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23 March 2009

NEUTRAHEALTH PLC ('the Company')

2008 PRELIMINARY RESULTS STATEMENT 

NeutraHealth plc, one of the UK's leading vitamin & supplement companies, today announces preliminary results with profit ahead of expectations for the year ending 31 December 2008.

The Company has delivered 35% increase in revenue in the year, and basic EPS growth of 50%. Profit before tax has decreased by 3.7%.

EBITDA before one off items has fallen to £1.9m, but the cost restructuring made in 2008 means the Company is now even better positioned to improve performance in the year ahead.

Financial Highlights 

• Revenue increase of 35% to £28.9m (2007: £21.3m)

• EBITDA decrease of 32% to £1.9m (2007: £2.8m)

• PBT decrease of 3.7% to £1.8m (2007: £1.9m)

• Adjusted* EPS decline of 47% to 0.5p (2007: 1.0p)

• Basic and diluted EPS growth of 50% to 1.2p (2007: 0.8p)

• Significant one off items including £3.4m profit on disposal of subsidiary and £0.9m of restructuring costs

* Adjusted figure excludes the non-cash effect of acquired intangible asset amortisation, share option related charges and post tax impact of one off items.

Corporate Highlights 

• Acquisition of Perrigo UK, renamed Brunel Healthcare Manufacturing, in June 2008 for consideration of £6.4m, net of cash and costs

• Disposal of over-the-counter medicines business for £6.2 million, realising profit of £3.4m and funding the Perrigo acquisition

• Market leading position in private label supply to multiple retailers achieved

• Appointment of new Chief Executive Ray Myers in June 2008

Operational Highlights 

• Successful integration of Brunel Healthcare Manufacturing into the group

• Consolidation of Bristol and Swadlincote operations into one site, releasing synergies

• Successful roll out of CoQ10 products and Patrick Holford range of products

• Strong growth in export sales of BioCare range

• BioCare's Bio-Acidophilus Forte won the 2008 Best 'VMS' award, voted by health food retailers 

Outlook

• Strong position to face the challenges of 2009
• Greater focus on critical success factors for private label business, including innovation
• Further growth in exports assisted by weakness in sterling
• Improved performance through operational consolidation savings, cost restructuring to reflect market conditions, and targeted sales growth

Ray Myers, Chief Executive, commented:

'NeutraHealth came of age in 2008 with a transformational acquisition that made us stronger and better able to face the challenges of poor trading conditions. Our product portfolio includes private label products that benefit from consumers trading down from brands in supermarkets, and premium brand products that enjoy high brand loyalty and practitioner recommendation in other channels. 

This diversity means we are well placed to maintain current sales performance in the face of reduced consumer spending in the wider economy. Stable sales and lower costs, achieved through restructuring and synergy opportunities derived from last year's changes, give us confidence in the future.'

For more information:

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

NeutraHealth plc
Ray Myers, Chief Executive	07768 940 630
Robin Hilton, Finance Director	07738 018 411
Pelham Public Relations
Kate Catchpole	020 7337 1512
Cenkos (Nominated Adviser and Broker)
Stephen Keys	020 7397 8900

BUSINESS REVIEW

Overview

The Board is pleased to report that despite the tough economic conditions, NeutraHealth is in a strong position. We have a market leading position in two key vitamin and supplement channels - private label products for multiple retailers and premium branded products for practitioners. We are profitable, cash generative and focused on bolstering our position so that we will emerge from the current recession as a highly profitable growth company delivering increasing shareholder value.

Strategy

Our strategy since our foundation in 2005 has been 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 now operate significant businesses within each of the distinct sales channels within our market - practitioners, independent retailers, multiple retailers and direct to consumers.

This strategy remains intact. Circumstances dictate that our emphasis will be more on organic growth than acquisition over the coming year until confidence returns to the global equity and debt markets. We remain alert to acquisition opportunities, and will continue to investigate ways of improving our strategic position.

