NeutraHealth Plc - PRELIMINARY RESULTS
RNS Number:3756P
NeutraHealth Plc
05 March 2008
5 March 2008
NEUTRAHEALTH PLC ('the Company')
2007 PRELIMINARY RESULTS STATEMENT
NeutraHealth plc, a leading player in the nutraceutical industry, today
announces preliminary results with profit in line with expectations for the year
ending 31 December 2007.
The Company has demonstrated significant profitable growth and an impressive
adjusted earnings per share increase of 88% in 2007, making it the most
successful company in the AIM nutraceutical sector. The Company is confident
that initiatives put in place through the year will deliver further organic
growth in 2008, and the acquisition pipeline is strong.
Financial Highlights
* Turnover increase of 148% to £21.3m (2006: £8.6m)
* EBITDA increase of 109% to £2.8m (2006: £1.4m)
* PBT increase of 106% to £1.9m (2006: £0.9m)
* Adjusted* PBT increase of 102% to £2.1m (2006: £1.0m)
* Adjusted* EPS growth of 88% to 1.0p (2006: 0.5p)
* Diluted EPS growth of 86% to 0.8p (2006: 0.4p)
* Operating cashflow increase of 181% to £2.5m (2006: £0.9m)
* Adjusted figures exclude the non-cash effect of acquired intangible asset
amortisation and of share option related charges.
Corporate Highlights
* Acquisition of Brunel Healthcare ('Brunel') in January 2007 for initial
consideration of £4 million
* Acquisition of Health Products for Life ('HPL') in July 2007 for
consideration of £0.5 million
* Investment by Elder Pharmaceuticals of net £5.3 million at a 36% premium
to market price
Operational Highlights
* Seamless integration of HPL and Brunel acquisitions into the Group
* Performance of Brunel leading to guarantee of vendor earn out 18 months
ahead of schedule
* Increase in outlets selling NeutraHealth product from approx. 1,000 in
2006 to over 20,000 in 2007
* 73% increase in sales of energy releasing CoQ10 product
* Licensing agreement with Patrick Holford and subsequent launch of 20
products in the Patrick Holford / BioCare range
* Exclusive licensing agreement with Champneys Spa Group
Outlook
* Continue to identify, complete and integrate acquisitions with success
as in 2007
* Confidence in the year ahead
* CoQ10 expected to perform well in 2008 with year to date sales growth
of 35%
Martin Gatto, Chairman, commented:
'These very strong set of results are a terrific achievement by the management
and staff of the Group. We continue to fulfill our promises to the market by
delivering profit in line with expectations. We have a dynamic and motivated
team that is working hard to push NeutraHealth to even greater success. The
opportunities ahead of us this year are exciting.'
Michael Toxvaerd, Chief Executive, commented:
'In previous years, we have commented that a platform for future growth has been
established. We have now delivered that growth in a spectacular way, and there
is more to come.
We continue to focus on our core business and on the best opportunities for
expansion. The benefits of size through greater impact in our industry sector
and higher investor profile mean that we are keen to transform the Group again
in 2008 with further significant acquisitions.'
For more information:
Further information for investors is available on the Company's website at
www.neutrahealthplc.com/
NeutraHealth plc
Martin Gatto, Chairman 07778 749 223
Michael Toxvaerd, Chief Executive 07730 581 584
Robin Hilton, Finance Director 07738 018 411
Pelham Public Relations
James Henderson 020 7743 6672
Gavin Davis 020 7743 6677
Kate Catchpole 020 7743 6678
Cenkos (Nominated Adviser and Broker)
Stephen Keys 020 7397 8900
Chairman's Statement
Neutrahealth, now having completed its third year as an AIM listed company, has
continued on its strategic path as a consolidator in the fragmented
nutraceuticals sector and has had a very successful year with profit in line
with expectations, and with diluted earnings per share growth of 86%.
The acquisitions made since start-up have bedded in well and the actions taken
during the period have set a course which we believe will maximise the synergies
of our group companies for this year and as a result the Board believes that the
current business will deliver good growth in the year ahead. Furthermore,
management continues to research and pursue acquisition targets which should
strengthen the Group in its existing market segments and take us into new
sectors of the nutraceutical market. Our network of industry contacts is now
very well developed, such that most potential transactions in this sector are
likely to be offered to us.
