Final Results

Final Results

Eco Animal Health Group Plc

ECO ANIMALHEALTH GROUP PLC

28 July 2014

ECO Animal Health Group plc

(AIM: EAH)

Results for the year ended 31 March 2014

HIGHLIGHTS

  • Group sales increase by 10% to £31.9m (+13% at constant exchange rates)
  • Gross profit up 8% at £14.1m
  • Adjusted EBITDA rises 5% to £7.1m (+13% at constant exchange rates)
  • Gross margins held at level of last year despite strength of sterling
  • Net cash increased to £18.2m
  • Cash generation strong at £6.2m, up 44%
  • Full year dividend raised by 5% to 4.2 pence per share
  • Sales in China continue to advance, rising by over a third
  • Global Aivlosin sales up over 22%
  • New marketing authorisations gained in Canada, EU, Russia and Republic of Korea
  • Current financial year started strongly

Peter Lawrence, Executive Chairman of ECO Animal Health Group plc, commented:

“The current year has started well with our major markets maintaining their rate of growth, with particularly good demand from customers in the US and Canada. The strength of sterling may remain an issue, but it will not divert us from our objective of developing our global business. Aivlosin® sales are growing rapidly, boosted particularly by North American demand where our business is still in its early stages but showing very significant and exciting potential. We look forward with optimism and are confident of delivering another strong performance in the current year.”

Contacts:                  

ECO Animal Health Group plc

Peter Lawrence 020 8336 6190

Spiro Financial

Anthony Spiro 020 8336 6196

Peel Hunt LLP (Nominated Adviser )

Dan Webster, Dan Harris 020 7418 8869
 

ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. Our products for these global growth markets promote well-being. Our financial goals are achieved through the careful and responsible application of science to generate value for our shareholders.

CHAIRMANS STATEMENT

FOR THE YEAR ENDED 31 MARCH 2014

I am pleased to report that ECO Animal Health Group (“ECO”) has delivered another strong set of results for the year ended 31 March 2014. It is particularly encouraging that this result has been achieved during a period where the strength of sterling has had a significant accounting impact on our figures. ECO sells its veterinary pharmaceutical products to customers in some 60 countries and invoices in local currency to the majority of them. Therefore, the financial results of companies like ECO that trade internationally, but report in sterling, are inevitably affected by currency movements.

The US dollar declined by over 9% against sterling during the year and the pound was also strong against the Brazilian Real, Japanese Yen and Chinese Yuan. While these movements adversely affected the stated value of our export sales, they have a beneficial effect on the price of imported raw materials, which are used in the manufacture of our products. However, while the Group benefits from the cushioning effect of these currency movements on its purchases, it could not entirely escape the overall impact of sterling’s strength.

Sales grew to almost £32m and EBITDA (Earnings before Interest, Tax, Depreciation, Amortisation, minority interests, share based payments and foreign exchange differences) to over £7m and cash generation advanced again, reaching £6.2m. Group cash at the year end was £18.2m following the successful placing last October, which raised £11.5m after expenses. The Company is grateful to all those who supported the placing so strongly. Following the latest reporting regulations, information on the full financial results is given in later sections of this report.

The Board is pleased to declare a dividend for the year of 4.2 pence per share, an increase of 5 per cent over the level last year. The dividend will be paid on 15th August to shareholders on the register on 8th August 2014. This increase reflects the Board’s confidence in the strength of ECO and its ability to continue to profitably expand its operations. Owing to the very low uptake of our scrip dividend alternative last year and our improving cash generation, a scrip alternative is not available for the above declaration.

Operations

Sales of Aivlosin® in the USA and Canada, territories which account for approximately one third of the potential world market for Aivlosin®, continue to build quickly. The price of pork has risen in North America as a result of tight supply caused by Porcine Endemic Diarrhoea virus (PEDv) and increased consumer demand. The increasing value of pigs bodes well for producers unaffected by the virus who have invested heavily in enhanced biosecurity and disease control programmes. A vaccine against PEDv has very recently received regulatory approval in the USA. This development is positive as it will allow us access onto pig farms which have previously been quarantined.

Our Chinese subsidiary, Zhejiang ECO Biok Animal Health Products, had another very successful year with sales up by over 33%. In Japan, the fact that sterling strengthened by almost 20% against the Yen during the period weighed heavily on results. The uncertain economic and political situation in Latin America, most notably in Argentina and Venezuela, but also in Mexico where there have been outbreaks of disease, has hampered sales in the region. The restricted availability of foreign currency to these distributors constrained our ability to ship significant orders, which were received in late 2013. By contrast, sales in Brazil exceeded our expectations despite the Real also weakening by 20% against sterling. Demand for Aivlosin® in Latin America remains high and strengthening local economies in the region would have a major positive impact on our business there. Sales in other markets of strategic importance to the Group, notably, Russia, Turkey and India, also continued to grow whilst overall performance in mainland Europe was up by 28%, despite the generally difficult economic climate.

We continue to invest in our product development pipeline, with the aim of obtaining additional marketing authorisations for further disease indications in both our traditional pig and poultry sectors, as well as for new species. As a result of these ongoing activities, we were granted several new Aivlosin® marketing authorisations during late 2013 and early 2014 which are important milestones in the development of the company. These include approvals for use for turkeys in the EU, for pigs in South Korea and the broadening of our existing licences in Russia and Canada. Sales arising from the launch of these products are beginning to build and will have a growing impact on results in the years ahead.

Work is progressing well on the implementation of our supply chain strategy and we now have the funds in place to support the ongoing expansion of our global business.

After the year end, ECO acquired the business of its longstanding Southeast Asian distributor, with headquarters in Kuala Lumpur and representation throughout the region. We are confident that this exciting development will allow ECO to accelerate its penetration of important pig and poultry markets in the region. Our distribution arrangements in Southeast Asia will now benefit from enhanced levels of technical and marketing support, which will boost the commercial impact of the Aivlosin® marketing authorisations we have already gained in these territories.

Employees

On behalf of all shareholders I would like to thank all our employees for their hard work and effort during another very successful year. Their dedication, teamwork and commitment underpin our company and give us considerable optimism for the future.

Outlook

The current year has started well with our major markets maintaining their rate of growth with particularly good demand from customers in the US and Canada. The strength of sterling may remain an issue, but it will not divert us from our objective of developing our global business. Aivlosin® sales are growing rapidly, boosted particularly by North American demand where our business is still in its early stages but showing very significant and exciting potential. We look forward with optimism and are confident of delivering another strong performance in the current year.

Peter Lawrence

Executive Chairman

25 July 2014

STRATEGIC REPORT

FOR THE YEAR ENDED 31 MARCH 2014

Financial

Group sales in the year to 31 March 2014 rose by 10% to £31.9m; this increase is 13% at constant exchange rates (CER) i.e.as if the 2013 sales are recalculated using the same average exchange rates as applied in 2014. Sales of Aivlosin®, our flagship, patented, therapeutic (disease treating) product, advanced by over 22% in sterling above the level of the previous year. This encouraging performance continues to reflect our strategic decision to focus primarily on our core high margin products and less on lower margin generics. The resulting more profitable product mix was becoming established last year and, despite the strength of sterling, the margins were broadly the same as achieved last year and still significantly higher than 2012.

EBITDA (Earnings before interest, tax, depreciation, amortisation, share based payments, foreign exchange movements and minorities) is our main key performance indicator because we are required to amortise our drug registration costs even though we believe they are increasing in value.

EBITDA advanced over 5% to £7.05m, a new record for the company and, on a like for like basis at CER the growth would have been 13%. Pre tax profit increased by 11% which continued to reflect the change in estimated useful life of Aivlosin® drug registrations effected last year, which accounts for approximately £0.5m increase over the prior year’s figure. Our key measurement of EBITDA is unaffected by this change.

Group cash at the year end was £18.2m following the successful placing last October, which raised £11.5m after expenses. The higher weighted average number of shares in issue following the placing and the higher tax charge in the year to 31 March 2014 reduced the earnings per share from 4.98p in 2013 to 4.35p.

Key Performance Indicators

The key performance indicators (‘KPIs’) for the Group are those that communicate the financial performance and strength of the group as a whole to shareholders.

A summary of the KPI’s is as follows:

Currency

Under IFRS rules, financial assets at the period end are translated from foreign currencies using the period end exchange rates. It has been our practice not to convert the majority of the currency balances into sterling, but to use them to pay overseas suppliers in local currency and invest in the business. It is therefore entirely possible that these currency losses on translation may reverse in the current period and if they do not, it will give us the opportunity to purchase raw materials and services in the current year at advantageous effective exchange rates.

Since the placing, we do not see any current need to add to our sterling balances by converting currencies. Much of the planned expansion in sales of Aivlosin® and the associated working capital can be financed from the funds raised last year.

Risks and Uncertainties

All businesses face a number of strategic and operational risks and uncertainties and the Board considers that the following could influence the Group’s performance:

Currency Movements

The Group exports its products to almost 60 counties and is exposed to movements in currency. It has not been the company’s practice to convert currencies which are used for purchasing raw materials and services in those currencies and this acts as an extensive hedge against currency fluctuations.

Commercial Risks

There is increasing pressure on veterinarians to prescribe antibiotics appropriately and in accordance with the product label. Aivlosin® meets all current guidelines for the judicious and prudent use of antimicrobials for food producing animals and is never used in human health. The Group spends considerable effort and resource liaising with regulatory authorities and leading consultants to ensure that it remains compliant with all prescribing guidelines.

