FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of January, 2003
Commission File Number 333-12634
GALEN HOLDINGS PUBLIC LIMITED COMPANY
(Translation of registrant's name into English)
Seagoe Industrial Estate
Craigavon
BT63 5UA
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F |X| Form 40-F |_|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): |_|
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): |_|
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K if submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
2
Yes |_| No |X|
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ________
SCHEDULE OF INFORMATION CONTAINED IN THIS REPORT
Annual Report and Accounts for the year ended September 30, 2002, incorporated
by reference into the Annual Report on Form 20-F for the year ended September
30, 2002 as exhibit 99.1 thereto.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GALEN HOLDINGS PUBLIC LIMITED COMPANY
By: /s/ Anthony D. Bruno
------------------------------------
Name: Anthony D. Bruno
Title: Senior Vice President, Corporate
Date: 2 January 2003 Development and General Counsel
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GALEN
------------
HOLDINGS PLC
FOCUS
[GRAPHIC OMITTED]
GROWTH
2002 Annual Report and Accounts
Galen Holdings at a glance 2002
The Company
Galen Holdings PLC (LSE: GAL/NASDAQ: GALN) is an international pharmaceutical
company focused on three core therapeutic areas: women's healthcare, dermatology
and urology. The Company was listed on the London Stock Exchange and the Irish
Stock Exchange in 1997 and in the United States on the Nasdaq National Market(R)
in 2000, subsequent to its acquisition of Warner Chilcott, plc, on 29 September
2000. Galen develops, manufactures, supplies and markets branded prescription
pharmaceutical products in the United Kingdom, Ireland and the United States.
Nearly 75% of our pharmaceutical revenues are generated in the United States.
The divestment of our pharmaceutical services businesses during 2002 for a total
of (pound)156.3 million has transformed Galen into a pharmaceutical company with
a clear therapeutic focus and a strong presence in the United States. Revenues
generated from Duricef(R) and Moisturel(R), products acquired from Bristol-Myers
Squibb in 2002 for $40 million, replaced earnings lost by the divestiture of the
pharmaceutical services businesses in the second half of 2002. Based in
Craigavon, Northern Ireland and Rockaway, New Jersey in the US, Galen is well
positioned to meet the needs of a global marketplace. As of 30 September 2002,
our employees totalled 960, of which 298 are employed in the US.
PERFORMANCE
Our Growth Strategy: We have made great progress towards the creation of
an international pharmaceutical company. We will continue to develop
powerful sales & marketing and research & development organizations, and
leverage our substantial management experience to enable us to implement
our growth strategy and enhance shareholder value. Our future growth
depends on our ability to successfully continue organic growth through our
existing businesses, develop and commercialise new proprietary products
and selectively acquire products which complement our existing ranges. Our
activities during the year have demonstrated success in all three elements
of this strategy and we have created strong foundations for further growth
in 2003.
The execution of our growth strategy in 2002 included:
Organic Growth:
Jan.-Sept. 2001 Jan.-Sept. 2002
Product New Prescriptions New Prescriptions Change (%)
--------------------------------------------------------------------------
Doryx(R) 75 mg & 100 mg 135,607 223,237 65%
Ovcon(R) 35 257,857 328,313 27%
Estrace(R) Cream 328,309 347,525 6%
Source: NDCHealth
New Proprietary Products: An important part of our strategy is to develop
and commercialise pharmaceutical products based on innovative formulations
and novel drug delivery technology, particularly our proprietary
intravaginal ring, or IVR, technology. In October 2002, we received an
approvable letter from the US Food and Drug Administration (FDA) for our
estradiol acetate intravaginal ring, sold in the United Kingdom as
Menoring(R). In addition, our new drug application for our line extension
of Ovcon(R) was accepted for filing by the FDA in June 2002. We launched
Doryx(R) 75 mg, a new dosage of our proprietary pelletised formulation of
doxycycline, Doryx(R), in January 2002. Doryx(R) 75 mg has been performing
well and we expect accelerated growth of the Doryx(R) brand due to this
new strength.
Selective Acquisitions: In March 2002, we acquired from Bristol-Myers
Squibb two profitable dermatology products: the antibiotic Duricef(R) and
the skin cream Moisturel(R). In addition, we announced in December 2002
that we entered into a conditional agreement to acquire the US sales and
marketing rights to Sarafem(R) from Eli Lilly and Company ("Lilly"). The
agreement is conditional on US regulatory approval. Sarafem(R) is an FDA
approved prescription treatment for pre-menstrual dysphoric disorder, a
severe form of pre-menstrual syndrome. Launched by Lilly in 2000,
Sarafem(R) generated sales of approximately $85 million in the United
States in the year ended 31 December 2001.
Management and Corporate Information
Board of Directors
Dr John A King
Executive Chairman
Roger M Boissonneault
Chief Executive Officer
R Geoffrey Elliott
Chief Financial Officer
Non-Executive Directors:
Dr Michael G Carter (1, 2)
Dr Harold Ennis, OBE (1, 2)
David Gibbons, MBE (1, 2)
(1) Audit Committee
(2) Remuneration Committee
Management
Galen Holdings PLC
Dr John A King
Executive Chairman
Roger M Boissonneault
Chief Executive Officer
R Geoffrey Elliott
Chief Financial Officer
Anthony D Bruno
Senior Vice President,
Corporate Development & General Counsel
David G Kelly
Senior Vice President,
Finance & Planning
William J Poll
Senior Vice President, Finance
Pharmaceuticals
W Carlton Reichel
President, Pharmaceuticals
Technical Operations
Leland H Cross
Senior Vice President,
Technical Operations
Research & Development
Dr Herman Ellman
Senior Vice President,
Clinical Development
Regulatory Affairs
Alvin Howard
Vice President,
Regulatory Affairs
Shareholder Services
Registrar for Ordinary Shares
Computershare Investor Services PLC
PO Box 82, The Pavilions
Bridgewater Road
Bristol BS99 7NH
Stock Information
Ordinary Shares
London Stock Exchange: GAL.L
Irish Stock Exchange: GAL
American Depositary Shares
NASDAQ: GALN
Depository for ADS/Notes
Bank of New York
101 Barclay Street
New York, NY 10286
Investor Inquiries
For investor information, please contact:
USA
Warner Chilcott, Inc.
100 Enterprise Drive
Rockaway, NJ 07866
Tel: +1 973-442-3200 or
800-521-8813
Email: ir@wclabs.com
International
Galen Holdings PLC
Seagoe Industrial Estate
Craigavon, Northern Ireland
BT63 5UA
Tel: +44 28 3833 4974
Email:
investorrelations@galenplc.com
Registered Office
Seagoe Industrial Estate
Craigavon, Northern Ireland
BT63 5UA
Registered Number
NI25836
Secretary
Anthony D Bruno
Website
www.galenplc.com
Stockbrokers
ABN AMRO Equities Ltd
Hoare Govett Ltd
250 Bishopsgate
London EC2M 4AA
Credit Suisse First Boston
One Cabot Square
London E14 4QJ
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
Goodbody Stockbrokers
Ballsbridge Park
Dublin 4
Registered Auditors
PricewaterhouseCoopers
Waterfront Plaza
8 Laganbank Road
Belfast BT1 3LR
Solicitors
Ashurst Morris Crisp
Broadwalk House
5 Appold Street
London EC2A 2HA
US Legal Advisors
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Financial Advisors
Merrill Lynch International
2 King Edward Street
London EC1A 1HQ
Principal Bankers
Bank of Ireland
Donegall House
7 Donegall Square North
Belfast BT1 5LU
[LOGO] [LOGO] [LOGO] GALN
NASDAQ
Irish Stock Exchange London STOCK EXCHANGE LISTED
Financial Highlights
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL]
Revenue Operating Profit
(pounds in millions) before amortisation & exceptional items
(pounds in millions)
48.9 67.0 86.0 182.7 201.6 14.0 19.4 24.1 54.9 70.6
'98 '99 '00 '01 '02 '98 '99 '00 '01 '02
o Revenue totalled (pound)202 million
-- 79% of total revenue ((pound)160 million) represented pharmaceutical
product sales, an increase of 26% over 2001
-- US pharmaceutical product sales up 46% to (pound)118 million,
compared to (pound)81 million in 2001
o Operating profit (before amortisation and exceptional items) generated by
pharmaceutical products business was (pound)64 million, an increase of 47%
over 2001
o Adjusted earnings per share of 32.2p versus 23.4p in 2001
o Proposed final dividend brings total 2002 dividend to 3.0p versus 2.49p in
2001
For US investors, please note that the Letter to Shareholders and associated
charts have been prepared in accordance with UK GAAP. Please refer to the Galen
Holdings PLC Form 20-F filed with the Securities and Exchange Commission for a
US$/US GAAP presentation.
Table of Contents
Letter to shareholders 2
Operational review 8
Board of directors 14
Shareholder value 15
Directors' report 16
Report of the remuneration committee 20
Statement on corporate governance 22
Statement on going concern 23
Statement of directors' responsibilities 23
Auditors' report 24
Consolidated profit and loss account 25
Reconciliation of movements in shareholders' funds 26
Consolidated statement of total recognised gains and losses 26
Consolidated balance sheet 27
Company balance sheet 28
Consolidated cash flow statement 29
Notes to the financial statements 30
Five year summary 63
Financial calendar 64
Management and corporate information IBC
Letter to Shareholders
Financial Overview
During the year ended 30 September 2002, Galen experienced solid progress in the
building of the business, particularly in the United States, and continued
excellent financial performance. The Company recorded revenues of (pound)201.6
million, an overall increase of 10% over the previous year. Of these revenues,
79% were generated by our pharmaceutical products business and 21% by our now
discontinued pharmaceutical services businesses. Pharmaceutical product revenues
grew by an excellent 26% over the prior year. Nearly three-quarters of our
pharmaceutical revenues now arise in the United States reflecting the ongoing
success of Warner Chilcott, which was acquired in September 2000.
Gross profit for the financial year 2002 increased to (pound)140.3 million from
(pound)118.5 million in the prior year driven primarily by the growth in sales
of high margin pharmaceutical products in the United States, which more than
compensated for the reduction in revenues resulting from the disposal of our
pharmaceutical services businesses. Operating profit (before exceptional items
and amortisation of intangible assets and goodwill) rose to (pound)70.6 million,
a 28% increase over 2001. Operating expenses, other than from amortisation of
intangible assets and goodwill, increased modestly from (pound)63.6 million to
(pound)69.7 million in the period, reflecting higher research and development
spending of (pound)13.9 million this year versus (pound)9.2 million last year.
Operating margins also improved from 30% to 35% due to our exit from
pharmaceutical services and continued growth in the US pharmaceutical market.
Earnings per share, before exceptional items and amortisation of intangible
assets and goodwill, rose by 38% to 32.2p. During the 2002 financial year, we
generated cash of (pound)63.3 million from operations, which provides additional
support to our already strong balance sheet and enhances our ability to continue
the acquisition element of our expansion strategy.
These excellent results reflect the strength and continuing growth of our
underlying business and have encouraged your Board to recommend the payment of a
final dividend of 2p per ordinary share, which represents a total for the year
of 3p, an increase of 20% over the 2.49p declared for the previous year.
Corporate Activity
Galen is committed to delivering continued growth in its fast growing
pharmaceutical business. As part of our strategy to achieve this goal, we
acquired Warner Chilcott in September 2000, which afforded us access to the US
pharmaceutical market, where the Company has achieved significant growth and
where we expect to achieve significant future growth. To free up additional
resources for our ambitious growth plans and to improve our operating margins,
we took the decision to dispose of our pharmaceutical services businesses. The
divestment of our pharmaceutical services businesses during 2002 for a total
(pound)156.3 million, transforms Galen into a
GALEN HOLDINGS 2002 Annual Report and Accounts
pharmaceutical company with clear therapeutic focus and a strong presence in the
United States. Your Directors believe that the resources released in this
process will achieve a substantially enhanced return when invested in our
pharmaceutical business.
In March 2002, we completed the acquisition in the United States of Duricef(R),
a cephalosporin antibiotic, and Moisturel(R), a skin moisturising cream, from
Bristol-Myers Squibb for a cash consideration of $40.4 million. This acquisition
strengthens our product portfolio in dermatology in the United States and
highlights our strategy to utilise acquisition of products to build Galen's
positions in our core therapeutic areas. These recently acquired products
performed well in the second half of the financial year 2002 replacing earnings
lost by the divestiture of the pharmaceutical services businesses. Our corporate
development group continues to actively pursue acquisition, licensing and other
opportunities to further strengthen the Company.
During the year ended 30 September 2002, we retired $111.3 million of high yield
(12.625%) bonds inherited at the time of the Warner Chilcott acquisition,
leaving only $48.4 million of the original $200 million outstanding. This debt
reduction has improved the quality of our balance sheet and, as a result of the
associated reduction in interest charges, will provide an uplift in earnings.
- --------------------------------------------------------------------------------
focus
IVR Technology
[GRAPHIC OMITTED]
The receipt of an approvable letter from the FDA for our estrogen replacement
IVR is a great achievement for the Galen team, both in the US and Northern
Ireland. The US is the most significant market for this product and we believe
that this innovative form of delivery will be well received by the patient. We
look forward to finalising labelling with the FDA and preparing our sales and
marketing team for launch.
- --------------------------------------------------------------------------------
RECORD RESULTS
3
CONTINUED GROWTH
- --------------------------------------------------------------------------------
focus
FOCUSED RESOURCES
Proven Track Record
o 26% increase in pharmaceutical product revenue
o top performing products, Ovcon(R), Doryx(R) and Estrace(R) Cream,
experience significant new prescription growth
o recently acquired products, Duricef(R) and Moisturel(R), perform well
o Menoring(R), our first IVR product for ERT, perform to expectations
o Expected additions of Sarafem(R) and estrogen replacement IVR to the US
marketed product portfolio hold significant potential
- --------------------------------------------------------------------------------
Sales and Marketing
During the year, we continued to expand the benefits of the acquisition of
Warner Chilcott. Pharmaceutical product revenues for the year were (pound)160.0
million, representing a 26% increase over the previous year. The United States
now accounts for 74% of our total pharmaceutical revenues. As market
opportunities in the United States exceed those in Europe and other territories,
the predominant focus for our pharmaceutical activities is now clearly the
United States. Our 226 person US salesforce continues to gain market share in
our core therapeutic areas (women's healthcare, dermatology and urology). For
the first nine months of calendar year 2002, new prescription growth for
Ovcon(R), Doryx(R) and Estrace(R) Cream were 27%, 65% and 6% respectively over
the same period in 2001.
In women's healthcare, Galen has products in two categories important to the
obstetrician and gynaecologist (OBGYN): contraception and hormone replacement
therapy (HRT). The combined US market for these product categories exceeds $4
billion in sales annually. Our oral contraceptive, Ovcon(R), has grown strongly
in the year and now enjoys a 2.3% share of the US oral contraceptives market.
This offers an excellent base for the launch of our line extension, for which a
New Drug Application (NDA) was accepted for filing by the US Food and Drug
Administration (FDA) in June 2002.
GALEN HOLDINGS 2002 Annual Report and Accounts
In estrogen replacement therapy (ERT), Estrace(R) Cream is indicated for the
treatment of the local symptoms of the menopause and is prescribed by both the
OBGYN and the urologist. Our Estrace(R) Tablets product remains the second most
widely prescribed ERT product in the United States. We do not actively promote
Estrace(R) Tablets because of generic competition and our strategic objective is
to maintain market position until the launch of our proprietary
second-generation tablet formulation.
In dermatology, our proprietary pelletised formulation of doxycycline, Doryx(R),
is now the most widely prescribed oral tetracycline for the treatment of acne.
Total Doryx(R) revenues for the year increased 103% over the prior financial
year. In January 2002, we launched a new 75 mg dosage strength for Doryx(R).
Doryx(R) 75 mg has performed well and we have experienced accelerated growth of
the Doryx(R) brand due to this new strength.
In the United Kingdom, we are continuing to focus our business towards women's
health and the discontinuation and disposal of less profitable non-core brands.
Menoring(R), our first intravaginal ring (IVR) product for ERT, has completed
its first year in the UK market and has performed to expectations. Our
promotional strategy is directed towards its establishment with hospital
specialists. Positive patient feedback from our early experience programme is
consistent with the high levels of patient acceptance of the product in our
clinical trial. Our proprietary anticholinergic, Regurin(R), for the treatment
of incontinence (licensed from Madaus AG, Cologne) has performed well in the
second year since its launch.
The key strength in our pharmaceutical business continues to be the success of
our sales and marketing team in the United States. We have a proven track record
of successful product launches, sustaining product growth, revitalising acquired
products and utilising precision marketing techniques to focus our resources to
achieve maximum return.
Research and Development
Building on the strength of our marketed products, we continue to strengthen our
investment in research and development. Investment in R&D for the year ended 30
September 2002 was (pound)13.9 million, which represented
5
a 51% increase over the previous year. Our R&D efforts are firmly focused on the
development of proprietary products for commercialisation in the United States,
which are based on drug delivery systems such as the IVR. We also pursue the
development of new products and line extensions in our core therapeutic areas
that complement and strengthen our pharmaceutical business.
In women's health, we have programmes in contraception, estrogen replacement
therapy, infection control and prenatal vitamins. These involve a number of
proprietary technologies, including the IVR. During the year, we submitted NDAs
to the FDA for our intravaginal ring ERT product and Ovcon(R) line extension.
