Dechra produced another strong set of financial results in 2018 in both the existing and acquisition business. Revenue grew 13.9% over 2017, which translated to a 17.1% increase in Gross profit. This leveraged the cost base with a 24.0% increase in Underlying Operating Profit and a 20.9% increase in Underlying diluted EPS.

European Pharmaceuticals' existing business revenue grew to £240.6 million, from market penetration and new product launches, and acquisition business added £18.1 million of revenue from Apex, RxVet, AST Farma and Le Vet. North American Pharmaceuticals grew particularly strongly, with 18.3% growth to £148.4 million as the commercial team expansion bore results.

At €340.0 million, AST Farma and Le Vet was the biggest acquisition that Dechra has ever made. Consideration was paid 75% in cash and 25% in new Dechra ordinary shares. The cash consideration was financed from the net £102.3 million proceeds of an equity placing with the balance of £126.7 million drawn from a new £350.0 million Term Loan facility.

Net debt increased from £120.0 million to £211.4 million in the year. This comprises an increase of £133.4 million to part fund the acquisition of AST Farma and Le Vet in February and a net £40.6 million reduction from cash generated by the business during the year.

The Group maintains a conservative balance sheet, with the Net debt: EBITDA leverage ratio at 1.75 times. This is broadly in line (adjusted for currency exchange rate fluctuations) with the guidance given at the time of the AST Farma and Le Vet acquisition when new debt was drawn. Typically the Board would target maximum Net debt: underlying EBITDA of 2.0 times, though in the right circumstances may go to a level above this.

Working capital increased in the year due to a number of reasons. The Manufacturing remodelling strategy includes a planned shutdown and upgrade of production lines at our Bladel facility over several months. To achieve this, inventory was built up during the year to cover the period of production capacity outage. We expect this to be a temporary increase in inventory which will unwind over 2019. There has also been a planned increase in Inventory in North America to improve customer service levels. Following the go live of Oracle, there was a temporary delay in shipping some product which was then shipped in June, resulting in a delay in expected Accounts Receivable collection. These were minor new system teething issues which have since been overcome.

Pharmaceuticals R&D expenditure increased by 22.0% from £15.0 million to £18.3 million: this included an 18.7% increase in the existing business as well as R&D expenses incurred within the acquired business. Dechra stated in the 2017 Annual Report its strategic intent of increasing R&D expenditure to enable the expansion of the Group's product pipeline. R&D expenses as a percentage of sales have increased from 4.2% to 4.5%. This was delivered without impacting the Group's Underlying EBIT margin, which increased by 200 bps to 24.4%.

When the programme was first communicated in 2017, the Group indicated that between capex and non-underlying expenditure it was planning to invest £18.0 million in the project over five years. That target remains, and the project is on schedule and budget. In the year £3.5 million was spent on capex and non-underlying expenditure, so cumulatively £4.2 million has now been spent since the project's inception.