Supply Risks

The Group is dependent on a small number of suppliers for some of its raw materials and maintains business interruption insurance in respect of each of these. In the longer term the Group continues to build strategic manufacturing partnerships internationally and to increase safety stock levels in order to protect its complex global supply chain.

Dependence on key customers

The Group is dependent on a number of customers and distributors in each of the territories into which it sells. The loss of one or more of its key customers could result in lower than expected sales and have a significant impact on the scale of its operations. The Group seeks to minimise reliance on key territories and individual customers and distributors.

Disease

Although outbreaks of diseases for which our products are indicated are generally beneficial to our sales, some disease outbreaks temporarily impact on production, disrupt the free movement of animals and affect trade. In the face of continued global demand for animal protein, however, any reduction in supply leads to increased prices and therefore benefits those who have taken effective measures to prevent or control the disease. In the medium term, most disease outbreaks are generally well controlled by appropriate intervention strategies.

Timing of approval of marketing authorisations

Aivlosin® has been licenced for use in pigs and/or in poultry by the European, USA, Canadian, Japanese, Chinese and many other regulatory bodies globally but the exact timing of new approvals of marketing authorisations is difficult to predict. Regulatory authorities may submit additional questions or require supplementary trial work to be performed prior to granting of a license and this can lead to some delay. Therefore, considerable resource is devoted to our licensing work in order to address any issues that may arise in as timely a manner as is possible.

Strategy

ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. The company has developed into a significant UK based business with subsidiaries, joint ventures and distributors in 60 countries. ECO has been granted over 600 drug registrations around the world for its pharmaceutical products, which are principally, but not exclusively, for the treatment of various conditions in pigs and poultry. The company uses advanced science in order to offer a wide and effective range of specialist treatments, underpinned by strong customer service.

The company will continue to pursue organic growth by developing its markets and expanding its customer base. It will also continue to research and develop additional applications for its established and proven ranges of active pharmaceutical ingredients. ECO will also consider acquisition opportunities as they arise, provided they meet its market, financial and strategic objectives.

Post Balance Sheet Event

The Group entered into an agreement to acquire the business of its Southeast Asian distributor in May 2014 for a consideration of $437,500.

Trading update and outlook

The current year has started well with major markets maintaining their rate of growth with particularly good demand from customers in the US and Canada. The strength of sterling may remain an issue, but it will not divert the company from its objective of developing a global business. Aivlosin® sales are growing rapidly, boosted particularly by North American demand where business is still in its early stages but showing very significant and exciting potential.

Peter Lawrence

Executive Chairman

25 July 2014

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2014

    2014       2013
Notes £ £
 
Revenue 2,3 31,864,593 28,985,954
Cost of sales (17,725,507) (15,882,933)
Gross profit 14,139,086 13,103,021
 
Other income 4 324,223 179,380
Administrative expenses (10,495,114) (9,752,606)
 
Profit from operating activities 5 3,968,195 3,529,795
 
Finance income 6 57,613 56,214
Finance costs 6 (342,744) (269,919)
Net finance (expense) (285,131) (213,705)
 
Profit before income tax 3,683,064 3,316,090
Income tax charge 8 (602,064) (192,487)
Profit for the year from continuing operations 3,081,000 3,123,603
 
Discontinued operations
(Loss) for the year from discontinued operations (net of income tax) - (70,000)
Profit for the year 3,081,000 3,053,603
 
Profit attributable to:
Owners of the parent company 2,431,143 2,616,892
Minority interest 24 649,857 436,711
Profit for the year 3,081,000 3,053,603
 
Earnings per share (pence) 7
Continuing operations 4.35 5.11
Discontinued operations - (0.13)
Post tax earnings per share (pence) 4.35 4.98
 
Diluted earnings per share (pence)
Continuing operations 4.30 5.03
Discontinued operations - (0.13)
Diluted earnings per share (pence) 4.30 4.90

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2014

    2014       2013
Notes £ £
 
Profit for the year 3,081,000 3,053,603
 
Other comprehensive income:
Foreign currency translation differences (651,390) 247,348
Defined benefit plan actuarial gains 21 25,000 57,000
Revaluation of freehold property - 28,200
Deferred tax on revaluations 9,920 (3,460)
Other comprehensive income for the year (616,470) 329,088
 
Total comprehensive income for the year 2,464,530 3,382,691
 
Attributable to:
Owners of the parent company 1,955,227 2,816,028
Minority interest 24 509,303 566,663
2,464,530 3,382,691

All items listed in other comprehensive income have gone through reserves and are shown in the consolidated statement of changes in equity.

The notes on pages 13 to 40 form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED   Attributable to the owners of the Parent          
Share   Share   Treasury   Revaluation Other Retained Total Minority Total
Capital premium Reserve Reserve Reserves Earnings Interest Equity
Account
£ £ £ £ £ £ £ £ £
Balance as at 31 March 2012 2,755,960 37,606,917 (5,217,580) 498,728 4,774,131 15,938,372 56,356,528 1,891,587 58,248,115
 
Profit for the year - - - - - 2,616,892 2,616,892 436,711 3,053,603
Other comprehensive income:
Foreign currency differences - - - - - 117,396 117,396 129,952 247,348
Actuarial losses on pension scheme assets - - - - - 57,000 57,000 - 57,000
Revaluation of freehold property - - - 28,200 - - 28,200 - 28,200
Deferred taxation - - - (3,460) - - (3,460) - (3,460)
Total comprehensive income for the year - - - 24,740 - 2,791,288 2,816,028 566,663 3,382,691
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year 11,291 274,079 - - - - 285,370 - 285,370
Share-based payments - - - - 358,260 - 358,260 - 358,260
Transfers on expiry of options - - - - (82,062) 82,062 - - -
Dividends relating to 2012 - - - - - (1,982,700) (1,982,700) - (1,982,700)
Transactions with owners 11,291 274,079 - - 276,198 (1,900,638) (1,339,070) - (1,339,070)
Balance as at 31 March 2013 2,767,251 37,880,996 (5,217,580) 523,468 5,050,329 16,829,022 57,833,486 2,458,250 60,291,736
 
Transactions with owners
 
Profit for the year - - - - - 2,431,143 2,431,143 649,857 3,081,000
Other comprehensive income:
Foreign currency differences - - - - - (510,836) (510,836) (140,554) (651,390)
Actuarial gains on pension scheme assets - - - - - 25,000 25,000 - 25,000
Deferred taxation - - - 9,920 - - 9,920 - 9,920
Total comprehensive income for the year - - - 9,920 - 1,945,307 1,955,227 509,303 2,464,530
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year 356,461 12,298,339 - - - - 12,654,800 - 12,654,800
Share-based payments - - - - 306,562 - 306,562 - 306,562
Transfer from special reserve to share premium - 3,250,000 - - (3,250,000) - - - -
Transfers on expiry of options - - - - (290,949) 290,949 - - -
Dividends relating to 2013 - - - - - (2,110,183) (2,110,183) (799,146) (2,909,329)
Transactions with owners 356,461 15,548,339 - - (3,234,387) (1,819,234) 10,851,179 (799,146) 10,052,033
Balance as at 31 March 2014 3,123,712 53,429,335 (5,217,580) 533,388 1,815,942 16,955,095 70,639,892 2,168,407 72,808,299
 

FOR THE YEAR ENDED 31 MARCH 2014

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2014

COMPANY   Attributable to the owners of the Parent      
Share   Share   Treasury   Revaluation Other Retained Total
Capital premium Reserve Reserve Reserves Earnings
Account
£ £ £ £ £ £ £
Balance as at 31 March 2012 2,755,960 37,606,917 (5,217,580) 229,867 4,774,131 14,311,458 54,460,753
 
Loss for the year - - - - - (232,332) (232,332)
Actuarial gains on pension scheme assets - - - - - 57,000 57,000
Revaluation of freehold property - - - 28,200 - - 28,200
Deferred taxation - - - (3,461) - - (3,461)
Total comprehensive income for the year - - - 24,739 - (175,332) (150,593)
 
 
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year 11,291 274,079 - - - - 285,370
Share-based payments - - - - 358,260 - 358,260
Transfers on expiry of options - - - - (82,062) 82,062 -
Dividends relating to 2012 - - - - - (1,982,700) (1,982,700)
Transactions with owners 11,291 274,079 - - 276,198 (1,900,638) (1,339,070)
 
Balance as at 31 March 2013 2,767,251 37,880,996 (5,217,580) 254,606 5,050,329 12,235,488 52,971,090
Loss for the year - - - - - (42,370) (42,370)
Actuarial gains on pension scheme assets - - - - - 25,000 25,000
Deferred taxation - - - 9,920 - - 9,920
Total comprehensive income for the year - - - 9,920 - (17,370) (7,450)
 
Transactions with owners recorded directly in equity
Contributions by and distributions to owners  
Issue of shares in the year 356,461 12,298,339 - - - - 12,654,800
Share-based payments - - - - 306,562 - 306,562
Transfer from special reserve to share premium - 3,250,000 - - (3,250,000) - -
Transfers on expiry of options - - - - (290,949) 290,949 -
Dividends relating to 2013 - - - - - (2,110,183) (2,110,183)
Transactions with owners 356,461 15,548,339 - - (3,234,387) (1,819,234) 10,851,179
 
Balance as at 31 March 2014 3,123,712 53,429,335 (5,217,580) 264,526 1,815,942 10,398,884 63,814,819
 

STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)

AS AT 31 MARCH 2014

    Group     Company  
2014 2013 2014 2013
Notes £ £ £ £
Non-current assets
Intangible assets 11 43,172,124 41,169,357 - -
Property, plant and equipment 12 1,002,264 1,176,213 654,483 671,391
Investment property 13 148,511 151,642 148,511 151,642
Investments 14 8,738 8,738 20,082,240 20,082,240
44,331,637 42,505,950 20,885,234 20,905,273
Current assets
Inventories 15 6,972,078 6,425,937 - -
Trade and other receivables 16 9,868,673 11,248,516 33,908,457 30,348,663
Income tax recoverable 27,064 23,395 - -
Other taxes and social security 304,174 170,615 101,963 157,612
Cash and cash equivalents 18 18,239,830 9,664,443 9,229,578 4,130,622
Total current assets 35,411,819 27,532,906 43,239,998 34,636,897
 
Liabilities
Trade and other payables 19 (6,343,255) (6,915,983) (150,957) (278,332)
Short -term borrowings 20 - (2,134,765) - (2,134,765)
Income tax (205,626) (174,467) - -
Other taxes and social security (178,414) (258,454) (62,711) (50,097)
Dividends (30,614) (31,835) (30,614) (31,835)
Current liabilities (6,757,909) (9,515,504) (244,282) (2,495,029)
Net current assets 28,653,910 18,017,402 42,995,716 32,141,868
Total assets less current liabilities 72,985,547 60,523,352 63,880,950 53,047,141
Non current liabilities
Deferred tax 17 (177,248) (231,616) (66,131) (76,051)
TOTAL ASSETS LESS TOTAL LIABILTIES 72,808,299 60,291,736 63,814,819 52,971,090
 
EQUITY
Issued share capital 23 3,123,712 2,767,251 3,123,712 2,767,251
Share premium account 53,429,335 37,880,996 53,429,335 37,880,996
Treasury reserve 25 (5,217,580) (5,217,580) (5,217,580) (5,217,580)
Revaluation reserve 533,388 523,468 264,526 254,606
Other reserves 26 1,815,942 5,050,329 1,815,942 5,050,329
Retained earnings 16,955,095 16,829,022 10,398,884 12,235,488
70,639,892 57,833,486 63,814,819 52,971,090
Minority interests 24 2,168,407 2,458,250 - -
TOTAL EQUITY 72,808,299 60,291,736 63,814,819 52,971,090

Approved by the Board and authorised for issue on 25 July 2014

Peter Lawrence Director

STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 MARCH 2014

    Group     Company
2014 2013 2014   2013
Notes £ £ £ £
Cash flows from operating activities
Profit/(loss) before income tax 3,683,064 3,246,090 (35,978) (232,332)
Adjustment for:
Net finance costs/(income) 6 285,131 213,705 (446,174) (398,422)
Depreciation 12 & 13 172,776 190,224 20,829 22,933
Amortisation of intangible assets 11 2,336,424 2,562,217 - -
Pension payments 21 (54,000) (60,000) (54,000) (60,000)
Pension operating costs 21 4,000 4,000 4,000 4,000
Share based payments 22 306,562 358,260 306,562 358,260
 
Operating cash flows before movements in working capital 6,733,957 6,514,496 (204,761) (305,561)
 
Change in inventories (546,141) (2,008,620) - -
Change in receivables 1,321,284 (258,559) (3,429,145) (1,250,662)
Change in payables (652,768) 310,874 (114,761) (449,880)
 
Cash generated from/(used in) operations 6,856,332 4,558,191 (3,748,667) (2,006,103)
Finance costs (33,723) (39,184) (31,979) (38,995)
Income tax (619,022) (185,802) (6,392) -
Net cash from/(absorbed by) operating activities 6,203,587 4,333,205 (3,787,038) (2,045,098)
 
Cash flows from investing activities
Acquisition of property, plant and equipment 12 (31,517) (38,642) (790) (394)
Disposal of property plant and equipment 14,688 - - -
Purchase of intangibles 11 (4,339,731) (4,619,566) - -
Finance income 6 57,613 56,214 478,153 437,417
Net cash (used in)/from investing activities (4,298,947) (4,601,994) 477,363 437,023
 
Cash flows from financing activities
Proceeds from issue of share capital 12,629,412 244,927 12,629,412 244,927
Dividends paid (2,885,162) (1,941,544) (2,086,016) (1,941,544)
Net cash (used in) financing activities 9,744,250 (1,696,617) 10,543,396 (1,696,617)
Net increase/(decrease) in cash and cash equivalents 11,648,890 (1,965,406) 7,233,721 (3,304,692)
Foreign exchange movements (938,738) (14,648) - -
Balance at 1 April 2013 7,529,678 9,509,732 1,995,857 5,300,549
Balance at 31 March 2014 18 18,239,830 7,529,678 9,229,578 1,995,857

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2014

1. General information

Eco Animal Health Group plc (“the company”) and its subsidiaries (together “the group”) manufacture and supply animal health products globally.

The Company is traded on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 78 Coombe Road, New Malden, Surrey, KT3 4QS.

2. Basis of preparation

The group has presented its annual report and accounts in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

The preparation of financial statements, in conformity with IFRS as adopted by the European Union, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The principal accounting policies of the group are set out below and have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements.

3. Segment information

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board considers the business from a geographical perspective. Geographically, management considers the performance in the UK and Europe, China, Japan and the Indian subcontinent, Latin America and the rest of the world. The segment information provided to the Board for the year ended 31 March 2014 is as follows;

Management considers Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”), adjusted for share-based payments.

  U.K.   Europe   China, Japan and the Indian subcontinent   Latin America   North America   Rest of the world   Total
£ £ £ £ £ £ £
Year ended 31 March 2014
Total segmental revenue 784,102 5,534,264 17,347,649 8,486,794 5,033,518 3,111,228 40,297,555
Inter-segment revenue - - (3,654,716) (1,879,170) (2,899,076) - (8,432,962)
 
Revenue from external customers 784,102 5,534,264 13,692,933 6,607,624 2,134,442 3,111,228 31,864,593
Sale of goods 784,102 5,534,264 13,692,933 6,607,624 2,134,442 2,902,185 31,655,550
Royalties - - - - - 209,043 209,043
784,102 5,534,264 13,692,933 6,607,624 2,134,442 3,111,228 31,864,593
 
Adjusted EBITDA (1,209,358) 1,378,115 4,033,029 1,248,432 427,619 906,120 6,783,957
Total assets 21,359,252 12,837,414 19,968,441 14,151,503 2,900,998 8,222,756 79,440,364
             
 
Year ended 31 March 2013
Total segmental revenue 1,202,118 4,323,022 13,738,407 9,403,628 3,276,743 4,427,208 36,371,126
Inter-segment revenue - - (2,854,106) (2,453,163) (2,077,903) - (7,385,172)
 
Revenue from external customers 1,202,118 4,323,022 10,884,301 6,950,465 1,198,840 4,427,208 28,985,954
Sale of goods 1,202,118 4,323,022 10,884,301 6,950,465 1,198,840 4,192,591 28,751,337
Royalties - - - - - 234,617 234,617
1,202,118 4,323,022 10,884,301 6,950,465 1,198,840 4,427,208 28,985,954
 
Adjusted EBITDA (915,195) 1,004,225 2,959,981 1,771,244 32,650 1,787,591 6,640,496
Total assets 9,355,833 12,118,870 18,700,691 17,243,942 2,448,145 10,171,375 70,038,856

Goodwill and other intangible assets are initially allocated to the geographical segments on the basis of the proportion of sales achieved by each segment.

A reconciliation of adjusted EBITDA to profit before tax is provided as follows:

  2014   2013
£ £
Adjusted EBITDA for reportable segments 6,783,957 6,640,496
Depreciation (172,776) (190,224)
Amortisation (2,336,424) (2,562,217)
Share-based payment charges (306,562) (358,260)
Finance (expense) (285,131) (213,705)
Profit before tax on continuing activities 3,683,064 3,316,090

4. Other income

  2014   2013
£ £
Management charges 141,595 141,511
Rental income 126,600 6,600
Sundry Income 56,028 31,269
324,223 179,380

5. Result from operating activities

  2014   2013
£ £
Result from operating activities is stated after charging:
Cost of inventories recognised as an expense 17,635,170 15,795,333
Employee benefits expenses 3,819,200 3,432,339
Amortisation of intangible assets 2,336,424 2,562,217
Depreciation 172,776 190,224
Loss on foreign exchange transactions 264,138 29,507
Research and development 10,860 7,131
Operating lease rentals 410,195 297,569
 
Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts 18,225 19,000
For the audit of the Company's subsidiaries 30,525 28,500
Fees payable to other auditors for audit of the Company's subsidiaries pursuant to legislation 4,346 4,635
 
2014 2013
£ £
Earnings due to shareholders before interest, tax, depreciation, amortisation, share-based payments, foreign exchange differences and losses on disposal of discontinued activities
Profit from operating activities 3,968,195 3,529,795
Depreciation 172,776 190,224
Amortisation 2,336,424 2,562,217
Share-based payments 306,562 358,260
   
 
6,783,957 6,640,496
Foreign exchange differences 264,138 29,507
 
7,048,095 6,670,003

6. Finance (expense)

  2014   2013
£ £
Finance costs
Interest paid (33,723) (39,184)
Foreign exchange differences on bank loans and overdrafts (309,021) (230,735)
 
Finance income
On short term bank deposits 57,613 56,214
Net finance (expense) (285,131) (213,705)

7. Earnings per share

The calculation of basic earnings per share is based on the post tax profit for the year divided by the weighted average number of shares in issue during the year.