Significant Events
It has been a busy year on many fronts; in February 2007 we completed the
acquisition of Brunel Healthcare Limited, based in Bristol, for £4 million in
cash, assuming debt of £1 million. The incumbent management have continued to
run the business very successfully and Ron Stagg, Managing Director of Brunel,
joined the Board in February 2007. The trading performance in 2007 more than
confirmed our expectations for the future to the extent that the Board
guaranteed the earn-out put in place at the time of acquisition as performance
was exceeding the set criteria.
In July 2007 we announced the acquisition of Health Products for Life Limited ('
HPL') from Patrick Holford and the simultaneous 10 year licensing deal to
co-brand a new range of supplements which would carry both the Holford and
BioCare names. Patrick Holford also became Head of Science and Education for
BioCare. The alliance with Patrick Holford is an important development for
BioCare given that he is a leading figure in the industry with wide recognition
amongst informed consumers.
In August 2007 shareholders approved the issue of 35,197,026 shares to Elder
Pharmaceuticals Limited at a price of 16 pence per share, resulting in a 20%
holding, and the appointment of Jagdish Saxena to the Board. Jagdish is the
founder and chairman of Elder which is a listed pharmaceutical company based in
Bombay with considerable experience of the development, manufacture and
marketing of both medicines and supplements with market leading products in
India. The Board believes that many opportunities will emanate from this
alliance in the future. Immediately following the approval of the Elder
investment, Zulfi Hydari was appointed to the Board as a non-executive director.
Zulfi is managing Director of HBG Holdings, a Dubai based private equity firm.
His experience of M&A and fundraising will be of great assistance to the
company.
Outlook
Looking ahead to this year, once again, our agenda is largely unchanged. Our
current businesses are in good shape and we are confident of securing another
strategic acquisition before too long. The Board and its support are up to full
strength and the involvement of Elder gives us many opportunities. Our employees
have witnessed many changes over recent months and have done a fantastic job in
developing the Group for which the Board is truly appreciative. The Board will
continue with our stated strategy and looks forward to the future with
confidence.
Martin Gatto, Chairman
Business Review
This is our third annual report, and we are pleased once again to report that we
have delivered on our promises to the market, reporting a diluted EPS growth of
86%.
This was a crucial year for the development of NeutraHealth, and our achievement
sees us firmly on the path to further success ahead. The EPS uplift was driven
by organic growth and acquisitions leading to a 148% increase in sales and a
106% increase in PBT making us the most profitable AIM company in our sector
today. We firmly believe that our shareholders should be rewarded with a share
value that reflects this success. We continue to concentrate on doing the right
things, and believe that continuing to do so will eventually lead to recognition
of the value we are creating.
Business Strategy
Our strategy is to build a group of companies within the nutraceutical market,
initially focused on the vitamins, minerals and supplements (VMS) sector
delivering growth through organic expansion and through strategic acquisitions.
We operate significant businesses within each of the distinct sales channels
within our market - practitioners, independent retailers, multiple retailers,
and direct to consumers.
Our objective is to attain a business size that will raise our profile in the
capital markets, and will make us a more significant player within our trading
sector and therefore better able to influence the market.
Acquisitions
2007 began with the acquisition of Brunel Healthcare, a Bristol based supplier
of private label and branded VMS and over-the-counter pharmaceuticals to
significant high street retailers such as Boots, Sainsbury and Tesco. This
acquisition has been very successful. The business itself has performed very
well since joining the Group. and Ron Stagg, Brunel's managing director and
majority owner of Brunel prior to NeutraHealth's acquisition, has made a
significant contribution to the Group through his industry knowledge and
contacts.
In July 2007 we acquired a direct to consumer company 'Health Products for Life'
from Patrick Holford, one of Britain's leading nutritional experts. This
dedicated internet offering attracts a wide range of consumers who are
interested in following a supplement program as part of a healthier lifestyle.