The NDA for our first IVR estrogen replacement therapy was accepted for filing
in February 2002. The receipt of an approvable letter for this product in
October 2002 represents a milestone in the history of the Company and reflects
the dedication and ability of our entire technical staff. Our second generation
Estrace(R) Tablet is in Phase III trials in the United States and we anticipate
submission of the NDA in mid 2003. We continue to make progress with a
metronidazole releasing IVR for bacterial vaginosis, which is our first
application of the IVR technology for infection control. This product entered
Phase III in the United States in November 2002. Our testosterone IVR is in
Phase II, where we are investigating experimental models to assess treatments
for female sexual dysfunction.
In dermatology, following the launch of Doryx(R) 75 mg in January 2002, we are
developing new and innovative delivery systems for the antibiotic to provide the
next generation of products in this category.
Galen's People
At the conclusion of our 2002 financial year, Galen had 960 employees, including
298 US based employees, which represents a substantial decrease from last year's
number, reflecting the sale of our pharmaceutical services businesses. Since the
IPO in 1997, Galen Holdings has consistently produced results in line with or in
excess of expectations. This exceptional performance would be impossible without
the skills and dedication of all colleagues within the Galen organisation. In
particular, we recognise our non-executive Directors whose able advice and
counsel is of major importance to the Company's ongoing success. In February
2002, we announced the resignation of Tom Lynch from our Board. We thank Tom for
his work during his tenure as a non-executive Director at Galen and wish him
well in the future.
Outlook
The year ended 30 September 2002 has seen much change at Galen Holdings. The
sale of our pharmaceutical services businesses completed our transformation into
a pharmaceutical company and released resources, which will be deployed
GALEN HOLDINGS 2002 Annual Report and Accounts
to achieve greater return. Our strategy for growth remains constant and
comprises three elements:
o the continued organic growth of our pharmaceutical business;
o the internal development of new proprietary products; and
o the acquisition of products that complement and strengthen our existing
activities.
During the year, we have reported success in all elements of this strategy as we
continue to leverage our position in the marketplace. We once again report
record sales achievement and healthy growth. Our R&D programme has grown;
however, it remains sharply focused on maximising economic return. We achieved a
milestone in the history of the Company when we received an approvable letter
from the FDA for our first IVR product in the United States and we continue to
strengthen our pipeline with new projects. We continue to evaluate acquisitions
to complement our existing product offerings in our core therapeutic areas.
We approach 2003 with much confidence.
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focus
Leadership
[PHOTOS OMITTED]
/s/ John King
Dr John King
Executive Chairman
/s/ Roger Boissonneault
Roger Boissonneault
Chief Executive Officer
- --------------------------------------------------------------------------------
OPPORTUNITIES
7
FOCUS
[PHOTO OMITTED]
Izumi Hara
Anthony D Bruno
Our Corporate Development team evaluates and executes acquisition opportunities.
Operational Review
Galen continued to make significant progress in executing its growth strategy
during the financial year ended 30 September 2002. We set the following targets
for 2002: to sharpen our focus on our fast growing pharmaceutical business by
divesting our pharmaceutical services businesses, to continue to deliver sales
and earnings growth with our existing products, to advance promising products in
our pipeline and to make an acquisition.
Over the course of financial year 2002, we sold our pharmaceutical services
businesses for a total of (pound)156.3 million. These sales, together with
increased profits and the proceeds from our July 2001 offering further
strengthened our Company's net cash position to (pound)165.8 million at
financial year end, affording us strong financial standing and flexibility and
permitting us to focus intently on investing in our profitable pharmaceutical
business through organic growth, research and development and selective
acquisitions.
Our salesforce remains the centrepiece of our forward growth strategy and
continues to produce excellent results. Due to the success of our salesforce,
our proprietary pelletised formulation of doxycycline, Doryx(R), is now the most
widely prescribed oral tetracycline for the treatment of acne. Doryx(R) 75 mg,
launched by the Warner Chilcott salesforce in January, has been performing well
and we experienced accelerated growth of the Doryx(R) brand due to this new
strength. Our oral contraceptive, Ovcon(R), has grown strongly in the year, and
now enjoys a 2.3% share of the US oral contraceptives market, offering an
excellent base for the launch of our line extension, for which a New Drug
Application (NDA) was accepted for filing by the US Food and Drug Administration
(FDA) in June 2002. Our operating profits (before exceptional items and
amortisation) in financial year 2002 increased by 28% over financial year 2001.
We were pleased to have made notable progress with our pipeline during the year.
Three weeks following the close of our 2002 financial year, on 21 October 2002,
we announced the receipt of an approvable letter from the FDA for our estradiol
acetate intravaginal ring, sold in the United Kingdom as Menoring(R). We believe
this product holds great promise for patients in the United States, and, as this
2002 annual report went to press, we were working with the FDA to finalise
labeling requirements in preparation for the product's commercialisation in the
United States.
STRATEGY
Execution of the Company's growth strategy included the March 2002 acquisition
from Bristol-Myers Squibb of two profitable dermatology products: the antibiotic
Duricef(R) and the skin cream Moisturel(R). Approaching 2003 and beyond, we are
confident that, supported by salesforce promotion, we can continue to grow sales
of these products.
As we enter the 2003 financial year, we are pleased with the leadership provided
by our senior management team in respect of our sharpened focus on growing our
Company, through the development of new products and strategic acquisitions.
During the last three years, our team has consistently delivered growth in
revenues, profit and earnings per share and completed (pound)404 million in
pharmaceutical acquisitions. As we continue to evaluate potential product and
company acquisitions, we are very pleased to have a strong corporate development
team, led by two executives with substantial experience in the assessment and
negotiation of pharmaceutical acquisitions: Anthony D Bruno, Galen's Senior Vice
President, Corporate Development and General Counsel, and Izumi Hara, the
Company's Deputy General Counsel. With 40 years of highly relevant experience
between them, first with top New York City law firms, then with Warner-Lambert
Company, where both were actively involved in the evaluation, analysis,
negotiation and execution of pharmaceutical acquisitions, dispositions and
strategic alliances, Mr Bruno and Ms Hara will continue to be heavily engaged in
evaluating possible acquisition opportunities that will add shareholder value to
our Company and continue to build Galen's strength in our target markets.
On 9 December 2002, we announced that we entered into a conditional agreement to
acquire the US sales and marketing rights to Sarafem(R) from Eli Lilly and
Company ("Lilly"). The agreement is conditional on US regulatory approval.
Sarafem(R) is an FDA approved prescription treatment for pre-menstrual dysphoric
disorder, a severe form of pre-menstrual syndrome. Launched by Lilly in 2000,
Sarafem(R) generated sales of approximately $85 million in the United States in
the year ended 31 December 2001.
8
Galen Focus
-----------------
FPO
-----------------
[GRAPHIC OMITTED]
direction
[PHOTO OMITTED]
Carl Reichel
President, Pharmaceuticals
9
FOCUS
[GRAPHIC OMITTED]
FPO
STRENGTH
Galen's sales and marketing capabilities continue to be a key contributor to our
success. Galen's sales and marketing personnel, numbering 259 in the United
States and 55 in the United Kingdom, continue to gain market share in our core
therapeutic areas of women's healthcare, dermatology and urology.
In the United States, which generated 74% of our pharmaceutical revenue in
financial year 2002, our sales force strategy is focused on employing precision
marketing techniques to market and promote our key branded products to high
volume prescribing physicians. These techniques require comprehensive internal
analysis of actual prescription data to determine the most effective allocation
of our sales and marketing resources and enable us to expand market share in
markets that represent the most promise. Our precision marketing team, together
with their sales and marketing colleagues, analyse prescription data and develop
strategies and tactics to maximise growth in our sales and market share. By
employing these precision marketing techniques, Galen, through Warner Chilcott,
has been able to sustain product growth, revitalise acquired products and
successfully launch new products in the United States.
Due to the success of our salesforce, our proprietary pelletised formulation of
doxycycline, Doryx(R), is now the most widely prescribed oral tetracycline for
the treatment of acne. Total Doryx(R) revenues increased 103% over the prior
financial year. Doryx(R) 75 mg, launched by the Warner Chilcott salesforce in
January,
10
Sales & Marketing Expertise
[GRAPHIC OMITTED]
FPO
has been performing well and we experienced accelerated growth of the Doryx(R)
brand due to this new strength. Our oral contraceptive, Ovcon(R), has grown
strongly in the year, achieving a 29% increase over last year. Ovcon(R) now
enjoys a 2.3% share of the US oral contraceptives market and offers an excellent
base for the launch of our line extension, for which an NDA was accepted for
filing by the FDA in June 2002.
At Galen, we have sought to employ and develop some of the most sophisticated
and successful sales and marketing personnel in the pharmaceutical business. The
ability of our salesforce to effectively employ precision marketing techniques
lies at the core of our marketing success and, year over year, along with the
clinical value of our products, is the key generator of our pharmaceutical sales
growth. To this end, we provide advanced sales training opportunities to our top
sales representatives several times each year, so that our top sales
representatives have an opportunity to continue to improve their understanding
and the execution of these techniques.
Our key branded products include the oral contraceptives Ovcon(R) 35 and
Ovcon(R) 50; Estrace(R) Cream, a urogenital atrophy therapy; Doryx(R) 100 mg and
Doryx(R) 75 mg, an antibiotic for the treatment of acne.
[PHOTOS OMITTED]
Ken Kayel
Nicola Crawford
A Dominick Musacchio
Our precision marketing yeam, together with sales and marketing colleagues,
analyse prescription data and develop strategies to maximise growth.
(top right)
Douglas Popper
Jennifer McCusker
Mitch Lazar
Advanced training provides top sales representatives with opportunities to
further develop their precision marketing skills.
11
Research & Development
[GRAPHIC OMITTED]
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FPO
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innovation
[PHOTO OMITTED] [PHOTO OMITTED]
IVR Technology OVCON(R)
[PHOTO OMITTED]
R&D facility, Larne,
Northern Ireland
FOCUS
Building on the strength of our marketed products, we have increased our
investment in identifying and developing novel drug delivery technologies,
particularly our intravaginal ring technology, new pharmaceutical products and
improvements to our marketed products. In the 2002 financial year, our research
and development commitment grew a considerable 51% over 2001, to (pound)13.9
million.
As was the case in financial year 2002, we will continue to focus our research
and development in ways that represent the best opportunities for return on
investment and, ultimately, the interest of long-term shareholder value. This
means that our research and development efforts will focus extensively on the
development of additional applications for our existing proprietary technologies
and new products that are complementary to our core therapeutic areas,
particularly line extensions to improve our existing branded products in the
United States.
This approach has proved fruitful for Galen in the recently concluded financial
year, as we made notable progress in moving several pipeline products toward
possible commercialisation in the United States:
o In one of the most significant developments in Galen's product
development history, we received an approvable letter from the FDA
in October 2002 in reference to the NDA for our first IVR for
estrogen replacement therapy in the United States. We are now
working with the FDA to finalise labeling requirements and expect
that this promising product will soon become commercially available
in the United States.
o In June 2002, our NDA for a line extension to our oral contraceptive
product Ovcon(R) was accepted for filing by the FDA.
o We also continued to make progress with our second generation
Estrace(R) Tablets, an estrogen replacement therapy. Currently in
Phase III trials in the United States, we anticipate submission of
an NDA to the FDA for this product in mid-2003.
o Also during the recently completed financial year, drawing further
on our research and development work on the IVR, we advanced several
new and promising applications for this technology. Phase III trials
for our metronidazole-releasing IVR for bacterial vaginosis, our
first application of IVR technology for potential infection control,
began in November 2002. We also see promise for utilising the IVR
for the delivery of testosterone for possible treatment of female
sexual dysfunction. During the recently completed financial year,
our testosterone IVR continued in Phase II trials.
o Finally, in the dermatology product category, building on the
success of our January 2002 launch of Doryx(R) 75 mg, we continue to
assess new delivery systems for the antibiotic to provide the next
generation of products in this category.
[PHOTOS OMITTED]
Olu Aloba, PhD
Ileana C Brown
Michael Liang, PhD
Kelly Smith, MD
Rosa Lee, PharmD
R&D colleagues, together with Regulatory Affairs and Medical Affairs colleagues,
focus on advancing our pipeline products.
POTENTIAL
13
Board of Directors
[PHOTO OMITTED]
Dr John King (53) Executive Chairman
Dr King joined Galen in 1979 as Technical Manager responsible for the
development and registration of new products. Dr King was appointed Technical
Director in 1981, Managing Director in 1984, Chief Executive in 1991 and
Executive Chairman in 2000. Prior to joining the Group he was a lecturer in the
Pharmacy Department of The Queen's University, Belfast. He obtained a PhD in
1974 and registered with the Pharmaceutical Society of Northern Ireland in 1976.
LEADERSHIP
[PHOTO OMITTED]
Roger Boissonneault (54) Chief Executive Officer
Roger Boissonneault serves as Chief Executive Officer for Galen. He previously
served as President and Chief Operating Officer of WC plc since 1996, serving as
a director since 1998. From 1976 to 1996 Mr Boissonneault served in various
capacities with Warner-Lambert Company, including Vice President, Female
Healthcare, Director of Corporate Strategic Planning, and Director of
Obstetrician/Gyneacologist Marketing. Mr Boissonneault has BA in Biology from
the University of Connecticut and an MBA from Rutgers University.
[PHOTO OMITTED]
Mr Geoffrey Elliott (50) Chief Financial Officer
Mr Elliott qualified as a Chartered Accountant in 1984. After a period in
industry and management consultancy, he joined the accountancy practice of Magee
Todd & Vaughan, becoming a partner in 1988. He was appointed Chief Financial
Officer of Galen in 1993.
[PHOTO OMITTED]
Dr Harold Ennis OBE (72) Non-Executive Director
Dr Ennis was appointed to the Board in May 1996. He is the Chairman of Creative
Composites Limited, Vice Chairman of Trade and Business Development Body and a
non-executive director of a number of private companies. Previously he was a
member of the Northern Ireland Economic Council and the Industrial Development
Board for Northern Ireland.
[PHOTO OMITTED]
Mr David Gibbons MBE (64) Non-Executive Director
Mr Gibbons was appointed to the Board in March 1997. He was previously Chairman
and Managing Director of Abbott Laboratories UK and was a board member of The
Association of the British Pharmaceutical Industry and Chairman of the
Pharmaceutical Price Regulation Scheme Committee. He is non-executive Chairman
of Nexan Group Limited, MedNova Limited and Genosis Inc.
[PHOTO OMITTED]
Dr Michael Carter (64) Non-Executive Director
Dr Carter was appointed to the Board in May 1998. He has 25 years pharmaceutical
industry experience with both Roche and Zeneca, acting as a board member of
Salick Health Care in the United States. He holds a triple fellowship of the
Royal Pharmaceutical Society, the Royal College of Physicians of Edinburgh and
the Faculty of Pharmaceutical Physicians of the Royal Colleges. He is a
non-executive director of Provensis Limited, Micromet AG, Kudos Pharmaceuticals
Limited, Cancervax Inc and Genosis Inc and non-executive Chairman of Metris
Therapeutics Limited.
14
Shareholder Value
Galen has undergone significant changes in 2002. The sale of the pharmaceutical
services businesses completes our transformation into a pharmaceutical product
company. Galen approaches the 2003 financial year with a continuing and strong
commitment to building value for our shareholders. Like most publicly traded
companies, Galen's market capitalisation was affected negatively during the 2002
financial year by the bearish global economic climate. Nonetheless, our Company
has continued to deliver excellent financial performance and has made notable
and important progress that we believe positions us well to build shareholder
value in the year and years to come.
Our excellent financial results reflect the strength and continuing growth of
our pharmaceutical business and have resulted in an increase in EPS to 32.2p
(before exceptional items and amortisation), a 38% increase over the 2001
financial year and dividend growth of 20% from 2.49p in financial year 2001 to
3p in financial year 2002.
Galen also ended the 2002 financial year with a vastly improved balance sheet,
highlighted by our net cash position of (pound)165.8 million, compared to
(pound)18 million at the end of 2001. This means that Galen enters 2003 on a
strong and stable financial footing, positioned to continue investing in both
organic growth and, more particularly, growth by acquisition.
Galen shares are traded in three of the world's leading stock markets, the
London Stock Exchange in the United Kingdom, The NASDAQ Stock Markett in the
United States and the Irish Stock Exchange in Ireland. Galen is pleased to now
receive research coverage by 13 financial institutions. In the United States,
Galen is covered by CIBC and Ryan, Beck. In the United Kingdom, Galen is covered
by ABN Amro, Credit Suisse First Boston, ING Barings, Merrill Lynch, Nomura, UBS
Warburg and WestLB Panmure. In Ireland, Galen is covered by Davy Stockbrokers,
Goodbody Stockbrokers, Merrion Stockbrokers and NCB Stock brokers. We are
hopeful that this research coverage will add notably to our exposure among
prospective investors.
Galen also continues to maintain a strong and ongoing commitment to openness
with our shareholders regarding our business and forward strategies. Our
website, www.galenplc.com, is a rich source of information for shareholders, and
offers shareholders and prospective shareholders the opportunity to be added to
our mailing list.
Finally, we extend our appreciation to the continued confidence of our
investors, and we reiterate our commitment to maintain our sharp focus on
maximising growth and shareholder value.
COMMITMENT
15
Directors' report for the year ended 30 September 2002
The directors present their report and the audited financial statements for the
year ended 30 September 2002.
Principal activities
The activities of the Group consist of the development, manufacture and supply
of branded prescription pharmaceutical products. During the year the Group
disposed of its pharmaceutical services operations. The activities of the
holding company consist of the management of its investments in its
subsidiaries.
