TIDMANCR
RNS Number : 7088A
Animalcare Group PLC
27 September 2022
Animalcare Group plc
Interim Results for the six months ended 30 June 2022
27 September 2022. Animalcare Group plc ("the Company" or
"Group") (AIM: ANCR), the international animal health business,
announces its unaudited interim results for the six months ended 30
June 2022.
Animalcare reports solid revenue performance and improved gross
margins in H1 2022 as the Group maintains its strategic focus on
the pursuit of sustainable growth opportunities.
Financial Highlights
-- Revenue decreased 2.1% (0% at CER) to GBP38.3m compared to
exceptional levels of demand in H1 2021
-- Gross profit margin increased 1.4% to 56.0% (H1 2021: 54.6%),
benefiting from a continued focus on brands with higher growth and
margin potential and a positive sales mix
-- Underlying* EBITDA declined by 5.3% to GBP8.0m, with improved
gross margins offset by increased investment in the Orthros R&D
programmes and people-related SG&A
-- Underlying basic EPS decreased by 1.3% to 7.9 pence (H1 2021: 8.0 pence)
-- Statutory profit before tax, incorporating non-underlying
items was GBP3.4m (H1 2021: GBP0.8m), with reported basic EPS at
4.0 pence (H1 2021: 0.5 pence)
-- Net debt increased by GBP2.1m to GBP7.4m as of 30 June 2022
largely reflecting significantly higher receivables as a result of
revenue phasing towards the period end, with the net debt to
underlying EBITDA leverage ratio comfortably below the Group's
target range of 1 to 2 times
-- Adjusted for the increase in Orthros R&D investment, the
Group anticipates that full year earnings will be within market
expectations despite intensification of macroeconomic headwinds
-- Board declares interim dividend of 2.0 pence per share, in line with prior year
* The Group presents a number of non-GAAP Alternative
Performance Measures (APMs) which exclude non-underlying items as
set out in note 3. EBITDA is defined as underlying earnings before
interest, tax, depreciation and amortisation.
Strategic and Operational Highlights
Business development
-- Early-stage pipeline strengthened in key therapy area through
research and development collaboration with Netherlands-based
company, Orthros Medical in March 2022
-- The Group continues to leverage its financial strength and
flexibility in pursuit of sustainable value-creating opportunities
through the likes of M&A activity, partnerships and pipeline
projects
Pipeline
-- Preclinical studies are under way after the Group secured a
global exclusive licence from Orthros Medical for early-stage VHH
candidates, initially addressing canine osteoarthritis, with second
half research expenditure to accelerate with the FY 2022 investment
anticipated to be in the region of GBP0.5m
-- Launch activities for STEM's Plaqtiv+ range of oral health
products have commenced following the award of the Seal of
Acceptance from the Veterinary Oral Health Council ("VOHC") during
Q2 2022
Leadership
-- Doug Hutchens and Sylvia Metayer join Board as Non-Executive
Directors. Sylvia Metayer appointed chair of the Audit and Risk
Committee following the AGM in June 2022
Animalcare's Chief Executive Officer, Jenny Winter, commented: "
I am pleased that Animalcare was able to deliver solid revenue and
gross margin performance compared to exceptional levels of
post-COVID demand in H1 2021. Strategically, we maintained our
focus on the pursuit of value-creating M&A and R&D
opportunities made possible by our strong and flexible balance
sheet.
"Our confidence in the long-term prospects of Animalcare and the
attractiveness of our markets is demonstrated in a projected
R&D spend of approximately GBP0.5m for the full year as we
invest in the early stage Orthros collaboration. We anticipate that
the majority of any financial impact of current macroeconomic
pressures in our markets will be offset by the expansion in gross
profit margins and therefore expect EBITDA margin to be broadly in
line with market consensus, adjusting for R&D, and full year
earnings to be within market expectations.
"From a revenue perspective, against a backdrop of intensifying
headwinds, we now anticipate a marginal bias to H1 versus H2
2022."
Analyst briefing/webcast
A briefing for analysts will be held at 10:30 BST on Tuesday 27
September 2022 via Zoom webcast. Analysts wishing to join should
use the following link to register and receive access details.
https://stifel.zoom.us/webinar/register/WN_vv3rHgW1RWu49pdL5peiOQ
A copy of the analyst presentation will be made available on the
Group website shortly after the webcast.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Enquiries
Animalcare Group plc +44 (0)1904 487 687
Jenny Winter, Chief Executive
Officer
Chris Brewster, Chief Financial communications@animalcaregroup.com
Officer
Media/investor relations
Stifel Nicolaus Europe Limited
(Nominated Adviser & Joint
Broker)
Ben Maddison
Nick Adams
Nicholas Harland +44 (0)20 7710 7600
Panmure Gordon
(Joint Broker)
Corporate Finance
Freddy Crossley/Emma Earl
Corporate Broking
Rupert Dearden +44 (0)20 7886 2500
About Animalcare
Animalcare Group plc is a UK AIM-listed international veterinary
sales and marketing organisation. Animalcare operates in seven
countries and exports to approximately 40 countries in Europe and
worldwide. The Group is focused on bringing new and innovative
products to market through its own development pipeline,
partnerships and via acquisition. For more information about
Animalcare, please visit www.animalcaregroup.com
Chairman's Statement
We are pleased to report that over the first six months
Animalcare delivered good revenue performance against a tough
comparator and improved gross margins as the Group continued to
focus on investment in value-creating opportunities.
