Pharmaceuticals PLC Citigate Dewe Rogerson
Today: +44 (0) 20 7638 9571 (until 12.30pm) Today: +44 (0) 207 638 9571
Mobile: +44 (0) 7775 642222 (IP) or Mobile: +44 (0) 7785 703523 (FMT)or
+44 (0) 7775 642220 (SE) +44 (0) 7770 788 624 (KD)
Thereafter: 01782 771100 Thereafter: 0121 455 8370
www.dechra.com
-2-
Dechra Pharmaceuticals PLC
Interim Results for the six months ended 31 December 2006
Introduction
The Group continues to make substantial progress across all its businesses. This
is demonstrated by increases in the period of 8.5% in revenue and 14.2% in
pre-tax profit compared to the same period in the prior year.
The strong organic growth during the period has been enhanced by increased sales
and new launches of two of our key products, Vetoryl(R) and Felimazole(R), into
Europe. Our strategic pharmaceutical development programme continues to gain
momentum; new products have been identified and licensing projects for key
international markets are progressing to expectations. Further details are
provided later in this report.
Financials
In the six months ended 31 December 2006, Group revenue increased by 8.5% to
£125.9 million (2005: £116.1 million), whilst operating profit was up by 12.0%
to £6.5 million (2005: £5.8 million) and profit before taxation rose by 14.2% to
£5.9 million (2005: £5.2 million).
Basic earnings per share increased by 12.2% from 6.99 pence to 7.84 pence.
The increase in revenue was driven by above market growth by National Veterinary
Services ('NVS') and a strong performance from Dechra Veterinary Products
('DVP').
Group operating margin increased from 5.0% to 5.2% as a result of increased
margins at NVS and a higher proportion of Group revenue from our own branded
pharmaceuticals through Dechra Veterinary Products.
Research and development expenditure charged to the income statement was similar
to last year at £636,000 (2005: £680,000) as were the costs of our USA operation
at £170,000 (2005: £157,000). A further £657,000 of development expenditure was
capitalised, principally relating to Vetoryl(R) US.
As normal, inventory levels were at a seasonally high level at the end of the
period being reported and this caused a swing from a net cash position at 30
June 2006 of £1.1 million to net borrowings of £5.4 million at 31 December 2006.
However, this was significantly less than the net borrowings of £10.2 million at
the same point last year. The relatively high inventory levels will unwind in
the second half of the financial year. This is reflected in operating profit
providing strong interest cover at 10.9 times (2005: 9.2 times).
Dividend
In line with the Group's progressive dividend policy and confidence in the
business going forward, the Board is pleased to declare an interim dividend of
2.50 pence per share (2005: 1.91 pence), a significant increase of 30.9%. At
this level, the interim dividend remains covered 3.1 times by profit after
taxation (2005: 3.6 times).
The dividend is payable on 10 April 2007 to shareholders whose names are on the
Register of Members at close of business on 9 March 2007.
continued...
-3-
Review
Pharmaceuticals Division
Our own branded licensed products have performed well within Europe and have
also achieved good growth within the UK. DVP remains the fastest growing UK
veterinary pharmaceutical company; the key brands, Vetoryl(R) and Felimazole(R)
grew in the UK in excess of 30%, Vetivex(R) increased by 16% and Equipalazone
(R), our long-established equine product, grew by 3% despite competing with a
new entrant within the sector. Global revenue of Vetoryl(R) increased by 62% to
£2.0 million (including £535,000 within the European Union) and Felimazole(R) by
35% to £1.5 million (including £138,000 within the European Union).
The focus at Dales, our manufacturing business, has continued to be on
efficiency and implementation of new quality systems. Production for a new £1.0
million contract announced at the end of our last financial year has been
validated and initial sales commenced in November. Full-scale production should
ensure a strong second half performance.
Services Division
Our wholesaling and distribution business, NVS, has produced a strong first half
performance and retained its leading market position. To enhance support for the
growth of this business, additional sales personnel have been employed to
provide improved regional coverage.
An investment of over £700,000 was made towards the end of the last financial
year in additional automation and capacity within the centralised warehouse.
This is now fully commissioned and has improved productivity and overall
operational efficiency.
The Group's Laboratory businesses are continuing to increase market share. To
accelerate this growth the Company has established a new satellite laboratory in
Swanscombe. This presence in Southern England has increased opportunities for
growth, which has been demonstrated by a number of new account wins secured
prior to the period end.
