Dechra Pharmaceuticals PLC — Earnings Release 2013

Sep 3, 2013

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RNS Number : 0582N

Dechra Pharmaceuticals PLC

03 September 2013

Dechra Pharmaceuticals PLC

("Dechra" or the "Group")

Preliminary Results Announcement

Date: Tuesday, 3 September 2013

International veterinary pharmaceuticals business, Dechra, issues its audited preliminary results.

"Developing, Focusing, Delivering:

Creating a specialist veterinary pharmaceuticals business"

"Strategically it has been a momentous year with the successful integration of Eurovet, acquired in May 2012, and with the transformational effect of the £87.5 million divestment of the Services businesses.  Dechra is now entirely focused on developing, manufacturing and marketing high margin, cash generative specialist veterinary pharmaceuticals and related products for global markets."

Ian Page, Chief Executive Officer

Highlights:

·      Creation of a pure play pharmaceuticals business

·      Eurovetsuccessfully integrated and expected synergies realised

·      Divestment of the Services Segment completed on 16 August 2013, generating proceeds of £87.5 million. Net cash position after receipt of the proceeds is circa £7.0 million

·      Underlying diluted EPS for continuing operations at 29.07 pence, growth of 42.2% versus last year (at constant exchange rate)

·      Profit before tax on continuing operations up by 59.7% (at constant exchange rate) benefiting from a full year of Eurovet and a solid core performance

·      Group revenue on continuing operations up by 56.6% (at constant exchange rate) despite slow trading in the third quarter and third party supply issues in the US

·      Focus therapeutic areas in companion animal products grew by 11.2% (at constant exchange rate)

·      Increased investment in Research and Development to support the product pipeline and enlarged Group post-Eurovet acquisition

·      Dividend per share up 14.1% to 14.00 pence

Financial Summary

Key underlying financials	2013			2012			Continuing operations
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total	Reported results	Constant currency
	£'m	£'m	£'m	£'m	£'m	£'m
Revenue	189.2	333.2	522.4	124.3	315.7	440.0	+52.2%	+56.6%
Underlying profit before tax	33.5	11.1	44.6	21.8	11.1	32.9	+53.7%	+59.7%
Underlying EBITDA	42.8	11.8	54.6	28.4	11.3	39.7	+51.0%	+55.6%
Underlying diluted EPS (pence)	29.07	9.64	38.71	21.28	10.99	32.27	+36.6%	+42.2%

Delivering Growth in Our Focus Therapeutic Areas in Europe

Our European Pharmaceuticals Segment continues to show progress and achieved sales of £168.7 million, an increase of 66.3% (at constant exchange rates ("CER")) over the previous year. On a like-for-like basis, adjusting 2012 to include a full year of Eurovet® revenue, growth is 5%, despite having been affected by slow trading in the third quarter due to bad weather, as previously reported. Importantly, on a like-for-like basis all key therapeutic areas delivered a good performance:

·      Our focus companion animal products portfolio performed very well, increasing by 18.4% (at CER), with our key products Vetoryl®, Felimazole®  and Cardisure® delivering double digit revenue growth.

·      Despite a challenging environment for our food producing animal products, caused principally by pressure to reduce antimicrobials usage due to concerns over increasing resistance, we saw modest sales growth of our key water soluble antibiotics. Total sales for key products in this category remained flat due to competition issues on Cyclospray® (an aerosol for cattle foot rot).

·      Diets grew by 2.6% (at CER) driven by the relaunch of our new wet diet presentation and a new intensive support diet for animals post-surgery.

The results reflect the successful integration of Eurovet. This acquisition has met our expectations, expanding our geographical footprint in Europe, adding complementary products to our companion animal product portfolio, providing an entrance into the food producing animal market and increasing our manufacturing capabilities.

Operating profit for the European Pharmaceuticals Segment increased to £45.8 million from £28.9 million in the prior year.

Strong US Core Performance

Revenues in the US totalled £20.5 million, growth of 4.7% (at CER) compared to the prior year. Third party supply issues on our ophthalmic and dermatology ranges hampered the US performance,  as previously described in our trading update on 10 July 2013. However, adjusting for these unexpected circumstances, the core sales growth was 10.3% (at CER) with Vetoryl continuing to grow at 11.6% and Felimazole at 16.3%.

During the year, Dechra Veterinary Products US continued to invest in and build its sales team in order to reinforce its marketing activities and further strengthen relationships with veterinarians. As a result the operating profit for this Segment was slightly down at £5.6 million compared to £5.9 million in 2012.

Strategic Divestment of the Services Segment

The divestment of our Services Segment, completed post year end on 16 August 2013, represents a further step in the Board strategy to create a focused pure play specialist veterinary pharmaceuticals business. The Board believes that the Pharmaceuticals businesses are higher margin, cash generative businesses, operating in a global market with attractive long term growth prospects.

The net proceeds of the disposal will be used initially to reduce the Group's debt but provides the Group with additional resources to continue its development, both organically and through strategic acquisitions.

Increased Investment in Research and Development ("R&D")

In 2013 our Development and Regulatory team achieved approvals for:

·      three new products;

·      three line extensions; and

·      three existing products licensed into new territories.

At the same time, development of our novel and generic products continued; four projects have now reached the clinical phase of development. We will also file imminently in the UK and the US for a new equine product.

As a specialist veterinary pharmaceuticals business, the Board has decided to increase the Group's focus and investment in R&D as a key driver of future growth and profitability.

Net Debt

As expected our net borrowing position at the end of the financial year improved compared to 2012, reducing from £86.7m to £80.8m.

Dividend

Subject to Shareholder approval at the forthcoming Annual General Meeting on 17 October 2013, the Board is proposing a final dividend of 9.66 pence per share, reflecting underlying EPS growth, and bringing the total dividend per share to 14.00 pence for the financial year ended 2013. The proposed final dividend shall be paid on 22 November 2013 to Shareholders on the Register at 8 November 2013.  The shares will become ex-dividend on 6 November 2013.

Prospects

Summarising the year, Mike Redmond, Non-Executive Chairman commented "This has been a transformational year for Dechra. The disposal of the Services Segment represents a major step forward in the Board's strategy to create a specialist veterinary pharmaceuticals business. We expect the quality of the Group's business and its prospects to be enhanced as a result of the disposal."

The divestment will enable management to focus exclusively on the areas of the business with the strongest margin, cash conversion and growth prospects. We intend to increase our focus on and investment in Research and Development to ensure the value of our pipeline is delivered and we continue to assess selective, strategic acquisitions which would add new products or geographies.

We will continue to refine our strategy for the continuing Group in the next financial year. The Board remains committed to building a cash generative specialist veterinary pharmaceuticals business which will:

·      expand our geographical footprint;

·      maximise opportunities with our existing products; and

·      advance and deliver our promising product pipeline.

Current trading is ahead of last year and in line with management's expectations. The Board is confident that the Group will continue to perform well despite a challenging environment and that our strategy will deliver enhanced Shareholder value.

Enquiries:
Ian Page, Chief Executive Officer	Fiona Tooley, Director
Anne-Francoise Nesmes, Chief Financial Officer	TooleyStreet Communications
Dechra Pharmaceuticals PLC	Telephone: +44 (0) 121 309 0099
Telephone: + 44 (0) 1606 814730	Mobile: +44 (0) 778 570 3523 (FT)
Mobile: +44 (0) 777 564 2222 (IP)
Mobile: +44 (0) 784 176 4864 (AFN)
www.dechra.com	Ticker: Full Listing (Pharmaceuticals): DPH

Results Briefing today: A presentation of the Annual Result's will be held today at 9.30 am at the offices of Investec. Room 9/10. Dial in: Ref: Dechra - UK local 020 3003 2666 or UK Freephone 0808 109 0700; international details on request: For assistance please contact Fiona Tooley on +44(0)7785 703523 or at Investec on +44 (0) 020 7597 5970.

Forward-Looking Statements

This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company during the preparation and up to the publication of this document.  By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty.  Therefore, nothing in this document should be construed as a profit forecast by the Company.