Total revenues were GBP38.3m, down 2.1% (0% at CER) compared to
H1 2021, a period of exceptional growth as the lifting of COVID-19
counter measures released pent-up demand, particularly in the
Companion Animals segment.
Revenues generated by our top 40 brands continued to grow, up
2.4% thanks largely to new product launches including Daxocox. Our
promotional focus on larger, higher margin brands, in addition to a
favourable sales mix, was a further driver of gross margin
expansion to 56.0% (H1 2021: 54.9%). Underlying EBITDA tracked
broadly in line with revenues, declining 5.3% to GBP8.0m. The
effect of higher product margins was offset by investment in
people-related SG&A costs and our development pipeline, most
notably in relation to additional R&D investment in programmes
related to the early-stage agreement with Orthros Medical announced
in March 2022.
As anticipated, cash conversion in H1 2022 reduced significantly
compared to the rates delivered over the last two years.
Consequently, net debt increased by GBP2.1m to GBP7.4m. Overall, we
maintain a strong financial position with our underlying EBITDA to
net debt leverage ratio still comfortably below our target range of
1 to 2 times.
This healthy leverage position equips us to seek out attractive
external growth opportunities, including the strengthening of our
R&D pipeline as demonstrated by our agreement with Orthros
Medical which centres on preclinical VHH candidates with an initial
focus on canine osteoarthritis. Additionally, during Q2 2022,
following the award of the Veterinary Oral Health Council (VOHC)
seal of approval, we celebrated the launch of oral health range
Plaqtiv+ across our markets towards the end of the period. Plaqtiv+
is the first antibiofilm product from the STEM joint venture.
Continuing to build the Group's leadership capability is a key
objective of our strategy and I'm delighted to see how active we
have been in this space during the first half. Sandra Single joined
the Senior Executive Team at the beginning of the year, taking on
the newly-created role of Strategic Product and Portfolio Director.
Her extensive experience in research, development and licensing is
already proving its worth as we pursue growth from internally and
externally sourced products. We also welcomed Doug Hutchens and
Sylvia Metayer to the Board during the first half with Sylvia
succeeding Nick Downshire as chair of the Audit and Risk Committee
after the Annual General Meeting in June 2022. Both Doug and Sylvia
will be real assets to the Group.
The entire Animalcare team deserves recognition for its first
half performance despite increasingly stiff macroeconomic headwinds
and a moderation in demand growth from a post-COVID high. The
fundamentals of the animal health market remain attractive,
supported by historically high levels of pet ownership; the Group
is well positioned to take advantage of these trends to deliver
continued success over the longer term. On that basis the Board has
declared an interim dividend of 2.0 pence a share, the same level
as 2021.
Jan Boone, Chairman
Business and Financial Review
Overview of underlying financial results
We are pleased to report a positive first half trading
performance with improved gross margins against a strong prior
period comparator. The Group's financial strength has been
maintained w ith the net debt to underlying EBITDA leverage ratio
comfortably below our stated target range of 1 to 2 times, enabling
us to continue pursuing attractive external opportunities and
invest in long-term drivers of growth.
A summary of the underlying financial results for the first six
months of 2022, which the Directors believe provides a clearer
picture of business performance, is shown below.
Six months to 30 June 2022 2021 Change at
AER
GBP'000 GBP'000 %
----------------------------- -------- -------- ----------
Revenue 38,286 39,121 (2.1%)
Gross Profit 21,430 21,354 0.4%
Gross Margin % 56.0% 54.6% 1.4%
Underlying Operating Profit 6,502 7,089 (8.3%)
Underlying EBITDA 8,026 8,474 (5.3%)
Underlying EBITDA margin % 21.0% 21.7% (0.7%)
----------------------------- -------- -------- ----------
Basic Underlying EPS (p) 7.9p 8.0p (1.3%)
----------------------------- -------- -------- ----------
Revenues for the period totalled GBP38.3m, a decrease of GBP0.8m
or 2.1% (0% at CER) compared to H1 2021 which experienced
exceptional growth as markets bounced back following the easing of
COVID-19 counter measures.
Revenue performance by product category is shown in the table
below:
Six months to 30 June 2022 2021 Change at
AER
GBP'000 GBP'000 %
----------------------- -------- -------- ----------
Companion Animals 26,634 27,385 (2.7%)
Production Animals 8,814 9,263 (4.9%)
Equine & other 2,838 2,473 14.8%
----------------------- -------- -------- ----------
Total 38,286 39,121 (2.1%)
----------------------- -------- -------- ----------
Companion Animals revenue, which represents around 70% of Group
turnover, declined by 2.7% to GBP26.6m. Throughout the period and
into the second half of the financial year, we have seen demand
levels moderate as markets across Europe return to more normalised
growth. Within the North Region, our performance has been impacted
by a reduction in wholesaler inventory levels, built up to secure
supply through Brexit and COVID, while in Southern Europe, overall
trading was slightly ahead of the prior period, benefiting from the
effects of phasing.
Sales growth from new products contributed GBP1.5m,
predominantly driven by Daxocox and Plaqtiv+, the latter launching
during Q2 following the later than expected VOHC (Veterinary Oral
Health Council) approval. This growth helped offset a revenue
reduction due to the loss of distribution rights.
