Half-year Report

Half-year Report

Eco Animal Health Group Plc

12 December 2016

ECO Animal Health Group plc ("ECO")

(AIM: EAH)

Results for the six months ended 30 September 2016

ECO ANIMAL HEALTH REPORTS STRONG PERFORMANCE

HIGHLIGHTS

Financials

  • 25% increase in revenue to £26.9 million (2015: £21.5 million)
  • 43% increase in gross profit to £12.8 million (2015: £8.9 million)
  • 46% increase in adjusted EBITDA to £6.3 million (2015: £4.3 million)
  • 97% increase in pre-tax profit to £5.3 million (2015: £2.7 million)
  • 61% increase in earnings per share to 5.68 pence (2015:3.52 pence)
  • 32% increase in interim dividend to 2.5 pence (2015: 1.9 pence)
  • Cash generation again strong leaving net cash of £18.5 million (2015: £17.0 million)

Operations

  • Demand for Aivlosin® continues to grow strongly with sales up over 15%
  • Strong performances in the USA and China
  • EU Aivlosin® approval for commercial layers with a zero withdrawal period for eggs allowed submission of regulatory files to key global egg producing markets ; Thailand approval received post period end
  • Continued investment in stockholding achieved

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

“The second half of the year has started well with strong order books. ECO has a sound balance sheet and cash flow generation. The company continues to invest successfully in its research and product development programme to obtain further marketing authorisations. I look forward with confidence to reporting another set of strong results in 2017.”

Contacts:      
 
ECO Animal Health Group plc
Peter Lawrence 020 8336 6190
Marc Loomes 020 8447 6906
 
Spiro Financial
Anthony Spiro 020 8336 6196
 
Peel Hunt LLP (Nominated Adviser)
Dan Webster, Adrian Trimmings, George Sellar 020 7418 8900
 
N+1 Singer (Joint Broker) 020 7496 3000
Mark Taylor, Brough Ransom
 

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.

Chairman’s Statement

For the six months ended 30 September 2016

I am very pleased to report that ECO Animal Health Group has delivered another set of record results. I am also delighted to welcome several new investing institutions to our share register and, with the improved liquidity of our shares, the price has risen significantly giving the company a current market capitalisation of over £320 million.

As I mentioned in our Annual Report last June, less than three per cent of our sales are in sterling and the post Brexit weakness of sterling against the dollar and euro, our principal trading currencies, is having a positive impact on our sales and profitability. It is also worth noting that there are currently zero rate tariffs in place for both human and animal drugs around the world.

Financial Performance

Profit before tax increased over 97 per cent to £5.3m (2015: £2.7m) compared with the same period last year while once again sales advanced 25 per cent to £26.9m (2015: £21.5m). Earnings before interest, tax, depreciation, amortisation, share based payments, non-controlling (minority) interests and foreign exchange movements were £6.3m (2015: £4.3m), an increase of over 46 per cent. Cash generated from operations rose by almost 300 per cent from £1.4m in the first half of last year to £5.4m. Earnings per share rose 61 per cent to 5.68 pence per share (2015: 3.52 pence). Gross profit advanced by almost 43 per cent to £12.8m (2015: £8.9m). Margins also grew strongly, building on the progress made in the second half of the previous year. These trading increases were driven by an improved geographical mix of sales, notably in the United States of America and China.

The board is pleased to declare an interim dividend of 2.5 pence per share (2015: 1.9 pence) to be paid on 7 April 2017 to shareholders on the register on 17 March 2017.This increase of almost 32 per cent over last year’s level again reflects the board’s confidence in the sustainable growth of the business and the implementation of a progressive dividend policy.

Operations:

ECO provides essential medications to the ever growing global animal protein production industry. Currently its products are sold in more than sixty countries.

The period under review has continued to deliver excellent sales growth with particularly strong performances from major markets including the USA, China and Japan. Latin America performed strongly, while this result was tempered by the economic and political difficulties in Brazil.