About Dechra

Dechra is an international specialist veterinary pharmaceuticals business. Its expertise is in the development, manufacturing and sales and marketing of high quality products exclusively for veterinarians worldwide. Dechra's business is unique as the majority of its products are used to treat medical conditions for which there is no other effective solution or have a clinical or dosing advantage over competitor products.  For more information please visit: www.dechra.com.

Trademarks

Trademarks appear throughout this document in italics.  Dechra and the Dechra 'D' logo are registered Trademarks of Dechra Pharmaceuticals PLC. The Malaseb Trademark is used under licence from Dermcare-Vet Pty. Ltd.

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2013

REVIEW BY THE CHIEF EXECUTIVE OFFICER, IAN PAGE

Introduction

Strategically it has been a momentous year with the successful integration of Eurovet, acquired in May 2012, and with the transformational effect of the divestment of the Services businesses.  Dechra is now entirely focused on developing, manufacturing and marketing high margin, cash generative veterinary pharmaceuticals and related products across global markets.  From a trading perspective, a strong first half performance was partially offset by a poor third quarter, impacted by adverse weather and ongoing third party supply problems within the US.  However, trading remained robust, with our key branded in-house manufactured products performing strongly.

The acquisition of Eurovet has fulfilled our expectations.  It has expanded our geographical coverage, especially in Germany; enhanced our manufacturing capabilities; added complementary products to our companion animal portfolio and provided an entrance into food producing animal pharmaceuticals.  The food producing animal sector is particularly important as we look at opportunities to extend internationally. The companion animal market is not sufficient in scale in many countries outside of the EU and North America to merit our own presence solely with our current specialist product portfolio.  Furthermore, the ever increasing demand for high quality meat protein from emerging markets is creating a strong global livestock market.  Further details of the Eurovet integration are provided within the EU Pharmaceuticals Segment review.

The sale of the Services businesses, National Veterinary Services ("NVS®") and the Laboratories, is a significant step forward in our clearly defined strategic objective of developing an international specialist veterinary pharmaceuticals business.  Historically, the strong cash generation of NVS has helped to fund the growth of the Pharmaceuticals Segments.  However, as the years have progressed, the Pharmaceuticals Segments have gained sufficient critical mass to fund their own development and the Services businesses became strategically less and less relevant year on year.  The businesses have been sold to Patterson Companies, Inc. for £87.5 million on a debt free, cash free basis. The Board believes this is a fair valuation for businesses that have experienced increasing margin pressure over recent years as the customer base consolidates with the growth of corporate veterinary practice groups.  We also recognise that Patterson is an ideal company to secure the future of the staff and take the businesses forward. 

Product Development

The product development pipeline continues to deliver

1.   new products for global markets:

•      Methoxasol®, an antimicrobial for swine and poultry has been approved in the EU;

•      Buprenodale®, a multi-dose small animal analgesic, has received authorisation throughout the EU; and

•      Anesketin, a generic companion animal sedative, has been approved in seven EU countries.

2.   line extensions:

•      Soludox®, our water soluble antibiotic for swine and poultry, has a new indication for turkeys in the EU;

•      Felimazole 1.25mg, a new low dose strength to increase dosing options has been approved throughout the EU; and

•     Comfortan®, a companion animal analgesic has received an extension to its approval for use in cats.

3.   registrations in new territories:

·        Libromide®, used in the treatment of canine epilepsy, has had its EU registration extended into France, Austria, Portugal and Switzerland;

·        Felimazole, for feline hyperthyroidism, has been approved in Australia; and

·        Vetoryl, for the treatment of canine Cushing's syndrome, has been approved in South Korea, Brazil and New Zealand;

The Methoxasol and Soludox registrations extend our portfolio of large animal antimicrobial products which will provide new opportunities in this competitive market.  The Comfortan, Buprenodale and Anesketin approvals give us the widest and most complete range of analgesics and sedatives of any animal health company within the EU.  This further strengthens our position as a market leader in critical care.  The Felimazole 1.25mg registration increases dosing options which allows veterinarians to better manage feline hyperthyroidism where each cat requires its own specific dosing regime.  The introduction also further differentiates us from a generic version of the drug which has recently been launched in a number of EU territories.

There has been material progress on our novel product pipeline.  We have previously reported that the first major product launch, an equine lameness product, to be branded Osphos®, had experienced delays due to an enforced change to a new third party manufacturer.  We anticipate making a submission for registration of this product in the UK, Canada and Australia imminently. As the horse, in the majority of the EU, is classed as a food producing species we are currently conducting work to establish a maximum residue level ("MRL") prior to submission for approval throughout the rest of Europe. In the US the product already has complete safety and efficacy sections from the FDA.  The Chemistry and Manufacturing Controls ("CMC") section, the final requirement for the US submission, is dependent upon a successful FDA inspection of the third party manufacturing site. 

A second major product, for a canine endocrine disorder, was originally intended to be manufactured by a third party.  However, following ongoing external supply problems and the successful FDA approval of our own site in Skipton for solid oral dosage forms, a strategic decision was made to invest in manufacturing in-house wherever possible.  The necessary equipment has been acquired and validated at our Skipton site and the pilot batch has been manufactured.  The clinical trial is at an advanced stage with all the dogs now enrolled and initial results are very positive.

There are an additional six novel products in the development pipeline, three of which have long term patent protection: four novel products are for the global market and two are targeted specifically at the EU.  There are also three major differentiated generic products for food producing animals under development. A potential twelfth product is at an advanced stage of assessment for inclusion in the programme.

We anticipate a further two clinical trials to commence within the new calendar year.

In addition to the novel products in development we have several generics, territory expansion and range extending products in development.  Furthermore, we have a number of exploratory ideas to pursue.

Product Pipeline

Our product pipeline is critical to our future success. Our novel and generics projects are very diverse, with the majority building on our key therapy areas. We invest when we can identify growth opportunities with a clear financial return focusing on novel therapies to treat unmet needs with intellectual property protection. Our approach ensures we create sustainable growth throughout our targeted global markets.

Low Risk Strategy

There are various stage gates throughout the life of a development project where progress is reviewed and decisions are taken on whether to continue or not. Development is inherently risky and our stepped approach mitigates the risk of a costly failure.

Wide Range of Projects

In addition to the projects shown below, there are several other exploratory projects, line extensions, territory expansions and life cycle management projects. There is also an ongoing programme that renews and redevelops the Specific range of pet diets.

Key Projects

Therapeutic Category	Species	Territory	Manufacturing	Pre-clinical	Clinical	File	First Expected Launch
Endocrinology	Dogs	International	In-house		•		2015
Endocrinology	Cats	International	Outsourced		•		2017
Endocrinology	Dogs	EU	Outsourced			•	2014 (UK) /2016 (EU)
Equine	Horses	International	Outsourced		•	•	2014 (UK)
Dermatology	Dogs	International	In-house	•			2017
Dermatology	Dogs	International	In-house	•			2017
Ophthalmology	Dogs	International	Outsourced	•			2017/2018
Cardiovascular	Dogs	EU	In-house	•			2017
Antimicrobials	Cattle	EU	In-house		•		2016
Antimicrobials	Several	EU	In-house			•	2015
Antimicrobials	Poultry	EU	In-house			•	2016

Future Value

The expected revenue from these projects at peak is estimated to be circa £35 million. It takes approximately four to five years after launch for a product to reach peak sales.

European Pharmaceuticals

Revenue from this Segment increased by 61.0% (66.3% at constant currency) compared to last year.  On a like-for-like basis, including the contribution from the Eurovet business, revenue grew by approximately 5%.

DVP EU

The initial objectives of the integration of Eurovet have been achieved within the year:

·      Closure and restructuring of duplicate sales and marketing offices and teams in the UK, Benelux and Denmark;

·      Dechra products launched in Germany through the newly acquired subsidiary with a smooth transition and retention of market share following the termination of the prior distribution agreement;

·      The majority of the Eurovet companion animal products have been transferred to Dechra's own sales organisation in France;

·      Eurovet's major swine and poultry products have been launched for the first time in France;

·      All Eurovet products have been transitioned ready for launch into Norway, Finland and Sweden in the first quarter of the new financial year;

·      Manufacturing rationalisation is under way, further details of which are provided later in this report; and

·      Management teams have been successfully integrated creating a new operating board.

