Interim Results

Dechra Pharmaceuticals PLC 02 March 2004 Issued by Citigate Dewe Rogerson, Birmingham Date: Tuesday, 2 March 2004 Embargoed 7.00am Dechra Pharmaceuticals PLC Interim Results for the six months ended 31 December 2003 Manufacturers, distributors and marketers of pharmaceuticals, veterinary equipment and related goods and services 2003 2002 Operating profit (pre-goodwill amortisation & exceptional items) £4.4m £3.9m +14% Operating margin (pre-goodwill amortisation & exceptional items) 4.8% 4.2% +14% Pre-tax profit £3.5m £2.6m +35% Pre-tax profit (pre-goodwill amortisation & exceptional items) £3.8m £3.1m +21% Earnings per Share 4.65p 3.40p +37% Adjusted Earnings per Share (pre-goodwill amortisation & exceptional items) 5.20p 4.29p +21% Interim dividend increased 1.55p 1.37p +13% Strong improvement in NVS operating margin Arnolds pharmaceutical sales increased 16% Significant improvement within manufacturing activities Laboratory Services continue to perform well Significant progress and investment being made in Product Development and Licensing 'The on-going initiatives originally instigated in the second half of our last financial year and the developments made subsequently have had a positive impact on the Group's overall performance, as reflected in these interim results. The first half performance has been encouraging with all divisions ending the period in a stronger position. We are pleased to report that trading in the period since 31 December 2003 has continued in line with our expectations and key product development projects remain on track. We look forward to reporting a solid full year result.' Ian Page, Chief Executive FULL STATEMENT ATTACHED Enquiries: Ian Page, Chief Executive 07775 642222 (IP) Simon Evans, Group Finance Director 07775 642220 (SE) Fiona Tooley/Katie Dale Dechra(R) Pharmaceuticals PLC Citigate Dewe Rogerson Tel: 020 7282 8000 (8.00am to 12.30pm) Today: 020 7282 8000 Tel: 020 7071 4300 (12.30pm to 2.30pm) 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 2003 INTRODUCTION The on-going initiatives originally instigated in the second half of our last financial year and the developments made subsequently have had a positive impact on the Group's overall performance, as reflected in these interim results. We remain focused on further improving operational efficiencies, increasing margins and developing new services throughout the Group whilst continuing to identify, develop and deliver opportunities that will allow us to extend our pharmaceutical development and distribution programme both in the UK and internationally. FINANCIAL HIGHLIGHTS Operating profit (pre-goodwill amortisation and exceptional items) rose 14% to £4.4 million (2002: £3.9 million), on turnover which remained flat at £92.4 million (2002: £92.4 million). Pre-tax profit (pre-goodwill amortisation and exceptional items) rose 21% to £3.8 million (2002: £3.1 million). Adjusted earnings per share on the same basis also rose 21% to 5.20 pence (2002: 4.29 pence). Net debt at £17.3 million reduced from £19.3 million as at 31 December 2002. Interest cover remains strong at 7.2 times operating profit (pre-goodwill amortisation and exceptional items). Dividend The Board is declaring an increase of 13% in the interim dividend to 1.55 pence (2002: 1.37 pence), which will be paid on 7 April 2004 to shareholders on the Register as at 12 March 2004. This dividend is covered 3 times by earnings. REVIEW Product Development and Licensing The development of the Group's veterinary licensed pharmaceutical portfolio remains fundamental to the strategic development and growth of our business. As shareholders are aware, the lead time from development, through regulatory approval to distribution of specialist pharmaceuticals can take several years. However, the Group has made significant progress towards delivering new licensed products. As reported in May 2003, the Group secured the North American product development and marketing rights for our proprietary pharmaceutical Vetoryl(R). Satisfactory progress is being made in the licence submission for US approval. In December 2003, the Group signed a five-year European marketing agreement with Janssen Animal Health, a division of Johnson & Johnson, for the marketing and distribution rights in mainland Europe for our successful products, Vetoryl(R) and Felimazole(R). Licence submissions are expected to be made within the current calendar year. The North American and European regions offer significant market potential for our successful specialist companion animal pharmaceuticals. There are also currently two licence submissions pending approval for the UK market with a third submission due to be made shortly. The above activities are reflected in a further 22% rise in product development expenditure during the period to £0.5 million. continued... -3- Distribution and Services Although our core distribution market continued to be challenging, National Veterinary Services ('NVS') still remains the market leader with a market share of 42%. The improvement in margins seen during the second half of the previous financial year have continued and NVS's added-value services have performed well. During the period NVS completed the planned extension of its semi-automated picking system, which now includes an automatic weight checking system. This will enable us to deliver more accurately to our customers, as well as contributing to further improvements in our operational efficiencies. Sales & Marketing Arnolds' result reflects the progress made in increasing sales of our own specialist licensed