The web site is in the process of being redesigned to improve the customer
experience. The acquisition also saw us agree a licensing arrangement with
Patrick Holford that has resulted in the launch of a product range, consisting
of 20 products that are co-branded Patrick Holford and BioCare. This product
range is aimed at the independent retail and direct to consumer markets, and
builds on the research of Patrick Holford.
We have been very active in progressing acquisitions throughout the year, with a
number not being taken through to completion. After the abortive costs
incurred in 2006, we were able to structure our acquisition processes to curtail
the risks of losses should an acquisition not proceed, with the result that
there have been minimal cost write offs incurred this year for processes that
did not lead to an acquisition.
Elder Pharmaceuticals
In August 2007 we issued shares to Elder Pharmaceuticals Limited at 16p
representing a 36% premium to market price on the day of announcement. We met
Elder Pharmaceuticals during our search for potential suppliers for our Brunel
products. There was a considerable amount of mutual respect, and Elder sought an
investment in NeutraHealth.
We continuously have a good pipeline of acquisition prospects that require
funding. As we are confident in our ability to raise funds from our existing
shareholders close to our market price, we could only recommend such an
investment, and the subsequent dilution, to our shareholders if it was at a
higher share price than we were able to achieve ourselves and also at a price we
felt represented a fair value for our expected achievements in the year.
As part the investment agreement, Elder holds warrants giving them subscription
rights to maintain their 20% holding in the event of future equity issues until
November 2008.
We were also pleased to welcome Mr Jagdish Saxena, the founder and Chairman of
Elder Pharmaceutical, to the Board as part of the transaction.
Elder continue to be very supportive of existing management, and the transaction
has already resulted in a number of export leads that are expected to deliver
benefit in the future.
Review of business
Practitioner channel
The practitioner channel was our entry into the VMS sector through the
acquisition of the market leading BioCare brand in 2005 and the subsequent bolt
on acquisition of Nutrigold in February 2007. These companies continue to
uphold their reputation for product excellence.
The practitioner sector of the market has not grown at the rate we originally
expected, experiencing some challenges from the internet as a competing source
of information to consumers. While this has led to the number of consumers being
referred remaining static, the brands themselves have performed well. Informed
consumers look for the best products available, and the BioCare brand is widely
recognised as first class.
Independent Retailers
We service the independent retailers through the BioCare brand and from the end
of 2007 with the co-branded Patrick Holford / BioCare range. Independent
retailers on the high street are faced with a number of threats. These are the
steady rise in dominance of the bigger retailers such as Boots and the
supermarkets and the decline of the high street as the major source for products
due to the internet and out of town shopping destinations.
Some of these independent retailers are responding with innovative designs,
products and services, and it is these retailers who are seeing growth within
their businesses. This channel will remain important to the Group as it develops
into more of a niche offering.
Multiple Retailers
We have a strong positioning in this channel through the private label business
offered by Brunel. We also have a number of branded products, including the
Vertese brand.
At the end of 2006 / start of 2007 we launched two retail brands: our own
Travelguard range of products, and a range of Champneys branded supplements.
The Travelguard range has not performed as well as had been expected. Our
research now indicates that the proposition of taking supplements as prevention
for travel related issues is too much of a change in consumer behaviour to be
overcome without significant marketing. Our analysis concluded that the
marketing resource necessary would generate a better return applied elsewhere
across the Group. The Travelguard range is still in distribution, and this will
remain under review.
The Champneys range was launched in March 2007, and was very well received by
the market. Negotiations with multiple retailers took longer than expected,
resulting in listings in the latter part of the year.
The Vertese range, acquired with Brunel, has performed well through the year
achieving further increases in distribution. Two new products containing the
ingredient CoQ10 have been especially well received. We have partnered with
Kaneka, a large Japanese manufacturer producing the most bio-available CoQ10 raw
material, in developing a formulation and product that we expect to achieve
significant sales growth with in 2008. We have got exclusive rights for the use
of Kaneka CoQ10 in the UK market.
Direct to consumer
The direct to consumer market has shown good growth over the last few years as
consumers increasingly turn to the internet for advice and to purchase goods.
Our position in this channel at the start of the year was only through the
BioCare and Nutrigold websites, designed as part of the overall product offering
rather than dedicated direct to consumer sites.