Review of business
The consolidated profit and loss account for the year is set out on page 25. A
review of business during the year and of the future development of the Group is
contained in the Letter to Shareholders and the Operational Review accompanying
this report.
Dividends
An interim dividend of 1p per share amounting to (pound)1,902,000 (2001: 0.83p
per share--(pound)1,351,000) was paid during the year. The directors recommend
payment of a final dividend for the year of 2p per share amounting
to (pound)3,662,000 (2001: 1.66p per share--(pound)3,143,000).
Group research and development activities
The Group is strongly committed to research and development activities in order
to secure and enhance its market position. Expenditure in the year totalled
(pound)13.9 million (2001: (pound)9.3 million).
Directors
The directors of the Company during the year were:
Dr J A King R G Elliott Dr H A Ennis D Gibbons
R M Boissonneault A D Armstrong Dr M G Carter T G Lynch
In accordance with the Articles of Association, Dr J A King, Dr H A Ennis
and Dr M G Carter will be retiring by rotation at this year's Annual General
Meeting and, being eligible, will be proposed for re-election. Dr King has a
service agreement with the Company terminable on twelve months notice given by
either party to the other. Dr Ennis and Dr Carter have letters of appointment
with the Company pursuant to which their appointment as non-executives may be
terminated at the will of either party.
AD Armstrong resigned as director on 9 January 2002 and TG Lynch resigned
on 13 February 2002.
Directors' interests in shares of the Company
The interests of the members of the Board of Directors at 30 September 2002 in
the shares of the Company are set out below.
All such interests are beneficially owned.
% of
Ordinary Ordinary Ordinary
shares of shares shares of
10p each outstanding 10p each
30.9.02 30.9.02 30.9.01
- -------------------------------------------------------------------------------
J A King 14,475,306 7.7 14,475,306
R M Boissonneault 20,792 * 20,792
R G Elliott 5,372,271 2.9 5,372,271
H A Ennis 118,879 * 105,279
M G Carter -- -- --
D Gibbons -- -- --
==========================================
*less than 1%
16
Changes in directors' interests since the year end
There have been no changes in the interests of directors between the year end
and 6 December 2002.
Interests in share options
Details of options held by members of the Board of Directors at 30 September
2002 are set out below:
Exercise Earliest
At Granted At price exercise Expiry
1.10.01 in year 30.9.02 (pound) date date
- ------------------------------------------------------------------------------------------------------------------------------------
Approved Executive Share Option Scheme
(over ordinary shares)
R G Elliott 6,703 -- 6,703 4.475 5.2.02 5.2.09
======================================================================
Unapproved Executive Share Option Scheme
(over ordinary shares)
J A King 75,636 -- 75,636 4.475 5.2.02 5.2.09
38,614 -- 38,614 5.050 30.12.02 30.12.09
50,000 -- 50,000 8.225 4.12.03 4.12.10
-- 100,761 100,761 7.225 19.11.04 19.11.11
R G Elliott 56,890 -- 56,890 4.475 5.2.02 5.2.09
29,703 -- 29,703 5.050 30.12.02 30.12.09
50,000 -- 50,000 8.225 4.12.03 4.12.10
-- 157,055 157,055 7.225 19.11.04 19.11.11
======================================================================
Earliest
At Granted Exercised At Exercise exercise Expiry
1.10.01 in year in year 30.9.02 price date date
- ------------------------------------------------------------------------------------------------------------------------------------
Options assumed by Galen upon purchase of
Warner Chilcott (a)
R M Boissonneault 18,750 -- -- 18,750 $ 1.60 29.9.00 31.10.06
75,000 -- -- 75,000 $32.00 29.9.00 31.10.06
15,625 -- -- 15,625 $15.63 29.9.00 24.01.08
25,000 -- -- 25,000 $13.00 29.9.00 11.2.09
37,500 -- -- 37,500 $11.30 29.9.00 14.8.09
==================================================================================
2000 US option scheme (a)
R M Boissonneault 62,500 -- -- 62,500 $49.35 1.4.02 29.9.10
23,500 -- -- 23,500 $46.75 (b) 4.12.10
-- 50,000 -- 50,000 $40.75 (c) 19.11.11
==================================================================================
(a) over American Depositary Shares--four Ordinary Shares equal one American
Depositary Share.
(b) options vest quarterly over four years beginning 1 October 2000.
(c) options vest quarterly over four years beginning 1 October 2001.
No other directors have been granted share options in the shares of the
Company or other Group companies.
The market price of the Company's shares on the London Stock Exchange at
the end of the financial year was (pound)3.68 (2001: (pound)6.43) and the range
of market prices during the year was between (pound)2.75 and (pound)7.75 (2001:
(pound)4.95 and (pound)9.77). The market price of the Company's American
Depositary Shares on NASDAQ(R) at the end of the financial year was $22.89
(2001: $38.20) and the range of market prices during the year was between $16.54
and $45.75.
There were no contracts of significance with the Company or any of its
subsidiaries subsisting during, or at the end of the financial year, in which a
director of the Company was materially interested.
17
Directors' report for the year ended 30 September 2002
Substantial shareholdings
As at 6 December 2002 the Company had received notification of the following
beneficially owned interests of 3% or more in its ordinary shares:
Number of
shares %
- --------------------------------------------------------------------------------
A J McClay 16,986,469 9.0
J A King 14,475,306 7.7
Standard Life Investments 7,527,121 4.0
Elan International Services Limited 7,119,200 3.8
=====================
The Company is not directly or indirectly owned or controlled by another
corporation or by a government or person. All shareholders have the same voting
rights.
Share capital
Details of the movements in the Company's share capital during the year are
given in note 21 to the financial statements.
During the year, in order to create a more efficient capital structure,
enhancing earnings and net asset value per share, the Company exercised the
authority granted by shareholders on 19 February 2002 to make market purchases
of its own shares. In total 2,050,000 shares representing 1.1% of the issued
share capital were repurchased at a total cost of (pound)8,001,000 (nominal
value (pound)205,000). The average price paid was (pound)3.90 per share, and
costs of (pound)20,000 were incurred.
On 29 September 2000 the Company's American Depositary Shares ("ADS") were
listed on NASDAQ(R) and were available in the United States through an American
Depositary Receipt program established pursuant to separate Depositary
Agreements entered into by the Company and The Bank of New York, as depositary.
One ADS represents four ordinary shares. The total number of ADSs outstanding on
30 September 2002 was 4,146,928.
Corporate social responsibility policy
Galen is committed to the development, marketing and manufacturing of
pharmaceutical products. We recognise that our business activities have an
influence on the environmental and social spheres as well as the economic, and
we accept that we have a duty to carry out these business activities in a
socially responsible manner.
Our current initiatives promote an effective socially responsible
approach. The practices, set out below, establish how we will continue to
fulfill our duty in the future. We will:
o meet or exceed legal requirements or regulations and we will aim to
satisfy international agreements, where these are relevant to our
business;
o create a culture where all our staff will be informed of their individual
responsibility, and will be encouraged to consider social, environmental
and ethical issues as an everyday part of their role;
o create a culture where social considerations are integrated into all
activities across the business;
o conduct business as a responsible corporate member of society committed to
continual improvement in all aspects of our performance;
o provide a safe and healthy work environment for all our employees, where
we can work to eliminate all injuries and incidents;
o economise on the use of natural resources and work to minimise the impact
on the environment;
o provide information on our policies and communicate openly with all
interested parties;
o ensure managers shall have processes for consulting with employees on
social responsibility matters in order to encourage their involvement and
commitment and to provide them with information;
o select key suppliers after considering their approach to their social
responsibilities, to ensure that competent partners are selected who
comply with all appropriate legislation or regulations;
o ensure that no applicant or employee either directly or indirectly is
subjected to unlawful discrimination or harassment on account of or based
on their religious beliefs, political opinion, sex, disability, marital
status, age, race, colour, national origin or veteran status; and that no
applicant or employee is placed at a disadvantage by requirements or
conditions which cannot be shown to be relevant to performance. Our policy
is to give full and fair consideration to disabled workers for those
vacancies that they are able to fill. All necessary assistance with
initial training courses is given. Arrangements are made, whenever
possible, for retraining employees who become disabled, to enable them to
perform work identified as appropriate to their aptitudes and abilities.
18
Employee involvement
Group policy is to consult and discuss with employees those matters likely to
affect employees' interests. Employee share schemes have been introduced as a
means of further encouraging the involvement of employees in the Group's
performance.
Political and charitable contributions
The Group made charitable donations amounting to (pound)22,000 (2001:
(pound)27,019) during the year. No donations for political purposes were made
during the year.
Creditor payment policy
In general, the Group agrees payment terms with each supplier at the start of
business with that supplier and seeks to abide by those terms whenever it is
satisfied that the supplier has provided the goods or services in accordance
with the agreed terms and conditions. It does not have a standard or code which
deals specifically with the payment of suppliers.
The Group's average creditor payment period at 30 September 2002 was 83
days (2001: 74 days).
Auditors
The auditors, PricewaterhouseCoopers, have indicated their willingness to
continue in office, and a resolution concerning their re-appointment will be
proposed at this year's Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held on 18 February 2003 at
10.00 am at Malone House, Barnett Demesne, Belfast.
Your directors consider that there may be occasions when it might be
desirable to reduce the issued ordinary share capital of the Company by
purchases in the market and accordingly, a special resolution will be proposed
at the Annual General Meeting as special business to authorise the Company to
make purchases of up to a maximum in aggregate of 27,983,357 Ordinary Shares of
10p each in the capital or, if less, 14.9% of its issued ordinary share capital
at the date of Annual General Meeting. The Directors would only exercise the
power to effect the purchase by the Company of its own shares at price levels
and in circumstances which they consider to be in the interests of the
shareholders, after taking into account the Group's overall financial position,
and which, in particular would lead to a beneficial impact on the earnings per
share of the Company. In any event, no purchase will be made which would
effectively alter the control of the Company without the prior approval of the
shareholders in general meeting.
By order of the Board
Anthony D Bruno
Secretary
Craigavon
6 December 2002
19
Report of the remuneration committee
The Remuneration Committee was comprised of the following directors during the
year:
D Gibbons (Chairman of the Committee) Dr H A Ennis Dr M G Carter
Role of the Committee
The primary function of the Committee is to determine remuneration and other
terms of employment for the executive directors and senior employees, having
regard to performance. The Committee has given full consideration to those
principles and provisions of the Combined Code which relate to directors'
remuneration.
The Committee has sought independent external advice on the setting of
executive remuneration.
In setting remuneration policy the Committee considers a number of factors
including:
(a) the basic salaries and benefits available to executive directors of
comparable companies;
(b) the need to attract and retain directors of an appropriate calibre;
(c) the need to ensure executive directors' commitment to the continued
success of the Group by means of incentive schemes.
Remuneration policy for executive directors
Remuneration policy for executive directors is to:
(a) have regard to the directors' experience and the nature and complexity of
their work in order to pay a competitive salary that attracts and retains
management of the highest quality;
(b) link individual remuneration packages to the Group's performance;
(c) provide a competitive package of employment related benefits.
Salaries and benefits
The Remuneration Committee meets at least once a year in order to consider and
set the annual salaries for executive directors, having regard to personal
performance and independently compiled salary survey information.
Long-term benefits
The Committee considers that share ownership by directors and employees
strengthens the link between their personal interests and those of shareholders.
This is achieved through the operation of the following share schemes:
(i) The Galen Approved Executive Share Option Scheme and the Galen Unapproved
Executive Share Option Scheme Options under these schemes are granted on
the recommendation of the Remuneration Committee. Options may be granted
over unissued shares or shares held in a trust. Options granted will be
subject to such objective performance conditions as the Committee sees fit
and which must be fulfilled before the options can be exercised.
(ii) The Galen Savings Related Share Option Scheme This scheme is open to all
UK employees who have been with the Group for at least one year. The
directors have discretion to include other employees. Options may be
granted over unissued shares or shares held in a trust. All options must
be linked to a contractual savings scheme with a savings institution
nominated by the directors and approved by the Inland Revenue.
(iii) The Galen 2000 US Option Scheme Under this scheme both incentive stock
options and non-qualified stock options may be granted to eligible
employees of the Group's US subsidiaries at the discretion of the
Remuneration Committee.
20
The Galen Employee Benefit Trust
The Employee Trust was established by deed dated 10 June 1997 between Dr McClay
and Galen Trustees Limited, and on 27 June 1997 Dr McClay gifted the equivalent
of 5,000,262 ordinary shares to the Trust. Dr McClay cannot be a beneficiary of
the Trust. Its purpose is to facilitate and encourage the ownership of shares by
or for the benefit of eligible employees including directors. The Trustees may
consider any recommendations made to them by the Remuneration Committee on
behalf of the Board.
Remuneration of non-executive directors
The remuneration of non-executive directors is determined by the Board.
Directors' detailed emoluments
Details of individual directors' remuneration are set out in note 11 to the
Group financial statements.
Non-executive directorships
The Remuneration Committee believes that the Company can benefit from executive
directors accepting appointments as non-executives and, as a consequence, allows
them to hold limited appointments as non-executive directors. Any fees related
to such employment may be retained by the director concerned at the discretion
of the Remuneration Committee.
Pensions
Dr King and Mr Elliott are currently members of defined contribution schemes
operated by the Group. Mr Boissonneault participates in the Warner Chilcott
401(k) Savings Plan.
Contracts of service
All of the executive directors have contracts of service which can be terminated
by either party with a notice period of twelve months. The contract of service
with Mr. Boissonneault further provides that should the contract be terminated
pursuant to a change of control (as defined in the contract) the severance
payment due to Mr. Boissonneault will be equal to his base salary, target bonus
and benefits for a period of eighteen months. The appointment terms of the
non-executive directors are at the will of the parties, but are envisaged to
last for three years, following which they are reviewed annually. The Committee
will, where it considers it to be appropriate, apply the principle of mitigation
to any compensation payable on the termination of service contracts.
On behalf of the Board
D Gibbons
Chairman, Remuneration Committee
6 December 2002
21
Statement on corporate governance
The Board of Directors believes that the business of the Group should be
conducted according to the highest legal and ethical standards, and is committed
to a system of sound corporate governance. The Board has applied all the
Principles of Good Governance set out in the Combined Code and considers that
all of the provisions of the Code of Best Practice have been complied with
during the year.
The following paragraphs, together with the Report of the Remuneration
Committee on pages 20 to 21, demonstrate how the principles of the Combined Code
have been applied.
The Board
The Board currently comprises three executive directors and three independent
non-executive directors. The Board meets regularly to review Group strategy and
trading performance, assess the adequacy of funding and formulate policy on key
issues. It has a schedule of matters reserved to it for decision. The Board is
supplied with timely and relevant information to enable it to properly discharge
its duties.
Dr Ennis is the senior independent non-executive director.
Board committees
An Audit Committee and a Remuneration Committee have operated throughout the
year. The Audit Committee at present consists of the Group's three independent
non-executive directors: Dr Ennis, Mr. Gibbons and Dr Carter. The Audit
Committee, which is chaired by Dr Ennis, meets at least four times a year and
assists the Board in ensuring that the Group's published financial statements
give a true and fair view and in ensuring that reliable internal financial
information is available for decision making. It also reviews the suitability
and effectiveness of the Group's internal controls.
The Audit Committee reviews the findings of the external auditors and
reviews key accounting policies and judgments. It is also responsible for the
appointment of the Group Internal Auditor and recommends to the Board the
appointment of the external auditors and the level of their audit and non-audit
remuneration. The Audit Committee reviews the scope and results of each audit
and its cost effectiveness. It also monitors the objectivity and independence of
the auditors. The Committee monitors the nature and extent of non-audit services
and seeks to maintain objectivity and value for money. The Committee has written
terms of reference.
The Remuneration Committee consists of the three non-executive directors
and is chaired by Mr. Gibbons. The Committee meets at least once a year. The
report of the Remuneration Committee is set out on pages 20 to 21.
The Board, as a whole, functions as a Nomination Committee under the
chairmanship of Dr Ennis.
Internal controls
The Board is responsible for the Group's system of internal controls. It should
be recognised that such a system can provide only reasonable and not absolute
assurance against material misstatement or loss. The key features of the
systems, which have been established, are set out below.
Control environment
The Group's control environment is the responsibility of its directors and
managers at all levels. The Group's organisational structure has clear lines of
responsibility, and operating and financial responsibility for subsidiary
companies is delegated to subsidiary boards.
Information systems and financial reporting
The Group operates a comprehensive budgeting and reporting system that, as a
matter of routine, compares actual out-turn to budget. Management accounts are
compiled on a monthly basis, and variances from plan are investigated and
revisions to forecasts made. Cash flow budgets and forecasts are prepared on a
regular basis to ensure that the Group has adequate funds and resources for the
fore seeable future. The Audit Committee reviews all financial statements to be
published externally to ensure they provide a meaningful appraisal of the
Group's performance and financial position.
Main control procedures
Divisional management establishes control procedures in response to any key
risks identified and reports whether its key controls have functioned
effectively. Standard financial control procedures operate throughout the Group
to ensure the integrity of its financial statements, and the Board has
established clearly defined procedures for the authorisation of capital
expenditure.
22
Monitoring system used by the Board
The Board reviews and approves budgets and monitors the Group's performance
against those budgets monthly. Variances from the expected outcome are
investigated and where lapses in internal control are detected, these are
rectified. The Group's cash flow is also monitored monthly compared to forecast.
The Board reviews the effectiveness of internal controls on an ongoing
basis. The Group Internal Auditor examines the internal control systems within
each operating unit and reports to the Audit Committee on a regular basis.
