RNS Number:8434I
Intercare Group PLC
18 March 2003
18 March 2003
The Intercare Group plc
Intercare Delivers Further Strong Profit Growth and Cash Generation in 2002
The Intercare Group plc, the pharmaceutical manufacturer and distributor, today
announces its preliminary results for the year ended 31 December 2002.
Key Financials
2002 2001
Turnover #275.1m #216.0m + 27%
Operating profit* #29.0m #24.7m + 17%
Profit before tax* #24.6m #21.3m + 15%
Adjusted earnings per share* 21.7p 19.5p + 11%
Dividend per share 5.4p 5.2p + 4%
Cash inflow from operations #35.9m #16.2m + 122%
*Before amortisation of goodwill and exceptional items
Statutory figures
2002 2001
Operating profit+ #17.1m #14.1m
Profit before tax+ #10.6m #10.8m
Basic earnings per share+ 5.1p 6.0p
+After amortisation of goodwill and exceptional items
Highlights
* Excellent growth in turnover, profits and earnings
* Successful acquisition and integration of LCO Sante in France
* Good organic growth in both Manufacturing and Distribution Divisions
* Strong operating cash inflow
* New committed treasury facilities of #179m secured, with #108m
surplus at year end
* Appointment of Chief Operating Officer
Commenting on the results, Mr Ken Harvey, Chairman, said:
"Intercare has had a successful year, and the outlook for the future, both in
the short-term and long-term, is very promising. As a result of a number of
highly successful acquisitions made by the Group in recent years, particularly
in the pharmaceutical manufacturing sector, we are now well positioned to
capitalise on the many opportunities for growth within the supply chain sector
of the pharmaceutical market.
"Whilst there may not be an even pattern of growth, we believe that the Group is
capable of achieving double-digit compound earnings per share growth over the
next five years as we benefit from the significant capital investments now being
made in our pharmaceutical manufacturing facilities. We shall seek to add to
this organic growth with further targeted acquisitions."
Enquiries
The Intercare Group plc Tel: 01423 535500
John Parker, Chief Executive www.intercareplc.co.uk
Jeremy Earnshaw, Group Finance Director
Andrew Kay, Chief Operating Officer
Financial Dynamics Tel: 020 7831 3113
David Yates/Ben Atwell
Chairman's Statement
I am once again pleased to report that The Intercare Group plc has had a
successful year, and that the outlook for the future, both in the short-term and
long-term, is good.
Intercare is making excellent progress in establishing itself as a leading
provider of supply chain services to the pharmaceutical industry. Trading in
2002 in both the Manufacturing and Distribution Divisions was good and, equally
importantly, the Group has committed substantial resources towards manufacturing
projects aimed at securing long-term shareholder value. In addition to the
financial investment, Intercare has both expanded and significantly strengthened
its management team. As a result, the Group is now well positioned to
capitalise on the opportunities for growth within the supply chain sector of the
pharmaceutical market.
Group Results
The results for the year ending 31st December 2002 demonstrate a good
performance in all sectors within the Group.
The Group recorded turnover during the year of #275.1m (2001 : #216.0m), an
increase of 27%. Operating profit before amortisation of goodwill and product
licences and exceptional items increased to #29.0m (2001 : #24.7m), a rise of
17%. On a statutory basis, operating profit increased by 21% to #17.1m (2001 :
#14.1m).
Profit before tax and amortisation of goodwill and product licences and
exceptional items increased by 15% to #24.6m (2001 : #21.3m). On a statutory
basis, the Group recorded profit before tax of #10.6m (2001 : #10.8m).
The Group incurred an exceptional charge in 2002. Non-recurring arrangement fees
of #2.1m were incurred upon securing substantial new long-term committed
treasury facilities of #179m.
Adjusted earnings per share reflect the earnings achieved excluding the impact
of goodwill and product licence amortisation and exceptional items. Adjusted
earnings per share increased by 11% to 21.7p during the year ending 31st
December 2002 (2001 : 19.5p (as restated for FRS 19)). Basic earnings per share
were 5.1p, compared to 6.0p (as restated for FRS 19) in 2001.
The Board continues to adopt a progressive dividend policy, and a final dividend
for the year ending 31st December 2002 of 3.2p (2001 : 3.1p) is recommended,
making a total annual dividend in 2002 of 5.4p (2001 : 5.2p).