Our acquisition of Health Products for Life in July 2007 is our first dedicated
business in this important channel. The web design is being improved as part of
an ongoing project, and the strategic positioning of the business, maintaining a
close relationship with the consumer information website, 100% health, makes it
a sound business with the potential for significant future growth as the
proposition is updated.
Exports
One of our early successes with BioCare in 2006 was growth in export sales,
albeit it from a small base. We have continued to focus on this area as our
branded portfolio has expanded, with BioCare being the vanguard of the range due
to the strong international reputation it already has for quality and efficacy.
The lead time for export countries to start being large accounts is lengthy,
with the initial hurdle of regulations and the subsequent brand building
necessary in the new market. We have in place a significant pipeline of export
customers that we expect to will grow through 2008. The Middle East has been a
particularly successful source of new business.
Principal Risks and Uncertainties
All businesses face a range of risks and uncertainties, being subject to risk
factors from internal and external sources. NeutraHealth undertakes a regular
risk assessment within a framework encompassing a range of risk factors:
operational, financial, strategic, environmental, political, social, economic,
and technological. The likelihood and significance of risk factors are
considered when putting in place risk management procedures to ensure risk
mitigation.
The following are considered to be the key risks facing the Group.
Market Conditions
We are operating in a market that is undergoing significant changes. There are
regulatory, social and demographic factors driving change and there is an
increasing focus on nutrition in society. At the same time, the world economy is
at an uncertain point.
It is essential that we monitor the environment in which we operate, and ensure
that our businesses continue to deliver customer satisfaction as demands move
on. We mitigate the risks through our product innovation, continual dialogue
with our customers, and active participation in industry trade groups.
Access to Finance
We reported last year that we viewed access to finance as a principal risk. The
challenges this year are more significant. We remain an acquisitive company with
an objective of increasing our size to become more visible for investors and to
be more dominant in our industry. The former requires a higher market
capitalisation through either a higher share price, increased equity, or a
combination of both.
At the time of writing, our share price is lower than our float price in 2005,
despite delivery of impressive year on year EPS growth. This has the effect of
reducing our market capitalisation, plus making it very expensive to issue
equity to fund acquisitions. All this is combined with turmoil in the world
financial markets and the well publicised credit crunch. Although we expect that
our past performance will present us with opportunities for raising finance that
may not be available to other companies, we expect that while there is
restricted access to debt and equity funding due to market conditions, our
ability to make significant acquisitions may be restricted.
Key Performance Indicators
NeutraHealth uses a number of key performance indicators (KPIs) at Group level
to assess performance and progress against strategic objectives. The most
important of these KPIs are sales growth, operating profit margin and return on
capital employed. These KPIs are discussed below in the financial review.
Financial Review
Turnover 2007 : £21.3m 2006 : £8.6m
Turnover increased significantly following the acquisition of Brunel early in
the year. Our like for like sales were positive.
During the year, there was a lot of focus within the Group on development : new
brands were launched, Brunel and Health products for Life were acquired and
integrated into the Group. In 2008 the emphasis is on increasing sales
penetration in our UK and export markets. We have had several successes on that
front in the early part of 2008.
PBIT before non-recurring items 2007 : £2.4m 2006 : £1.4m
We have seen a significant increase in operating profit in 2007, with the
success of Brunel following acquisition making a contribution to the increase.
Furthermore, there were a further £0.1m of non-cash charges in 2007 arising from
the accounting treatments of acquisitions that could be argued distort the true
underlying profitability. It should also be considered that in 2006 there were
charges of £0.3m for non-recurring items that reduced the above figure. This is
reflected in the cash flow increase (see below).
The operating margin declined to 13.1% from 16.8% due to the addition of the
Brunel business. As a mainly private label business, Brunel's margins are lower
than the other brand focused companies within the Group. These lower margins
were offset by the dilution in company overheads, which will continue as the
Group expands.
Cash generated from operations 2007 : £2.5m 2006 : £0.9m
The Group continues to be cash generative, with cashflow generated from
operations being only slightly lower than EBITDA. The working capital movements
of Brunel can alter by a material amount on a regular basis due to the nature of
trading with the multiples, and manufacturing the necessary stock runs.