The Board has an established process for identifying, evaluating and
managing the significant risks that it faces. The process accords with the
guidance on internal control issued by the Turnbull Committee in 1999.
The key risks are identified and are considered by the Board on a regular
basis. These discussions cover the nature of each risk, the potential impact of
each risk on operations and the action taken to reduce/eliminate each risk. On
an ongoing basis, key areas are discussed and a summary of findings is reported
to the Board.
Shareholder relations
Regular contact is maintained with major institutional shareholders. All
shareholders are welcome to attend the AGM and the Board encourages the
participation of private investors.
Statement on going concern
After making appropriate enquiries, the directors have a reasonable expectation
that the Group and the Company have adequate resources to continue in
operational existence for the foreseeable future. For this reason they continue
to adopt the going concern basis in preparing the Group's financial statements.
Statement of directors' responsibilities
Company law requires the directors to prepare financial statements for each
financial year that give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for that period. In
preparing those financial statements, the directors are required to:
o select suitable accounting policies and then apply them consistently;
o make judgements and estimates that are reasonable and prudent;
o state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
o prepare the financial statements on the going concern basis, unless it is
inappropriate to presume that the Group and the Company will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Group and the Company and to enable them to ensure that the financial statements
comply with the Companies (Northern Ireland) Order 1986. They are also
responsible for safeguarding the assets of the Group and the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The financial statements for the year ended 30 September 2002 are included
in the Annual Report 2002, which is published by the Company in hard-copy
printed form and on the Company's website on the internet. The Directors are
responsible for the maintenance and integrity of the Annual Report on the
website in accordance with UK legislation governing the preparation and
dissemination of financial statements. Access to the website is available from
outside the UK, where comparable legislation may be different.
On behalf of the Board
Anthony D Bruno
Secretary
Craigavon
6 December 2002
23
Independent auditors' report to the members of Galen Holdings PLC
We have audited the financial statements which comprise the profit and loss
account, the balance sheets, the cash flow statement, the statement of total
recognised gains and losses, and the related notes.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable Northern Ireland law and
United Kingdom accounting standards are set out in the statement of directors'
responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements, United Kingdom Auditing Standards
issued by the Auditing Practices Board and the Listing Rules of the Financial
Services Authority. This opinion has been prepared for and only for the
Company's members in accordance with Article 243 of the Companies (Northern
Ireland) Order 1986 and for no other purposes. We do not, in giving this
opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a
true and fair view and are properly prepared in accordance with the Companies
(Northern Ireland) Order 1986. We also report to you if, in our opinion, the
directors' report is not consistent with the financial statements, if the
Company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information
specified by law or the Listing Rules regarding directors' remuneration and
transactions is not disclosed.
We read the other information contained in the annual report and consider
the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements. The other information
comprises the financial highlights, the directors' report, the letter to
shareholders, the operational review, the report of the remuneration committee
and the statements on corporate governance, going concern, and directors'
responsibilities.
We review whether the corporate governance statement reflects the
Company's compliance with the seven provisions of the Combined Code specified
for our review by the Listing Rules, and we report if it does not. We are not
required to consider whether the Board's statements on internal control cover
all risks and controls, or to form an opinion on the effectiveness of the
Company's or Group's corporate governance procedures or its risk and control
procedures.
Basis of audit opinion
We conducted our audit in accordance with auditing standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 30 September 2002 and of the profit
and cash flows of the Group for the year then ended and have been properly
prepared in accordance with the Companies (Northern Ireland) Order 1986.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
Belfast
6 December 2002
24
Consolidated profit and loss account
2000
2002 2001 (restated)
for the year ended 30 September 2002 Notes (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Turnover 2
- --Continuing operations 160,028 127,413 44,397
- --Discontinued operations 41,534 201,562 55,270 182,683 41,623 86,020
------------------------------------------------------------------------
Cost of sales 2 61,250 64,187 44,222
------------------------------------------------------------------------
Gross profit 2 140,312 118,496 41,798
Net operating expenses 3 97,128 88,157 23,054
------------------------------------------------------------------------
Operating profit before exceptional items and
amortisation of goodwill and intangibles 70,589 54,941 24,123
Exceptional items 3 -- -- (3,311)
Goodwill and intangibles amortisation (27,405) (24,602) (2,068)
------------------------------------------------------------------------
Operating profit
- --Continuing operations 37,439 20,414 6,167
- --Discontinued operations 5,745 43,184 9,925 30,339 12,577 18,744
------------------------------------------------------------------------
Gain on sale of discontinued operations 26 71,388 -- --
------------------------------------------------------------------------
Investment income 4 7,327 4,455 2,089
------------------------------------------------------------------------
Profit on ordinary activities before
interest payable 121,899 34,794 20,833
Interest payable and similar charges 5 20,808 17,848 1,760
------------------------------------------------------------------------
Profit on ordinary activities before taxation 6 101,091 16,946 19,073
Tax on profit on ordinary activities 7 9,049 3,594 5,297
------------------------------------------------------------------------
Profit on ordinary activities after taxation 92,042 13,352 13,776
Minority interests 23 32 122 89
------------------------------------------------------------------------
Profit for the financial year 8 92,010 13,230 13,687
Dividends 9 5,518 4,413 3,036
------------------------------------------------------------------------
Retained profit for the financial year 22 86,492 8,817 10,651
========================================================================
Earnings per share 10 49.7p 8.2p 11.3p
Adjusted earnings per share 10 32.2p 23.4p 15.0p
Diluted earnings per share 10 49.4p 8.1p 11.2p
Adjusted diluted earnings per share 10 32.0p 23.0p 14.9p
========================================================================
There is no difference between the profit on ordinary activities before
taxation and the profit for the year stated above and their historical cost
equivalents.
25
Reconciliation of movements in shareholders' funds
2001 2000
2002 (restated) (restated)
for the year ended 30 September 2002 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Opening shareholders' funds 604,630 408,058 66,232
Share issues including premium (net of costs) 2,828 188,261 330,222
Purchase of own shares (8,001) -- --
Profit for the financial year 92,010 13,230 13,687
Dividends (5,518) (4,413) (3,036)
Translation differences on foreign currency net investments (13,990) (506) 953
------------------------------------------------
Closing shareholders' funds 671,959 604,630 408,058
================================================
Consolidated statement of total recognised gains and losses
2000
2002 2001 (restated)
Notes (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Profit for the financial year 92,010 13,230 13,687
Translation differences on foreign currency net investments (13,990) (506) 953
------------------------------------------------
Total recognised gains and losses relating to the year 78,020 12,724 14,640
------------------------------------------------
Prior year adjustment 22 (2,488)
------------------------------------------------
Total gains recognised since last annual report 75,532
================================================
Cumulative foreign currency translation differences
(pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
At 1 October 1998 14
Difference arising in the year (168)
-------
At 1 October 1999 (154)
Difference arising in the year 953
-------
At 1 October 2000 799
Difference arising in the year (506)
-------
At 1 October 2001 293
Difference arising in the year (13,990)
-------
At 30 September 2002 (13,697)
=======
26
Consolidated balance sheet
2001
2002 (restated)
at 30 September 2002 Notes (pound)'000 (pound)'000
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed assets
Intangible assets 12 480,457 510,742
Tangible assets 13 38,631 89,180
------------------------
519,088 599,922
------------------------
Current assets
Stocks 15 17,082 16,563
Debtors 16 23,658 35,961
Cash at bank and in hand 198,751 222,002
------------------------
239,491 274,526
Creditors: amounts falling due within one year 17 48,172 62,324
------------------------
Net current assets 191,319 212,202
------------------------
Total assets less current liabilities 710,407 812,124
Creditors: amounts falling due after more than one year 18 32,353 193,144
Provisions for liabilities and charges 19 2,165 8,372
Deferred income 20 3,930 5,736
------------------------
Net assets 671,959 604,872
========================
Capital and reserves
Called up share capital 21 18,781 18,931
Share premium account 22 243,031 240,258
Capital redemption reserve 22 205 --
Merger reserve 22 290,685 290,685
Profit and loss account 22 119,257 54,756
------------------------
Equity shareholders' funds 671,959 604,630
Minority interests--equity 23 -- 242
------------------------
671,959 604,872
========================
The financial statements on pages 25 to 62 were approved by the board on 6
December 2002 and were signed on its behalf by:
R G Elliott
J A King
Directors
27
Company balance sheet
2002 2001
at 30 September 2002 Notes (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed assets
Investments 14 341,500 308,996
----------------------------
Current assets
Debtors 16 161,659 84,905
Cash at bank and in hand 180,168 169,342
----------------------------
341,827 254,247
Creditors: amounts falling due within one year 17 9,145 7,554
----------------------------
Net current assets 332,682 246,693
----------------------------
Net assets 674,182 555,689
============================
Capital and reserves
Called up share capital 21 18,781 18,931
Share premium account 22 243,031 240,258
Capital redemption reserve 22 205 --
Merger reserve 22 290,685 290,685
Profit and loss account 22 121,480 5,815
----------------------------
Equity shareholders' funds 674,182 555,689
============================
The financial statements on pages 25 to 62 were approved by the board on 6
December 2002 and were signed on its behalf by:
R G Elliott
J A King
Directors
28
Consolidated cash flow statement
2002 2001 2000
for the year ended 30 September 2002 Notes (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 24 63,292 53,855 16,659
-------------------------------------------
Returns on investments and servicing of finance
Interest paid (23,770) (17,794) (1,458)
Interest paid on hire purchase agreements (53) (54) (43)
Interest received 7,325 4,455 1,642
-------------------------------------------
(16,498) (13,393) 141
-------------------------------------------
Taxation
United Kingdom corporation tax paid (2,439) (473) (3,242)
Overseas tax paid (2,054) (642) --
-------------------------------------------
(4,493) (1,115) (3,242)
-------------------------------------------
Capital expenditure
Purchase of tangible fixed assets (11,572) (16,225) (15,454)
Sale of tangible fixed assets -- 250 33
Purchase of intangible fixed assets (29,593) (70,211) (1,984)
Government grants received 1,464 454 1,695
-------------------------------------------
(39,701) (85,732) (15,710)
-------------------------------------------
Acquisitions and disposals
Sale of businesses 156,308 -- --
Purchase of subsidiary undertakings (including costs of acquisition and
deferred consideration payments) (6,175) (16,098) (15,063)
Net funds acquired with subsidiary undertakings -- -- 474
-------------------------------------------
150,133 (16,098) (14,589)
-------------------------------------------
Equity dividends paid (5,045) (3,464) (2,278)
-------------------------------------------
Net cash flow before management of liquid resources and financing 147,688 (65,947) (19,019)
-------------------------------------------
Management of liquid resources
Decrease/(increase) in short-term deposits 18,641 (161,000) (24,500)
-------------------------------------------
Financing
Issue of ordinary share capital (net of expenses) 167 188,261 36,367
Purchase of own shares (8,001) -- --
Loans notes repaid (76,277) (27,323) --
Loans (repaid)/obtained (net) (89,486) 49,751 13,476
Principal repayment under hire purchase agreements (372) (400) (329)
-------------------------------------------
(173,969) 210,289 49,514
-------------------------------------------
(Decrease)/increase in cash in the year 25 (7,640) (16,658) 5,995
===========================================
29
Notes to the financial statements for the year ended 30 September 2002
1 Accounting policies
These financial statements are prepared under the historical cost convention and
in accordance with applicable accounting standards. The significant accounting
policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and each of its subsidiaries for the year ended 30 September 2002.
The results of subsidiaries sold or acquired are included in the consolidated
profit and loss account up to, or from, the date control passes. Intra-Group
transactions are eliminated fully on consolidation.
Goodwill
Goodwill arising on consolidation, representing the excess of the fair value of
the purchase consideration over the fair value of the identifiable net assets
acquired, is accounted for as an asset and amortised over its useful economic
life. This has been assessed as 5 to 20 years in relation to goodwill arising on
the individual acquisitions.
Turnover
Turnover represents the invoiced value of goods and services supplied by the
Group exclusive of VAT, and is net of sales returns, trade discounts and
rebates. Revenue is recognised upon shipment of products, which is when title to
the product is transferred to the customer, or upon the completion of services
for the customer.
Stocks
Stock are valued at the lower of cost and net realisable value. Cost is
determined on a first in, first out basis and includes transport and handling
costs. In the case of manufactured products, costs includes all direct
expenditure and overheads, based on the normal level of activity. Where
necessary, provision is made for obsolete, slow moving and defective stocks.
Research and development
Expenditure on research and development is written off in the year in which it
is incurred.
Intangible assets
Product licences and rights acquired are capitalised and amortised over their
estimated useful economic lives, not exceeding 20 years.
Deferred taxation
The Company has adopted FRS 19 "Deferred taxation" in these financial
statements. Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. Timing
differences are differences between the Company's taxable profit and its results
as stated in the financial statements. Deferred tax assets and liabilities
recognised have not been discounted.
The cumulative impact of FRS 19 relating to previous years has been
recognised in the financial statements as a prior year adjustment and the
comparative figures have been restated. The effect of the change in accounting
policy was to increase tax on profit on ordinary activities by (pound)Nil (2001:
(pound)Nil, 2000: (pound)598,000) and to decrease profit for the financial year
by the same amounts.
30
1 Accounting policies (continued)
Pension costs
Retirement benefits are provided for employees by a defined contribution pension
scheme whereby the assets of the scheme are held separately from those of the
Group in an independently administered scheme. Contributions are charged against
profits as they become due.
Revenue grants
Revenue grants relating to research and development expenditure and employment
grants are credited to profit and loss account as a reduction of net operating
expenses in the period in which the related expenditure is incurred.
Capital grants
Capital grants are treated as deferred income and then credited to revenue over
the expected useful lives of the related assets.
Tangible fixed assets
The cost of tangible fixed assets is their purchase cost together with any
incidental expenses of acquisition.
No depreciation is charged on land. For all other tangible assets,
depreciation is calculated on a straight line basis to write off the cost over
their useful lives. The rates used are:
Buildings 2%
Plant and machinery 10%
Motor vehicles 25%
Fixtures and fittings 10%-20%
Hire purchase and finance leases
Assets acquired under hire purchase contracts and finance lease agreements are
recorded in the balance sheet as tangible fixed assets and depreciated over the
shorter of their estimated useful lives and hire term. Future instalments under
such contracts, net of finance charges, are included within creditors. Rentals
payable are apportioned between the finance element, which is charged to the
profit and loss account as interest, and the capital element, which reduces the
outstanding obligations for future instalments.
Operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term.
Financial instruments
The Group did not have derivative financial instruments at any time during the
financial year; the disclosure is limited therefore to primary financial
instruments.
Foreign currencies
Assets, liabilities, revenues and costs denominated in foreign currencies are
recorded at the rate of exchange ruling at the date of the transactions and
monetary assets and liabilities at the balance sheet date are translated at the
year end rate of exchange. All exchange differences thus arising are reported as
part of the results for the year. The results of overseas subsidiaries are
translated at the average exchange rate ruling during the year with the
difference between average and year end rates being taken to reserves.
Differences on exchange arising from the retranslation of the opening net
investment in subsidiary companies and relevant foreign currency loans are taken
to reserves.
31
Notes to the financial statements for the year ended 30 September 2002
2 Segmental analysis
Geographical analysis of the Group's turnover:
2002 2001 2000
Sales by destination (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 27,505 33,757 41,863
United States 155,090 128,077 30,630
Rest of the World 18,967 20,849 13,527
-----------------------------------------
201,562 182,683 86,020
=========================================
2002 2001 2000
Sales by origin (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 58,771 69,956 63,907
United States 141,636 110,230 21,130
Rest of the World 1,155 2,497 983
-----------------------------------------
201,562 182,683 86,020
=========================================
Geographical analysis of profit before taxation, by territory of origin:
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 81,624 7,197 16,291
United States 31,615 21,965 4,541
Rest of the World 8,660 5,632 1
-----------------------------------------
Profit before interest 121,899 34,794 20,833
Interest payable (20,808) (17,848) (1,760)
-----------------------------------------
Profit before taxation 101,091 16,946 19,073
=========================================
Geographical analysis of net assets:
2001
2002 (restated)
(pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 339,723 295,081
United States 317,134 304,570
Rest of the World 15,102 5,221
-------------------------
Net operating assets 671,959 604,872
=========================
Geographical analysis of total assets:
2002 2001
(pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 233,092 318,336
United States 417,349 475,702
Rest of the World 108,138 80,410
-------------------------
Total assets 758,579 874,448
=========================
32
2 Segmental analysis (continued)
For internal financial reporting purposes, operating results are analysed into
two segments, pharmaceutical products and pharmaceutical services.
Pharmaceutical products comprise prescription and sterile products businesses.
Pharmaceutical services comprise the clinical trials services and chemical
synthesis services businesses. Details of the businesses are summarised as
follows.
Pharmaceutical Products
The pharmaceutical products business develops, manufactures, supplies and
markets prescription medicines to healthcare professionals in several key
therapeutic areas. It also manufactures and supplies intravenous and other
sterile solutions, primarily for human use. Research and development is focused
on the development of proprietary drug delivery applications and technologies
for commercialisation in the US.
Pharmaceutical Services
Clinical Trial Services designed, manufactured and compiled patient packs for
use in clinical trials, which were then distributed worldwide from its
facilities in Craigavon and Pennsylvania. Interactive Clinical Technologies Inc
(ICTI) provided interactive voice response systems for clinical trial management
from its bases in Yardley (Pennsylvania), San Francisco and Maidenhead (United
Kingdom).
Chemical Synthesis Services included SynGal, which operated a chemical
synthesis service to pilot plant scale for the pharmaceutical and related
chemicals industry, and QuChem Limited, which offered a complementary service by
providing laboratory scale research.