Significant Events

Acquisition

The major development in 2008 was the acquisition of Perrigo UK Limited, since renamed to Brunel Healthcare Manufacturing Limited and trading under the Brunel Healthcare banner. 

Perrigo UK Limited was our biggest competitor in the private label market for vitamins and supplements, and the acquisition put NeutraHealth in a market leading position with a competitive advantage. The acquisition included the leasehold of a state of the art 10,500 square metre MHRA approved manufacturing facility based in Swadlincote near Derby and modern development laboratories.

The acquisition presented significant synergy opportunities through economies of scale and through insourcing of packaging and manufacturing across the Group. These synergies are now being realised.

At the same time we disposed of our over-the-counter medicines (OTC) business to the Perrigo group, who have a global strength in this sector. Following changes in the market in early 2008, we concluded that there were limited opportunities for significant growth in revenue and profit. We agreed a disposal value of £6.2million for the OTC business, which we had acquired as an incidental part of the £5.5million acquisition of Brunel Healthcare in January 2007. This allowed us to realise a profit on disposal of £3.4 million, and fund the acquisition of the VMS business without increasing debt facilities. 

Consolidation

The transaction referred to above coincided with dramatic changes in the UK and global economy in the middle of the year. The start of the UK recession led to a slight reduction in sales while a global turbulence in commodity prices led to a more significant increase in input costs in the second half of the year. This eliminated the anticipated initial synergies from our acquisition, and led to profitability in 2008 being below that we achieved in the previous year.

We reviewed our operations in the light of the changed economic conditions, and determined that operational consolidation was essential to return the Group to a satisfactory level of profitability. During Autumn 2008 we proceeded to wind up the operations of Brunel Healthcare, based in Bristol, and transfer these operations to our newly acquired facility in Swadlincote. This was a difficult time for the 12% of employees affected by the closure, yet their dignity and integrity at all times ensured there was a successful transition to a single site operation. The Board would like to express its deepest gratitude to all of those employees, and wish them well in their future careers.

Review of Business

Vitamins and supplements as a consumer product have performed better than many other consumer items through the start of the recession in the UK economy. Consumers continue to require supplements to support their health. While some consumers may exit the market, viewing supplements as discretionary, this is balanced by consumers prioritising their health and by a switch from branded products to private label goods, which benefits Brunel. Our like-for-like sales in the year were marginally positive.

The following is a review of the major channels in our market sector. 

Multiple Retailers

We started the year with a strong business in this channel across private label vitamins and supplements, branded goods, and over-the-counter medicines.

The acquisition of our nearest competitor, the disposal of the OTC medicines, and the consolidation of all operations into Brunel Healthcare Manufacturing has created a market leading position in the private label supply to multiple retailers. This creates a focus for the business, with private label success prioritised ahead of developing contract manufacturing or branded business.

The four fundamentals for private label success are cost, quality, service and innovation. The first three are all qualifying factors essential to being a supplier to the multiples, rather than being differentiators. Innovation is the key to driving growth, and we have assembled a dedicated innovations team who work with suppliers and internal experts to deliver a stream of new products. We believe that this will strengthen our relationship with customers and increase barriers to entry.

We saw success in the early part of the year with the launch of our Kaneka CoQ10 product, a highly bio-available enzyme that supports the release of energy. Our Boots exclusive private label products, supported by significant first half marketing spend, delivered growth in the CoQ10 market. This has so far proved to be sustainable despite the recession and we expect further opportunities to emerge in this exciting sector.

In the second half of 2008, we saw consumer spending patterns changing. Initially, market share was lost as consumers traded down and shopped at discount retailers where we do not yet have a presence. This market share has now been recaptured, and we have benefited from consumers switching from branded to private label products. There is more stability in this market and we are seeing performance in line with our expectations, albeit slightly down on last year.

Practitioner Channel

BioCare remains the leading supplement brand for practitioners and nutritional experts to recommend to patients. This core business has declined by less than 3% in 2008. BioCare is a premium brand, and it is expected that during a recession it would suffer more than middle market brands. Yet this decline is not as considerable as other premium consumer products, emphasising that BioCare's range of supplements are used more as alternatives to medicinal products or as preventative medicine rather than simply dietary support alone.