Adjusted EPS 2007 : 1.0p 2006 : 0.5p
Diluted EPS 2007 : 0.8p 2006 : 0.4p
We are reporting 88% growth in adjusted EPS this year, which is a tremendous
achievement. Without the significant increase in the number of shares this year
due to the issue of share to Elder Pharmaceutical, the growth would have been
higher. The Elder investment was used us to significantly reduce debt, allowing
future mid-size acquisitions to be financed through debt, and enhance future
EPS.
We have chosen to report adjusted EPS on an ongoing basis to eliminate the
impact of certain non-cash items that do not reflect the underlying performance
of the business. These charges include share option charges, amortisation of
separately identifiable intangible assets arising on acquisition, and the
deferred tax charge / credit arising from changes in the share price and the
effect this has on outstanding share options.
Return on Capital Employed 2007 : 10.4% 2006 : 8.3%
This result is another indication that we have had a successful year in
generating value for shareholders.
Capital Structure
At the year end, the company had net debt of £1.0m, excluding finance leases.
The acquisition of Brunel Healthcare in 2007 was financed entirely by debt, and
this has been offset to a considerable degree by the investment by Elder
Pharmaceuticals.
This net debt position gives us headroom to make further acquisition funded
entirely by debt. This may be necessary depending on the level of our share
price.
The Group has not declared a dividend for 2007 as we have previously stated our
intention to use available cash flow to finance acquisitions. This policy has
not changed, and we do not expect it to change while we are pursuing current
acquisition opportunities.
Outlook
In 2008 we expect to build on the success of last year and concentrate on
continually reinforcing our strong businesses in the market. There are a number
of areas where we expect growth to come from.
BioCare is now free from the distractions that come with launching new brands,
and is firmly focused on supporting its market leading position with innovative
product and service ideas. BioCare will also pursue further export
opportunities, as we believe this is the channel that offers the maximum
profitable growth for the company.
Brunel will continue to focus on providing excellent service to its customers,
and in providing those customers with products that are popular with end
consumers, such as CoQ10. This objective will be helped by the acquisition of
herbal licenses and the Gerard House and Galloway brands in early February 2008
that will allow an extended portfolio of either private label or branded
products to be offered to retailers.
In last year's annual report, we said that we would review the pharmaceutical
part of the business we acquired with Brunel. That review has concluded that
there are interesting developments within this sector arising through the UK
government's drive for self medication to relieve pressure on the NHS. As part
of our ongoing strategy we will be pursuing acquisition opportunities within the
'over the counter' sector. Doing so allows us to create further synergies in
manufacturing and relationship management.
NeutraHealth remains acquisitive, and we expect to secure further major
acquisitions in 2008.
Michael Toxvaerd Robin Hilton
Chief Executive Finance Director
4 March 2008
Consolidated Income Statement
Year ended 31 December 2007
Note
2007 2006
£'000 £'000
REVENUE 21,307 8,571
Cost of sales (13,118) (4,025)
Gross profit 8,189 4,546
Other operating income 74 -
Administrative expenses (5,892) (3,106)
Employee termination and reorganisation costs - (151)
Aborted acquisition fees - (156)
PROFIT FROM OPERATIONS 2,371 1,133
Investment income 84 70
Finance costs (593) (301)
PROFIT BEFORE TAX 1,862 902
Income tax expense 3 (635) (312)
PROFIT FOR THE YEAR 1,227 590
Earnings per share
Basic 4 0.8p 0.4p
Diluted 4 0.8p 0.4p
Consolidated Balance Sheet
At 31 December 2007
Note 2007 2006
£'000 £'000
ASSETS
Non-current assets
Goodwill 20,049 15,649
Other intangible assets 1,498 109
Property, plant & equipment 1,324 522
Financial asset investments 350 -
Deferred tax assets - 52
23,221 16,332
Current assets
Inventories 3,212 852