Sales of Aivlosin®, our patented molecule for the treatment of economically important diseases of pigs and poultry, increased by almost 15 per cent. Aivlosin® is prescribed under strict veterinary control at low yet efficacious dose rates for short duration treatment of specified diseases and meets all the US Food & Drug Administration (FDA) guidelines for the responsible use of antimicrobials, which when used appropriately help promote animal welfare and food safety.

Sales in the USA were up 60 per cent in sterling, compared with the same period last year, reflecting strong growth of the Aivlosin® water soluble granule formulation launched in late 2012. The result also included early sales of the Aivlosin® medicated feed additive formulation, which was approved by the Center for Veterinary Medicine (CVM) of the Food and Drug Administration (FDA) at the end of March.

In China, our subsidiary, Zhejiang ECO Biok Animal Health Products, which was established over a decade ago, saw sales rising almost 90 per cent, buoyed by the recent high price of pork and increased investment by producers in high value breeding stock. In Japan, sales grew by nearly 15 per cent reflecting the development of closer ties with key customers in a mature market. Ecomectin®, our range of differentiated anti-parasitic treatments for food producing animals, also posted strong double digit growth in both of these markets.

In June, ECO received a marketing authorisation from the European Medicines Agency (EMA) for the use of Aivlosin® water soluble granules in chickens laying eggs for human consumption. This license allows for the treatment of a major respiratory infection caused by Mycoplasma gallisepticum with a zero day drug withdrawal period for eggs. The Company has begun to submit these files to many of the regulatory authorities in the key egg producing markets in the rest of the world with the first of these approvals having being secured in Thailand in October.

Corporate advisors

Peel Hunt LLP were appointed as the Company’s nominated advisor and broker in 2014. In November, after the period end, N+1 Singer became joint broker to provide additional marketing and research support to our growing number of institutional investors. We have also worked with Capital Access Group, specialising in serving the private client sector.

Outlook

The second half of the year has started well with strong order books. ECO has a sound balance sheet and cash flow generation. The company continues to invest successfully in its research and product development programme to obtain further marketing authorisations. I look forward with confidence to reporting another set of strong results in 2017.

Peter A Lawrence

12 December 2016

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS TO 30 SEPTEMBER 2016

       
Six months Six months Year
to to ended
30.09.16 30.09.15 31.03.16
Notes (unaudited) (unaudited) (audited)
£000 £000 £000
Revenue 3 26,939 21,499 47,138
 
Cost of sales (14,153) (12,552) (26,109)
 
Gross Profit 12,786 8,947 21,029
 
Other operating income 98 118 337
Administrative expenses (6,774) (4,921) (10,550)
Currency profits/(losses) 277 (67) (361)
Amortisation of intangible assets (1,593) (1,339) (2,681)
Share based payments (240) (120) (326)
Profit from operating activities: 4,554 2,618 7,448
Net interest/finance income 724 76 201
 
Share of profit of associate 31 - 55
 
Profit before income tax 5,309 2,694 7,704
 
Income tax (charge) (806) (315) (995)
 
Profit for the period from continuing operations 4,503 2,379 6,709
 
Attributable to:
Owners 3,632 2,158 6,037
Minority interest 871 221 672
4,503 2,379 6,709
 
BASIC EARNINGS PER SHARE 5 5.68p 3.52p 9.71p
 
FULLY DILUTED EARNINGS PER SHARE 5 5.65p 3.47p 9.56p
 
Earnings from continuing activities before
interest, taxation, depreciation, amortisation
and share based payments 6,552 4,214 10,695
Exclude foreign exchange differences (277) 67 361
EBITDA 6,275 4,281 11,056
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS TO 30 SEPTEMBER 2016
     
Six months Six months Year
to to ended
30.09.16 30.09.15 31.03.16
(unaudited) (unaudited) (audited)
£000 £000 £000
 
Profit for the period 4,503 2,379 6,709
 
Foreign currency translation differences 998 (699) (198)
Defined benefit pension plan - actuarial gains - - 27
Revaluation of investment property - - 86
     
Other comprehensive income for the period 998 (699) (85)
 
Total comprehensive income for the period 5,501 1,680 6,624
 
Attributable to:
Owners 4,341 1,674 6,049
Minority interest 1,160 6 575
5,501 1,680 6,624
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30 SEPTEMBER 2016
                 