  2014       2013    
Earnings Weighted average number of shares Per share amount Earnings Weighted average number of shares Per share amount
£'000 000’s (pence) £'000 000’s (pence)
Earnings attributable to ordinary shareholders on continuing operations after tax 2,431 55,871 4.35 2,687 52,599 5.11
Dilutive effect of share options - 691 (0.05) - 789 (0.08)
           
Fully diluted earnings per share on continuing operations 2,431 56,562 4.30 2,687 53,388 5.03
Loss on discontinued activities - - - (70) - (0.13)
Fully diluted earnings per share 2,431 56,562 4.30 2,617 53,388 4.90

Diluted earnings per share takes into account the dilutive effect of share options. For the purposes of calculating earnings per share, shares held by the Employee Benefit Trust as part of the Joint Share Ownership Plan are excluded from the calculation of the weighted average number of shares. The weighted average number of shares held by the Trust during the year was 2,603,290 (2013: 2,603,290).

8. Taxation

  2014   2013
£ £
Current tax:
Foreign corporation tax on profits for the year 646,512 294,395
 
Deferred tax
Due to change in effective rate (23,150) -
Origination and reversal of temporary differences (21,298) (101,908)
Income tax charge 602,064 192,487
Factors affecting the tax charge for the year
Profit on ordinary activities before taxation 3,683,064 3,316,090
 
2014 2013
£ £
Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 23% (2013: 24%) 847,105 795,862
Effects of:
Non deductible expenses 95,258 170,266
Non chargeable credits (151,483) (79,599)
Withholding tax on inter-company dividends 83,176 -
Enhanced allowance on research and development expenditure (657,812) (894,569)
Different tax rate for foreign subsidiaries 83,677 (34,725)
Reduced effective deferred tax rate (23,150) -
Unused tax losses carried forward 325,293 229,226
Other tax adjustments - 6,026
Income tax charge 602,064 192,487
 
2014 2013
% %
Applicable tax rate per UK legislation 23.00 24.00
Effects of:
Non deductible expenses 2.59 5.13
Non chargeable credits (4.11) (2.40)
Withholding tax on inter-company dividends 2.26 -
Enhanced allowance on research and development expenditure (17.86) (26.97)
Different tax rate for foreign subsidiaries 2.27 (1.05)
Reduced effective deferred tax rate (0.63) -
Unused tax losses carried forward 8.83 6.91
Other tax adjustments - 0.18
Effective tax rate 16.35 5.80

The UK corporation tax rate reduced from 24% to 23% with effect from 1 April 2013. Deferred tax balances at the year end have been measured at 20%. Further reductions in the UK corporation tax rate to 21% from 1 April 2014 and 20% from 1 April 2015 have not been recognised in these financial statements and are not expected to have a material impact on the tax position of the Group.

9. Profit for the financial year

  2014   2013
£ £
 
Parent Company's (loss) for the financial year (42,370) (232,332)

10. Dividends

  2014   2013
£ £
 
Dividend for the period ended 31 March 2012 of 3.75p per ordinary share - 2,066,984
Dividend for the period ended 31 March 2013 of 4.00p per ordinary share 2,212,773 -
Dividend waived by Employee Benefit Trust (102,590) (84,284)
2,110,183 1,982,700

The Board is declaring a dividend of 4.20 pence per share in respect of the year ended 31 March 2014.

11. Intangible fixed assets

Group   Goodwill   Distribution rights   Drug registrations, patents and licence costs   Total
Cost £ £ £ £
At 1 April 2012 17,930,495 1,034,860 39,524,095 58,489,450
Additions - internally generated - - 4,083,884 4,083,884
Additions - acquired separately - 231,256 304,426 535,682
At 1 April 2013 17,930,495 1,266,116 43,912,405 63,109,016
Additions - internally generated - - 4,068,589 4,068,589
Additions - acquired separately - - 271,142 271,142
At 31 March 2014 17,930,495 1,266,116 48,252,136 67,448,747
 
Amortisation
At 1 April 2012 - 422,787 18,957,516 19,380,303
Charge for the year - 58,050 2,504,167 2,562,217
Foreign exchange movements - - (2,861) (2,861)
At 1 April 2013 - 480,837 21,458,822 21,939,659
Charge for the year - 63,447 2,272,977 2,336,424
Foreign exchange movements - - 540 540
At 31 March 2014 - 544,284 23,732,339 24,276,623
 
Net Book Value
At 31 March 2014 17,930,495 721,832 24,519,797 43,172,124
 
At 31 March 2013 17,930,495 785,279 22,453,583 41,169,357
 
At 1 April 2012 17,930,495 612,073 20,566,579 39,109,147

The amortisation charge is included within administrative expenses on the income statement.

Distribution rights are amortised over their estimated useful life of 20 years and reviewed for impairment when any indication of potential impairment exists. The remaining amortisation period at the date of the financial statements ranged from 9 to 18 years.

The carrying value of goodwill is attributable to the following cash generating units:

Entity   Date of acquisition   £
Eco Animal Health Limited (remaining 50%) 1 October 2004 17,358,621
Zhejiang Eco Biok Animal Health Products Limited 1 April 2007 94,257
ECOpharma Inc. (remaining 80%) 24 December 2009 477,617
 
17,930,495
====================

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGU’s) that are expected to benefit from the business combination.

The recoverable amounts of the CGU’s are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and the estimated remaining useful life of the asset which is maintained at 30 years through ongoing investment in the cash generating unit.

The Group prepares cash flow forecasts derived from the most recent financial budgets and projections that are approved by management for the year ahead and then extrapolates them assuming a 3% annual growth rate which is well below the current performance of the existing business. The directors believe that the long term growth rate assumed does not exceed the average long term growth rate for the relevant markets.

Management estimates discount rates using the pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU’s. In the current year management estimated the applicable rate to be 11%. Management considers that there is adequate headroom when comparing the net present value of the cash flows to the carrying value of goodwill to conclude that no impairment is necessary this year. On current assumptions the excess of recoverable amount over carrying value is over £34 million.

Management believes that the most significant assumption in the calculation of value in use is the estimated growth rate. However, even if the growth rate were to be zero, the recoverable amount would still be over £17 million more than the carrying value and no impairment would be necessary. This assumes an earnings multiple of 10 on the current budgeted results in estimating fair value which has been derived from historical data.

The value of Drug registrations and licenses can be broken down as follows:

  £
Aivlosin 21,249,573
Ecomectin 1,798,212
Others 1,472,012
_____________
24,519,797
====================
 

Aivlosin is a highly effective antibiotic that treats a range of specific enteric (gut) and respiratory diseases in pigs and poultry, ensuring a rapid return to health. In addition to the welfare benefits, healthy animals gain weight faster, digest food more efficiently and get to market earlier which all bring economic benefit to the user. Substantial ongoing product development covering more formulations, species and diseases is expected to substantially further increase its revenue generating potential. The remaining amortisation period is from 9 to 20 years.

Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining amortisation period is 0 to 10 years.

Drug registrations and licences are amortised over their estimated useful lives of 10 to 20 years, which is the directors’ estimate of the time it would take to develop a new product allowing for the Group’s patent protection and the exclusivity period which comes with certain registrations. Given the economic climate the directors have conducted an impairment review in the current year by preparing cash flow projections for the year ahead and extrapolating the results for the remaining life of the registrations assuming zero growth and an 11% discount rate to establish value in use. On the current assumptions the excess of the recoverable amount over carrying value is almost £11 million.

The calculations have also shown that on current budget figures a 5 year life is more than enough to justify the current carrying value of these registrations. Moreover, fair value calculated as 10 times the current cash generated by the registrations gives an even higher result, so management has again concluded that no impairment is necessary.

12. Property, plant and equipment

Group   Land and Buildings (freehold)   Plant and machinery   Fixtures, fittings and equipment   Motor Vehicles   Total
Cost or valuation £ £ £ £ £
At 1 April 2012 650,000 1,185,777 625,635 101,802 2,563,214
Additions - 15,701 22,941 - 38,642
Foreign exchange movements - 64,852 - - 64,852
At 1 April 2013 650,000 1,266,330 648,576 101,802 2,666,708
Additions - 19,803 11,714 - 31,517
Foreign exchange movements - (80,780) - - (80,780)
Disposals - - (188,313) (27,115) (215,428)
At 31 March 2014 650,000 1,205,353 471,977 74,687 2,402,017
 
Depreciation
At 1 April 2012 18,800 722,283 528,013 26,055 1,295,151
Charge for the year 9,400 118,563 33,121 26,009 187,093
Foreign exchange movements - 41,376 (4,562) (363) 36,451
Revaluation adjustment (28,200) - - - (28,200)
At 1 April 2013 - 882,222 556,572 51,701 1,490,495
Charge for the year 9,400 112,649 31,638 15,958 169,645
Foreign exchange movements - (61,072) 890 535 (59,647)
Disposals - - (188,313) (12,427) (200,740)
At 31 March 2014 9,400 933,799 400,787 55,767 1,399,753
 
 
Net Book Value
At 31 March 2014 640,600 271,554 71,190 18,920 1,002,264
 
At 31 March 2013 650,000 384,108 92,004 50,101 1,176,213
 
At 1 April 2012 631,200 463,494 97,622 75,747 1,268,063

The freehold property at 78 Coombe Road, New Malden was valued on 10 May 2013 by Mr R Sworn of Kelion Sworn Chartered Surveyors and Valuers, London, W1. The fair value in use of the freehold property was determined at £650,000 by means of applying a 7.75% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis.