Trade and other receivables 3,701 1,136
Cash and cash equivalents 3,389 1,172
10,302 3,160
Total assets 33,523 19,492
EQUITY AND LIABILITIES
Capital and reserves
Share capital 6 17,599 14,079
Other reserves 7 2,302 378
Retained earnings 8 1,770 543
Total equity attributable to equity holders 21,671 15,000
of the parent
Non-current liabilities
Trade and other payables 676 -
Deferred tax liabilities 655 74
Bank loan 3,416 2,602
Obligations under finance leases 118 -
4,865 2,676
Current liabilities
Trade and other payables 5,298 758
Current tax liabilities 558 103
Bank loan 972 945
Obligations under finance leases 159 10
6,987 1,816
Total liabilities 11,852 4,492
Total equity and liabilities 33,523 19,492
Consolidated Cash Flow Statement
Year ended 31 December 2007
2007 2006
Note £'000 £'000
OPERATING ACTIVITIES
Cash receipts from customers 17,076 8,471
Cash paid to suppliers and employees (14,619) (7,598)
Cash generated from operations 9 2,457 873
Income taxes paid (283) (531)
Interest paid (478) (302)
Net cash from operating activities 1,696 40
INVESTING ACTIVITIES
Interest received 83 66
Proceeds on disposal of available-for-sale investments - 6
Proceeds on disposal of property, plant & equipment - 3
Purchase of property, plant & equipment (321) (193)
Purchase of intangible assets (26) (61)
Acquisition of subsidiaries net of cash acquired (4,334) (560)
Acquisition of financial asset investments (262) -
Net cash used in investing activities (4,860) (739)
FINANCING ACTIVITIES
Repayment of borrowings (1,241) (400)
Repayment of obligations under finance leases (147) (9)
New finance leases 172
Proceeds on issue of shares 5,632 -
Cost of issue of shares (348) -
New bank loans raised 1,400 -
Cost of raising bank loans (87) -
Net cash from / (used in) financing activities 5,381 (409)
Net increase / (decrease) in cash and cash 2,217 (1,108)
equivalents
Cash and cash equivalents at the beginning of the year 1,172 2,280
Cash and cash equivalents at the end of the year 3,389 1,172
Consolidated Statement of Changes in Equity
Year ended 31 December 2007
Share Other Retained Total
capital reserves earnings
£'000 £'000 £'000 £'000
At 1 January 2006 13,285 48 (47) 13,286
Profit for the year - - 590 590
Total recognised income and expense for the year - - 590 590
Issue of share capital 794 206 - 1,000
Recognition of share based payments - 124 - 124
Changes in equity 794 330 - 1,124
At 31 December 2006 14,079 378 543 15,000
Profit for the year - - 1,227 1,227
Increase in fair value of financial asset investments,
net of deferred tax - 63 - 63
Total recognised income and expense for the year - 63 1,227 1,290
Issue of share capital net of issue expenses 3,520 1,761 - 5,281
Recognition of share based payments - 100 - 100
Changes in equity 3,520 1,861 - 5,381
At 31 December 2007 17,599 2,302 1,770 21,671
Notes to the Consolidated Financial Statements
1. GENERAL INFORMATION
The financial information set out above is derived from the statutory accounts
within the meaning of Section 240 of the Companies Act 1985. Statutory accounts
for the year ended 31 December 2007 will be delivered to the Registrar of
Companies and sent to Shareholders shortly. The Company's auditors have issued
an unqualified auditor's report, which does not contain any statement under
Section 237(2) or (3) of the Companies Act 1985, on the statutory financial
statements for the year ended 31 December 2007. Statutory accounts for the year
ended 31 December 2006 have been delivered to the Registrar of Companies. The
Company's auditors issued an unqualified auditor's report, which did not contain
any statement under Section 237(2) or (3) of the Companies Act 1985, on the
statutory financial statements for the year ended 31 December 2006
The Annual Report and Accounts will be made available to the public at the
Company's registered office, 180 Lifford Lane, Kings Norton, Birmingham, B30 3NU
from the date of release.
The Annual General Meeting will be held at 12 noon on 16 April 2008 at Baker
Tilly, 2 Bloomsbury Street, London WC1B 3ST
2. BASIS OF PREPARATION
The consolidated financial statements for the year ended 31 December 2007 have
been prepared in accordance with International Financial Reporting Standards as
adopted by the EU.