BioCare has been successful in offsetting UK sales reduction with increases in exports. The BioCare brand has widespread international recognition. The lead times in opening up new territories are long, and our efforts in previous years have started to pay off. Exports remain an important source of growth for BioCare, helped by the current weakness in sterling.

At the end of the year, we completed the installation of a new computer system that will significantly increase data analysis capabilities, and is already providing a more efficient platform for trading. This includes total integration with all the trading websites. 

Independent Retailers

Our positioning in independent retailers is led by the Patrick Holford range of products, and supported in the higher end stores by BioCare products. 

Our Patrick Holford range was introduced gradually at the end of 2007, with 2008 seeing the completion of the first phase of the launch and a significant marketing campaign in the first half of the year. This range has performed in accordance with our expectations.

Recent years have seen the high street face considerable threat through dominance of bigger retailers and commodity offering through the internet. We see this channel developing into a more niche opportunity, and our strategy and activity reflect this. We support those independent retailers who are developing their offering with innovative products and services that help consumers make educated choices about their health.

Direct to Consumers

At the end of 2008, and on the back of significant back office system changes within the Group, we were able to rebrand and relaunch Health Products for Life as Totally Nourish with a newly designed website, costing very little. The new identity will support our efforts to grow this small business.

Nutrigold and BioCare websites have also been redeveloped, with all transactions now fully integrated with back office systems. 

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 earnings per share, sales growth, and return on capital employed. These KPIs are discussed below in the financial review.

Financial Review

EBITDA before one off items          2008 : £1.9m    2007 : £2.8m

A reduction in EBITDA is always disappointing, and is especially so given our successful performance last year and the transformation of the business mid-year.

During the first half of the year, we had significant marketing campaigns for the launch of our CoQ10 products and the promotion of the new Patrick Holford range of products. This promotional expenditure was committed and expended before market data indicated a significant slow down in economic growth. This discretionary spend was therefore already incurred when we faced worsening trading conditions.

During the second half of the year, and in light of changed conditions, we made significant changes to our business. Some of these resulted in one off expenses, as discussed below.

Profit on disposal of subsidiary        2008 : £3.4m    2007 : £nil

One off expenses                              2008 : £2.4m    2007 : £nil

The profit on disposal of subsidiary arose through the sale of the OTC medicines part of Brunel Healthcare. The proceeds received and the recognised profit represent a real cash benefit to NeutraHealth and not simply an accounting creation of profit. The proceeds of the sale were used to finance the acquisition in June 2008 that put us in the market leading position we are in today.

The one off expenses in the year include £0.8m of employee termination and restructuring costs which were settled in cash. The other three items, impairment of property, plant and equipment (£0.7m), impairment in investments (£0.3m) and recognition of onerous lease (£0.6m) are non-cash charges to the income statement. The impaired property, plant and equipment was acquired through Brunel Healthcare Limited in 2007, and was not a factor in the acquisition price paid at the time. The investments referred to had not been sold at the year end. And the onerous lease recognition, required under accounting standards, represents cashflows expected over the next three years.

Revenue                                             2008 : £28.9m  2007 : £21.3m    

Revenue increased significantly following the acquisition of Brunel Healthcare Manufacturing in the middle of the year. The full year effect of this acquisition, less sales of the disposed OTC product, will further increase revenue in 2009. Our 2008 like-for-like sales were marginally positive.

Revenue growth is only valuable where it increases gross margin, and we are cognisant of this in our pursuit of new business. 

Cash generated from operations    2008 : £0.8m    2007 : £2.5m

The cash generation was adversely affected by the reduced underlying performance, the one off termination and restructuring costs, and by changed credit terms with Boots, our largest customer, early in the year. This latter change was widely reported in the trade press as affecting all Boots suppliers following the private equity acquisition of Boots in 2007 financed largely by debt. The extent to which other customers could impact our cashflow in this way is limited through lower outstanding amounts with other customers, and the absence of similar levels of recently assumed debt.

