Message from the chairman<strong>2007</strong>,a year of innovationThe world animal health market hadanother good year in <strong>2007</strong>: the drugs forthe companion animal segment continuedto grow at a rate comparable to that ofprevious years; the drugs for the foodproducing animal segment confirmedits recent bright spell, benefiting inparticular from the strong economicgrowth of emerging countries which madeit possible to better satisfy theirpopulations’ demand for food products.heartworm; in Europe, Cortavance ® , a highly original caninedermocorticoid*;Ypozane ® , the first treatment for benignprostatic hyperplasia in ageing dogs; and Milteforan ® , the firstoral treatment for leishmaniasis*. These launches, together withsmaller ones throughout the world, helped exceed the targetwe had set ourselves a few years ago: to ensure that morethan 15% of <strong>Virbac</strong>’s total sales are generated by productslaunched in the last three years in the various countries inwhich we operate.In this rather favourable market context,<strong>Virbac</strong> continuedto gain market shares, thanks in particular to a speed-up inorganic growth. Excluding exchange rate effects, whichcontinued to be unfavourable owing to the constantappreciation of the euro, it reached 8.0% in <strong>2007</strong> after 6.8%in 2006 and 4.9% in 2005. The driving force behind thisgrowth is clearly product innovation, which lies at the heart of<strong>Virbac</strong>’s concerns and was particularly prolific in <strong>2007</strong> in thefield of companion animals. Growth at constant ratesexceeded 11%, due to several major launches:in the United States, Iverhart Max, a new broad-spectrumversion of our internal canine parasiticide for treating2• <strong>2007</strong> ANNUAL REPORT
This strong organic growth in the field of companion animalswas supplemented by even greater growth in the field of foodproducing animals (14.7% at constant rates) generated byacquisitions: India acquired in mid-2006, from which <strong>2007</strong>benefited in full, a range of pig antibiotics acquired at thebeginning of the year in Italy and an aquaculture business inThailand, also incorporated at the beginning of the year.The strong growth, combined with good control of operatingexpenses, enabled the operational profitability rate to improveby 0.8%, clearly higher than our annual target of 0.5%, andwithout sacrificing the future as R&D expenses grew morequickly than sales. The net profit for the second year runninggrew by around 25%, thanks to the total disappearance ofnon-recurring operating expenses and, to a lesser extent, areduction in the share of minority interests. Finally, the stronggeneration of free cash flow allowed debts to be reduced bysome €20 million, returning to a ratio of net debt toshareholders’ equity of 26%. The impact on the debt of thehigh level of acquisitions in 2006 (India and minority interests inthe United States) was thus reduced very quickly, enabling usto pursue an ambitious policy of external growth.<strong>2007</strong> was also a year which saw the Group improve its efficacyand strengthen its cohesion. The American subsidiary has nowcompletely incorporated the Group’s management methods,benefits from the full support of the head office functionaldivisions and is the focus of all the attention of the Groupmanagement to favour its development. In the field of R&Dfor companion animals in particular, the American and Frenchteams are working in absolute harmony towards theoptimisation of a portfolio of Group projects. <strong>Virbac</strong>’s inclusionof the GlaxoSmithKline veterinary business which was boughtin India has also been a model of successful integration, bothat human level and as regards the adaptation of managementpractices and management systems. At the same time,we have continued all the major initiatives launched in recentyears - constant improvement in the factories, optimisation ofmarketing and commercial expenses in Europe, worlddeployment of our main information systems and developmentprogrammes for human resources - in the belief that continuedeffort was the best guarantor of a sustainable improvement inperformance.Our prospects of growth are good, as we should benefit fromthe increase in power of many products launched in <strong>2007</strong>,particularly in the field of companion animals. We areconsequently relying on organic growth of around 6%, providedthe <strong>financial</strong> turmoil seen in the world at the beginning of theyear does not affect the growth of the world veterinarymarket, which cannot be ruled out. Moreover, the high level ofthe euro and the disinvestment of our OTC brands in theUnited States at the beginning of the year affected the actualgrowth rate for the year. Conversely, we hope that some ofthe external growth projects on which we have focused all ourattention will materialise, with the ambition allowed by our lowlevel of debt and our sound generation of cash flow.We are also maintaining the aim shown for several years ofimproving the rate of operational profitability by an average ofhalf a point a year, thanks to the combined effects of growth,the introduction of new products with a higher margin andefforts toward industrial optimisation.Éric MaréeChairman of the executive board<strong>2007</strong> ANNUAL REPORT • 3
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