This first phase of integration has progressed in line with our strategy and is delivering the expected cost and revenue synergies.

Despite a very slow third quarter following the prolonged bad winter weather, pharmaceutical sales for the full year increased by approximately 5% on a comparable basis.  There were big variations in performance on a territory by territory basis with the UK, France, Germany and Iberia performing well, and the Netherlands and Nordics underperforming.  The underlying performance of our key strategic licensed veterinary products was robust.  Our own branded pharmaceuticals grew by 5.1% at constant currency; growth was delivered across all key therapeutic sectors.  Food producing animal antibiotic usage remains under review in a number of EU markets due to concerns regarding antimicrobial resistance; however, we still saw overall growth in this sector in all markets other than Belgium and the Netherlands.  Our Specific® pet diets grew by 2.6% at constant currency; this growth was assisted by the relaunch of a new presentation of our wet diet range and also by the introduction of a new intensive support diet for animals in rehabilitation post-surgery.

As the enlarged product portfolio now has three areas of focus, food producing animal products, companion animal products and companion animal diets, a new strategy has been developed to give the sales and marketing teams across Europe clear direction.  Our key therapeutic areas, where Dechra has a substantial market position, a strong reputation and an in-depth knowledge and expertise have been better defined and prioritised.  Clear focus on these therapeutic sectors will allow us to target our marketing support and provide sales team prioritisation and also provide a structure to support key pipeline products which fit into these therapeutic segments.  Two distinct marketing teams have been created, one focusing on food producing animal and equine products, the other on companion animal products and diets.  We are already seeing the benefits of improving the alignment of diets with companion animal pharmaceuticals. Our allergy diet range was promoted as part of a dermatological campaign, one of our key therapeutic categories, which resulted in strong sales growth. Furthermore, a key account management structure has been implemented to focus on swine, poultry and equine as the veterinarians within these sectors have become very specialised and work increasingly in a concentrated number of practices.

Manufacturing

Following the Eurovet acquisition our manufacturing sites were rebranded as Dechra Pharmaceuticals Manufacturing.  After a detailed review of our capabilities following this acquisition, it was decided to close the manufacturing facility in Uldum, Denmark.  This site only produced two major prescription products which have now been successfully transferred into Skipton.  The care range of unlicensed products, previously manufactured at the site, are now being outsourced to a third party supplier.  This site will be closed prior to the end of the 2013 calendar year. We are also in the process of transferring two Eurovet products, which were previously manufactured by a third party, into the Skipton tableting facility.  Once the transfer of these products is complete, the full manufacturing synergies identified prior to the acquisition will be delivered.  The manufacturing management teams of both businesses have been fully integrated and programmes to standardise IT systems and GMP compliance systems are progressing well.  Further efficiencies are also being delivered; significant yield improvements have been achieved and batch failure rates have halved.  Furthermore, there has been a year on year improvement in accident rates with no reported RIDDORs in the last 12 months.

Third party contract manufacturing continues to perform strongly with an increase in external sales of 12.5% at constant currency year on year.  We continue to have a high level of new external contract manufacturing business enquiries.

US Pharmaceuticals

Revenue from this Segment delivered growth of 4.7% in the year, hampered by third party supply issues with the ophthalmic and dermatological ranges.  Third party supply problems from our leading dermatological product, Animax, persisted throughout the year and an enforced change to a new API supplier resulted in a complete out of stock situation.  Every effort is being made by our supplier to produce the validation batches required to submit a variation for the change in API supplier.  It is possible that the product could be back in production for the end of our current financial year.  As the product is clinically unique it is considered that we should be able to recover the majority of historic sales once Animax becomes available again.

We had also anticipated that at least one of our licensed veterinary ophthalmic products would have been back in production within the financial year being reported.  However, the review period by the FDA was longer than expected and we still await approval for the change in manufacturer.  If we are successful in this first round review by the FDA, products should be available for marketing within the first half of the financial year ending June 2014.  If a second round review is required, the relaunch will be extended into the third or fourth quarter.

The underlying performance within the US remains strong with our key products, Vetoryl and Felimazole, growing by 11.6% and 16.3% respectively.  We continue to increase our reputation in the US with an ongoing educational programme on the conditions which our key products treat; within the year we held almost 100 meetings with over 3,300 veterinarians in attendance.  We have continued to strengthen our sales team and have also appointed a new director of marketing, Nancy Zimmerman, who is already having a positive impact.

In December 2012 we completed an agreement to in-license three new companion animal products: A-Cyst, Polyglycan SA and PolyChews.  None of these products will make a material impact; however, they complement our existing range of specialist companion animal products and will make a contribution to the growth of our US business. Development continues on the new in-licensed generic product outlined in the Half Yearly Report. Following an initial review by the FDA, it is unlikely this product will receive registration in the 2013/2014 financial year.

Information Technology

Following the appointment of a new Group IT Director on 2 April 2012 a new Group IT strategy has been defined and implemented.  The essence of the proposed strategy, which commenced in August 2012, is to standardise applications and hardware across the Group and to implement a network and infrastructure to support the implementation of the Oracle ERP project.  The second phase of the Oracle implementation is progressing well with Bladel manufacturing expected to go live in the second quarter of the new financial year.  Future roll outs will include our European and US subsidiaries as well as Group consolidation.

People

Anne-Francoise Nesmes was appointed to the Board as Chief Financial Officer on 22 April 2013.  She joined the Group and the Board from GlaxoSmithKline PLC ("GSK").  Anne-Francoise is a high calibre finance professional with international pharmaceutical, manufacturing and commercial experience.

Tony Griffin, formerly Chief Executive Officer of the AUV Group, was appointed as a Director of Dechra on 1 November 2012.  Tony has played a key role in the integration of the Eurovet business into Dechra.  In addition to his PLC Board responsibilities Tony's principal responsibility is his role as the Managing Director of Dechra Veterinary Products Europe ("DVP EU").

Two new independent Non-Executive Directors were also appointed to the Board.  Julian Heslop commenced his role on 1 January 2013 and Ishbel Macpherson on 1 February 2013.  Julian served as Chief Financial Officer of GSK between 2005 and 2011, having previously held senior roles in both GSK and Grand Metropolitan PLC.  Ishbel currently holds a number of Non-Executive roles and has previously had 20 years' experience as an investment banker specialising in mid-market corporate finance.

Neil Warner has confirmed his intention to stand down as a Non-Executive Director at the forthcoming Annual General Meeting.  I would like to take this opportunity to thank Neil for his commitment  to Dechra over the past ten years and wish him well in his future.  Neil is also our Senior Independent Director and Chairman of the Audit Committee.  On his retirement from the Board Ishbel Macpherson will be appointed as the Senior Independent Director and Julian Heslop as the Chairman of the Audit Committee.

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2013

FINANCIAL REVIEW BY THE CHIEF FINANCIAL OFFICER, ANNE-FRANCOISE NESMES

"Our divestment from the Services Segment (announced on 10 July 2013) was a logical strategic step following the successful acquisition of Eurovet in May 2012 and our stated objective to deliver a focused veterinary pharmaceuticals business. For the continuing operations in 2013, revenue and profits continued to grow, cash generation from operating activities was strong and investment to fund our advancing R&D pipeline increased."

All numbers are presented on a continuing operations basis for the Pharmaceuticals Segments and 2012 has been restated.  The Services Segment is shown as a discontinued business in both years.  Growth rates are shown on a constant exchange rate basis ("CER") and on a reported basis.

Underlying Financial Results

Underlying results of the Group reflect its trading performance excluding amortisation on acquired intangibles, non-underlying charges and other one-off events that are inherently volatile. Our results, excluding non-underlying items, are summarised below.