Adjusted EPS                                      2008 : 0.5p    2007 : 1.0p

Basic and Diluted EPS                        2008 : 1.2p    2007 : 0.8p

The basic and diluted EPS figure, which is unadjusted for one off items, reflects the fact that NeutraHealth has had a good performance in the year, even after all of the cash and non-cash one off costs.

The adjusted EPS figure adjusts earnings for one off items, amortisation on intangible assets recognised on acquisition, and share option charges. We are focused on delivering performance that sees the EPS increase, and expect that as we secure new accounts and trading conditions improve, we will see a return to growth in EPS.

Return on Capital Employed             2008 : 7.9%    2007 : 10.4%

As with EPS above, we expect to deliver performance that increases this rate of return. 

Capital Structure

At the year end the Group had net debt of £4.3m, including finance leases. We consider this to be an acceptable level of gearing for the current environment and given our performance.

We are regularly informed by shareholders that they would value the introduction of a regular dividend payment. We believe it is better to use surplus cash to reduce the level of net debt during the economic recession, and as such have not declared a dividend for 2008. The dividend policy remains under constant review. 

Management

There have been significant changes in the NeutraHealth management during the year.

In June 2008, on the acquisition of Brunel Healthcare Manufacturing Limited, Ray Myers joined the Group as Chief Executive. Ray has over 25 years experience in the Healthcare sector in general management and operations.

Martin Gatto stepped down from the Board in August, having been Chairman since NeutraHealth's inception in 2005.

Michael Toxvaerd moved from Chief Executive to Deputy Chairman on the appointment of Ray Myers. Having supported the transfer of executive responsibility to Ray, Michael stepped down from the Board shortly after the year end, although he remains an advisor to the Group.  

Ron Stagg, Executive Director and founder of Brunel Healthcare Limited, stepped down from the Board in March 2009 following the closure of Bristol operations and concurrent with the final Brunel Healthcare Limited earn out payment.

Zulfi Hydari stepped down as Non-executive Director also in March 2009 to focus attention on his Middle East business affairs.

Each individual who left the Board made an invaluable contribution to NeutraHealth, and the Board wishes to express its gratitude and extend good wishes for the future.

Elder Pharmaceutical

The Board has had recent discussions with Elder regarding a potential partial offer for NeutraHealth that would lead to them holding a majority share of between 55% and 60%. Talks have now been terminated. Feedback from our shareholders endorsed the Board's view that the risks faced by shareholders retaining a minority holding in a Company controlled by one corporate shareholder would not be sufficiently mitigated or overcome by either the price being offered or by any shareholder's desire to liquidate their current investment. 

It remains to be seen what effect the termination of discussions will have on Elder's management of their investment. Whatever the outcome, this will have negligible impact on trading performance.

Outlook

NeutraHealth's strategy of a two-pronged drive for growth through organic expansion and consolidative acquisition remains valid. For the time being acquisitions will be severely limited by funding restrictions and management time will be dedicated to driving organic growth in all its businesses.

There were a lot of changes in NeutraHealth in 2008. The business was transformed by successful delivery of our acquisitive strategy, and then again to respond to changing market conditions. Through our actions and preparation in 2008, we have put ourselves in a strong position to tackle the economic challenges ahead. We expect that 2009 will be a year of stagnation in the wider economy, and that 2010 will see the start of the recovery.

Our priority for the coming year is to at least sustain the level of profitability, and continue to generate and preserve cash. We will act decisively to capitalise on our competitors' weaknesses and to respond to any further changes in the market. We expect to improve our financial performance without the economy recovering, and once consumer confidence returns, we expect to perform much better.