The whole of the pharmaceutical services segment was disposed of during
the year.
Analysis of the Group's turnover by class of business:
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------
Pharmaceutical products 160,028 127,413 44,397
Pharmaceutical services--discontinued 41,534 55,270 41,623
--------------------------------------------
201,562 182,683 86,020
============================================
Analysis of the Group's profit before taxation by class of business:
Pharmaceutical
Pharmaceutical Services
Products (discontinued) Total
Year to 30 September 2002 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------
Turnover 160,028 41,534 201,562
Cost of sales (36,602) (24,648) (61,250)
---------------------------------------------------
Gross profit 123,426 16,886 140,312
Net operating expenses (85,987) (11,141) (97,128)
---------------------------------------------------
Operating profit 37,439 5,745 43,184
Gain on sale of discontinued businesses 71,388
Investment income 7,327
-------
Profit before interest 121,899
Interest payable (20,808)
-------
Profit before taxation 101,091
=======
33
Notes to the financial statements for the year ended 30 September 2002
2 Segmental analysis (continued)
Pharmaceutical
Pharmaceutical Services
Products (discontinued) Total
Year to 30 September 2001 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------
Turnover 127,413 55,270 182,683
Cost of sales (31,844) (32,343) (64,187)
--------------------------------------------------------
Gross profit 95,569 22,927 118,496
Net operating expenses (75,155) (13,002) (88,157)
--------------------------------------------------------
Operating profit 20,414 9,925 30,339
Investment income 4,455
--------
Profit before interest 34,794
Interest payable (17,848)
--------
Profit before taxation 16,946
========
Pharmaceutical
Pharmaceutical Services
Products (discontinued) Total
Year to 30 September 2000 (pound)'000 (pound)'000 (pound)'000
- -------------------------------------------------------------------------------------------------------------------------
Turnover 44,397 41,623 86,020
Cost of sales (23,592) (20,630) (44,222)
--------------------------------------------------------
Gross profit 20,805 20,993 41,798
Net operating expenses (14,638) (8,416) (23,054)
--------------------------------------------------------
Operating profit 6,167 12,577 18,744
Investment income 2,089
--------
Profit before interest 20,833
Interest payable (1,760)
--------
Profit before taxation 19,073
========
Exceptional items totalling (pound)3,311,000 in 2000 are included under
net operating expenses in the Pharmaceutical Products column.
Analysis of the Group's net assets by class of business:
2002 2001
(pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------
Pharmaceutical products 671,959 577,271
Pharmaceutical services--discontinued -- 27,601
---------------------------
671,959 604,872
===========================
Analysis of the Group's total assets by class of business:
2002 2001
(pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------
Pharmaceutical products 758,579 782,977
Pharmaceutical services--discontinued -- 91,471
---------------------------
758,579 874,448
===========================
34
2 Segmental analysis (continued)
Reliance on major customers (10% or more of revenue)
In the year ended 30 September 2002 11% of consolidated turnover was derived
from one customer. In the years ended 30 September 2001 and 30 September 2000 no
single customer exceeded 10% of consolidated revenue.
Reliance on major products
Sales of the pharmaceutical products, Ovcon(R), Doryx(R) and Estrace(R) cream in
the year ended 30 September 2002 represented 16%, 15% and 13% of consolidated
turnover respectively.
Sales of Ovcon(R) and Estrace(R) cream in the year ended 30 September 2001
represented 15% and 11% of consolidated turnover respectively. These products
were acquired on the purchase of Warner Chilcott on 29 September 2000. In the
year ended 30 September 2000, the single pharmaceutical product Kapake(R)
represented 12% of consolidated turnover.
3 Net operating expenses
Continuing Discontinued Continuing Discontinued
operations operations 2002 operations operations
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ----------------------------------------------------------------------------------------------------
Distribution costs 39,463 4,161 43,624 32,701 4,070
--------------------------------------------------------------------
Administrative expenses
before exceptional items
and goodwill and
intangibles amortisation 21,097 5,858 26,955 19,588 7,398
Exceptional group
integration costs -- -- -- -- --
Goodwill and intangibles
amortisation 26,269 1,136 27,405 23,024 1,578
--------------------------------------------------------------------
Total administrative expenses 47,366 6,994 54,360 42,612 8,976
--------------------------------------------------------------------
Other operating income (842) (14) (856) (158) (44)
--------------------------------------------------------------------
Net operating expenses 85,987 11,141 97,128 75,155 13,002
====================================================================
Continuing Discontinued
2001 operations operations 2000
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- ----------------------------------------------------------------------------------------------------
Distribution costs 36,771 5,457 2,552 8,009
-----------------------------------------------------------------
Administrative expenses
before exceptional items
and goodwill and
intangibles amortisation 26,986 5,558 5,200 10,758
Exceptional group
integration costs -- 3,311 -- 3,311
Goodwill and intangibles
amortisation 24,602 1,087 981 2,068
-----------------------------------------------------------------
Total administrative expenses 51,588 9,956 6,181 16,137
-----------------------------------------------------------------
Other operating income (202) (775) (317) (1,092)
-----------------------------------------------------------------
Net operating expenses 88,157 14,638 8,416 23,054
=================================================================
Group integration costs in 2000 related to employment and other contract
termination costs associated with the acquisitions in that year.
4 Investment income
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------
Interest on bank deposits 7,327 4,455 2,089
===========================================
5 Interest payable and similar charges
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------
On bank loans and overdrafts 11,879 17,794 1,717
On hire purchase agreements 53 54 43
Exceptional costs of loan notes redemption 8,876 -- --
-------------------------------------------
20,808 17,848 1,760
===========================================
35
Notes to the financial statements for the year ended 30 September 2002
6 Profit on ordinary activities before taxation
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Profit on ordinary activities before taxation is stated after charging:
Staff costs (note 11) 49,996 48,726 24,600
Amortisation--goodwill 15,774 16,216 1,999
--intangibles 11,631 8,386 69
Depreciation of tangible fixed assets
--owned assets 5,770 5,970 4,214
--under hire purchase contracts 167 166 138
Research and development expenditure 13,914 9,245 8,029
Auditors' remuneration
--audit services (parent(pound)10,000 in each year) 170 140 98
--non-audit services 148 149 54
Hire of plant and machinery--operating leases 507 479 422
Other operating lease rentals 615 754 181
====================================
And after crediting:
Amortisation of government capital grants 1,067 1,388 1,295
Revenue grants 70 202 1,092
====================================
Auditors' remuneration for non-audit services in 2002 and 2001 relates to
quarterly accounts reviews, taxation services and grants audits. The 2000 amount
related to taxation services and grants audits. The auditors also received
remuneration during 2002 in relation to subsidiary disposals (comprising
taxation advice and non-statutory completion audits) totalling (pound)243,000
which was not charged to profit and loss account. The auditors received
remuneration during 2001 for acquisition and share issue related services
totalling (pound)412,000 (2000: (pound)499,000), which was not charged to profit
and loss account. No consulting services were provided by the auditors in any of
the above years.
7 Tax on profit on ordinary activities
2002 2001 2000
Taxation on the profit for the year (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Current tax
UK corporation tax at 30% 7,219 650 3,912
UK corporation tax--adjustment to previous years (241) (772) (3,151)
Overseas tax 2,242 1,043 715
------------------------------------
Total current tax 9,220 921 1,476
------------------------------------
Deferred tax
UK corporation tax at 30% (257) 1,598 618
UK corporation tax--adjustment to previous years 8 888 2,968
Overseas tax 78 187 235
------------------------------------
Total deferred tax (171) 2,673 3,821
------------------------------------
Tax on profit on ordinary activities 9,049 3,594 5,297
====================================
36
7 Tax on profit on ordinary activities (continued)
The current tax charge for the year is lower than the standard rate of
corporation tax in the UK of 30%. The differences are explained below:
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Profit on ordinary activities before taxation 101,091 16,946 19,073
-------------------------------------
Tax charge at the UK statutory rate of 30% 30,327 5,084 5,721
Non-taxable disposals (19,616) -- --
Losses not previously recognised and share option deductions in US (4,920) (4,716) --
Non-taxable grant transfers (320) (416) (389)
Amortisation of goodwill and intangible fixed assets not allowable 6,189 4,733 326
Net effect of lower rates and eligible costs in overseas tax jurisdictions (2,506) (1,353) --
Adjustment to previous years (241) (772) (3,151)
Accelerated capital allowances and other timing differences 179 (1,785) (853)
Other 128 146 (178)
-------------------------------------
Current tax charge 9,220 921 1,476
=====================================
Taxation in relation to the gain on disposal of discontinued operations
amounted to (pound)2,700,000. The factors that may affect the Group's future tax
charges are detailed at note 19.
8 Profit for the financial year
As permitted by the Companies (Northern Ireland) Order 1986 the parent company's
profit and loss account has not been included in these financial statements. The
parent company's profit for the financial year was (pound)135,620,000 (2001:
(pound)4,988,000, 2000: (pound)4,061,000).
9 Dividends
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Interim paid of 1p per share (2001: 0.83p, 2000: 0.69p) 1,902 1,351 878
Final proposed of 2p per share (2001: 1.66p, 2000: 1.38p) 3,662 3,143 2,194
Adjustment to previous period 94 36 66
-----------------------------------
Total ordinary dividends on equity shares 5,658 4,530 3,138
Less amount relating to shares held by the Galen Employee Benefit Trust (140) (117) (102)
-----------------------------------
5,518 4,413 3,036
===================================
10 Earnings per share
Earnings per ordinary share is based on profit for the financial year
of (pound)92,010,000 (2001: (pound)13,230,000, 2000: (pound)13,687,000) and on
185,244,963 ordinary shares (2001: 161,354,740, 2000: 121,444,370), the weighted
average number of ordinary shares in issue during the year excluding those held
in the employee share trust which are treated as cancelled.
FRS 14 "Earnings per share" recognises that there may be instances where a
company would wish to disclose additional EPS calculated on other levels of
earnings. Two common instances where such additional figures are shown are where
earnings have been materially affected by exceptional items or by items of a
capital nature (including goodwill amortisation). The FRS permits inclusion of
such additional EPS but requires that the calculation use the weighted average
number of ordinary shares as determined for the basic calculation. The FRS also
requires that the additional EPS is reconciled to the basic EPS required by the
Standard and that the reasons for calculating the additional EPS are explained.
37
Notes to the financial statements for the year ended 30 September 2002
10 Earnings per share (continued)
Adjusted earnings per share figures reflecting the results before the impact of
exceptional items and goodwill and intangibles amortisation have been calculated
in addition to the earnings per share required by FRS 14, since in the opinion
of the directors this will allow the shareholders to gain a clearer
understanding of underlying trading performance of the Group.
2002 2001 2000
Pence Pence Pence
per share per share per share
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per ordinary share 49.7 8.2 11.3
Exceptional items--disposals and acquisitions (37.1) -- 2.0
Goodwill and intangibles amortisation 14.8 15.2 1.7
Exceptional costs of notes redemption (note 5) 4.8 -- --
-----------------------------------------
Adjusted earnings per share 32.2 23.4 15.0
=========================================
Diluted earnings per share is calculated on the profit for the financial year
and on an adjusted number of shares reflecting the number of dilutive shares
under option.
Earnings Number EPS
2002 (pound)'000 of shares Pence
- ------------------------------------------------------------------------------------------------------------------------------------
Basic EPS 92,010 185,244,963 49.7
Effect of dilutive securities--options -- 1,085,671
-----------------------------------------
Diluted EPS 92,010 186,330,634 49.4
=========================================
Earnings Number EPS
2001 (pound)'000 of shares Pence
- ------------------------------------------------------------------------------------------------------------------------------------
Basic EPS 13,230 161,354,740 8.2
Effect of dilutive securities--options -- 2,805,536
-----------------------------------------
Diluted EPS 13,230 164,160,276 8.1
=========================================
Earnings Number EPS
2000 (pound)'000 of shares Pence
- ------------------------------------------------------------------------------------------------------------------------------------
Basic EPS 13,687 121,444,370 11.3
Effect of dilutive securities--options -- 481,481
-----------------------------------------
Diluted EPS 13,687 121,925,851 11.2
=========================================
Adjusted diluted earnings per share adjusts diluted earnings per share to
reflect the impact of exceptional items and amortisation of goodwill and
intangibles.
2002 2001 2000
Pence Pence Pence
per share per share per share
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted EPS 49.4 8.1 11.2
Exceptional items--disposals and acquisitions (36.9) -- 2.0
Goodwill and intangibles amortisation 14.7 14.9 1.7
Exceptional costs of notes redemption 4.8 -- --
-----------------------------------------
Adjusted diluted earnings per share 32.0 23.0 14.9
=========================================
38
11 Employee information and directors' emoluments
2002 2001 2000
Staff costs (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Wages and salaries 43,709 43,274 22,011
Social security costs 5,214 4,794 1,970
Other pension costs 1,073 658 619
----------------------------------
49,996 48,726 24,600
==================================
The average monthly number of persons employed by the Group
(including executive directors) during the year was: Number Number Number
- ------------------------------------------------------------------------------------------------------------------------------------
Administration staff 191 191 151
Other staff 1,389 1,501 1,049
----------------------------------
1,580 1,692 1,200
==================================
2002 2001 2000
Directors' emoluments (total salary and benefits) (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate emoluments 1,221 1,437 559
Gains made on the exercise of share options 1 79 --
Compensation for loss of office 165 62 --
Company pension contributions to defined contribution (money purchase) schemes 109 129 140
==================================
Retirement benefits are accruing to three directors (2001: three, 2000: three)
under the Group's defined contribution schemes.
2002 2001 2000
Highest paid director (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate emoluments 510 431 180
Company pension contributions to defined contribution schemes 4 -- 50
==================================
Details of individual directors' emoluments for the year ended 30
September 2002 are as follows:
Compensation
for loss of
Salary Bonus office Benefits
Executive directors (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------
R Boissonneault 362 134 -- 14
J A King 120 60 -- --
R G Elliott 275 110 -- 12
A D Armstrong 55 -- 165 4
P Herendeen -- -- -- --
-----------------------------------------------------
Total 812 304 165 30
=====================================================
2002 2001
Total Total
(including (including 2001
Pension pension pension pension
contributions contributions) contributions) contributions
Executive directors (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------
R Boissonneault 4 514 431 --
J A King 50 230 182 50
R G Elliott 50 447 324 50
A D Armstrong 5 229 221 29
P Herendeen -- -- 370 --
----------------------------------------------------------------
Total 109 1,420 1,528 129
================================================================
39
Notes to the financial statements for the year ended 30 September 2002
11 Employee information and directors' emoluments (continued)
Fees Fees Fees
2002 2001 2000
Non-executive directors (pound)'000 (pound)'000 (pound)'000
- -------------------------------------------------------------------------------------------------------------
H A Ennis 25 25 25
A J McClay -- 25 --
D Gibbons 25 25 25
M G Carter 25 25 25
T G Lynch -- -- --
----------------------------------
75 100 75
==================================
Mr Lynch waived his fees during the year and an equivalent amount has been
donated to charity.
Remuneration committee
The report of the Remuneration Committee is set out on pages 20 and 21.
12 Intangible fixed assets
Product
licences
Goodwill and rights Total
(pound)'000 (pound)'000 (pound)'000
- ----------------------------------------------------------------------------------------------------------------------------
Cost
At 1 October 2000 319,883 139,124 459,007
Currency adjustment (222) (536) (758)
Additions 1,675 78,088 79,763
Disposals -- (327) (327)
------------------------------------------------
At 1 October 2001 321,336 216,349 537,685
Currency adjustment (1,084) (9,797) (10,881)
Additions 400 29,193 29,593
Deferred consideration adjustment (2,755) -- (2,755)
Disposals (23,885) -- (23,885)
------------------------------------------------
At 30 September 2002 294,012 235,745 529,757
------------------------------------------------
Aggregate amortisation
At 1 October 2000 2,711 194 2,905
Currency adjustment (50) (187) (237)
Charge for the year 16,216 8,386 24,602
Disposals -- (327) (327)
------------------------------------------------
At 1 October 2001 18,877 8,066 26,943
Currency adjustment (64) (490) (554)
Charge for the year 15,774 11,631 27,405
Deferred consideration adjustment (346) -- (346)
Disposals (4,148) -- (4,148)
------------------------------------------------
At 30 September 2002 30,093 19,207 49,300
------------------------------------------------
Net book value
At 30 September 2002 263,919 216,538 480,457
================================================
At 30 September 2001 302,459 208,283 510,742
================================================
At 30 September 2000 317,172 138,930 456,102
================================================
40
13 Tangible fixed assets
Land and Plant and Fixtures and Motor
buildings machinery fittings vehicles Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Cost
At 1 October 2000 49,831 32,595 12,141 533 95,100
Currency adjustment (24) (22) (20) (1) (67)
Additions 6,791 6,082 3,162 190 16,225
Disposals (220) (49) (29) (41) (339)
----------------------------------------------------------------------------------
At 1 October 2001 56,378 38,606 15,254 681 110,919
Currency adjustment 78 53 (137) (4) (10)
Additions 5,108 3,491 2,926 47 11,572
Disposals (39,090) (16,198) (10,470) (353) (66,111)
----------------------------------------------------------------------------------
At 30 September 2002 22,474 25,952 7,573 371 56,370
----------------------------------------------------------------------------------
Depreciation
At 1 October 2000 2,081 9,344 3,996 291 15,712
Currency adjustment (5) (14) (25) (2) (46)
Charge for the year 913 3,118 1,979 126 6,136
Eliminated on disposal -- (9) (29) (25) (63)
----------------------------------------------------------------------------------
At 1 October 2001 2,989 12,439 5,921 390 21,739
Currency adjustment 19 (5) 24 2 40
Charge for the year 814 3,190 1,832 101 5,937
Eliminated on disposal (2,155) (3,492) (4,118) (212) (9,977)
----------------------------------------------------------------------------------
At 30 September 2002 1,667 12,132 3,659 281 17,739
----------------------------------------------------------------------------------
Net book value
At 30 September 2002 20,807 13,820 3,914 90 38,631
==================================================================================
At 30 September 2001 53,389 26,167 9,333 291 89,180
==================================================================================
At 30 September 2000 47,750 23,251 8,145 242 79,388
==================================================================================
The net book value of tangible fixed assets includes an amount of
(pound)1,265,000 (2001: (pound)1,432,000, 2000: (pound)1,097,000) in respect of
assets held under hire purchase agreements.