	2013			2012			Continuing operations
	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total	Reported results	Constant currency
	£'m	£'m	£'m	£'m	£'m	£'m
Revenue	189.2	333.2	522.4	124.3	315.7	440.0	+52.2%	+56.6%
Gross profit	100.7	29.8	130.5	71.1	28.2	99.3	+41.6%	+45.6%
Gross profit %	53.2%	9.0%	25.0%	57.2%	8.9%	22.6%
Underlying operating profit	39.1	11.1	50.2	25.6	11.1	36.7	+53.1%	+58.2%
Underlying profit before tax	33.5	11.1	44.6	21.8	11.1	32.9	+53.7%	+59.7%
Underlying EBITDA	42.8	11.8	54.6	28.4	11.3	39.7	+51.0%	+55.6%

Revenue

Total Group revenue increased by 56.6% at constant exchange and 52.2% at reported rate compared to the year ended June 2012. The acquisition of Eurovet occurred towards the later part of the 2012 financial year and hence revenue for that period included only five weeks of Eurovet revenue.

1.    Revenue by Segment

As reported, European Pharmaceuticals revenue at £168.7 million grew by 66.3% (CER) as a result of the Eurovet acquisition and a strong performance from our core brands.

Revenue in the US at £20.5 million increased by 4.7% (CER) hampered by third party supply issues, as referred to in the Chief Executive Officer's report. Excluding these issues, revenue increased by approximately 10%.

Revenue	2013	2012	Reported results	Constant currency
	£'m	£'m
European Pharmaceuticals	168.7	104.8	+61.0%	+66.3%
US Pharmaceuticals	20.5	19.5	+4.7%	+4.7%
Total	189.2	124.3	+52.2%	+56.6%

2.    Revenue by Categories

On a like-for-like basis (including Eurovet for 12 months in 2012).

All  franchises reflected growth (at CER) versus 2012:

·              Pharmaceuticals increased by 4.7%

o  The companion animal products grew by 7.8% driven by our key products Vetoryl, Felimazole and Cardisure;

o  The food producing animal products declined by 3.2% due to pressure on antibiotic prescriptions and competition on Cyclospray.

·     Diets delivered growth of 2.6%.

·     Third party manufacturing had a solid performance with 12.5% growth.

Revenue	2013	2012	Reported results	Constant currency
	£'m	£'m
CAP	106.8	101.9	+4.8%	+7.8%
FAP	37.0	39.7	-6.5%	-3.2%
Sub-Total Pharma	143.8	141.6	+1.6%	+4.7%
Diets	27.9	28.1	-0.9%	+2.6%
Third Party Manufacturing	17.5	15.7	+11.5%	+12.5%
Total	189.2	185.4	+2.1%	+5.1%

Gross Profit

Following the Eurovet acquisition, our pharmaceutical product mix has broadened to include generics and food producing animal products.  Consequently, overall gross margins have declined by 4% from 57.2% to 53.2%.

Selling, General and Administrative expenses ("SG&A")

The SG&A increase of £13.8 million year on year reflects the full impact of running a combined operation after realising the expected synergies of the acquisition of Eurovet.

Research and Development Expenses ("R&D")

R&D investment has increased by £2.3 million from £5.7 million to £8.0 million.  This increase reflects not only our enlarged R&D organisation following the Eurovet acquisition but also our additional investment to advance and deliver our promising pipeline.

Discontinued Businesses

Consistent with the Group's long term policy to focus its activities on the manufacture and marketing of specialist veterinary pharmaceutical products, we announced our intention to dispose of the Services Segment on 10 July 2013. The transaction was completed on 16 August 2013 with sales proceeds of £87.5 million.

The disposed businesses have been accounted for as discontinued operations.  Transaction expenses of £1.5 million have been recorded as non-underlying items for the discontinued operations. See note 14.

Total Results and Non-Underlying Items

Including the profit from the discontinued operations and non-underlying items, Group's profit after tax of £17.9 million increased by 60.5% (CER) and 53.4% (at reported rate).

Non-underlying items of £21.1 million for the continuing operations for the year comprised amortisation of acquired intangibles, rationalisation costs following the Eurovet acquisition and the unwinding of discounts on deferred and contingent consideration. Full details are shown in notes 4 and 5.

	2013				2012
	Continuing operations	Discontinued operations	Total		Continuing operations	Discontinued operations	Total		Reported results	Constant currency
	£'m	£'m	£'m		£'m	£'m	£'m
Revenue	189.2	333.2	522.4		124.3	315.7	440.0		+18.7%	+20.0%
Cost of sales	(88.5)	(303.4)	(391.9)		(53.2)	(287.5)	(340.7)		+15.0%	+15.8%
Gross profit	100.7	29.8	130.5		71.1	28.2	99.3		+31.5%	+34.4%
Gross profit  %	53.2%	9.0%	25.0%		57.2%	8.9%	22.6%
Selling, General and Administrative expenses	(53.6)	(18.7)	(72.3)		(39.8)	(17.1)	(56.9)		+27.1%	+29.8%
Research and Development expenses	(8.0)	-	(8.0)		(5.7)	-	(5.7)		+38.8%	+38.9%
Underlying operating profit	39.1	11.1	50.2		25.6	11.1	36.7		+37.3%	+40.8%
Underlying operating profit %	20.7%	3.3%	9.6%		20.5%	3.5%	8.3%
Net finance costs	(5.6)	-	(5.6)		(3.8)	-	(3.8)		+53.0%	+53.5%
Underlying profit before tax	33.5	11.1	44.6		21.8	11.1	32.9		+35.6%	+39.4%
Taxation	(8.0)	(2.7)	(10.7)		(5.8)	(2.9)	(8.7)		+23.4%	+27.0%
Tax rate %	24.1%	23.9%	24.1%		26.5%	25.8%	26.3%
Underlying profit after tax	25.5	8.4	33.9		16.0	8.2	24.2		+40.0%	+43.8%
Non-underlying items	(21.1)	(1.5)	(22.6)		(15.7)	(0.4)	(16.1)		+39.8%	+40.5%
Tax on non-underlying items	6.5	0.1	6.6		3.6	-	3.6		+83.0%	+83.6%
Total non-underlying items	(14.6)	(1.4)	(16.0)		(12.1)	(0.4)	(12.5)		+27.5%	+28.2%
Reported profit for the period	10.9	7.1	17.9		3.9	7.8	11.7		+53.4%	+60.5%
Reported diluted EPS (pence)	12.39	8.06	20.45		5.18	10.42	15.60		+31.1%	+38.0%
Underlying diluted EPS (pence)	29.07	9.64	38.71		21.28	10.99	32.27		+20.0%	+23.6%

Taxation

The underlying tax charge from continuing operations for the year was £8.0 million.  This reflects an effective tax rate of 24.1% compared to 26.5% in 2012.  Our effective rate has reduced in the year as a result of changes to tax rates in both the UK and overseas.

Earnings per Share and Dividends

Underlying diluted EPS for the year for the Group business was 38.71 pence (2012: 32.27 pence). The underlying diluted EPS for the continued operations was 29.07 pence, representing 36.6% growth (at reported rate) over 2012. For clarity, the EPS for the financial year does not reflect any future interest benefits or tax impact as a result of the divestment.

The Board is proposing a final dividend of 9.66 pence per share (2012: 8.50 pence).  Added to the interim dividend of 4.34 pence per share, this brings the total dividend per share for the financial year ended June 2013 to 14.00 pence (2012: total 12.27 pence).  Dividend cover based on underlying earnings was 2.8 times.

Subject to Shareholder approval at the Annual General Meeting to be held on 17 October 2013, the final dividend will be paid on 22 November 2013 to Shareholders on the Register at 8 November 2013.  The shares will become ex-dividend on 6 November 2013.

Cash flow and net debt
	2013		2012
	£'m		£'m
Underlying operating profit	50.2		36.7
Non-underlying items (excluding amortisation on acquired intangibles)	(4.0)		(4.9)
Operating profit before acquired intangibles amortisation	46.2		31.8
Cash generated from operations before tax and interest payments	49.4		29.1
Cash conversion (%)	107.0		91.7

The net cash inflow from the Group's activities increased by £17.7 million (from £19.2 million to £36.9 million) reflecting the impact of our enlarged operations. A strong cash inflow in the second half of the year contributed to the cash conversion of 107.0%. Excluding non-underlying items, cash conversion was 98.4%. Following the divestment, the Group expects a moderate improvement in cash conversion.