These accounts have been prepared on the basis of the same accounting policies
as for the year ended 31 December 2006. In addition, intangible customer
relationships acquired in the year are being amortised over an economic life of
12 years.
3. TAXATION
2007 2006
£'000 £'000
Corporation tax - current year 627 307
Deferred tax 18 5
645 312
Corporation tax - prior year (10) -
Income tax expense for the year 635 312
Domestic income tax is calculated at 30% (2006 : 30%) of the estimated
assessable profit for the year. On 1 April 2008, the rate of corporation tax
that applies to the UK companies in the Group will fall from 30% to 28%. The
Group has therefore remeasured from the 1 April 2008 those temporary differences
which are expected to reverse after that date.
The total charge for the year can be reconciled to the accounting profit as
follows:
2007 2006
£'000 % £'000 %
Profit before tax 1,862 902
Tax at the income tax rate of 30% 559 30.0 270 30.0
Tax effect of expenses that are not deductible in determining 75 4.0 62 6.8
taxable profit
Tax effect of small company rate in group companies (7) (0.4) - -
Tax effect of changes in share price on deferred tax 52 2.8 (20) (2.2)
Tax effect of intangible assets recognised through acquisition on
deferred tax
(34) (1.8) - -
Tax effect of over provision in prior year (10) (0.5) - -
Tax expense and effective tax rate for the year 635 34.1 312 34.6
4. EARNINGS PER SHARE
2007 2006
£'000 £'000
Earnings
Earnings for the purposes of basic and diluted earning per share (profit for the
year attributable to equity holders of the parent) 1,227 590
Add back:
Amortisation of intangible assets recognised on acquisition, net of deferred tax
credit 89 3
Charges for share options in issue 100 124
Changes in deferred tax as a result of share price movements 52 (20)
Earnings for the purpose of adjusted earning per share 1,468 697
2007 2006
Number Number
'000 '000
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings
per share 152,553 135,483
Effect of dilutive potential ordinary shares:
Share options 1,329 2,175
Weighted average number of ordinary shares for the purposes of diluted earnings
per share 153,882 137,658
5. ACQUISITION OF SUBSIDIARIES
Brunel Healthcare Limited
On 23rd January 2007, the Group acquired 100 per cent of the issued share
capital of Brunel Healthcare Limited for consideration of £4.2 million including
directly attributable costs. The transaction has been accounted for by the
purchase method of accounting.
On 16th October 2007, the Group announced that Brunel Healthcare Limited had
exceeded targets set for profit that would see the vendors receive a further
£1.5 million in consideration. All conditions for receiving the further
consideration have now been met, and the liability recognised in these financial
statements. The consideration will be paid in two amounts, £0.8 million in March
2008 and £0.7 million in March 2009. Under IFRS, the deferred consideration has
been discounted to the fair values at the point of recognition, resulting in a
non-cash interest charge to the consolidated income statement.
The net assets acquired in the transaction, and the goodwill arising, are as
follows:
Book Value Fair Value Fair Value
Adjustments
£'000 £000 £'000
Net assets acquired:
Property, plant and equipment 705 - 705
Intangible assets - 1,462 1,462
Inventories 1,989 - 1,989
Trade receivables 1,835 (20) 1,815
Other receivables 92 - 92
Cash at bank 174 - 174
Trade payables (2,349) - (2,349)
Other payables (608) 11 (597)
Borrowings (741) - (741)
Finance lease liability (242) - (242)
Deferred tax liability (151) (439) (590)
704 1,014 1,718
Goodwill 3,903
Total consideration 5,621
Satisfied by:
Cash 4,000
Deferred consideration 1,419
Directly attributable costs 202
Net Cashflow arising on acquisition:
Cash consideration paid (4,202)
Cash acquired 174
(4,028)
The goodwill arising on the acquisition of Brunel Healthcare Limited is
attributable to the anticipated revenue of the distribution of the Group's
products in new and existing markets and the anticipated future operating
synergies from the combination.
The fair value adjustment to intangible assets relates to the recognition of
separately identifiable intangible assets on acquisition under IFRS. Brunel
Healthcare Limited as several long standing customer relationships, and these
are considered to be sufficiently separable to be worth of separate recognition.