The value of non depreciable land included within Land and Buildings is £180,000.

The freehold property of 78 Coombe Road, New Malden is subject to a legal charge held by the company’s bankers dated 20 March 1987.

The value of the freehold property would have been recorded at £306,131 (2013: £317,437) on a historical cost basis giving rise to the current revaluation surplus of £264,526 net of deferred tax provision.This balance is not distributable to shareholders.

Depreciation has been included in the administrative expenses line on the income statement, except for £90,337 (2013: £87,600) of depreciation of production equipment in our Chinese subsidiary ECO Biok, which is included within cost of sales.

Company   Land and Buildings (freehold)   Fixtures, fittings and equipment   Motor Vehicles   Total
Cost or valuation £ £ £ £
At 1 April 2012 650,000 144,194 26,466 820,660
Additions - 394 - 394
At 31 March 2013 650,000 144,588 26,466 821,054
Additions - 790 - 790
At 31 March 2014 650,000 145,378 26,466 821,844
 
 
Depreciation
At 1 April 2012 18,800 137,590 1,671 158,061
Charge for the year 9,400 3,790 6,612 19,802
Revaluation adjustment (28,200) - - (28,200)
At 31 March 2013 - 141,380 8,283 149,663
Charge for the year 9,400 1,686 6,612 17,698
At 31 March 2014 9,400 143,066 14,895 167,361
 
Net Book Value
At 31 March 2014 640,600 2,312 11,571 654,483
 
At 31 March 2013 650,000 3,208 18,183 671,391
 
At 1 April 2012 631,200 6,604 24,795 662,599
 

13. Investment property

Group and Company   Land and   Total
Buildings
(freehold)
£ £
Cost    
At March 2012, 2013 and 2014 156,550 156,550
 
Depreciation
At March 2012 1,777 1,777
Charge for the year 3,131 3,131
At March 2013 4,908 4,908
Charge for the year 3,131 3,131
At March 2014 8,039 8,039
 
Net Book Value
At 31 March 2014 148,511 148,511
 
At March 2013 151,642 151,642
 
At 1 April 2012 154,773 154,773
 

Depreciation has been included in the administrative expenses line on the income statement.

14. Fixed asset investment

Group   Unlisted   Total
investments
£ £
Cost, fair value and net book value
At March 2012, 2013 and 2014 8,738 8,738
 
 
Company Unlisted Total
investments
 
 
£ £
 
Cost or fair value
At March 2012, 2013 and 2014 21,273,502 21,273,502
 
Impairment
At March 2012, 2013 and 2014 1,191,262 1,191,262
 
Net Book Value
At 31 March 2012, 2013 and 2014 20,082,240 20,082,240
 

The Company holds more than 20% of the share capital of the following companies:

Company   Country of registration or incorporation   Class   Shares held %
 
Subsidiary undertakings held by Company
Zhejiang ECO Biok Animal Health Products Limited P. R. China Ordinary 3
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.) P. R. China Ordinary 3
Petlove Limited Great Britain Ordinary 91
Eco Animal Health Limited Great Britain Ordinary 100
 
Subsidiary undertakings held by Group
ECO Animal Health Southern Africa (Pty) Limited South Africa Ordinary 100
Zhejiang ECO Biok Animal Health Products Limited P. R. China Ordinary 48
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.) P. R. China Ordinary 48
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda. Brazil Ordinary 100
ECO Animal Health Japan Inc.(formally ECOpharma Inc) Japan Ordinary 100
ECO Animal Health USA Corp. U.S.A. Ordinary 100
Interpet LLC U.S.A. Ordinary 100
ECO Animal Health de Mexico Mexico Ordinary 100
ECO Argentina S.A. Argentina Ordinary 100

The principal activity of these undertakings for the last relevant financial year was as follows:

  Principal activity
ECO Animal Health Limited Distribution of animal drugs
ECO Animal Health Southern Africa (Pty) Limited Non-trading
Petlove Limited Non-trading
Zhejiang ECO Biok Animal Health Products Limited Manufacture of animal drugs
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. Distribution of animal drugs
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda Distribution of animal drugs
ECO Animal Health Japan Inc. (formerly ECOpharma Inc.) Distribution of animal drugs
ECO Animal Health USA Corp. Distribution of animal drugs
Interpet LLC Non-trading
ECO Animal Health de Mexico Distribution of animal drugs
ECO Argentina S.A. Non-trading

The aggregate amount of capital and reserves and the results of these undertakings for the last relevant financial year were:

       
Equity Profit/loss for the year Equity Profit/loss for the year
2014 2014 2013 2013
£ £ £ £
 
ECO Animal Health Limited 7,545,809 1,697,094 5,848,715 2,503,244
ECO Animal Health Southern Africa (Pty) Limited 323,500 (862) 324,362 (698)
Zhejiang ECO Biok Animal Health Products Ltd 4,420,263 1,326,238 5,011,779 891,248
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda 1,196,039 119,044 1,290,474 (172,581)
ECO Animal Health Japan Inc. (formerly ECOpharma Inc.) 703,759 76,863 755,807 151,070
ECO Animal Health de Mexico (134,625) (94,757) (19,078) (12,084)
ECO Animal Health USA Corp. (38,820) (38,820) (475) -
 

The equity and results of Shanghai ECO Biok Veterinary Drug Sale Company Ltd are included within those disclosed for Zhejiang ECO Biok Animal Health Products Limited.

All of the subsidiaries listed above were included in the consolidation for the year.

Zhejiang ECO Biok Animal Health Products Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda both have 31 December year ends. The Group receives management accounts for the three months to 31 March for these subsidiaries for use in preparing the consolidated financial statements.

ECO Argentina S.A. which holds neither assets nor liabilities and which has not traded since its formation has been excluded from consolidation. Interpet LLC has also been excluded from consolidation as it holds no assets or liabilities and has ceased trading.

The following trading subsidiaries have no requirement for audit under local legislation;

ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.

ECO Animal Health Japan Inc. (formerly ECOpharma Inc.)

ECO Animal Health USA Corp.

ECO Animal Health de Mexico.

The Group also holds (by means of its ownership of ECO Animal Health USA Corp.), a 50% joint venture interest in Pharmgate Animal Health LLC, which is resident in U.S.A. Pharmgate Animal Health LLC distributes the group’s products in the U.S.A.

The Group also holds a 50% joint venture interest in Pharmgate Animal Health Canada Inc, which distributes its products into Canada.

Both Pharmgate Animal Health LLC and Pharmgate Animal Health Canada Inc. have accounting years which end on 31 December.

The group’s holdings in each of the joint venture companies share capital is given in the table below:

Pharmgate Animal Health Canada Inc   Holding (shares)   Shares in Issue   Holding %
 
Common shares 100 200 50
Class A shares 100 100 100
Class B shares - 100 -
 
Pharmgate Animal Health USA LLC Holding (shares) Shares in Issue Holding %
 
Common shares 100 200 50
Class A shares 100 100 100
Class B shares - 100 -
 

In each case class A shares carry the rights to dividends payable out of profits attributable to the group. These are made up of profits made by products supplied by the ECO group plus 50% of any profit relating to new products developed jointly by the partners to the joint venture.

The following amounts included in the group’s financial statements are related to its interest in these joint ventures.

  Pharmgate LLC   Pharmgate Animal Health Canada Inc
2014   2013 2014   2013
£ £ £ £
Current assets 214,024 113,561 143,415 59,479
Current liabilities (199,438) (99,939) (142,572) (58,680)
Sales 1,400,385 841,644 771,281 357,198
Margins 748,372 424,600 404,495 210,962
Expenses (527,331) (457,804) (150,681) (145,108)
 

15. Inventories

  Group     Company  
2014 2013 2014 2013
£ £ £ £
 
Raw materials and consumables 3,111,357 3,225,988 - -
Finished goods and goods for resale 3,860,721 3,199,949 - -
6,972,078 6,425,937 - -
 

The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £17,635,170 (2013: £15,795,393).

16. Trade and other receivables

  Group     Company  
2014 2013 2014 2013
£ £ £ £
 
Trade receivables 8,574,712 10,665,453 - -
Amounts owed by group undertakings - - 33,579,573 30,098,438
Amounts owed by joint ventures 234,293 112,664 - -
Other receivables 572,893 279,695 257,905 205,661
Prepayments and accrued income 486,775 190,704 70,979 44,564
9,868,673 11,248,516 33,908,457 30,348,663
 

In the year ended 31 March 13, only within “Trade and other receivables” note to the financial statements, ”Amounts owed by group undertakings” were disclosed as a non current asset. As shown above, “Amounts owed by group undertakings” of £33,579,573 (2013: £30,098,438) are correctly disclosed as current assets due to the trading balance being payable on demand.

