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22 July 2008

NEUTRAHEALTH PLC ('the Company')

ANNOUNCEMENT OF 2008 INTERIM RESULTS 

NeutraHealth plc, one of the leading UK vitamins & supplements companies, today announces its interim results for the six months to 30th June 2008. 

Financial Highlights

• Revenue increased by 18% to £11.6m (2007 interim: £9.8m)

• Gross profit increased by 11% to £4.3m (2007 interim: £3.8m)

• Adjusted EBITDA before marketing costs and one off income and costs increased by 16% to £2.0m (2007 interim: £1.7m)

• Profit on disposal of Brunel Healthcare OTC business of £3.4m

• EPS increased by 518% to 2.0p (2007 interim: 0.3p)

• Adjusted EPS decreased by 35% to 0.25p (2007 interim: 0.4p), including 20% dilution effect from Elder Pharmaceuticals investment in August 2007 

Operational Highlights

• Marketing spend of £1.1m (2007 interim: £0.57m) supporting Patrick Holford and CoQ10 roll out

• CoQ10 market expanded by 216% to exceed £2.0m at retail prices

• Smooth initial integration of Perrigo UK, renamed as Brunel Healthcare Manufacturing 

Corporate Highlights 

• Appointment of Ray Myers as Chief Executive in June 2008; Michael Toxvaerd appointed Deputy Chairman

• Acquisition of Perrigo UK in June 2008 for consideration of £6.1 million, net of cash acquired and costs

• Disposal of NeutraHealth's over the counter (OTC) medicines business for £6.2m 

• Acquisition of Gerard House and Galloway herbal licenses in February 2008 for £0.4m

Michael Toxvaerd, NeutraHealth Deputy Chairman, commented:

'2008 has started successfully for NeutraHealth. We have demonstrated strong organic sales growth in difficult trading conditions, and we have expanded the market for Patrick Holford and CoQ10 through our major marketing campaigns earlier in the year. 

The Company has been transformed in the last month with the acquisition of Perrigo UK, an excellent manufacturing facility in the Midlands, funded through disposal of our Brunel over the counter medicines business for £6.2m. Our initial analysis of Perrigo UK has indicated that the opportunities for realising synergies are as expected. 

NeutraHealth now dominates two of the key sales channels in the UK market, and we have the facilities and management in place to achieve significant growth in profitability in the next 18 months.'

For more information:

Further information for investors is available on the Company's website at www.neutrahealthplc.com/

NeutraHealth plc
Michael Toxvaerd, Deputy Chairman	07730 581 584
Ray Myers, Chief Executive	07768 940 630
Robin Hilton, Finance Director	07738 018 411
Cenkos (Nominated Adviser and Broker)
Stephen Keys	020 7397 8900
Pelham Public Relations
James Henderson	020 7743 6672
Gavin Davis	020 7743 6677

  BOARD STATEMENT

After a very successful 2007, the Group has delivered a strong performance in the first half of 2008. Sales are up 18% in difficult trading conditions, and underlying profitability is up by over 15%. Our marketing activity has been intense in the last 6 months, with a marketing spend of £1.1m, double the amount spent in 2007. This spend has supported a major nationwide promotion of our CoQ10 product, and has supported the ongoing roll out of the Patrick Holford range of products. Both campaigns have resulted in a higher level of sales. We expect this to be sustained over the second half of the year without the need for the same level of marketing spend.

The major development in 2008 has been the recent acquisition of Perrigo UK Limited, since renamed to Brunel Healthcare Manufacturing Limited and trading under the Brunel Healthcare banner. The acquisition of our biggest competitor in the private label market for vitamins and supplements puts NeutraHealth in a dominant market position with a competitive advantage. We will increasingly focus on leveraging that strength, and reassess the smaller brands in our portfolio that have limited future value, such as Champneys. Innovation will be an important aspect of our customer offering in the future, and the acquired research facilities and resources will support this function. 

The newly acquired site includes the leasehold of a state of the art 10,500 square metre MHRA approved manufacturing facility based in Swadlincote near Derby. The business manufactures private label product for customers and is also a contract manufacturer. This presents significant synergy opportunities for the Group which until now has outsourced all packaging and manufacturing of products. 

At the same time as the acquisition we disposed of our over the counter business. This business was acquired as part of the £5.5m acquisition of Brunel Healthcare in January 2007. We have kept this side of our business under review since then as it was not part of the core NeutraHealth strategy of consolidating the vitamins and supplements market. We recently concluded that there were limited opportunities for significant growth in revenue and profit. As part of the Perrigo UK acquisition we agreed a disposal value of £6.2million for the OTC business. Given that this exceeds the original acquisition cost, and equates to a third of the total Brunel business, we believe we have secured an excellent result for shareholders. This is reflected in the exceptional profit of £3.4m recognised on disposal.

Outlook

The priority for the second half of 2008 is to complete the integration of Brunel Manufacturing into the NeutraHealth group, and to have all synergy opportunities identified and realised to their fullest extent so that we can benefit from these through 2009 and beyond.

We are already well progressed with the integration. Our initial analysis stage has recently completed and we have begun to implement the profit improvement plan developed through that process. We expect to complete this work by mid Autumn. 