Ray Myers           Robin Hilton

Chief Executive    Finance Director

20 March 2009

  Consolidated Income Statement

Year ended 31 December 2008

	Note	2008 £’000		2007 £’000
REVENUE		28,864		21,307
Cost of sales		(18,047)		(13,118)
Gross profit		10,817		8,189
Other operating income		641		74
Administrative expenses		(10,251)		(5,892)
PROFIT FROM OPERATIONS BEFORE ONE OFF ITEMS		1,207		2,371
Other expenses:
Employee termination and reorganisation costs		(825)		-
Impairment of property, plant and equipment		(675)		-
Impairment of available-for-sale investments		(262)		-
Recognition of onerous lease		(615)		-
Profit on disposal of subsidiary		3,380		-
PROFIT FROM OPERATIONS		2,210		2,371
Investment income		72		84
Finance costs		(489)		(593)
PROFIT BEFORE TAX		1,793		1,862
Income tax expense	3	318		(635)
PROFIT FOR THE YEAR		2,111		1,227
Earnings per share
Basic	4	1.2p		0.8p
Diluted	4	1.2p		0.8p

 

 

  Consolidated Balance Sheet

At 31 December 2008

	Note	2008               £’000		2007 £’000
ASSETS
Non-current assets
Goodwill		18,414		20,049
Other intangible assets		1,935		1,498
Property, plant & equipment		4,245		1,324
Available-for-sale investments		-		350
Deferred tax assets		129		-
		24,723		23,221
Current assets
Inventories		5,691		3,212
Trade and other receivables		6,929		3,701
Current tax assets		39		-
Cash and cash equivalents		1,283		3,389
		13,942		10,302
Total assets		38,665		33,523
EQUITY AND LIABILITIES
Capital and reserves
Share capital	7	17,599		17,599
Other reserves	8	2,161		2,302
Retained earnings	9	4,015		1,770
Total equity attributable to equity holders of the parent		23,775		21,671
Non-current liabilities
Trade and other payables		-		676
Deferred tax liabilities		899		655
Provisions		640		-
Bank loan		4,544		3,416
Obligations under finance leases		57		118
		6,140		4,865
Current liabilities
Trade and other payables		7,292		5,298
Current tax liabilities		-		558
Provisions		425		-
Bank loan		972		972
Obligations under finance leases		61		159
		8,750		6,987
Total liabilities		14,890		11,852
Total equity and liabilities		38,665		33,523

  Consolidated Cash Flow Statement

Year ended 31 December 2008

	Note	2008 £’000		2007 £’000
OPERATING ACTIVITIES
Cash receipts from customers		23,952		17,076
Cash paid to suppliers and employees		(23,121)		(14,619)
Cash generated from operations	10	831		2,457
Income taxes paid		(190)		(283)
Interest paid		(437)		(478)
Net cash generated by operating activities		204		1,696
INVESTING ACTIVITIES
Interest received		72		83
Purchase of property, plant & equipment		(656)		(321)
Purchase of intangible assets		(468)		(26)
Acquisition of subsidiaries net of cash acquired		(7,860)		(4,334)
Disposal of subsidiary net of cash disposed		5,661		-
Acquisition of financial asset investments		-		(262)
Net cash used in investing activities		(3,251)		(4,860)
FINANCING ACTIVITIES
Repayment of borrowings		(1,000)		(1,241)
Repayment of obligations under finance leases		(159)		(147)
New finance leases		-		172
Proceeds on issue of shares		-		5,632
Cost of issue of shares		-		(348)
New bank loans raised		2,100		1,400
Cost of raising bank loans		-		(87)
Net cash from financing activities		941		5,381
Net decrease / (increase) in cash and cash equivalents		(2,106)		2,217
Cash and cash equivalents at the beginning of the year		3,389		1,172
Cash and cash equivalents at the end of the year		1,283		3,389

  Consolidated Statement of Changes in Equity

Year ended 31 December 2008

	Share capital £’000	Other reserves £’000	Retained earnings £’000	Total   £’000
At 1 January 2007	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	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
Profit for the year	-	-	2,111	2,111
Decrease in fair value of financial asset investments, net of deferred tax	-	(63)	-	(63)
Total recognised income and expense for the year	-	(63)	2,111	2,048
Recognition of share-based payments	-	56	-	56
Lapse of share options	-	(134)	134	-
Changes in equity	-	(78)	134	56
At 31 December 2008	17,599	2,161	4,015	23,775

  Notes to the Consolidated Financial Statements

 

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 2008 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 2008. Statutory accounts for the year ended 31 December 2007 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 28 April 2009 at Brunel Healthcare Manufacturing, William Nadin Way, Swadlincote, DE11 0BB.