Share Share Other Revaluation Treasury Retained Total Minority Total
Capital Premium Reserves Reserves Reserve Earnings Interest Equity
Account Account
£000 £000 £000 £000 £000 £000 £000 £000 £000
 
At 1 April 2015 3,157 54,198 1,775 568 (5,217) 18,771 73,252 3,029 76,281

Total comprehensive income for the period:

 

Profit for the year - - - - - 6,037 6,037 672 6,709

Other comprehensive income

Revaluation of investment property - - - 108 - - 108 - 108
Deferred taxation movements - - - (22) - - (22) - (22)
Foreign currency translation differences - - - - - (101) (101) (97) (198)
Actuarial gains on pension scheme assets - - - - - 27 27 - 27
Total comprehensive income for the period - - - 86 - 5,963 6,049 575 6,624

Transactions with owners

Movement in Treasury Reserve arising from disposal of jointly owned shares - - - - 4,073 - 4,073 - 4,073
Issue of shares in the year 48 1,392 - - - - 1,440 - 1,440
Purchase of shares into treasury - - - - - (43) (43) - (43)
Dividends - - - - - (2,940) (2,940) (402) (3,342)
Share based payments - - 326 - - - 326 - 326
Transfer to retained earnings on option expiry - - (73) - - 73 - - -

Total transactions with owners

48 1,392 253 - 4,073 (2,910) 2,856 (402) 2,454
At 31 March 2016 3,205 55,590 2,028 654 (1,144) 21,824 82,157 3,202 85,359
 

Total comprehensive income for the period:

Profit for the period - - - - - 3,632 3,632 871 4,503

Other comprehensive income

Foreign currency translation differences - - - - - 709 709 289 998
Total comprehensive income for the period - - - - - 4,341 4,341 1,160 5,501

Transactions with owners

Issue of shares in the year 30 1,165 - - - - 1,195 - 1,195
Movement in Treasury Reserve arising from disposal of jointly owned shares - - - - 1,134 - 1,134 - 1,134
Disposal of treasury shares - 47 - - - 59 106 - 106
Share based payments - - 240 - - - 240 - 240
Transfer to retained earnings on option expiry - - (244) - - 244 - - -
Dividends - - - - - (1,209) (1,209) (586) (1,795)

Total transactions with owners

30 1,212 (4) - 1,134 (906) 1,466 (586) 880
At 30 September 2016 3,235 56,802 2,024 654 (10) 25,259 87,964 3,776 91,740
 
Prior interim period
At 1 April 2015 3,157 54,198 1,775 568 (5,217) 18,771 73,252 3,029 76,281

Total comprehensive income for the period:

Profit for the period - - - - - 2,158 2,158 221 2,379

Other comprehensive income

Foreign currency translation differences - - - - - (484) (484) (215) (699)
Total comprehensive income for the period - - - - - 1,674 1,674 6 1,680

Transactions with owners

Issue of shares in the year 37 1,054 - - - - 1,091 - 1,091
Movement in Treasury Reserve arising from disposal of jointly owned shares - - - - 2,315 - 2,315 - 2,315
Purchase of shares into treasury - - - - - (43) (43) - (43)
Share based payments - - 120 - - - 120 - 120
Transfer to retained earnings on option expiry - - (69) - - 69 - - -
Dividends - - - - - (1,059) (1,059) (402) (1,461)

Total transactions with owners

37 1,054 51 - 2,315 (1,033) 2,424 (402) 2,022
At 30 September 2015 3,194 55,252 1,826 568 (2,902) 19,412 77,350 2,633 79,983
 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
     
As at As at As at
30.09.16 30.09.15 31.03.16
(unaudited) (unaudited) (audited)
 
Notes £000 £000 £000
 
ASSETS
Non current assets
Goodwill and other intangibles 8 51,975 47,211 49,337
Property,plant and equipment 9 1,851 1,722 1,833
Investment property 10 185 187 185
Investments 98 9 64
54,109 49,129 51,419
 