Operating cashflow was very satisfactory and generated #35.9m from operating
activities during the year. The Group does manage significant working capital
balances on a proactive basis, and the cashflow movements arising from this
aspect of the operations can be substantial.
Interest cover was a very comfortable 6.6 times in 2002, compared to 7.3 times
cover in 2001. Net borrowings increased to #71.0m at 31st December 2002 (2001 :
#53.5m), and this compares to the committed facilities available to the Group of
#179.0m. Net assets increased to #101.7m at 31st December 2002, compared to
#93.3m (as restated for FRS 19) at 31st December 2001.
Acquisitions
LCO Sante ("LCO") was acquired in October 2002 for #33.3m. LCO is a leading
European contract manufacturer of high-active ingredient hormone and biological
products, based in France.
The business complements well the existing contract manufacturing operations
within the Group. LCO has specialist technical and manufacturing skills, and
supplies a number of blue-chip pharmaceutical customers already common to
Intercare.
Since acquisition, LCO has performed well and the Board is encouraged by the
future opportunities in this sector.
Prospects
The prospects for the Group are good.
The Board is committed to investing not just for the short-term, but also for
the future, and this is clearly demonstrated by the substantial investment
programme being undertaken. The significant increase in management, together
with the committed treasury facilities now available to the Group, equally
confirm the intention of the Board to position Intercare for long-term
expansion.
The progress to date reflects a great deal of hard work by all of the employees
of The Intercare Group plc, and I thank all of our staff again for their
contribution to the success of the Company.
Overall trading during the early part of 2003 has been satisfactory.
I am optimistic and confident of further success in the future.
Ken Harvey
Chairman
18th March 2003
Chief Executive Officer's Report
Seventh Record Year
2002 was the seventh successive year of record sales and profit for The
Intercare Group plc reflecting the benefits of the evolving strategy.
For the past two full years, Intercare has been a fully focused European
pharmaceutical manufacturing and distribution Group.
Whilst continuing to build on the successful own manufacturing business at
Martindale, last year saw very good progress towards establishing Intercare as a
leading provider of outsourced manufacturing services to the international
pharmaceutical industry.
As a result, the manufacturing businesses are expected to generate over 60% of
the operating profit of the Group in future years.
Manufacturing Division
Outsourced Manufacturing
The acquisition of LCO in October brought additional manufacturing, development
resources and commercial expertise to the Group. Based in Osny, Northern
France, LCO is a significant contract manufacturing organisation providing
services to several global pharmaceutical companies.
The company is the largest contract manufacturer of highly-active-ingredient/
low-dosage hormone products in Europe and is currently working towards FDA
compliance for access to the North American markets.
Intercare very much welcomes the 200 employees at LCO and their contribution
since October has been firmly on plan.
The combination of Federa Belgium and Federa France, together with Veramic in
Belgium, which were all acquired in the second half of 2001, generated healthy
sales and profits which matched expectations. These companies have given
Intercare a significant strategic position in Europe for outsourced
manufacturing of parenterals and particularly for pre-filled syringes. Major
product market sectors which are serviced include vaccines and heparin products
for the treatment of deep vein thrombosis.
All of Intercare's manufacturing companies also have significant experience and
resources in product development. This expanding service is now provided to
many major pharmaceutical groups looking to work with Intercare to generate new
product presentations and formats for international markets.
New Factory in Brussels
The building of the new Federa Belgium factory based at Neder over Heembeek in
Brussels has progressed well during 2002 and remains on plan for operations to
start in mid-2004 before being fully operational at the beginning of 2005. With
the subsequent decision (taken in May) to increase the Federa Belgium new
factory capacity by approximately 80%, the total investment is expected to be
#17 million which is fully funded within the banking facilities. The Group has
decided to invest in the confident expectation of delivering significant
increases in organic growth from 2005 onwards. Already, the firm orders and
serious expressions of commitment by the existing and new customers give
confidence that factory capacity will be fully utilised in 2005, the first full
year of operation.
This impressive new factory, which will significantly increase Federa Belgium's
pre-filled syringe capacity, is planned to be FDA (the USA Food and Drug
Administration) compliant. This compliance, which Intercare believes over
future years will become the global standard, is also being actively sought at
LCO.