Production Animal revenues, which are chiefly generated by our
South Region business, declined by 4.9% versus the prior period to
GBP8.8m, predominantly driven by legislation implemented to further
reduce the general usage of antibiotics, as well as supply
disruptions.
Equine and other sales increased by 14.8% to GBP2.8m principally
due to the resumption of normalised trading patterns following a
decrease in sales during 2021 due to customer stock build in 2020
in advance of the manufacturing transfer of Danilon.
Revenues generated by our top 40 brands, collectively accounting
for approximately 79% of sales, increased by 2.4%, predominantly
driven by new product launches. The continuing commercial focus on
these larger, higher margin brands, together with a more favourable
sales mix, is the key driver of the 1.4% improvement in our gross
margins. While the Group has been affected by inventory and
logistic price increases, the net impact on gross and EBITDA
margins during the first half has not been significant as we have
taken mitigating pricing actions where possible. However, we remain
alert to the accelerating inflationary pressures impacting our
overall cost base in the second half and into 2023.
Underlying EBITDA declined by 5.3% to GBP8.0m, broadly in line
with revenues. SG&A expenses in the first half increased by
GBP0.5m to GBP13.4m , r epresenting 35.0% of revenue (H1 2021:
32.9%; FY 2021: 35.1%). We have continued to invest in our people
and drivers of future growth including those related to new
products and pipeline projects, the latter including R&D
expenditure of approximately GBP0.1m in relation to the early-stage
agreement with Orthros Medical. We expect second half research
expenditure to accelerate with the FY 2022 investment anticipated
to be in the region of GBP0.5m.
The underlying effective tax rate was 23.2%, broadly comparable
to both the prior period and FY 2021 rate of 24.4%.
Reflecting the points noted above, underlying basic EPS
decreased by 1.3% to 7.9 pence (H1 2021: 8.0 pence).
Reported results and non-underlying items
Reported Group profit after tax for the period after accounting
for the non-underlying items detailed below was GBP2.4m (2021:
GBP0.3m), with reported basic earnings per share at 4.0 pence (H1
2021: 0.5 pence).
Non-underlying items totalling GBP2.7m (H1 2021: GBP5.6m)
relating to profit before tax have been incurred in the period, as
set out in note 3. These principally comprise:
-- Amortisation and impairment of acquisition-related
intangibles of GBP2.4m (H1 2021: GBP5.4m). The decrease versus 2021
primarily reflects the prior period non-cash impairment of three
projects that formed part of the acquired development pipeline, the
principal driver for which was the recall and suspension of all
products containing ranitidine for human use by European and US
authorities. Consequently, Animalcare ceased development of
ranitidine for animal use.
-- Expenses relating to acquisition, integration and
restructuring costs of GBP0.3m (H1 2021: GBP0.6m) largely relating
to the relocation of our Spanish office together with the
reorganisation of our UK operations and associated carve out of
Identicare Ltd, the Group's microchipping and consumer-focused
services business.
Dividend
The Board is pleased to declare an interim dividend of 2.0 pence
per share, in line with the prior period. The interim dividend will
be paid on 18 November 2022 to shareholders whose names are on the
Register of Members at close of business on 21 October 2022. The
ordinary shares will become ex-dividend on 20 October 2022.
Cash flow, net debt and borrowing facilities
Significant progress was made during FY 2021 in reducing our
debt and increasing the Group's financial strength. With the net
debt to underlying EBITDA leverage ratio comfortably below our
stated target range of 1 to 2 times, we continue to pursue
value-creating opportunities through M&A, partnerships and
pipeline projects.
Following the very strong cash conversion performance in FY 2021
of 108.8%, we are reporting, as anticipated, a reduction in our
first half underlying cash conversion to 22.6% (H1 2021: 79.5%) as
set out in the table below:
Six months to Six months to
30 June 2022 30 June 2021
GBP'000 GBP'000
------------------------------------------ -------------- --------------
Underlying EBITDA 8,026 8,474
Net cash flow from operations 1,428 6,145
Non-underlying items 382 594
Underlying net cash flow from operations 1,810 6,739
Underlying cash conversion % 22.6% 79.5%
------------------------------------------ -------------- --------------
Net cash flow generated by our operations reduced to GBP1.4m (H1
2021: GBP6.2m). Net working capital increased by GBP5.6m during the
period (H1 2021: GBP1.4m increase), largely reflecting
significantly higher receivables as a result of revenue phasing
towards the period end. In addition, inventories increased by
GBP1.6m primarily driven by normalisation of our stock profile
following restocking of delayed supply from the end of 2021. Tax
cash outflows at GBP1.0m were comparable to the prior period.
We expect cash conversion for the full year at around 70%, the
achievement of which will be largely dependent on trading patterns
during the second half and any decisions the Group may take in
connection with strategic stock cover to support surety of supply
going into 2023.
Net debt increased by GBP2.1m to GBP7.4m over the period largely
driven by the reduced cash conversion noted above and a significant
increase in IFRS16 lease liabilities primarily in relation to the
relocation of our Spanish office.