veterinary pharmaceuticals in the UK. The Arnolds traditional instrument and consumables business was impacted by a number of competitive issues and grey market imports. However, the agency agreements continue to deliver satisfactory returns. Pharmaceutical Manufacturing Following a demanding year in 2003, Dales Pharmaceuticals experienced a difficult start to the new financial year. However, we are pleased to report that this business has consistently been trading profitably with the second quarter showing significant improvements over the first quarter. The business has retained key customers and secured a number of new contracts; the order book remains strong. Laboratory Services Our clinical and diagnostic pathology laboratories, NationWide and Cambridge have once again produced an encouraging performance with results ahead of last year. As well as benefiting from leads generated through the NVS network, NationWide and Cambridge are actively pursuing new product and service opportunities. PEOPLE We have recruited a number of personnel across the Group including two new divisional Finance Directors to support our growing businesses and a highly experienced Quality Director who joins our pharmaceutical manufacturing operation. The Board is also pleased to announce the promotion of Giles Coley from Sales Director to Managing Director of Arnolds Veterinary Products. Giles' appointment allows Ed Torr to focus on his Main Board responsibilities, specifically on the strategic development of the Group's licensed veterinary pharmaceutical portfolio in key international territories. At the Annual General Meeting on 23 October 2003, shareholders approved a new long term incentive plan for Senior Executives, the performance criteria being based on total shareholder return benchmarked against the Small Cap Index. In accordance with best practice, a provision of £108,000 has been made in these results (2002: £nil) towards the costs of potential share issues under the plan. CURRENT TRADING AND PROSPECTS The first half performance has been encouraging with all divisions ending the period in a stronger position. We are pleased to report that trading in the period since 31 December 2003 has continued in line with our expectations and key product development projects remain on track. We look forward to reporting a solid full year result. 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 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Turnover 92,412 92,387 179,309 Cost of sales (80,080) (81,223) (156,319) -------- --------- --------- Gross profit 12,332 11,164 22,990 Other operating expenses (8,194) (7,832) (15,889) -------- --------- --------- Operating profit 4,138 3,332 7,101 -------------------------------------------------------------------------------- Operating profit before exceptional items and 4,419 3,870 8,162 goodwill amortisation Exceptional items 1 - (274) (500) Goodwill amortisation (281) (264) (561) -------- --------- --------- Operating profit 4,138 3,332 7,101 -------------------------------------------------------------------------------- Net interest payable (611) (727) (1,416) -------- --------- --------- Profit on ordinary activities before 3,527 2,605 5,685 taxation -------------------------------------------------------------------------------- Profit on ordinary activities before 3,808 3,143 6,746 taxation, exceptional items and goodwill amortisation Exceptional items - (274) (500) Goodwill amortisation (281) (264) (561) -------- --------- --------- Profit on ordinary activities before 3,527 2,605 5,685 taxation -------------------------------------------------------------------------------- Tax on profit on ordinary 2 (1,159) (872) (1,852) activities -------- --------- --------- Profit on ordinary activities after taxation 2,368 1,733 3,833 Dividend 3 (790) (691) (2,093) -------- --------- --------- Retained profit for the period 1,578 1,042 1,740 ======== ========= ========= Earnings per ordinary share - Basic 4 4.65p 3.40p 7.52p ======== ========= ========= - Adjusted 4 5.20p 4.29p 9.39p ======== ========= ========= Diluted - Basic 4 4.58p 3.40p 7.50p ======== ========= ========= - Adjusted 4 5.12p 4.29p 9.36p ======== ========= ========= -5- Dechra Pharmaceuticals PLC Interim Results CONSOLIDATED BALANCE SHEET (Summary) Note As at As at 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Fixed assets Intangible fixed assets 5,454 5,175 5,730 Tangible fixed assets 5,382 6,180 5,572 -------- --------- -------- 10,836 11,355 11,302 Current assets Stocks 26,040 21,009 17,296 Debtors 28,970 26,674 28,001 -------- --------- -------- 55,010 47,683 45,297 Creditors: amounts falling due within one year Bank loans and overdraft (11,489) (12,650) (7,652) Other creditors (39,589) (33,141) (34,768) -------- --------- -------- (51,078) (45,791) (42,420) -------- --------- -------- Net current assets 3,932 1,892 2,877 -------- --------- -------- Total assets less current 14,768 13,247 14,179 liabilities Creditors: amounts falling due after (5,719) (6,475) (6,708) more than one year -------- --------- -------- Net assets 9,049 6,772 7,471 ======== ========= ======== Capital and reserves Called-up share capital 510 504 510 Share premium account 26,783 26,783 26,783 Shares to be issued - 731 - Merger reserve 1,720 994 1,720 Profit and loss account (19,964) (22,240) (21,542) -------- --------- -------- Equity shareholders' funds 5 9,049 6,772 7,471 ======== ========= ======== -6- Dechra Pharmaceuticals PLC Interim Results CONSOLIDATED CASH FLOW STATEMENT (Summary) Note Six Months Ended Year Ended 