Intercare is determined to achieve and maintain the highest quality standards
for all its products through adherence to cGMP (current good manufacturing
practice). This significant commitment of manpower and financial investment
emphasises the Group's intention of delivering long-term organic growth.
Own Manufacturing
In 2002 the UK-based Martindale business built on the very successful
performance achieved in 2001, which was its first full year as part of
Intercare.
As a result, over the last two years Martindale has grown its total sales by
more than 18% while over the same timescale the UK market grew by less than 14%.
For the ninth consecutive year operating margins were above 40%, highlighting
the robustness of the business in the face of growing competition.
Significant efforts during 2002 were made to ensure all operational aspects of
the business continue at a high standard. Capacity and efficiency were enhanced
through the installation of a new 4-headed ampoule filling machine together with
two new automated packaging lines, both at the Romford facility.
Substantial effort is being made in those export markets where Martindale lost
ground in 2002 particularly in the Middle East due to a combination of renewed
competitor activity and general unease over the political situation.
With the objective of continuing to grow sales ahead of the market over the
longer term, Martindale is putting more investment into new product development
and the marketing of its products and services.
Distribution
The significant investment made into the UK-based generic and branded drug
distribution business in 2001 and 2002 generated very good returns last year.
Sales grew by 16% whilst 2001's record operating margin of 6.7% was maintained.
A further two distribution depots in Solihull and Exeter were opened in 2002 and
a new depot in Aberdeen has commenced in early 2003.
This efficient and relatively low cost national distribution network, as well as
generating record sales of existing products, is now ready to service other new
customers and products. The capacity of the Intercare distribution network has
been designed to allow for future long-term expansion.
Lord Hunt, who reviewed UK volume generic pricing in early 2001, still has not
announced any firm conclusions. The Group remains confident that it will be
able to adapt positively to any further developments in the market if Lord Hunt
does eventually decide to implement any changes. Also, the OFT (Office of Fair
Trading) has recently recommended the complete removal of constraints on the
location of retail pharmacies. This recommendation from the OFT was not
unexpected. However, it is not at all certain whether the Department of Health
will agree to and implement this recommendation. Many observers believe the
Department of Health will look to preserve much of the status quo. Either way
given the strong market position Intercare already has, coupled with excellent
supplier and customer relationships, the Distribution business is well placed to
take advantage of sensible changes.
The Intercare Distribution Division now has a strong position in the UK market,
with a national distribution capability offering a wide range of prescription
drugs through a twice-daily service. 2003 will bring fresh opportunities,
albeit with some new challenges in the form of the euro's rapid recent
appreciation against sterling and the patent expiry of a major branded drug,
Zocor. Nevertheless, our business has shown over the years that it is able to
compete successfully at all levels in the market and its historical performance
gives us confidence in its ability to rise to these challenges.
Strategy
Intercare is an international pharmaceutical manufacturing and distribution
business also providing outsourced services to the pharmaceutical industry.
Since the evolution of this strategy, targeted acquisitions of Federa France and
LCO together with the development of the Federa Belgium business, have combined
to give Intercare a strong strategic position in pre-filled syringe and hormone
manufacturing in Europe.
Together with the increased capacity at the new factory and the expected FDA
approval there and at LCO, Intercare's long-term manufacturing organic growth
expectations are looking very good. The longer-term expectation for the
international pharmaceutical market is for growth to continue at around 6%/7%.
Within that the forecast growth for all outsourced products and services into
the international pharmaceutical market is predicted to strengthen by between 7%
/8%. Intercare is committed to outperforming any of the markets it operates in
over the medium term and is therefore looking for growth in excess of these
figures.
As the demand for outsourced services continues to grow, exciting opportunities
for Intercare are emerging for product development and manufacturing on behalf
of global pharmaceutical companies. LCO has significantly enhanced strategic
linkage with some of Intercare's existing core customers and has brought with it
a fine reputation and resources for product development.
As the Group continues to win new business for outsourced manufacturing,
additional capacity particularly for packaging is being installed at Federa
France. This will support Federa France's existing customer demand and also
allow significant long-term expansion of the pre-filled syringe production
capacity. Demand for pre-filled syringes in Europe has been growing
historically at 15% per annum. Together with access to the huge USA market,
once the new factory in Belgium is operational and with FDA approval, long-term
demand for contract manufacturing in Intercare's markets is expected to remain
very healthy.