Product Development
The benefits of the Group's product development programme are beginning to be
realised with increased penetration of our products within the EU. We have
continued to progress this important strategy in the following ways:
•Intellectual Property Acquisition
Prior to the half year end, we announced that we had acquired the intellectual
property for Equidone(R), 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(R) is already patented and under limited distribution in the US under a
special license. The market for equine fescue toxicity is estimated to be
approximately US$2 million per annum. Other patents for Equidone use have also
been approved; exploration into these indications, which have substantially
larger markets, will be undertaken shortly.
•US Clinical Trials
All the dogs required for efficacy trials for Vetoryl(R) have now been
recruited. The manufacturing and safety dossiers have been submitted to the FDA.
The Board remains confident that the product will be launched in line with our
planned programme.
continued...
-4-
Recruitment for the Felimazole(R) trial continues, approximately three quarters
of the required cats are now enrolled. The safety section has been submitted and
the manufacturing dossier is close to completion. As with Vetoryl(R), we
anticipate to complete the submission in 2007 to facilitate launch into the US
market, to target, in 2008.
•Generic Products
The Group has secured the UK marketing rights for four new generic products for
the equine and small animal market sectors. Following submission and regulatory
approval, the Board expects the first of these products to be launched within
this financial year, with the others anticipated to be licensed by the end of
the calendar year.
•Pipeline
We continue to identify opportunities to bring new products into our portfolio
to add to the novel and generic products we currently have under development.
Outlook
All businesses across the Group continue to trade and progress in line with
management expectations. Growth is now also being realised from the historical
investment in product development; furthermore projects initiated over the last
few years will ensure continued growth for many years. We therefore look forward
to the future with confidence.
Michael Redmond Ian Page
Non-Executive Chairman Chief Executive
-5-
Consolidated Income Statement
for the six months ended 31 December 2006
Six months ended Year ended
31.12.06 31.12.05 30.06.06
Note £'000 £'000 £'000
Revenue 2 125,908 116,088 232,471
Cost of sales (108,279) (100,015) (199,205)
--------------------------------
Gross profit 17,629 16,073 33,266
Operating expenses (11,125) (10,264) (20,954)
--------------------------------
Operating profit 2 6,504 5,809 12,312
Finance income 3 437 378 725
Finance expense 4 (1,032) (1,012) (1,993)
--------------------------------
Profit before taxation 5,909 5,175 11,044
Income tax expense 5 (1,809) (1,595) (3,487)
--------------------------------
Profit for the period attributable to
equity holders of the parent 4,100 3,580 7,557
================================
Earnings per share (pence)
Basic 7 7.84p 6.99p 14.71p
================================
Diluted 7 7.76p 6.86p 14.36p
================================
Dividend per share (declared/paid and
proposed) 6 2.50p 1.91p 6.24p
================================
-6-
Consolidated Balance Sheet
At 31 December 2006
As at As at As at
31.12.06 31.12.05 30.06.06
£'000 £'000 £'000
ASSETS
Non-Current Assets
Intangible assets
- goodwill 4,385 4,385 4,385
- software 1,015 226 626
- development costs 1,281 536 645
- other intangibles 1,868 1,880 1,871
Property, plant & equipment 5,646 5,431 5,595
Deferred tax assets - 540 445
---------------------------------
Total non-current assets 14,195 12,998 13,567
=================================
Current Assets
Inventories 27,777 27,616 21,957
Trade and other receivables 33,097 32,656 35,347
Cash and cash equivalents 12,176 7,893 19,738
---------------------------------
Total current assets 73,050 68,165 77,042
=================================
Total assets 87,245 81,163 90,609
=================================
LIABILITIES
Current Liabilities
Borrowings (4,006) (2,315) (3,417)
Trade and other payables (41,226) (40,367) (45,530)
Current tax liabilities (2,096) (2,535) (2,505)
---------------------------------
Total current liabilities (47,328) (45,217) (51,452)
=================================
Non-Current Liabilities
Borrowings (13,571) (15,819) (15,242)
Deferred tax liabilities (86) - -
---------------------------------
Total non-current liabilities (13,657) (15,819) (15,242)
=================================
Total liabilities (60,985) (61,036) (66,694)
=================================
Net assets 26,260 20,127 23,915
=================================
EQUITY
Issued share capital 526 515 519
Share premium account 27,865 27,417 27,693
Hedging reserve (71) (71) (71)
Merger reserve 1,720 1,720 1,720
Retained earnings (3,780) (9,454) (5,946)
---------------------------------
Total equity attributable to equity holders
of the parent 26,260 20,127 23,915
=================================
-7-
Consolidated Statement of Changes in Shareholders' Equity
for the six months ended 31 December 2006
Issued Share Hedging Merger Retained Total