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Net cash flow from operating activities 6 688 (1,147) 6,542 Returns on investments and servicing (563) (698) (1,384) of finance Taxation (699) (1,004) (2,066) Capital expenditure and financial investment (304) (267) (1,224) Acquisitions and disposals - - 32 Equity dividends paid (1,402) (1,387) (2,078) --------- --------- --------- Cash outflow before financing (2,280) (4,503) (178) Financing: Loans repaid (1,477) (1,864) (2,842) Capital element of finance lease payments (80) (445) (568) --------- --------- --------- (1,557) (2,309) (3,410) --------- --------- --------- Decrease in cash in the period (3,837) (6,812) (3,588) ========= ========= ========= Reconciliation of net cash flow to movement in net debt Six Months Ended Year Ended 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Decrease in cash in the period (3,837) (6,812) (3,588) --------- --------- --------- Cash outflow from change in debt and lease 1,557 2,309 3,410 financing --------- --------- --------- Change in net debt arising from cash flows (2,280) (4,503) (178) New finance leases - (75) (75) Other non-cash changes (40) (6) (7) --------- --------- --------- Movement in net debt in period (2,320) (4,584) (260) Net debt at start of period (14,988) (14,728) (14,728) --------- --------- --------- Net debt at end of period 7 (17,308) (19,312) (14,988) ========= ========= ========= -7- Dechra Pharmaceuticals PLC Interim Results NOTES 1. Exceptional Items Six Months Ended Year Ended 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Reorganisation and rationalisation costs - 274 500 ========= ========= ========== The reorganisation and rationalisation costs related to the integration of the Group's manufacturing operations into a single site at Skipton, together with the costs of reorganising 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 32.9% (2002: 33.5%). 3. Dividend An interim dividend of 1.55p per share (2002: 1.37p) costing £790,000 (2002: £691,000) has been declared. It is payable on 7 April 2004 to shareholders whose names are on the Register of Members at close of business on 12 March 2004. The ordinary shares will become ex-dividend on 10 March 2004. 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 31.12.2003 31.12.2002 30.06.2003 Pence Pence Pence Basic earnings per share after exceptional items and goodwill amortisation 4.65 3.40 7.52 Effect of exceptional items and goodwill amortisation 0.55 0.89 1.87 --------- --------- --------- Adjusted earnings per share 5.20 4.29 9.39 --------- --------- --------- Diluted earnings per share after exceptional items and goodwill amortisation 4.58 3.40 7.50 Effect of exceptional items and goodwill amortisation 0.54 0.89 1.86 --------- --------- --------- Adjusted diluted earnings per share 5.12 4.29 9.36 --------- --------- --------- The calculation of basic and diluted earnings per share is based upon: £'000 £'000 £'000 Earnings for basic and diluted earnings per share calculations 2,368 1,733 3,833 Exceptional items and goodwill amortisation 281 456 953 --------- --------- --------- Earnings for adjusted and adjusted diluted earnings per 2,649 2,189 4,786 share --------- --------- --------- No. No. No. Weighted average number of ordinary shares for basic and adjusted earnings per share 50,975,037 50,975,037 50,975,037 Impact of share options 781,140 - 164,117 --------- --------- --------- Weighted average number of ordinary shares for diluted and adjusted diluted earnings per share 51,756,177 50,975,037 51,139,154 --------- --------- --------- 5. Reconciliation of movements in shareholders' funds: Six Months Ended Year Ended 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Profit for the financial period 2,368 1,733 3,833 Dividends (790) (691) (2,093) New shares issued - - 732 Reduction in shares to be issued - (19) (750) -------- -------- --------- Net addition to shareholders' funds 1,578 1,023 1,722 Opening shareholders' funds 7,471 5,749 5,749 -------- -------- --------- Closing shareholders' funds 9,049 6,772 7,471 ======== ======== ========= continued... -9- 6. Reconciliation of operating profit to operating cash flows: Six Months Ended Year Ended 31.12.2003 31.12.2002 30.6.2003 £'000 £'000 £'000 Operating profit 4,138 3,332 7,101 Depreciation and amortisation 773 921 1,809 Loss/(profit) on sale of tangible fixed assets 8 (14) (100) (Increase)/decrease in stocks (8,744) (1,942) 1,698 Increase in debtors (975) (852) (2,197) Increase/(decrease) in creditors 5,488 (2,592) (1,769) --------- --------- --------- Net cash flow from operating activities 688 (1,147) 6,542 ========= ========= ========= 7. Analysis of net debt As at As at As at 31.12.2003 31.12.2002 30.06.2003 £'000 £'000 £'000 Bank loans and overdrafts 17,191 18,492 14,291 Finance leases and hire purchase contracts 117 320 197 Unsecured loan stock - 500 500 --------- --------- --------- 17,308 19,312 14,988 --------- --------- --------- 8. Basis of preparation The interim financial information has been prepared on the basis of the accounting policies set out in the 2003 Annual Report and Accounts and was approved by the Board of Directors on 2 March 2004. 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 2003 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 2003 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 -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 2003. KPMG Audit Plc Chartered Accountants Birmingham 2 March 2004 This information is provided by RNS The company news service from the London Stock Exchange

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