 

The consolidated financial statements for the year ended 31 December 2008 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 2007. 

	2008 £’000		2007 £’000
Corporation tax – current year	42		627
Deferred tax	(352)		18
	(310)		645
Corporation tax – prior year	(8)		(10)
Income tax (credit) / expense for the year	(318)		635

Income tax is calculated at 28.5% (2007 : 30%) of the estimated assessable profit for the year. On 1 April 2008, the rate of corporation tax applicable to the UK companies in the Group fell 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.

 3.     TAXATION (continued)

The total charge for the year can be reconciled to the accounting profit as follows:

	2008 £’000	%	2007 £’000	%
Profit before tax	1,793		1,862
Tax at the income tax rate of 28.5%	511	28.5	559	30.0
Tax effect of non-taxable profit on disposal of subsidiary	(963)	(53.7)	-	-
Tax effect of expenses that are not deductible in determining taxable profit	79	4.4	41	2.2
Tax effect of non-deductible impairment of available-for-sale investments	75	4.2	-	-
Tax effect of small company rate in group companies	(12)	(0.7)	(7)	(0.4)
Tax effect of over provision in prior year	(8)	(0.4)	(10)	(0.5)
Tax effect of changes in share price on deferred tax	-	-	52	2.8
Tax (credit) / expense and effective tax rate for the year	(318)	(17.7)	635	34.1

	2008 £’000		2007 £’000
Earnings
Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to equity holders of the parent)	2,111		1,227
Add back:
Amortisation of intangible assets recognised on acquisition, net of deferred tax credit	136		89
Charges for share options in issue	56		100
Changes in deferred tax as a result of share price movements	-		52
One off items, net of corporation tax impact	1,974		-
Less profit of disposal of subsidiary	(3,380)		-
Earnings for the purpose of adjusted earnings per share	897		1,468
	2008 Number ‘000		2007 Number ‘000
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	175,985		152,553
Effect of dilutive potential ordinary shares:
Share options	-		1,329
Weighted average number of ordinary shares for the purposes of diluted earnings per share	175,985		153,882

  5.    ACQUISITION OF SUBSIDIARY

Brunel Healthcare Manufacturing Limited

On 17th June 2008, the Group acquired 100% of the issued share capital of Perrigo UK Limited, subsequently renamed as Brunel Healthcare Manufacturing Limited, for consideration of £6.9 million net of cash acquired plus directly attributable costs. 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 £’000	Fair Value Adjustments £000	Fair Value £’000
Net assets acquired:
Property, plant and equipment	2,343	1,125	3,468
Intangible assets	120	-	120
Inventories	3,918	-	3,918
Trade receivables	2,328	-	2,328
Other receivables	460	-	460
Cash at bank	377	-	377
Trade payables	(2,049)	-	(2,049)
Corporation tax	(131)	146	15
Other payables	(682)	-	(682)
Provisions	-	(521)	(521)
Deferred tax liability	(177)	(315)	(492)
	6,507	435	6,942
Goodwill			315
Total consideration			7,257
Satisfied by:
Cash			6,792
Directly attributable costs			465
Net cashflow arising on acquisition:
Cash consideration paid			7,257
Cash acquired			(377)
			6,880

   

The Company's review of acquired property, plant and equipment identified a number of assets that were written down to nil book value, but were still being used by the business. We identified these assets as having a current value of £1,125,000, and have adjusted the fair value of property, plant and equipment acquired accordingly. The deferred tax adjustment of £315,000 relates to this fair value adjustment.