The significant transaction to report for investing activities during the period is the further payment of US$16.0 million (£10.0 million) in respect of the acquisition of DermaPet, Inc.

The net borrowing position at the end of the year was £80.8 million down from £86.7 million last year.

At the end of the year, the Group had the following banking facilities;

·      A balance of £50.0 million on the initial £55.0 million term loan repayable in instalments through October 2016. £5.0 million was repaid in the period; and

·      A £65.0 million revolving credit facility until October 2016.

There was substantial headroom on all covenants during the year.

The Group also has an overdraft facility of £10.0 million, none of which was utilised at year end.

Balance Sheet

Net assets at 30 June 2013 totalled £174.6 million, a £20.9 million increase compared to the £153.7 million reported on 30 June 2012.

	2013	2012
		Restated
	£'m	£'m
Assets
Total non-current assets	235.7	237.1
Total current assets (excluding held for sale assets)	89.6	86.9
Assets held for sale	89.8	80.4
Total assets	415.1	404.4
Liabilities
Total current liabilities (excluding held for sale liabilities)	(49.5)	(48.2)
Total non-current liabilities	(137.0)	(147.3)
Liabilities held for sale	(54.0)	(55.2)
Total liabilities	(240.5)	(250.7)
Total net assets	174.6	153.7

Intangibles amount to £219.6 million as at 30 June 2013. There was no significant movement versus 2012 other than the expected amortisation. The strong performance in the underlying trade associated with these intangibles continues to support their carrying value. Details can be found in note 9.

Total working capital for continuing operations was £28.4 million in June 2013 compared to £29.7 million in 2012. This reflects our disciplined management of working capital.

Financial Risks

From a financial perspective we consider several risks, including the following:

·      Our foreign currency exposure: the Group has significant sales in Europe, some revenues in US$ and operations in Danish Krone;

·      Exposure to interest rate changes: the Group has entered into an interest rate swap on the term loan and the revolving credit facility; and

·      Tax to ensure we are compliant across all territories.

Additional considerations are disclosed in note 22 of the 2013 Annual Report.

Events after the Reporting Period

On 16 August 2013, the Group completed the sale of the Services businesses for a consideration of £87.5 million. The completion accounts are yet to be finalised.

Summary

During 2013 we continued to build a focused international specialist veterinary pharmaceuticals business. The divestment of the Services Segment at an attractive valuation strengthens our Balance Sheet giving the Group the opportunity to invest in our pipeline and other value-enhancing opportunities.

Consolidated Income Statement

for the year ended 30 June 2013

		2013			2012 (Restated±)
		Underlying £'000	Non- underlying items* (notes 4 & 5) £'000	Total £'000	Underlying £'000	Non- underlying items* (notes 4 & 5) £'000	Total £'000
	Notes
Revenue	2	189,176	-	189,176	124,330	-	124,330
Cost of sales		(88,470)	-	(88,470)	(53,220)	-	(53,220)
Gross profit		100,706	-	100,706	71,110	-	71,110
Selling , general and administrative expenses		(53,637)	(20,772)	(74,409)	(39,830)	(15,273)	(55,103)
Research and development expenses		(7,961)	-	(7,961)	(5,735)	-	(5,735)
Operating profit	2	39,108	(20,772)	18,336	25,545	(15,273)	10,272
Finance income	3	196	-	196	80	-	80
Finance expense	4	(5,757)	(297)	(6,054)	(3,805)	(435)	(4,240)
Profit before taxation - continuing operations		33,547	(21,069)	12,478	21,820	(15,708)	6,112
Income tax expense	6	(8,083)	6,455	(1,628)	(5,791)	3,584	(2,207)
Profit for the year- continuing operations		25,464	(14,614)	10,850	16,029	(12,124)	3,905
Profit for the year - discontinued operations	14	8,449	(1,386)	7,063	8,273	(429)	7,844
Profit for the year  attributable to owners  of the parent		33,913	(16,000)	17,913	24,302	(12,553)	11,749
Earnings per share
Basic	8			20.59p			15.65p†
-     continuing operations				12.47p			5.20p
-     discontinued operations				8.12p			10.45p
Diluted	8			20.45p			15.60p†
-     continuing operations -     discontinued operations				12.39p 8.06p			5.18p 10.42p
Dividend per share  (interim paid and final  proposed for the year)	7			14.00p			12.27p†

* Non-underlying items comprise amortisation of acquired intangibles, acquisition expenses, rationalisation costs, loss on extinguishment of debt, the unwinding of discounts on deferred and contingent consideration, and expenses related to the disposal of discontinued operations.

† Restated to reflect the impact of the bonus element of the Rights Issue.

± Restated for discontinued operations

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2013

	2013 £'000	2012 £'000
Profit for the year	17,913	11,749
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on defined benefit pension scheme	(772)	-
	(772)	-
Items that may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges	(185)	(419)
Cash flow hedges recycled to income statement	557	429
Foreign currency translation differences for foreign operations	12,789	(8,434)
Income tax relating to components of other comprehensive income	(86)	(2)
	13,075	(8,426)
Total comprehensive income for the period attributable to owners of the parent	30,216	3,323

Consolidated Statement of Financial Position

at 30 June 2013

	Notes	2013 £'000	2012 £'000
ASSETS
Non-current assets
Intangible assets	9	219,596	225,872
Property, plant & equipment		16,074	16,720
Total non-current assets		235,670	242,592
Current assets
Inventories		29,199	57,281
Trade and other receivables		27,682	72,113
Cash and cash equivalents		32,791	32,435
Assets of disposal group held for sale	14	89,784	-
Total current assets		179,456	161,829
Total assets		415,126	404,421
LIABILITIES
Current liabilities
Borrowings	11	(9,750)	(5,106)
Trade and other payables		(28,483)	(79,863)
Deferred and contingent consideration		(957)	(10,337)
Current tax liabilities		(10,368)	(8,155)
Liabilities of disposal group held for sale	14	(53,961)	-
Total current liabilities		(103,519)	(103,461)
Non-current liabilities
Borrowings	11	(103,840)	(114,046)
Deferred and contingent consideration		(4,971)	(3,526)
Employee benefit obligations		(996)	(363)
Deferred tax liabilities	10	(27,184)	(29,343)
Total non-current liabilities		(136,991)	(147,278)
Total liabilities		(240,510)	(250,739)
Net assets		174,616	153,682
EQUITY
Issued share capital		872	869
Share premium account		123,485	122,642
Hedging reserve		-	(286)
Foreign currency translation reserve		9,106	(3,683)
Merger reserve		1,770	1,770
Retained earnings		39,383	32,370
Total equity attributable to equity holders of the parent		174,616	153,682

Consolidated Statement of Changes in Shareholders' Equity

for the year ended 30 June 2013

	Attributable to owners of the parent
Year ended 30 June 2012	Issued Share capital £'000	Share premium account £'000	Hedging reserve £'000	Foreign currency translation reserve £'000		Merger reserve £'000	Retained earnings £'000	Total £'000
At 1 July 2011	664	63,559	(294)		4,751	1,770	27,883	98,333
Profit for the period	-	-	-		-	-	11,749	11,749
Effective portion of changes in fair    value of cash flow hedges, net of tax	-	-	(335)		-	-	-	(335)
Foreign currency translation differences for foreign operations	-	-	-		(8,434)	-	-	(8,434)
Cash flow hedges recycled to income  statement, net of tax	-	-	343		-	-	-	343
Total comprehensive income	-	-	8		(8,434)	-	11,749	3,323
Transactions with owners
Dividends paid	-	-	-		-	-	(8,325)	(8,325)
Share-based payments	-	-	-		-	-	1,063	1,063
Shares issued	205	59,083	-		-	-	-	59,288
Total contributions by and      distributions to owners	205	59,083	-		-	-	(7,262)	52,026
At 30 June 2012	869	122,642	(286)		(3,683)	1,770	32,370	153,682
Year ended 30 June 2013
At 1 July 2012	869	122,642	(286)		(3,683)	1,770	32,370	153,682
Profit for the period	-	-	-		-	-	17,913	17,913
Effective portion of changes in fair value of cash flow hedges, net of tax	-	-	(140)		-	-	-	(140)
Foreign currency translation differences for foreign operations	-	-	-		12,789	-	-	12,789
Actuarial loss on defined benefit   pension scheme	-	-	-		-	-	(772)	(772)
Cash flow hedges recycled to income  statement, net of tax	-	-	426		-	-	-	426
Total comprehensive income	-	-	286		12,789	-	17,141	30,216
Transactions with owners
Dividends paid	-	-	-		-	-	(11,170)	(11,170)
Share-based payments	-	-	-		-	-	1,042	1,042
Shares issued	3	843	-		-	-	-	846
Total contributions by and   distributions to owners	3	843	-		-	-	(10,128)	(9,282)
At 30 June 2013	872	123,485	-		9,106	1,770	39,383	174,616

Hedging Reserve

The hedging reserve represents the cumulative fair value gains or losses on derivative financial instruments for which cash flow hedge accounting has been applied.