The global growth of demand for vaccines and heparins used in the treatment of
deep vein thrombosis continues apace and with Intercare's strong position in
this sector, long-term organic growth coupled with improving margins is an
attractive opportunity.
Similarly, the Crossject needle-free syringe project in which Intercare has made
a limited investment continues to progress. If this eventually proves a
commercial success Federa France will be the manufacturing centre for this
product. Currently Federa Belgium is providing outsourced development and
technical support to Crossject on a commercial basis.
Intercare now offers customers strong skills in product development at four
manufacturing sites in the UK, France and Belgium and the long-term
commercialisation of these resources also looks very promising.
Within the Martindale operation, the Group maintains a number of speciality
branded parenteral products. Leverage of Group product development capabilities
will enable this important strategic focus to be further developed both in the
UK and internationally.
Meanwhile, the Distribution Division has delivered significant organic growth
and is analysing several new business initiatives to enhance long-term growth
based on supply chain services to the pharmaceutical market.
People
With the appointment of Andrew Kay as Chief Operating Officer and a director of
Intercare, a great deal of ability and experience in the pharmaceutical industry
has been added to the Group's existing knowledge base.
We also welcome all those other senior managers who have recently joined
Intercare in newly established key positions.
By continually adding to the existing skill and resource base, Intercare is
demonstrating its commitment to long-term future and success of the Group.
Outlook
2002 was a very good year and we look to 2003 to be another record year for the
Group. No doubt new as well as the usual challenges and issues will face
Intercare, as they do all ambitious and growing businesses.
Our objective at Intercare is to continue to generate attractive long-term
earnings per share growth for our shareholders. Following the successful
integration of the acquisitions made by the Group in recent years, we believe
that our businesses today are well positioned to support compound double-digit
earnings per share growth over the next five years (before amortisation of
goodwill and exceptional items).
In the near-term, this level of increase may be limited by external factors such
as the challenges faced by the Distribution Division as we commence the year,
but over the medium-term we expect our growth to be significantly enhanced by
the capital investments currently being undertaken in the Manufacturing
Division. We will seek to add to this organic growth with further targeted
acquisitions, particularly in the manufacturing and proprietary product sectors.
We believe this presents an attractive investment profile for shareholders and
we look forward to reporting further news of our progress in 2003.
John Parker
Chief Executive Officer
18th March 2003
Consolidated Profit And Loss Account
for the year ended 31 December 2002
Year ended Year ended
31 December 2002 31 December 2001
(as restated)
#'000 #'000
Notes
Turnover
Continuing operations 1 268,519 216,027
Acquisitions 6,614 -
--------- ---------
Group turnover 275,133 216,027
Cost of sales 1 (213,430) (168,379)
--------- ---------
Gross profit 1 61,703 47,648
Net operating expenses 1 (44,448) (33,338)
Group operating profit 1
Continuing operations before goodwill and licence 27,982 24,549
amortisation
Goodwill and licence amortisation (10,936) (10,239)
--------- ---------
Continuing operations 17,046 14,310
Acquisitions before goodwill and licence amortisation 788 -
Goodwill and licence amortisation (579) -
--------- ---------
Acquisitions 209 -
Group operating profit 17,255 14,310
Share of associate's operating profit before goodwill 215 161
amortisation
Goodwill amortisation (337) (335)
--------- ---------
Share of associate's operating loss (122) (174)
Total operating profit 1 17,133 14,136
Exceptional charge (2,096) -
--------- ---------
Profit on ordinary activities before interest 15,037 14,136
Net interest payable (4,413) (3,375)
--------- ---------
Profit on ordinary activities before taxation, goodwill and 24,572 21,335
licence amortisation and exceptional item