GBP'000
----------------------------------------- --------
Net debt at 1 January 2022 (5,330)
Net cash flow from operations 1,428
Net capital expenditure (1,416)
Net finance expenses (821)
Foreign exchange on cash and borrowings (314)
Movement in IFRS16 lease liabilities (978)
----------------------------------------- --------
Net debt at 30 June 2022 (7,431)
----------------------------------------- --------
Net capital expenditure of GBP1.4m (H1 2021: GBP1.5m) largely
comprises investment in our product development pipeline of
GBP1.1m, including GBP0.3m in relation to the first licence
milestone payment to Orthros Medical. The balance of expenditure
relates chiefly to ERP and BI investments as we continue to
harmonise and strengthen our IT infrastructure.
Net debt to underlying EBITDA leverage ratio was approximately
0.6 times (H1 2021: 0.4 times), below the Group's target net debt
to underlying EBITDA range of 1 to 2 times.
Going Concern
Banking Facilities and Covenants
The Group's financing arrangements consisted of a committed
revolving credit facility of EUR41.5m and a EUR10m acquisition
line, which cannot be utilised to fund our operations.
The facilities remain subject to the following covenants which
are in operation at all times:
-- Net debt to underlying EBITDA ratio of 3.5 times
-- Underlying EBITDA to interest ratio of minimum 4 times
-- Solvency (total assets less goodwill/total equity less goodwill) greater than 25 %
As at 30 June 2022, and throughout the period, all covenant
requirements were met with significant headroom across all three
measures. As at 30 June 2022, total facilities were GBP44.2m with
headroom, including cash on balance sheet, was around GBP39.5m.
Summary and outlook
Animalcare posted solid revenues and an expansion in gross
margins in the first half against a tough prior year comparison as
we continued to focus on execution of our long-term growth
strategy.
The Group's progress in the first half has been made despite
increasingly stiff headwinds, including inflationary pressures, and
a moderation of the exceptional post-COVID growth seen in the first
half of 2021. In light of these factors, we anticipate a marginal
revenue bias to H1 versus H2 2022.
Our commitment to grow our business through innovation is
reflected in a planned R&D spend of GBP0.5m for the full year
as we invest in the early-stage Orthros collaboration. We
anticipate that the majority of any financial impact of current
macroeconomic pressures in our markets will be offset by the
expansion in gross profit margins. We therefore expect our EBITDA
margin to be broadly in line with market consensus, adjusting for
R&D, and full year earnings to be within market
expectations.
Over the long term, we believe the fundamentals of the animal
health market remain attractive, underpinned by historically high
levels of pet ownership. This backdrop, in combination with the
Group's strong and flexible financial platform, with net debt well
below our target leverage range, provides us with the confidence
and means to continue investing in growth opportunities through the
likes of M&A, partnerships and R&D collaborations.
The Animalcare team deserves real credit for maintaining a tight
focus on all elements of our long-term growth strategy.
Jenny Winter Chris Brewster
Chief Executive Officer Chief Financial Officer
Condensed consolidated income statement
For the six months ended 30 June
Underlying Non-Underlying Total Underlying Non-Underlying Total
(note 3) (note
3)
----------------------------- ---------- -------------- -------- ---------- -------------- --------
2022 2022 2022 2021 2021 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------- -------------- -------- ---------- -------------- --------
Revenue 38,286 - 38,286 39,121 - 39,121
Cost of sales (16,856) - (16,856) (17,767) - (17,767)
Gross profit 21,430 - 21,430 21,354 - 21,354
------------------------------ ---------- -------------- -------- ---------- -------------- --------
Research and development
expenses (1,403) (331) (1,734) (1,212) (547) (1,759)
Selling and marketing expenses (6,235) - (6,235) (6,285) - (6,285)
General and administrative
expenses (7,308) (2,024) (9,332) (6,818) (2,373) (9,191)
Net other operating income
/ (expenses) 18 (352) (334) 50 (2,685) (2,635)
Operating profit/(loss) 6,502 (2,707) 3,795 7,089 (5,605) 1,484
Financial expenses 328 - 328 (1,131) - (1,131)
Financial income (699) - (699) 574 - 574
Financial net result (371) - (371) (557) - (557)
Share in net (loss)/profit
of joint ventures accounted
for using the equity method 16 - 16 (136) - (136)
Profit/(loss) before tax 6,147 (2,707) 3,440 6,396 (5,605) 791
Income tax (1,429) 396 (1,033) (1,563) 1,100 (463)
Net profit/(loss) 4,718 (2,311) 2,407 4,833 (4,505) 328
Net profit/(loss)
attributable
to:
The owners of the parent 4,718 (2,311) 2,407 4,833 (4,505) 328
Earnings per share for
profit/(loss) attributable
to the ordinary equity
holders of the company:
Basic 7.9p 4.0p 8.0p 0.5p
Diluted 7.9p 4.0p 8.0p 0.5p
------------------------------ ---------- -------------- -------- ---------- -------------- --------
In order to aid understanding of underlying business
performance, the Directors have presented underlying results before
the effect of exceptional and other items. These exceptional and
other items are analysed in note 3.