The net book value of land and buildings comprises:
2002 2001
(pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Freehold property 6,003 26,921
Long leasehold property 14,804 26,468
--------------------------
20,807 53,389
==========================
41
Notes to the financial statements for the year ended 30 September 2002
14 Fixed asset investments
Interest in
group
undertakings
Company (pound)'000
- --------------------------------------------------------------------------------
Cost or valuation
At 1 October 2001 308,996
Inter-group transfers 48,621
Disposals (16,117)
-----------
At 30 September 2002 341,500
-----------
Amounts written off
At 1 October 2001 and 30 September 2002 --
-----------
Net book value
At 30 September 2002 341,500
===========
At 30 September 2001 308,996
===========
Subsidiary undertakings whose results or financial position, in the
opinion of the directors, principally affected the figures of the Group are as
follows:
Proportion of issued
shares held by
Subsidiary Country of incorporation Class of share Group Company
- --------------------------------------------------------------------------------------------------------------------------------
Galen Limited Northern Ireland Ordinary (pound)1 shares 100% --
Galen Chemicals Limited Republic of Ireland Ordinary (euro) shares -- 100%
Galen Incorporated United States of America Common $1 stock -- 100%
Interactive Clinical Technologies Inc United States of America Common $1 stock -- 100%
Warner Chilcott Inc United States of America Common $1 stock -- 100%
================================================================================
The nature of the above subsidiaries' businesses is detailed in the Letter
to Shareholders. Galen Incorporated and Interactive Clinical Technologies Inc
were disposed of during the year as part of the disposal of the Group's services
segment.
15 Stocks
Group Group Company Company
2002 2001 2002 2001
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------------------------------------
Raw materials and consumables 7,902 9,105 -- --
Finished goods and goods for resale 9,180 7,458 -- --
-------------------------------------------------------
17,082 16,563 -- --
=======================================================
There is no material difference between the replacement cost of stocks and
their balance sheet values.
42
16 Debtors
Group Group Company Company
2002 2001 2002 2001
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- -------------------------------------------------------------------------------------------------------------------
Amounts falling due after more than one year:
Amounts owed by subsidiary undertakings -- -- 161,086 84,369
----------------------------------------------------------
Amounts falling due within one year:
Trade debtors 21,925 32,327 -- --
Less amounts provided for doubtful debts (1,055) (1,655) -- --
----------------------------------------------------------
20,870 30,672 -- --
Other debtors 876 1,588 -- --
Prepayments and accrued income 1,912 3,701 573 536
----------------------------------------------------------
23,658 35,961 573 536
----------------------------------------------------------
Total debtors 23,658 35,961 161,659 84,905
==========================================================
2002 2001 2000
Provision for doubtful debts--Group (pound)'000 (pound)'000 (pound)'000
- -------------------------------------------------------------------------------------------------------------------
At the beginning of the year 1,655 297 287
Profit and loss account charge/(credit) (292) 1,164 12
Amounts utilised and other movements (308) 194 (2)
---------------------------------------
At the end of the year 1,055 1,655 297
=======================================
17 Creditors: amounts falling due within one year
Group Group Company Company
2002 2001 2002 2001
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- -------------------------------------------------------------------------------------------------------------------
Bank loans and overdrafts (note 18) 391 12,049 -- --
Obligations under hire purchase agreements 249 366 -- --
Trade creditors 8,894 13,036 -- --
Corporation tax 7,036 2,075 1,903 63
Other taxation and social security 716 514 -- --
Other creditors 4,579 8,145 -- 144
Accruals and deferred income 22,645 15,566 3,580 4,204
Proposed dividend 3,662 3,143 3,662 3,143
Deferred acquisition consideration -- 7,430 -- --
---------------------------------------------------------
48,172 62,324 9,145 7,554
=========================================================
43
Notes to the financial statements for the year ended 30 September 2002
18 Creditors: amounts falling due after more than one year
Group Group Company Company
2002 2001 2002 2001
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Bank loans 606 79,187 -- --
Loan notes 31,605 112,198 -- --
Obligations under hire purchase agreements 142 397 -- --
Contingent acquisition consideration -- 1,362 -- --
-------------------------------------------------------
32,353 193,144 -- --
=======================================================
Group Group Company Company
2002 2001 2002 2001
Bank loans (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Repayable as follows:
In one year or less 391 12,049 -- --
Between one and two years 391 58,971 -- --
Between two and five years 215 14,429 -- --
In five years or more -- 5,787 -- --
-------------------------------------------------------
997 91,236 -- --
=======================================================
Circular and cross guarantees and indemnities are in place in relation to
certain Group banking facilities.
$200m of 12 5/8% Warner Chilcott Inc senior loan notes, repayable in 2008,
were issued by that subsidiary in February 2000 at a discount to yield 13%.
Interest is payable semi-annually. The acquisition of Warner Chilcott Inc gave
the note holders the right to require it to repurchase the notes at 101% of the
principal amount, by giving notice to the Company by 1 December 2000. On that
date, repayment was requested in relation to $40.3 million principal amount of
the loan notes. During the year an additional $111.3 million of loan notes were
retired. The remaining loan notes are redeemable at the Company's option on or
after February 2004 at redemption prices that decrease annually from 106.3125%
to 100% of their principal value.
Group Group Company Company
2002 2001 2002 2001
Hire purchase agreements (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
The net hire purchase obligations to which the Group is committed are:
In one year or less 267 392 -- --
Between one and two years 144 267 -- --
Between two and three years -- 141 -- --
Between three and four years -- 2 -- --
Less interest element (20) (39) -- --
------------------------------------------------------
391 763 -- --
======================================================
Financial instruments
The Group's financial instruments comprise borrowings, its cash and liquid
resources, and other current assets and liabilities that arise directly from its
operations. The Group has not entered into derivative arrangements during the
year as interest rate and currency risks arising from the Group's operations and
its sources of finance have not been significant to date.
44
18 Creditors: amounts falling due after more than one year (continued)
Group policy
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and foreign currency risk. The Board reviews and agrees
policies for managing each of these risks on an ongoing basis, taking account of
the impact of the acquisitions during the year, and they are summarised below.
Interest rate risk
The Group finances its operations through a mixture of retained profits and bank
borrowings, and borrows in the desired currencies at both fixed and floating
rates of interest. At the year end, 98% (2001: 56%) of its borrowings were at
fixed rates, and on this basis, there has not been a need to use interest rate
swaps or other derivative instruments to manage the risk.
Liquidity risk
As regards liquidity, the Group's policy is to maintain an appropriate spread of
maturity to ensure continuity of funding. At 30 September 2002, 1% (2001: 65%)
of its borrowings were due to mature between 2 and 5 years, and 97% (2001: 58%)
in more than five years. Short-term flexibility is achieved by the availability
of overdraft facilities.
Foreign currency risk
The Group's overseas subsidiaries operate in the US and their revenues and
expenses are denominated in US dollars. To date no financial instruments have
been used to hedge the net investment against movements in the exchange rates.
This exposure will continue to be monitored with the expansion of the scale of
the Group's overseas operations. Substantially all sales of the UK businesses
are denominated in sterling.
Interest rate risk profile of financial assets and financial liabilities
Short-term debtors and creditors have been excluded from each of the following
disclosures.
Financial assets
The Group's financial assets, other than short-term debtors, consist of sterling
cash deposits and cash at bank. At 30 September 2002 sterling and US dollar cash
deposits amounted to (pound)198,750,000 (2001: (pound)220,000,000). These
comprise deposits placed on money markets at three month rolling rates. The
amount of cash held in bank current accounts is not of significance.
Financial liabilities
The interest rate profile of the Group's financial liabilities at 30 September
2002 was:
Financial
Floating rate Fixed rate liabilities
financial financial on which no
Total liabilities liabilities interest is paid
Currency (pound)'000 (pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------------------------------------
Sterling 1,388 499 889 --
US dollar 31,605 -- 31,605 --
-------------------------------------------------------------------
Total 32,993 499 32,494 --
===================================================================
45
Notes to the financial statements for the year ended 30 September 2002
18 Creditors: amounts falling due after more than one year (continued)
The interest rate profile of the Group's financial liabilities at 30
September 2001 was:
Financial
Floating rate Fixed rate liabilities
financial financial on which no
Total liabilities liabilities interest is paid
Currency (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
Sterling 8,200 6,825 1,375 --
US dollar 204,789 83,773 112,223 8,793
-----------------------------------------------------------
Total 212,989 90,598 113,598 8,793
===========================================================
Fixed rate financial liabilities-- Financial liabilities on which
Fixed rate financial liabilities-- weighted average period for no interest is paid--weighted
weighted average interest rate which rate is fixed average period until maturity
2002 2001 2002 2001 2002 2001
Currency % % Years Years Years Years
- ----------------------------------------------------------------------------------------------------------------------------------
Sterling 8 9 3 10 -- --
US dollar 12 5/8 12 5/8 6 7 -- 1
======================================================================================================
The floating rate financial liabilities comprise sterling denominated bank
borrowings and overdrafts that bear interest at rates based on LIBOR.
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities, other than short-term
creditors and accruals, at 30 September 2002, was as follows:
Finance Other
Loan leases/hire financial
notes Bank debt purchase liabilities Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ---------------------------------------------------------------------------------------------------------------------------------
In one year or less, or on demand -- 391 249 -- 640
In more than one year but not more than two years -- 391 140 -- 531
In more than two years but not more than five years -- 215 2 -- 217
In more than five years 31,605 -- -- -- 31,605
-----------------------------------------------------------------
31,605 997 391 -- 32,993
=================================================================
The maturity profile of the Group's financial liabilities, other than
short-term creditors and accruals, at 30 September 2001, was as follows:
Finance Other
Loan leases/hire financial
notes Bank debt purchase liabilities Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ---------------------------------------------------------------------------------------------------------------------------------
In one year or less, or on demand -- 12,049 366 7,430 19,845
In more than one year but not more than two years -- 58,971 255 1,362 60,588
In more than two years but not more than five years -- 14,429 142 -- 14,571
In more than five years 112,198 5,787 -- -- 117,985
------------------------------------------------------------------
112,198 91,236 763 8,792 212,989
==================================================================
46
18 Creditors: amounts falling due after more than one year (continued)
Other financial liabilities at 30 September 2001 related to deferred and
contingent consideration in relation to acquisitions. Bank and loan note debt
maturities at 30 September 2002 were as follows:
Unsecured Unsecured Unsecured Unsecured
sterling US dollar sterling US dollar
bank debt bank debt bank debt loan notes
(variable (variable (fixed (fixed
rate) rate) rate) rate) Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Due within one year 200 -- 191 -- 391
From one to two years 200 -- 191 -- 391
From two to three years 100 -- 115 -- 215
From three to four years -- -- -- -- --
From four to five years -- -- -- 31,605 31,605
--------------------------------------------------------------------------------
After five years 500 -- 497 31,605 32,602
================================================================================
Bank and loan note debt maturities at 30 September 2001 were as follows:
Unsecured Unsecured Unsecured Unsecured
sterling US dollar sterling US dollar
bank debt bank debt bank debt loan notes
(variable (variable (fixed (fixed
rate) rate) rate) rate) Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Due within one year 2,686 9,224 139 -- 12,049
From one to two years 2,311 56,509 151 -- 58,971
From two to three years 1,728 5,447 165 -- 7,340
From three to four years 100 5,447 181 -- 5,728
From four to five years -- 1,361 -- -- 1,361
After five years -- 5,787 -- 112,198 117,985
--------------------------------------------------------------------------------
6,825 83,775 636 112,198 203,434
================================================================================
Borrowing facilities
Borrowing facilities available, but undrawn, at 30 September 2002 in respect of
which all conditions precedent had been met were as follows:
2002 2001
(pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Expiring in one year or less -- 1,668
======================
47
Notes to the financial statements for the year ended 30 September 2002
18 Creditors: amounts falling due after more than one year (continued)
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of book values and fair values of the
Group's financial assets and liabilities as at 30 September 2002. Fair value is
the amount at which a financial instrument could be exchanged in an arm's length
transaction between informed and willing parties, other than a forced or
liquidation sale and excludes accrued interest. The fair values shown below have
been assessed by calculating discounted cash flows that would arise if the
commitments at 30 September 2002 had been entered into at market rates at that
time.
Book value Book value Fair value Fair value
Primary financial instruments held or issued 2002 2001 2002 2001
to finance the Group's operations (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 640 12,415 640 12,415
Long-term borrowings 32,353 191,782 37,076 201,797
Other financial liabilities -- 8,793 -- 8,715
Financial assets 198,751 222,002 198,751 222,002
=========================================================================
Summary of main methods and assumptions:
Short-term deposits and borrowings The fair value of short-term deposits and
loans approximates to the carrying amount
because of the short maturity of these
instruments.
Long-term borrowings The fair value of the US senior loan
notes has been estimated using quoted
market prices.
Currency exposures
The tables below show the extent to which Group companies have monetary assets
and liabilities in currencies other than their local currency. Foreign exchange
differences on retranslation of these assets and liabilities are taken to the
profit and loss account of the Group companies and the Group.
Net foreign currency monetary assets/(liabilities)
US dollar EU currencies Total
2002 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Functional currency of Group operation:
Sterling 187 (611) (424)
US dollar -- 248 248
-------------------------------------------------
Total 187 (363) (176)
=================================================
Net foreign currency monetary assets/(liabilities)
US dollar EU currencies Total
2001 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Functional currency of Group operation:
Sterling 68,233 (464) 67,769
US dollar -- 636 636
--------------------------------------------------
Total 68,233 172 68,405
==================================================
48
19 Provisions for liabilities and charges
Deferred taxation (pound)'000
- ------------------------------------------------------------------------------------------------------------------
At 1 October 2001 as previously reported 5,884
Prior year adjustment (note 1) 2,488
------
At 1 October 2001 as restated 8,372
Currency adjustment (50)
Profit and loss account (171)
On disposals (5,986)
------
At 30 September 2002 2,165
======
Deferred taxation provided in the financial statements is as follows:
2001
2002 (restated)
Group (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------
Excess of tax allowances over depreciation 3,635 9,188
Short-term timing differences (1,470) (602)
Other -- (214)
------------------------
2,165 8,372
========================
The parent company has no deferred tax liability.
No deferred tax is recognised on the unremitted earnings of overseas
subsidiaries as no dividends have been accrued.
The group has tax losses arising on an overseas subsidiary of $59 million
(2001: $77 million) that are available for offset against future taxable profits
of that subsidiary. A deferred tax asset has not been recognized in respect of
these losses as their future recovery is uncertain.
20 Deferred income
Government grants (pound)'000
- -----------------------------------------------------------------------------------------------------------------
At 1 October 2000 6,670
Receivable in the year 454
Released to profit and loss account (1,388)
------
At 1 October 2001 5,736
Receivable in the year 1,464
Disposals (2,203)
Released to profit and loss account (1,067)
------
At 30 September 2002 3,930
======
49
Notes to the financial statements for the year ended 30 September 2002
21 Called up share capital
2002 2001
(pound)'000 (pound)'000
- -------------------------------------------------------------------------------------------------------------------
Authorised
250,000,000 (2001: 250,000,000) ordinary shares of 10p each 25,000 25,000
=====================
Allotted and fully paid
187,805,260 (2001: 189,311,298) ordinary shares of 10p each 18,781 18,931
=====================
455,962 shares were issued in the year as a result of the exercise of
share options (nominal value (pound)45,596, proceeds (pound)2,856,000). 88,000
shares were issued in December 2001 in acquiring the minority interest in QuChem
Limited prior to the disposal of the Pharmaceutical Services businesses. During
the year 2,050,000 shares were repurchased for (pound)8,001,000 (nominal value
(pound)205,000).
22 Share premium account and reserves
Share Capital
premium redemption Merger Profit and
account reserve reserve loss account
Group (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
At 1 October 1999 as previously reported 19,264 -- -- 36,731
Prior year adjustment -- -- -- (1,890)
----------------------------------------------------------
At 1 October 1999 as restated 19,264 -- -- 34,841
Arising on share issues 36,300 -- 297,966 --
Issue costs (533) -- (7,281) --
Retained profit for the year -- -- -- 10,651
Exchange differences arising on consolidation -- -- -- 953
----------------------------------------------------------
At 1 October 2000 as previously reported 55,031 -- 290,685 48,933
Prior year adjustment -- -- -- (2,488)
----------------------------------------------------------
At 1 October 2000 as restated 55,031 -- 290,685 46,445
Arising on share issues 201,270 -- -- --
Issue costs (16,043) -- -- --
Retained profit for the year -- -- -- 8,817
Exchange differences arising on consolidation -- -- -- (506)
----------------------------------------------------------
At 1 October 2001 as previously reported 240,258 -- 290,685 57,244
Prior year adjustment -- -- -- (2,488)
----------------------------------------------------------
At 1 October 2001 as restated 240,258 -- 290,685 54,756
Arising on share issues 2,811 -- -- --
Issue costs (38) -- -- --
Retained profit for the year -- -- -- 86,492
Exchange differences arising on consolidation -- -- -- (13,990)
Purchase of own shares -- 205 -- (8,001)
----------------------------------------------------------
At 30 September 2002 243,031 205 290,685 119,257
==========================================================
50
22 Share premium account and reserves (continued)
The prior year adjustment relates to the implementation of FRS 19. The
adoption of FRS 19 resulted in an increase in the tax charge in 2000 of
(pound)598,000 and a decrease in profit of that amount. Adoption of the standard
had no effect on the 2002 or 2001 charge as full provision for deferred tax had
been made in those years.