Exceptional item 2 (2,096) -
Goodwill and licence amortisation (11,852) (10,574)
--------- ---------
Profit on ordinary activities before taxation 10,624 10,761
Tax on profit on ordinary activities (6,512) (6,027)
--------- ---------
Profit on ordinary activities after taxation 4,112 4,734
Dividends 3 (4,427) (4,132)
--------- ---------
Retained (loss)/profit for the financial year (315) 602
--------- ---------
Basic earnings per share 4 5.1p 6.0p
--------- ---------
Adjusted earnings per share 4 21.7p 19.5p
--------- ---------
Diluted earnings per share 4 5.1p 5.9p
--------- ---------
Adjusted diluted earnings per share 4 21.4p 19.2p
--------- ---------
Dividend per share 3 5.4p 5.2p
--------- ---------
Consolidated Balance Sheet
31 December 2002
31 December 2002 31 December 2001
(as restated)
#'000 #'000
Fixed assets
Intangible assets:
Licences 3,613 4,011
Goodwill 104,816 89,870
Negative goodwill (1,449) (1,194)
--------- ---------
106,980 92,687
Tangible assets 27,749 14,253
Investments 274 242
Interest in associate:
Goodwill arising on acquisition 2,645 2,979
Share of net assets 191 148
--------- ---------
2,836 3,127
--------- ---------
Total fixed assets 137,839 110,309
Current assets
Assets held for resale 336 478
Stocks 42,214 25,179
Debtors 65,839 48,426
Cash at bank and in hand 5,180 562
--------- ---------
113,569 74,645
Creditors:
Amounts falling due within one year (88,430) (52,916)
--------- ---------
Net current assets 25,139 21,729
Total assets less current liabilities 162,978 132,038
Creditors:
Amounts falling due after more than one year (61,484) (38,751)
Provisions for liabilities and charges 246 -
--------- ---------
Net assets 101,740 93,287
--------- ---------
Capital and reserves
Share capital 2,076 1,986
Share premium 59,535 59,210
Merger reserve 30,751 23,774
Profit and loss 9,378 8,317
--------- ---------
Equity shareholders' funds 101,740 93,287
--------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2002
Year ended Year ended
31 December 2002 31 December 2001
(as restated)
#'000 #'000
Group operating profit 17,255 14,310
Depreciation charges 2,796 1,653
Amortisation of goodwill 10,934 9,664
Amortisation of licences 584 575
Provision against indiemed.com Limited - 50
Loss on sale of tangible fixed assets - 13
(Increase)/decrease in working capital:
- stocks (9,150) (995)
- debtors (13,261) (4,361)
- creditors 26,332 (4,741)
- currency translation adjustments 432 (13)
--------- ---------
Net cash inflow from operating activities 35,922 16,155
Dividends received from associate 100 -
Interest received 54 66
Interest paid (4,621) (3,485)
Interest element of finance lease rental payments (4) (6)
--------- ---------
Returns from investments and servicing of finance (4,571) (3,425)
--------- ---------
Taxation (6,675) (5,195)
Capital expenditure and financial investment (8,564) (2,409)
Acquisitions and disposals (27,625) (16,291)
Equity dividends paid (4,207) (4,715)
--------- ---------
Cash outflow before financing (15,620) (15,880)
Financing
Issue of ordinary share capital 335 115
New loans 65,010 19,000
Exceptional charge (2,096) -
Repayment of loans (39,500) -
Increase/(decrease) in debt factoring (498) (12,942)
Principal payments under finance leases (6) (53)
--------- ---------
Net cash inflow from financing 23,245 6,120
--------- ---------
Increase/(decrease) in cash in the year 7,625 (9,760)
--------- ---------
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the year 7,625 (9,760)
Cash outflow on finance leases 6 53
Cash inflow on loans (25,510) (19,000)
Cash (inflow)/outflow on debt factoring 498 12,942
--------- ---------
Change in net debt arising from cash flows (17,381) (15,765)
Loans and finance leases acquired with subsidiaries - (32)
Non-cash flow movements (99) (25)
Exchange differences 29 30
--------- ---------
Increase in net debt in the year (17,451) (15,792)
Net debt at start of year (53,525) (37,733)
--------- ---------
Net debt at end of year (70,976) (53,525)
--------- ---------
Analysis of net debt
Overdrafts (5,871) (8,906)
Cash 5,180 562
Finance leases (47) (52)
Loans (64,508) (38,901)
Debt factoring (5,730) (6,228)
--------- ---------
(70,976) (53,525)
Notes to Accounts
1. Segmental analysis
Year ended 31 December 2002 Year ended 31
December 2001
(as restated)
Continuing Acquisitions Total Total
#'000 #'000 #'000 #'000
Turnover