Condensed consolidated statement of comprehensive income
For the six months
ended 30 June
2022 2021
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Net profit for the period 2,407 328
Other comprehensive income/(expense)
Cumulative translation differences * 283 (468)
Other comprehensive income/(expense)/, net of
tax 283 (468)
Total comprehensive income/(expense) for the period,
net of tax 2,690 (140)
Total comprehensive income/(expense) attributable
to:
The owners of the parent 2,690 (140)
-------------------------------------------------------- --------- ---------
* May be reclassified subsequently to profit &
loss
Condensed consolidated statement of financial position
30 June 31 Dec
2022 2021
-------- --------
GBP'000 GBP'000
Assets
Non-current assets
Goodwill 50,536 50,337
Intangible assets 27,777 29,719
Property, plant and equipment 945 626
Right-of-use assets 2,638 1,658
Investments in joint ventures 78 1,290
Deferred tax assets 2,043 1,963
Other financial assets 65 90
Other non-current assets - 24
Total non-current assets 84,082 85,707
-------- --------
Current assets
Inventories 12,074 10,328
Trade receivables 13,812 7,135
Other current assets 1,430 1,200
Cash and cash equivalents 5,136 5,633
Total current assets 32,452 24,296
-------- --------
Total assets 116,534 110,003
-------- --------
Liabilities
Current liabilities
Borrowings - -
Lease liabilities (794) (723)
Trade payables (11,326) (10,021)
Tax payables (1,955) (471)
Accrued charges and deferred income (1,478) (1,083)
Other current liabilities (4,842) (2,156)
Total current liabilities (20,395) (14,454)
-------- --------
Non-current liabilities
Borrowings (10,924) (9,243)
Lease liabilities (1,904) (996)
Deferred tax liabilities (4,120) (4,271)
Deferred income - (675)
Provisions (389) (408)
Other non-current liabilities - (1,157)
Total non-current liabilities (17,337) (16,750)
-------- --------
Total Liabilities (37,732) (31,204)
-------- --------
Net Assets 78,802 78,799
======== ========
Equity
Share capital 12,019 12,019
Share premium 132,798 132,798
Reverse acquisition reserve (56,762) (56,762)
Accumulated losses (10,604) (11,676)
Other reserves 2,703 2,420
Equity attributable to the owners of the parent 80,154 78,799
-------- --------
Total equity 80,154 78,799
-------- --------
Condensed consolidated statement of changes in equity
Attributable to the owners of the parents
----------------------------------------------------------------
Share Share Accumulated Reverse Other Total
capital premium losses acquisition reserve
reserve
-------- -------- ----------- ------------ -------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2022 12,019 132,798 (11,676) (56,762) 2,420 78,799
Net profit - - 2,407 - - 2,407
Other comprehensive income - - - - 283 283
Total comprehensive income - - 2,407 - 283 2,690
-------- -------- ----------- ------------ -------- -------
Dividends - - (1,442) - - (1,442)
Share based payments - - 107 - - 107
At 30 June 2022 12,019 132,798 (10,604) (56,762) 2,703 80,154
------------------------------ -------- -------- ----------- ------------ -------- -------
Attributable to the owners of the parents
----------------------------------------------------------------
Share Share Accumulated Reverse Other Total
capital premium losses acquisition reserve
reserve
------------------------------------- -------- -------- ----------- ------------ -------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 12,012 132,729 (9,445) (56,762) 3,058 81,592
Net profit - - 328 - - 328
Other comprehensive expense - - - - (468) (468)
-------- -------- ----------- ------------ -------- -------
Total comprehensive income/(expense) - - 328 - (468) (140)
-------- -------- ----------- ------------ -------- -------
Exercise of share options 4 40 - - - 44
Share-based payments - - 124 - - 124
-------- -------- ----------- ------------ -------- -------
At 30 June 2021 12,016 132,769 (8,993) (56,762) 2,590 81,620
-------------------------------------- -------- -------- ----------- ------------ -------- -------
Condensed consolidated cash flow statements
For the six months
ended 30 June
--------------------
Notes 2022 2021
--------- ---------
GBP'000 GBP'000
Operating activities
Profit before tax 3,440 791
Profit before tax 3,440 791
--------- ---------
Adjustments for:
Share in net result of joint ventures (16) 136
Depreciation of property, plant and equipment 538 574
Amortisation of intangible assets 3,291 3,746
Impairment of intangible assets 32 2,417
Share-based payment expense 135 124
Gain on disposal of property, plant and equipment (165) (396)
Non-cash movement in provisions 103 163
Movement in allowance for bad debt and inventories 34 233
Financial income (82) (86)
Financial expense 375 673
Impact of foreign currencies 58 (34)
Other 14 2
Movements in working capital
Increase in trade receivables (6,465) (88)
(Increase)/decrease in inventories (1,572) 257
Decrease/(increase) in payables 2,387 (1,610)
Income tax paid (679) (757)
Net cash flow from operating activities 1,428 6,145
--------- ---------
Investing activities
Purchase of property, plant and equipment (373) (265)
Purchase of intangible assets (1,209) (1,566)
Proceeds from the sale of property, plant and
equipment (net) 166 337
Net cash flow used in investing activities (1,416) (1,494)
------- --------
Financing activities
Proceeds from loans and borrowings and convertible
debt 420 (2,807)
Repayment of loans and borrowings - (582)
Repayment IFRS16 lease liability (499) (520)
Receipts from issue of share capital - 44
Interest paid (207) (239)
Other financial expense (87) (247)
Increase in other financial assets 6 (28) (1,201)
Net cash flow used in financing activities (401) (5,552)
------- --------
Net decrease in cash and cash equivalents (389) (901)
------- --------
Cash and cash equivalents at beginning of period 5,633 5,265
Exchange rate differences on cash and cash equivalents (108) 186
------- --------
Cash and cash equivalents at end of period 5,136 4,550
------- --------
Reconciliation of net cash flow to movement
in net debt
Net decrease in cash and cash equivalents in
the period (389) (901)
Cash flow from decrease in debt financing (420) 3,389
Foreign exchange differences on cash and borrowings (315) 853
Movement in net debt in the period (1,124) 3,341
------- --------
Net debt at the start of the period (5,329) (13,617)
Movement in lease liabilities during the period (978) 167
------- --------
Net debt at the end of the period (7,431) (10,109)
------- --------
Notes to the consolidated interim report
1. General information
Animalcare Group plc ("the Company") is a public company
incorporated in the United Kingdom under the Companies Act 2006 and
is domiciled in the United Kingdom. The address of its registered
office is Unit 7, 10 Great North Way, York Business Park, York,
YO26 6RB. The condensed set of financial statements as at, and for,
the six months ended 30 June 2022 comprises the Company and its
subsidiaries (together referred to as the "Group"). The nature of
the Group's operations and its principal activities are set out in
the latest Annual Report.