Foreign Currency Translation Reserve

The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than Sterling and exchange gains or losses on the translation of liabilities that hedge the Company's net investment in foreign subsidiaries.

Merger Reserve

The merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries where statutory merger relief has been applied in the financial statements of the Parent Company.

Consolidated Statement of Cash Flows

for the year ended 30 June 2013

	Note	2013 £'000	2012 £'000
Cash flows from operating activities
Profit for the period		17,913	11,749
Adjustments for:
Depreciation		2,795	1,584
Amortisation and impairment		19,876	12,762
Loss on disposal of intangible assets		-	47
Loss/(gain) on sale of property, plant and equipment		462	(45)
Expenses related to disposal of discontinued operations, net of tax		1,357	-
Finance income		(196)	(219)
Finance expense		6,054	4,289
Equity settled share-based payment expense		821	1,001
Income tax expense		4,167	5,071
Operating cash flow before changes in working capital		53,249	36,239
Decrease/(Increase) in inventories		1,299	(4,846)
Increase in trade and other receivables		(9,456)	(1,827)
Increase/(Decrease) in trade and other payables		4,302	(438)
Cash generated from operating activities before interest and taxation		49,394	29,128
Interest paid		(4,788)	(2,645)
Income taxes paid		(7,741)	(7,241)
Net cash inflow from operating activities		36,865	19,242
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		11	50
Interest received		74	219
Acquisition of subsidiaries	13	(10,333)	(112,221)
Purchase of property, plant and equipment		(3,665)	(1,645)
Capitalised development expenditure		(1,584)	(447)
Purchase of other intangible non-current assets		(3,871)	(6,300)
Net cash outflow from investing activities		(19,368)	(120,344)
Cash flows from financing activities
Proceeds from the issue of share capital		846	60,575
Share issue expenses		-	(1,287)
New borrowings		-	120,000
Expenses of raising new borrowings		-	(2,600)
Repayment of borrowings		(5,653)	(64,328)
Resetting of foreign currency borrowings		(2,289)	(327)
Dividends paid		(11,170)	(8,325)
Net cash (outflow)/inflow from financing activities		(18,266)	103,708
Net (decrease)/increase in cash and cash equivalents		(769)	2,606
Cash and cash equivalents at start of period		32,435	30,496
Exchange differences on cash and cash equivalents		1,125	(667)
Cash and cash equivalents at end of period		32,791	32,435
Reconciliation of net cash flow to movement in net borrowings
Net (decrease)/increase in cash and cash equivalents		(769)	2,606
Repayment of borrowings		5,653	64,328
New borrowings		-	(120,000)
Expenses of raising new borrowings		-	2,600
New finance leases		(190)	(1,010)
Exchange differences on cash and cash equivalents		1,125	(667)
Retranslation of foreign borrowings		687	(429)
Other non-cash changes		(588)	(54)
Movement in net borrowings in the period		5,918	(52,626)
Net borrowings at start of period		(86,717)	(34,091)
Net borrowings at end of period	11	(80,799)	(86,717)

Notes to the Preliminary Results

for the year ended 30 June 2013

1.         Status of Accounts

These summary financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("adopted IFRS").  These summary financial statements have also been prepared in accordance with the Companies Act 2006.

The Board of Directors approved the preliminary announcement on 3 September 2013.

2.         Operating Segments

The Group has four reportable segments, as discussed below, which are based on information provided to the Board of Directors, which is deemed to be the Group's chief operating decision maker.  Several operating segments which have similar economic characteristics have been aggregated into the reporting segments.

The Services Segment comprises National Veterinary Services, Dechra Laboratory Services and Dechra Specialist Laboratories.  This Segment services UK veterinary practices in both the companion animal and livestock sectors. On 10 July 2013, the Group announced its intention to dispose of the Services businesses. The disposal is consistent with the Group's long term policy to focus its activities on the manufacture and marketing of pharmaceutical products. The Segment was not a discontinued operation or classified as held for sale at 30 June 2012 and the comparative consolidated income statement has been represented to show the discontinued operation separately from continuing operations. Refer to note 14 for further details, and segmental analysis in relation to the Services division.

The European Pharmaceuticals Segment comprises Dechra Veterinary Products EU, Eurovet and Dechra Pharmaceuticals Manufacturing.  Dechra Pharmaceuticals Manufacturing manufactures the vast majority of our own branded licensed pharmaceutical products, which are marketed through DVP EU and Eurovet.  This Segment operates internationally and specialises in companion animal products and has expanded into the food producing animal market following the acquisition of Eurovet.

The US Pharmaceuticals Segment consists of Dechra Veterinary Products US which sells companion animal pharmaceuticals into that territory.

The Pharmaceuticals Research and Development Segment includes all of the Group's pharmaceutical research and development activities.

There are varying levels of intersegment trading.  Intersegment pricing is determined on an arm's length basis.

Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items:

		2013 £'000	2012 £'000
Revenue by segment
European Pharmaceuticals	- total	168,684	104,764
US Pharmaceuticals                      - total		20,889 (397)	20,363 (797)
	- intersegment
		189,176	124,330
Operating profit/(loss) by segment
European Pharmaceuticals		45,819	28,904
US Pharmaceuticals		5,585	5,863
Pharmaceuticals Research and Development		(7,961)	(5,735)
Segment operating profit		43,443	29,032
Corporate and other unallocated costs		(4,335)	(3,487)
Underlying operating profit		39,108	25,545
Amortisation of acquired intangibles		(18,195)	(10,833)
Rationalisation costs		(2,577)	(2,125)
Acquisition costs		-	(2,315)
Total operating profit		18,336	10,272
Finance income		196	80
Finance expense		(6,054)	(4,240)
Profit before taxation - continuing operations		12,478	6,112
Total liabilities by segment
Services (classified as held for sale in 2013)		(53,961)	(55,244)
European Pharmaceuticals		(24,985)	(22,058)
US Pharmaceuticals		(6,602)	(14,221)
Pharmaceuticals Research and Development		(804)	(685)
Segment liabilities		(86,352)	(92,208)
Corporate loans and revolving credit facility		(113,110)	(118,229)
Corporate accruals and other payables		(3,496)	(2,804)
Current and deferred tax liabilities		(37,552)	(37,498)
		(240,510)	(250,739)
Additions to intangible non-current assets by segment
Services (classified as held for sale in 2013)		88	211
European Pharmaceuticals		1,132	121,140
US Pharmaceuticals		3,143	-
Pharmaceuticals Research and Development		1,092	447
		5,455	121,798

Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items: continued

	2013 £'000	2012 £'000
Additions to Property, Plant and Equipment by segment
Services (classified as held for sale in 2013)	733	484
European Pharmaceuticals	2,622	10,469
US Pharmaceuticals	18	10
Pharmaceuticals Research and Development	69	136
Corporate and central costs	223	-
	3,665	11,099
Depreciation and amortisation by segment
Services (included within discontinued operations)	757	700
European Pharmaceuticals	18,360	10,524
US Pharmaceuticals	3,112	2,800
Pharmaceuticals Research and Development	426	322
Corporate and central costs	16	-
	22,671	14,346

Geographical Information

The following table shows revenue based on the geographical location of customers and non-current assets based on the country of domicile of the entity holding the asset:

	2013 Revenue £'000	2013 Non-current assets £'000	2012 Revenue £'000	2012 Non-current assets £'000
UK	51,259	17,651	20,352	24,164
Germany	36,376	2,399	7,572	2,304
Rest of Europe	71,976	176,674	64,786	178,350
USA	19,428	38,946	25,857	37,774
Rest of World	10,137	-	5,763	-
	189,176	235,670	124,330	242,592

No customer accounted for more than 10% of total Group revenue.