The Company's review of contracts on acquisition identified two contracts that were loss making. A provision the losses of £521,000 on these onerous contracts were made as a fair value adjustment, with the corresponding reduction in corporation tax liability also adjusted.

The book and fair values have changed from the provisional amounts included in the interim financial statements for the 6 months ending 30 June 2008 following conclusion of the transaction finalisation process and our internal reviews.

  5.    ACQUISITION OF SUBSIDIARY (continued)

The most recent financial statements for Brunel Healthcare Manufacturing Limited show a revenue of £18.0m and a profit from operations of £0.5m for the year ending 31 May 2008. Brunel Healthcare Manufacturing Limited contributed £10.7m revenue and £0.3m profit before tax (excluding one off items) for the period between the date of acquisition and the balance sheet date. If this acquisition had occurred on 1 January 2008 Group revenue of £18.9m and loss before tax (excluding one off items) of £0.2m would have been included in the Group figures.

In addition to the above, the Company paid deferred consideration of £780,000 and £200,000 for the acquisitions of Brunel Healthcare Limited and Totally Nourish Limited respectively. These amounts were recognised as a cost of acquisition and a liability at 31 December 2007.

6.    DISPOSAL OF SUBSIDIARY

On 17th June 2008, the Group disposed 100% of the issued share capital of Brunel Healthcare Limited, renamed as Brunel Pharma Limited, for consideration of £6.2 million.

Immediately preceding the transaction, the vitamin and supplements business of Brunel Healthcare Limited was hived across to an existing dormant subsidiary renamed Brunel Healthcare Limited. 

The net assets of Brunel Pharma at the date of disposal were as follows:

			£’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
Costs of disposal			(31)
Cash disposed of			(508)
			5,661

 

In the opinion of the Directors, this disposal does not meet the IFRS 5 definition of a discontinued activity. The sale of part of the over-the-counter medicine portfolio represented an opportunistic profitable disposal of a product grouping that was not a separate major business line. 

In the year to 31 December 2007, the revenue and attributable profit from operations of the disposed products were £5.2m and £0.3m respectively. In the period to disposal in 2008 the revenue and attributable profit from operations for the year were £2.8m and £0.2m respectively.

 7.   share capital

		2008 £’000		2007 £’000
Authorised:
300,000,000 ordinary shares of 10p each		30,000		30,000
Issued and fully paid:
At 1 January		17,599		14,079
35,197,036 shares issued for cash		-		3,520
At 31 December		17,599		17,599

The Company has 175,985,137 (2007    : 175,985,137) shares in issue. The Company has one class of ordinary shares which carry no right to fixed income.

8.    OTHER RESERVES

	Share premium £’000	Share-based payment reserve £’000	Fair value reserve £’000	Total £’000
At 1 January 2007	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, net of deferred tax	-	-	63	63
At 31 December 2007	1,967	272	63	2,302
Recognition of share-based payments	-	56	-	56
Transfer of lapsed share options value to Retained Earnings	-	(134)	-	(134)
Decrease in fair value of financial asset investments, net of deferred tax	-	-	(63)	(63)
At 31 December 2008	1,967	194	-	2,161

9.    RETAINED EARNINGS 

	2008		2007
	£’000		£’000
At 1 January	1,770		543
Profit for the year attributable to equity holders of the parent	2,111		1,227
Transfer of lapsed share options value from Other Reserves	134		-
At 31 December	4,015		1,770

 

 

10.   RECONCILIATION OF CASH GENERATED FROM OPERATIONS TO PROFIT FROM OPERATIONS

	2008 £’000		2007 £’000
Profit from operations	2,210		2,371
Depreciation and impairment of property, plant and equipment	1,202		224
Amortisation of intangible fixed assets	151		134
Share-based payment	56		100
Profit on disposal of subsidiary	(3,380)		-
Impairment of available-for-sale investments	262		-
Decrease / (Increase) in stocks	719		(366)
Increase in debtors	(874)		(669)
Increase in creditors	485		663
Cash generated from operations	831		2,457

 

 

ENDFR EALDEAALNEFE