2. Basis of preparation and significant accounting policies
Basis of preparation and accounting policies
This interim financial information for each of the six month
periods ended 30 June 2022 and 30 June 2021 has not been audited
and does not constitute statutory accounts as defined in Section
43s of the Companies Act 2006. The comparative information for the
year ended 31 December 2021 does not constitute statutory accounts
however is based on the statutory accounts for that year, on which
the Group's auditors issued an unqualified report and which have
been filed with the Register of Companies.
The consolidated financial statements are presented in thousands
of pound sterling (kGBP or thousands of GBP) and all "currency"
values are rounded to the nearest thousand (GBP000), except when
otherwise indicated.
The Interim Report for the six months ended 30 June 2022 was
approved by the Board of Directors and authorised for issue on 27
September 2022 .
Except as described below, the condensed consolidated interim
financial information for the six months ended 30 June 2022 has
been prepared using accounting policies consistent with those of
the Company's annual accounts for the year ended 31 December 2021 ,
except for the intangible assets as explained below, which were
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union ("adopted
IFRSs").
Taxes on income in the interim periods are accrued using the
estimated tax rate that would be applicable for the full financial
year.
Changes in accounting policies
The Group has acquired certain intangible assets related to
licenses with a fixed and variable consideration contingent upon
the realization of certain milestones and sales volumes. Due to the
recognition of this license asset, the group will extend its
accounting policies on intangible assets as follows:
The Group will recognise an intangible asset for the licenses
obtained initially measured at the fixed consideration paid. The
variable consideration subject to the realisation of the milestones
will only be recognised when the milestones are met and will be
recognised as an addition to the intangible license asset. Once
market authorization is obtained, the Group will start amortizing
the intangible asset over its useful life and recognise any future
milestone payments as a cost of sale.
New standards, interpretations and amendments adopted by the
Group
The following new Standards, Interpretations and Amendments
issued by the IASB and the IFRIC as adopted by the European Union
are effective for the financial period:
- IFRS 3 Business Combinations - Amendments updating a reference
to the Conceptual Framework (May 2020)
- IAS 16 Property, Plant and Equipment - Amendments prohibiting
a company from deducting from the cost of property, plant and
equipment amounts received from selling items produced while the
company is preparing the asset for its intended use (May 2020)
- IAS 37 Provisions, Contingent Liabilities and Contingent
Assets - Amendments regarding the costs to include when assessing
whether a contract is onerous (May 2020)
- Annual improvements to IFRSs 2018-2020 Cycle (May 2020)
- IFRS 16 Leases - Amendment COVID-19-Related Rent Concessions
beyond June 30, 2021 (March 2021)
The adoption of these new standards and amendments has not led
to major changes in the Group's accounting policies.
New and revised standards not yet adopted
The Group elected not to early adopt the following new
Standards, Interpretations and Amendments, which have been issued
by the IASB and the IFRIC but are not yet effective as of June 30,
2022 , and/or not yet adopted by the European Union as of June 30,
2022 . Standards are not expected to have a material impact on the
entity in the current or future reporting periods and on
foreseeable future transactions.
- IAS 1 Presentation of Financial Statements - Amendments
regarding the classification of liabilities (January 2020)* and
Amendment to defer the effective date of the January 2020
amendments (July 2020)* and Amendments regarding the disclosure of
accounting policies (February 2021)
- IAS 8 Accounting policies, Changes in Accounting Estimates and
Errors - Amendments regarding the definition of accounting
estimates (February 2021)
- IAS 12 Income Taxes - Amendments regarding deferred tax on
leases and decommissioning obligations and related to assets and
liabilities arising from a single transaction (May 2021)*
* Not yet endorsed by the EU as of 30 June 2022
Going Concern
Banking Facilities and Covenants
At 30 June 2022 , the Group's financing arrangements consisted
of a committed revolving credit facility of EUR41.5m and a EUR10m
acquisition line, the latter which cannot be utilised to fund our
operations. The facilities remain subject to the following
covenants which are in operation at all times:
-- Net debt to underlying EBITDA ratio of 3.5 times
-- Underlying EBITDA to interest ratio of minimum 4 times
-- Solvency (total assets less goodwill/total equity less
goodwill) greater than 25%
As at 30 June 2022 , and throughout the period, all covenant
requirements were met with significant headroom across all three
measures. As at 30 June 2022, total facilities were GBP44.2m with
headroom, including cash on balance sheet, was around GBP39.5m.