As at 31 March 2014, trade receivables of £2,336,116 (2013: £1,881,527) due to the Group and £nil (2013: £nil) due to the Company were past due but not impaired. These relate to long standing distributors with whom we have agreed settlement terms and with whom there is no history of default. The ageing analysis of these trade receivables is as follows:

  Group     Company  
2014 2013 2014 2013
£ £ £ £
 
Up to 3 months past due 1,585,215 1,575,637 - -
3 to 6 months past due 352,306 220,108 - -
Over 6 months past due 398,595 85,782 - -
2,336,116 1,881,527 - -
 

As at 31 March 2014, trade receivables of £105,142 (2013: £60,269) were impaired and provided for. The impaired receivables mainly relate to historic debt for which recovery is still being sought. The Group mitigates its exposure to credit risk by extensive use of commercial credit reference agencies, close management of its customers’ trading against terms offered and use of retention of title clauses wherever possible. The ageing analysis of the impaired balances is as follows:

  Group     Company  
2014 2013 2014 2013
£ £ £ £
Up to 3 months past due 15,894 6,102 - -
3 to 6 months past due 4,935 - - -
Over 6 months past due 84,313 54,167 - -
105,142 60,269 - -
 

Movement on the Group provision for impairment of trade receivables is as follows:

  Group  
2014 2013
£ £
 
Balance at 1 April 60,269 32,379
Provided in the year 50,141 27,890
Written off in the year (5,268) -
Balance at 31 March 105,142 60,269
 

The carrying amounts of trade and other receivables are denominated in the following currencies:

  Group     Company  
2014 2013 2014 2013
£ £ £ £
Pounds Sterling 771,264 851,016 33,908,457 30,317,630
Euros 2,711,339 2,459,140 - -
U S Dollars 3,488,701 4,496,919 - 31,033
Chinese RMB 682,162 684,529 - -
Brazilian Real 698,507 915,847 - -
Japanese Yen 510,702 625,170 - -
Other currencies 1,005,998 1,215,895 - -
9,868,673 11,248,516 33,908,457 30,348,663
 

The carrying amounts of trade and other receivables are not significantly different to their fair values.

17. Deferred tax

Group

Deferred tax assets and liabilities are attributable to the following:

  Liabilities     Net  
2014 2013 2014 2013
£ £ £ £
 
Drug registration expenditure (2,022,881) (2,193,897) (2,022,881) (2,193,897)
Freehold property (66,131) (76,051) (66,131) (76,051)
Plant and equipment (4,169) (8,682) (4,169) (8,682)
Tax losses carried forward 1,915,933 2,047,014 1,915,933 2,047,014
Amount (payable) after more than one year (177,248) (231,616) (177,248) (231,616)
 

The movement on the deferred tax account can be summarised as follows:

  Drug registration expenditure   Freehold property   Total
£ £ £
 
At 31 March 2013 (155,565) (76,051) (231,616)
Credit for the year through income statement 44,448 - 44,448
Movement through the year through revaluation reserve - 9,920 9,920
At 31 March 2014 (111,117) (66,131) (177,248)
 

The tax losses carried forward are not expected to expire under current legislation.

Any future dividend received from the Chinese subsidiary Zhejiang ECO Biok Animal Health Products Limited will be subject to a 10 per cent withholding tax. The deferred tax liability in respect of this has not been recognised.

Company   2014     2013  
Freehold property Total Freehold property Total
£ £ £ £
 
At 1 April (76,051) (76,051) (72,590) (72,590)
Movement in the year through revaluation reserve 9,920 9,920 (3,461) (3,461)
 
At 31 March 2014 (66,131) (66,131) (76,051) (76,051)
 

No charge or credit (2013: credit of £1,732) was recognised in the Company’s income statement for the year. A credit of £9,920 (2013: charge of £3,461) was recognised in the Company’s Revaluation Reserve.

18. Cash and cash equivalents

Cash and cash equivalents comprise cash and short term deposits held by the Group. The carrying amount of these assets are not significantly different to their fair value.

  Note   Group     Company  
2014 2013 2014 2013
£ £ £ £
 
Cash and cash equivalents 18,239,830 9,664,443 9,229,578 4,130,622
Overdrafts 20 - (2,134,765) - (2,134,765)
Net funds per cash flow 18,239,830 7,529,678 9,229,578 1,995,857
 

19. Trade and other payables

  Group     Company  
2014 2013 2014 2013
£ £ £ £
 
Trade payables 4,972,605 6,099,247 53,165 57,953
Amounts due to joint venture - 34,966 - -
Other payables 305,566 424,791 55,532 187,850
Accruals and deferred income 1,065,084 356,979 42,260 32,529
6,343,255 6,915,983 150,957 278,332
 

20. Borrowings

Included within payables on the statement of financial position are the following amounts at fair value secured by a debenture on the assets of the group:

  Group     Company  
2014 2013 2014 2013
£ £ £ £
 
Short term borrowings - 2,134,765 - 2,134,765
 

Currency analysis of short term borrowings

  Group     Company  
2014 2013 2014 2013
£ £ £ £
 
U S Dollars - 835,527 - 835,527
Euros - 1,299,238 - 1,299,238
- 2,134,765 - 2,134,765
 

The Group has the facility to overdraw in specific currencies but no net facility. The interest rate for all currency overdrafts is 2.75 per cent over the relevant currency base rate and the borrowings are secured by two debentures held over all assets of the company dated 28 January 1995 and 28 November 2006.

21. Pension and other post-retirement benefit commitments

Defined Contribution pension Scheme

The Group operates defined contribution pension schemes for the benefit of certain directors and senior employees. The assets of the schemes are held separately from the Group and independently administered by insurance companies. The pension cost charge represents contributions payable to the funds in the year and amounted to £387,850 (2013: £340,268).

Defined Benefit Pension Scheme

The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial valuation was carried out at 6 April 2012 and updated 31 March 2014 by a qualified independent actuary. The major assumptions used by the actuary were:

  31 March   1 April
2014 2013
Discount rate 4.30% 4.1%
Rate of increase in pension payment 2.45% 2.1%
Inflation assumption with a maximum of 5% p.a. 3.15% 2.8%
 

Mortality rates

Pre retirement mortality is based on the mortality table known as AMCOO for males and AFCOO for females and 70% of the mortality indicated by this table has been taken, as in the previous year.

Post retirement mortality is based on the mortality table known as PCMAOO for males and PCFAOO for females. Allowance has been made for the improvement in mortality experienced recently and expected in the future by using 100% of the “Medium Cohort” improvement table, subject to a minimum improvement rate of 1% for males and 0.7% for females as in the previous year.

Under these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year end would be 22.7 years for males (2013: 22.6 years) and 24.6 years for females (2013: 24.5 years). For members retiring in 20 years time, the expectation of life would be 24.6 years for males (2013: 24.5 years) and 26.0 years for females (2013: 25.9 years).

Results   2014     2013  
£ £ £ £
Assets at start of year 2,760,000 2,959,000
Defined benefit obligation at start of year (2,631,000) (2,957,000)
Net asset at 1 April 129,000 2,000
Current service cost, including risk benefits (4,000) (4,000)
Past service credit - 20,000
(4,000) 16,000
Expected return on assets 113,000 132,000
Interest cost (108,000) (131,000)
5,000 1,000
Gain on asset return 2,000 34,000
Experience gain/(loss) 4,000 (31,000)
Gain on changes in assumptions 19,000 54,000
Statement of other comprehensive income 25,000 57,000
Employer contributions gross 54,000 60,000
Expenses paid by trustees (7,000) (7,000)
47,000 53,000
Net asset at 31 March 2014 202,000 129,000
 
Actual assets at end of year 2,680,000 2,760,000
Actual defined benefit obligation at end of year (2,478,000) (2,631,000)
 

The pension fund assets are all held within a policy managed by an insurance company.

Reconciliation of changes in the asset value during the year

  2014     2013  
£ £ £ £
Fair value of assets at 1 April 2,760,000 2,959,000
Expected return on assets 113,000 132,000
Gain on asset return 2,000 34,000
Employer contributions (gross) 54,000 60,000
Death in service insurance premiums paid (4,000) (4,000)
Expenses paid by trustees (7,000) (7,000)
(Decrease) in secured pensioners value due to scheme experience (238,000) (413,000)
Benefits paid - (1,000)
Fair value of assets at 31 March 2014 2,680,000 2,760,000
 
Reconciliation of changes in the liability value during the year
 
Defined benefit obligation at 1 April 2,631,000 2,957,000
Interest cost 108,000 131,000
Past service credit - (20,000)
Experience (gain)/loss on liabilities (4,000) 31,000
(Gain) on changes in assumptions (19,000) (54,000)
(Decrease) in secured pensioners value due to scheme experience (238,000) (413,000)
Benefits paid - (1,000)
Defined benefit obligation at 31 March 2014 2,478,000 2,631,000
 

The expected contribution to be paid by the employer during the next accounting year is £59,000. This includes a provision of £4,000 for death in service risk premium (2013: £4,000).