Current assets
Inventories 16,636 11,905 15,593
Trade and other receivables 15,393 11,814 13,629
Income tax recoverable 163 10 140
Other taxes and social security 565 364 517
Cash and cash equivalents 18,525 16,960 15,665
51,282 41,053 45,544
     
Total assets 105,391 90,182 96,963
 
Current liabilities
Trade and other payables (11,617) (9,362) (10,373)
Income tax (377) (219) (280)
Other taxes and social security (770) (299) (240)
Dividends (37) (36) (38)
(12,801) (9,916) (10,931)
 
Total assets less current liabilities 92,590 80,266 86,032
 
Non current liabilities
Deferred tax (750) (183) (573)
Dilapidations on property leases (100) (100) (100)
91,740 79,983 85,359
Equity
Capital and reserves
Called up share capital 3,235 3,194 3,205
Share premium 56,802 55,252 55,590
Treasury Reserve (10) (2,902) (1,144)
Revaluation reserve 654 568 654
Other reserves 2,024 1,826 2,028
Retained earnings 25,259 19,412 21,824
87,964 77,350 82,157
Minority interest 3,776 2,633 3,202
Total equity 91,740 79,983 85,359
 
CONSOLIDATED STATEMENT OF CASH FLOWS
     
Six months to Six months to Year ended
30.09.16 30.09.15 31.03.16
(unaudited) (unaudited) (audited)
 
£000 £000 £000
Cashflows from operating activities
Profit before tax 5,309 2,694 7,704
 
Adjustment for:
Net finance costs (724) (76) (201)
Depreciation of property plant and equipment 134 140 242
Losses/(gains) on disposal of non-current assets 1 (2) (2)
Amortisation of intangible assets 1,593 1,339 2,681
Pension payments - - (55)
Share of associate's results (31) - (55)
Share based payments 240 120 326
Operating cash flow before movement in working capital 6,522 4,215 10,640
 
Change in inventories (1,043) (2,072) (5,761)
Change in receivables (1,812) (546) (2,432)
Change in payables 1,774 (224) 728
Cash generated from operations 5,441 1,373 3,175
 
Interest (paid) - (5) (7)
Income tax (paid) (555) (299) (680)
Net cash inflow from operating activities 4,886 1,069 2,488
 
 
Cash flows from investing activities
Purchase of property plant and equipment (86) (295) (364)
Sale of property plant and equipment - 2 6
Costs of acquiring drug registrations and distribution rights (4,231) (2,890) (6,358)
Purchase of own shares - (43) (43)
Interest received 84 36 67
Net cash (used in) investing activities (4,233) (3,190) (6,692)
 
Cash flows from financing activities
Proceeds from issue of share capital and sale of jointly owned shares and treasury shares 2,435 3,406 5,513
Dividends paid (1,795) (1,461) (3,437)
Net cash from financing activities 640 1,945 2,076
 
Net increase/(decrease) in cash and cash equivalents 1,293 (176) (2,128)
Foreign exchange movements 1,567 (599) 58
Cash and cash equivalents at the beginning of the period 15,665 17,735 17,735
     
Cash and cash equivalents at the end of the period 18,525 16,960 15,665
 

NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2016

1. Basis of preparation

The financial information for the period to 30 September 2016 does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006. It has been prepared in accordance with the accounting policies set out in, and is consistent with, the audited financial statements for the twelve months to 31 March 2016.

The Group applies revised IAS 1 “Presentation of Financial Statements (2007)”. As a result, the Group presents all non-owner changes in equity in consolidated statements of comprehensive income and all owner changes in equity in consolidated statements of changes in equity.

2. Statement of compliance

The interim financial statements do not include all of the information required for full annual financial statements and do not comply with all of the disclosure requirements in IAS 34 “Interim Financial Reporting”. Accordingly, whilst the interim statements have been prepared in accordance with IFRS, they cannot be construed as being in full compliance with IFRS and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2016.