Share Capital
premium redemption Merger Profit and
account reserve reserve loss account
Company (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ---------------------------------------------------------------------------------------------------------------------
At 1 October 2001 240,258 -- 290,685 5,815
Arising on share issues 2,811 -- -- --
Issue costs (38) -- -- --
Profit for the year -- -- -- 129,962
Exchange difference -- -- -- (6,296)
Purchase of own shares -- 205 -- (8,001)
-------------------------------------------------------------
At 30 September 2002 243,031 205 290,685 121,480
=============================================================
Share option schemes
The following share option schemes were established in 1996:
The Galen Approved Executive Share Option Scheme
The Galen Unapproved Executive Share Option Scheme
The Galen Savings Related Share Option Scheme
The Galen 2000 US Option Scheme was established in 2000.
A summary of the main terms of the schemes is set out below.
The Galen Approved Executive Share Option Scheme and the Galen Unapproved
Executive Share Scheme ("the Executive Schemes") These are discretionary share
schemes, one of which has been approved by the Inland Revenue. The terms of
these schemes are similar unless indicated to the contrary. Both schemes provide
for options to be granted over unissued shares or shares held in a trust.
Options are granted at the discretion of the Remuneration Committee of the
Company to any full time employee of any Group company.
The granting of options is subject to performance conditions being
fulfilled before the option can be exercised. Options may be exercised between
the third and tenth anniversaries of their date of grant provided that the
performance conditions have been fulfilled. The exercise price is not less than
the higher of the nominal value of the share and the middle market quotation for
the last dealing day before the date of grant.
The number of options which may be issued is subject to overall scheme
limits and individual limits. No further options may be granted if, as a result:
(i) the aggregate number of shares issued, or remaining issuable, under any of
the Company's schemes in the previous 10 years would exceed 10% of the
Company's issued share capital on the day preceding the proposed grant
date; or
(ii) the aggregate number of shares issued, or remaining issuable, under any of
the Company's schemes (other than the Savings Related Scheme) in the
previous 10 years would exceed 5% of the Company's issued share capital on
the day preceding the proposed grant date; or
(iii) the aggregate number of shares issued, or remaining issuable, under any of
the Company's schemes in the previous 3 years would exceed 3% of the
Company's issued share capital at that time.
51
Notes to the financial statements for the year ended 30 September 2002
22 Share premium account and reserves (continued)
No further options may be granted to an individual if as a result (i) the
aggregate market value of shares which have been issued to him or for which he
may subscribe under any Company scheme (other than the Savings Related Scheme)
pursuant to options granted to him during the previous 10 years would exceed 4
times his annual earnings, or, (ii) in the case of the Approved Scheme, the
aggregate market value of shares which he may acquire under this scheme would
exceed (pound)30,000.
The Galen Savings Related Share Option Scheme ("the SAYE Scheme")
The SAYE Scheme permits the grant of options over unissued shares or shares held
in a trust. All eligible employees are invited to apply for options and it is a
condition of application that employees enter into a savings contract with an
approved savings institution. The number of shares over which an option can be
granted will be determined by the level of contributions which an employee
commits to under the savings contract. Any employee of a Group company with more
than 1 year continuous employment is eligible to participate. The exercise price
is not less than the higher of the nominal value of the share and 80% of the
average middle market quotation on the day following the Company's release to
the public of its fiscal year financial results. An option may be exercised 3 or
5 years after the date of grant depending on the type of savings contract taken
out.
No further options may be granted if, as a result:
(i) the aggregate number of shares issued, or remaining issuable, pursuant to
options granted under this scheme and any other share option scheme
established by the Company and shares issued under any other employees'
share scheme of the Company in the previous 10 years would exceed 10% of
the Company's issued share capital; or
(ii) the aggregate number of shares issued, or remaining issuable, pursuant to
options granted in the previous 5 years under this scheme and any other
share option schemes established by the Company and shares issued under
any other employees' share scheme of the Company in the previous 5 years
would exceed 5% of the Company's issued share capital.
The Galen 2000 US Option Scheme ("the US Share Scheme")
Pursuant to the terms of the US Share Scheme, both incentive stock options and
non-qualified stock options may be granted to any eligible employee of or
consultant to the Company's US subsidiaries.
Options may be granted at the discretion of the Remuneration Committee to
any officer or employee of any US subsidiary of Galen. On any date, no option
may be granted under the US Share Scheme if, as a result, any of the following
limits would be exceeded:
(i) the aggregate number of ordinary shares issued, or remaining issuable,
pursuant to options granted during the previous 10 years under this
scheme, the Executive Schemes, the SAYE Scheme and all other employees'
share schemes, established by the Company would exceed 10% of the issued
ordinary share capital of the Company on the day preceding that date;
(ii) the aggregate number of ordinary shares issued, or remaining issuable,
pursuant to options granted during the previous 10 years under this
scheme, the Executive Schemes and all other discretionary share option
schemes (other than a savings related share option scheme) established by
the Company would exceed 5% of the issued ordinary share capital of the
Company on the day preceding that date;
(iii) the aggregate number of ordinary shares issued, or remaining issuable,
pursuant to options granted in the previous 3 years under this scheme, the
Executive Schemes, the SAYE Scheme and all other employees' share schemes
established by the Company would exceed 3% of the issued ordinary share
capital of the Company on the day preceding that date.
52
22 Share premium account and reserves (continued)
The maximum number of ordinary shares which may be granted in ADS form as
incentive stock options under the US Share Scheme is 6,363,332 Ordinary Shares.
There are no limits on the maximum number of ADSs which may be the subject
of an option granted under the US Share Scheme to an eligible employee. The
exercise price of an option shall not be less than 100% of the fair market value
of an ADS on the date the option is granted. The period during which options may
become exercisable shall be set by the Remuneration Committee. All options shall
cease to be exercisable on the tenth anniversary of the date of grant.
Details of option/warrants movements during the year are set out below:
Options
At Options cancelled/ Options At Exercise
1 October granted (lapsed) exercised 30 September price Exercise
2001 in year in year in year 2002 (pound) period
- -----------------------------------------------------------------------------------------------------------------------------------
Unapproved scheme 15,003 -- -- (8,335) 6,668 3.600 2001-2008
106,333 -- (5,635) (58,621) 42,077 3.925 2001-2008
167,312 -- -- (34,786) 132,526 4.475 2002-2009
177,404 -- (39,343) (14,420) 123,641 5.050 2002-2009
440,387 -- (131,149) -- 309,238 8.225 2003-2010
-- 769,079 (176,000) -- 593,079 7.225 2004-2011
-------------------------------------------------------------------------------------------------------
Approved scheme 74,997 -- -- (41,665) 33,332 3.600 2001-2008
14,583 -- -- (5,095) 9,488 3.925 2001-2008
13,406 -- -- (6,703) 6,703 4.475 2002-2009
24,741 -- (6,312) -- 18,429 5.050 2002-2009
86,613 -- (16,851) -- 69,762 8.225 2003-2010
-- 737 -- -- 737 7.225 2004-2011
=======================================================================================================
The following options were outstanding under the Galen Savings Related
Share Option Scheme at 30 September 2002:
Exercise Earliest
price exercise
Number of options (pound) date
- -----------------------------------------------------------------------------------------------------------------------------------
156,172 2.56 2003
42,939 5.10 2003
44,722 3.38 2004
55,616 6.80 2004
24,947 5.10 2005
7,043 6.80 2006
99,271 5.88 2005
32,461 5.88 2007
=======================
53
Notes to the financial statements for the year ended 30 September 2002
22 Share premium account and reserves (continued)
Galen options/warrants outstanding in substitution for options/warrants
previously issued by Warner Chilcott and options granted under the Galen 2000 US
Option Scheme are as follows:
Exercise price per ADS
ADSs subject Weighted
to option Range average
- --------------------------------------------------------------------------------------------------------------------
Balance at 1 October 2001 1,578,306 $ 1.60-$49.35 $32.06
Granted 374,972 $27.99-$41.20 $42.64
Exercised (99,680) $10.80-$32.00 $17.85
Lapsed (201,106) $11.20-$49.35 $43.61
-------------------------------------------
Balance at 30 September 2002 1,652,492 $ 1.60-$49.35 $33.39
-------------------------------------------
Exercisable at 30 September 2002 1,221,969 $ 1.60-$49.35 $30.53
===========================================
The following option and warrant data at 30 September 2002 is grouped by
exercise price range:
Range of exercise price
$1.60 to $16.00 to $30.00 to $42.00 to
$15.99 $29.99 $41.99 $51.53 Total
- ----------------------------------------------------------------------------------------------------------------------------------
Number of ADSs subject to options/warrants 433,317 83,359 645,735 490,081 1,652,492
Weighted average exercise price $13.69 $24.48 $37.11 $47.41 $33.39
Weighted average remaining contractual life (years) 3.5 7.4 7.3 5.1 5.7
Number of exercisable options/warrants 433,317 79,384 346,789 362,479 1,221,969
Weighted average exercise price for
exercisable options and warrants $13.69 $24.30 $34.76 $47.99 $30.53
===================================================================
The Galen Employee Benefit Trust
The Galen Holdings PLC Employee Benefit Trust was established in June 1997. The
trustee is Galen Trustees Limited, a subsidiary of Galen Holdings PLC. It is a
discretionary trust for the benefit of employees and former employees of the
Group, including directors, and may be used inter alia, to meet obligations
under the Executive Share Option Schemes, the Savings Related Share Option
Scheme, or any other share scheme established by any Group company. Dividends
have not been waived by the Trust. Dividend income is included in the Group's
profit and loss account by way of reduction of the total dividend charge. Dr
McClay, who cannot be a beneficiary of the Trust, gifted 5,000,262 ordinary
shares to the Trust on its establishment. At the year end the 4,721,241 (2001:
4,709,353) shares held by the Trust were valued at (pound)17,374,167 (2001:
(pound)30,257,593). Other income and costs of the Trust are incorporated into
the financial statements where applicable. Cash held by the Trust totalled
(pound)274,069 and (pound)875,172 at 30 September 2002 and 2001 respectively.
The Group continues to take advantage of the dispensation in the Urgent
Issues Task Force's Abstract 17 "Employee Share Schemes" not to apply that
Abstract to the Group's Inland Revenue approved SAYE schemes.
23 Minority interests
(pound)'000
- --------------------------------------------------------------------------------
At 1 October 2000 120
Profit and loss account 122
----
At 1 October 2001 242
Disposals (274)
Profit and loss account 32
----
At 30 September 2002 --
====
54
24 Reconciliation of operating profit to net cash inflow from operating
activities
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- ----------------------------------------------------------------------------------------------------------------------------
Continuing operations
Operating profit 37,439 20,414 6,167
Depreciation of tangible fixed assets 3,615 2,974 2,161
Amortisation of intangible fixed assets 26,269 23,024 1,087
Capital grants release (93) (1,060) (928)
Loss/(profit) on sale of tangible fixed assets -- 25 (9)
Increase in stocks (1,033) (2,302) (1,507)
(Increase)/decrease in debtors (10,040) 1,666 (310)
Increase/(decrease) in creditors 85 (1,585) 1,566
Exchange difference (1,226) (1,442) 73
-------------------------------------------
Net cash inflow from continuing operations 55,016 41,714 8,300
===========================================
Discontinued operations
Operating profit 5,745 9,925 12,577
Depreciation of tangible fixed assets 2,322 3,162 2,191
Amortisation of intangible fixed assets 1,136 1,578 981
Capital grants release (974) (328) (367)
Decrease/(increase) in stocks 230 (54) (55)
Decrease/(increase) in debtors 3,215 (2,880) (5,334)
Increase/(decrease) in creditors 42 763 (1,665)
Exchange difference (3,440) (25) 31
-------------------------------------------
Net cash inflow from discontinued activities 8,276 12,141 8,359
-------------------------------------------
Total net cash inflow from operating activities 63,292 53,855 16,659
===========================================
25 Reconciliation of net cash flow to movement in net funds/(debt)
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- ----------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in cash in the year (7,640) (16,658) 5,995
Cash (inflow)/outflow from movement in liquid resources (18,641) 161,000 24,500
Cash outflow/(inflow) from increase in debt and hire purchase financing 166,135 (22,028) (13,147)
-------------------------------------------
Change in net funds resulting from cash flows 139,854 122,314 17,348
Exchange movement 1,272 1,218 (1,406)
Non-cash movement 2,345 (500) (522)
Loans eliminated on disposal 4,482 -- --
Loan notes assumed on acquisition -- -- (140,739)
Hire purchase obligations assumed on acquisition -- -- (52)
Short-term deposits assumed on acquisition -- -- 42,000
-------------------------------------------
Movement in net funds in the year 147,953 123,032 (83,371)
Net funds/(debt) at beginning of year 17,805 (105,227) (21,856)
-------------------------------------------
Net funds/(debt) at end of year 165,758 17,805 (105,227)
===========================================
55
Notes to the financial statements for the year ended 30 September 2002
25 Reconciliation of net cash flow to movement in net funds/(debt) (continued)
Analysis of net funds/(debt)
Loans
Loans greater
Cash at Bank Liquid less than than
bank overdrafts resources one year one year
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------
At 1 October 1999 851 (1,186) 5,500 (7,477) (19,134)
Cash flow 4,809 1,186 24,500 3,275 (16,751)
Exchange movement -- -- -- (200) (1,198)
Acquisitions -- -- 42,000 -- --
Other non-cash movement -- -- -- -- --
---------------------------------------------------------------------
At 1 October 2000 5,660 -- 72,000 (4,402) (37,083)
Cash flow (16,658) -- 161,000 (7,647) (42,104)
Transfers 13,000 -- (13,000) -- --
Exchange movement -- -- -- -- --
Other non-cash movement -- -- -- -- --
---------------------------------------------------------------------
At 1 October 2001 2,002 -- 220,000 (12,049) (79,187)
Cash flow (7,640) -- (18,641) 11,922 77,564
Transfers 5,639 -- (893) (4,746) --
Disposal -- -- -- 4,482 --
Exchange movement -- -- (1,716) -- 1,017
Other non-cash movements -- -- -- -- --
---------------------------------------------------------------------
At 30 September 2002 1 -- 198,750 (391) (606)
=====================================================================
Loan
Loan notes
Hire notes greater Net
purchase less than than funds/
obligations one year one year (debt)
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------
At 1 October 1999 (410) -- -- (21,856)
Cash flow 329 -- -- 17,348
Exchange movement (8) -- -- (1,406)
Acquisitions (52) (27,808) (112,931) (98,791)
Other non-cash movement (522) -- -- (522)
-------------------------------------------------------------------
At 1 October 2000 (663) (27,808) (112,931) (105,227)
Cash flow 400 27,323 -- 122,314
Transfers -- -- -- --
Exchange movement -- 485 733 1,218
Other non-cash movement (500) -- -- (500)
-------------------------------------------------------------------
At 1 October 2001 (763) -- (112,198) 17,805
Cash flow 372 -- 76,277 139,854
Transfers -- -- -- --
Disposal -- -- -- 4,482
Exchange movement -- -- 1,971 1,272
Other non-cash movements -- -- 2,345 2,345
-------------------------------------------------------------------
At 30 September 2002 (391) -- (31,605) 165,758
===================================================================
Liquid resources comprise short-term deposits with banks which mature
within 12 months of the date of inception.
Other non-cash movements relate to new hire purchase agreements incepted
in 2000 and 2001 and to a release of loan note mark-up in 2002.
26 Disposals
During the year the Group disposed of its pharmaceutical services segment to
companies owned by Dr Allen McClay, a former director of the Company. Details of
the disposal are as follows:
(pound)'000
- -------------------------------------------------------------------------------
Intangible fixed assets 19,737
Tangible fixed assets 56,085
Stocks 284
Debtors 19,176
Creditors (4,040)
Long-term borrowings (4,482)
Taxation (5,800)
Deferred income (2,203)
--------
Net assets disposed of 78,757
Cash consideration (net of costs) 150,145
--------
Gain on disposal 71,388
========
56
26 Disposals (continued)
The services segment contributed (pound)8,276,000 to net operating cash
flow, paid (pound)585,000 in respect of net returns on investment,
(pound)1,607,000 in respect of taxation and (pound)4,842,000 in respect of
tangible fixed asset additions.
27 Capital commitments
Group Group Company Company
2002 2001 2002 2001
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------------------------------------
Capital expenditure that has been contracted for but has
not been provided for in the financial statements 924 1,597 -- --
================================================
28 Financial commitments
At 30 September 2002 the Group had annual commitments under non-cancellable
operating leases as follows:
Land and Land and
buildings Others buildings Others
2002 2002 2001 2001
(pound)'000 (pound)'000 (pound)'000 (pound)'000
- --------------------------------------------------------------------------------------------------------------------------------
Expiring within one year -- 57 55 182
Expiring between one and five years 759 272 757 238
Expiring in over five years -- -- 1,001 --
-----------------------------------------------------
759 329 1,813 420
=====================================================
29 Related parties
The Company has taken advantage of the exemption under Financial Reporting
Standard 8 "Related party disclosures" (FRS 8) not to disclose related party
transactions between wholly owned Group undertakings which are eliminated on
consolidation.