Pharmaceutical Manufacturing 61,283 6,614 67,897 37,383
Pharmaceutical Distribution 207,236 - 207,236 178,644
--------- --------- --------- ---------
268,519 6,614 275,133 216,027
Cost of sales (208,675) (4,755) (213,430) (168,379)
--------- --------- --------- ---------
Gross profit 59,843 1,859 61,703 47,648
Operating expenses:
Selling and distribution expenses (12,350) - (12,350) (9,800)
Administration expenses (30,448) (1,650) (32,098) (23,538)
--------- --------- --------- ---------
(42,590) (1,650) (44,448) (33,338)
Group operating profit 17,046 209 17,255 14,310
Associate 215 - 215 161
Goodwill amortisation (337) - (337) (335)
--------- --------- --------- ---------
Share of associate's operating loss (122) - (122) (174)
-------- --------- --------- ---------
Total operating profit 16,924 209 17,133 14,136
--------- --------- --------- ---------
Operating profit
Pharmaceutical Manufacturing before 16,195 788 16,983 14,128
goodwill and licence amortisation
Goodwill and licence amortisation (9,101) (579) (9,680) (8,402)
--------- --------- --------- ---------
Total Pharmaceutical Manufacturing 7,094 209 7,303 5,726
Pharmaceutical Distribution before 14,028 - 14,028 12,167
goodwill amortisation
Goodwill amortisation (2,172) - (2,172) (2,172)
--------- --------- --------- ---------
Total Pharmaceutical Distribution 11,856 - 11,856 9,995
Central costs (2,026) - (2,026) (1,585)
--------- --------- --------- ---------
Total operating profit 16,924 209 17,133 14,136
2. The Group incurred an exceptional charge in 2002. Non-recurring
arrangement fees of #2.1m were incurred upon securing the substantial new
long-term committed treasury facilities of #179m. The fees have been classified
as exceptional with regard to their size and incidence.
3. A final dividend of 3.2p per share is proposed to be paid on 30
May 2003 to shareholders on the register at 2 May 2003, which together with the
interim dividend of 2.2p per share already paid makes a total of 5.4p for the
year (2001 : 5.2p).
4. The calculation of basic earnings per share is by reference to
profit after taxation of #4,112,000 (2001 : #4,734,000 as restated) and by
reference to the weighted average number of shares in issue during the year of
80,483,349 (2001 : 78,557,470). The calculation of adjusted earnings per share
is by reference to the profits after taxation excluding amortisation of goodwill
and licences and exceptional items of #17,431,000 (2001 : #15,308,000 as
restated). The weighted average number of shares in issue in each year is as
defined above.
2002 2001
(as restated)
#'000 Pence per share #'000 Pence per share
Basic earnings per share 4,112 5.1 4,734 6.0
Adjustment in respect of exceptional finance
costs 2,096 2.6 - -
Adjustment in respect of taxation on the
exceptional finance costs (629) (0.7) - -
Adjustment in respect of goodwill and licence
amortisation 11,852 14.7 10.574 13.5
--------- --------- --------- ---------
Adjusted earnings per share 17,431 21.7 15,308 19.5
--------- --------- --------- ---------
Adjusted earnings per share figures and the reconciliation above are given in
order that shareholders may appreciate the effect on earnings of exceptional
finance costs and goodwill and licence amortisation.
5. The results for the year ended 31 December 2002 have been
abridged from the full accounts of the Group for that year which received an
unqualified auditors' report and which have not yet been delivered to the
Registrar of Companies. The results for the year ended 31 December 2001 have
been extracted from the Group's statutory accounts which received an unqualified
auditors' report and have been filed with the Registrar of Companies.
6. FRS 19 'Deferred Tax' has been adopted in preparing the financial
statements for the year ending 31st December 2002. The results for the year
ending 31st December 2001 have been appropriately restated for the effect of
adopting FRS 19.
7. The preceding statements have been prepared in accordance with
applicable United Kingdom accounting standards on a basis which is consistent
with that applied in previous periods.
8. The Annual General Meeting will be held on Tuesday 29 April 2003
at 11am at Rudding Park Hotel, Rudding Park, Follifoot, Harrogate, North
Yorkshire, HG3 1JH.
This information is provided by RNS
The company news service from the London Stock Exchange
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