3. Revenue is derived from the Group’s animal pharmaceutical businesses.

4. Principal risks and uncertainties

These were set out on pages 63-65 of the notes to the consolidated financial statements for the year ended 31 March 2016. The key exposures are to foreign currency exchange rates, potential delays in obtaining marketing authorisations and single sources of supply for some raw materials and have remained unchanged since the year end.

5. Earnings per share

  Six months to   Six months to   Year ended
30.09.16 30.09.15 31.03.16
(unaudited) (unaudited) (audited)
 
 
Weighted average number of shares in issue (000's) 63,992 61,307 62,170
Fully diluted weighted average number of shares in issue (000's) 64,301 62,087 63,158
 
Profit attributable to equity holders of the company (£'s) 3,632 2,158 6,037
 
Basic earnings per share (pence) 5.68 3.52 9.71
Fully diluted earnings per share (pence) 5.65 3.47 9.56
 

6. Dividends

  Six months to   Six months to   Year ended
30.09.16 30.09.15 31.03.16
(unaudited) (unaudited) (audited)
 
£000 £000 £000
Dividend in respect of the year ended 31 March 2015
at 1.75p/4.75p per share. - 1,105 3,020
Dividend in respect of the year ended 31 March 2016
at 1.9p per share 1,209 - -
Dividend waived by employee benefit trust - (46) (80)
1,209 1,059 2,940
 
Dividend paid by subsidiary to non-controlling interests
(minorities) 586 402 402
     
1,795 1,461 3,342
 
The company paid a further dividend of 3.8p per share on 3rd October 2016, after the period end.
The total paid was £2.46 million.
 

7. Related party transactions

At the balance sheet date, ECO Animal Health Group plc owed P A Lawrence, a director of ECO Animal Health Group plc, and members of his family a balance amounting to £98,341 (30 September 2015: £297,368).

During the period the Group provided management services to Anpario plc and Emmelle Developments Limited, both companies in which P A Lawrence is a director and holds equity interests. Fees charged to Anpario plc were: £20,000 (2015: £18,000) and Emmelle Developments Limited £21,643 (2015: £nil). No amount was charged to C-Corp Limited in the period (2015: £21,643).

During the period the Group paid £55,000 to Emmelle Developments Limited in respect of a property acquired by the group for renovation.

During the period ECO Animal Health Limited made sales to Zhejiang ECO Biok Animal Health Products Limited on an at arm’s length basis to the value of £5,389,742 (Six months to 30 September 2015: £1,143,425). At the end of this period there was an intercompany balance owing from this company of £2,454,361 (30 September 2015: £464,109).

ECO Animal Health Limited also made sales on an at arm’s length basis to ECO Animal Health do Brasil Comercio de Productos Veterinarios Ltda to the value of £996,293 (Six months to 30 September 2015 £2,422,591). At the end of the period there was an intercompany balance of £130,244 (30 September 2015: £440,345).

ECO Animal Health Limited also made sales on an at arm’s length basis to ECO Animal Health Japan Inc to the value of £492,081 (30 September 2015: £494,849). At the end of the period there was an intercompany balance of £336,626 (30 September 2015: £298,098).

The Group also made sales on an at arm’s length basis to ECO Animal Health de Mexico to the value of £240,889 (Six months to September 2015: 88,124). At the end of the period there was an inter-company balance of £1,053,732 (30 September 2015: £590,130).

The Group also made sales on an at arm’s length basis to ECO Animal Health USA Corp to the value of £2,979,448 (six months to 30 September 2015: 1,821,017). At the end of the period there was an inter-company balance of £3,388,150 (30 September 2015: £2,055,451).

ECO Animal Health Limited also made sales on an at arm’s length basis to Pharmgate Animal Health Canada Inc to the value of £708,126 (six months to September 2015: £892,620). At the end of the period there was an inter-company balance of £475,066 (30 September 2015: £174,544).

All of the transactions have been eliminated on consolidation, as well as the whole of the balances relating to the subsidiaries and the group’s share of the balances relating to the US and Canadian joint operations.

During the period ECO Animal Health Ltd and ECO Animal Health Group plc received dividends of £610,482 (2015: £418,550) from Zhejiang ECO Biok Animal Health Products Limited. This amount has also been eliminated on consolidation.