Year ended 31 March   2014   2013   2012   2011   2010
 
Fair value of plan assets 2,680,000 2,760,000 2,959,000 2,596,000 2,575,000
Present value of defined benefit obligation 2,478,000 2,631,000 2,957,000 2,684,000 2,592,000
Surplus in plan 202,000 129,000 2,000 88,000 17,000
Experience (loss)/gains on plan liabilities 4,000 (31,000) (5,000) 1,000 9,000
 

22. Share-based payments

The measurement requirements of IFRS2 have been implemented in respect of share options that were granted after 7 November 2002. The expense recognised for share based payments made during the year is shown in the following table:

  2014   2013
£ £
 
Total expense arising from equity settled share-based transactions 306,562 358,260
 

The share based payment plans are described below:

Movements in issued share options and jointly owned shares during the year

The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in, share options and jointly owned shares during the period:

  Options     Jointly owned shares   Options     Jointly owned shares
2014 2014 2014   2014 2013 2013 2013   2013
WAEP WAEP WAEP WAEP
£ £ £ £
Outstanding at 1 April 3,448,610 1.50 2,603,290 2.00 3,257,850 1.39 2,603,290 2.00
Granted during the period 979,560 2.07 - - 410,000 2.23 - -
Expired/cancelled during the period (185,100) 1.54 - - (10,000) 3.40 - -
Exercised during the period (801,885) 1.42 - - (209,240) 1.17 - -
Outstanding at 31 March 3,441,185 1.94 2,603,290 2.00 3,448,610 1.50 2,603,290 2.00
Exercisable at 31 March 1,665,125 1.28 315,000 2.00 1,612,110 1.24 315,000 2.00
 

The average share price during the year was 217.9p.

The maximum aggregate number of shares over which options may currently be granted cannot exceed 10 per cent of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2014 had a weighted average share price of £1.94 and a weighted average contractual life of 4.6 years.

Eco Animal Health Group plc Executive Share Option Scheme

In accordance with the Executive Share Option Scheme, approved and unapproved share options are granted to full time directors and employees who devote at least 25 hours per week to the performance of duties or employment with the Company.

Details of options granted to directors can be found in the Directors Report and notes 29 (Directors Emoluments) and 31 (Related Party Transactions).

The exercise price of the options is equal to the market price of the shares at the date of grant. The options vest three years from the date of grant and if the option holder ceases to be a director or employee of the Company due to injury, disability, redundancy or retirement on reaching pensionable age or any other age at which they are bound to retire at in accordance with the terms of their contract of employment, the option may be exercised within a period of six months after the option holders so ceasing, although the Board may, at its discretion, extend this period by up to 36 months after the date of cessation.

If the option holder ceases employment for any other reason, the option may not be exercised unless the Board permits. The approved and unapproved options will be forfeited where they remain unexercised at the end of their respective contractual lives of ten and seven years.

An analysis of the expiry dates of the outstanding options is given below:

Date of grant   Unapproved   Approved   Exercise price (pence)   Expiry date
 
20 February 2006 11,880 252.50 20 February 2016
10 August 2006 12,600 238.00 10 August 2016
03 March 2008 193,635 108.50 03 March 2018
03 March 2008 420,010 108.50 03 March 2015
18 September 2008 35,000 85.00 18 September 2018
18 September 2008 85,000 85.00 18 September 2015
30 April 2009 32,550 147.00 30 April 2019
30 April 2009 184,450 147.00 30 April 2016
06 August 2009 22,000 135.00 06 August 2019
06 August 2009 68,000 135.00 06 August 2016
24 December 2009 19,350 155.00 24 December 2019
24 December 2009 10,650 155.00 24 December 2016
12 April 2010 30,000 150.00 12 April 2017
20 May 2010 115,100 140.00 20 May 2020
20 May 2010 359,900 140.00 20 May 2017
13 September 2010 65,000 161.00 13 September 2017
11 October 2013 133,100 186.50 11 October 2021
11 October 2013 278,400 186.50 11 October 2018
9 July 2013 375,000 222.50 9 July 2018
30 July 2013 10,000 254.00 30 July 2018
24 April 2013 26,060 215.00 24 April 2020
20 August 2013 13,200 226.00 20 August 2023
20 August 2013 306,800 226.00 20 August 2020
9 October 2013 90,440 196.00 9 October 2023
9 October 2013 478,060 196.00 9 October 2020
22 January 2014 14,450 207.50 22 January 2024
22 January 2014 50,550 207.50 22 January 2021
   
2,721,820 719,365
 

ECO Animal Health Group plc Joint Share Ownership Plan

In accordance with the Group’s Joint Share Ownership Plan (JSOP), jointly owned shares may be awarded to directors and employees of the company.

The shares are awarded at the market price on the day of the award and are held jointly by the employee concerned and the ECO Animal Health Group plc Employee Benefit Trust. After a three year vesting period, the shares may be sold at the option of the employee. The proceeds of sale are split between the trust and the employee so that the Trust receives the original market value of the shares sold plus a 5.9% per annum carry charge, with the employee receiving any excess over this amount.

Because these are actual issued shares in the company rather than options there is no expiry date associated with jointly owned shares. However, they will normally be forfeit if the employee ceases to be an employee of the company for any reason other than death, injury, redundancy, retirement on or after normal retirement age or disposal by the Group of the employing business entity.

The market price of the shares at 31 March 2014 was 169.0p with a range in the year of 163.5p to 265.0p.

Inputs to the Valuation Model (for options and jointly owned shares)

The fair value of share options granted prior to 31 March 2007 were estimated at the time of grant using trinomial pricing model, taking into account all the terms and conditions upon which the options were granted. For options issued after 1 April 2007, the directors took the decision that a Black-Scholes model would be more appropriate.

The following table lists the inputs to the Black-Scholes model which applies to both options and jointly owned shares.

  2014   2013   2012   2011   2010
 
Vesting period (years) 3 3 3 3 3
Option expiry (years) 7-10 yrs 7-10 yrs 7-10 yrs 7-10 yrs 7-10 yrs
Dividends expected on the shares 1.4 - 1.9% 1.40% 1.00% 4.50% 5.00%
Risk free rate 0.5 - 1.2% 0.50% 2.00% 2.00% 2.40%
Volatility of share price 20% 25% 27% 45% 40%
Weighted average fair value of options 29.1p 38.7p 41.0p 37.8p 32.6p
 

The risk free rate has been based on the yield from UK Government treasury coupons. The volatility of the share price was estimated based on standard deviation calculations on the historic share price.

No shares were issued under the Joint Share Ownership Plan during the year or the previous year.

The fair value of the part interest in the jointly owned shares was calculated using a Black-Scholes model with the same assumptions as those used for the options issued during the same year.

The weighted average fair value of the Jointly owned shares issued during the year ended 31 March 2012 was 26.1p.

23. Share capital

  2014   2013
£ £
Authorised
68,100,000 Ordinary shares of 5p each 3,405,000 3,405,000
10,790 Deferred ordinary shares of 10p each 1,079 1,079
32,334 Convertible preference shares of £1 each 32,334 32,334
3,438,413 3,438,413
 
Allotted, called up and fully paid
62,474,231 (2013: 55,345,016) Ordinary shares of 5p each 3,123,712 2,767,251
 

During the year the Company issued 6,315,790 shares as a result of a placing with institutional investors at a price of 190p resulting in an increase in share premium of £11.2 million after expenses.

During the year a further 11,540 shares were issued at a premium of £24,926 as a result of the take up of the scrip dividend option and 801,885 more shares were issued at a premium of £1,096,276 as a result of the exercise of options by employees.

24. Minority interests

  2014   2014   2013   2013
£ £ £ £
 
Balance at 1 April 2,458,250 1,891,587
Share of subsidiary's profit for the year 649,857 436,711
Share of foreign exchange (loss)/gain on net investment (140,554) 129,952
509,303 566,663
Share of dividend paid by subsidiary (799,146) -
Balance at 31 March 2,168,407 2,458,250
 

25. Treasury share reserve

  2014   2013
£ £
 
Balance at 1 April 2013 and 31 March 2014 5,217,580 5,217,580
 

Treasury share reserve consists of £5,217,580 (2013: £5,217,580), being the cost of 2,603,290 shares in the Company held by the Group’s JSOP.

26. Other reserves

Group and Company   Capital redemption reserve   Special reserve   Reserve for share-based payment   Total
£ £ £ £
At 31 March 2012 105,829 3,250,000 1,418,302 4,774,131
Share-based payments - - 358,260 358,260
Transfer to retained earnings on expiry of options - - (82,062) (82,062)
At 31 March 2013 105,829 3,250,000 1,694,500 5,050,329
Share-based payments - - 306,562 306,562
Transfer to retained earnings on expiry of options - - (290,949) (290,949)
Transfer to share premium on issue of equity in the year - (3,250,000) - (3,250,000)
105,829 - 1,710,113 1,815,942

The only material reserve remaining at the year end is the reserve for share based payments which records the total amount which has been charged to the Group’s results in respect of unexpired share based payment arrangements.

Included in the Group’s retained earnings are the following exchange movements which have been taken directly to reserves on consolidation of the subsidiaries and joint ventures listed below:

  At 1 April 2013   Movement in the year   At 31 March 2014
£ £ £
 
In respect of:
Zhejiang Eco Biok Animal Health Products Limited 544,448 (146,290) 398,158
Eco Animal Health do Brasil Comercio de Produtos Veterinarios Ltda 91,971 (213,479) (121,508)
ECO Animal Health Japan Inc. (formerly ECOpharma Inc.) (6,217) (128,911) (135,128)
ECO Animal Health USA Corp. (475) - (475)
ECO Animal Health de Mexico (16,227) (20,790) (37,017)
ECO Animal Health Southern Africa (pty) Ltd 493 - 493
Pharmgate LLC 475 (1,410) (935)
Pharmgate Canada LLC 16 44 60
Foreign currency differences attributable to owner (debited) directly to reserves. (510,836)

27. Financial commitments

At 31 March 2014 the Group had minimum commitments under non-cancellable operating leases as follows:

  Land and Buildings   Other  
2014   2013 2014 2013
£ £ £ £
Expiry date:
Within one year 376,502 62,137 55,000 -
Between two and five years 628,475 855,766 93,654 42,482
In over five years 1,249,416 1,621,230 - -
2,254,393 2,539,133 148,654 42,482
 
Minimum expected sublease rental receipts:
Within one year 120,000 - - -
Between two and five years. 285,370 525,370 - -
405,370 525,370 - -
 

28. Capital commitments

The group had no authorised capital commitments as at 31 March 2014 (2013: Nil).