Other initiatives within the Group are ongoing. We are increasingly successful with our export development, with distribution growing significantly. The Patrick Holford range of product continues to expand and the initial results have been encouraging.

The area of the vitamins and supplements market that is suffering most from the economic climate is the independent high street retailers. We only have limited exposure to this market, and the downturn in this business is more than compensated for by the Patrick Holford brand growth.

The acquisition pipeline continues to be strong. The extent to which these acquisitions can be secured will depend in part on the performance of our share price. The biggest risk facing us currently is being unable to issue equity at a sensible price to secure significant acquisition growth. In the meantime, we remain fully focused on expanding our very strong business and continuing to deliver on the profitable growth that our shareholders have experienced since inception.

  Consolidated Income Statement

Six months ended 30 June 2008

	Unaudited 6 months 30 June 2008 £'000		Unaudited 6 months 30 June 2007 £'000		Audited 12 months 31 December 2007 £'000
CONTINUING OPERATIONS
REVENUE		8,773		9,786		21,307
Cost of sales		(5,309)		(5,965)		(13,118)
Gross profit		3,464		3,821		8,189
Other operating income		-		-		74
Administrative expenses		(3,032)		(2,908)		(5,892)
One off integration costs		(145)		-		-
PROFIT FROM OPERATIONS		287		913		2,371
Investment income		34		24		84
Finance costs		(226)		(283)		(593)
PROFIT BEFORE TAX		95		654		1,862
Income tax expense		(75)		(188)		(635)
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS		20		466		1,227
DISCONTINUED OPERATIONS
Profit on disposal of subsidiary		3,380		-		-
Profit from discontinued operations		193		-		-
PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY		3,593		466		1,227
Earnings per share
Basic		2.0p		0.3p		0.8p
Diluted		2.0p		0.3p		0.8p

The figures for prior periods have not been adjusted to reflect the discontinued operations.

  Consolidated Statement of Equity

Six months ended 30 June 2008

	Share capital £'000	Other reserves £'000	Retained earnings £'000	Total £'000
At 1 January 2008	17,599	2,302	1,770	21,671
Profit for the period	-	-	3,593	3,593
Recognition of share based payments	-	23	-	23
Decrease in fair value of financial asset investments, net of deferred tax	-	(63)	-	(63)
At 30 June 2008	17,599	2,262	5,363	25,224

  Consolidated Balance Sheet

At 30 June 2008    

	Unaudited 30 June 2008 £'000		Unaudited 30 June 2007 £'000		Audited 31 December 2007 £'000
ASSETS
Non-current assets
Goodwill		18,657		18,449		20,049
Other intangible assets		1,780		1,519		1,498
Property, plant & equipment		3,922		1,212		1,324
Available-for-sale investments		262		-		350
Deferred tax assets		-		110		-
		24,621		21,290		23,221
Current assets
Inventories		6,798		3,099		3,212
Trade and other receivables		7,433		2,791		3,701
Cash and cash equivalents		1,955		1,223		3,389
		16,186		7,113		10,302
Total assets		40,807		28,403		33,523
EQUITY AND LIABILITIES
Capital and reserves
Share capital		17,599		14,079		17,599
Other reserves		2,262		465		2,302
Retained earnings		5,363		1,009		1,770
Total equity attributable to equity holders of the parent		25,224		15,553		21,671
Non-current liabilities
Trade and other payables				-		676
Deferred tax liabilities		797		222		655
Bank loan		2,929		6,497		3,416
Obligations under finance leases		86		30		118
		3,812		6,749		4,865
Current liabilities
Trade and other payables		8,923		4,553		5,298
Current tax liabilities		288		422		558
Bank loan		2,472		976		972
Obligations under finance leases		88		150		159
		11,771		6,101		6,987
Total liabilities		15,583		12,850		11,852
Total equity and liabilities		40,807		28,403		33,523

  Consolidated Cash Flow Statement

Six months ended 30 June 2008

Unaudited 6 months 2008 £'000		Unaudited 6 months 2007 £'000		Audited 12 months 2007 £'000
OPERATING ACTIVITIES
Cash receipts from customers	9,797		10,246		17,076
Cash paid to suppliers and employees	(9,360)		(9,156)		(14,619)
Cash generated from operations	437		1,090		2,457
Income taxes paid	(111)		(21)		(283)
Interest paid	(242)		(43)		(478)
Net cash from operating activities	84		1,026		1,696
INVESTING ACTIVITIES
Interest received	34		24		83
Purchases of property, plant & equipment	(252)		(65)		(321)
Payments for intangible assets	(425)		(5)		(26)
Acquisition of subsidiaries, net of cash acquired	(7,464)		(4,769)		(4,334)
Disposal of subsidiary, net of cash disposed	5,692		-		-
Acquisition of available for sale investments	-		-		(262)
Net cash used in investing activities	(2,415)		(4,815)		(4,860)
FINANCING ACTIVITIES
Repayment of borrowings	(500)		-		(1,241)
Repayment of obligations under finance leases	(103)		(72)		(147)
New finance leases	-		-		172
Proceeds on issue of shares	-		-		5,632
Cost of issue of shares	-		-		(348)
New bank loans raised	1,500		3,912		1,400
Cost of raising bank loans	-		-		(87)
Net cash from financing activities	897		3,840		5,381
Net (decrease) / increase in cash and cash equivalents	(1,434)		51		2,217
Cash and cash equivalents at the beginning of the period	3,389		1,172		1,172
Cash and cash equivalents at the end of the period	1,955		1,223		3,389