3.         Finance Income

	2013 £'000	2012 £'000
Finance income arising from:
- Cash and cash equivalents	2	5
- Loans and receivables	71	65
- Return on employee benefit scheme assets	123	10
	196	80

4.         Finance Expense

Underlying	2013 £'000	2012 £'000
Finance expense arising from:
- Financial liabilities at amortised cost	5,150	2,873
- Interest cost in relation to employee benefit obligations	124	12
- Foreign exchange losses	483	920
Underlying finance expense	5,757	3,805
Non-underlying
Loss on extinguishment of debt	-	158
Unwinding of discounts on deferred and contingent consideration	297	277
Non-underlying finance expense	297	435
Total finance expense	6,054	4,240

5.         Non-Underlying Items

Non-underlying items comprise:

	2013 £'000	2012 £'000
Amortisation of intangible assets acquired as a result of acquisitions	18,195	10,833
Rationalisation costs	2,577	2,125
Expenses of the acquisition of Eurovet Animal Health B.V.	-	2,315
	20,772	15,273

Rationalisation costs in 2012 and 2013 relate to the integration of Eurovet Animal Health B.V. This consists primarily of the costs incurred in relation to the rationalisation of the four duplicated sales offices and associated sales teams.

6.         Income Tax Expense

		2013 £'000	2012 £'000
Current tax	- UK corporation tax	675	2,148
	- overseas tax at prevailing local rates	5,871	2,937
	- adjustment in respect of prior years	(800)	126
Total current tax expense		5,746	5,211
Deferred tax	- origination and reversal of temporary differences	(4,502)	(3,590)
	- adjustment in respect of prior years	384	586
Total deferred tax expense		(4,118)	(3,004)
Total income tax expense in the income statement - continuing operations		1,628	2,207
Tax on discontinued operations		2,539	2,864
Total income tax expense in the income statement		4,167	5,071

The tax on the Group's profit before tax differs from the standard rate of UK corporation tax of 23.75% (2012: 25.5%).  The differences are explained below:

	2013 £'000	2012 £'000
Profit before taxation	12,478	6,112
Tax at 23.75% (2012: 25.5%)	2,964	1,558
Effect of:
- disallowable expenses	286	325
- research and development tax credits	(39)	(181)
- differences on overseas tax rates	553	(175)
- adjustments in respect of prior years	(415)	712
- non-taxable foreign exchange (gains)/losses	(137)	304
- change in tax rates	(1,584)	(336)
Total income tax expense- continuing operations	1,628	2,207
Tax on discontinued operations	2,539	2,864
Total income tax expense in the income statement	4,167	5,071

Tax Recognised Directly in Equity	2013 £'000	2012 £'000
Deferred tax on effective portion of changes in fair value of cash  flow hedges	(86)	(2)
Tax recognised in statement of comprehensive income	(86)	(2)
Corporation tax on equity settled transactions	152	143
Deferred tax on equity settled transactions	70	(77)
Total tax recognised in equity	136	64

The Budget on 20 March 2013, announced that the UK corporation tax rate will reduce to 20% by 2015.  A reduction in rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012, and further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 17 July 2013.

This will reduce the Group's future current tax charge accordingly and further reduce the deferred tax liability at 30 June 2013 (which has been calculated based on the rate of 23% substantively enacted at 30 June 2013) by £3.4 million.

It has not yet been possible to quantify the full anticipated effect of the announced further rate reductions, although this will further reduce the Group's future current tax charge and reduce the Group's deferred tax liability accordingly.

7.         Dividends

	2013 £'000	2012 £'000
Final dividend paid in respect of prior year but not recognised as a   liability in that year: 8.50p† per share (2012: 7.72p†)	7,390	5,584
Interim dividend paid: 4.34p per share (2012: 3.77p†)	3,780	2,741
Total dividend 12.84p per share (2012: 11.49p†) recognised as distributions to     equity holders in the period	11,170	8,325
Proposed final dividend for the year ended 30 June 2013: 9.66p per share   (2012: 8.50p†)	8,419	7,384
Total dividend paid and proposed for the year ended 30 June 2013: 14.00p   per share (2012: 12.27p†)	12,199	10,125

†Restated to reflect the impact of the bonus element of the Rights Issue

In accordance with IAS 10 'Events After the Balance Sheet Date', the proposed final dividend for the year ended 30 June 2013, 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 2014.

The proposed final dividend for the year ended 30 June 2012, is shown as a deduction from equity in the year ended 30 June 2013.

8.         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.

	2013 Pence	2012 Pence
Basic earnings per share
- Underlying*	38.98	32.37†
-     continuing operations	29.27	21.35
-     discontinued operations	9.71	11.02
- Basic	20.59	15.65†
-     continuing operations	12.47	5.20
-     discontinued operations	8.12	10.45
Diluted earnings per share
- Underlying*	38.71	32.27†
-     continuing operations	29.07	21.28
-     discontinued operations	9.64	10.99
- Diluted	20.45	15.60†
-     continuing operations	12.39	5.18
-     discontinued operations	8.06	10.42
The calculations of basic and diluted earnings per share are based upon:
	£'000	£'000
Earnings for underlying basic and underlying diluted earnings per share	33,913	24,302
-     continuing operations	25,464	16,029
-     discontinued operations	8,449	8,273
Earnings for basic and diluted earnings per share	17,913	11,749
-     continuing operations	10,850	3,905
-     discontinued operations	7,063 No.	7,844 No.
Weighted average number of ordinary shares for basic earnings per share	87,011,352	75,082,169
Impact of share options	587,258	224,690
Weighted average number of ordinary shares for diluted earnings per  share	87,598,610	75,306,859

* Underlying measures exclude non-underlying items as defined on the Consolidated Income Statement

† Restated to reflect the impact of the bonus element of the Rights Issue

9.         Intangible Assets

Cost	Goodwill £'000	Software £'000	Development Costs £'000	Patent Rights £'000	Marketing Authorisations £'000	Acquired Intangibles £'000	Total £'000
At 1 July 2011	24,249	3,548	7,102	3,680	853	115,002	154,434
Additions	-	1,186	447	-	-	5,114	6,747
Acquisitions through business combinations	36,348	74	-	-	-	78,629	115,051
Disposals	-	-	(61)	-	-	-	(61)
Foreign exchange adjustments	(2,676)	(152)	(48)	-	-	(5,339)	(8,215)
At 30 June 2012 and 1 July 2012	57,921	4,656	7,440	3,680	853	193,406	267,956
Additions	-	728	1,584	-	-	3,143	5,455
Disposals	-	(234)	-	-	-	-	(234)
Transferred to held for sale	(2,621)	(1,836)	-	-	-	(377)	(4,834)
Foreign exchange adjustments	3,055	98	47	-	-	8,658	11,858
At 30 June 2013	58,355	3,412	9,071	3,680	853	204,830	280,201
Amortisation
At 1 July 2011	-	1,070	2,115	798	-	25,353	29,336
Charge for the year	-	551	1,005	335	-	10,871	12,762
Disposals	-	-	(14)	-	-	-	(14)
At 30 June 2012 and 1 July 2012	-	1,621	3,106	1,133	-	36,224	42,084
Charge for the year	-	451	857	335	-	18,233	19,876
Disposals	-	(234)	-	-	-	-	(234)
Transferred to held for sale	-	(891)	-	-	-	(230)	(1,121)
At 30 June 2013	-	947	3,963	1,468	-	54,227	60,605
Net book value
At 30 June 2013	58,355	2,465	5,108	2,212	853	150,603	219,596
At 30 June 2012 and 1 July 2012	57,921	3,035	4,334	2,547	853	157,182	225,872
At 30 June 2011	24,249	2,478	4,987	2,882	853	89,649	125,098
						2013 £'000	2012 £'000
Contracted capital commitments						6	616
Software assets in the course of construction included above						2,279	638

Included in contracted capital commitments is £6,000 relating to assets held for sale.