Share Premium Reserve Reserve Earnings
Capital Account
£'000 £'000 £'000 £'000 £'000 £'000
Six months ended 31 December 2005
At 1 July 2005 as
previously stated 511 26,953 - 1,720 (11,582) 17,602
Impact of adoption
of IAS32 and IAS39 on
1 July 2005 - - (71) - - (71)
------------------------------------------------------
At 1 July 2005 -
re-stated 511 26,953 (71) 1,720 (11,582) 17,531
Profit for the
period being total
recognised income
and expense for the
period - - - - 3,580 3,580
Dividends paid - - - - (1,794) (1,794)
Share-based payments
including current
and deferred tax
taken directly to
equity - - - - 342 342
Shares issued 4 464 - - - 468
---------------------------------------------------------
At 31 December 2005 515 27,417 (71) 1,720 (9,454) 20,127
=========================================================
Year ended 30 June 2006
At 1 July 2005 as
previously stated 511 26,953 - 1,720 (11,582) 17,602
Impact of adoption
of IAS32 and IAS39 on
1 July 2005 - - (71) - - (71)
----------------------------------------------------------
At 1 July 2005 -
re-stated 511 26,953 (71) 1,720 (11,582) 17,531
Profit for the
period being total
recognised income
and expense for the
period - - - - 7,557 7,557
Dividends paid - - - - (2,777) (2,777)
Share-based payments
including current
and deferred tax
taken directly to
equity - - - - 856 856
Shares issued 8 740 - - - 748
----------------------------------------------------------
At 30 June 2006 519 27,693 (71) 1,720 (5,946) 23,915
==========================================================
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
recognised income
and expense for the
period - - - - 4,100 4,100
Dividends paid - - - - (2,278) (2,278)
Share-based payments
including current
and deferred tax
taken directly to
equity - - - - 344 344
Shares issued 7 172 - - - 179
----------------------------------------------------------
At 31 December 2006 526 27,865 (71) 1,720 (3,780) 26,260
==========================================================
-8-
Consolidated Statement of Cash Flows
for the six months ended 31 December 2006
Six months ended Year ended
Note 31.12.06 31.12.05 30.06.06
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period 4,100 3,580 7,557
Adjustments for:
Depreciation 477 431 886
Amortisation 49 68 136
Gain on sale of property, plant and
equipment (6) (10) (23)
Finance income (437) (378) (725)
Finance expense 1,032 1,012 1,993
Equity-settled share-based payment
expenses 225 199 427
Income tax expense 1,809 1,595 3,487
------------------------------
7,249 6,497 13,738
Increase in inventories (5,820) (7,226) (1,567)
Decrease/(increase) in trade and other
receivables 2,522 970 (1,736)
(Decrease)/increase in trade and other
payables (4,510) (1,711) 3,562
------------------------------
Cash flow from operating activities
before interest and taxation (559) (1,470) 13,997
Interest paid (1,037) (967) (1,890)
Income taxes paid (1,568) (1,078) (2,618)
------------------------------
Net cash from operating activities (3,164) (3,515) 9,489
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 6 10 23
Interest received 444 334 672
Purchase of property, plant and
equipment (293) (821) (1,320)
Capitalised development expenditure (492) (56) (195)
Purchase of other intangible
non-current assets (258) - -
------------------------------
Net cash from investing activities (593) (533) (820)
Cash flows from financing activities
Proceeds from the issue of share
capital 179 500 780
New borrowings 13 66 705
Repayment of borrowings (1,700) (755) (1,582)
Dividends paid (2,278) (1,794) (2,777)
-----------------------------
Net cash from financing activities (3,786) (1,983) (2,874)
Net (decrease)/increase in cash and
cash equivalents (7,543) (6,031) 5,795
Cash and cash equivalents at start of
period 19,719 13,924 13,924
------------------------------
Cash and cash equivalents at end of
period 12,176 7,893 19,719
==============================
Shown as:
Cash and cash equivalents 12,176 7,893 19,738
Bank overdraft - - (19)
------------------------------
12,176 7,893 19,719
==============================
Reconciliation of net cash to movement
in net cash/(borrowings)
Net (decrease)/increase in cash and
cash equivalents (7,543) (6,031) 5,795
Repayment of borrowings 1,700 755 1,582
New borrowings (13) (66) (705)
New finance leases (631) - (649)
Other non-cash changes 7 (40) (85)
------------------------------
Movement in net cash/(borrowings) in
the period (6,480) (5,382) 5,938
Net cash/(borrowings) at start of
period 1,079 (4,859) (4,859)
------------------------------
Net (borrowings)/cash at end of period 8 (5,401) (10,241) 1,079
==============================
-9-
Notes to the Financial Statements
For the six months ended 31 December 2006
1. Basis of Preparation
This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Company's
published consolidated financial statements for the year ended 30 June 2006. 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 2006 and the unaudited financial information in the interim financial
statements for the six months ended 31 December 2005. These consolidated interim
financial statements have been prepared under the historical cost convention,
except in respect to certain financial instruments.