  Notes to the Interim Report

For the six months ended 30 June 2008

	Unaudited 6 months 2008 £'000	Unaudited 6 months 2007 £'000
Adjusted EBITDA	1,983	1,714
Marketing costs	(1,127)	(570)
Amortisation of intangible assets arising on consolidation	(68)	(52)
Charge for share based payments	(23)	(64)
Depreciation	(140)	(115)
Profit from discontinued operations	(193)	-
Integration costs	(145)	-
Profit from Continuing Operations	287	913

3.     Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those of other members of the group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business Combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date, except for non-current assets that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

In the event that the acquisition includes conditional earn-out consideration, the Group recognises the liability for the earn out when it is considered likely that the necessary conditions are met. The liability is recorded at its fair value on the date of recognition.

Other Intangible Assets

Other Intangible assets include trademarks, website costs and key customer relationships.

Trademarks are stated at fair value less accumulated amortisation if acquired in a business combination or at purchase cost for subsequent additions. Trademarks are valued on an individual basis and amortised over their estimated useful lives of between 5 and 20 years.

Website costs are stated at cost less accumulated amortisation. Amortisation is charged over the estimated useful life of 5 years and is included within administrative expenses

Key customer relationships are stated at fair value less accumulated amortisation if acquired in a business combination. Key relationships are valued on an individual basis and amortised over their estimated useful lives of between 3 and 12 years.

        Financial Asset Investments

Financial asset investments are initially recognised at fair value plus transaction costs. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as financial asset investments are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.

 

 

	Unaudited 6 months 2008 £'000	Unaudited 6 months 2007 £'000	Audited 12 months 2007 £'000
CONTINUING OPERATIONS
United Kingdom	8,078	9,159	20,249
Europe (excluding UK)	536	545	832
Rest of world	159	82	226
	8,773	9,786	21,307
DISCONTINUED OPERATIONS
United Kingdom	2,785	-	-
	11,558	9,786	21,307

 

	Unaudited 6 months 2008 £'000	Unaudited 6 months 2007 £'000	Audited 12 months 2007 £'000
Earnings
Earnings for the purposes of basic and diluted earning per share (profit for the period attributable to equity holders of the parent)	3,593	466	1,227
Added back / (deducted) to calculate Adjusted EPS
-  Profit on disposal of Brunel         OTC	(3,380)	-	-
-  Integration costs	145	-	-
-  amortisation of separately           identifiable intangible assets         arising on acquisition	51	52	89
-  charge for share based          payments	23	64	100
-  changes in deferred tax as a         result of share price         movements	-	(52)	52
Earnings for the purposes of Adjusted EPS	432	530	1,468
Number	'000	'000	'000
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	175,985	140,788	152,553
Effect of dilutive potential ordinary shares:
Share options	-	609	1,329
Weighted average number of ordinary shares for the purposes of diluted earnings per share	175,985	141,397	153,882

     

	Book Value £'000	Fair Value Adjustments £'000	Fair Value £'000
Net assets acquired:
Property, plant and equipment	2,410	-	2,410
Intangible assets	118	(118)	-
Inventories	3,918	-	3,918
Trade receivables	2,348	-	2,348
Other receivables	473	-	473
Cash at Bank	386	-	386
Trade payables	(1,999)	-	(1,999)
Other payables	(662)	-	(662)
Corporation tax	(168)	-	(168)
Deferred tax liability	(194)	-	(194)
	6,630	(118)	6,512
Goodwill			558
Total consideration			7,070
Satisfied by:
Cash			6,630
Directly attributable costs			440
Net Cashflow arising on acquisition:
Cash consideration paid			(7,070)
Cash acquired			386
			(6,684)

The fair value adjustment for intangible assets represents licenses that do not have any value due to their imminent expiry.

The most recent financial statements for Brunel Healthcare Manufacturing Limited show a revenue of £14.9m and a Loss from Operations of £0.5m for the year ending 31 May 2007. The draft financial statements for the year ending 31 May 2008 report an operating profit before exceptional items. The Directors believe that substantial synergies are available as a result of the acquisition.

In addition to the above, the Company paid deferred consideration of £780,000 for the acquisition of Brunel Healthcare Limited. This was recognised as a cost of acquisition and a liability at 31 December 2007.

  

			£'000
Net assets disposed:
Inventories			720
Other receivables			434
Cash at Bank			508
Other payables			(358)
Corporation tax			(434)
Attributable goodwill			1,950
			2,820
Profit on disposal			3,380
Total consideration			6,200
Satisfied by:
Cash			6,200
Net Cashflow arising on acquisition:
Cash consideration received			6,200
Cash disposed of			(508)
			5,692

ENDIR UAVBRWVRBUAR