The fair value adjustment to trade receivables relates to adjustments to
accounts in trading following acquisition. The fair value adjustment to other
payables relates to adjustments to corporation tax payable at the time of
acquisition. The fair value adjustment to deferred tax liability relates to the
recognition of intangible assets, and changes in the expected future rate of
tax.
Brunel Healthcare Limited contributed £12.9 million revenue and £1.3 million
profit before tax for the period between the date of acquisition and the balance
sheet date. If this acquisition had occurred on 1 January 2007 Group revenue
would have been £21.9 million and profit before tax £1.8 million.
Health Products for Life Limited
On 4th July 2007, the Group acquired 100 per cent of the issued share capital of
Health Products for Life Limited for consideration of £535,000 including
directly attributable costs. This includes consideration of £200,000 that is
unconditionally payable in July 2008. The transaction has been accounted for by
the purchase method of accounting.
The net assets acquired in the transaction, and the goodwill arising, are as
follows:
Book Value Fair Value Fair Value
Adjustments
£'000 £000 £'000
Net assets acquired:
Intangible assets - 35 35
Inventories 2 - 2
Cash at bank 137 - 137
Trade payables (11) - (11)
Other payables (2) - (2)
Corporation tax (15) - (15)
Post acquisition dividend (108) - (108)
3 35 38
Goodwill 497
Total consideration 535
Satisfied by:
Cash 291
Deferred consideration 200
Directly attributable costs 44
Net Cashflow arising on acquisition:
Cash consideration paid (335)
Cash acquired 29
(306)
The goodwill arising on the acquisition of Health Products for Life Limited is
attributable to the anticipated revenue of the distribution of the Group's
products in new and existing markets and the anticipated future operating
synergies from the combination.
The fair value adjustment to intangible assets is recognition of the value of
the customer database at the time of the acquisition.
Health Products for Life Limited contributed £0.2 million revenue and nil profit
before tax for the period between the date of acquisition and the balance sheet
date. If this acquisition had occurred on 1 January 2007 Group revenue would
have been £21.7 million and profit before tax £1.9 million
6. SHARE CAPITAL
2007 2006
£'000 £'000
Authorised:
300,000,000 ordinary shares of 10p each 30,000 30,000
Issued and fully paid:
At 1 January 14,079 14,079
Issued for cash 3,520 -
At 31 December 17,599 14,079
The company has 175,985,137 (2006: 140,788,101) shares in issue. The company has
one class of ordinary shares which carry no right to fixed income.
Issues during the year
On 20 August 2007 35,197,036 ordinary shares were issued at a price of 16.0p per
ordinary share for cash consideration. These shares were issued to Elder
Pharmaceutical Limited, a Bombay Stock Exchange listed company, who expressed
interest in making an investment in NeutraHealth. The funds raised have been
used to reduce the debt within the Group.
7. OTHER RESERVES
Share Fair
Share options Value
premium reserve reserve Total
£'000 £'000 £'000 £'000
At 1 January 2006 - 48 - 48
Recognition of share-based payments - 124 - 124
Shares issued at premium 206 - - 206
At 31 December 2006 206 172 - 378
Recognition of share-based payments - 100 - 100
Shares issued at premium 1,761 - - 1,761
Increase in fair value of financial asset investments, - - 63 63
net of deferred tax
At 31 December 2007 1,967 272 63 2,302
8. RETAINED EARNINGS / (DEFICIT)
2007 2006
£'000 £'000
At 1 January 543 (47)
Profit for the year attributable to equity holders of the parent 1,227 590
At 31 December 1,770 543
9. RECONCILIATION OF CASH GENERATED FROM OPERATIONS TO PROFIT FROM OPERATIONS
2007 2006
£'000 £'000
Operating profit 2,371 1,133
Depreciation on tangible fixed assets 224 83
Amortisation of intangible fixed assets 134 11
Profit on disposal of fixed assets - (2)
Profit on disposal of investments - (3)
Share-based payments 100 124
Increase in stocks (366) (397)
Increase in debtors (669) (130)
Increase in creditors 663 54
Cash generated from operations 2,457 873
This information is provided by RNS
The company news service from the London Stock Exchange
END
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