The consolidated accounts incorporate the accounts of the Company and of each of
its subsidiaries for the period to 31 December 2006.
The consolidated interim financial statements for the six months ended 31
December 2006 are unaudited but have been reviewed by the auditors. The
independent review report is set out on page 12. The consolidated interim
financial statements for the six months ended 31 December 2006 were approved by
the Directors on 27 February 2007.
The comparative figures for the financial year ended 30 June 2006 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 was (i) 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.
continued...
-10-
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
31.12.06 31.12.05 30.06.06
£'000 £'000 £'000
Business Segment
Revenue
Pharmaceuticals 11,983 11,179 23,252
Services 117,436 108,101 215,556
Inter division (3,511) (3,192) (6,337)
----------------------------------------------------
125,908 116,088 232,471
====================================================
Operating Profit
Pharmaceuticals 2,600 2,047 4,868
Services 4,738 4,275 8,681
Central costs (834) (513) (1,237)
----------------------------------------------------
6,504 5,809 12,312
====================================================
3. Finance Income
Six months ended Year ended
31.12.06 31.12.05 30.06.06
£'000 £'000 £'000
Bank interest receivable 432 318 627
Other interest receivable 5 36 52
Fair value gains on derivative financial
instruments - 24 46
------------------------------------
437 378 725
====================================
4. Finance Expense
Six months ended Year ended
31.12.06 31.12.05 30.06.06
£'000 £'000 £'000
Bank loans and overdrafts 909 981 1,913
Finance charges payable on finance leases and 92 19 64
hire purchase contracts
Fair value losses on derivative financial
instruments 31 12 16
---------------------------------
1,032 1,012 1,993
=================================
5. Income Tax Expense
The tax charge for the six months ended 31 December 2006 has been based on the
estimated effective rate for the year ending 30 June 2007 of 30.6% (six months
ended 31 December 2005: 30.8%). All taxation is in the United Kingdom.
6. Dividends
The Directors have declared an interim dividend of 2.50p per share (2005: 1.91p)
costing £1,316,000 (2005: £983,000). It is payable on 10 April 2007 to
shareholders whose names are on the Register of Members at close of business on
9 March 2007. The ordinary shares will become ex-dividend on 7 March 2007.
continued...
-11-
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 2007.
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
31.12.06 31.12.05 30.06.05
Pence Pence Pence
Basic earnings per share 7.84 6.99 14.71
===================================
Diluted earnings per share 7.76 6.86 14.36
===================================
The calculation of basic and diluted
earnings per share is based upon:
£'000 £'000 £'000
Earnings for basic and diluted earnings
per share calculations 4,100 3,580 7,557
===================================
No. No. No.
Weighted average number of ordinary
shares for basic earnings 52,275,152 51,229,294 51,385,648
per share
Impact of share options 579,890 938,907 1,227,342
-----------------------------------
Weighted average number of ordinary
shares for diluted earnings 52,855,042 52,168,201 52,612,990
per share
===================================
8. Analysis of Net (Borrowings)/Cash
As at As at As at
31.12.06 31.12.05 30.06.06
£'000 £'000 £'000
Bank loans and overdraft (15,601) (17,750) (17,114)
Finance leases and hire purchase contracts (1,976) (384) (1,545)
Cash and cash equivalents 12,176 7,893 19,738
-----------------------------------
(5,401) (10,241) 1,079
===================================
-12-
Independent review report to Dechra Pharmaceuticals PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 December 2006, 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 notes. 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 that 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 of the Financial Services Authority 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 any
changes, and the reasons for them, are 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 excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) 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 2006.
KPMG Audit Plc
Chartered Accountants
Birmingham
27 February 2007
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