8. Intangible non-current assets

    Distribution   Development  
Goodwill Rights Costs Total
Cost £000 £000 £000 £000
Cost at 1 April 2015 17,930 1,442 53,356 72,728
Additions - - 2,890 2,890
       
Cost at 30 September 2015 17,930 1,442 56,246 75,618
Additions - - 3,466 3,466
       
Cost at 31 March 2016 17,930 1,442 59,712 79,084
Additions - - 4,231 4,231
       
Cost at 30 September 2016 17,930 1,442 63,943 83,315
 
Amortisation
Amortisation at 1 April 2015 - 615 26,453 27,068
Charge for the period - 36 1,303 1,339
       
Amortisation at 30 September 2015 - 651 27,756 28,407
Charge for the period - 36 1,306 1,342
Foreign exchange movements - - (2) (2)
       
Amortisation at 31 March 2016 - 687 29,060 29,747
Charge for the period - 36 1,557 1,593
Amortisation at 30 September 2016 - 723 30,617 31,340
 
Net book value at 30 September 2016 17,930 719 33,326 51,975
 
Net book value at 1 April 2016 17,930 755 30,652 49,337
 
Net book value at 30 September 2015 17,930 791 28,490 47,211
 
Net book value at 1 April 2015 17,930 827 26,903 45,660
 

9. Property, plant and equipment

      Fixtures,    
Freehold Plant and fittings & Motor
Property Machinery equipment Vehicles Total
Cost £000 £000 £000 £000 £000
Cost at 1 April 2015 650 1,427 631 86 2,794
Additions - 257 38 - 295
Disposals - - - (31) (31)
Foreign exchange movements - (61) (6) - (67)
Cost at 30 September 2015 650 1,623 663 55 2,991
Additions - 28 41 - 69
Revaluations 80 - - - 80
Disposals - (31) - (2) (33)
Foreign exchange movements - 38 6 - 44
Cost at 1 April 2016 730 1,658 710 53 3,151
Additions - 30 24 32 86
Disposals - (13) - - (13)
Foreign exchange movements - 84 1 8 93
Cost at 30 September 2016 730 1,759 735 93 3,317
 
Depreciation
Depreciation at 1 April 2015 18 653 442 62 1,175
Charge for the period 5 87 40 6 138
Disposals - - - (31) (31)
Foreign exchange movements - (13) - - (13)
Depreciation at 30 September 2015 23 727 482 37 1,269
Charge for the period 5 70 22 3 100
Disposals - (29) - (1) (30)
Revaluation adjustment (28) - - - (28)
Foreign exchange movements - 4 3 - 7
Depreciation at 1 April 2016 - 772 507 39 1,318
Charge for the period 5 84 43 2 134
Disposals - (12) - - (12)
Foreign exchange movements - 24 - 2 26
Depreciation at 30 September 2016 5 868 550 43 1,466
 
Net book value
Net book value at 30 September 2016 725 891 185 50 1,851
 
Net book value at 1 April 2016 730 886 203 14 1,833
 
Net book value at 30 September 2015 627 896 181 18 1,722
 
Net book value at 1 April 2015 632 774 189 24 1,619
 

10 Investment property

  Freehold  
Property Total
Valuation £000 £000
 
Valuation at 1 April 2015,30 September 2015,31 March 2016 and 30 September 2016 189 189
 
Depreciation
Depreciation at 1 April 2015 - -
Charge for the period ended 30 September 2015 2 2
   
Depreciation at 30 September 2015 2 2
Charge for the period ended 31 March 2016 2 2
Depreciation at 31 March 2016 and September 2016 4 4
 
Net book value
Net book value at 30 September 2016 185 185
Net book value at 31 March 2016 185 185
Net book value at 30 September 2015 187 187
Net book value at 1 April 2015 189 189
 

11 Post balance sheet events

The Company paid a further dividend of 3.8 pence per share on 3 October 2016. The total paid was £2.46 million.

The Company issued a further 286,500 ordinary shares for consideration of £575,000 on 9 October 2016 as a result of the exercise of employee options.

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