29. Directors’ emoluments

  2014   2013
£ £
 
Emoluments for qualifying services 544,744 541,126
Company pension contributions to money purchase schemes 147,260 117,874
Share-based payments 188,329 213,479
Benefits in kind 21,320 21,421
901,653 893,900
 

During the year the directors exercised 698,370 (2013: 31,640) share options realising a gain of £295,797 (2013: £41,607).

The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 3 (2013: 3). No directors accrued benefits under defined benefit schemes for this or the previous year.

The highest paid director received £377,060 (2013: £390,678) including share-based payments and £50,000 (2013: £50,000) of pension contributions.

30. Employees

Number of employees

The average number of employees (including directors) during the year was:

  2014   2013
Number Number
 
Directors 7 7
Production and development 52 48
Administration 39 36
Sales 67 63
165 154
 
Employment costs (including amounts capitalised)
2014 2013
£ £
 
Wages and salaries 4,817,985 4,322,201
Share-based payments 306,562 358,260
Social security costs 370,512 376,514
Other pension costs 391,850 324,268
5,886,909 5,381,243
 

31. Related party transactions

During the year P Lawrence and his family received dividends in the form of cash and shares to the value of £450,727 (2013: £420,320). The Company also paid net expenses of £596,076 on behalf of P Lawrence and his family. At the year end ECO Animal Health Group plc owed P A Lawrence and members of his family a total of £508 (2013: £146,502). The maximum amount briefly outstanding from P Lawrence and connected parties during the year was £372,293.

The other directors and their families received dividends to the value of £2,637 (2013: £13,916).

During the year, the Group provided management services to Anpario plc, a company in which P A Lawrence is a Director and holds share options. Fees of £32,500 (2013: £29,250) were charged.

During the year, the Group provided the services of two employees to C-Corp Limited, a company in which P A Lawrence is a Director and shareholder. Fees of £43,398 (2013: £43,451) were charged.

During the year ECO Animal Health Limited made sales on an arm’s length basis to the following other companies. The sales and year end balances are given in the table below. Since all of these companies are wholly owned by the Group, these transactions and balances have all been eliminated on consolidation.

Subsidiary companies   Sales   Year end (payables)

receivables

(net)

  Sales   Year end receivables
2014   2013
£ £ £ £
 
Zhejiang Eco Biok Animal Health Products Limited 2,562,788 - 1,707,566 601,240
Eco Animal Health do Brasil Comercio de Produtos Veterinarios Ltda. 1,590,138 (1,044) 2,273,712 1,116,150
ECO Animal Health Japan Inc 1,091,928 176,909 1,146,540 101,880
ECO Animal Health de Mexico 289,032 827,234 179,451 550,489
ECO Animal Health USA Corp. 977,414 550,723 997,534 437,755
 

Interest and management charges from Parent to the other Group companies

During the year the Company made management charges on an arm’s length basis to ECO Animal Health Limited amounting to £208,328 (2013: £217,259) and charged interest of £454,782 (2013: £425,598) to the Company. Both of these charges were made through the inter-company account and were eliminated on consolidation.

ECO Animal Health Limited also made management charges on an arm’s length basis to ECO Japan Inc. amounting to £66,133 (2013: £113,426). The whole transaction was eliminated on consolidation.

ECO Animal Health Limited also paid £302,465 (2013: £346,682) of service charges to ECO Animal Health USA Corp. during the year. This transaction was eliminated on consolidation.

During the year Zhejiang ECO Biok Animal Health Products Limited paid a dividend of £63,925 to ECO Animal Health Group plc (2013: £nil) and a dividend of £767,839 to ECO Animal Health Limited (2013: £nil).

Inter Company Guarantee

ECO Animal Health Group plc and ECO Animal Health Limited have each given a guarantee dated 28 January 1995 to the company’s bankers in respect of the £1,000,000 facility which has been extended to them jointly.

Joint Ventures

During the year ECO Animal Health Limited made sales on an arm’s length basis of £519,779 (2013: £240,590) to ECO Animal Health Canada LLC. The balance outstanding at the year end was £197,115 (2013: £74,443).

Key management compensation

The group regards the board of directors as its key management.

  2014   *2013
£ £
 
Salaries and short term benefits 566,065 562,547
Retirement benefits 147,260 117,874
Share-based payments 188,329 213,479
901,654 893,900
 

*The comparative figures have been restated to include non executive Directors and exclude Employers National Insurance.

The number of directors for which retirement benefits are accruing is 3 (2013: 3).

32. Financial instruments

The Group uses financial instruments comprising borrowings, cash and liquid resources and various items, such as trade receivables, trade payables etc. that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group’s operations. The directors are responsible for the overall risk management.

The main risks arising from the Group’s use of financial instruments are interest rate risk, capital and liquidity risk, credit risk and foreign currency risks and they are summarised below. The policies have remained unchanged throughout the year.

Interest rate risk

The Group finances its operations through a mixture of retained earnings and bank borrowings. At the year end the Group had no exposure to overdraft interest (2013: the Group was exposed to interest rates on currency overdraft facilities of £2,134,765.)

Capital and liquidity risk

The Group manages its capital to ensure continuity as a going concern whilst maximising returns through the optimisation of debt and equity. As part of this, the Board considers the cost and risk associated with each class of capital. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 20, cash and cash equivalents in note 18 and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the Group’s statement of changes in equity.

Liquidity risk is managed by maintaining adequate reserves and banking facilities with continuous monitoring of the latest developments by management.

At 31 March 2014 the Group was contractually obliged to make repayments as detailed below:

  2014   2013
WITHIN ONE YEAR OR ON DEMAND £ £
 
Bank overdrafts - 2,134,765
Trade payables 4,972,605 6,099,247
   
4,972,605 8,234,012
 

Credit risk

Credit risk is that of financial loss as a result of default by a counterparty on its contractual obligations. The Group’s exposure to credit risk arises principally in relation to trade receivables from customers and on short term bank deposits. Customers’ creditworthiness is wherever possible checked against independent rating databases and filing authorities or otherwise assessed on the basis of trade knowledge and experience. Exposure and customer credit limits are continually monitored both on specific debts and overall.

The credit risk in relation to short term bank deposits and derivatives is limited because the counterparties are banks with good credit ratings.

The Group operates in certain geographical areas (for example Venezuela) which are from time to time subject to restrictions in the free movement of funds. The Board seeks to minimise the group’s exposure to these markets but the nature of our business makes it impossible to eliminate this exposure completely.

Currency risk

The Group operates in overseas markets particularly through its subsidiaries in China, Brazil, the USA and Japan and is subject to currency exposure on transactions undertaken during the year. The Group does some hedging of receivables when the Board feels it is appropriate to do so and foreign

The table below shows the extent to which the Group companies have monetary assets and liabilities in currencies other than in Sterling:

Foreign currency of Group operations            
2014   US Dollar Euros Rand Chinese RMB Japanese Yen Brazilian Real Other
 
Sterling equivalent (000's) 2,951 4,206 537 3,274 2,091 1,191 1,002
 
2013
 
Sterling equivalent (000's) 73 670 617 3,841 1,265 921 480
 

At 31 March 2014 the Group was mainly exposed to the Dollar, Euro, the Chinese RMB, the Japanese Yen and the Brazilian Real. The following table details the effect of a 10 per cent movement in the exchange rate of these currencies against sterling when applied to outstanding monetary items denominated in foreign currency as at 31 March 2014. A positive number indicates the decrease in profit which would arise from a 10 per cent weakening of the foreign currency concerned.

  2014       2013
£'000 £'000
 
U S Dollar 268 7
Euro 382 61
Chinese RMB 298 349
Japanese Yen 190 115
Brazilian Real 108 84
 

Analysis of financial instruments by category

Group

  Loans and receivables   Total
2014 £ £
 
Investments 8,738 8,738
Trade and other receivables (excluding prepayments) 9,381,898 9,381,898
Cash and cash equivalents 18,239,830 18,239,830
 
2013 Loans and receivables Total
£ £
 
Investments 8,738 8,738
Trade and other receivables (excluding prepayments) 11,057,812 11,057,812
Cash and cash equivalents 9,664,443 9,664,443
 

Company

  Loans and receivables   Total
2014 £ £
 
Trade and other receivables (excluding prepayments) 33,837,478 33,837,478
Cash and cash equivalents 9,229,578 9,229,578
 
2013 Loans and receivables Total
£ £
 

Trade and other receivables (excluding prepayments)

30,304,099 30,304,099
Cash and cash equivalents 4,130,622 4,130,622
 

All financial liabilities in the Group’s and Company’s statements of financial position are classified as held at amortised cost for both the current and previous year.

33. Post Balance Sheet event

ECO Animal Health Limited signed an agreement in May 2014 which resulted in the acquisition of the business of its agent in South East Asia for a consideration of $437,500.

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ECO Animal Health Group (EAH)
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