3. Non-underlying items
For the six months
ended 30 June
--------------------
2022 2021
--------- ---------
GBP'000 GBP'000
Amortisation and impairment of acquisition related
intangibles
Classified within Research and development expenses 331 547
Classified within General and administrative expenses 2,024 2,373
Classified within net other operating expenses 32 2,432
Total amortisation and impairment of acquisition
related intangibles 2,387 5,352
--------- ---------
Restructuring costs 179 457
Acquisition and integration costs 136 164
Divestments and business disposals (146) (368)
Other non-underlying items 151 -
Total non-underlying items before taxes 2,707 5,605
--------- ---------
Tax impact (395) (1,100)
--------- ---------
Total non-underlying items after taxes 2,312 4,505
--------- ---------
The amortisation and impairment of acquisition-related
intangibles charge totalling GBP2.4m (2021: GBP5.4m) largely
relates to the Esteve acquisition of GBP0.8m ( 2021 : GBP1.0m) and
the reverse acquisition of Animalcare Group plc of GBP1.5m (2020:
GBP1.7m). The decrease versus 2021 primarily reflects the non-cash
impairment of a project that formed part of the acquired
development pipeline, the principal driver for which was the recall
and suspension of all products containing ranitidine for human use
by European and US authorities. Consequently, Animalcare ceased
development of ranitidine for animal use.
During the period the Group incurred acquisition, integration
and restructuring costs of GBP0.3m (30 June 2021 : GBP0.6m) which
include the carve out and partnership of Identicare Ltd, our
microchipping and database services business, with effect from 1
January 2022, and the cessation of supply due to manufacturing
issues. Further, strong focus on our core higher margin brands has
led to several product divestments with associated income on sale
of GBP146k ( 2021 : GBP368k ).
Finally, other non-underlying items of GBP151k largely relate to
the relocation of our Spanish office.
4. Segment information
The Pharmaceutical segment is active in the development and
marketing of innovative pharmaceutical products that provide
significant benefits to animal health.
The measurement principles used by the Group in preparing this
segment reporting are also the basis for segment performance
assessment. The Board of Directors of the Group acts as the Chief
Operating Decision Maker. As a performance indicator, the Chief
Operating Decision Maker controls performance by the Group's
revenue, gross margin, Underlying EBITDA and EBITDA. EBITDA is
defined by the Group as net profit plus finance expenses, less
financial income, plus income taxes and deferred taxes, plus
depreciation, amortisation and impairment. Underlying EBITDA equals
EBITDA plus non-underlying items.
The following table summarises the segment reporting from
continuing operations for 2022 and 2021 . As management's
controlling instrument is mainly revenue-based, the reporting
information does not include assets and liabilities by segment and
is as such not presented per segment.
For the six months
ended 30 June
2022 2021
--------- ---------
Pharma Pharma
--------- ---------
GBP'000 GBP'000
Revenues 38,286 39,121
Gross Margin 21,430 21,354
Gross Margin % 56.0% 54.6%
Segment underlying EBITDA 8,026 8,474
Segment underlying EBITDA % 21.0% 21.7%
Segment EBITDA 7,706 8,237
Segment EBITDA % 20.1% 21.1%
The segment EBITDA is reconciled with the consolidated net
profit of the year as follows:
For the six months
ended 30 June
2022 2021
--------- ---------
GBP'000 GBP'000
Segment EBITDA 7,706 8,237
Depreciation, amortisation and impairment (3,911) (6,753)
Operating profit 3,795 1,484
--------- ---------
Financial expenses 328 (1,131)
Financial income (699) 574
Share in net result of joint ventures 16 (136)
Income taxes (1,246) (959)
Deferred taxes 213 496
Net profit 2,407 328
--------- ---------
Revenue by product category:
For the six months
ended 30 June
--------------------
2022 2021
--------- ---------
GBP'000 GBP'000
Companion animals 26,634 27,385
Production animals 8,814 9,263
Equine and Other 2,838 2,473
Total 38,286 39,121
--------- ---------
Revenue by geographical area:
For the six months
ended 30 June
--------------------
2022 2021
--------- ---------
GBP'000 GBP'000
Belgium 1,593 2,210
The Netherlands 749 687
United Kingdom 7,269 7,395
Germany 4,766 5,397
Spain 12,165 11,509
Italy 4,610 4,906
Portugal 2,230 2,394
European Union - other 3,927 3,828
Asia 182 324
Other 795 471
Total 38,286 39,121
--------- ---------
Revenue by category:
For the six months
ended 30 June
--------------------
2022 2021
--------- ---------
GBP'000 GBP'000
Product sales 37,376 38,504
Services sales 910 617
Total 38,286 39,121
--------- ---------
Product revenue is recognised when the performance obligation is
satisfied at a point in time. Service revenue is recognised by
reference of the stage of completion.
5. Licensing and R&D collaboration agreements with Orthros Medical BV
On 24 March 2022, the Group entered into two early-stage
agreements with Netherlands-based Orthros Medical, a company
focused on the research and early development of VHH antibodies,
also known as small single chain antibody fragments. Under the
terms of the deal, and during the period, Animalcare made upfront
payments to Orthros Medical totalling EUR500,000. As the two
licensed preclinical candidates progress, Orthros Medical may
receive development, regulatory and commercial milestone payments
up to a total value of EUR11 million, a significant proportion of
which are linked to successful commercialisation. In addition,
single digit royalties will be due on the net sales of the
products. These payments are expected to be paid out of the Group's
operating cash flow.