During the year ended 30 September 2002 Galen had business dealings with
Elan Corporation plc ("Elan") and Boron-LePore Group, Inc. At 30 September 2002
Elan and its subsidiaries held 3.8% of the Company's share capital. Mr T G
Lynch, former Executive Vice Chairman of Elan, served on Galen's Board as a
non-executive director until his resignation on 13 February 2002. In March 1999
Warner Chilcott reached a binding agreement with Elan under which Elan agreed to
acquire Warner Chilcott's marketing rights to an extended-release nifedipine
product. Under the agreement Warner Chilcott was entitled to receive royalties
based upon United States sales of the product. In the year ended 30 September
2002 royalties receivable totalled (pound)1.73 million.
Boron-LePore provides meeting planning services to Warner Chilcott. Mr
Roger Boissonneault, Galen's Chief Executive Officer, served on the Board of
Boron-LePore until June 2002. In the year ended 30 September 2002 fees of
(pound)1,298,000 were charged to Warner Chilcott by Boron-LePore and expensed to
operations.
Details of disposal of the services operations to Dr Allen McClay, a
former director of the Company, are provided in note 26.
57
Notes to the financial statements for the year ended 30 September 2002
30 Summary of differences between UK and US generally accepted accounting
principles ("GAAP")
(1) Profit for the financial year and shareholders' funds
The Group financial statements are prepared in accordance with UK GAAP which
differs in certain significant respects from US GAAP. The effect of the US GAAP
adjustments to profit for the financial year and to equity shareholders' funds
are set out in the tables below:
2002 2001 2000
Notes (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Reconciliation of profit for the financial year to US GAAP
Profit for the financial year under UK GAAP 92,010 13,230 13,687
---------------------------------
US GAAP adjustments:
Amortisation of goodwill and intangibles (i)(c) 14,899 4,811 393
In-process research and development (i)(d) -- -- (16,898)
Related amortisation of goodwill (i)(d) -- 896 51
Depreciation on capitalisation of interest (ii) (35) (35) (35)
Inventory step up release (i)(a) -- (986) --
Deferred taxation (iii) (8,414) 846 --
Compensation expense (iv) (219) (3,405) (1,862)
Deferred tax effect of US GAAP adjustments 296 (3,990) (220)
---------------------------------
US GAAP adjustments total 6,527 (1,863) (18,571)
=================================
Profit/(loss) for the financial period under US GAAP 98,537 11,367 (4,884)
=================================
Basic earnings per share under US GAAP (vi) 53.2p 7.0p (4.0)p
=================================
Diluted earnings per share under US GAAP (vi) 52.9p 7.0p (4.0)p
=================================
2002 2001 2000
Notes (pound)'000 (pound)'000 (pound)'000
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Effect on equity shareholders' funds of differences between UK GAAP and US GAAP
Equity shareholders' funds under UK GAAP 671,959 604,630 408,058
---------------------------------
US GAAP adjustments:
Acquisition accounting (i)(a) (85,752) (83,696) (87,072)
Amortisation of goodwill relating to contingent consideration (i)(b) 1,057 1,057 608
In-process research and development (i)(d) -- (16,955) (17,851)
Capitalisation of interest (ii) 1,622 1,657 1,692
Deferred taxation (iii) (15,366) (7,248) (4,104)
Employee benefit trust (v) (7,082) (7,064) (7,377)
Share premium account (v) 7,082 7,064 7,377
Dividends (viii) 3,662 3,143 2,194
---------------------------------
US GAAP adjustments total (94,777) (102,042) (104,533)
=================================
Equity shareholders' funds under US GAAP 577,182 502,588 303,525
=================================
58
30 Summary of differences between UK and US generally accepted accounting
principles ("GAAP") (continued)
(i) Business combinations
(a) Acquisition accounting
This amount relates to the acquisition of Warner Chilcott on 29 September 2000
and reflects differences in acquisition accounting between US GAAP and UK GAAP.
1 Share consideration
Under UK GAAP, shares issued in consideration for the acquisition of
shares in a subsidiary company are valued at the market price ruling
on the date of consummation of the transaction. Under US GAAP,
shares are valued at the average market price for the 5 trading days
before and after the date of announcement of the proposed
transaction. Under US GAAP, goodwill and the related credits to
share capital and share premium would have been less than on the UK
GAAP basis.
2 Substitute options
Under US GAAP, the fair value of an acquiring company's share
options or warrants substituted for options or warrants of the
acquiree is calculated using the Black-Scholes option-pricing model,
which values the options at the date of announcement. Under UK GAAP,
the intrinsic value method is used, the value reflecting the
difference between the market price of the related shares on
acquisition date and the proceeds due on exercise of the options or
warrants. Under US GAAP, goodwill and the related merger reserve
credit would have been less than on the UK GAAP basis.
3 Deferred compensation
Under US GAAP, any amounts attributed to deferred compensation in
relation to specific unvested options is shown as a debit balance
within shareholders' equity. No such amount is recorded under UK
GAAP.
4 Inventory step up release
Under US GAAP, stocks ("inventory") acquired on takeover are
restated to reflect their selling price less a margin for selling.
Under UK GAAP, stocks acquired are valued at the lower of acquired
cost and net realisable value. Under US GAAP, the amount of
inventory step up is charged to cost of sales as the inventory is
sold.
5 Workforce
Under US GAAP accounting, valuations are attributed to the assembled
workforce of the company being acquired and this value, which again
reduces goodwill by a similar amount, is amortised over a relevant
period, deemed to be 7 years in this instance (see 3 below). No such
workforce values are attributed under UK GAAP.
6 Other intangibles
Under US GAAP, value is attributed to intangibles which under UK
GAAP might not be separately identifiable from goodwill, for
example, amounts attributed to core development technologies in
Warner Chilcott. Such amounts are amortised over the estimated lives
of these assets.
7 Deferred tax asset
Under US GAAP, where tax law allows the use of an acquired company's
brought forward tax losses in a restructured Group situation against
future combined taxable income, a deferred tax asset may be
recognised at acquisition based on an assessment of the combined
enterprise's past and anticipated future results of operations. Such
an asset net of valuation allowance was recognised as a deferred tax
asset in relation to Warner Chilcott's brought forward tax losses
and goodwill was correspondingly reduced. No such asset was
recognised under UK GAAP.
(b) Amortisation of goodwill relating to contingent consideration
Under UK GAAP, amounts are included within creditors representing contingent
consideration payable to the former shareholders of ICTI and of ACCI and these
amounts were included in goodwill on acquisition. Under US GAAP amounts related
to contingent consideration are only included when the contingency is resolved.
(c) Amortisation of goodwill and intangibles
This amount reflects the difference in the goodwill amortisation charge for the
years ended 30 September 2000 and 2001 between US GAAP and UK GAAP as a result
of the different accounting treatments impacting on goodwill as detailed in
(i)(a) and (i)(b). In the year ended 30 September 2002 there has been no
goodwill amortisation charge under US GAAP following the adoption of SFAS 142
(see (3) below).
59
Notes to the financial statements for the year ended 30 September 2002
30 Summary of differences between UK and US generally accepted accounting
principles ("GAAP") (continued)
(d) In-process research and development
As part of the acquisitions of Bartholomew Rhodes in 1999 and of Warner Chilcott
in 2000, values were assigned to in-process research and development for drugs
under development at the dates of acquisition. Under US GAAP, the amount of
purchase consideration allocated to in-process research and development is
written off immediately to profit and loss account. The valuation of in-process
research and development was calculated using an income approach.
Under UK GAAP, these amounts, which are allocated to in-process research
and development under US GAAP, would be included within goodwill. The related
amortisation expense adjustment is shown separately in the reconciliation.
(ii) Capitalisation of interest
Under UK GAAP, companies may choose whether or not to capitalise finance costs
on fixed assets that take a substantial period of time to bring into service. US
GAAP requires interest incurred as part of the cost of constructing fixed assets
to be capitalised and amortised over the life of the asset.
(iii) Deferred taxation
In connection with the Warner Chilcott transaction, the Company acquired US
federal income tax net operating loss carryforwards of approximately $62.0
million, which begin to expire in 2011. At 30 September 2002 the Company has
recorded a deferred tax asset, subject to a valuation allowance, of $6.4 million
in respect of these carryforwards. If, in the future, the realisation of this
acquired deferred tax asset becomes more likely than not, any reduction of the
associated valuation allowance will be allocated to reduce other purchased
intangible assets.
(iv) Share compensation expense
Under UK GAAP, no cost has been accrued in relation to share options awarded to
employees since the exercise price is equivalent to the market value at the date
of grant.
Under US GAAP, the Company has elected to follow APB 25. Under APB 25
compensation cost on variable option awards in which the number of options
exercisable is not known at the date of grant is calculated as the difference
between the option price and the market price at the end of the reporting
period. This cost is amortised over the period from the date the options are
granted to the date they are first exercisable, that is, the vesting date. Also
included in the compensation expense reconciling item for 2001 above is an
amount of (pound)2.68 million ($3.88 million) relating to the intrinsic value of
share options, the terms of which were modified on the cessation of employment
of a director.
(v) Employee benefit trust
Under UK GAAP, shares held by the employee benefit trust are recorded as fixed
asset investments with zero costs. Under US GAAP, those shares are regarded as
treasury stock and recorded as a contra equity account within equity
shareholders' funds at the date of contribution.
(vi) Earnings per share
Earnings per share is based on profit for the financial year under US GAAP as
calculated above and on 185,244,963 ordinary shares (2001: 161,354,740, 2000:
121,444,370), the weighted average number of ordinary shares in issue during the
year excluding those held in the employee trust. Diluted earnings per share is
calculated on profit for the financial year under US GAAP as calculated above
and on an adjusted number of shares of 186,330,634 (2001: 164,159,894, 2000:
121,444,370) reflecting the number of dilutive shares under option.
(vii) Presentation of exceptional items
Under UK GAAP, exceptional items are items which derive from events or
transactions that fall within the ordinary activities of the reporting entity
and which individually or, if of a similar type, in aggregate, need to be
disclosed by virtue of their size or incidence. Under US GAAP, only items which
are deemed unusual in nature and infrequent in occurrence (not reasonably
expected to recur in the foreseeable future) qualify for presentation as "extra-
ordinary" items. They are presented below income before extraordinary items in
the profit and loss account. Under US GAAP, none of the items classed as
exceptional under UK GAAP meet the criteria for presentation as an extraordinary
item.
(viii) Dividends
Under UK GAAP, final ordinary dividends are recognised in the financial year in
respect of which they are recommended by the Board of Directors for approval by
shareholders. Under US GAAP, such dividends are not recognised until they are
formally declared by the Board of Directors.
60
30 Summary of differences between UK and US generally accepted accounting
principles ("GAAP") (continued)
(2) Consolidated cash flow statement
The Group Consolidated Cash Flow Statement is prepared in accordance with United
Kingdom Financial Reporting Standard 1 "FRS 1 (Revised 1996)," whose objective
and principles are similar to those set out in SFAS 95, "Statement of Cash
Flows." The principal differences between the Standards relate to
classification. Under FRS 1 (Revised 1996), the Company presents its cash flows
for (a) operating activities, (b) returns on investments and servicing of
finance, (c) taxation, (d) capital expenditure and financial investment, (e)
acquisitions, (f) dividends paid, (g) management of liquid resources and (h)
financing. SFAS 95 requires only three categories of cash flow activity being
(a) operating, (b) investing and (c) financing.
Cash flows from taxation and returns on investments and servicing of
finance under FRS 1 (Revised 1996) would be included as operating activities
under SFAS 95, capital expenditure and financial investment and acquisitions and
disposals would be included as investing activities, and dividends paid would be
included as a financing activity under SFAS 95. Under FRS 1 (Revised 1996) cash
comprises cash in hand and deposits repayable on demand, less overdrafts
repayable on demand, and liquid resources comprise current asset investments
held as readily disposable stores of value. Under SFAS 95 cash equivalents,
comprising short-term highly liquid investments, generally with original
maturities of three months or less, are grouped together with cash. Short-term
borrowings repay able on demand would not be included within cash and cash
equivalents and movements on those borrowings would be included in financing
activities.
Set out below, for illustrative purposes, is a summary consolidated cash
flow statement under US GAAP:
2002 2001 2000
(pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 42,301 41,185 12,851
Net cash provided by/(used in) investing activities 110,432 (101,358) 10,756
Net cash (used in)/provided by financing activities (175,984) 204,515 47,702
------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (23,251) 144,342 71,309
Cash and cash equivalents at beginning of period 222,002 77,660 6,351
------------------------------------------------
Cash and cash equivalents at end of period 198,751 222,002 77,660
================================================
(3) Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing standards. SFAS 133 is effective
for fiscal years beginning after 15 June 1999, but earlier application is
permitted as of the beginning of any fiscal quarter subsequent to 15 June 1998.
Upon initial application, all derivatives are required to be recognised in the
statement of financial position as either assets or liabilities and measured at
fair value. In addition, all hedging relationships must be reassessed and
documented pursuant to the provisions of SFAS 133. Subsequent to the issuance of
SFAS 133, the FASB issued SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,"
which defers the effective date of SFAS 133 to periods beginning after 15 June
2000. Galen adopted the statement in the year ended 30 September 2001. Adoption
of the statement had no material impact on the financial statements.
In December 1999, the Accounting Standards Board ("ASB") issued Financial
Reporting Standard ("FRS") 19 "Deferred tax" which introduces a form of "full"
provision for accounting for deferred tax that replaces the "partial" provision
method in Statement of Standard Accounting Practice ("SSAP") 15. Deferred tax
should be provided on timing differences that have originated but not reversed
by the balance sheet date, but only when the entity has an obligation to pay
more tax in the future as a result of reversal of those timing differences. FRS
19 permits but does not require reporting entities to discount deferred tax
assets and liabilities to reflect the true value of money. The FRS applies to
accounting periods ending on or after 23 January 2002. The Company adopted the
FRS in these financial statements.
61
Notes to the financial statements for the year ended 30 September 2002
30 Summary of differences between UK and US generally accepted accounting
principles ("GAAP") (continued)
Effective 1 October 2001 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"),
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
intangible Assets" ("SFAS 142"). SFAS 141 eliminates the pooling-of-interest
method of accounting for business combinations initiated after 1 July 2001, and
changes the criteria for recognizing intangible assets apart from goodwill. SFAS
141 also requires that any business combination initiated after 30 June 2001 be
accounted for by the purchase method. SFAS 142 provides that goodwill no longer
be amortized and that the value of identifiable intangible assets be amortized
over their useful life, unless the asset is determined to have an indefinite
useful life. The Company has determined that none of its intangible assets are
deemed to have an indefinite life. In accordance with these accounting
statements and upon adoption, the Company reclassified a total of $2,914,000 to
goodwill from intangible assets (net), representing the assembled workforce
associated with the Company's acquisition of Warner Chilcott.
Galen also adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
effective 1 October 2001. The objectives of SFAS 144 are to address significant
issues relating to the implementation of Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"), and to develop a single
accounting model based on the framework established in SFAS 121, for long-lived
assets to be disposed of by sale. The standard requires that that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less cost to sell. Additionally, the standard expands the scope of
discontinued operations to include all components of an entity with operations
that can be distinguished from the rest of the entity in a disposal transaction.
The results for the Company's services operations disposed of during the year,
have been treated as "discontinued operations."
On 30 April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). Among other
amendments and rescissions, SFAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect,
unless such gains and losses meet the criteria in paragraph 20 of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations, Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." Generally, SFAS 145 is
effective for fiscal years beginning after 15 May 2002. Upon adoption of SFAS
145, the Company will reclassify the losses on extinguishments of debt that were
classified as extraordinary items in the year ended 30 September 2002 since they
do not meet the criteria in Opinion 30 for classification as extraordinary
items.
62
Five year summary
2002 2001 2000 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
- ------------------------------------------------------------------------------------------------------------------------------------
Turnover 201,562 182,683 86,020 67,010 48,867
Gross profit 140,312 118,496 41,798 34,452 25,533
Operating profit before exceptional items and
amortisation of goodwill and intangibles 70,589 54,941 24,123 19,397 14,067
Exceptional items -- -- (3,311) -- (2,731)
Goodwill and intangibles amortisation (27,405) (24,602) (2,068) (707) --
Operating profit 43,184 30,339 18,744 18,690 11,336
Gain on sale of businesses 71,388 -- -- -- --
Profit before taxation 101,091 16,946 19,073 18,405 11,904
Net assets 671,959 604,872 408,178 68,153 56,227
Earnings per share 49.7p 8.2p 11.3p 12.0p 7.2p
Adjusted earnings per share (note 10) 32.2p 23.4p 15.0p 12.6p 9.5p
=====================================================================
63
Financial calendar
Annual General Meeting
To be held at 10 am, Malone House, Barnett Demesne, Belfast 18 February 2003
Reports
Interim report May 2003
Dividends
Proposed final 2002
o Announced 13 November 2002
o Payable 26 February 2003
Interim 2003
o To be announced May 2003
o Payable August 2003
64
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GALEN
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HOLDINGS PLC
Seagoe Industrial Estate, Craigavon, Northern Ireland BT63 5UA
Tel: +44 28 3833 4974