Goodwill is allocated across cash-generating units that are expected to benefit from that business combination.

10.       Deferred Taxes

Deferred tax assets and liabilities are attributable to the following:

	Assets		Liabilities		Net
	2013 £'000	2012 £'000	2013 £'000	2012 £'000	2013 £'000	2012 £'000
Intangible assets	-	-	(27,548)	(29,984)	(27,548)	(29,984)
Property, plant and equipment	-	-	(1,896)	(1,691)	(1,896)	(1,691)
Inventories	1,068	1,178	-	-	1,068	1,178
Payables	212	435	-	(168)	212	267
Share-based payments	963	813	-	-	963	813
Employee benefit obligations	17	74	-	-	17	74
	2,260	2,500	(29,444)	(31,843)	(27,184)	(29,343)

Deferred tax assets and liabilities are offset to the extent that there is a legally enforceable right to offset current tax assets against current tax liabilities.

11.       Borrowings

	2013 £'000	2012 £'000
Current liabilities:
Bank loans	10,000	5,000
Finance lease obligations	338	695
Arrangement fees netted off	(588)	(589)
	9,750	5,106
Non-current liabilities:
Bank loans	105,073	115,757
Finance lease obligations	142	246
Arrangement fees netted off	(1,375)	(1,957)
	103,840	114,046
Total borrowings	113,590	119,152

On 4 April 2012, the Group refinanced its existing bank facility, which gave rise to a loss on extinguishment of debt of £158,000.  The Group's revised borrowing facilities comprise a term loan of £55.0 million payable over 4 ½ years, a £65.0 million revolving credit facility committed until 31 October 2016, an overdraft facility of £10 million renewable on 30 September 2013 and various finance lease obligations.

At the year end, the Group had the following unutilised borrowing facilities:	2013 £'000	2012 £'000
Bank overdraft facility	10,000	10,000

The term loan, revolving credit and overdraft facilities are secured by a fixed and floating charge of assets of the Group.  Interest is charged at 2.50% over LIBOR in respect of the term loan and revolving credit facility and 2.50% over base rate in respect of the overdraft facility.  No covenants have been breached during the year ended 30 June 2013.

The maturity of the bank loans and overdrafts is as follows:	2013 £'000	2012 £'000
Payable:
Within one year	10,000	5,000
Between one and two years	10,000	10,000
Between two and five years	95,073	105,757
	115,073	120,757

Analysis of Net Borrowings	2013 £'000	2012 £'000
Bank loans	(113,110)	(118,211)
Finance leases and hire purchase contracts	(480)	(941)
Cash and cash equivalents	32,791	32,435
Net borrowings	(80,799)	(86,717)

12.       Foreign Exchange Rates

The following exchange rates have been used in the translation of the results of foreign operations.

	Closing rate at 30 June 2012	Average rate	Closing rate at 30 June 2013
Danish Krone	9.21	9.0445	8.7146
Euro	1.2389	1.2135	1.1687
US Dollar	1.5681	1.5687	1.5208

13.       Acquisitions

During the period the Group paid a further US$16,000,000 (£10,033,000) in respect of the acquisition of DermaPet Inc. A payment of US$15,000,000 was made which related to the achievement of contingent milestone target, the remaining US$1,000,000 related to deferred consideration which was paid on the second anniversary of the completion date.

The maximum further consideration payable is US$6,000,000 of which US$5,000,000 is contingent upon revenue exceeding US$20,000,000 in any rolling 12 month period.

14.       Discontinued Operations

On 10 July 2013, the Group announced its intention to dispose of the Services businesses. However, the Group was committed to a plan to sell the businesses prior to 30 June 2013, therefore the assets have been classified as held for sale. The disposal is consistent with the Group's long term policy to focus its activities on the manufacture and marketing of pharmaceutical products.

The Services businesses constitute a reporting segment in accordance with IFRS 8.

The divestment was completed on 16 August 2013 for sale proceeds of £87.5 million. The costs to sell are

£1.5 million (with an associated tax deduction of £0.1 million). Tax on the profit on disposal is expected to be

£0.4 million. The completion accounts are yet to be finalised.

The Group has not recognised any impairment losses in respect of the Services businesses, neither when the assets and liabilities of the operation were reclassified to held for sale nor at the end of the reporting period.

The results of the discontinued operations included in the profit for the year are set out below. The Segment was not a discontinued operation as held for sale at 30 June 2012 and the comparative consolidated income statement has been represented to show the discontinued operation separately from continuing operations.

Profit for the year from discontinued operations

	2013 £,000	2012 £'000
Revenue	333,244	315,672
Cost of sales	(303,389)	(287,523)
Gross profit	29,855	28,149
Distribution costs	(12,540)	(11,853)
Administrative expenses	(6,203)	(5,240)
Non-underling expenses*	(38)	(438)
Operating profit	11,074	10,618
Net finance (expense)/income	(5)	90
Profit before taxation from operating activities	11,069	10,708
Income tax expenses	(2,649)	(2,864)
Profit for the year	8,420	7,844
Expenses related to disposal	(1,467)	-
Tax on expense related to disposal	110	-
Profit for the year from discontinued operations	7,063	7,844

* Non-underlying items comprise amortisation of acquired intangibles and rationalisation costs.

Cash Flows from discontinued operations

	2013 £,000	2012 £'000
Net cash inflow from operating activities	1,305	4,510
Net cash outflow from investing activities	(810)	(534)
Net cash outflow from financing activities (including repayment of intercompany funding)	(508)	(30,603)

Assets held for sale

The major classes of assets and liabilities of the Services businesses at the end of the reporting period are set out below:

		2013 £'000
Goodwill		2,621
Intangible assets		1,092
Property, plant and equipment		1,656
Inventories		28,269
Trade and other receivables		56,146
Assets of Services businesses classified as held for sale		89,784
Trade and other payables		(53,961)
Liabilities of Services businesses classified as held for sale		(53,961)
Net assets of Services businesses classified as held for sale		35,823

15. Events after Reporting Period

On 16 August 2013, the Group completed the sale of the Services businesses for a consideration of £87.5 million. Refer to the above note for further details of the discontinued operations.

16. Other Information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2013 or 2012 but is derived from the 2013 accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered in due course. The Auditor has reported on those accounts; the report was (i) unqualified, (ii) did not include references to any matters to which the Auditor drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act  2006.

17.       Preliminary Statement

This Preliminary Statement is not being posted to Shareholders.  The Report & Accounts for the year ended 30 June 2013 will be uploaded to the National Storage Mechanism and posted to Shareholders shortly.  Further copies will be available on the Company's website (www.dechra.com) and on request from the Company's Registered Office:

24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich CW9 7UA. Email: corporate.enquiries@dechra.com. 

18.       Directors' Responsibility Statement Required under the Disclosure and Transparency Rules

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 30 June 2013.  Certain parts of that Report are not included with this announcement.

We confirm to the best of our knowledge:

a)         the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

b)         the management report, which comprises the Directors' Report, includes a fair review of the development and performance of the Business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Approved by the Board and signed on its behalf by:

Ian Page	Anne-Francoise Nesmes
Chief Executive Officer	Chief Financial Officer
3 September 2013

Trademarks

Trademarks appear throughout this document in italics.  Dechra and the Dechra 'D' logo are registered Trademarks of Dechra Pharmaceuticals PLC.  The Malaseb Trademark is used under licence from Dermcare-Vet Pty. Ltd.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR UURBROKAKRAR