6. Earnings per share
Basic earnings per share amounts are calculated by dividing the
net profit for the period attributable to ordinary equity holders
of the parent company by the weighted average number of ordinary
shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holder of the parent
company by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of all potential
dilutive ordinary shares.
The following income and share data were used in the earnings
per share computations:
For the six months ended 30 June
--------------------------------------
Underlying Underlying Total Total
----------- ----------- ----- -----
2022 2021 2022 2021
----------- ----------- ----- -----
Net profit attributable to ordinary equity
holders of
the parent adjusted for the effect of
dilution 4,718 4,833 2,407 328
----------- ----------- ----- -----
Average number of shares (basic and diluted):
For the six months ended 30 June
----------------------------------------------
Underlying Underlying Total Total
---------- ---------- ---------- ----------
2022 2021 2022 2021
---------- ---------- ---------- ----------
Number Number Number Number
Weighted average number of ordinary shares
for basic
earnings per share 60,092,161 60,058,266 60,092,161 60,057,161
Dilutive potential ordinary shares 542,465 466,871 542,465 466,871
Weighted average number of ordinary shares
adjusted for effect of dilution 60,634,626 60,525,137 60,634,626 60,524,032
---------- ---------- ---------- ----------
Basic earnings per share:
For the six months ended 30 June
--------------------------------------
Underlying Underlying Total Total
----------- ----------- ----- -----
2022 2021 2022 2021
----------- ----------- ----- -----
Pence Pence Pence Pence
From operations attributable to the ordinary
equity holders of the company 7.9 8.0 4.0 0.5
Total basic earnings per share attributable
to the ordinary equity holders of the
company 7.9 8.0 4.0 0.5
----------- ----------- ----- -----
Diluted earnings per share:
For the six months ended 30 June
--------------------------------------
Underlying Underlying Total Total
----------- ----------- ----- -----
2022 2021 2022 2021
----------- ----------- ----- -----
Pence Pence Pence Pence
From operations attributable to the ordinary
equity holders of the company 7.9 8.0 4.0 0.5
Total diluted earnings per share attributable
to the ordinary equity holders of the
company 7.9 8.0 4.0 0.5
----------- ----------- ----- -----
7. Dividends
The final dividend for the year ended 31 December 2021 of 2.4
pence per share was paid to shareholders on 8 July 2022.
The directors have declared an interim dividend of 2.0 pence per
share. The interim dividend will be paid on 18 November 2022 to
shareholders whose names are on the Register of Members at close of
business on 21 October 2022. The ordinary shares will become
ex-dividend on 20 October 2022.
As the interim dividend was declared after the end of the period
being reported, it has not been included as a liability as at 30
June 2022 in accordance with IAS 10 'Events after the Balance Sheet
date'.
8. Contingent liabilities
On 3 September 2018, Ecuphar NV sold the wholesale business
Medini NV to Vetdis Holding NV (Vetdis) under a Share Purchase
Agreement (SPA). In June 2019, Vetdis sent a letter to Ecuphar
claiming that Ecuphar had breached the SPA. Ecuphar disputes the
majority of the claim, however Ecuphar considers it likely that a
part of the claim, amounting to EUR126,430, may be valid. Following
various discussions and correspondence, during which the parties
were unable to reach any agreement, Vetdis issued formal court
papers on 29 May 2020. A full court hearing to consider the case
took place in the Commercial Court in Bruges on 2 March 2021. The
court did not decide on the merits of the claim, instead it
appointed an expert auditor to examine the documents and advise the
court on the claim. The court however ordered Vetdis to pay the
current account debt plus interest at 8%, and on 4 May 2021, Vetdis
made a payment of EUR432,762. The process involving the expert
auditor is ongoing. Other than the EUR126,430, which may be valid,
no further provision in respect of this matter has been included in
the financial statements.
9. Related party transactions
The Group holds, via its subsidiary Ecuphar NV, a 33.3% share in
STEM Animal Health inc. In 2020 the Group entered into a licensing
agreement to commercialise products in global veterinary markets
outside the Americas. There have been no transactions with STEM
during the period in relation to these agreements.
10. Cautionary statement
This Interim Management Report ("IMR") consists of the
Chairman's Statement and the Business Review, which have been
prepared solely to provide additional information to shareholders
to assess the Group's strategies and the potential for those
strategies to succeed. The IMR should not be relied upon by any
other party or for any other purpose.
The IMR contains a number of forward-looking statements. These
statements are made by the Directors in good faith based upon the
information available to them up to the time of their approval of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward looking information.
This IMR has been prepared for the Group as a whole and
therefore emphasises those matters which are significant to
Animalcare Group plc and its subsidiaries when viewed as a
whole.
11. Interim report
The Group's Interim Report for the six months ended 30 June 2022
was approved and authorised for issue on 27 September 2022 . Copies
will be available to download on the Company's website at:
www.animalcaregroup.com .
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END
IR EAXNKADNAEFA
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September 27, 2022 02:00 ET (06:00 GMT)
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